Africa’s economies are growing but “nobody eats GDP” says bank president

Africa’s economies are growing but growth alone cannot meet the needs of the continent’s poorest citizens, because ‘nobody eats GDP’, the African Development Bank’s president, Akinwumi Adesina, said as he unveiled the Bank’s flagship economic report.

The 2020 African Economic Outlook (AEO) showed that the continent’s economies are growing well, higher than the global average.

Africa’s economic growth reached 3.4% in 2019 and is expected to pick up to 3.9% in 2020 and 4.1% in 2021, but will remain below historical highs.

These figures do not tell the whole story, however. Across the continent, the poor are not seeing enough of the benefits of robust growth, according to the report.

Relatively few African countries posted significant declines in extreme poverty and inequality, which remain higher than in other regions of the world.

Inclusive growth occurred in only 18 of 48 African countries with data, the report showed.

“Growth must be visible. Growth must be equitable. Growth must be felt in the lives of people,” Adesina said.

The theme of the 2020 Africa Economic Outlook report, Developing Africa’s workforce for the future, calls for swift action to address human capital development in African countries, where inclusive growth has been held back by a mismatch between young workers’ skills and the needs of employers.

The report stated that increased investments in education is key as well as progressive universalism in education spending – setting high priorities for the poor and disadvantaged and focusing on basic education first where social returns are highest.

Its recommendations include improving access to education in remote areas, incentives such as free uniforms and textbooks, banning child labour and improving teaching standards.

To better match skills with job opportunities, the report recommends that governments need to develop a demand-driven education system in tune with rapidly emerging jobs in the private sector, including software engineers, marketing specialists and data analysts, the report says.

The big five economies of Algeria, Egypt, Morocco, Nigeria, and South Africa jointly accounted for 55% of Africa’s growth in 2019.

South Africa

The report underlined the crisis that is unemployment in South Africa.

“Each year, 1.1  million South African youth enter the labor market, but only 6% (66,000) enter formal employment. An additional 8% are informally employed, while the remaining 86% are either continuing their education, looking for jobs, or becoming discouraged by the system.

“Prolonged spells of unemployment increase the risk that youths classified as not in employment, education, or training will face diminished work options for most of their lives. Chronic unemployment means that youth who are unable to find work early in life will face reduced chances for social mobility and employment,” it said.

It noted that the country’s Employment Tax Incentive (ETI) scheme, offers insights on how countries can create skill enhancement zones where governments, the private sector, academic institutions, and non-governmental organisations collaborate on plans to ensure that youth gain skills that are connected to industries with strong competitive potential.

The ETI, South Africa’s primary active labour market intervention, aims to boost demand for labour among youth ages 18–29.

Introduced in 2014, the ETI is a wage subsidy (covering up to 50% of wages) targeting hard-to-employ youth. The tax incentive seeks to encourage private employers to create jobs for youth earning a monthly income of up to R6,000 (about $420).

Once participants are employed, they are qualified for up to two years of wage subsidies. Firms can claim the subsidy when filing their taxes.

By lowering hiring costs, the subsidy is expected to lessen the financial risk associated with hiring inexperienced low-skilled youth and to raise the long-term employment prospects of young hires who gain work experience through on-the-job training during the period of subsidized work.

South Africa’s economic demise has, however, led to a number of job losses in the private sector in recent months, and into the new year.

Economic gloom

Growth in South Africa remains lacklustre, the report showed, slowing to 0.7% in 2019, dragged down by the slow recovery in commodity prices and the fiscal risks associated with unbudgeted bailouts for ailing parastatal utilities.

Real GDP is projected to rise to 1.1% in 2020 and 1.8% in 2021 amid domestic and global downside risks.

Unemployment increased to 27.1% at end 2018 from 26.5% at end 2016. Youth unemployment increased to 54.7% at end 2018 from 51% at end 2016. Among the causes of high unemployment are low skills, the report said.

South Africa’s poverty rate was 55.5%, and its inequality is among the world’s highest.

Tailwinds and headwinds

Reforms are tackling structural constraints to economic growth and job creation, the report said. One is restructuring the utility company Eskom to reduce the major risk its debt places on the treasury.

Other reforms include allocating the telecommunications spectrum, removing barriers to mining investment, and reviewing visa requirements to boost tourism. “The government is taking steps to improve investment, revitalizing townships and industrial parks.”

“Weak global growth, global trade tensions, and commodity price volatility also pose risks to the South African economy.

“A high public sector wage bill, poor performance of state-owned enterprises, and social programs, including national health insurance, exert pressure on the budget. South Africa would benefit by manufacturing more for African markets,” the African Development Bank said.

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Africa’s economies are growing but “nobody eats GDP” says bank president