"Africa's Development Dynamics 2019" - Strategies for economic advancement

What can an economically stable and future-oriented Africa look like? At an event organized by the Sub-Saharan Africa Initiative of German Business (SAFRI), 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. BDI is one of the supporting organizations of SAFRI. The analysis provides a detailed overview of the current situation and potential of 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 continent's growth is forecast at 3.6 percent in 2019 and is expected to remain robust at 3.9 percent between 2020 and 2023.
• Africa's domestic demand is the main driver of this growth performance. Africa's middle class has grown from 108 in 1990 to 247 million people in 2013.
• Demand is increasingly shifting to manufactured goods. Regional demand in Africa for processed food has grown 1.5 times faster than the global average. Large Pan-African companies and startups are already taking advantage of these growth opportunities.
• However, the majority of African entrepreneurs do not benefit from this dynamic because their productivity is not strong enough. Since 2000, Africa's average labor productivity has stagnated at about 12 percent of the U.S. level. The labor productivity ratio between Africa and Asia has fallen from 67 percent in 2000 to 50 percent in 2018.

Strong companies as key to economic advancement

Africa needs stable growing businesses to turn opportunities into higher profits, more investment and new decent jobs. This is especially true for small and medium-sized enterprises in employment-intensive sectors.

The report proposes a systemic approach to achieving transformational change:

• By developing effective clusters of companies for collaborations, such as skilled worker training or product specializations,
• promoting regional production networks to attract new investors and develop synergies within value chains and by
• empowering businesses to enter new markets by reducing non-tariff barriers to continental trade, simplifying administrative and tariff procedures, and improving infrastructure.

The BDI is getting involved

German business can make a positive impact in strengthening African companies and improving the local economic environment. Two examples: As part of an association partnership, the BDI supports the East-African Business Council (EBAC) - which represents the interests of companies in the East African states of Burundi, Kenya, Rwanda, South Sudan, Tanzania and Uganda. This is intended to give 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 networking German and East African companies and strengthening knowledge and technology transfer. The aim is thus to increase the productivity of African companies and promote regional networks. Thus, the BDI's initiative already addresses the report's proposals.

Pan-African free trade area holds huge potential

At the report's presentation in Berlin, representatives from business and politics emphasized the great opportunities that the AfCFTA transcontinental free trade area offers businesses. "The launch of the African Continental Free Trade Area in 2019 marks a strong commitment by African leaders to productive change. But it will only work if African companies are strong enough to compete in this new, expanded market. They need bolder and smarter government policies to support them," said Mario Pezzini, director of the OECD Development Centre and special adviser to the OECD secretary-general on development.

The agreement covers a total of 1.2 billion consumers and could create a combined gross domestic product (GDP) of more than two trillion euros. By 2022, all tariffs on services and 90 percent of product tariffs on the continent would be eliminated. Africa's GDP could increase by one percent and total employment by 1.2 percent per year.