African firms are the key to the economic transformation of the continent, but they need governments to create better conditions for them to thrive, according to the second edition of Africa's Development Dynamics report entitled Achieving Productive Transformation. The report was published by the African Union Commission in collaboration with the OECD Development Centre in November 2019.
Without bold policy changes, most African businesses may not be ready to reap the benefits of the African Continental Free Trade Area (AfCFTA) which is projected to offer African firms the new opportunities of a 1.2-billion-consumer-strong continental market, the authors state.
The report shows that Africa’s expanding domestic markets offer great opportunities for transforming production systems across the continent. Africa recorded 4.6 per cent growth in annual gross domestic product (GDP) between 2000 and 2018; with domestic demand accounting for 69 per cent of it. The continent’s growth is projected at 3.6 per cent in 2019 and should remain robust at 3.9 per cent between 2020 and 2023. The regional demand for processed food has been growing 1.5 times faster than the global average. Large Pan-African firms and some dynamic start-ups are seizing these opportunities to grow, as highlighted in the report.
However, the report finds that Africa needs more dynamic enterprises to turn these opportunities into higher profits, more investment and new, decent jobs. This is especially true of small and medium enterprises in employment-intensive sectors. Progress in quality job creation is too slow: in some countries, almost 91 per cent of the workforce outside of the agricultural sector remain in informal and vulnerable employment.
The report puts forward a systemic approach to productive transformation by focusing on three sets of policies:
1. Develop effective clusters of firms, by providing them with business services that improve specialisation in niches, reinforce linkages between the most productive ones and the others, and address skill shortages.
2. Encourage the creation of regional production networks to generate economies of scale between African countries, attract new investors, develop complementarities within the value chains, and avoid a competitiveness race to the bottom. Regional norms help smallholders integrate into regional value chains, particularly in agriculture, which accounts for 50 per cent of all employment.
3. Enhance firms’ abilities to thrive in new markets. Policies can provide extra support to exporters by removing non-tariff barriers to continental trade, simplifying administrative procedures and customs services, and improving connective infrastructure - especially flights, roads and ports.
Introduced in 2018, the Africa's Development Dynamics report is designed to deepen dialogue and international collaboration on the pan-African agenda of integration and transformation in line with the vision and aspirations of Agenda 2063. The report provides detailed analysis and recommendations for each of the five African regions.
More information and download the report Africa's Development Dynamics 2019: https://www.oecd.org/Development/africa-s-development-dynamics-2019-c1cd7de0-en.htm