Africa’s Rapid Economic Growth Hasn’t Fully Closed Income Gaps

IMF Blog, September 21, 2022

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Many economies in sub-Saharan Africa grew at a record pace before the pandemic; Ethiopia and Rwanda saw an average of more than 7.5 percent per year over the past two decades.
Using satellite-recorded images of nighttime lights as a proxy for economic activity, the data show that at least until 2010, African countries made tremendous progress in reducing regional income inequality (differences in output per capita across regions of a country).
This progress contrasts with other parts of the world, where inequality either increased or convergence was slower.
Night lights per capita increased several-fold in the poorest regions, with the biggest gains in oil exporters and frontier markets such as Ghana and Kenya.
However:
- Fragile and conflict-affected states made little-to-no progress in reducing regional inequality.
- Progress stalled after 2010, with regional inequalities having likely widened post-pandemic.

Access to clean water, electricity, and cellphone services is two to four times lower in lagging regions compared to leading ones.
The share of residents that have completed primary and secondary education is two to three times lower in lagging regions.
In countries where access to public services is generally low and distribution very unequal, the gap is even larger; for example, access to electricity in Burkina Faso is nearly 20 times higher in leading regions.
Public expenditure per capita is much lower in lagging regions, contributing to disparities in service access.

Four major factors were identified as supporting convergence:
- Macroeconomic stability: High, persistent inflation tends to increase inequality by eroding purchasing power, reducing government spending in real terms, and disincentivizing private investment.
- Trade openness: Easier access to global markets supports convergence by increasing the value of resources (raw materials) more abundant in lagging regions and by increasing migration to urban centers, which can alter per capita incomes depending on infrastructure and activity in city centers.
- Strong institutions and political stability: Weak institutions impede governments' capacity to provide services, and civil wars destroy public infrastructure, leaving regions behind.
- Well-targeted investments: Using mineral discoveries as a proxy, investments located outside capital cities are most likely to create jobs and promote economic activity in lagging regions.

Sub-Saharan African countries need a broad-based policy framework anchored around three main pillars:
- Well-designed redistributive fiscal policy with a clear investment strategy to assist underserved regions,
- Macroeconomic stability to foster inclusive growth, and
- Building institutions to ensure political stability and equitable public service delivery.
Governments need to invest in building local administrative capacity to collect and analyze data to better target policies.
- Only 12 sub-Saharan African countries publish their public budget allocations at the subnational level; more readily available data would provide a more accurate picture of disparities across regions.

Habtamu Fuje and Jiaxiong Yao, September 21, 2022 — IMF blog