Africa’s integration into the global economy is relatively low compared with other developing regions. This could be an impediment to the region’s continued and sustainable economic growth over the long run. As much as trade encourages competitiveness, enhanced competitiveness can in turn increase the level of trade with the rest of the world by raising the standards of product quality and facilitating access to new and larger markets. Moreover, better competitiveness may also attract foreign direct investment and other forms of capital flows seeking enhanced returns and greater diversification. The role that competitiveness can play in improving the continent’s integration with the rest of the world especially is critical.
However, recent Competitiveness Reports offer mixed results about the performance of African countries on the global productivity ladder. While the ranking of some African countries improved, other countries experienced significant decline. Overall, the continent still lags behind the rest of the world in competitiveness. To catch-up, Africa needs to implement policies that would reduce the gap with other regions and reap the benefits of improved competition. In particular, African countries must ensure a healthy economic environment by implementing policies that develop the potential of human capital and strengthening institutional capacity in order to pave the way for a competitive private sector. Competition in turn would lead to an improvement in the sophistication of exports and subsequently foster sustained economic growth and development.
Policies to improve Africa’s competitiveness
Achieving global integration and high levels of competitiveness mainly requires improving labor productivity, enhancing competition in product markets, increasing the level of investment, particularly in infrastructure, creating a stable macroeconomic environment, and increasing economic diversification especially from primary products to manufactured goods and services.
Improving labor productivity
Labor productivity in Africa is low compared to other developing regions. This is mainly due to low quality of education and inadequate skills. The skills shortage in Africa is a major constraint to its development. According to the International Labor Organization, 21 out of 40 countries with the most acute brain drain problems in the world are in Africa. Increasing spending on education and establishing the necessary policies to develop people’s skills and creativity, to attract and keep talented African professionals, are important means of raising productivity and enhancing competitiveness in Africa. Moreover, expanding the opportunities for African women to go into business could stimulate productivity and competition on the continent.
Fostering competition in the product markets
Despite the potential of product markets in Africa, the level of competition within these markets is considered to be low relative to other regions of the world, mainly due to lower competition intensity. Thus, promoting deregulation and privatization and reducing barriers to entry would lay a foundation for many African economies’ competitive entry into the global product supply chain.
Raising the level of investment
The African high growth story over the past decade has not been characterized by significant levels of investment particularly in productivity enhancing infrastructure. Higher investments would be an important catalyst for boosting employment, enhancing growth and reducing poverty. Furthermore, raising the level of savings and investment could play a significant role in fostering productivity through competition, profit seeking and entrepreneurship spirit. Additionally, maintaining stable interest rates and reducing uncertainty and risks faced by investors would lead to more investment flows, and hence competitiveness.
Creating a stable macroeconomic environment
Macroeconomic stability through sound monetary and fiscal policies can help achieve high levels of competitiveness. A stable macroeconomic environment is one characterized by low and stable rate of inflation, stable and competitive exchange rates, liberal financial and capital markets and sustainable debt levels. Global investors are always in search of investment destinations offering opportunities for predictable returns. Therefore, instilling economic confidence would be a catalyst for attracting foreign direct investment and other capital flows. In the long run, this would enhance competitiveness.
The impressive growth in Africa during the past decade has mainly been attributed to the increase in commodity prices rather than higher productivity or improved competitiveness. Economic diversification in African countries from primary products to manufactured goods and services would be an important step towards sustained growth. Indeed, increasing the range of products and services available would ensure that Africa is able to compete in global markets.