Growth in Sub-Saharan Africa is Diverging
By Saad Quayyum, Nikola Spatafora, Sanghamitra Mukherjee, and Hamza Mighri
November 14, 2024
Stagnating incomes in sub-Saharan Africa’s resource-intensive economies necessitate more effective fiscal management and broad-based structural reforms
Sub-Saharan Africa boasts nine of the world’s twenty fastest-growing economies this year, a statistic that often goes unnoticed amid discussions on the region’s economic outlook. Although remarkable, these figures are shadowed by the reality of sluggish average economic performance across the broader landscape. This situation illustrates a dual-growth trajectory within the region, where many areas are lagging significantly behind. Our analytical note for the latest Regional Economic Outlook for sub-Saharan Africa examines this multifaceted issue in greater detail.
Over the past decade, growth in sub-Saharan Africa’s resource-intensive countries (RICs)—particularly among fuel-exporting economies such as Angola, Chad, and Nigeria—has drastically declined, trailing significantly behind the more robust performance of non-RICs like Ethiopia, Rwanda, and Senegal. Incomes in resource-rich countries have effectively stagnated, a stark contrast to the period leading up to 2014 when these economies were thriving in line with overall regional growth.
The post–2014 divergence between RICs and non-RICs stems from a combination of two significant factors.
First, RICs and their fuel-exporting counterparts faced a steep decline in commodity export prices starting around 2014–15, coinciding with the end of the commodity “super-cycle.” This dramatic downturn has only been partially mitigated by subsequent market recovery efforts.
Second, the terms-of-trade shock exacerbated existing structural vulnerabilities in RICs, including poor business environments, limited human capital, and weak governance structures that hinder effective management of resource revenues.
Structural Weaknesses
Weak governance, systemic corruption, and unfavorable business climates diminish productivity and economic output. The ramifications become glaringly evident during periods of falling commodity prices. Such vulnerabilities not only destabilize the resource sector but also impede broader economic diversification. For instance, rampant theft of oil impacts productive efficiency and diverts essential resources from industries that could drive growth. Moreover, lapses in governance can stifle private sector investment, contributing to a stagnation in economic progress. In contrast, fuel exporters outside sub-Saharan Africa, characterized by comparatively stronger governance, have demonstrated greater resilience during downturns in commodity prices.
IMF staff analysis underlines that terms-of-trade shocks yield a more pronounced and enduring negative impact on nations with weak governance. We estimate that for each one-percent decline in a country’s terms of trade, medium-term growth falls by approximately ¼ percentage point more in nations facing governance challenges.
The Way Forward
Addressing this growth divergence is a regional priority because RICs constitute about two-thirds of sub-Saharan Africa’s GDP and population. This economic stagnation has dire humanitarian repercussions, reflected in stagnant poverty reduction efforts across RICs since 2014. A child born in a resource-intensive country today has a life expectancy that is four years shorter on average and is 25 percent more likely to live in poverty than their peers in other regions.
To reignite sustainable growth, establishing a stable macroeconomic framework is crucial. Implementing more prudent and consistently enforced fiscal policies can help address mismanagement of resources, thereby bolstering resilience against future shocks. Additionally, broad structural reforms aimed at enhancing governance, improving the business climate, developing human capital, and alleviating infrastructure bottlenecks are vital to facilitate economic diversification and growth. For fuel exporters, adapting to the global push toward green energy makes diversification an increasingly urgent imperative.
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Saad Quayyum and Nikola Spatafora are senior economists, Sanghamitra Mukherjee is an economist, and Hamza Mighri is a research analyst, all in the IMF’s African Department.
What are the main factors contributing to the diverging growth rates in sub-Saharan Africa according to Saad Quayyum?
**Interview with Saad Quayyum: Understanding the Diverging Growth in Sub-Saharan Africa**
*Date: November 15, 2024*
**Editor**: Joining us today is Saad Quayyum, one of the authors of the recent *Regional Economic Outlook for sub-Saharan Africa*. Saad, thank you for being here.
**Saad Quayyum**: Thank you for having me.
**Editor**: The report highlights a concerning trend of diverging growth rates in sub-Saharan Africa. Can you elaborate on what this means for the region as a whole?
**Saad Quayyum**: Absolutely. While it’s encouraging that nine countries in sub-Saharan Africa are among the world’s fastest-growing economies, this growth is not evenly distributed. Resource-intensive countries like Angola, Chad, and Nigeria are facing stagnating incomes, which starkly contrasts with the growth seen in non-resource-intensive countries such as Ethiopia, Rwanda, and Senegal. This divergence is alarming because it suggests that while some areas thrive, many are left behind, creating a widening gap in economic well-being.
**Editor**: What do you attribute this divergence to?
**Saad Quayyum**: There are two primary factors. First, the resource-intensive countries have been severely impacted by a decline in global commodity prices since around 2014. This downturn followed a period of high prices that many of these economies relied on. Second, these countries have deep-rooted structural issues such as poor governance and limited business environments that exacerbate their vulnerability during economic downturns. In contrast, non-RICs have shown greater resilience, in part due to better governance and diversification.
**Editor**: You mention governance issues in resource-rich countries as a significant concern. Can you explain how these governance challenges directly impact their economies?
**Saad Quayyum**: Certainly. Weak governance and rampant corruption can hinder effective management of natural resource revenues. This mismanagement leads to inefficiencies, such as rampant theft and diversion of resources, which directly impact productivity. Additionally, poor governance creates an unfavorable climate for private investment, further stagnating growth. Without addressing these governance issues, it will be challenging for these countries to diversify their economies and reduce reliance on volatile commodity prices.
**Editor**: What policy recommendations would you suggest to improve the economic situation in these resource-intensive countries?
**Saad Quayyum**: Effective fiscal management is crucial, along with broad-based structural reforms. This includes strengthening governance frameworks, enhancing transparency, and improving the business environment to attract investment. Additionally, investing in human capital is essential to boost productivity in sectors beyond natural resources. these measures can help stabilize economies and promote sustainable growth.
**Editor**: Thank you, Saad, for your insights on this critical issue. It’s clear that significant challenges remain, but with targeted reforms, there is potential for a more unified growth pattern across sub-Saharan Africa.
**Saad Quayyum**: Thank you for having me. It’s vital that we address these issues to ensure that all regions can benefit from economic growth.
