Africa’s performance in an international context
Despite recent rapid growth, African economies on average trail the rest of the world in competitiveness: 15 out of the 20 least competitive economies in the GCI sample that forms the basis of this Report are from Africa. Figure 8 identifies competitiveness “hotspots” and the regions or countries that exhibit weak performances in the GCI. The 10 best-performing countries are shaded in dark blue. The remaining countries are shaded in increasingly warmer tones, moving from a dark purple (the second-best-performing group) through shades of purple-red, dark orange, orange, and finally yellow; this last color identifies the least-competitive nations according to the GCI. As shown on the map, a vast majority of African countries covered in this Report fall into the group of least-competitive economies (orange to yellow). Outside of Africa, only four Latin American countries (Guyana, Haiti, Paraguay, and Venezuela), three Asian economies (Myanmar, Pakistan, and Timor-Leste), and one country from the Middle East (Yemen) perform similarly. However, within Africa, Mauritius, Rwanda, and South Africa (burgundy red), and Botswana and Morocco (lighter red) are relatively more competitive.
Despite high and persistent growth rates experienced in the region for over a decade, Africa’s overall competitiveness has remained stagnant—a message that the Africa Competitiveness Report series has been highlighting since it began in 1998. Figure 9 compares 24 African economies that have been included in the GCI since 2006. Their performance is benchmarked against that of the OECD average, providing a sense of how these regions compare with a group of the world’s more advanced economies; it is also measured against the performance of Southeast Asia and Latin America, which provide more comparable benchmarks in terms of stages of development. For instance, although both Africa and Southeast Asia had approximately the same levels of GDP per capita in the 1960s, Southeast Asia’s GDP per capita has since risen considerably more rapidly than sub-Saharan Africa (see also Figure 1). This is reflected in their competitiveness performance, which shows a stagnation of Africa’s competitiveness overall and a widening gap with Southeast Asia (Figure 9).
Overall, Africa is lagging other regions in establishing the basic requirements for competitiveness, but does comparatively well in the GCI assessment of goods, labor, and financial market efficiency. Comparing Africa’s performance with other, more advanced regions helps to identify the region’s overall strengths and weaknesses. To this end, Figure 10 compares the performance of this year’s sample of 38 African economies with that of regional comparators out of a total sample of 144 economies in the 12 pillars of competitiveness. African economies consistently underperform the Southeast Asian average across all the pillars. The most critical gaps continue to be seen in the areas of basic requirements of competitiveness: institutions, infrastructure, and education and skills.19This is troubling because the majority of African economies are classified as factor-driven economies (see Table 1), so these areas are currently the most critical areas for the competitiveness of these countries. On a more positive note, Africa’s financial, goods, and labor markets function comparatively well (on par, or nearly on par, with Latin America). However, ease of entry and exit from low-wage, low-productivity jobs will not lead to improved competitiveness. It will be important to build upon the region’s comparatively efficient markets by investing in other competitiveness-enhancing reforms.
A particular point of concern is the continent’s weak institutions. Although Africa’s performance is similar to that of Southeast Asia and Latin America and the Caribbean in this pillar, the institutions in all three regions receive scores below 4 out of 7. This suggests that more effort should be made to increase the capacity of the institutional framework, as it provides a critical foundation for the other dimensions of competitiveness. Indeed, the quality of institutions has actually been deteriorating in both OECD and African economies according to the GCI. This might explain in part why Africa’s competitiveness seems to have stagnated in comparison to OECD economies (see Figure 11a). In Africa, a decline in security and government efficiency—two components of the public institutions subpillar—would appear to be at the core of this decline. Sound public institutions and governance are an important prerequisite for economic development; against this backdrop, their weakening—as indicated by the data—raises questions about whether the fundamentals are in position that will put growth on a sustainable footing.
Africa suffers from a persistent infrastructure deficit. The GCI data confirm once more the region’s pronounced infrastructure deficit—a critical bottleneck to reaping the benefits from increased regional integration, a topic explored in the 2013 Africa Competitiveness Report.20 Connecting Africa’s markets will be a critical driver for the region in boosting intra-African trade. Data suggest that, to date, only 11.3 percent of trade in Africa is intra-regional,21 and that total exports remain heavily skewed toward exports of raw minerals. In addition, major bottlenecks—such as the unreliable electricity supply—are hampering the continent’s transition to higher-value-added activities. Africa—based on a sample of 48 economies—generates roughly the same power as Spain, although Africa’s population is nearing 1.1 billion while there are 49 million people in Spain.22
The years between 2006 and 2009 were promising and seemed to usher in a gradual convergence in the region’s performance in terms of the quality of infrastructure compared with that of OECD economies, but the past six years show a divergence (Figure 11b). This is particularly worrisome given that, for the time being, Africa’s performance in infrastructure stands at just little over half of that of the OECD.23Estimates suggest that the annual infrastructure and maintenance needs for sub-Saharan Africa stand at 10 percent of GDP.24The Priority Action Plan of the Programme for Infrastructure Development in Africa (PIDA PAP) alone encompasses an investment need of US$68 billion between 2012 and 2020, incorporating 51 programs of regional importance in the transport, water, energy, and information and communication technologies (ICT) sectors.25Africa’s stagnation with respect to infrastructure stands in stark contrast to the regions of Southeast Asia and Latin America and the Caribbean, where infrastructure investments have managed to reduce the infrastructure gap with OECD economies. Southeast Asia, for instance, has narrowed the gap from 70 percent in 2006 to 80 percent in 2014 (see Figure 11b). One of the main challenges going forward will be to balance public finance and infrastructure investment needs. A recent IMF study, however, finds that the lack of financing is not always the primary cause of infrastructure underinvestment; in many countries, insufficient regulatory and implementation capacity seem to be the main constraints.26
Most worryingly, Africa is not benefitting from its human capital potential. The entire region is underperforming significantly in education and public health (see Figures 11c and 11d). Communicable diseases are not under control in parts of the region; child mortality is over twice that of Latin America and the Caribbean and Southeast Asia; and life expectancy amounts to just 50 years on average, compared with over 70 years in both comparator regions. Similarly, only every second child on the African continent receives a secondary education and just a tenth of the age cohort goes on to enroll in tertiary institutions, compared with over a third in the comparator regions.
Low education levels are a pressing concern in view of the region’s youth unemployment challenge and its potentially detrimental consequences. Events such as the Arab Spring have highlighted the tensions that can arise from a growing population without accompanying economic and social progress that ensures decent living standards, employment, and fair opportunities to better people’s lives.27Already Africa is home to the youngest population worldwide; by 2020 half its population is projected to be under 25 years of age. A World Bank report estimates that each year between 2015 and 2035 there will be half a million more 15-year-olds in Africa than in the previous year.28To absorb this growing labor force, it is estimated that 18 million jobs will need to be created per year until 2035.29
A well-educated workforce will be the single most important enabler for transforming Africa’s economies and allowing them to benefit from a demographic dividend. In the short term, absorbing the large number of new labor-market entrants will require the development of job-intensive sectors (see Chapter 2.1). In the longer term, moving up the value chain into more advanced manufacturing and service sectors while increasing these sectors’ productivity will require significant and immediate investment in education if the workforce is to move beyond simple production processes. Africa’s underperformance in educating its workforce and upgrading skills is particularly worrying given the shift of workers into the service sector, with its large share of value-added and its low (labor) productivity, as explored earlier in this chapter. What is more, high unemployment rates among youth with secondary and tertiary education even in countries that do well on educational attainment, such as Mauritius and Tunisia, indicate a mismatch between the education system and the needs of employers. Surveys among employers confirm these trends: 54 percent of African employers state that job seekers’ skills do not match their needs and 41 percent that the unemployed lack skills in general.30Education can play an even more prominent role by ensuring knowledge spillovers from the natural resource sector to the domestic economy. This will happen only through skills and training efforts (see Box 1), because the adoption of new technologies and strengthening innovation will become more important to ensure that the continent remains competitive going forward.
Despite Africa’s mobile revolution, the region as a whole is not keeping up with the rapid technological improvements elsewhere. The GCI’s technological readiness pillar measures the agility with which an economy adopts existing technologies to enhance the productivity of its industries, with a specific emphasis on its capacity to fully leverage ICTs. This is especially important in view of the changing role of ICTs. Indeed, they have become critical tools in today’s economy, accounting for a significant share of value-added and employment in advanced economies, supporting efficiency gains, and enabling transformative innovation. For developing economies, for instance, a 10 percent increase in the penetration rates of mobile phones has been associated with a 0.8 percent increase in GDP per capita, while the same increase in broadband networks could add a further 1.4 percent to overall economic growth.31
Africa’s rate of mobile subscriptions per 100 population has increased dramatically in our sample: just one-tenth of the population held a subscription in 2006, while over four-fifths held one in 2014, representing a more rapid increase than either of the comparator regions. However, ICTs generally remain a moving target. Figure 11f shows that Africa continues to perform at 50 percent of OECD economies in the pillar on technological readiness. A similar stagnation compared with advanced economies is observed in Latin America and the Caribbean and in Southeast Asia. The situation is even less positive when considering ICT use, one of the two subpillars of the technological readiness pillar (see Appendix A), where Africa’s performance remains just 30 percent of that of OECD economies. Going forward, African economies need not only to make the types of investment necessary to build out their ICT infrastructure, but also to create an enabling environment to fully leverage ICT uptake to boost economic and social impacts.32
In particular, increasing competition in ICT markets will be vital for increasing affordability, improving the provision of services, and accelerating uptake. Almost one out three countries in sub-Saharan Africa have already fully liberalized their ICT markets. This group of reformers includes not only region leaders such as Kenya, Mauritius, and Nigeria, but also fragile and least-developed countries such as Burkina Faso, Madagascar, and Uganda. Competitive markets are low-hanging fruits that can increase ICT use and connectivity across the country. In this year’s sample of 38 African economies, less than 20 percent of the population has access to the Internet, compared with close to 30 percent in Southeast Asia and 50 percent in Latin America. Although the region has shown its capacity for innovative ICT business models, such as the widely known M-PESA system, connecting more of its population to the Internet and closing the gap with other fast-moving economies will be critical for its future, particularly in view of the shift of African economies toward services. As described earlier in this chapter, data show that the transport and communication sector (including ICTs) has experienced one of the highest productivity gains in sub-Saharan Africa since 2000. Once again, a skilled and educated workforce will be needed to scale up, multiply successful ICT businesses, and facilitate the shift toward a higher-value-added service-based economy.33
On the upside, macroeconomic stability in the region has been improving since the last Report, as countries have been reining in inflation and government debt has been stable at around 40 percent of GDP on average. But the region needs to remain vigilant with regard to its macroeconomic stability.34Important downside risks remain—for example, a slowdown in growth in key emerging markets that have been a driving force for Africa’s economies would present severe difficulties; economies that have benefitted from capital inflows could feel the effects of rising interest rates in the United States; and energy-exporting countries could suffer from the four-year low in oil prices. Africa’s limited integration into the global economy has helped to prevent spillovers from the global economic crisis to the continent (with the exception of South Africa). And although integrating into the global economy more fully provides opportunities, it also renders the region more vulnerable to external shocks. Recent work by the IMF suggests that higher growth in advanced or emerging markets translates one-to-one into higher growth in sub-Saharan Africa and vice versa.35Enhancing competitiveness will be critical for attracting sustained investment, and hence sustainable growth.
Finally, improvements in goods market efficiency have been remarkable, primarily on the back of improvements in domestic competition (see Figure 11e). Among the Report’s constant sample of 24 economies, the number of days to start a business, for instance, has halved from about two months in 2006 to below one month in 2014. A recent World Bank report finds that sub-Saharan Africa had the highest number of business regulatory reforms in 2013, with over three-fourths of the region’s economies improving their business regulations for local entrepreneurs.36A strong business environment is critical, as it will set the operating framework for a strong private sector and, hence, for employment creation; it will also facilitate foreign direct investment. At a time when international investment flows were stalling elsewhere, foreign direct investment into the region reached US$57 billion in 2013. In particular, investors have focused on infrastructure development both in the transport and in the utilities sectors. The potential of a large domestic market with an increasing middle class has also gained the interest of consumer-oriented service sectors, such as ICTs, finance, tourism, and retail. In contrast, according to the World Investment Report 2014, the share of foreign direct investment directed to the primary sector has been gradually declining in Africa, while that of the greenfield projects service sector has increased significantly.37