Economics Commentary: Sub-Saharan Economies Are Most Improved

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Sub-Saharan Africa is one of the world’s fastest-growing economic regions, and is now showing signs that it may soon become a hub for innovation as well.

The Global Innovation Index (GII) is an annual ranking of countries according to their potential for research and development. Though European countries topped the list as usual, analysts from Cornell University and the World Intellectual Property Association noticed a striking trend in low-income African countries.

“Overall, sub-Saharan Africa has seen the most significant improvement of all regions in the GII rankings,” analysts wrote last week in a press release.

This seventh annual report focused on the “human factor” necessary for innovative countries to succeed. Researchers explored how various public and private agencies made the most of the human capital available to them, using indicators such as science and math test scores, student-teacher ratios in schools, and the number of corporate firms that offer employees formal training.

“Many sub-Saharan African countries are fostering innovation through the implementation of various initiatives and programmes,” the report says, citing examples such as a Rwandan endowment fund aimed at furthering innovation in manufacturing and agriculture, or Gambia’s Ministry of Trade and its focus on infrastructure development.

They used the term “innovation learners” to describe any an economy that performed at least 10 percent higher on the index than its peers with a similar gross domestic product, ranked by income level.

China, Mongolia and the Republic of Moldova earned this distinction among the high- and middle-income category. But for low-income countries, sub-Saharan Africa dominated. Kenya, Uganda, Mozambique, Rwanda, Malawi, Gambia and Burkina Faso all made the list.

“These ‘innovation learners’ demonstrate rising levels of innovation results because of improvements made to institutional frameworks, a skilled labor force with expanded tertiary education, better innovation infrastructures, a deeper integration with global credit investment and trade markets, and a sophisticated business community — even if progress on these dimensions is not uniform across their economies.”

Of 33 African countries surveyed, 17 improved their rankings this year. In the region, Côte d’Ivoire showed the greatest improvement, moving up 20 places in the global rankings. Mauritius moved up 13 places to place 40th overall.

The top-ranking countries overall were European, with Switzerland ranking first, followed by the United Kingdom and Sweden.

Though the region still has a long way to go, it’s been making great strides in other categories as well.

Earlier this year the Heritage Organisation dubbed sub-Saharan Africa the second-most-improved region in terms of economic freedom.

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This article deals with the economic growth and development regarding the Sub Saharan African region. Economic growth is an increase in the capacity of an economy to produce goods and services, compared from one period of time to another. It is measured in nominal terms. Economic development is sustained, concerted actions of policy makers and communities that promote the standard of living and economic health of a specific area.2 Here, the Sub Saharan African regions are considered to be one of the important regions for doing business. However, the statistics showcase that SSA regions are having issues considering their economic growth; mainly because of electrical power supplies failure. This also means that the country might not be performing at its potential, that is, producing at a point inside it its PPC Curve.

However, in some of the SSA regions, particularly Nigeria, growth momentum remains particularly high. Hence, some parts of SSA are benefiting from infrastructural investment, expanding services, and agricultural production. In the SSA region as a whole, regional GDP growth has picked up from about 5% to 5.75%.3

This leads us to the following graph shows the increase in the GDP of the SSA:



In the graph above, we see that the aggregate demand in the SSA regions is increasing and hence, the Real GDP also increases. Therefore, it shows signs of economic growth in the region. Moreover, this increase in the GDP signifies the betterment of sources of economic growth such as the natural factors comprising the factors of production like the land, labour, etc; the increase in Human Capital Factors like increase in immigration; Physical and Technological Factors and Institutional Factors.

However, in the article, it is also mentioned as to how the SSA regions are pretty low in Service-Provider Guarantees (SPGs). It is seen that one of the situations considered to back this fact is the electrical power supplies failure. However, more of these reason that may lead to the subversion of SSA in ‘business’ are:

  • Ebola outbreak: Due to the outbreak of the epidemic, the economy of the regions may fall as it would witness less of the investments, trade and transport facilities. Further, this epidemic would also lead to lessening of the human capital and population of the region.
  • Over the past few years, the SSA region has been connected widely to the international markets and has grown its links; these links have also made it vulnerable to external shocks, if not domestic. (Ref. to the Diagram 1 below)

In order to sustain a regular growth in the SSA region, the region must facilitate employment inclusive of growth. Country should keep on trying to enhance the public spending toward investment in infrastructure and various other development spending that contribute towards social as well as institutional changes. This means that it can focus on improving the quality of the natural factors contributing to the economic growth rather than their quantity. Management of the their public finances by upgrading their ways to infer public investment and draw a pattern. This will provide a better control over fiscal risks and maintenance of debt sustainability.

Maintaining monetary policies as well as boosting fiscal policies are priorities to the countries as they have to consolidate the gains achieved when curbing inflation. Supply side policies could also be employed in order to maintain the economic growth or increase the rate of it. Things like reducing taxes and privatization can have a huge impact. If any imbalances are caused when the spending rises sharply, it must be looked into. Current trends in the emerging markets and the developed countries must be carefully watched and SSA should expand its infrastructure keep track of its progress.

It can also emphasize in improving the human capital by improving the health care, improved education for children, vocational provision of fresh food and vegetables and appropriate sanitation. Furthermore, it can enhance its economic growth, or sustain it by improving the quantity/quality of physical capital. This is affected by the level of saving, domestic investment, government involvement and foreign investment. Thus, the quality can be improved by higher education, research and development, and access to foreign technology and expertise.

Other factors that could lead to economic growth are the existence of certain banking systems, structured legal systems, good education systems, political stability, and good international relationships. Some of these factors also lead to economic development

Written by:

Pranjalya Shukla

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