🔒 From the FT – Breakout Nations author Ruchir Sharma: Africa is the world’s economic problem

A global baby bust hampers growth, with Africa holding the key to potential economic miracles. Despite a booming population, African nations struggle to capitalise on their demographic dividend. Ruchir Sharma’s research reveals a stark decline in working-age population growth, hindering Africa’s potential to match East Asian success. Leadership challenges, corruption, and insufficient infrastructure impede progress. As the world’s last economic frontier, Africa’s success is crucial for global growth, yet hurdles persist, threatening to perpetuate the demographic drag affecting economies worldwide.

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Countries across the continent have been unable to capitalise on their demographic dividend

By Ruchir Sharma*

A global baby bust is slowing growth in every major economy, from China and Japan to Germany and the US. But the flip side of this story goes untold: even economies that could still get a big boost from population growth are failing to do so.

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The biggest problem for global growth is Africa, now home to 1.5bn people. One in three of those entering the workforce will live on the continent by the 2030s. For the world economy to grow faster as a whole, Africa would need to find a way to employ these workers productively and capitalise on its demographic dividend. But for most African countries, that’s not happening.

My research shows that a rate of growth in the working-age population of at least 2 per cent is a necessary condition for “miracle” economic growth, implying a sustained pace of at least 6 per cent. As of 2000, 110 countries had a working-age population growth that fast, nearly half in Africa. Now there are just 58, with 41 or more than two-thirds in Africa.

If Africa had been able to capitalise on population growth to the same degree as east Asian miracle economies such as South Korea and Taiwan, its share of the world economy would be at least three times larger than it is today (just 3 per cent). And global economic growth would be materially faster than the recent average of 2.5 per cent.

Over the past five years, only three of the 54 African economies have grown at an annual rate of more than 6 per cent: Ethiopia, Benin and Rwanda. That is down from 12 in the 2010s. Not a single African economy has seen a transformative gain in average per capita income, and half have seen a decline, including three of the continent’s five largest countries — Nigeria, South Africa and Algeria.

Africa is adding workers but not increasing output per worker. The Asian economic miracles boosted output per worker by moving farmers into manufacturing, which has shrunk as a share of the world economy, leaving fewer obvious paths to higher productivity.

Former manufacturing powers such as Taiwan have moved into high tech, but hopes that African countries could “leapfrog” past the manufacturing stage straight into the digital age have not been realised. Some tech investors try to create a buzz about the same African digital opportunities they were talking up a decade ago — an internet provider here, a mobile banking service there. Likewise, hopes that service industries might provide an alternate route to prosperity have not been borne out. 

China and other Asian powers were also once dismissed as “basket cases”, but their economic rise made nonsense of cultural explanations for any nation’s failure to prosper. Yet some combination of increasingly difficult global conditions and internal dysfunction is still conspiring to thwart Africa’s potential. The average worker was nearly 50 per cent more productive in Africa than in east Asia in the 1960s; now the typical east Asian worker is three times more productive.

One reason is leadership. Fourteen of the 20 most corrupt governments in the world are in Africa, up from 10 in 2010. In Asia, strongman rulers guided the region’s postwar rise to prosperity; in Africa, the strongmen tend only to perpetuate themselves, without laying the basic conditions — roads, railways, decent public schools — for lifting output.

Botswana was once the most promising story on the continent, but it has been unable to find a way to diversify much beyond diamonds and is puttering along with an economic growth rate of below 3 per cent. And in Nigeria, which could have been the United Arab Emirates writ large, an oil-fuelled boom economy, average incomes have been shrinking over the past five years. 

When I visited Kenya recently, China’s role in building out the country’s basic infrastructure was visible everywhere from arched pagodas spanning new highways to elevated railway lines running through the national parks. But economic growth is still disappointing, and Kenya is struggling to repay China the loans that financed the new projects. Frequent power blackouts are a sign that, like many other nations on the continent, Kenya is still very underinvested.

Over the next three decades, the world’s working-age population will increase by 2bn, and almost 80 per cent of those workers will be coming of age in Africa. That means in effect that the vast continent is the last, best hope for economic miracles. But if it cannot deliver, global growth will continue to slide, weighed down by the demographic drag everywhere else. 

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*The writer is chair of Rockefeller International

© 2023 The Financial Times Ltd.

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