Africa needs to industrialise as franchises for made in Africa value chains beckon: AEO 2014

Share |

Africa’s social and economic conditions are progressing steadily, according to the 13th edition of Africa Economic Outlook (AEO) themed, “Global Value Chains and Africa’s Industrialisation.”

The continent has been quite resilient to regional and global headwinds that constrain economic growth, it says, and suggests how Africa can make the most of global dynamic forces to promote inclusive growth and create jobs.

Underscoring the “Africa Rising” narrative, the AEO 2014, published by the African Development Bank, the OECD Development Centre and the United Nations Development Programme, portrays a continent buoyed by the robustness of its critical development indices that have bested global averages in recent years.

According to the publication, Africa grew by about 4%, on average in 2013, compared to 3% for the global economy. Growth, however, has been marked by wide variations across regions and income groups. Sub-Saharan Africa performed better posting 5% growth in 2013 and projected to reach 5.8% in 2014. East and West Africa recorded the fastest growth, above 6%, while the low-income countries also recorded growth of above 6%, compared to the below 3% growth recorded by the upper-middle-income countries in North and Southern Africa.

“Africa’s medium-term growth prospects have improved, on the back of broader political and social stability at home and recovering economic conditions abroad. In some countries and regions, growth is projected to return to levels last seen before the onset of the 2009 global recession,” the report said.

External financial flows to Africa are also on the rise and expected to surpass US $200 billion in 2014, four times their 2000 level in response to the growing investment opportunities on the continent. The report further notes that foreign investment – direct and portfolio – has fully recovered from the effects of the crisis and is projected to reach a record US $80 billion in 2014. The manufacturing and services sectors are attracting increasing share of the continent’s greenfield projects.

However, given the fact that Africa’s share in global value chains remains small at 2.2% in 2011, the AEO emphasises the need for Africa to exploit opportunities presented by the changing global business landscape to establish production franchises. Production processes, it says, have become increasingly fragmented across the globe as companies seek out competitive locations for their various production tasks.

“In this new trade reality, developing countries are no longer obliged to create entire industries to participate in competitive markets. They can now access global value chains directly by providing specific skills or products to international production networks,” which opens up new and quicker development avenues, according to the report.

Nonetheless, the report notes that African markets would remain the primary drivers of growth on the continent, urging governments to make it possible for entrepreneurs to access these markets by providing the soft and hard infrastructure required for integration and economies of scale. “Africans need better roads, more reliable energy supplies but also greater freedom to move between countries and transport their merchandise,” it adds.

On the downside, the report underscores the risks and challenges arising from social exclusion, income inequality, and vulnerability to economic, social and environmental risks continue to threaten Africa’s long-term aspiration for a people-centred and prosperous continent.

Citing the crises in Central African Republic and South Sudan, the publication notes that while risks remain heightened in some regions, the number of crisis point on the continent in general have been on the decline. “Today, most of Africa is at peace and moving forward. In 2014-15, 600 million Africans, including many first-time voters, will elect their leaders,” reads a passage of the report.

The AEO 2014 presents the current state of economic and social development in Africa and projects the outlook for the coming two years. First published in 2002 with reports on 22 countries, this 317-page edition covers all 54 African countries. It comprises three parts: Part one assesses Africa’s performance and prospects. Part two examines the specific theme focusing on global value chains and Africa’s industrialisation. Part three provides comparable notes on each country – in condensed form in this print publication. The publication includes a statistical annex of 24 tables.