The ‘Africa rising’ bubble tells us why GDP growth is not a real indicator of prosperity

Until a couple of years ago, all financial institutions and investment banks were celebrating “Africa Rising”, in a symphony of compliments that should have cautioned any reasonable African leader as well as citizens on the continent.

But what did they really mean when they were saying that Africa was rising? They simply meant that its gross domestic product, which is the conventional measure of economic growth, had been growing (on average) at a faster rate than in other regions of the world.

Of the world’s top 10 countries in real GDP growth rates for 2012, five were indeed African. Libya topped the list, with an astounding 124%, followed by Sierra Leone with 15.2%, Zimbabwe with 13.6%, Niger with 11.8% and Ivory Coast with 10.1%. A year later, in 2013, South Sudan was Africa’s best performer, with 29.3%. Ever since, other very fast growing economies included Angola, Chad and the Democratic Republic of Congo.

But GDP tells us nothing about the health of an economy, let alone its sustainability and the overall impact on human welfare. GDP is simply a measure of market consumption, which has been improperly adopted to assess economic performance.

Rebuilding Libya after the civil war has been a blessing for its GDP growth. Similarly, building the South Sudanese economy from scratch has invariably meant astronomic growth. Both these countries’ economies indeed bounced back from annihilation. Libya’s GDP growth was -66% in 2011, while South Sudan’s was -52% in 2012. As expected, their growth was short-lived. Libya went negative in 2013 and so did South Sudan right after.

In 2013, I warned against celebrating Nigeria’s economic “miracle” at the time when the country was about to become the continent’s largest economy. I indicated that Nigeria’s economic expansion was ephemeral, unsustainable and extremely unequal, which would soon trigger social conflict and a prolonged recession. Most media, business and a number of colleagues ridiculed my predictions. But I was right: the country’s approach to growth was self-destructive. No surprise Nigeria has fallen into one of the worst recessions on the continent.

And the list of these growth disasters continues. In 2016, only two African countries were in the top ten global GDP growth contest – Ethiopia and Ivory Coast.

But rather than reflecting critically on why this is happening, the continent’s politicians are putting their heads in the sand and simply hoping for more growth. This is very dangerous in the current global economic landscape. Economic growth is slowing down almost everywhere and there is little chance it will return to Africa in the foreseeable future.

Critical reflection missing

There are important structural reasons why one should be suspicious of the “Africa rising” discourse. Most fast growing African economies are heavily dependent on exports of commodities and foreign direct investment.

This makes them easily affected by the volatility of international markets. It also gives a false perception of national income. Indeed, most of the profits generated by foreign companies add to the “domestic” GDP but are highly unlikely to remain in the country.

Rather than obsessing over whether African economies are rising or not, the focus should be on how to make African people thrive. And these are two different things. Indeed, the problem with the continent’s current model of industrial growth is that it privileges the formal at the expense of the informal, big corporations at the expense of small businesses, large centralised infrastructure at the expense of decentralisation. In the end, this growth leads to more inequality and environmental destruction.

Rather than big business districts, African countries need labour intensive economies. As the only continent that will experience exponential population growth in the next decades, Africa will soon be faced with a major unemployment problem. This can only be addressed through widespread networks of small businesses, which are the real creator of good jobs, and doing away with the dominance of a few corporate giants, which are shedding jobs and are increasingly reliant upon automation.

The Africa Progress Panel, a think tank chaired by former UN secretary Kofi Annan, highlighted the crucial role smallholder farmers can play in making Africa food secure. It also noted that small farmers ensure sustainable livelihoods to people. And it pointed to the need to move beyond “big-grid” high carbon infrastructure and to renewable energy to turn conventional top down economic growth “on its head”.

In their own analysis, energy production must be “democratised” so that “Africa’s poorest and most vulnerable people could be reached through renewable energy on terms that drive down energy costs, stimulate small and medium-sized enterprises, generate jobs and reduce pollution-related health risks.”

Innovators point the way

In my new book, Wellbeing Economy: Success in a World Without Growth, I show numerous examples of African innovators using new communication technologies to support networks of small businesses and micro-enterprises.

Mobile connections are widespread across Africa. This means that there is an unprecedented opportunity to improve coordination between producers and consumers, cutting middlemen and the dominance of big retailers. On top of this, developments in other new technologies, from 3D printing to energy production through small-grids powered by renewable resources, are making SMMEs ever more competitive. From farming to manufacturing, the future may very well be dominated by customisation rather than mass production.

As summed up by Joe Kraus, one of the leaders of the dot.com boom of the late 1990s, the availability of new manufacturing technologies, which diversify production and multiple markets for local producers, makes the shift to a decentralised economy easier than ever. He says: “The 20th century was about dozens of markets of millions of consumers. The 21st century is about millions of markets of dozens of consumers.”

A new economy founded on networks of small businesses, a post-industrial form of artisanship and integrated smallholder farming is the best chance for Africa to develop sustainably as well as to generate the decent and fulfilling jobs that millions of Africans rightfully aspire to.

Lorenzo Fioramonti, Full Professor of Political Economy, University of Pretoria.

This article first appeared on The Conversation.