Why growth in Sub-Saharan Africa is splitting into two paths-IMF

Economic growth in Sub-Saharan Africa is diverging, with countries like Ethiopia, Rwanda, and Senegal experiencing rapid growth, according to the IMF.

In fact, nine of the world’s top 20 fastest-growing economies are in this region. However, the IMF warns that this high growth rate hides a different reality.

Many resource-rich countries in Sub-Saharan Africa, including Nigeria, Angola, and Chad, are growing much more slowly. This difference in growth rates, known as a “two-track growth pattern,” has widened since 2014.

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Before then, countries rich in natural resources were booming along with the rest of the region. But after 2014, the end of a period of high commodity prices—often called the “commodity super-cycle”—hit resource-exporting nations hard.

These countries saw a big drop in prices for their main exports, like oil, which led to slower growth. This decline was made worse by long-standing issues, such as weak governance, corruption, and poor infrastructure.

For example, Nigeria, a leading oil exporter, had a GDP per capita of $2,065 in 2021, which increased to $2,198 in 2022, but then sharply dropped to $1,637 in 2023.

Angola’s GDP per capita was $1,927 in 2021, rising significantly to $2,933 in 2022, before falling to $2,310 in 2023. Chad, one of the poorest nations in the region, had a GDP per capita of just $685 in 2021, which slightly increased to $699 in 2022, and then saw a small rise again to $719 in 2023.

In contrast, Rwanda and Ethiopia have shown impressive growth. Rwanda’s GDP per capita was $822 in 2021, rising to $966 in 2022, and reaching $1,000 in 2023. Ethiopia also showed a positive trend, with a GDP per capita of $925 in 2021, rising to $1,027 in 2022, and reaching $1,293 in 2023. Senegal, another standout in the region, had a GDP per capita of $1,630 in 2021, which slightly declined to $1,594 in 2022, before increasing to $1,745 in 2023.

This divergence highlights a troubling trend: countries that rely heavily on commodities are seeing slow economic recovery compared to others like Rwanda and Ethiopia, which are diversifying their economies. The IMF notes that if countries with weaker governance face a 1 percent drop in export prices, their economic growth is about a quarter of a percent lower than it would be in countries with better governance.

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Challenges of poor governance and structural issues

Weak governance and corruption further slow growth, especially when commodity prices fall. In countries with poorly managed resources, large projects are often poorly planned and wasteful, worsening the impact of economic shocks.

For example, many oil-exporting countries in the region spend most of their revenue as soon as they receive it, rather than saving it for economic downturns. Fuel subsidies, which rise in cost when oil prices go up, also limit funds for development projects that could help the economy grow in the long term.

To reverse this split, the IMF suggests reforms to stabilise the economy and reduce waste. Improved fiscal planning, a better business climate, and investments in health and education can help these countries achieve sustainable growth.

With the green energy transition approaching, it’s crucial for fuel-exporting countries to diversify their economies to ensure long-term stability.

For a child born in a resource-rich country in Sub-Saharan Africa today, poor growth means a higher chance of poverty and a shorter life expectancy by four years compared to other parts of the region.