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Despite challenges, Africa's future is bright

Despite challenges, Africa's future is bright
  • The manufacturing sector is a significant engine of growth, technological investments and innovation of new products.
  • More regional private-public partnerships should stimulate creation of employment, investment and the growth of the GDP by about five per cent annually.

Developing countries have become increasingly aware of the important role that innovation and efficiency play in driving economic growth and development.

The manufacturing sector is a significant engine of growth, technological investments and innovation of new products.

This sector is viewed as a source of modernisation, employment creation and positive economic spillover effects.

Efficiency in the manufacturing sector in developing countries is critical for industrialisation, yet high costs and inefficiency is a distinctive feature of the manufacturing sector in sub-Saharan Africa.

Other distinctive features include limited access to specialised manufactured inputs, shortage of certain skilled human capital, low investments in infrastructure, macroeconomic volatility and governance challenges.

GPD GROWTH

However, the growth story in sub-Saharan Africa in the past few years has been one of positive recovery from the economic crisis of the past two decades.

This remains the case according to the recent 19th edition of Africa’s Pulse, which estimates gross domestic product growth in 2018 at a lower-than-expected 2.3 per cent, with a forecast to 2.8 per cent in 2019.

Therefore, sub-Saharan Africa is projected to grow to 3.4 per cent in 2019, down 0.1 percentage points from earlier forecast.

In 2020, the region is expected to grow 3.8 per cent. The report also notes that some of the largest African economies— Nigeria, Angola, South Africa and East Africa nations — play a big role in the region’s growth.

While Nigeria grew faster in 2018 than in 2017, thanks to a modest pick-up in the non-oil economy, growth remained below two per cent.

Angola continued its recession, with growth falling sharply as oil production stayed weak.

DIGITISATION

Growth performance, therefore, was mixed in 2018 across the rest of the continent.

Private sector business driving Africa economies can benefit further from regional integration for the second half of 2019.

Growth in resource-intensive economies has been buoyed by stronger commodity prices and higher mining production, but also benefited from higher agricultural production and more public investment.

Non-resource-intensive economies such as Kenya, Rwanda, Uganda, and several in the West African Economic and Monetary Union, including Benin and Côte d’Ivoire, recorded growth in 2018.

In Kenya’s Budget this year, it was important to see Treasury Cabinet Secretary Henry Rotich exempt Value Added Tax for plastic recycling plants and lower corporation tax for five years to 15 per cent to promote waste management.

By contributing to the emergence and dissemination of innovations in trade, agriculture, education, financial services or transportation — and to the modernisation of public administration, including taxation — the digitisation of the economy would revolutionise economic exchanges and increase prospects of growth, employment and poverty reduction.

BIG FOUR AGENDA

In Africa, however, the growth prospects from the digital economy expansion are important.

According to the United Nations, Africa’s population should shift from one billion inhabitants in 2014 to 2.4 billion in 2050, representing a quarter of the world’s population, with the 15- to 24-year-old population rising from 200 million to more than 700 million in 2050 (30 per cent of the African population).

This, it is noted, means “economic and social changes related to digital technology dissemination may be the deepest” in Africa. What is called for is a conducive environment for the digital dividends to enable growth, employment and diversification.

This will be further boosted by implementation of the African Continental Free Trade Area (AfCFTA).

However, some African countries including South Africa, Ethiopia, Rwanda and Sierra Leone have voiced their support and admiration for President Uhuru Kenyatta’s ‘Big Four’ Agenda.

TRADE

Part of the initiative looks to incorporate artificial intelligence, machine learning and robotics into food security, affordable housing, manufacturing and healthcare.

The youth, therefore, stand to benefit from the opportunities presented by the new investments and development projects.

However, the opportunities in East Africa’s intra-regional trade are yet to be fully realised.

The regional challenges include persistent trade disputes, inadequate value addition to the agricultural sector which has affected export prices, non-trade barriers and a restrictive regime.

This limits the capacity of manufacturers to scale up the regional market for products from raw materials that benefit from exemptions and remission schemes.

BARRIERS

Other barriers are competition for the regional market from other producers and regional blocs that benefit from government export subsidies, while more infrastructure, technology and investments to stimulate competitiveness is required.

Despite the challenges in the region, Kenya has made progress, for example, cutting 38 non-conformity barriers with Tanzania to 19.

Therefore, more regional private-public partnerships as a focus in this week’s Kenya budget should stimulate creation of employment, investment and the growth of the GDP by about five per cent annually.

Private sector forecasts vibrant dynamics beyond 2019 as demand across intra-Africa markets continue to show positive growth.

The writer is a Director of East Africa Business Council and Brand Africa trustee