This archive report was first published on 1 November 2019.
As the global economy grapples with heightened trade and geopolitical tensions, sub-Saharan Africa is feeling the pinch. According to the International Monetary Fund, growth in the region is expected to continue at 3.2 percent in 2019, but this is weaker than previously projected.
What's more, this slowdown comes at a critical time, with 20 million young people entering the workforce in sub-Saharan Africa each year. To create jobs for this growing population, countries need to grow at a much faster pace.
So, what can countries do to raise their growth prospects? Abebe Aemro Selassie, director of the African Department at the International Monetary Fund, believes that increasing competition between firms can play a crucial role.
Our recent work shows that competition between firms in sub-Saharan Africa is lower than in other parts of the world. This means consumers face higher prices than in similar economies. In fact, firm markups – an indicator of how much higher prices are above the cost of production – are, on average, 11 percent higher in sub-Saharan African countries than in other emerging markets and developing economies.
Increasing competition can have substantial benefits for the region. More competition can increase real GDP per capita growth by about 1 percentage point, implying a doubling of the pace at which living standards are currently increasing in the region. It can also benefit consumers directly by lowering the prices of goods and services, especially of essential items.
For example, food prices are 27 percent higher in sub-Saharan Africa, on average, than in other developing regions. By improving competition, about a third of this difference could be eliminated.
As Abebe Aemro Selassie notes, 'More competition can play an important role in boosting private investment, productivity growth, and external competitiveness.'
