African Growth: the Role of Demographics and Urbanization

It may be hard to imagine that population growth in Africa could do anything but exacerbate the continents current issues with food shortages and infectious disease.  But according to Peter Pham, director of the Atlantic Council’s Michael S. Ansari Africa Center, Africa’s high population growth may propel Africa’s economy forward.

The continent has a young median age of 19.7 and the predicted population growth rate hints that this median may stay low for years to come. Since 2000, Africa’s population has increased from 200 million to 1 billion and the predicted average population growth rate is 2.2 %, compared to .9 % in Asia. The young and large consumer base and workforce in Africa may be just what some African countries need to kick-start their economies.

The continent also has the second to highest GDP growth rate (5 %) second only to Asia, and this rate could grow to 7 % by 2015. This rise in GDP is attributed to an increase in infrastructure projects, which have helped spark another movement: urbanization.

Africa is urbanizing at the fastest rate of any continent. Forty percent of Africans live in urbanized areas today and sixty percent are expected to live in urban areas by 2050. The relationship between urbanization and growth is typically positive. When a large part of a country’s population lives in cities, it is easier for people to find jobs. According to the UN Department of Economic and Social Affairs, “on average, urban residents have better access to education and health care as well as other basic services such as clean water, sanitation, and transportation, than rural areas.”

Urbanization requires strong infrastructure and the demand for such infrastructure can further stimulate an economy. Not only will the increased concentration of people living in cities allow for job growth, but greater support of the rural regions of Africa as well. With a population-dense market to serve, farmers may be able to operate more efficiently because they will only have to transport goods to a few high density areas rather the multiple low density areas.

Though many expect positive results from Africa’s urbanization, there are negative consequences to such movements. Urban farmers in Africa are likely to be negatively affected as land in cities becomes scarcer. This could have deleterious impacts on many Africans as 40% of families in sub-Saharan Africa are urban farmers. Latin America which underwent a speedy urbanization process over the past 60 years, has also experienced increased instances of violence, inequality and environmental degradation that some attribute to urbanization. Nevertheless, the UN’s Human Settlement program’s report concludes that that the positive outcomes to urbanization outweigh the negatives in Latin America.

Urbanization and rising incomes have spurred Africa’s burgeoning capital market which will better support the economy’s growing population and economy. Currently, with the Subprime Crisis and Europe’s recession, fund managers are looking to invest in countries with higher interest rates.  Thus far, the BRICS countries have been favored. If more of Africa’s countries form stable capital markets, they could see even greater investment.

Africa’s progress is encouraging, but it is still in its inchoate phase. There are many factors that could hold Africa back from achieving a 7 % growth rate such as civil wars, conflict in the Ivory Coast, effects of the Arab Spring on Egypt’s economy and basic efficiency issues. What is certain is that changes in Africa’s population, shifts towards urbanization and dilating interests in capital markets are having positive impacts on the region’s economies.

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