What can an economically stable and future-oriented Africa look like? At an event organised by the sub-Saharan Africa Initiative of German Business (SAFRI – Subsahara-Afrika Initiative der deutschen Wirtschaft), representatives of the African Union and the OECD Development Centre presented their joint economic report "Africa's Development Dynamics 2019" at the end of February 2020. The BDI is one of the supporting organisations of SAFRI. The analysis provides a precise overview of the current situation and potential of the African markets:
- Africa's gross domestic product (GDP) has grown by 4.6 percent annually since 2000. This is the second fastest growth rate in the world. The growth rate of the continent is predicted for 3.6 percent in 2019 and expected to remain robust at 3.9 percent between 2020 and 2023.
- Africa's domestic demand is the main driver of this growth performance. The African middle class has grown from 108 million people in 1990 to 247 million in 2013.
- Demand is increasingly shifting to processed goods. Regional demand in Africa for processed food has grown 1.5 times faster than the global average. Large pan-African companies and dynamic start-ups are already seizing these growth opportunities.
- However, most African entrepreneurs are not benefiting from this dynamic, as their productivity is not strong enough. Since 2000, average labour productivity in Africa has stagnated at around 12 percent of the US level. The labour productivity ratio between Africa and Asia has fallen from 67 percent in 2000 to 50 percent in 2018.
Strong companies are key to economic advancement
Africa needs solidly growing companies to turn opportunities into higher profits, more investment and new, decent jobs. This applies in particular to small and medium-sized enterprises in labour-intensive sectors.
The report proposes a systemic approach that leads to change – through:
- the development of effective clusters of enterprises for cooperation, such as in the training of skilled workers or product specialisation,
- promoting regional production networks to attract new investors and develop synergies within value chains,
- strengthening the capacity of enterprises to enter new markets by reducing non-tariff barriers to continental trade, simplifying administrative and customs procedures and improving infrastructure
The German industry can make a positive contribution to strengthening African companies and improving the local economic frameworks. Two examples: The BDI supports the East African Business Council (EBAC) - which represents the interests of companies in the East African states of Burundi, Kenya, Rwanda, Tanzania, South Sudan and Uganda. This is part of a BMO Partnership Project (BMO – Business Membership Organisations)“ since 2015. It is aiming at giving the private sector a stronger voice, for better framework conditions and private sector investment. With a second project "Creating Perspectives" and in cooperation with the EABC, the BDI is connecting German and East African companies to strengthen transfer of knowledge and technology. The aim is to increase the productivity of African companies and promote regional networks. Thus, the BDI's initiative is already based on the proposals of the report.
The pan-African free trade zone holds enormous potential
At the presentation of the report in Berlin, representatives from business and politics emphasised the great opportunities which the African Continental Free Trade Area (AfCFTA) offers companies. “The entry into force of the African Continental Free Trade Area in 2019 marks a strong commitment by African leaders towards productive transformation. But it will only work, if African firms are strong enough to compete in this new, enlarged market. They need bolder and smarter government policies to support them”, stated Mario Pezzini, Director of the OECD Development Centre and Special Advisor to the OECD Secretary-General on Development.
The agreement covers 1.2 billion consumers and could create a common gross domestic product (GDP) of over 2 trillion Euro. By 2022, all tariffs on services and 90 percent of product tariffs on the continent are to be abolished. Africa’s GDP could rise by 1 percent and total employment by 1.2 percent per year.