Amid the economic turmoil that affected advanced economies in recent years, the sub-Saharan African region provided something of a silver lining in an otherwise broadly felt economic downturn. As growth is now modestly returning in advanced economies, sub-Saharan economies carry on registering impressive growth rates of close to 5 percent in 2013—with rising projections for the next two years—below only emerging and developing Asia. Yet important downside risks remain: although inflation has been coming down from the high rates of the past two years thanks to prudent monetary policy and moderating food prices, rising fiscal deficits—which are most exacerbated in Zambia, Ghana, and Gambia—and a slowdown in emerging markets could dampen growth prospects, particularly in resource-rich economies.
More importantly, more than a decade of consistent high growth has not yet trickled down to all segments of the population. Most economic activity takes place in the informal sector, accounting for more than half of GDP and employing more than 80 percent of the population; only one in two young Africans participates in wage-earning jobs.25 Going forward, the main challenge will therefore be to turn high growth into inclusive growth, touching more of the population. This will require focusing on efforts to transition from still largely agriculture-based economies to higher-value-added activities in order to move the workforce out of agriculture into more productive sectors.26 The urgency of this transition is highlighted by the region’s high population growth. By 2020 more than half of the continent’s population will be below the age of 25.27
Against this backdrop, much remains to be done to lay the foundations for sustainable long-term growth, requiring efforts across many areas. Indeed, more than half of the 20 lowest ranked countries in the GCI are sub-Saharan, and overall the region continues to underperform in many areas of the basic requirements of competitiveness: the infrastructure deficit remains profound, and despite gradual improvements in recent years, health and basic education remains low. Only a handful of sub-Saharan economies—the island states of Mauritius and Seychelles, in addition to Cape Verde—have noteworthy health and education systems. Higher education and training also need to be further developed to provide the skills required for higher-value-added growth. The region’s poor performance across all basic requirements for competitiveness stands in contrast to its comparatively stronger performance in market efficiency, where several of the region’s middle-income economies fare relatively well. Although large regional variations remain in terms of competitiveness—ranging from Mauritius, now a solid 17 places ahead of the second-ranked South Africa, to the lowest ranked Guinea at 144th—efforts to strengthen the very basic requirements for long-term growth will be crucial for sustaining economic growth and making it more inclusive. These efforts will need to emphasize closing the infrastructure deficit and providing the region’s (young) population with the necessary skills to carry out higher-value-added employment.
Mauritius continues its steady upward trend this year, moving up six positions to 39th place and consolidating its lead in the region. Progress is driven by gradual improvements across seven out of the 12 pillars. Overall, the country benefits from relatively strong and transparent public institutions (36th), with clear property rights, strong judicial independence, and an efficient government (26th). Private institutions are rated as highly accountable (14th), with effective auditing and accounting standards and strong investor protection (12th). The country’s transport infrastructure is well developed by regional standards (42nd), especially in terms of ports, air transport, and roads. In addition, the country this year also records improvements in its electricity and telephony infrastructure (44th). Furthermore, the country’s wide-ranging structural reforms that have taken place since 2006 are bearing fruit, as evidenced by its continuous improvements in the areas of market efficiency: financial markets are comparatively deep (26th), its efficient goods market (25th) is characterized by enabling conditions for both domestic and foreign competition, and its labor market efficiency (52nd) has been improving thanks to increased flexibility (18th). Going forward, as income per capita rises and Mauritius moves up the value chain, more effort will be needed to develop its human capital. Although rising enrollment rates, particularly tertiary enrollment, are laudable (40.32 percent in 2012) and its overall score in the quality of education has been improving, other countries are moving even faster. Improving competitiveness will require additional efforts not only to improve higher education and training (54th) but also to mobilize the country’s talent more efficiently (101st), as evidenced by the low share of women in the labor force (115th).
South Africa continues its downward trend and falls to 56th place this year, third among the BRICS economies. South Africa does well on measures of the quality of its institutions (36th), including intellectual property protection (22nd), property rights (20th), the efficiency of its legal framework in challenging and settling disputes (9th and 15th, respectively), and its top-notch accountability of private institutions (2nd). Furthermore, South Africa’s financial market development remains impressive at 7th place,28 although our data point to more difficulties in all channels of obtaining finance this year. The country also has an efficient market for goods and services (32nd), and it does reasonably well in more complex areas such as business sophistication (31st) and innovation (43rd), benefitting from good scientific research institutions (34th) and strong collaboration between universities and the business sector in innovation (31st). South Africa’s transport infrastructure (32nd) is good by regional standards, although its electricity supply does suffer disruptions (99th). But the country’s strong ties to advanced economies, notably the euro area, has made it more vulnerable to the economic slowdown of those economies. These ties are likely to have contributed to the deterioration of fiscal indicators: its performance in the macroeconomic environment—having dropped sharply in the previous year—remains at 89th. Low scores for the diversion of public funds (96th), the perceived wastefulness of government spending (89th), and a more general lack of public trust in politicians (90th) remain worrisome, and security (95th) continues to be a major area of concern for doing business. Building a skilled labor force and creating sufficient employment also present considerable challenges. The health of the workforce is ranked 132nd out of 144 economies—as a result of high rates of communicable diseases and poor health indicators more generally. Higher education and training remains insufficient (86th) and labor market efficiency (113th) is affected by extremely rigid hiring and firing practices (143rd), wage inflexibly (139th), and continuing significant tensions in labor-employer relations (144th). Raising education standards and making its labor market more efficient will thus be critical in view of the country’s high unemployment rate of over 20 percent, with its youth unemployment rate estimated at over 50 percent.
Botswana remains stable this year at 74th place, the fourth spot in the region. Among the country’s strengths are its relatively reliable and transparent institutions (39th), with efficient government spending and low levels of corruption, as well as its sound macroeconomic environment (13th), based on balanced fiscal budgets. However, the country’s heavy reliance on diamond mining (which accounts for one-third of GDP and government revenues) renders it vulnerable to fluctuations in demand, as seen during the global crisis. Botswana’s education system presents another area of concern, particularly for a middle-income country in transition to becoming an efficiency-driven economy. Education enrollment rates at all levels remain low by international standards, and the quality of the education system receives mediocre marks. Yet it is clear that by far the biggest obstacle facing Botswana in its efforts to improve its competitiveness remains its health situation: the country registers one of the highest rates of HIV and one of the lowest life expectancies in the world. Furthermore, its goods market must become more efficient (97th) and its infrastructure must be upgraded (101st), as evidenced by the recent electricity shortages. Going forward, combined efforts across all areas will be needed if the country is to reduce its heavy dependence on the mining sector and to set its economy on a more diversified growth path.
Namibia moves up by two places to 88th position. The country continues to benefit from a relatively well functioning institutional environment (50th), with well-protected property rights, an independent judiciary, and a fairly efficient government. The country’s transport infrastructure is also good by regional standards (52nd) and financial markets continue to be reasonably developed (46th). In order to improve its competitiveness, as in much of the region, Namibia must improve its health and education systems. The country ranks a low 118th on the health subpillar, with high infant mortality and low life expectancy—the result, in large part, of its high rates of communicable diseases, although the data point to an improvement this year. However, to move up the value chain and diversify its economy, efforts to build its human resource base will be critical: school enrollment rates remain low compared with other sub-Saharan upper-middle-income countries, and the quality of its education system remains poor (119th). In addition, Namibia could do more to harness new technologies to improve its productivity levels (89th).
Kenya continues its upward trend from last year and moves up by six places to reach 90th place, registering improvements in 11 out of 12 pillars, most notably in the areas of market efficiency. Its economy is supported by financial markets that are well developed (up by seven places to 24th position), an efficient labor market (25th), and an increasingly more efficient goods market (62nd). Reducing the number of days (32 days) and procedures (10, or rank 118) to start a business could further improve the enabling environment for businesses. Following the adoption of the country’s new constitution in 2010, which introduced additional checks and balances on executive power, Kenya has also registered improvements in the institutions pillar (now at 78th, up from 123rd five years ago). These advances are largely driven by more efficient government and reduced corruption. Furthermore, the country’s education system gets relatively good marks for quality (30th) as well as for on-the-job training (31st). On the other hand, Kenya’s overall competitiveness is held back by a number of factors that hinder its long-term economic growth, particularly in view of its transition toward middle-income status: secondary and tertiary enrollment rates are low; infrastructure—particularly telephony and electricity (114th)—does not meet the needs of Kenya as the largest East African economy; weakening fiscal finances are affecting the macroeconomic environment (126th); and health remains an area of serious concern (117th). Finally, the security situation in Kenya also remains worrisome (128th).
Ghana reverses last year’s downward trend and climbs up to 111th this year, largely as the result of slight improvements in its macroeconomic indicators (reversing last year’s trend), although fiscal vulnerabilities persist: the government deficit stood at 10.8 percent of GDP in 2013, more than twice that of two years ago; government debt remains over 60 percent; and inflation is over 11 percent. With regard to strengths, public institutions are characterized by relatively high government efficiency (59th) and strong property rights (54th). In addition, the country’s financial and goods markets are also relatively well developed (62nd and 67th, respectively). On the other hand, Ghana must do much more to develop and deploy talent in the country. Education levels continue to trail international standards at all levels, labor markets are characterized by inefficiencies, and the country is not sufficiently harnessing new technologies for productivity enhancements (ICT adoption rates continue to be very low). The security situation, at 111th, also remains a concern.
Senegal comes in at 112th this year. Although the country’s institutions (74th) rank still relatively low, our data suggest a steady improvement across a range of indicators, albeit from low levels. Senegal also benefits from relatively efficient goods and labor markets (both at 68th place), red tape to start a business is low even by international comparison (six days and four procedures), and labor-employer relations are reasonably good (57th). Moreover, Senegal hosts relatively good ports (58th), although all other modes of transport require significant upgrading (93rd overall). The country’s competitiveness is further pulled down by the poor health and basic education of its population (131st). Indeed, only three out of four children receive primary education, which is low compared with its middle-income peers, and communicable diseases continue to erode the health of the general population. Higher education and training (119th) are also in need of improvement. These challenges—among others—are prioritized in the country’s new growth strategy, the Plan Sénégal Emergent (PSE).29In addition, the country’s macroeconomic environment remains challenging and is characterized by a high government deficit of 5.4 percent of GDP.
Côte d’Ivoire reverses its five-year downward trend and climbs to 115th place this year. The quality of its public institutions (86th) has continued to improve since the end of the 2010–11 post-election conflict, although from very low levels and in spite of being dragged down largely by the country’s security situation (107th). Improvements this year also take place on the back of continuing fiscal consolidation and efforts to reduce red tape for the private sector; for example, it now takes eight days to start a business compared with over a month last year. Like many of its sub-Saharan peers, the country has a labor market that is fairly efficient (73rd), a ranking that is primarily driven by its high flexibility (40th). Going forward, however, critical challenges remain. Infrastructure (93rd)—although improving—remains underdeveloped. Moreover, Côte d’Ivoire does not meet basic needs in terms of health and primary education (140th), ranking among the lowest 10 countries worldwide on the related pillar. Only 60 percent of its children are enrolled in primary education, and the burden of communicable diseases—particularly the high incidence of malaria and HIV—weighs heavily on its limited workforce, which also does not fully integrate women (107th). Furthermore, technological adoption is low across private users and the business sector, with only 3 percent of the population using the Internet.
Ethiopia moves up to 118th this year, facing challenges across all pillars despite its recent record growth rates. The functioning of its institutions (96th) receives a weaker assessment across almost all indicators, including property rights, ethics and corruption, and government efficiency. Furthermore, the country’s goods market (124th) remains inefficient. Ethiopia also requires significant improvements in the areas of infrastructure (125th), higher education and training (131st), and technological readiness (133rd). On a more positive note, this year points to a slight improvement in the country’s labor market, although concerns about the quality of labor-employer relations (97th), hiring and firing practices (78th), and the alignment between pay and productivity (99th) remain. Primary education, with a net enrollment rate of 86 percent, is comparatively good (although the quality of primary education requires improvement), and women account for a high percentage of the country’s labor force.
Tanzania is ranked 121st in this edition. Inflation—although still high at close to 8 percent—returned to single digits this year, although fiscal indicators remain relatively high. In addition, some aspects of its labor market—such as the country’s strong female participation in the labor force (6th) and reasonable redundancy costs—lend themselves to efficiency. On the other hand, the country’s institutions have been deteriorating over the last several years—although government regulation is not seen as overly burdensome (61st), corruption remains high (98th) and policymaking continues to be opaque (111th). Infrastructure in Tanzania is underdeveloped (130th), with poor roads and ports and an unreliable electricity supply (125th). And although primary education enrollment is commendably high, providing universal access, enrollment rates at the secondary and university levels are among the lowest in the world (at 132nd and 134th place, respectively), while the quality of the education system needs upgrading. A related area of concern is the country’s low level of technological readiness (131st), with low uptake of ICTs such as the Internet and mobile telephony. The basic health of its workforce is also a serious concern: the country is ranked 119th in this area, with poor health indicators and high levels of communicable diseases. In regional comparison, the country’s goods market also remains inefficient, characterized by low domestic and foreign competition. In the near-term future, it will be important not to lose sight of these challenges for the country’s long-term competitiveness, as the country is in the final stages of preparing its new constitution as well as holding elections next year.
Zimbabwe ranks 124th this year. Public institutions continue to receive a weak assessment, particularly related to corruption, government favoritism, and the protection of property rights (138th), reducing the incentive for businesses to invest. Despite efforts to improve its macroeconomic environment—including the dollarization of its economy in early 2009, which brought down inflation and interest rates—Zimbabwe still receives a low rank in this pillar (87th), which is characterized by high government debt, a negative savings rate, and low inflation. Weaknesses in other areas include health (129th in the health subpillar); low education enrollment rates, with only every second child participating in secondary education; and formal markets that continue to function with difficulty, particularly goods and labor markets, which rank 133rd and 137th, respectively.
Nigeria—now Africa’s largest economy—continues its downward trend and falls by seven places to 127th this year, largely on the back of weakened public finances as a result of lower oil exports. Institutions remain weak (129th) with insufficiently protected property rights, high corruption, and undue influence. In addition, the security situation remains dire (139th). Nigeria must continue to upgrade its infrastructure (134th) as well as improve its health and primary education (143rd). Furthermore, the country is not harnessing the latest technologies for productivity enhancements, as demonstrated by its low rates of ICT penetration. On the upside, Nigeria benefits from its relatively large market size (33rd), which bears the potential for significant economies of scale; a relatively efficient labor market (40th) driven by its flexibility (20th); and a solid financial market (67th) following its gradual recovery from the 2009 crisis. However, poor availability and affordability of finance in general and the difficulties in obtaining loans in particular (137th) remain an important bottleneck to economic growth. Ahead of the 2015 election cycle, it will, thus, be critical to keep the ongoing reform momentum to diversify the economy and increase the country’s long-term competitiveness.
Mozambique ranks 133rd this year, with efforts required across many areas to lift its economy onto a sustainable growth and development path, particularly in view of its natural resource potential. The country’s public institutions receive poor marks on the basis of low public trust in politicians, significant red tape faced by companies in their business dealings, and the perceived wastefulness of government spending. Macroeconomic stability is weak (110th) on the back of increased inflation and a high government deficit. Looking ahead, significant reform will be needed to advance the country’s long-term competitiveness, including making critical investments across all modes of infrastructure (128th), establishing a regulatory framework that encourages competition to foster economic diversification, and developing a sound financial market (126th). Also critical, in view of the country’s rapidly growing population and high unemployment, are investing in the healthcare system and primary education (135th) as well as higher education and training (138th).
Angola—the continent’s second biggest oil exporter—ranks 140th overall. As with its oil-exporting peers, its strengths are in its macroeconomic environment and market size, but much remains to be done across the board to build up the country’s competitiveness. Given its favorable fiscal stance, Angola has a unique opportunity to invest revenues in competiveness-enhancing measures. In this context, its poor performance across all governance indicators is worrisome: both public and private institutions are characterized by widespread corruption, and inefficient government spending casts doubt on the country’s ability to spend resource receipts in the most important areas. Furthermore, Angola’s infrastructure is one of the least developed globally (139th), and its population would be well served by improvements in its education and health systems (136th).