Long considered an economic basket case, sub-Saharan Africa is moving towards its best years in terms of growth since independence. Natural resources could have helped but it extends beyond resource-rich countries. Countries such as Ethiopia and Rwanda have continued to grow at East Asian rates since 1990’s. And businesses and politicians continue to teem with optimism with respect to the country’s future.
The question remains if this performance can be sustained. Thus far, Africa has benefited from a favorable external environment with the global commodity being high and interest rates being low. Private capital flows have supplemented increased official assistance. China’s rapid growth had fueled demand for the regions’ natural resources and stimulated direct investment in the African economies. But, the prolonged slowdown in China and the rest of the world has raised questions whether Africa’s growth can be sustained in the long-run.
The underlying problem is the weakness of these economies’ structural transformation. East Asian countries had grown rapidly by replicating what the advanced nations did post the Industrial revolution albeit in a shorter of time. They turned their farmers to manufacturing workers, diversified the economies and laid emphasis on exporting large number of sophisticated goods.
Little of this process is taking place in Africa. According to a few studies the economic structure of Africa has changed very little giving a cause for much concern for policymakers. African Development Bank, UN Economic Commission for Africa, The African Union and African Centre for Economic Transformation have all expressed concern over the pattern and pace of structural change in the region.
Historically, structural transformation of the economies is driven by industry especially manufacturing. Africa’s experience with industrialization has been rather disappointing. In 2014, the average share of manufacturing in sub-Saharan nations was found to be unchanged at 10 percent from 1970’s. Not surprisingly, many scholars have now even started to question the slow pace of industrialization and have started to raise question-marks over the durability of Africa’s growth.
At the same time, changes in information and communication technology and transport costs have started to shift the boundaries of industry in the region. When the current system of economic statistics was drawn up there was little doubt what the scope of industry was: mining, manufacturing, utilities and construction. Of these, manufacturing was the ‘smokestack industry’ and was reckoned to be a key driver of structural transformation.
Today, a wide range of agro-industrial products and a wide range of services have started to emerge in the region. They do share many characteristics with manufacturing such as being tradable, having high value added per worker and absorbing huge number of moderately skilled workers. They also benefit from agricultural growth and technological change. It is not for nothing that Africa is now reckoned to be a region of ‘growth without smokestacks’.
In a recent study, it has been found that a new pattern of structural change is emerging in Africa with ICT based services, tourism and transport outpacing growth of manufacturing in many African countries. For example, between 1998 and 2015 services exports grew more than six times faster than merchandise exports in the region. Also, in another study, it was found that Rwanda, Kenya, Senegal and South Africa have now developed vibrant ICT based services. Tourism accounts for Rwanda’s thirty percent of total exports making it the biggest contributor in the country’s economic activity. In 2014, tourism contributed 3 percent to South Africa’s GDP with 9.5 million tourists visiting the country. Ethiopia, Ghana, Senegal and Kenya now actively participating in global horticultural value chains.
According to a recent study, it was found that tradable services, agro-industry and industries share many characteristics with manufacturing. Global distribution of manufacturing in the world continues to be shaped by investment climate, capacity to export and agglomeration and it is possible to come up with a strategy for structural transformation.
Key elements of the investment climate include infrastructure, skills and competition. The government in the region to needs to address the infrastructure crises. It also needs to act as an enabler to increase the productivity of African firms.
Export push strategy needs to be adopted by governments on a larger scale and for barriers to export to be lifted across the region.
By investing in special economic zones African governments can possibly support agro-processing services, horticulture and ICT-based services, like manufacturing, through the creation of special economic zones. Although Kenya’s IHub is an example of the governments’ nurturing special ICT zones to create employment. But, governments in the region need to invest more towards ICT SEZ’s if it wants to create meaningful employment for the younger demographics.
Over all it can be assumed that a broader definition, for industries without smokestacks, needs to be thought about to make sense of the on-going unique structural transformation in Africa. The newer sectors offer a potential for a new and complementary path towards structural transformation. Many of these industries have already started to absorb large number of the youth in Africa. Henceforth, the need is for economic planners to focus more on auditing this newer pattern of structural transformation emerging in Africa and implement other best practices from other developing economies for a more nuanced decision-making.
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Chetan Khanna was Digital Lead at ORF.Read More +