Africa

Africa must diversify its exports to survive further economic shocks: Report

African countries can overcome commodity dependence by investing in high knowledge-intensive services and improving competitiveness in the private sector

 
By Susan Chacko
Published: Thursday 14 July 2022
Africa must strengthen links between the services sector and manufacturing to diversify its exports. Photo: iStock
Africa must strengthen links between the services sector and manufacturing to diversify its exports. Photo: iStock Africa must strengthen links between the services sector and manufacturing to diversify its exports. Photo: iStock

African countries, whose economies have been badly impacted due to the COVID-19 pandemic and the war in Ukraine, can prevent this from happening in the future by diversifying their efforts, a United Nations Conference on Trade and Development (UNCTAD) report released July 14, 2022, said.

The continent’s 54 countries must shift to information technology and financial services and also strengthen links between the services sector and  manufacturing to diversify their exports, it added.

The main reason for global events such as COVID-19 and the Ukraine war affecting African countries is that most of their economies are dependent on commodity exports. UNCTAD considers a country to be dependent on commodities when they make up more than 60 per cent of its total merchandise exports.

Based on this definition, 83 per cent of African countries are commodity-dependent, accounting for 45 per cent of the commodity-dependent countries worldwide.

Forty-five of 54 African economies rely on exports of volatile primary products. Such products are goods that are made available from cultivating raw materials without a manufacturing process. These include agriculture, fishing, mining and forestry products:

  1. Twelve African economies rely mainly on exports of oil, natural gas and coal
  2. Sixteen depend mostly on exports of mining minerals such as gold, copper and iron ore
  3. Seventeen export mainly agricultural products like cocoa, coffee, cotton and tea

When their prices drop, exports and government revenue fall and unemployment and poverty soar.

Transforming Africa

Three actions could help Africa diversity its exports, according to the report:

  1. Investment in high-knowledge services such as information technology and finance
  2. Strengthening links between services and other economic sectors such as manufacturing
  3. Leveraging the potential of African businesses, especially tech-driven startups

The key reason why export diversification remains a challenge in Africa is neglect of the potentially transformative role of high knowledge-intensive services, such as information and communications technology services and financial services.

The services sector in Africa accounts for only 17 per cent of the continent’s exports. It is dominated by traditional services like travel and transport. It could be a forceful impetus for economic diversification, growth and structural transformation in Africa, according to the report.

However, this requires that policies be aligned to build links between the services sector and other sectors of the economy, especially manufacturing, it added.

The implementation of the African Continental Free Trade Area may help catalyse national efforts to link these services and industries and prioritise services sectors that are relevant to a value chain that is strategically important for a given country.

The recent growth of financial technology (fintech) firms in Africa is spurring more innovation and investment opportunities. Fintech has the potential to help African countries achieve financial and social inclusion, the report noted.

The report was titled ‘Economic Development in Africa Report 2022’.

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