Africa Growth Initiative’s top 5 figures of 2021

Each week, the Brookings Africa Growth Initiative team highlights figures related to African economic growth and development. These so-called “Figures of the Week” include visuals from recently published reports that reveal something significant or interesting about trends on the continent. In the final “Figure of the Week” of 2021, we review the five most-read posts from this year.

1. Addressing Africa’s extreme water inequality

Access to water remains a pervasive development issue across the continent: In fact, according to the World Resources Institute (WRI), 1 in 3 Africans face water insecurity and approximately 400 million people lack access to basic drinking water in sub-Saharan Africa. Figure 1 shows Africa’s exposure to water-related risk, accounting for vulnerability to floods and droughts, water stress, and seasonal variability. Overall, although the degree of water risk varies throughout the continent, large swaths of the continent face high and extremely high water-related risk factors.

Figure 1. Africa faces some of the highest water risk in the world

Source: “Climate Change Is Hurting Africa’s Water Sector, but Investing in Water Can Pay Off,” World Resources Institute, 2019.

2. Africa’s renewable energy potential

Although Africa’s current energy mix is almost entirely composed of fossil fuels and biomass, in the International Monetary Fund’s (IMF) quarterly publication Finance and Development, IMF researchers forecasted that renewable energy will become the most prominent source of the continent’s electricity by the next century. Most notably, they projected that solar will generate the lion’s share of Africa’s energy mix by 2100. The authors explore how scientific advances in renewable energy technology, its falling costs, and the continent’s geography contribute to renewable energy’s rising importance as a source of electricity in Africa.

Figure 2. Africa’s energy mix: Present and projected

Note: CCS (carbon capture and storage) is an emerging technology that captures carbon dioxide (CO2) directly from the source of pollution (e.g., coal power plant) and sequesters it to reduce emissions and prevent it from entering the atmosphere.
Source: Gregor Schwerhoff and Mouhamadou Sy, “Where the Sun Shines,” Finance and Development, IMF, 2020.

3. Mobile money dominates fintech investment in Africa

Africa remains the world’s largest adopter of mobile money transfer systems, accounting for approximately 70 percent of global mobile money transactions and two-thirds of the world’s mobile money transaction volume by value. Financial Technology Partners, a boutique investment banking firm, notes that digital payments led financial technology (fintech) investments in Africa over the past decade, in terms of both financial and transactional volume. In addition to digital payments outpacing other fintech investments, 2019 (the most recent data in the study) recorded nearly twice as much investment in Africa’s fintech sector with only slightly fewer deals than the prior year.

Figure 3. African fintech investment flows over time

Source: Source: Financial Technology Partners, “FinTech in Africa: Leapfrogging Legacy Straight to Mobile,” 2019.

4. Industries without smokestacks in South Africa and Uganda

As part of a multiyear project examining prospects for creating jobs for Africa’s youth, two of AGI’s frequent partners conducted country case studies to find the potential for industries without smokestacks (IWOSS)—service-sector industries that mimic traditional industries’ ability to absorb labor and grow—to spur inclusive growth, economic transformation, and job creation for workers with different skill levels.

According to the Development Policy Research Unit’s South Africa case study, the share of IWOSS in overall employment is growing, accounting for 66.7 percent (8.8 million) formal private sector jobs in South Africa in 2018. In contrast, the contribution of non-IWOSS sectors fell: For example, mining’s contribution to GDP dropped from 19.5 percent to 8.1 percent between 1980 and 2018 (Figure 1). Overall, the team found that IWOSS has the potential to absorb labor, but tourism and horticulture specifically are more likely to absorb low-skilled labor and are poised to experience tremendous growth if certain constraints are not addressed.

Figure 4a. Contribution to GDP by industry, South Africa, 1980 and 2018

Source: Allen, C., Asmal, Z., Bhorat, H., Hill, R., Monnakgotla, J., Oosthuizen, M., and Rooney, C. Employment creation potential labor skills requirements, and skills gaps for young people: A South Africa case study. (Washington, DC: Brookings Institution, 2021).

The Economic Policy Research Centre (EPRC) in Uganda found similar broad trends, but noted differences in particular subsectors. In other words, like in South Africa, the prominence of IWOSS has grown in recent years, especially compared to manufacturing, but the fastest-growing subsectors for Uganda have been agro-processing and tourism. Tourism in particular has been a major contributor to Uganda’s economic growth, comprising 7.7 percent of the country’s GDP as of 2019 (Figure 4b). The case study authors find that, like in South Africa, in Uganda, horticulture, agro-processing, and tourism have the potential to create much-needed jobs.

Figure 4b. Uganda’s tourism performance, 2000-2017

Source: Guloba, M., Kakuru, M., Ssewanyana, S., and Rauschendorfer, J. Employment creation potential labor skills requirements, and skills gaps for young people: A Uganda case study. (Washington, DC: Brookings Institution, 2021).

5. COVID-19 impacts on foreign direct investments in sub-Saharan Africa

The complex health and economic challenges created by the pandemic throughout the African continent have had significant impacts on foreign direct investment (FDI) both to and from the region, as shown in the 2021 World Investment report published by the U.N. Conference on Trade and Development. Figure 5a shows some of the report’s main findings: FDI inflows were already on a decline, and COVID-19 continued to have a negative impact on investment globally and regionally.

Figure 5a. Foreign direct investment inflows, 2007-2009 and 2018-2020

Source: United Nations Conference on Trade and Development, World Investment Report. 2021.

FDI outflows were also impacted by the COVID-19 pandemic, but, again, varied across and within regions (Figure 5b). In fact, according to UNCTAD, FDI outflows from Africa fell by two-thirds, from $4.9 billion in 2019 to $1.6 billion in 2020.

Figure 5b. Foreign direct investment outflows, 2007-2009 and 2018-2020

Source: United Nations Conference on Trade and Development, World Investment Report. 2021.