Kathy Gibson reports from the World Economic Forum on Africa in Cape Town – Declining productivity and a lack of focus on the basics are impacting Africa’s competitiveness.
These are the key messages from the Africa Competitiveness Report 2015 which shows that, despite high economic growth rates in the region, competitiveness has been stagnating and even falling.
This is partly as a result of weaknesses in infrastructure, institutions and education, says Caroline Galvan, senior manager: Global Competitiveness and Benchmarking Network at the World Economic Forum.
Competitiveness is defined as all of the factors, institutions and policies that determine a country’s level of productivity. Productivity, in turn, sets the sustainable level and path of prosperity that a country can achieve.
The Africa Competiveness Report 2015 concludes that there are four levers it is critical for the continent to tackle.
They are developing transport and ICT infrastructure, increasing the quality of education, reducing barriers to trade and strengthening the regulatory framework.
Although efforts to address these challenges are underway in some African countries, they must be scaled up and accelerated if the continent is to improve its competitiveness.
Interestingly, the resource-rich countries are the ones generally performing the worst in competitiveness, with Guinea bringing up the bottom of the table and Angola and Mauretania lagging as well.
At the same time, many middle-economy countries are stagnating.
Galvan points out that the continent has made strides in areas like ICT and macro-economic stability. “But we need to get the basics right: infrastructure, institutions and education – these are things that take a long time to take effect so they need to be addressed now.”
The report highlights the fact that many of Africa’s competitiveness challenges are the same as when it was first published in 1998: weak institutions, a persistent infrastructure deficit and low levels of health and education leave the continent’s human capital untapped.
Despite the African mobile revolution, the continent is not keeping pace with technological advancement, with only one-fifth of Africans using the Internet – and often its potential is not fully realised where it is in use.
On the positive side, governance across the continent has improved; and Africa is now classified as the world’s most rapidly reforming region when it comes to its business environment.
Africa cannot be viewed as a single entity, however, and there are wide regional disparities in competitiveness, particularly in the areas of infrastructure and health, primary education, and financial and macroeconomic performance.
The African Competitiveness Report highlights three main areas of the economy: agriculture, manufacturing and services.
Agriculture is declining in importance, although it still accounts for 50% of the employment on the continent.
African agriculture has been the least productive in the world and virtually stagnant for the last four decades, according to the report.
Slow agricultural growth is constraining Africa’s structural transformation process and economic diversification, with a reliance on subsistence production preventing the workforce from moving out of the sector into manufacturing and services.
More competitiveness in agriculture will support transformation, increase food security and contribute to meaningful poverty reduction.
Information and communications technology (ICT) has been identified as one of the key elements that can help to improve competitiveness in the agricultural sector, with rural infrastructure and value chains also playing a part.
Irrigation infrastructure is singled out as being of critical importance. Currently, only 4% of African agriculture is irrigated, although this has the potential to radically increase productivity.
Other areas that need to be addressed are the regulatory system, spending on research, land reforms and greater agriculture value-chain integration.
Africa is not following the traditional transformation path, the report finds. Typically, economies would transition from agriculture to manufacturing, with services a competitive advantage for advanced economies.
In Africa, agriculture is declining, manufacturing is stagnating and services are showing strong growth – although productivity levels are low, with employment growth in the sector grow faster than its contribution to GDP.
So, while service exports are growing, there are many barriers to greater service export competitiveness.
The report suggests that African countries need to reduce direct barriers to trade in services as well as indirect ones that result from poor regulation in order to maximise the potential of service exports.
One of the ways that Africa could increase its competitiveness is through global value chains (GVCs), which would help enhance productivity, skills development and export diversification.
This would require the implementation of a broad set of policies that focus on trade facilitation, investment policy and improved transport infrastructure, and access to finance.
In addition, the harmonisation of regional trade agreements would help SMEs to develop greater capacity to compete on a global scale.