In early August, U.S. President Barack Obama will host a summit of African leaders in Washington, D.C. We wonder: Which of the following statements about the state of Africa’s economy are correct?
A. Africa has more than half of the world’s fastest growing economies.
B. Foreign investment in Africa is at a record high.
C. External trade is booming, while internal trade is languishing.
D. Africa’s middle class is growing, but more slowly than the overall economy.
A. Africa has more than half of the world’s fastest growing economies is correct.
Eleven of the 20 fastest growing economies in the world in 2014 are in Africa, based on projections by the IMF. Overall, Africa’s economy is expected to grow by 4.8% in 2014, making it the second-fastest growing world region after developing Asia.
Africa’s five fastest growing economies are Sierra Leone, whose economy is projected to grow by 13.9%, Chad (10.8%), the Democratic Republic of Congo (8.7%), Mozambique (8.3%) and the Republic of Congo (8.1%).
Each of these countries is rich in natural resources such as oil, natural gas, diamonds or gold. What these countries also have in common is that their economies are relatively small. As a consequence, small increases in the absolute size of these economies will register as large percentage changes.
The largest of them, the Democratic Republic of Congo, has a GDP of $46 billion. That is about 380 times smaller than the U.S. economy — and just slightly larger than Cambodia’s economy in Asia and Bosnia and Herzegovina’s in Europe.
Of the remaining six countries, two are among Africa’s largest economies. Ethiopia has experienced strong growth for a decade, based on exports of agricultural commodities such as coffee. Nigeria is experiencing an oil-based boom despite crippling political instability in the country’s north.
B. Foreign investment in Africa is at a record high is correct.
Foreign investment is expected to reach a record $84.3 billion in 2014, according to a joint report by the African Development Bank, the United Nations and the OECD.
Almost three-fourths of that amount will be in the form of foreign direct investment — that is, the purchase of businesses or the establishment or expansion of existing operations by non-African investors or companies. The remaining quarter is comprised of purchases of African stocks and bonds.
The tremendous surge in foreign direct investment (FDI) has been driven mostly by foreigners’ interest in Africa’s oil, minerals and other natural resources. In fact, 95% of the FDI flowing into Africa in 2013 went to the continent’s resource-rich countries.
Just six countries — South Africa, Nigeria, Mozambique, Morocco, Ghana and Sudan, which together account for about a third of the continent’s population — attracted as much FDI as the other 48 countries combined.
In recent years, China has been a leading source of FDI in China, lured by energy and mineral resources to fuel its growing economy. The value of China’s investments in Africa has grown to $27.7 billion — or about 10% of the foreign ownership of the continent’s assets.
C. External trade is booming, while internal trade is languishing is correct.
In addition to becoming a top source of foreign investment in Africa, China has become the continent’s top trading partner. Back in 2000, the value of China’s trade with Africa was just $11 billion — or about 5% of Africa’s $232 billion of trade flows.
By 2012, this figure had grown nearly 20-fold, to an estimated $200 billion. China now accounts for about 20% of all trade with Africa. By contrast, the 27 nations of the European Union — while geographically much closer to Africa — combined for $360 billion of trade with Africa.
Trading partners in other regions aside, one of the most significant impediments to future economic growth in Africa — and hence rising living standards — is the relatively low level of trade between African nations.
About 60% of Europe’s trade is conducted with nations on its own continent. In North America, 40% of trade occurs within the continent. In Africa, this figure was only about 14% in 2012, according to the African Development Bank.
One of the key reasons for Africa’s low level of intra-continental trade is the lack of good infrastructure — roads, bridges, ports and airports — linking the countries. Poor roads in particular make it difficult for Africa’s landlocked countries to move goods around.
D. Africa’s middle class is growing, but more slowly than the overall economy is correct.
Between 1980 and 2010, Africa’s middle class almost tripled in size — from 115 million to 327 million, or about a third of the continent’s population, according to the African Development Bank.
However, only a relatively small fraction of the continent’s middle class — 14%, or 45 million people — has achieved a secure upper-middle-class existence.
At the bottom of Africa’s middle class are the 199 million people — constituting about 60% of Africa’s middle class — who are at risk of falling back into poverty.
Despite robust economic growth during the first decade of this century, Africa’s middle class remains both poorer and smaller in size than the middle class in other regions of the world. In Latin America, 77% of the population is considered to be middle class, while in developing Asia 56% is.
Because of the length of this quiz, editors may choose to publish only three of the answer options.