Rwanda leads EA region economic competiveness

The report leverages on the knowledge and expertise of these three global economic institutions to present a joint policy vision that can help Africa transform its economies.

They comprehensively analyse Africa’s most pressing competitiveness challenges, present an index of how African countries are performing on each and discuss the barriers and challenges to putting Africa’s economies onto a solid footing, and helping them to achieve sustainable, broad- based growth.

The 2017 edition of The Africa Competitiveness Report, which is the latest, was compiled under the theme of `Addressing Africa’s Demographic Dividend’.

According to the report, the phrase `demographic dividend’ captures how a population structure characterised by more people of working age and fewer dependents (children and elders) can boost economic growth simply because a larger share of the population is productive.

However, it notes, even when the demographics are suitable for such a scenario, in the context of a weaker economic outlook, questions remain about the ability of African economies to provide such opportunities.

“If the low GDP growth and low employment expectations are confirmed, African economies could face the risk that a larger unemployed young population could become a source of instability in already fragile societies,” the report says.

According to the report, over the past 30 years, Africa’s population has almost doubled, growing from about 550 million in 1985 to 1.2 billion in 2015.

Going forward, the United Nation’s World Population Prospects, the 2015 Revision estimates that East and West Africa will continue growing at a similar rate in the future and bring these two areas to almost double their population every 25 years.

In almost all regions of Africa (except the Southern part), all segments of populations grow, but with a faster increase of the 15- to 39-year old cohort.

The report says employment growth in manufacturing, finance, tourism, and logistics are encouraging but not yet creating sufficient jobs to realise the demographic dividend. Migration statistics also show how young Africans under 30 are looking for better opportunities than their economies can offer.

“Africa needs to act now to put in place the structural changes necessary to build the foundations of more resilient and prosperous societies,” the report says.

It adds that the possibility of “reaping the demographic dividend” depends crucially on the extent to which the working-age population is actually employed.

High unemployment rates counterbalance the potential benefits of larger shares of the working-age population, and consequently limit the possible increase in GDP per capita.

Benefitting from the change in demographics also depends on the extent to which workers are employed in occupations that generate above-subsistence incomes. If employment is low, informal, or provides only subsistence levels of income, there is no “demographic dividend” and an increasing population can actually become a burden to development: it may reduce the availability of resources for investment; become a source of social instability and institutional fragility; and create additional pressure on infrastructure, especially in urban context.

To measure competitiveness, the index is divided into 12 distinct pillars that the compilers say matter most. These include institutions (public and private), infrastructure, the macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labour market efficiency, financial market development, and technological readiness. Others are market size, business sophistication, and innovation.

12 pillars

According to the report, Africa needs to improve competitiveness across the 12 GCI pillars to achieve sustainable growth and reap the demographic dividend.

The 12 pillars are further compressed into three structures based on the critical areas for each economy. These include the lowest level of `basic requirements’ for economies where competiveness is still predominantly dependent on factor endowments such as unskilled labour and natural resources. Most East African economies are at this stage.

As the economy advances and starts to depend on more efficient production processes for rising product quality, it enters the arena of `efficiency enhancers’ which depends on higher education and training, goods market efficiency, and labour market efficiency. Competiveness of economy in this stage also depends on financial market development, technical readiness, and good market size. Few Africa countries are in this stage.

The last category is where competiveness depends on `Innovation and Sophistication’ factors. These include business sophistication and innovation.

In a preface to the report the African Development Bank Group President, Akinwumi Adesina, the World Bank President, Jim Yong Kim, and the World Economic Forum Executive Chairman, Klaus Schwab, warn that the 2017 edition of The Africa Competitiveness Report comes out at a challenging time for the continent.

They note that there has been a subdued growth in recent years after more than a decade of solid expansion and blame it on global low commodity prices and the reduced growth in emerging markets such as China, and in advanced economies.

But, they say, this adverse situation has also given impetus to reforms and economic diversification.

“The strong economic performance of a number of African countries demonstrates Africa’s resilience and brings optimism about Africa’s future growth prospects.

“Looking ahead, the continent’s young and increasing population presents an unprecedented opportunity to spur rapid development. A growing labour force and a large and emerging consumer market hold the promise of significant growth opportunities. Yet challenges to reaping these potential gains and achieving greater shared prosperity remain.”

According to the competitive index, Mauritius, South Africa, and Botswana are the best performing economies. The worst performing economies are Mauritania, Burundi, and Madagascar.

In the East African region, South Sudan is not ranked. However, among the remaining five member states, Rwanda is the best performing, followed by Kenya, Uganda, Tanzania, and Burundi comes last.

This is the third year in a row that Rwanda is leading the East African region and the order of performance is unchanged for the other countries.

Rwanda leads in institutional competitiveness, infrastructure, health and primary education, and goods market efficiency, labour market efficiency, and financial market development.

Kenya leads in innovation, business sophistication, market size, technological readiness, and higher education and training. Tanzania leads in microeconomic environment.