investment growth—especially in South Africa—expected to be only partly offset by a modest increase in TFP growth.<sup>27</sup> Weaker potential growth would delay the reversal of pandemic-inflicted losses in per capita incomes and hinder poverty reduction in SSA. The world’s extreme poverty is increasingly concentrated in SSA: nearly 60 percent of people living in extreme poverty live in the region (World Bank 2022a).<sup>28</sup> The COVID-19 pandemic reduced per capita incomes in SSA by nearly 5 percent in 2020, twice as much as in EMDEs more broadly, and caused widespread losses in learning and health outcomes (World Bank, UNESCO, and UNICEF 2021). Recent sharp cost-of-living increases caused by soaring food and fuel prices, largely resulting from the war in Ukraine, are pushing even more people into extreme poverty and acute food insecurity across the region. Boosting potential growth in SSA could substantially mitigate the damage arising from these developments.

The sharp deceleration of growth since 2019, triggered by the pandemic and steepened by Russia’s invasion of Ukraine, increases the likelihood of SSA missing the Sustainable Development Goals (SDGs). Investment has fallen across most SDG sectors, worsening constraints in industries that were already weak prior to the pandemic, such as power generation, agriculture, and health (UNCTAD 2021a). The SSA region also remains one of the most vulnerable to climate change-induced disruptions to development prospects (Rozenberg and Fay 2019).

This multitude of challenges confronting SSA underscores the urgency of structural reforms to boost potential growth, including reforms that spur private investment, skills development, and female labor force participation. There are substantial opportunities to boost potential growth through investment in SSA food systems and green and resilient infrastructure, with benefits magnified through productivity-enhancing technology transfers. Comprehensive reforms to strengthen health care, labor force participation, education, and social protection could similarly be transformative, unlocking the region’s underutilized potential human capital.

# 10.2. Evolution and drivers of potential growth in SSA

Potential output growth in SSA stood at 3.2 percent a year during the 2010s, only slightly below its average of 3.4 percent during the 2000s (figure 21). The experience of SSA contrasts with that of EMDEs as a whole, where potential growth during 2010s was a full percentage point slower than in the first decade of the 2000s.

The relative stability of potential output growth in SSA reflects two largely offsetting factors: a boost from a significant increase in public investment and a rise in the workingage share of the population being canceled out by a sharp deceleration in total factor productivity (TFP). TFP in SSA decelerated sharply in the 2010s, and especially in 2015-

> 27 This section draws on estimates of potential growth for 14 EMDEs in SSA, which together accounted for over a third of the region’s GDP in 2021. Estimates are available for Benin, Burundi, Cameroon, Gabon, Kenya, Lesotho, Mauritania, Mauritius, Mozambique, Namibia, Niger, Senegal, South Africa, and Togo. 28 Extreme poverty is measured as the number of people living on less than $2.15 using 2017 prices.