In March 2016, some colleagues and I visited several villages around Kaffrine in Senegal where private companies had been awarded licenses to provide electricity on a commercial basis. As we spoke to people, two things became very clear. The initial cost of connection to the grid was too high for many poor people, and the cost of electricity offered by the private companies (or “concessionaires”) were in several cases higher than what the government-owned utility offered in nearby areas.
Co-authored with Luc Christiaensen and Aly Sanoh
For a decade and a half now, Africa has been growing robustly, and the region’s economic prospects remain good. In per capita terms, GDP has expanded at 2.4 percent per year, good for an average increase in GDP per capita of 50 percent since 1996.
But the averages also hide a substantial degree of variation. For example, GDP per capita in resource-rich countries grew 2.2 times faster during 1996-2011 than in resource-poor countries (Figure 1). Though not the only factor explaining improved performance—fast growth has also been recorded in a number of resource-poor countries such as Rwanda, Ethiopia and Mozambique (before its resource discoveries)—buoyant commodity prices and the expansion of mineral resource exploitation have undoubtedly played an important role in spurring growth in several of Africa’s countries. Even more, with only an expected 4 or 5 countries on the African continent without mineral exploitation by 2020, they will continue to do so in the future. Yet, despite the better growth performance, poverty declined substantially less in resource-rich countries.
What falls outside the standard assumptions and models of economics? How does that matter for development? Last week, the Africa Chief Economist’s Office and the Development Economics Research Group of the World Bank sponsored a star-studded course exploring exactly this issue.
Nobel Prize winner George Akerlof highlighted how, because of all the advantages of markets, we ignore the traps that come along with them. Sellers can deceive buyers and prey on their unconscious biases, lack of self-control, and naiveté.
Using his famous “lemons” market example, Akerlof showed that, instead of there being no equilibrium, naïve buyers will in equilibrium buy poor-quality used cars. He calls this phenomenon “Phishing for Phools”.
Sub-Saharan African countries bucked the slowdown in the global economy and grew at a robust pace in 2011 (see Africia's Pulse, February 2012 Update).
The region’s output expanded by an estimated 4.9 percent, faster than in 2010 and just shy of the pre-crisis (average of 2003-08) level of 5 percent. Excluding South Africa, the regional growth rate was 5.9 percent. Particularly notable is the fact that this growth was widespread: over a third of countries posted 6 percent or higher growth; another 40 percent grew at between 4-6 percent. Equally important is the fact that several countries saw sustained growth rates of over 6 percent a year in both 2010 and 2011.
So what can Sub-Saharan Africa expect in 2012? Barring a serious deterioration in the global economy, the outlook for the region seems bright, with a pickup in GDP growth to 5.3 percent in 2012 and 5.6 percent in 2013. High commodity prices and strong domestic demand, especially buoyant private consumption, are expected to sustain the expansion.
But these factors also point to Africa’s vulnerability.
Despite a slowdown in the global economic recovery and an increasingly difficult global environment, Sub-Saharan African countries are continuing to post solid growth.
Following a 4.6 percent expansion in 2010, the region’s output is expected to grow by 4.8 percent this year (5.8 percent excluding South Africa) and by more than 5 percent in 2012 and 2013.
Indeed, African countries are amongst the fastest growing countries in the world: Ghana is projected to grow by well over 10 percent this year; and nearly 40 percent of the countries in the region are likely to see 6 percent or higher growth rates. Growth in Africa remains closely linked to the evolution of international commodity prices—oil, metals, and non-food agricultural commodities—which have remained generally buoyant.
Not surprisingly, a sharp deterioration in global conditions would weigh down on the region's prospects. Moreover, this time around African countries will be more constrained in their policy options: because they have less fiscal space than they had in the wake of the 2008 global financial and economic crisis. Read the full analysis on Africa's Pulse.