How to achieve and sustain economic growth in Africa

Expanded research by Visa with its Africa Integration Index measures the economic “connectedness” of African economies and the impact on socio-economic development.

This year the study incorporates more countries to cover 75% of the continents population and 85% of its output. Among the key trends, are:

African economies are among the least connected globally, yet demonstrating progressive structural improvements toward higher levels of integration with their respective regions and the world.
Integration with regional and global economies is seen as pivotal for sustained, elevated and inclusive growth. Deep and broad integration important for sustained growth.

Titled Connecting for Growth, Economic Inclusion & Prosperity, the research expands on previous editions to include more countries. Assimilating country and industry data, together with information proprietary to Visa, the index measures and offers insight into economic connectedness for sub-Saharan economies.

Inclusive growth

"The evidence of the past five decades is that the pivotal factor for sustained, elevated and inclusive growth is the ability of countries to connect functionally and effectively to others,“ says Dr Adrian Saville, the report’s author, and Professor in economics and competitive strategy at the Gordon Institute of Business Science.

“To achieve and sustain the growth rates Africa has seen has only been possible because the world economy is more open and integrated. The Visa Africa Integration Index aims to improve our understanding on the importance of economic connectedness and to redress the deficit in information and knowledge on the mechanisms of socio-economic integration, which enable and promote social and economic development.”

This year’s report sees five clear trends.

First, sub-Saharan African economies rank amongst the least connected in the world. However, since measurement began five years ago, the evidence points to connections growing quickly and effectively, particularly in East Africa, although Cameroon, Ghana and Zambia also stand out.
Second, in line with data for different countries studied over other periods, there is a strong correspondence between rising connectedness and improvements in economic and social wellbeing. For example, Rwanda has displayed the largest relative gain in connectedness amongst the 19 countries in the index, which has manifested in a gain in per person income of 7.0% per year.
Third, the index also shows that some countries are more integrated globally than regionally and vice versa, which is important information for policy makers who aim to deepen and broaden integration in their respective regions. This is an important point because regional integration is a more powerful and sustained contributor to socio-economic advance than global integration. Yet, the regional connectedness for sub-Saharan economies lags other areas by a wide margin.
Fourth, all boats do not rise with the same tide. Whilst Kenya and Rwanda have made large gains in connectedness off relatively low bases over the five years covered by this research, Botswana has not moved much off its relatively high base, and Angola has struggled to improve off a low base. The Democratic Republic of Congo’s score has fallen.
Fifth, there is a strong, positive correlation between changes in economic connectedness and per capita incomes for the 19 countries over the six-year period 2011-2016 covered by the index.

An integrated Africa would be one of the largest economies in the world, providing sustained and inclusive economic opportunities for everyone, everywhere.

“An integrated Africa would be one of the largest economies in the world, providing sustained and inclusive economic opportunities for everyone, everywhere. We believe that a core building block to achieve that vision is an open and universal payment network which enables all Africans, consumers, merchants and financial institutions, to connect and exchange value, irrespective of borders,” says Andrew Torre, president for Visa sub-Sahara Africa.

“Africa’s global leadership in digitising cash illustrates the region’s potential in the 21^st Century knowledge economy. Converting that potential into sustainable business models requires an ecosystem approach that transcends narrow interests, creating partnerships around open and competitive financial systems for the benefit of everyone. We are incredibly optimistic about the potential for this continent and its people, and look forward to investing for its future.”

Why connectedness matters

The extent and nature of a country's connections to both the global and regional economy is one of the single biggest influencers of socio-economic change. While mainstream measures of economic integration have focused more intently on trade flows and capital movements, they have a tendency to overlook other key pillars of economic connectedness, such as flows of information, knowledge, data and people, across borders.

Deep and broad connections

The Africa Integration Index also looks at the nature of a country’s connectedness as a sign of sustained impact. Deeply integrated economies are open and highly connected to the rest of the world. However, integration only becomes “deep and broad” if a highly-connected economy is engaged with a wide variety of counter parties across the different strands of global relationships.

For example, while Angolan crude petroleum makes up 91% of exports, two thirds of it go to just three countries - China, India and the United States. This makes Angola’s connectedness narrow. Conversely, Polish exports, which range from gas turbines and rubber tires, through to rolled tobacco and poultry, find their markets in over 75 countries.

Measuring economic integration by way of depth and breadth provides for a better understanding of the nature of cross-country economic integration.