Africa’s Structural Transformation Challenge

Donald Kaberuka
Donald Kaberuka

Africa currently needs $390 billion in the medium term to broaden access to economic opportunities for its expanding population and trillion dollars in the long term

|  By Maureen Chigbo  |  May 6, 2013 @ 01:00 GMT

“A MAJOR policy challenge for Africa today is how to broaden access to economic opportunities for its expanding population, including the most vulnerable groups,” according to the 2012 annual report of the African Development Bank, AfDB. The report, which will be presented to the institution’s governors at the 2013 annual general meeting of the AfDB in May in Marrakesh, Morocco, states that “Africa requires structural transformation to propel it towards inclusive growth.” It cited high unemployment and underemployment especially among young people and women as one of the main problems facing the continent today.

Structural transformation will not materialise unless there is a concomitant investment in skills development in areas that have kept the continent behind other developing regions. In this regard, Africa needs to harness its natural resources to build skills for its youthful population in order to leapfrog development and secure a place in the global value chain. Developing skills has a lot of benefits. It will unleash the dynamism of Africa’s untapped entrepreneurship potential, creating opportunities for increased job and wealth creation. An enlightened population is also important in Africa’s global engagement in trade and commerce.

“The key message is that Africa should accelerate its structural transformation by boosting the potential of its youthful population, investing in science, technology and innovation, speeding up its rate of economic integration, greening the economy and supporting private sector enterprise,” the report stressed.

The report identified leadership, degree of economic integration at the national, regional and global levels, as well as inclusive growth as the key factors that can influence transformation. Regional political events, weather, and price shocks must also be taken into consideration. According to the report, Africa’s transformation can be realised by leveraging the huge potentials in some areas such as infrastructure, natural resources, demographics, agriculture and the private sector. Other areas include urbanisation, government/investment climate and technology.  Africa’s infrastructure financing needs about  $390 billion in the medium term, mostly for power and energy and trillions of dollars in the longer term.

In terms of natural resources, it is estimated that Africa’s natural resource extractive industries will contribute more than $30 billion per annum to government revenues in the next 20 years.  Revenues from natural resources could finance a substantial part of Africa’s infrastructural development. Already, some countries have already issued Eurobonds for infrastructure, on the basis of natural-resource revenues.

Another area is the demographics where young people comprise the bulk of Africa’s one billion population. To convert this “youth bulge” into a “demographic dividend” will require investing in skills and the creation of job opportunities on a large and unprecedented scale.

So also is agriculture which sector employs the vast majority of Africa’s population, and provides direct inputs to the agro-processing value chain, supplies food to urban areas, and is also a source of household savings for investment.

Also, as Africa’s economies expand, the private sector, which accounts for 90 per cent of informal employment, will become even more important, especially in the industry. On the ubanisation front, Africa’s cities, with 40 per cent of the population in 2010 — projected to be 50 per cent in a generation, and 65 per cent by 2060 — are increasingly becoming the drivers of consumer demand and hence economic growth. The governance/Investment climate also has to improve as well as better macroeconomic policies, – that is,  lower debt, low inflation and stable exchange rates are essential in fostering economic competitiveness.

Investment in technology, and particularly ICT, has greatly improved public access to information, spurring a knowledge economy and innovative approaches to micro-finance and the mobilisation of rural producers, e.g. Kenya’s M-PESA, Kenya’s innovative mobile banking.

The strategies to unlock Africa’s potential reside in elimination of the causes of national and regional conflict to bring peace; visionary leadership and strong and effective government institutions. Other unlocking strategies are empowering of women and youth; strengthening of human capital development through education and training, especially in science and technology.  Improvements in basic services; fostering diversification, especially in agriculture and rural areas, including sustainable greening of the economy, promotion of manufacturing; and promoting intra-Africa trade through increased domestic and regional investment, and forging strong trade links with emerging partners are also fundamental.

The bank will continue to support and monitor the transformation efforts of the regional member countries. Accordingly, the bank has adopted a 10-year strategy whose overarching goal is to promote socially inclusive and environmentally sustainable economic growth. The core operational priorities of this strategy include infrastructural development; regional integration, private sector development; governance and accountability, as well as skills and technology development.

This is why the forthcoming 48th African Development Bank, AfDB, Group’s 2013 annual meetings and the 39th meeting of the African Development Fund, ADF, will be held under the central theme of “Structural Transformation in Africa.” For the AfDB, transforming Africa’s economies entails diversifying and expanding the sources of economic growth and opportunity in a manner that promotes greater productivity for sustained and inclusive economic development.

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