Source: International Monetary Fund
A quick glance at the IMF’s world map of real GDP growth may bring quite the surprise even for those closely monitoring current economic events: developing countries, particularly in sub-Saharan Africa, have been witnessing much stronger rates of economic growth in 2023 than their developed counterparts in the West.
On the one hand, the world’s wealthiest regions such as Western Europe and North America posted negligible growth rates of 0.6 and 1.6 % respectively, all while highly developed and complex economies including the United Kingdom, Germany, and Sweden shrank altogether. This stands in stark contrast to one of the world’s historically poorest regions, sub-Saharan Africa, which in the midst of an unprecedented debt crisis, growing climate concerns, and soaring import costs saw a remarkable 3.5 % real GDP growth in 2023. Of sub-Saharan Africa’s 46 total nations, only one, Equatorial Guinea, saw its economy shrink; meanwhile, developing countries such as Senegal, the Democratic Republic of the Congo, and the Ivory Coast saw unprecedented expansion at rates of 8.3, 6.3, and 6.2 % respectively. As global interest rates rise and fears of a worldwide recession grow, witnessing powerful economic growth in a neglected corner of the world alongside negative gains in some of the world’s wealthiest economies may stir equal amounts of hope and confusion in sub-Saharan Africa’s fortunes. Nonetheless, the story of surprising African growth may ultimately boil down to a matter of higher commodity prices catching the fall of countries’ soaring pre-pandemic economic growth rates. In many developed countries, however, generally sluggish economic growth before the pandemic was made all the worse with weakening investor confidence and growing import costs. Such a colossal turnaround in the midst of a global attempt at economic recovery may cast some much-needed favorable light on sub-Saharan Africa’s future.
Real GDP Growth of Sub-Saharan African economies and advanced economies
Source: International Monetary Fund
Even before pandemic shutdowns reversed a decade-long trend of global economic growth, sub-Saharan African economies consistently posted higher rates of real expansion than the developed world. Consider the IMF’s observation of historical real GDP growth.
The green line represents sub-Saharan Africa, while the blue line represents “advanced economies,” a group of 41 high-income countries deemed the world’s most advanced by the IMF. Not only has sub-Saharan economic growth consistently beat out that of advanced economies, but the region laid claim to five of the top 10 pre-pandemic fastest growing economies: Rwanda, Ivory Coast, Benin, Ethiopia, and Tanzania. Already, these historical trends may serve to explain sub-Saharan Africa’s current pole position. In economics, the “catch-up effect,” or theory of convergence, is the idea that developing economies grow faster than developed economies over time, thanks to the law of diminishing marginal returns. Applying this law to global economic history implies that developed countries with lots of investment will post smaller and smaller returns with each additional investment as compared to developing countries, which will post far greater returns with each investment simply because they’ve historically lacked such financing. In other words, there is much room for growth and innovation in developing economies, meaning that each additional investment would go far greater in improving a developing country’s standard of living than investment in a developed country that is usually in line with modern technology. As China’s “Belt and Road Initiative” and larger Western investment pile into the continent, the “catch-up effect” is only further illustrated. The graph above essentially proves this theory, and along with it, why we’re currently observing faster economic growth in a rather impoverished sub-Saharan Africa.
Why, however, did higher inflation, borrowing costs, climate risks, and import prices not counteract this trend and relegate sub-Saharan Africa to a growth rate much lower than developed economies? Indeed, developing economies are obviously much more vulnerable to these risks, as less capital implies a lower ability to stomach globally rising prices and interest rates as well as threats to infrastructure and population displacement. While much of sub-Saharan Africa did see this pan out, the region nonetheless is also home to heavily traded commodities whose prices have shot up over the last two years, including oil, gold, and corn. Western sanctions have forced many countries to look for alternative sources of oil while inflation and Russia’s invasion of Ukraine have greatly appreciated global food prices; as a result, both the US and Europe have imported much more sub-Saharan African oil, with the region possessing over 62 billion barrels of it. Meanwhile, Africa’s production of corn has grown over the last five years, with China being the latest consumer of the continent’s export. Meanwhile, gold has steadily appreciated over the years as a hedge against inflation. Gold is sub-Saharan Africa’s second largest export after oil, thus granting the region a consistent commodity to profit off of over the coming years.
In total, rising commodity prices have allowed sub-Saharan Africa to stomach some of the costs of rising inflation and borrowing costs given its resource abundance in such commodities. That, alongside a naturally higher rate of economic expansion, has in turn allowed the developing region to outpace advanced and high-income economies in spite of an economically turbulent 2023. In a region often a brim with painful obstacles to greater prosperity, these findings may serve as a glimmer of hope in the potential that sub-Saharan Africa possesses over the coming decades.