The AfDB’s Compelling Case for Africa’s Structural Transformation

AfDB image23/04/2013: The African Development Bank (AfDB) Group’s 2013 Annual Meeting take place from 27-31 May in Marrakech, Morocco. The meetings of the AfDB and of the African Development Fund (ADF) will be held under the central theme of “Structural Transformation in Africa.”

For the AfDB, transforming Africa’s economies entails diversifying and expanding the sources of economic growth and opportunity in a manner that promotes greater productivity for sustained and inclusive economic development.

“A major policy challenge for Africa today is how to broaden access to economic opportunities for its expanding population, including the most vulnerable groups,” the Bank says in its 2012 Annual Report, which will be presented to the institution’s Governors at the Marrakech meetings.
“Africa requires structural transformation to propel it towards inclusive growth,” the report says, citing high unemployment and underemployment especially among young people and women, as one of the main problems facing the continent today.

Structural transformation will not materialize unless there is a concomitant investment in skills development in areas that have kept the continent behind other developing regions. In this regard, Africa needs to harness its natural resources to build skills for its youthful population in order to leapfrog development and secure a place in the global value chain. Developing skills will unleash the dynamism of Africa’s untapped entrepreneurship potential, creating opportunities for increased job and wealth creation. An enlightened population is also important in Africa’s global engagement in trade and commerce.

“The key message is that Africa should accelerate its structural transformation by boosting the potential of its youthful population, investing in science and technology and innovation, speeding up its rate of economic integration, greening the economy and supporting private sector enterprise,” the report emphasized.

The report identifies leadership, degree of economic integration at the national, regional and global levels, as well as inclusive growth as the key factors that can influence transformation. Regional political events, weather, and price shocks must also be taken into consideration.

According to the report, Africa’s transformation can be realized by leveraging the huge potentials in some of the following areas:

  • Infrastructure – Africa’s infrastructure financing needs — about USD 390 billion in the medium term, mostly for power and energy — are in the USD trillions in the longer term.
  • Natural resources – It is estimated that Africa’s natural resource extractive industries will contribute over USD 30 billion per annum in government revenues in the next 20 years.
  • Revenues from natural resources could finance a substantial part of Africa’s infrastructure development. Some countries have already issued Eurobonds for infrastructure, on the basis of natural-resource revenues.
  • Demographics – Young people comprise the bulk of Africa’s one billion population. To convert this “youth bulge” into a “demographic dividend” will require investing in skills and the creation of job opportunities on a large and unprecedented scale.
  • Promoting agriculture – the agriculture sector employs the vast majority of Africa’s population, and provides direct inputs to the agro-processing value chain, supplies food to urban areas, and is a source of household savings for investment.
  • The Private Sector – As Africa’s economies expand, the private sector, which accounts for 90 per cent of informal employment, will become even more important, especially in industry.
  • Urbanization –- Africa’s cities, with 40 per cent of the population in 2010 — projected to be 50 per cent in a generation, and 65 per cent by 2060 — are increasingly becoming the drivers of consumer demand and hence economic growth.
  • Governance/Investment climate – improved governance and better macroeconomic policies – lower debt, low inflation and stable exchange rates are essential in fostering economic competitiveness.
  • Technological innovation – Investment in technology, and particularly ICT, have greatly improved public access to information, spurring a knowledge economy and innovative approaches to micro-finance and the mobilization of rural producers, e.g. Kenya’s  M-PESA, Kenya’s innovative mobile banking.

The strategies to unlock Africa’s potential reside in elimination of the causes of national and regional conflict to bring peace; visionary leadership and strong and effective government institutions, while empowering women and youth; strengthening human capital development through education and training, especially in science and technology, and improvements in basic services; fostering diversification, especially in agriculture and rural areas, including sustainable greening of the economy and promotion of manufacturing; and promoting intra-Africa trade through increased domestic and regional investment, and forging strong trade links with emerging partners.

The Bank will continue to support and monitor the transformation efforts of the Regional Member Countries. Accordingly, the Bank has adopted a 10-year strategy whose overarching goal is to promote socially inclusive and environmentally sustainable economic growth. The core operational priorities of this strategy include infrastructure development; regional integration; private sector development; governance and accountability; as well as skills and technology development.

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