Africa’s competitiveness divide
Aggregate numbers mask big differences among African economies, which range from the region’s best-performing economy Mauritius (39th) to the its worst-performing economy, Guinea (144th), indicating that the region is far from a homogeneous entity in terms of competitiveness. Table 2 shows the GCI performance of all African economies covered and comparator regions and countries. Mauritius and South Africa, ranked 39th and 56th, respectively, are the continent’s top performers and come in above the Southeast Asian average—an improvement since the last Report when they ranked below that comparator region. They also rank above the emerging market economies of Brazil and India. They are followed by a second cluster of countries—Rwanda (62nd), Morocco (72nd), Botswana (74th), and Algeria (79th)—which are more competitive than Latin America and the Caribbean on average. A third group of African economies—Tunisia, Namibia, Kenya, and Seychelles—cluster between the Latin American and North African averages. Egypt (119th) and Libya (126th) do less well than the North African average, while a number of countries—Zambia, Gabon, Lesotho, Ghana, Senegal, Cape Verde, Côte d’Ivoire, Cameroon, and Ethiopia—do better than the sub-Saharan average.
These wide differences in the overall performance of African countries demonstrate that countries and country groups are at very different levels in terms of competitiveness, and that there is no one-size-fits-all blueprint for improving competitiveness. Following the IMF’s classification, the following paragraphs group countries into four distinct groups of African economies: oil exporters, middle-income economies, non-fragile low-income economies, and fragile economies.38Figure 12 underscores the divergence within the region across the 12 pillars of competitiveness, showing the average performance of the OECD as an international benchmark (shown by a black circle) and the African average (shown by a blue bar). To complement the analysis further, Table 3 shows the score performance at an individual country level. The aim of this classification is to facilitate discussion and draw some general conclusions about the strengths and weaknesses of these country groups. Yet it is important to note the limitations of such a general analysis, which would need to be complemented by an in-depth country analysis of the specific challenges and priorities (see individual country profiles in Part 3).39
Two basic requirements for competitiveness—infrastructure (pillar 2) and health and primary education (pillar 4)—suffer from the largest competitiveness gaps with other regions (“between” regions). They are also cause of the largest divides within the region, where the differences between the best- and worst-performing economies account for more than three points on the scale of 1–7 (see Figure 12). More positively, this means that some pockets of quality exist that can measure up to other regions. The performance of a few select economies in the area of health and primary education, for instance, is encouraging, where—as previously seen—the region otherwise underperforms other comparator regions by a wide margin. These are the small open economies of Mauritius, Seychelles, and Cape Verde, which score around 6 on the scale of 1–7, as well as four out of five North African economies, which all score above 5 (see Table 3). In these countries, people can expect to live to more than 70 years and enrollment in primary education is well above 90 percent. Figure 12 and Table 3 provide additional information on the similar divergence in these countries’ performance in infrastructure. Although Mauritius receives the region’s best assessment (42nd), followed by Seychelles (53rd), Morocco (55th), and South Africa (60th), the majority of countries in the sample score lower than 3 (out of 7). Some countries, such as Chad and Guinea, score under 2, further illustrating the immense infrastructure challenge on the continent.
The data also point to a large divide within the region in the areas of macroeconomic and financial market performance. Africa boasts some economies with efficient financial markets: most prominent is South Africa, which ranks 7th globally, followed by Kenya and Mauritius. This good performance stands, however, in stark contrast to many economies characterized by rudimentary financial markets, including two North African economies: Algeria at 137th and Libya at 144th. The problem of inefficient financial markets is illustrated later in this chapter by the fact that the majority of business executives consider the lack of access to finance to be the most problematic factor for doing business on the continent (Figure 14). The inability to allocate savings to their most productive investments constitutes an important barrier for the region, preventing it from fully leveraging its growth potential. The divergence in terms of macroeconomic performance is largely fueled by the fact that resource-rich economies—for example, Algeria (11th), Botswana (13th), and Gabon (18th)—perform well on the related indicators. This good performance is largely attributable to the better fiscal position resulting from strong resource revenues at the time data were collected.40 The decline in world oil prices of more 50 percent—from US$115 a barrel in June 2014 to less than US$50 at the time of writing—will have significant consequences for some resource-rich economies because it can expose budget weaknesses. At the same time, it offers an opportunity for energy-importing countries to remove subsidies or use political momentum to gather support for competitiveness-enhancing reforms.
The competitiveness analysis suggests that oil- and gas-exporting economies are a long way from establishing the fundamentals for a competitive economy. Because Africa’s high growth rates are to some extent rooted in oil- and gas-abundance, whether or not growth will be sustainable moving forward has been subject to much debate. On average, Africa’s oil- and gas-rich economies perform as poorly as fragile economies do in eight out of the twelve competitiveness pillars. In particular, these economies are characterized by weak institutions, poor quality or absent infrastructure, a volatile macroeconomic environment, a low level of human capital, and poorly functioning factors and goods markets. Although the poor quality of institutions is somewhat expected in fragile economies, the fact that institutions are weak reveals important insights into the functioning of oil-exporting economies. Although Gabon fares comparatively well in the quality of institutions (79th), its peers mostly populate the lower end of the rankings in this pillar: Chad at 140th, Libya at 142nd, and Angola at 143rd have rankings similar to those of the fragile economies of Burundi (132nd), Guinea (134th), and Mauritania (138th) (see Appendix C). This poor performance raises doubts about their efficient management of resource revenues and their ability to re-allocate revenue proceeds elsewhere in the economy to lay the foundations for more diversified growth while avoiding boom-bust cycles that could jeopardize macroeconomic stability.
In addition to institutional challenges, infrastructure is inadequate in all oil exporters, with all countries in this group ranking below 100. Furthermore, the majority of oil-exporting economies are very poorly assessed in the Inequality-adjusted Human Development Index.41This is worrisome because these economies will need to diversify growth to ensure that resource wealth spreads to all parts of the population in order to make growth overall more sustainable in the long run (see Box 3 for a discussion on inclusive growth). To diversify, a skilled workforce is needed. However, the rankings show that all oil exporters perform very poorly in providing education and skills—indeed, Chad ranks last (144th) on health and primary education and, with a score of 2.1, just 143rd on the higher education pillar. Finally, inefficiencies in goods and labor markets are prevalent. Strikingly, for instance, despite the strides Africa has made in goods market efficiency that has garnered recognition, the region’s oil- and gas-exporting economies largely remain among the bottom 30 performers globally.
Box 2 expands the analysis to all natural resource–rich countries on the continent that record a poor GCI score because there are numerous mineral-rich African countries that are low income as well as fragile and face competitiveness challenges similar to those of the oil- and gas-rich countries. The IMF categorizes resource-rich countries as those countries with energy exports accounting for 30 percent and mineral exports accounting for 25 percent of total exports, or those with revenue from natural resources accounting for more than 20 percent of government revenue. Based on this threshold, Africa counts 22 resource-rich countries (20 in sub-Saharan Africa and 2 in North Africa). The McKinsey Global Institute defines resource-driven countries as countries that meet at least one of three criteria: (1) resource exports accounted for 20 percent or more of total exports in 2011; (2) resources on average accounted for more than 20 percent of government revenue from 2006 to 2010; and (3) resource rents were more than 10 percent of GDP in 2010 or the most recent year for which data are available.42This definition adds eight more countries to the list of African resource-rich economies. Among the top 20 resource-rich countries in sub-Saharan Africa, nine are classified as low income, with GDP per capita below US$1,025, while only Equatorial Guinea is considered high income; a few others, including Botswana, Namibia, and South Africa, are upper-middle income.43
Overall, low-income economies have registered improvements in their competitiveness since the GCI 2013–2014. Non-fragile low-income economies are dispersed throughout the middle to the bottom of the rankings, ranging from Rwanda at 62nd to Sierra Leone at 138th. This is a diverse group of countries that includes all low-income countries not classified as oil-exporting or fragile, and where “economic development can be explained by reference to more conventional economic factors.”44Overall, this group performs better than both oil-exporting and fragile economies across most pillars. The difference between these groups and low-income economies is particularly pronounced in the quality of institutions and goods, labor, and financial market efficiencies. Kenya (ranked 24th) and Rwanda (ranked 55th) boast more efficient financial markets than their peers. Similarly, Rwanda and Gambia have relatively good institutional environments, ranking 18th and 44th, respectively, in this pillar and pulling up the average for this group, which closes with Mali at 126th. A majority in this group have relatively efficient labor markets. As indicated in Table 3, Rwanda, Kenya, and Uganda lead African economies in this pillar, and more than two-thirds of these economies are in the upper half of the global rankings. On the other hand, a majority of low-income African economies perform poorly in the areas of infrastructure, education, and technological readiness, placing them in the bottom third of the global rankings in these areas.45
Africa’s middle-income economies on average compare well with other regions, such as Latin America and the Caribbean, having put in place the basic requirements of competitiveness. Africa’s middle-income economies face a more complex and diverse set of competitiveness challenges than all other groups. Having entered the middle-income group, these countries will need to put into place the fundamentals that will allow them to transition to higher-value-added activities. In this light, some important variations in performance are evident, and middle-income African economies range from Mauritius at 39th to Swaziland at 123rd. Although middle-income economies outperform on average their regional peers in institutional quality, they barely reach the middle score of this pillar (4 on a scale of 1–7). As described earlier, these countries generally have already built a better infrastructure than their peers (with the exception of Zambia, Lesotho, and Senegal, which score below 3 on a scale of 1–7) and have particularly well-functioning goods and financial markets. To progress, business will require a talent pool on which to draw, and this is an area where most middle-income economies have reached a bottleneck. With a few exceptions, most of them place somewhere in the lower half of the rankings of the pillars that gauge a country’s ability to fully leverage its human resource potential. South Africa, for example, ranks just 113th in the labor market efficiency pillar and has a university enrollment rate of just 19 percent, compared with 94 percent in the United States and 99 percent in the Republic of Korea.46Going forward, increasing education attainment rates and adapting education to match the skills needed by the private sector as well as making the labor market more flexible will be critical for the required structural transformation.