Citi GPS: AFRICA ? A New Growth Model Premised on Favorable Demographics, Technological Developments, and a Changing World Economy

Citi has published its latest Global Perspectives & Solutions (Citi GPS) report titled: AFRICA -- A New Growth Model. The report suggests that for a new growth model to emerge, African governments and the private sector are going to have to work together to take advantage of the continent's favorable demographics, technological developments, and a changing world economy ? while maintaining course to develop foundational infrastructure.

Although broadly speaking Africa rode out the COVID-19 related economic crisis relatively well, with growth slowing much less than most economists' forecast, the crisis brought to a head many issues that were already emerging. Notably, following COVID-19, and then the rise in international interest rates, widening fiscal deficits have proved hard to fund and led to defaults in both Zambia and Ghana.

"COVID-19 also highlighted the ongoing resilience of the growth story in Africa, which seems to have firmly put a floor on growth in many countries, and the importance of the informal sector as a safety net for many individuals and households across the continent", says David Cowan, Managing Director and Economist at Citi Research, author of the report.

Not only has growth held up remarkably well, but there has been no wider spreading of defaults either. But the challenge facing the continent's policymakers in the short term is clear ? the need to narrow fiscal deficits. At present, this is set to be achieved under a new wave of IMF programs, which we have broadly dubbed the 'New Age of Fiscal Austerity.'

Unlike in the late 1980s and early 1990s, the new wave of IMF programs is not based on cutting spending, in fact spending on health and education will be preserved. Instead, fiscal consolidation is largely driven by raising revenue. And a key element of this will be taxing the informal sector. Coupled with this is the challenge to formulate new exchange rate policies in an era of higher global interest rates.

It is also worth highlighting that after the last wave of defaults across Africa in the mid-1990s, better fiscal discipline and more flexible exchange rate regimes ushered in a strong pick-up in growth, eventually encapsulated in the "Africa Rising" story.

We think that at the time the hype around this story was overplayed, but that does not mean that there were not many real elements to it that still have important implications about how Africa will grow and develop going forward, or which we think will be the key elements of a "New Growth Model" for Africa.

"For a 'New Growth Model? to emerge, however, African governments, and the private sector are going to have to work together to take advantage of the continent's favorable demographics, technological developments, and a changing world economy" says David. "And at the same time, and critically, not getting caught up in a new hype and forgetting the importance of developing foundational infrastructure," he adds.

There is an argument that politics could yet undermine such a 'New Growth Model? playing out. While we accept that politics can be a constraint on development, we suspect that if the story is to play out as we hope more African governments will simply have to get serious about economic growth and development as their central political and policy concerns.

Finally, it is important to bear in mind, that development does require clear politics and policy, but also has an element of luck. Moreover, it is perhaps a much more gradual process than is often popularly perceived. Africa has changed vastly in the last 50 years and will continue to change. The challenge for policy makers, facing young and demanding populations, is to try and speed up the process.

The digital copy of the report is available at https://icg.citi.com/icghome/what-we-think/citigps/insights/africa

About Citi Global Perspectives & Solutions (Citi GPS)

As our premier thought-leadership product, Citi Global Perspectives & Solutions (Citi GPS) is designed to help readers navigate the most demanding challenges and greatest opportunities of the 21st century. We access the best elements of our global conversation with senior Citi senior professionals, academics, and corporate leaders to anticipate themes and trends in today's fast-changing and interconnected world.

About Citi

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