The Current Economic Competitiveness of Africa

The global economy faces a number of significant and interrelated challenges that could hamper a genuine upturn after an economic crisis half a decade long in much of the world,

especially in the most advanced economies. The persisting financial difficulties in the periphery of the euro zone have led to a long-lasting and unresolved sovereign debt crisis that has now reached the boiling point. The possibility of Greece, and perhaps other countries, leaving the euro zone is now a distinct possibility with potentially devastating consequences for the region and beyond.
This development is coupled with the risk of a weak recovery in several other advanced economies outside of Europe, notably in the United States, where political gridlock on fiscal tightening could dampen the growth outlook. Furthermore, given the expected slowdown in economic growth in China, India, and other emerging markets, reinforced by a potential decline in global trade and volatile capital flows, it is not clear which regions can drive growth and employment creation in the short-to-medium term.
Policymakers are struggling to find ways to cooperate and manage the current economic challenges while preparing their economies to perform well in an increasingly difficult and unpredictable global landscape. Amid short-term crisis management, it remains critical for countries to establish the fundamentals that underpin economic growth and development for the longer term. African countries, since their independence in the 1960s, were and still are compelled to accept aid because of their continued weakness and economic vulnerability and their urgent short-term needs. The economic justification for aid is based on a perceived inherent lack of capacity of the African continent to rescue itself from the quagmire of poverty and crisis. It is indeed an undeniable fact that, for the last 50 years almost all African countries due to a number of reasons, not only were compelled to accept aid, but also vocally demand international aid even just to survive.
But now, in Africa much of the story has become totally different. There is an acceleration of economic development. While the West is in crisis, and while China and India are giving signs of economic fatigue, the economies of most African countries continue to grow at an average rate of 6-7 percent per annum. The prevailing progress of Africa is not only in GDP growth, but also on the reduction of foreign aid. As the domestic private sector becomes the engine of growth across much of Africa, an increasing number of African countries are beginning to step away from aid dependency. Currently, at least a third of African countries receive aid that is equivalent to less than 10 percent of their tax revenue.
Africa can have a brighter future, and has the potential to become the next emerging market by the end of this decade if political, social protection, quality education, private sector and regional integration are implemented. Investment in infrastructure will promote regional integration and trade, creating an environment that is more conducive to economic growth, the development of markets and paving the way for acceleration in human development.
The complexity of today’s global economic environment has made it more important than ever to recognize and encourage the qualitative, as well as the quantitative aspects of growth, integrating such concepts as social and environmental sustainability to provide a fuller picture of what is needed and what works.
The World Economic Forum’s “Global Competitiveness Report 2012–2013” released amid a long period of economic uncertainty in a bid to contribute to the understanding of the key factors that determine economic growth, helps to explain why some countries are more successful than others in raising income levels and opportunities for their respective populations, and offers policymakers and business leaders an important tool in the formulation of improved economic policies and institutional reforms.
This year’s Report features a record number of 144 economies, and thus continues to be the most comprehensive assessment of its kind. It contains a detailed profile for each of the economies included in the study, as well as an extensive section of data tables, with global rankings covering over 100 indicators.
Accordingly, South Africa is leading the African continent when it comes to economic competitiveness. That is the finding of the World Economic Forum’s 2013 Global Competitiveness Index, which ranks South Africa as 52nd out of 144 countries. This is, however, a drop of two places from last year’s index. Nonetheless, it’s the highest place that any African country managed to achieve. The closest competitor is Mauritius, sitting at number 54, followed by Rwanda at 63.
The other best-performing countries in Africa are Botswana, Gabon, Morocco, Namibia, and Seychelles. Competitiveness is defined here as the extent to which countries have in place institutions and factors to make them productive. Looking at Africa, one can really see a story of gaps. These gaps are twofold: firstly, between Africa and other emerging-market regions, and secondly, between the region’s own economies.
In terms of the first, the report notes that, on a continent-wide level, Africa’s competitiveness is lagging behind Southeast Asia, Latin America and the Caribbean. The areas in which the gap is most evident are those of quality institutions; infrastructure; education; and macro-economic stability. Given that Africa is the world’s youngest continent, with over 50 percent of the population under the age of 30, the report notes that a particular concern is the region’s neglect for its talent pool. Africa is underperforming significantly in education and providing a healthy environment for its citizens.
Then there is the competitiveness divide between African economies themselves. While the likes of South Africa and Mauritius are sitting just below the Southeast Asian average, and above India which is number 59 and Russia, number 67, 14 of the bottom 20 economies on the Global Competitiveness Index are African. The lowest-performing economy on the whole list, number 144, is an African country which is Burundi. The report therefore calls for greater regional integration.
Some of the reasons why regional trade and integration remain low come down to factors like the cumbersome border administration put in place regarding import and export procedures. Lack of use of information technology in these processes, also makes it hard to get useful data. In addition, a continent-wide infrastructure deficit also hits the continent hard, which is a problem more pronounced in landlocked African countries.
But regional integration also remains troublesome as long as African countries continue to face exceptionally diverse conditions and challenges. There is no ‘one-size-fits-all’ blueprint for improving competitiveness, the report notes. A middle-income economy like South Africa takes on problems vastly different from that of a lower income economy like Burundi.
The competitiveness report assesses countries on pillars ranging from technological readiness to business sophistication. When it comes down to the individual pillars, South Africa’s performance is uneven. It leads the continent in “financial market development”, “technological readiness”, “market size”, “business sophistication” and “innovation”. But it doesn’t even feature in the top three African countries when it comes to factors like quality institutions; infrastructure; labour market efficiency; or, unsurprisingly, health and primary education.
For the latter pillar, for instance, South Africa has a rank of 132 out of 144, while a country like Seychelles is sitting at 47. South Africa’s poor education performance, in combination with its poor labour market efficiency performance, points to a country which is flagging in its ability to fully leverage its human resource potential, the report suggests. It points out that even when it comes to higher education, South Africa has a university enrolment rate of only 15%, compared to the 82% of the US and South Korea’s 95%.
Nonetheless, for the continent as a whole, the report does show “gradual improvement”. From 2005 to 2010, there were big gains in African competitiveness in areas like institutional quality and infrastructure development. But since 2010, the report states, these improvements have come to a near standstill or even deteriorated across a number of African economies. Improvements in macroeconomic stability and health and primary education have also either leveled off or even witnessed a slight decline this year.
A survey undertaken by the World Economic Forum in 2012 found that the most problematic factors for doing business in Africa were considered access to financing and corruption, with infrastructure shortages just behind. Fully 3 percent of African growth is being lost due to gaps in infrastructure. To fill Africa’s competitiveness gap, however, there is a different spirit in the air these days. The time is propitious to make changes.