Africa: Diversification Is Key To Growth – Analysis

By Jerome Mwanda

Though Africa is urbanizing at a fast rate, agriculture remains the most important sector of the continent’s economy and will have to be its “driving engine out of poverty”, according to a senior United Nations official.

Underscoring his point, UN Industrial Development Organization (UNIDO) Director-General Kandeh K. Yumkella says: Agriculture accounts for 65% of the continent’s employment and 75% of its domestic trade.

At the same time, the fact is that over a third of Africa’s 1 billion inhabitants currently live in urban areas. By 2030 that proportion will have risen to a half, as UN-HABITAT, the United Nations agency for human settlements, said in a 2010 report.

According to the report, the population of some cities is set to swell by up to 85% in the next 15 years. The most populous city in 2010, Cairo, will grow by 23% to 13.5m people. By 2025, however, it will have been overtaken by both Lagos (15.8m) and Kinshasa (15m).

“Food and water shortages, poor infrastructure and a lack of housing are among the problems faced by governments during such rapid urbanisation. Progress in meeting these challenges would be shown by a fall in the proportion of slum-dwellers, who currently account for 70% of urban inhabitants,” the Economist summed up the report.

With this in view, Yumkella believes that “in order to turn bright prospects into employment opportunities for its young people,” Africa needs to embrace economic diversification as well as focus on agribusiness to lift the continent out of poverty and put it on the path to prosperity.

Yumkella was addressing the Africa Caucus Meeting in Kinshasa, the capital of the Democratic Republic of the Congo (DRC), which brought together the continent’s finance ministers, central bank governors, and representatives of international development agencies and financial institutions.

Yumkella stressed the need to boost agricultural productivity to achieve sustainable industrial and agribusiness development as a means of wealth and job creation, saying: “The transformation of agricultural raw materials into industrial products depends increasingly on the capacity of African entrepreneurs to participate and compete in global, regional and local value chains.”

He added: “Accordingly, African agribusiness value chains will have to adapt to changing market conditions, continuously improve efficiency and strive to meet consumer requirements in a competitive global trade system.”

He further pointed out that Africa needs “new learning and innovation systems involving regional cooperation, new types of partnerships between farmers, sellers, investors and researchers, and the right incentives and public actions that crowd-in rather than crowd-out private investment.”

Investment in transport infrastructure, access to energy and water, information and communication technologies and management efficiency were vital for agribusiness to thrive, he noted.

In 2012, in partnership with the UN Food and Agriculture Organization (FAO) and the International Fund for Agricultural Development (IFAD), UNIDO launched the Accelerated Agribusiness and Agro-industries Development Initiative, or 3ADI, to promote value addition to agricultural commodities. The initiative is now operational in 12 African nations.

Economic Report

On June 13, 2012 a report by the UN Economic Commission for Africa (ECA) and the African Union asked African countries to pursue structural transformation to sustain growth, create jobs and reduce vulnerability to external shocks, while another publication urged governments on the continent to do this in a way that protects the environment.

The Economic Report on Africa 2012 notes that African economies quickly rebounded from the 2008 financial crisis as commodity prices rose and export revenues returned to pre-crisis levels, enabling them to finance the necessary investments.

Turmoil in North Africa and the euro area crisis combined to slow growth in 2011, but despite uncertainties some African countries have grown at double digits, reflecting higher commodity prices and strong domestic demand, it add.

Entitled ‘Unleashing Africa’s Potential as a Pole of Global Growth,’ the report states that Africa’s governments need to push through growth-promoting macroeconomic policies in the short run, while adopting long-term development strategies. Specifically, they should increase investments in high-quality education, health and infrastructure that can enhance long-term growth potential.

“In the long-term, African countries must vigorously pursue economic diversification and structural transformation to moderate negative external shocks from the euro debt crisis or volatility in commodity prices (or both) and provide decent jobs for African men and women,” states the report.

In addition, they should intensify efforts to diversify their export destinations, expand economic partnerships, including those with emerging economies, and deepen intra-Africa trade and investment. Crucially, though, Africa can grow faster and become “a global growth pole” by unleashing its productive potential through aggressively investing in infrastructure and human capital, says the report.

Environment

At the same time, the UN Conference on Trade and Development (UNCTAD) is calling for Africa to adopt a “sustainable structural transformation,” so as to achieve much-needed growth while protecting the environment.

“The challenge is to modernize the continent’s economies – including expanding industrial capacity – through the efficient use and consumption of domestic natural resources, thereby avoiding the mistakes made by early industrializers elsewhere,” the agency said in a news release on its Economic Development in Africa Report 2012, also released on June 13.

The report contends that Africa should not follow the same “grow now, clean up later” approach that was adopted by currently industrialized countries. It urges African governments to shift from traditional to modern, less-polluting energy sources, by increasingly powering their economies by renewable energy such as wind, solar and hydro power, as well as expand the use of organic agriculture.

For Africa to successfully transform its economies in a sustainable way, it will need to build capacities to obtain, use and adapt existing environmentally sound technologies to local conditions, the report adds.