New UNCTAD report paints a dim scenario for Africa’s development in the next years

The Trade and Development Report 2024 is out. The flagship publication of UNCTAD paints a gloomy picture of global development dynamics for the next years to come. The three major engines of the global economy (China, the United States of America and the European Union) are on a decelerating or weakened path and in the southern hemisphere economic growth is slowing down, with exposure to global shocks and the risk of trade fragmentation that are on the rise. The only region that displays a more accelerated growth path is South Asia. The report concludes by forecasting a global growth rate for 2024 and 2025 of less than 3%. What is more worrisome, the report notes, is that this generalized low growth scenario is increasingly intertwining with high interest rates, especially in developing countries. This raises an alarm bell on the sustainability of global financial system, which needs to be urgently realigned to the needs of such nations, especially the most vulnerable ones. More affordable, reliable and longer-term financing options are necessary to unlock investment able to sustain the development agenda of these countries. An appeal is launched to multilateral and regional banks to increase concessional finance through the utilization of innovative financial instruments.

Regarding Africa, the UNCTAD report is over-pessimistic. After the great enthusiasm for the rapid growth that occurred during the period from 2000-2014 (the years of “Africa rising” and the “lions on the move”), the continent's development prospects appear to be dimming. From 2004 to 2014, the report notes, the continent experienced an unprecedented growth, mainly driven by a boom in mineral production (especially in the oil and gas sector), due to the high demand by the Asian industrializing economies. Africa’s top 10 producers generated an extraordinary $2.3 trillion in revenues from 2004 to 2014. Overall, from 2000 to 2010, the continent grew by an average of 5.1 per cent per year, slowing down to 3.3 per cent in 2010–2019. The problem, UNCTAD notes, is that this period of exceptional economic development generated very little occupation, to the point that the report defines this era as a “jobless growth” period. Still now, this trend persists. Africa creates about 3 million formal wage jobs a year, but with 12 million young people that are expected to enter the labour force every year over the next decade (due to the rapid demographic growth of the continent), these jobs are not enough. It goes without saying that this situation risks fueling political instability on the continent. The continent suffers from high unemployment among people aged 15–24, averaging more than 20 per cent, with some African nations that have among the highest youth unemployment rates in the world (like South Africa, where this rate reaches 61 per cent).

Year 2014 is a turning point for Africa. The Sub-Saharan Africa’s GDP per capita, which in that year peaked at $1,936, embarked on a downward path in subsequent years, by falling more than 10 per cent, reaching about $1,700 in 2023, while in the rest of the world GDP per capita rose nearly 15 per cent. Commodity exporters in Africa have seen low growth since 2014, and the largest economies on the continent (such as Angola, Nigeria and South Africa, all commodity exporters) have had particularly disappointing trajectories. Obviously the COVID pandemic has worsened this situation, with the continent that has not yet fully recovered from this disaster. Its income gap with the rest of the world has widened. UNCTAD calculates that the 55 countries of the African Union would need to grow at least by 19 per cent per year for the next 20 years simply to reach the current living standards of G-7 countries (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States).

The structural transformation of African economies is slow or absent, the report concludes. The much wanted industrialization of Africa has occurred at a pace that is not fast enough. Between 1980 and 2000, the contribution of the manufacturing sector to the aggregated African GDP has felt by half. In sub-Saharan Africa, manufacturing declined from 18 per cent of GDP in 1981 to 11 per cent in 2023, a clear trend to industrial decline. While the continent has managed to attract some foreign direct investment in African manufacturing (especially from Asia), the “flying geese” theory of industrialization (i.e., a growth driven by the relocation of industries from advanced, industrial economies to less advanced economies) has not borne fruit. African economies in general have found it difficult to integrate themselves in global value chains. Enthusiasm about the consumer potential of an African rising middle class to drive growth is also considered exaggerated, as is the size and geographic distribution of this class. On the other hand, poverty alleviation has not progressed in much of the continent, and absolute numbers of poor people continue to increase.

So, what’s the situation in 2024? African economies, UNCTAD notes, are outliers compared to industrial economies and other developing economies. They keep being strongly focused on natural resource (mineral and agricultural, mainly), but with a very low degree of integration in global value chains, the mostly poorly educated labour forces and few prospects of competing with agile global South peers, whether in manufacturing or commercial agriculture. Still today, the continent remains heavily dependent on its resource base, while a heavy financial legacy of debt burdens exacerbates long-term problems of poverty, insufficient structural reforms and anaemic development overall.

But in this dark scenario there are also some “lights”. The report notes that some resource-poor African countries, like Ethiopia and Rwanda, despite the limited financial means, managed to reach a significant level of diversification of their economies over the last two decades. Unfortunately, this is not enough.