Geneva — Africa must diversify economically and become more resilient to realise its full potential, the head of the United Nations Conference on Trade and Development said Thursday.
“We believe that the continent must use every opportunity to achieve economic diversification through services, and it must seize the potential of the African Continental Free Trade Area,” said Rebeca Grynspan, UNCTAD Secretary General, at a UN news conference.
She was announcing the publication of the Economic Development in Africa Report 2022, titled Rethinking the Foundations of Export Diversification in Africa: the Catalytic Role of Business and Financial Services [PDF].
The report notes that soaring food and energy prices are hitting African countries especially hard as they struggle with the Covid-19 pandemic, climate change, and the war in Ukraine.
“To cope with current crises and insulate itself against future shocks, Africa must diversify its economies,” says the report. “The continent of 1.4 billion people is among the least diversified regions in the world with regard to exports.”
The report outlines the great potential which African countries have to transform their economies through services, thus supporting the continent’s long-standing economic diversification goals and boosting productivity and development, said Grynspan.
Poorest hit hardest
Grynspan added that most African countries experienced a recession in 2020, for the first time in more than 25 years.
“This fall in economic activity produced a disproportionate effect on the poorest and most vulnerable segments of the population. Various pandemic-related lockdowns and social distancing measures, as we know, severely affected the business of the informal sector, which provides jobs for the poorest social groups.”
She noted, however, that even before the pandemic, African countries struggled to create good jobs and quality jobs and reduce poverty and inequality.
“A recent analysis by the UN Global Crisis Response Group on Food, Energy and Finance which analyzes the global economic shocks caused by the war in Ukraine, indicates that Africa and especially sub-Saharan Africa is now one of the world’s most exposed regions to the current crisis,” said Grynspan.
She said that one in two Africans is severely vulnerable to foot energy and finance shocks.
“This is why Africa must diversify its economy to become more resilient.”
She said commodities still account for more than 60 percent of total merchandise export in 45 African countries.
“Export diversification remains elusive in over 80 percent of countries in the region, making them highly vulnerable to price fluctuations in global economic shocks because of commodity dependence in the last 20 years… Only half of the African countries have added new products to their export baskets.”
Excellent opportunity
The African Continental Free Trade Area provides an excellent opportunity for the continent to become a crucial driver of economic growth, industrialization, and sustainable development.
“In the long run, trade liberalization will allow firms to access a large continental market and gain from economies of scale,” the UN development head added.
“The region urgently needs adequate policies to especially strengthen the services sector, which can provide innovative and efficient ways of device diversifying and transforming African economies.”
The UNCTAD report says business, financial, information and communications technology services are essential to diversifying exports, since they make it easier to tap into new markets and create new products.