The middle-income trap is an economic development situation in which a country’s income and economic output growth stagnate once the country is classified as a middle-income nation. Most African countries are considered middle-income (ranging from lower-middle to upper-middle income), with the most recent estimates showing that 32 African States have a per capita gross national income of between $1,130 and $13,850.
While idiosyncratic domestic factors, including history, institutions and the policy and regulatory environment, will have a direct bearing on a country’s prospects of escaping the middle-income trap, there is one salient exogenous factor that all countries will have to deal with: climate change. However, global efforts to combat climate change could also provide the catalyst for the structural adjustment needed to overcome the middle-income trap. Escaping the middle-income trap requires going beyond industrial upgrading and productivity gains and necessitates the development of a strategy to leap-frog into new industries. Green technologies and advances in agriculture could be those new industries.
Funding Africa’s infrastructure needs while mitigating its environmental impact and improving economic resilience against exogenous shocks will require investment well beyond the capabilities of Governments. Public sector financing and support will need to be leveraged to draw in the private sector. This can be done by providing a secure and comprehensive regulatory framework while simultaneously reducing the risks involved in infrastructure and climate-related investment. Escaping the middle-income trap will require a holistic policy approach to ensure not only that economies expand at an adequate and consistent pace, but also that the necessary structural shift takes place. Capitalizing on global efforts to mitigate climate change has the potential to catapult African economies on stronger development trajectories. Investment in clean energy infrastructure and the resulting expansion in access to electricity will be critical to support Africa’s industrialization efforts and, consequently, play a central role in pushing African countries towards high-income status.
Technological advancements, financial innovations and global efforts towards climate change mitigation have changed the context in which middle-income countries pursue high-income status. Government institutions and public policy will have to play a central role in navigating and indeed capitalizing on this new context. The establishment of governing instruments devoted to a modern industrial strategy and making the transition to green, digital, circular and blue economies will enable African countries to implement high-level institutional and coordination mechanisms that will enhance their intersectoral developmental agendas.
