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UN urges African economies to prioritise trade diversification efforts and fintech investment

More local processing and value-added are critical to boost growth and meet jobs demand from the youth 

After over three decades of trade liberalisation, African economies are among the most open in the world but their export bases remain among the most specialised. This lack of diversified export economies is constraining growth and development in the region, the UN Conference on Trade and Development (UNCTAD) said in its Economic Development in Africa report on 14 July.

Pressures from pandemic economics, the report says, have slowed progress towards diversifying trade and developing more local processing: 45 of Africa's 54 economies remain dependent on exports of primary commodities, from farms, mines and oil fields.

UNCTAD classifies a country as commodity dependent when these products are more than 60% of its exports. The international economic crisis, driven by the pandemic and now Moscow's war on Ukraine, has shone a spotlight on Africa's lack of regional supply chains and local industrial capacity.

Many governments are rethinking their trade agreements – particularly restrictive clauses on intellectual property and patents – with European Union, the United States and other regions.

Boosting the manufacture of finished goods is one of a top priority of the African Continental Free Trade Area (AfCFTA), launched on 1 January 2021 but which still needs many more agreements in specific sectors if it is make progress towards a more dynamic continental market.

Moscow's war on Ukraine driving higher energy and wheat prices has underscored the need for African states to speed up their industrialisation (AC Vol 63 No 10, Alarms sound on debt, inflation and food). UNCTAD argues that by diversifying, Africa's economies could better navigate the latest wave of downturns and commodity price volatility (AC Vol 63 No 3, Pandemic hit to growth and trade fuels instability).

'Dependence on commodity exports has left African economies vulnerable to global shocks and hindered inclusive development for far too long,' said Rebeca Grynspan, secretary general of UNCTAD.

Yet UNCTAD's prescription that African states should focus on 'boosting exports of high-value services, expanding access to financial services, tapping into new financial technologies' will require a hefty investment boost. Fintech and associated innovations are developing in Nigeria, Egypt, Kenya and South Africa, many other states have a long way to catch up. The latest round of international interest rate hikes may persuade many banks to slow new investment plans. Finding new sources of finance should be a key policy focus, the report argues.

'By addressing barriers to trade in services, boosting skills and improving access to innovative financing, the region's manufacturing productivity can be enhanced, driving Africa's economic growth and structural transformation.'

'It's critical that African countries start now looking at how they can build the resilience for themselves,' says Paul Akiwumi, UNCTAD's director for Africa.

Governments might take heart from a forecast by Justin Yifu Lin, former chief economist for the World Bank, that the last five years of economic disruption could mean as much of 20% of foreign investment in China may be reallocated to other economies in Asia and Africa.

Along with economists such as Guinea-Bissau's Carlos Lopes and Ethiopia's Arkebe Oqubay, Lin has long advocated for African states to adopt more assertive industrial policies to boost growth and development.

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