On average, sub-Saharan Africa’s competitiveness has not changed significantly over the past decade: while a little ground was gained between 2011 and 2015, it has been partially lost again over the past two years. Only four countries (Ethiopia, Senegal, Tanzania, and Uganda) have improved their performance for five consecutive years since 2010. Africa’s recent decline in overall competitiveness is reflected in subdued growth rates—only 1.4 percent in 2016 and a modest 2.6 percent projected for 2017.11 Gross capital formation is now lower than at any other point in the last 10 years.12
Continued deterioration in the macroeconomic environment (Figure 9) is behind most of this year’s fall in competitiveness. Average inflation grew to double digits in 2016 and remains above 10 percent. Public finances are still being affected by past slower global growth and commodity prices, which—although picking up somewhat—remain well below the commodity price levels of the 2005–14 period. As a consequence, African public revenues fell from an average of 26.5 percent of GDP in 2006 to 17 percent in 2016, and many countries are running deficits. In just two years public debt has risen from an average of 31.5 percent to 42.5 percent of GDP, and 22 of the 31 countries assessed by the GCI this year report higher debt than last year.
These challenges are affecting the banking sector, with financial market efficiency continuing to decline. In addition, after four years of improvement, performance in the institutions pillar has worsened this year—particularly in South Africa, Lesotho, and Zambia—while elections in 2017 in Rwanda, Kenya, Liberia, and the Democratic Republic of Congo have increased volatility and uncertainty in the African business environment. These negative trends have been partly compensated by improvements in infrastructure, health, technological readiness, and business sophistication, although Africa remains below the global average in these areas.
There is significant variation across countries. Mauritius is again the most competitive country in Africa, at 45th in the overall GCI, with its main rivals falling back: South Africa drops 14 places to 61st and Rwanda drops seven places to 58th. The most improved African countries year-on-year are Madagascar (121st, up seven), Gambia (117th, up six), Kenya (91st, up five), and Senegal (106th, up six), thanks either to an improved macroeconomic environment (Madagascar and Senegal) or to the efficiency of goods, labor, and financial markets (Gambia, and to a lesser extent Kenya).
In general, restoring macroeconomic stability and institutional trust are short-term priorities to reignite competitiveness and growth in Africa. In the long run, continued investment in infrastructure, human capital, and technological adoption will be needed to reduce productivity gaps (Figure 9).
South Africa (61st) remains one of the most competitive countries in sub-Saharan Africa, and among the region’s most innovative (39th)—but it drops 14 positions in the overall rankings this year. South Africa’s economy is nearly at a standstill, with GDP growth forecast at just 1.0 percent in 2017 and 1.2 percent in 2018—hit by persistently low international demand for its commodities, while its unemployment rate is currently estimated above 25 percent and rising. Political uncertainty in 2017 has decreased the confidence of South African business leaders: although still relatively good in the African context, the country’s institutional environment (76th), financial markets (44th), and goods market efficiency (54th) are all rated as weaker than last year, also partially due to a structural break in the Executive Opinion Survey sample.
Nigeria (125th) moves up two places in the rankings despite its score having fallen every year since 2012. Its macroeconomic conditions are worsening (122nd, down 14), inflation (131st) is high at 15.7 percent, and its budget deficit (98th) has reached 4.4 percent. Institutions appear more fragile (125th, down seven), adding uncertainty to the business environment. Nigeria is struggling to adapt to lower commodity prices, with the potential for structural change impeded by low scores on infrastructure (132nd), technological readiness (112th, down seven), higher education (116th), and innovation capacity (112th). However, new prudential requirements have strengthened the banking sector’s soundness, and the Economic Recovery and Growth Plan (ERGP) for 2017–2020 contains much-needed reforms on transport and power infrastructure, the business environment, and education investment.