Push for Africa to diversify industry
Deloitte urges countries to rely less on exports and promote manufacturing
AFRICAN economies have been urged to move away from over-reliance on exports to diversification and industrialisation even as the commodity meltdown shows signs of abating. Deloitte managing director for emerging markets and Africa Martyn Davies said yesterday the next upward cycle should provide the economies with opportunities to diversify and industrialise.
Davies said African governments had not, for the most part, taken advantage of the last decade’s growth spurt to diversify, either in their economic structures or their export baskets.
He said the need for economic diversification on the continent was high, even more so given that the growth cycle was at a low point.
Economic history had shown that without diversification into manufacturing and services and away from simple resource extraction, the long-term development prospects of countries were always bleak, he added.
“Nigeria is the leading example of a resource exporter where the disconnect between previously high headline growth figures and developmental reality has been stark. The country has never been as dependent on oil as it has been in recent years, with more than 90% of its export earnings coming from oil,” he said.
Davies said commodity exports, on average, accounted for 80% of total merchandise exports from Africa and made up 70% or more of export earnings for three-quarters of African countries.
However, a handful of countries, such as Madagascar, Senegal, Morocco and several in east Africa, have avoided over-dependence on a single export, either through good fortune or strategic policy implementation. Davies said the relatively more diversified export baskets had cushioned these countries from external shocks, adding that oil-exporting countries with less dependence on the commodity still had a reasonably healthy growth outlook.
Ivory Coast, for example, earned significant foreign exchange revenues from oil exports, but its main export earnings stemmed from cocoa.
Countries that had a high dependence on a single non-oil export commodity were also projected to expand at lower rates, said Davies. “Botswana’s dependence on diamond mining is a point of concern, while Zambia’s over-reliance on copper has also limited the economy’s growth prospects.”
He said several east African countries had actively promoted export diversification, resulting in strong growth in economies such as Ethiopia, Kenya, Rwanda, Tanzania, and Uganda.
Davies added that these countries’ growth prospects were supported by political stability and pragmatic pro-business policy.
Davies said there was no simple recipe for successful economic diversification, but some of the ingredients were: the quality and quantity of physical infrastructure investments in key sectors; effective trade and industrial policies; improving macroeconomic fundamentals through sound fiscal and monetary policies; productivity growth supported by human capital, skills and technology; a broader enabling environment for both local and international investors; and good governance.
Davies urged African governments to adopt pro-industry policies.