Investment and trade are driving economic growth in Africa – ACBR 2019

By James Hall

Analysis in brief: Investment and trade go hand in hand with economic growth. The latest Africa Country Benchmark Report shows that these underpin African economies that perform the best in this year’s in-depth analysis of African country performance.

The exhaustive analysis of leading economic indicators – providing insight into the performances of African economies gauged by individual countries, both regionally and continentally – shows a strong link between economic growth and investment and trade. This connection, which is the basis for optimism over the African Continental Free Trade Area (AfCFTA), is established in the findings of the 2019 edition of the Africa Country Benchmark Report (ACBR).

A link between economic growth, investment and trade has grown to be rather pronounced to economists. More investment into a country’s economy allows for more trade which, in turn, accelerates economic growth. However, this link is often overlooked by governments who neglect spending priorities and hobble free trade through overregulation and bureaucratic red tape. Nevertheless, the good news for Africa’s economic development is that across the five dimensions that are measured in the ACBR’s Economics Quadrant, ‘Trade & Investment’ scores highest.

The segments comprising the Economics Quadrant of ACBR 2019.
The regional comparison of the economic quadrant – including the areas of employment, growth, inclusion, strength and diversity, trade and investment in Northern, Eastern, Western, Central and Southern Africa.

Trade & Investment: the bedrock on which other Economics segments rest

Investment and trade form the engine that drives every economy forward. The other four segments in the Economics Quadrant of the 2019 ACBR Edition–Employment, Growth, Inclusion and Strength & Diversity–benefit and even depend on investors and on the ability to sell goods and services to customers both locally and internationally. While Trade & Investment scores 51.07 points out of 100, Employment, the second-highest scoring Economics segment with a score of 45.35, is a direct beneficiary of Trade & Investment. Investment finances new businesses and make the dreams and ambitions of small and medium entrepreneurs a reality, which creates jobs. Trade shifts the output of workers to an ever-expanding customer base. Sales finance more internal investment for higher output, which requires more employees. Ideally, a growing economy runs like a perpetual motion machine.

Although the average for the Growth segment comes in as the lowest among all five economic segments, this should be considered on the back of international developments such as the trade war between the USA and China coupled with the latter slowing economic growth. Both these factors have a knock-on effect on Africa’s economic growth. As Brexit lingers on, the uncertainty constitutes a further indirect impact on African economies. The varying impact across Africa is further illustrated by the fact that Growth is also the one segment in which African countries differ the most. However, considering the argument above it does seem as if Africa is changing gear; with trade becoming troublesome with the East and the West, Africans are showing solidarity vested in the AfCFTA.

North, Southern and West Africa lead in Trade & Investment, which will receive a boost when the African Continental Free Trade Area goes into effect

Despite the Trade & Investment segment outweighing the other economic segments, this does not necessarily entail an impressive performance as 51.07 is still only half of 100. Regionally, however, higher scores in this segment are achieved: West Africa scored 52.29 points; North Africa achieved 53.90; and Southern Africa acquired the top regional score of 54.52, perhaps surprisingly against North Africa’s older economies and trade links with Europe and the Middle East. Despite this unimpressive economic performance, the outlook for improvement has improved considerably with the launch of the AfCFTA, which becomes operational in July 2020. The continent-wide free trade area will facilitate the intra-Africa movement of goods and services by unifying customs procedures, dropping visas for Africans and tariffs for African products and other measures.

Furthermore, investment in Southern African ports and transportation infrastructure, a regional achievement of peace and stability (albeit still compromised by governmental corruption) and deregulation have encouraged investment and boosted foreign external and local intraregional trade. Similarly, Djibouti has opened an expanded harbour and transportation infrastructure this past year, including a high-speed rail link to inland Ethiopia, which has strengthened their trade position.

In tandem to the positive strides pertaining to trade and investment is the rising activity linked to the 4th Industrial Revolution, which has already drawn significant investment into Africa to create a mobile phone, internet and e-commerce industries. These industries have transformed African lives and allowed Mauritius, for example, to draw closer to the status of being Africa’s first high-income country by enabling offshore banking through instantaneous electronic communication. Most African economies have service sectors larger than their industrial or other sectors. E-trading will accelerate that trend, and this will be reflected in rising ACBR Economics scores in the future.

Find out more about ACBR here: https://www.inonafrica.com/africa-country-benchmark-report-acbr/

Critical points:

  • Although the continental average score of 51.07 points is only half of the optimal total, Trade & Investment is the highest scoring segment in ACBR 2019’s Economics quadrant.
  • Countries with the most trade have the strongest economies, which in turn feed more investment.
  • The 4th Industrial Revolution brings e-commerce and communications investment into Africa, and the new AfCFTA is boosting trade both in Africa and externally, strengthening countries’ economic foundations to lay the groundwork for future growth.