New report finds African entrepreneurship is key to industrialization

Devex
By Christin Roby

Launch of the 2017 African Economic Outlook. Photo by: OECD Development Centre / CC BY-NC-ND

ABIDJAN, Ivory Coast — Promoting an entrepreneurial culture and supporting locally run businesses as a means of furthering regional industrialization will be key to the future success of Africa, according to the 2017 African Economic Outlook, released this week during the African Development Bank’s annual meetings in India.

Following a tough year — mostly due to lower returns from commodities, adverse weather conditions, China’s stumbling growth and a mediocre performance by the global economy — Africa managed 2.2 percent overall GDP growth in 2016.

East Africa remained the dominant success story with subregional growth of 5.3 percent, while West Africa lagged far behind with 0.4 percent GDP growth in 2016 — mostly due to its dependence on agriculture and a decrease in raw exports, the report showed.

The road to industrialization in Africa

Co-authored by the African Development Bank, the Organisation for Economic Co-operation and Development, and the United Nations Development Programme, the 2017 Outlook highlights the fact that entrepreneurs can accelerate much-needed industrialization on the continent, provided that the accompanying regulations and policies support sustainable and inclusive growth.

Industrialization strategies should focus on small businesses and the entrepreneurs that run them to create quality jobs in more diverse sectors, such as agribusiness, tradable services and renewable energy.

“We must move away from necessity-based entrepreneurship to opportunity-based entrepreneurship,” Angela Lusigi, director of UNDP Africa, urged during the report launch.

Twenty-six African countries have a developed industrialization strategy, but many tend to stress the role of large manufacturing companies. A report by the U.N. Economic Commission on Africa showed that the contribution of the manufacturing sector to the continent’s gross domestic product has actually declined since 1980.

But even with the challenges that lie ahead, there are promising developments on the continent, the report detailed.

Increased reliance on local funding — both from the state and private sector — accounted for 60 percent of growth in 2016. More than $56 billion in diverse foreign direct investment in 2016 supported the region’s urbanization, and it’s projected to reach $57 billion this year.

Construction, transport, electricity and ICT investments diversified away from typical natural resource ones.

Entrepreneurs at the core of African industrialization

According to the report, the continent boasts the largest share of adults running or starting a new business, with 80 percent of Africans viewing entrepreneurship as a viable career opportunity. In the 18 countries where statistics were available, 11 percent of the working-age population were entrepreneurs, higher than developing countries in Latin America and Asia, where 8 percent and 5 percent of adults, respectively, ran their own business.

Although participation is high among young adults, to reap the benefits of their home-grown businesses, the report argues that more policies need to be implemented to ensure the long-term success and growth of these small and medium enterprises.

First, policies should prioritize education, apprenticeships and vocational training to strengthen skills and increase managerial capacities to meet labor market needs. Strategies should also promote “green industrialization” to lower its environmental impact, which could be adopted from lessons learned from more developed regions. Innovative peer learning is critical to the new wave of industrialization in Africa, the executive summary stated.

Finally, financial policies should increase firms’ access to sources of finance, an issue addressed during the World Economic Forum on Africa earlier this month, where leaders emphasized the need for innovative digital financial services for entrepreneurs.

“African economies cannot miss out on the next production transformation,” OECD Development Centre Director Mario Pezzini said during the report release. “Entrepreneurs should be lead actors in Africa’s journey into the Fourth Industrial Revolution.”

However, with commodity prices slowly on the rise at year’s end, experts expect economic growth to rebound to 3.4 percent in 2017, assuming that commodity prices continue to recover.

“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 non-resource dependent economies sustaining higher growth for much longer spell,” said Abebe Shimeles, acting director of the macroeconomic, policy, forecasting and research department at the African Development Bank.