Recent years have witnessed a renewed interest in the African continent as the next big investment destination on the back of strong growth and dynamic demographic trends.
More than 20 African countries – close to half – have already reached the middle-income mark and 10 more are expected to join this group by 2025. A growing population and a trend towards urbanisation show potential for a large emerging middle class, while political stability has favoured better economic policies.
This optimism has been reflected widely in the international press, with The Economist hailing Africa as the hopeful continent and Time magazine seeing “Africa rising”. Indeed, it is reminiscent of the awakening of many Asian economies a few decades ago.
There remain vast challenges to attaining a sustained Asian-style growth path in Africa. Improving competitiveness and fostering regional integration are an important part of the story of how Africa can achieve this goal.
Africa’s population of 1 billion – set to increase to 1.6 billion by 2030 – has the potential for a massive economic boost through a “demographic dividend” similar to the one seen across much of Asia.
Yet, benefiting from this trend will require African economies to properly train and create employment opportunities for the 10 million new entrants to the job market every year.
Competitive economies are those that have in place the institutions, factors and policies that drive productivity and thus support high and rising living standards and growth. The Africa Competitiveness Report 2013 shows that growth has so far not been sufficiently matched by improvements in competitiveness.
Competitiveness is uneven across the region with countries such as South Africa and Mauritius reasonably strong, but with 14 out of the 20 least competitive countries in the world hailing from Africa.
African economies trail other emerging regions such as south-east Asia and Latin America on the basic building blocks of a competitive economy, such as effective governance and institutions, adequate infrastructure and education.
Only half of the population in Africa attends secondary school, and a mere 10 percent go on to higher education, compared with close to 40 percent in Latin America and Asia. And, despite rapid cellphone adoption and success stories such as the M-Pesa mobile money exchange system in Kenya, information communication technology uptake remains considerably lower than in other regions, which have been moving even faster to adopt them.
The region’s transport infrastructure is a major barrier to more diversified, higher value-added activities. Poor roads, insufficient port capacity and outdated railroads make it difficult and expensive to do business and get goods to market at the national level as well as hampering trade and greater regional integration.
This is aggravated by high levels of corruption, insufficient property rights and poor governance in many countries, which make it exceedingly difficult to effectively address many of the other problems. Such shortcomings continue to constrain most African economies to producing basic goods and remaining insufficiently diversified.
Africa is the most fragmented continental economy, making regional integration an important opportunity for boosting competitiveness. Despite many regional and partly overlapping regional trading initiatives, much remains to be achieved.
In 2011, sub-Saharan African economies exported a mere 12 percent of their goods within their region, compared with 25 percent in south-east Asia, 49 percent in North America and 65 percent in the EU.
For Asia, increased regional trade over the past two decades has also boosted its ability to export to other regions: trade in developing Asia more than doubled between 1995 and 2010, while trade in sub-Saharan Africa stagnated at a level of less than 2 percent of total world trade over the same period.
Trade policies in Africa have traditionally focused on facilitating access to developed countries. This is a very different approach to the one taken in south-east Asia, where trade polices focus on developing regional value chains that link into global value chains.
These efforts have been accompanied by competitiveness-enhancing policies targeting the institutional framework, facilitating business across borders and mobilising the region’s talent pool.
In other words, regional integration is not an end in itself, but a reinforcing process that requires addressing competitiveness challenges within the country to lay the basis for a strong and striving private sector and increased productivity.
For Africa, the lesson is to focus on enhancing national competitiveness and reinforcing regional integration: when these efforts go hand in hand, they can be expected to mutually reinforce one another.
In the face of these obstacles, there are some positive signs. We have seen some improvement over the past decade in the provision of health care and education, as well as more stable and efficient governance structures in many countries.
And efforts made by regional economic communities are going forward, such as the launch of the common market in the East African Community and progress towards free trade areas in the Southern African Development Community and the Economic Community of West African States.
History has shown that enhanced trade and regional integration expand economic possibilities and boost performance. This is now driving the Europeans and Americans to seriously explore a transatlantic free trade area. Africa is at a crossroads, and decisions and policies made today will determine the region’s future development path and whether the current optimistic outlook is justified.
Efforts are needed to bolster economic potential through reforms and investments that will increase productivity and competitiveness, while greater regional integration would provide an important stepping stone to more diversified, inclusive and sustained growth.
Africa’s leaders should take note and recognise that it is an auspicious moment to take a forward-looking approach and set their economies on sustained growth paths so that future generations can reap the benefits of the continent’s enormous potential.
Jennifer Blanke is the chief economist and senior director at the World Economic Forum. Caroline Ko is an economist in the World Economic Forum’s Global Competitiveness and Benchmarking Network. The 23rd World Economic Forum on Africa opened in Cape Town yesterday, under the theme “Delivering on Africa’s Promise”. The forum closes tomorrow.