Entrepreneurs key to unlocking continent’s economy – AfDB report

22nd May 2017 By: Megan van Wyngaardt - Creamer Media Contributing Editor Online

With the continent continuing to face sluggish growth, African governments need to integrate entrepreneurship more fully into their industrialisation strategies, the African Development Bank’s (AfDB’s) ‘African Economic Outlook 2017’ suggests.

Last year, Africa’s economic growth slowed to 2.2% from 3.4% in 2015 owing to low commodity prices, weak global recovery and adverse weather conditions, which impacted on agriculture production in some regions.

Further, the slowdown in large African economies, such as South Africa, is also having a major impact.

Here, a slump in mining and quarrying, among other factors, resulted in estimated weak growth of 0.4% for 2016, while the country is still reeling from a power deficit and the ongoing drought induced by El Niño.

Paired with political uncertainty and long-standing structural issues, the country’s foreign direct investment (FDI) inflows are expected to remain sluggish at $1.7-billion. Further, while historically the continent's largest investor of outbound FDI, South Africa’s FDI outflows have declined by 30% in 2015 to $5.3-billion, and by an additional 58% in 2016 to $2.2-billion. This is a continent-wide trend.

“With dynamic private sectors, entrepreneurial spirit and vast resources, Africa has the potential to grow even faster and more inclusively,” countered AfDB forecasting and research department macroeconomic policy acting director Abebe Shimeles.

There are promising developments across the continent. Africa’s growth increasingly relies on domestic sources, as shown by dynamic private and government consumption that, combined, accounted for 60% of growth in 2016.

This growth also coincides with progress in human development: 18 African countries had achieved medium to high levels of human development by 2015.

Finally, FDI attracted by the continent’s emerging markets and fast urbanisation, stood at $56.5-billion in 2016 and is projected to reach $57-billion this year. Such investment has diversified away from the natural resources sector to construction, financial services, manufacturing, transport, electricity, and information and communication technology.

“Although economic headwinds experienced in the last two years appear to have altered the ‘Africa rising narrative’, we firmly believe the continent remains resilient, with nonresource-dependent economies sustaining higher growth for much longer spells,” said Shimeles.

However, progress would remain uneven, the report highlighted, noting that African governments would need to push their agenda for job creation with more ambitious and tailored policies.

Despite a decade of progress, 54% of the population in 46 African countries are still trapped in poverty across multiple dimensions – health, education and living standards. Further, demands for better employment opportunities are the main reason behind continued public protests, having motivated a third of all public demonstrations between 2014 and 2016 – albeit in a context of decreasing levels of civil unrest.

With the size of the workforce likely to increase by 910-million between 2010 and 2050, creating more and better jobs will remain the core challenge for African policy-makers.

“The key to successful development in Africa is to nurture the emerging culture of entrepreneurship, to use the famous words of Hernando De Soto, ‘el otro sendero’ (the other path) for development; a path that can unleash high-octane creativity and transform opportunities into phenomenal realisations,” said United Nations Development Programme Africa regional director Abdoulaye Mar Dieye.

It is paramount that Africa achieve a new industrial revolution if it is to turn the challenge of higher population growth into an opportunity, he says. Twenty-six African countries today have an industrialisation strategy in place, but most of these strategies tend to emphasise the role of large manufacturing companies at the expense of entrepreneurs in sectors with the potential for high growth and employment creation, including start-ups and small and medium-sized firms.

Businesses with fewer than 20 employees and less than five years’ experience provide the bulk of jobs in Africa’s formal sector. Additionally, the advent of digital technologies and new business models is blurring the boundaries between manufacturing – which is now bouncing back at 11% of Africa’s gross domestic product – and the services sector.

“Industrialisation strategies thus need to support other sectors where African economies have comparative advantage, such as agribusinesses, tradable services and renewable energy. New strategies need to avoid dependence on businesses that are not environment-friendly,” the report stated.

According to the outlook, Africa has high untapped potential for entrepreneurship. In 18 African countries, 11% of the working-age population set up their own firms to tap specific business opportunities.

This is higher than in developing countries in Latin America (8%) and in Asia (5%). However, few of them invest in high-growth sectors, grow to employ more workers or introduce innovations to markets.

To turn their dynamism into an engine of industrialisation, African governments can improve the skills of workers, enhance the efficiency of business clusters – such as industrial parks and special economic zones – and increase access to finance, with more affordable credit and more innovative instruments, for small and young firms.