No real economic transformation for Africa despite growth

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Innocent Gore

Africa has been experiencing impressively high rates of economic growth since 2001, but there has been no real economic transformation, acting head of Private Sector Development, Investment and Resource Mobilisation in the African Union Commission, Islam Swaleh, said last week.

Speaking to senior journalists from the continent at a media awareness workshop on Africa industrialisation framework hosted by the AU Commission’s Trade and Industry in Addis Ababa, Ethiopia, Swaleh said over the years the high growth rates were in both resource-rich and non-resource-rich countries and that this was due to improved governance, commodity prices, and debt relief.

The high growth rates were also due to elimination of the worst policy distortions, urbanisation, population growth and the attendant demand for goods and services.

However, Swaleh said, there had to date, been little or no real economic transformation in Africa due to the fact that less than 10% of African workers were employed in manufacturing.

Africa, he said, was as a result of the structural adjustment policies and programmes of the 1980s and 1990s, less industrialised today than it was in 1980 and so had in fact undergone a process of “deindustrialisation” which was antithetical to the normal process of economic development.

He also said private investment and modern tradable industries were very low on the continent; and that there was relatively little intra-African trade, which was less than 15% on average, compared to over 60% in other regional blocs such as the European Union and North American Free Trade Area.

“Africa's very high rates of population growth are unprecedented in human history with most African countries projected to more than double their populations over the next 20-30 years,” he said.

“In nearly every country on the continent, rural workers are flocking into cities and towns. Unlike the Asian experience, there are in most cases no manufacturing industries to absorb this migration. Most African economies are dominated by services, retail trade and the informal economy.

“About 50% of Africa's population is under 25 years. with slow or little structural economic transformation, it is projected that only about 25% will find formal sector jobs - regular salaried jobs and the informal sector will continue to be the main source of employment for most Africans.”

Swaleh said most African economies were dominated by services, retail trade and the informal economy. Non-tradable services such as construction, transport, hotels, restaurants and the public sector were particularly important

The informal sector was the dominant feature of most African economies and it was mostly made up of micro and small enterprises (MSMEs) and accounted for most employment.

“There are, however, relatively few modern tradable industries that can turn the African economic potential into reality. Tradable industries are what are needed to be engines of productivity growth and are needed for job creation and value chain linkages especially between manufacturing and agriculture,” he said.

“There have been many reports in the media and from international development institutions about the increased flows of FDI to Africa in recent years. However, most of the FDI into Africa actually goes to only a few countries out of the 55 countries in Africa. According to statistics from UN Conference on Trade and Development (World Investment Report 2013) and the international consulting firm KPMG, fully 50% of all FDI into Africa went to only three countries - Nigeria, South Africa and Ghana. Much of the rest was taken up by, again, a few countries, notably Angola, the Democratic Republic of Congo (DRC) and Kenya.

“Despite the increased FDI flows, most of the 55 countries in Africa are actually not receiving much investment inflows at all. Even with the small number of countries taking up most of these FDI flows, most of the investment has been going into the oil and gas industries, mining and minerals and retail.”

Swaleh said there had been relatively little investment in manufacturing and modern tradable industries and that that was why investment in Africa to date had not been creating the much-needed jobs.

In an effort to boost investment levels on the continent, Swaleh said the African Union Commission(AUC) was mandated during the third Conference of African Ministers in charge of Integration (COMAI III) held in Abidjan, Côte d’Ivoire, in 2008, “to develop a comprehensive investment Code for Africa with a view to promoting private sector participation and investment in Africa”.

The code draws on international best practices for investment, promotes the sustainable development of each member state, in particular the one in which the investment is located, creates a balance between investor obligations and rights, and supports, facilitates and protects investments.

A Specialised Technical Committee (STC) of Ministers of Economy, Finance, Monetary Affairs and Integration was held in March 2016 in Addis Ababa, Ethiopia, to consider the draft code.

Swaleh said a member states meeting on consideration of the Pan African Investment Code (PAIC) was held on 21-23November 2016, in Nairobi, Kenya.

The meeting recommended the adoption of the PAIC as a guiding instrument on investment promotion and facilitation and recommended the use of PAIC as a reference framework document in the negotiation of the continental free trade area chapter.

 

 

 

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