1).4 Per capita income growth has averaged 0.7% a year, considerably less than that of the other regions.5
Table 1. Average Annual Growth of Per Capita GDP (annual average %)
Note: EAP is East Asia and Pacific, LAC is Latin America and Caribbean, MNA is Middle East and North Africa, SA is South Asia and SSA is Sub-Saharan Africa. These regions are as used by the World Bank in its analysis.
Source: World Bank Development Indicators and World Bank (2012).
Countries in SSA fared particularly badly in the quarter century after the oil price increases in 1973–1974. However, they have fared better in this century. They grew faster than the high-income countries and also the regions of Latin America and Caribbean (LAC) and Middle East and North Africa (MNA). But their performance has worsened since the 2008 financial crisis. While growth in all the regions has suffered, the effect has been lesser in Asia, or in other words, the adverse effect has been more in LAC and SSA.
There is also no evidence of convergence among African countries. Based on a simple regression, merely regressing growth over various periods against per capita income at the beginning of the period, we find no evidence of any convergence among the African countries over any period.
A notable feature of the developments in the world economy over the past couple of decades has been the increasing integration of developing countries with the world economy with reduction in restrictions on the flow of goods and capital. SSA countries have participated in these developments. Owing to liberalisation, trade has increased substantially as a percentage of GDP.6
The aim of trade liberalisation has been to raise the importance of exports and this has indeed happened (Table 2).7
However, the increase in the share of XGS in GDP has been the least in SSA, perhaps because this region had the highest share during 1965–1973. Whereas the share of XGS in GDP had quadrupled between 1965–1973 and 2006–2007 for East Asia and Pacific (EAP) and almost quadrupled in SA and increased by more than 150% in LAC, the share increased by only 50% in SSA (Table 2).8
While exports have grown slowly in SSA, the importance of remittances has increased rapidly, which has happened in South Asia (SA) also. Remittances, which were 1.8% and 0.8% of GDP in SA and SSA, respectively, in the early 1990s, increased to over 4% and 2%, respectively, by the end of the first decade of the 2000s (Table 3). The increased remittances considerably helped in preventing a large deterioration in the current account in the years before the onset of the financial crisis. Also, remittances are particularly important for LDCs and for the low-income countries; they are larger as a share of GDP for them than for other regions and may account for their economic performance.
Table 2. Exports of Goods and Services (% of GDP)
Source: World Bank Development Indicators and World Bank (2012).
Table 3. Remittances (% of GDP)
Source: World Bank Data Bank, World Development Indicators, World Bank. Washington DC.
In contrast to the behaviour of remittance, the importance of aid has decreased (Table 4). The importance of aid as a percent of GDP had been diminishing in all the regions in the years before the crisis, partly because of slow growth in the resources given to the soft-aid agencies such as the International Development Association (IDA), and partly, slow growth also of bilateral aid because of high deficits in the budgets of the donor governments. The importance of aid has diminished even when it is measured as a percent of either GFCF or imports. It is important now only for SSA.
Table 4. Aid (% of GDP)
Source: World Bank Data Bank, World Development Indicators, World Bank: Washington DC.
Table 5. External Balance (% of GDP)
Source: World Development Indicators, World Bank Data Bank, World Bank: Washington DC.
The behaviour of the external balance has fluctuated considerably in SSA (Table 5). Since the large deficits in the years before the debt crisis, the balance has usually shown either a small deficit or a small surplus. In the years before the financial crisis, the region had run a large surplus. It is only in recent years, 2011–2016, that the deficits have ballooned to levels that had prevailed before the debt crisis. The increased deficit can be potentially damaging to the growth prospects of SSA.
Because of the decline in the importance of aid, the larger current account deficits have been increasingly financed by inflows of private capital, particularly foreign direct investment (FDI) (Table 6). The share of private financial flows, whether equity or bond, remains small.9 Between 2001–2007 and 2011–2016, the share of equity has declined in SSA as in other regions and that of bonds has increased (Table 6).
The rising importance of private capital flows is an indication of the increasing financial integration of developing countries with world financial markets.
Table 6. Structure of Private Capital Flows to the Regions, 2001–2007 and 2011–2016 (% of GDP)
Source: World Bank World Development Indicators.
We now examine whether the increasing importance of trade and financial flows have increased the reliance of performance in African countries to that of the world or of China as might be expected because of large primary exports to China and increasing aid from China.
There is an increase in correlation of growth in the region as a whole with growth of the world economy, or growth in the US or growth in China (Table 7). But such increased correlation holds for only very few countries.
The deterioration in the current account bodes badly for the future as, in the past, current account problems had often resulted in implementation of contractionary fiscal and monetary policies that at least in the short run had a negative effect on growth. This effect had usually operated through a decline in gross fixed investment, as developing countries depended on imports of capital goods. Before the debt crisis of 1982, investment rates in SSA were a success story, being the highest among developing country regions (Table 8). However, investment rates had fallen in LAC and SSA through much of the 1980s and 1990s and contributed to low growth in those years,
