SUBSAHARAN ECONOMIES PERFORMING BADLY

African Updates
ECONOMIST INTELLIGENCE UNIT
September 9 2009

Sub-Saharan Africa is tending to fall behind other regions in terms of competitiveness. Human capital deficiencies whether in terms of education or health infrastructure and high crime levels tend to be deterrents as far as investors are concerned.

Sub-Saharan economies have become more competitive in the past year, according to the World Economic Forum (WEF)’s Global Competitiveness Report, published on September 8th. Adjusted for the fact that there is one less country ranked in the 2009/2010 report, 13 of the 26 Sub-Saharan economies rated have improved their standing, while three are unchanged from last year and ten have slipped back. The greatest improvement by far is registered by Uganda, up 20 places at 108th (out of 133 overall), while Lesotho jumps 16 places and Tanzania 13. The worst African performers over the past 12 months have been Mali, down 13 places, Ghana (-12) and Botswana (-10).

Burundi is the lowest-placed African state, just behind Zimbabwe. At the other end of the scale South Africa remains top of the regional league table in 45th position (effectively down one place), followed by Mauritius, also down one place at 57. According to the WEF there has been “a notable improvement” in South Africa’s ranking as regards the efficiency of its financial markets, with the country jumping 19 places from 24th to fifth--very high for an emerging-market economy. This indicates “strong confidence” in the country’s financial markets at a time when trust has been eroded in many other states, the WEF says.

However, South Africa’s overall ranking continues to be held back by what the Forum calls “enduring weaknesses”, including labour market efficiency; South Africa is ranked 125th in the world in terms of inflexible hiring and firing practices, and 121st when it comes to labour-employer relations. Other risk factors include a university enrolment ratio of only 15% (94th in the world), and the business costs of crime and violence (which are the highest in the world). In particular, there is a strong perception that the police are unable to provide protection from crime. The country also has a very poor score for rates of communicable diseases and health indicators in general.

Mauritius, the second-highest-ranked Sub-Saharan economy, also scores poorly on university education and labour markets. Botswana--which has fallen ten places in the rankings, losing the gains made last year--is rated as the least corrupt country in Africa (and 22nd in the world), but also scores poorly for human capital, as regards both health and education rankings.

In contrast, Kenya scores well for education standards, although its system caters for only a small proportion of the population, but public institutions are deemed very poor, with the country's ranking dropping 17 places (to 117th) in the past year alone. The country also scores poorly on issues such as corruption, crime and violence, and for the potential for terrorism.

Nigeria, in 99th place overall, scores very highly for its macroeconomic environment (20th in the world). However, its institutions are weak and the country is perceived to be highly corrupt. It also scores very poorly for infrastructure, and health and primary education. Ghana’s 12-place decline in the index is blamed mostly on its worsening macroeconomic situation, characterised by large fiscal deficits, rising public debt and high inflation.

Zimbabwe's institutional environment is--unsurprisingly--ranked among the worst in the world, while it is bottom of the global league table for macroeconomics. Corruption is seen to be high, with a complete absence of property rights, while health rankings are also very low.

However, whatever the movements within the African positions, Sub-Saharan states as a whole have slipped down the global rankings since they were first listed in the early 2000s. With newly listed states coming in ahead of African nations (or non-African nations moving above them), it is clear that the region’s competitiveness relative to all others remains poor.