WASHINGTON—Africa’s improved economic performance over the past decade was driven by sounder macroeconomic policies, greater openness to trade and foreign investments, higher education spending, and reduced conflict, write Shimelse Ali and Uri Dadush in a new paper. Temporary factors, notably rapidly rising terms of trade, also played a vital role. To sustain its growth rate, the continent must overcome large challenges, including inadequate market institutions, low investment and savings rates, a lagging demographic transition, and a shortage of skills.

The authors outline a number of long-term opportunities—such as ties with emerging economics, a rising middle class in Africa, and growing wages in China and elsewhere—which can help Africa move up the development ladder and compete successfully with other poor but increasingly dynamic developing regions.

Key policy recommendations:

• Improve the investment climate first. This requires taking both small steps—such as reducing the cost of registering and closing a business—and implementing fundamental reforms to make the business environment more predictable—like strengthening the rule of law and investing in the right kind of skills.
• Step-up reforms in backbone sectors. Removing regulatory constraints, such as barriers to entry and competition and promoting public-private partnerships in backbone sectors—power, telecommunications, transport, and finance—will help attract private investment in these sectors, create employment opportunities, and improve efficiency throughout the economy.
• Raise agricultural productivity. With the lowest cereal yield per hectare of any developing region, Africa should boost output with genetically modified seeds, complementary fertilizers, and by investing in irrigation.

“Africa’s continued—and accelerated—growth over the long term is by no means guaranteed,” the authors conclude. “But if policy makers can build on their successes so far and tackle tougher second-generation reforms, they can help Africa become more competitive and establish the conditions for a durable breakthrough.”

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Click here to read the full paper online

Uri Dadush is senior associate and director in Carnegie's International Economics Program. His work currently focuses on trends in the global economy, the global financial crisis, and the euro crisis. Dadush previously served as the World Bank’s director of international trade and director of economic policy. He has also served concurrently as the director of the Bank’s world economy group. Prior to joining the World Bank, he was president and CEO of the Economist Intelligence Unit and Business International.

Shimelse Ali is an economist in Carnegie’s International Economics Program. He holds an M.Sc. in economics from the Norwegian University of Science.

The Carnegie International Economics Program monitors and analyzes short- and long-term trends in the global economy, including macroeconomic developments, trade, commodities, and capital flows, and draws out policy implications. The current focus of the Program is the global financial crisis and the policy issues raised. Among other research, the Program examines the ramifications of the rising weight of developing countries in the global economy.

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