The analysis of economic growth in Africa is an endeavour of paramount importance, both for understanding the continent’s development potential and for identifying the challenges inherent in such a diverse region. Africa’s economic landscape is marked by significant heterogeneity, with countries varying significantly in terms of their political structures, economic policies, natural resources, and socio-cultural dynamics. It is this diversity, which also renders a one-size-fits-all approach to economic analysis of the African continent very difficult but despite this challenge, comprehending Africa’s economic growth is crucial, not only for the continent’s future prospects but also for its role in the global economy.

Recent History of African Economic Growth

The development of Africa’s GDP in the last couple of decades showcases periods of significant economic transformation, marked by various phases of inconsistent growth, economic challenges, and resilience. In the 1980s and early 1990s, many African countries faced economic hardships, including high inflation rates and stagnant growth, often exacerbated by political instability and declining commodity prices. The late 1990s and early 2000s saw a shift as many countries implemented economic reforms, leading to improved macroeconomic stability and increased growth rates and from 2000 onwards, Africa experienced a notable increase in GDP growth, driven by rising commodity prices, improved governance, foreign investment, and a burgeoning service sector. This period, in particular, witnessed robust growth, with real GDP rising by 5.2 percent annually, more than twice its pace in the 1980s (Figure1). The robust growth figures during this period also led to a gradual increase in Africa’s contribution to world GDP, although it remained a small fraction of the global total (Figure 2). This growth was not solely dependent on natural resources; significant contributions came from sectors like telecommunications, banking, and retail.

Figure 1: Average annual growth rate, African GDP (USD)

However, recent years have presented new challenges. The global financial crisis of 2008-2009 and subsequent economic downturns affected Africa’s growth trajectory. The COVID-19 pandemic and geopolitical tensions, such as the Russia-Ukraine conflict, further impacted the continent’s economic performance.

Figure 2: Africa’s global GDP contribution (%)

Economic Growth Potential

Economic growth potential is generally driven by a number of factors. Among these is labor, which encompasses the workforce’s size and skills, playing a critical role in determining a nation’s productive capacity. Productivity, another vital determinant, refers to the efficiency with which labor and capital are utilized to produce goods and services. This efficiency is often enhanced through technological advancements and innovation, leading to higher output per unit of input. Capital, both physical (like machinery and infrastructure) and human (skills and knowledge), significantly influences growth. Physical capital provides the necessary tools for production, while human capital, developed through education and training, enhances labor’s quality and productivity. Furthermore, economic policies, market conditions, and institutional frameworks also contribute to shaping the environment within which these classical factors operate, thereby influencing a nation’s economic growth potential.

The investigation of potential growth has generated considerable academic interest. Arbache et al. (2008) and Beny and Cook (2009) emphasize the role of improved policies, favourable trade terms, increased aid, and institutional reforms in growth accelerations observed in Africa during 1995-2005. Ndulu et al. (2007) point to demographic factors, initial conditions, and policy factors like inflation and government consumption as influential. Human capital, particularly education, is identified, for example, by Romer (1990), Barro (1991), Mankiw et al. (1992), and Hoeffler (2002) as critical for growth, given its role in fostering technological progress. The quality of institutions, too, is widely acknowledged as crucial for economic development (North, 1990; Knack and Keefer, 1995; Hall and Jones, 1999; Acemoglu et al., 2001; Mijiyawa, 2008; Fayissa and Nsiah, 2010; Diop et al., 2010; Acemoglu and Robinson, 2012). Trade openness has been found to be another key factor, with Sachs and Warner (1995a), Frankel and Romer (1999), and Dollar and Kraay (2002) showing its relevance for growth. However, the impact of natural resources, particularly in oil-exporting countries, has been mixed, with some experiencing a ‘natural resources curse’ (Sachs and Warner, 1995). Easterly and Levine (1997), Bloom and Sachs (1998), and Hoeffler (2002) highlight the impact of external conditions, primary exports dependence, demographics, and investment ratios on Africa’s economic performance. Mijiyawa (2013) and Ghazanchyan and Stotsky (2013) further underscore the significance of factors like capital accumulation, government effectiveness, exports, and foreign exchange regimes in driving growth.

In the following, we want to refrain from conducting an analysis of the economic growth potential and output gaps of the individual African economies but rather use the above outlined theoretical underpinnings of economic growth potential to review the relevance of some of these factors in the context of the historical growth trajectory of the continent’s economies.

Data and approach

The economic landscape of Africa is characterized by significant disparities in the economic development of its individual countries, reflecting the continent’s diversity and heterogeneity. This complexity is further underscored by the susceptibility of regional economies to various economic, social, and political challenges. In order to simplify and to illustrate a selection of growth patterns of African nations, we have segmented African economies into three distinct categories based on their historical economic record, namely: 1) low growth countries, 2) inconsistent growth countries, and 3) consistent growth countries. Our categorization takes into account the historical annual real GDP per capita growth rates, the fluctuation of these rates, and the number of occurrences of negative annual growth rates. In order to focus on the longer-term economic developments and not to be distracted by short term fluctuations, we focus our illustrations below on the historical annual real GDP per capita developments, which have been somewhat smoothed by applying a HP-filter. Out of Africa’s 54 countries, our analysis focuses on the 30 largest economies in terms of GDP, which collectively account for approximately 97% of the continent’s total GDP. This strategic selection offers a comprehensive overview of some of the economic trends prevalent across the majority of the African economy (Figure 3 and Figure 4).

Figure: 3 - Average annual real GDP per capita growth rates (dots represent individual countries)

Figure 4: Average (unweighted within country groups) real GDP per capita growth rates over time

Factors traditionally linked to economic growth, such as the size of the working-age population, investment growth, human capital development, policy uncertainty, and productivity, are widely recognized in economic literature (e.g. Kose and Ohnsorge, 2023) but these classical factors seem to have their limitations when it comes to explaining the growth trajectory of the African continent (Figure 5 illustrates some examples).

Figure 5: Human capital index, trade freedom index, labor force growth, labor force participation rate

However, one element that consistently emerges as relevant in many reviews of economic growth and potential is the quality of institutions (e.g. Acemoglu and Robinson, 2012). Effective institutions are crucial for enabling economies to efficiently accumulate and utilize resources. To further explore whether the here suggested categorization of countries aligns with countries institutions, we have reviewed the economic growth trajectory of the individual countries relative to their respective governance score, which has been based on the regularly updated World Development Indicators published by the World Bank (Figure 6) The individual indicators used for this purpose include the following variables: Control of Corruption, Government Effectiveness, Political Stability and Absence of Violence/Terrorism, Regulatory Quality, and Rule of Law. For the sake of simplicity, the governance score is derived as the average of the individual indicators.