Economies throughout Africa are now improving, giving the continent a boost out of the poverty with which it has been stricken for much of recent history. In fact, the gross domestic product itself is growing quickly according to a new report released by the African Development Bank. The report states that among African countries, approximately one out of three now possesses GDP growth rates that exceed 6 percent.
As the GDP improves throughout the continent, Africans are now better able to start businesses thanks to decreasing costs. Over the course of the last seven years, the expenses of building a new business have dropped by over two-thirds. In addition, the delays associated with creating a new business have been cut in half. The result is that Africa is developing a larger middle class, with approximately 350 million inhabitants of the continent making anywhere from $2 to $20 on a daily basis. Overall, these improvements have reduced the proportion of Africans living in poverty to 39 percent in 2012 from 51 percent in 2005.
GDP Improvements Resulting from Private Sector Growth
Last year, Africa’s per-capita GDP rose to $953, and the middle-class countries in Africa increased in number to 26 on a scale that reaches 54. The improvements are benefiting these countries as a whole, but the private sector is a primary source of the positive changes being seen. The news of private sector growth has been made public by the Annual Development Effectiveness Report released by the African Development Bank. To a large degree, these improvements have contributed to a better environment for business and enhancement of economic governance throughout the continent.
Improvements throughout African society are already being seen as the economy responds to the changes. For example, more investors are putting money into the continent, and trade is on the rise as well. In fact, foreign investment has multiplied by a factor of five since 2000. Experts predict numerous improvements for the future. Infrastructure quality, a major factor in economic success of countries, is in the works in many African nations. Citizens are also seeing better access to finance that builds businesses and improves lifestyles. Ultimately, these developments translate to an increased ability for Africa to compete with other countries on the global market.
Intra-African Trade Will Lead
As African infrastructure improves, trade between countries on the continent is likely to increase and become a major contributor to growth. African countries that cooperate economically within their region will see major benefits for the future. In the past, poor development of the continent’s infrastructure has inhibited Africa’s ability to ramp up its production and distribution and accumulate wealth. This was partly due to low investment in infrastructure compared to other countries, such as China. At present, Africa only invests about 4 percent of its total GDP to the development and maintenance of infrastructure, falling far behind the 14 percent invested by China for its own infrastructure. Now, more African countries are recognizing that while infrastructure does demand significant costs initially, it can pay off in terms of economic growth over time.
Challenges to Come
At this point, Africa’s future is continuing to look brighter. However, according to the African Development Bank, the continent still has a long way to go in some respects. For example, income inequality is still rampant in many parts of Africa. In the coming years, leaders will need to address these inequalities so that people throughout the continent will be able to benefit. In addition to assisting developed urban areas, these actions will also serve individuals and businesses in disadvantaged areas, communities in rural areas and states that are still economically fragile.