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Economic Resilience and Sustainability
Economic Resilience and Sustainability
Posted

By - Kiraithe Daniel Mutemi

Posted - 12-02-2020

There is a need to build resilient and sustainable economies as rapid regional growth continues to gain momentum. The World Bank Group in African Pulse (2019) predicts sub-Saharan Africa will grow by 3.3 percent in 2020 and 3.4 percent a year later. However, a slowdown of economic growth is expected which creates fear that although growth is rising, it may not be sustainable. This region has envisioned to eradicate extreme poverty by 2030 but this dream might not be achieved with the current trend.

Economy resilience

Resilient and sustainable economies can be built by the adoption of stronger macroeconomic policies, creating an enabling environment for digital transformation and developing better human capital.
Stronger macroeconomic policies provide a caution in case of economic risks associated with the government earning and expenditure. Short term risks could potentially affect the economic growth momentum by slowing it down significantly. Such risks include rapid increase in debt levels, debt rollovers, currency and interest rate exposure as well as rising political tensions in a country occasioned mostly by electioneering periods. These short term risks reduce the ability of the country to mobilize the domestic resources thereby lowering productivity. Reforms in tax systems aimed at strengthening local resource mobilization, quality investment expenditure, and improved public debt management are likely to reduce those risks.

Conflict and violence witnessed mainly during elections in many countries are an imminent danger to the economic prosperity of the continent at large. Economies slow down during election cycles by reducing investments since investors have no confidence in the outcome of the elections. Fragility is thus promoted by inadequate state capacity to build trustworthy relationships with investors. The international community can help politically troubled countries to build state capacity by supporting core government functions as the case in South Sudan and Somalia in the East African region. Similarly, the Great Lakes region’s role in creating a peaceful and secure central Africa republic is commendable.

However, such conflicts may take longer to deal with thereby creating economic shocks that slow down the economy of the entire region and continent if left unresolved. By creating a stable region, service delivery could improve significantly and encourage international trade and private investment.

The digital revolution is an economic power that cannot be ignored by any country, region or economy. Global lending dynamics are changing with the use of technology according to Mckinsey global institute (2016). Mobile lending is a greater component of digital financing which is reported to be potentially able to finance more than 1.5 billion emerging economies population. Women and youth are the majority beneficiaries of such an arrangement. It also has the potential of increasing the loan volumes that are extended to businesses and individuals by over 2.1 trillion dollars and assist governments’ savings by $110 billion annually through sinking tax revenue and spending leakages (Mckinsey global institute, 2016)

With other benefits that are associated with digital transformation such as job creation and better services, internet penetration and digital finance should be increased across the continent. Strategic investments in digital infrastructure by governments, building local capacity are important steps in developing innovators, entrepreneurs and other skilled personnel that will drive Africa’s digital space without relying on other continents to help in achieving our goals pertaining to information and communications. There is, however, a little legal framework that exists in African countries to govern how data is used which is a key component of the digital revolution. Formulation and adoption of policies and legal provisions that protect digital participants such as cybersecurity regulations can encourage more entrants and create the competition that is required for vibrant economies. It is equally important to close the digital divide to address the slow adoption and use of digital technology in the continent.

Some of the factors that are associated with economic resilience in sub-Saharan Africa include convergence, structural transformation, capital inflows, and public sector indebtedness and governance indicators. Convergence is the evidence of countries with lower levels of GDP per capita growing relatively faster than those with greater GDP per capita. On the other hand, structural transformation due to better resource allocation results in better productivity which fosters economic growth in the long run.

capital inflow in Sub-Saharan

There was a significant increase in gross capital inflows in sub-Saharan Africa for 7 years consecutively from 2008, a period that saw the region record economic growth also. Gross capital inflows are measured as GDP percentage and include local and foreign inflows. Foreign inflows include foreign direct investments (FDI) which is a part of international trade affairs. The effects of increased general government’s gross debt are a faster accumulation of foreign currency debt which can affect the country’s interest and currency exposure.

Sustainable economies can be built if resilience can be achieved. Although governance and ethical issues may significantly contribute to achieving such visions, it would be difficult to measure some issues quantitatively such as ethics. It is, however, a collective responsibility of nations and regions to lay strategies that will reduce the economic challenges Africa is facing by addressing the above issues. Failure to address them will likely result in unsustainable economic growth after short-term risks hit one or more economies.

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