By Roberto Crotti

In the past couple of years, growth in Africa has been affected by low commodity prices and economic slowdowns among trading partners. After seeing GDP increases of over 5% in 2014, regional growth is estimated to have been a more modest 3.4% in 2015, and it looks like it will be around 3% in 2016. Although that still makes the continent the world’s third-fastest growing region, this deceleration in economic activity is bad news for Africa’s millions of young unemployed.

Without the tail winds of sustained global growth and high commodity prices, African economies need to increase their levels of productivity and competitiveness if they are to re-ignite economic development and offer more and better opportunities to their people.

This year’s Global Competitiveness Report shows that the region’s competitiveness landscape continues to be divided between those economies that feature in the top half of the index (Mauritius at 45, South Africa at 47), Rwanda at 52, and Botswana at 64) and the 15 economies that are among the bottom 20. Whatever the differences between these countries, they all need to focus on developing stronger institutions, creating better infrastructure, and prioritizing health and technological readiness.

While some progress has been achieved in some aspects of the business environment, infrastructure and ICT, this has been insufficient to improve overall productivity levels, as reflected by a substantially stable performance in this year’s report. These are also the areas where Africa still has the largest disparities compared to the world’s most competitive economies.

In this world productivity gains are achieved through new ideas, new business models and by incorporating new technologies into existing production processes.

More specifically, as the Fourth Industrial Revolution proceeds, innovation and technology are becoming more associated with income levels than they used to be, especially in developing and emerging economies. In this world productivity gains are achieved through new ideas, new business models and by incorporating new technologies into existing production processes.

African

The challenge to create the right investment climate in Africa | Photo Courtesy: Travis Silva via Flickr

This could be good news for African companies, as creating successful global businesses may require less capital and more creativity in the future.

In a region where funding for infrastructure has been insufficient, it will not be easy to expand investment – especially as the economy slows down and public revenues shrink.
However, it presents two important challenges. First, as technological readiness increases its impact on economies and societies, electricity and internet access will become pre-requisites for development – similar to transport and water infrastructure. In a region where funding for infrastructure has been insufficient, it will not be easy to expand investment – especially as the economy slows down and public revenues shrink. At the same time, higher uncertainty about financial risks could also reduce private investments and tighten credit.

Second, advanced skills will be complementary to capital in generating growth through the establishment of innovative and successful firms. Yet investment in education is equally lacking, and young Africans have less of a reason to make these investments if attractive employment opportunities are not available.

To break this impasse, new funds are needed. Capital per se is not lacking in the global economy. Several companies and investors are holding their cash waiting for better opportunities.

To attract these investments, sub-Saharan African economies need to show how much of an opportunity they present. This calls for an improvement to market efficiencies, but also an increase in trust. Policy-makers can do this by making sure property right are protected and by creating a climate of social stability and cooperation among all African stakeholders, such as governments, business and civil society.

The challenge to create the right investment climate lies with African leaders in the public and private sectors. By acting together, they can create the right conditions for turning the abundance of young, talented Africans into a source of prosperity rather than a cause of social unrest.


Roberto Crotti is a Quantitative Economist and Manager with the Global Competitiveness and Risk at the World Economic Forum. 

This article was first published in the World Economic Forum.

Featured Image Credits: RURO photography via Flickr

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