Sub-Saharan Africa is widely perceived as a basket case, but had achieved a dozen years of reasonably fast economic growth when the financial crisis of 2007-8 launched what the IMF calls “the Great Recession”. How has Africa been affected, and what are the prospects for its post-recession development, especially long-term?

The recession having been born in the USA, and specifically in financial markets, it was relatively slow to hit African countries. However, most of the latter had already been hurt by the steep rise in global prices for energy and food that began in 2007. The first countries in Africa to feel the effect of the financial recession were generally the more prosperous ones, because they were the more closely integrated into global financial markets – and had become more so during the preceding era of “financial globalisation”. Unlike their poorer neighbours, they had been able to borrow on Western sovereign bond markets. In due course the credit crunch affected them: according to the IMF, African countries borrowed US$ 800 million in 2007; nil in 2008. The poorer majority of sub-Saharan economies were impacted rather by the traditional mechanism of falls in the prices of their export commodities. Africa in general suffered a fall in remittances from Africans working overseas, though this seems to have been relatively slight so far. African countries face likely reductions in foreign aid, while future growth of remittances may be trimmed by tighter immigration controls in recession-hit Western countries, reducing the number of Africans who can migrate to richer countries for work.

Within African economies, the pain has been felt most visibly through layoffs, starting in mining in southern and central Africa. Overall, about a million jobs were lost during the downturn in South Africa. Reduced formal-sector earnings restrict the amount spent on buying domestically-grown food crops and on products of the urban informal sector. Not all the recent woes are attributable to recession. Food prices on the world market, according to the World Food Programme, peaked in June 2008, but have, with fluctuations, remained relatively high since. The combination of reduced incomes and higher food prices, in a region in which a high proportion of rural as well as urban house- holds rely on markets for at least part of their food supplies, tends to promote higher infant mortality – though it is too soon to be clear about the scale of any such effect in this instance.

The shocks were cushioned (to a degree which, like the shocks themselves, varied across the region) by several positive influences, internal and external. Because of the preceding growth, and the more fiscally orthodox policies that many countries had followed since Structural Adjustment in the 1980s, on average African economies entered this recession with better fiscal and trade balances than those with which they had faced earlier recessions, at least in the half-century since most sub-Saharan countries obtained independence from colonial rule. Also, this time African governments continued to allow their 19 currencies to float, rather than trying to resist downward pressure by making the official exchange rate artificially high, and therefore effectively non- convertible on legal markets, as many African oil-importing countries outside the franc zone did in the face of the oil shocks of the 1970s, setting off spirals of price controls and black market growth. At the same time, some governments adopted counter-cyclical policies. They were even encouraged to do so by the IMF, which used some additional money from OECD countries specifically to support counter-cyclical measures, such as helping Senegal maintain public investment. Last but not least, China and India began to recover from the Great Recession early. Just as Asian – especially Chinese –demand for commodities led the African boom up to 2008, so the revival of that demand helped African economies out of recession.

In aggregate, per capita output in sub-Saharan Africa, which had grown at an average of 4.3% per year during 2004-8, seems to have actually fallen in late 2008 and much of 2009. Indeed, the latest IMF Regional Economic Outlook: Sub-Saharan Africa (October 2010) estimates average real per capita income at US$ 2 less in the 2009 calendar year than in 2008, even though the preceding table records a rise of 0.3% (Tables SA3 and 4). Given the great uncertainty of estimates of informal activity, it is unclear whether output per capita fell at all; or, on the other hand, whether it fell by considerably more than the combined national accounts allow. What is pretty clear is that the recession in Africa seems on average to have been brief, the decline in output – as opposed to in the rate of growth – lasting only about year, though recovery may take longer, especially if Western markets remain weak. It is very clear that, predictably, the impact of the recession varied greatly between countries. South Africa suffered a drop in real GDP per head of 3.0% in 2009, the first annual fall since the end of apartheid. Meanwhile Botswana, hit by lower diamond prices, experienced its first annual fall (-4.9%) since independence. In contrast (again according to the IMF), Nigeria enjoyed growth of 4.1% in the same year, with agriculture apparently outpacing oil.

Where Africa will be when the next international recession – and the one after the one after that – strikes depends crucially on whether it can achieve sustained growth in manufacturing. The traditional distinction between primary, secondary and tertiary sectors has been eroded by the increasing contribution of advanced technologies to value-added in each sector. Yet the Asian “miracles” have been based on industrialisation, and it is hard to see how Africa’s population can achieve similar average living standards to those increasingly found in Asian countries without the industrialisation of at least several of the larger African economies. Historically, sub-Saharan Africa was short of labour as well as capital. That has been changing, especially with the sustained growth of population that began around the 1920s and accelerated after 1945. Despite HIV/Aids, Africa’s basic problem is now often seen as Malthusian. But this comes with an opportunity for governments and private investors, domestic and foreign, to take advantage of the long term downward trend in the relative cost of African labour. This has been combined with a huge improvement in education standards: perhaps the biggest achievement of African governments since independence. Widespread Chinese involvement has been the biggest novelty in recent African economic history. But so far the Chinese contribution to African economic growth has been principally through demand for primary products, and its investments have been mainly in facilitating their outflow. The question is whether Chinese – and Western, and not least African – firms can find profitable ways of investing in African manufacturing, especially when (perhaps) China’s own success leads it to vacate the kinds of markets that can be supplied by labour-intensive manufacturing. But that also depends on greater willingness than has yet been shown by European and other rich countries to build on the precedent created by the US African Growth and Opportunity Act by opening their markets to African manufactured goods.

Gareth Austin is Professor of International History. His teaching and research focus on African, comparative and global economic history. He joined the faculty in 2010 from the London School of Economics and Political Science. Prior to that, he lectured at the University of Ghana. He is the author of Labour, Land and Capital in Ghana: From Slavery to Free Labour in Asante, 1807-1956.

This article originally appeared in Globe No. 7, Spring 2011. Globe is published twice a year and is an insight into our professors’ and experts’ analyses of major world issues, our research projects, our events, our Alumni and more.