Africa must create employment, broaden investment sources - UN Report

A United Nations Conference on Trade and Development, UNCTAD, report has indicated that Africa needs to broaden sources of growth and investment, in order to create employment and reduce poverty.

“There are structural problems with Africa’s recent growth both on the demand and supply side of the economy and she has low investment rates, relative to what is considered necessary to achieve development goals. Moreover, external finance on Africa’s investment has declined significantly over the past two decades.”

These are some of the findings of a study carried out and published by UNCTAD, presented by an economist at the United Nations Economic Commission for Africa, UNECA sub-regional office, in Yaounde, Joseph Baricako, during a press briefing on June 3.

The report on African Development subtitled; “Catalysing Investment for Transformative Growth in Africa,” is a 100-page book divided into five chapters. It examines trends, patterns and other characteristics of investment in Africa, providing some facts on the nature of recent growth and the link to economic transformation in Africa.

It also provides an assessment of the determinants of investment in Africa, with a view to identifying the main constraints and factors inhibiting investment in the continent.

The report also focuses on how to catalyse investment in Africa from a regional and national perspective as well as examining selected international issues that have a bearing on efforts to boost and use investment, for transformative growth in the continent.

The report says that Africa has experienced relatively high growth during the past decade but that the nature and pattern of this growth has not resulted in more jobs and poverty reduction because consumption has been the dominant driver. Instead, the report says, a consumption-based growth strategy must go hand-in-hand with an increase in investment, particularly that which increases the capacity to produce tradable goods, to reduce the likelihood of current account imbalances in the future.

On the demand side, the report recommends balancing the relative contributions of consumption and investment to the growth process, since it is evident that a consumption-based growth strategy cannot be sustained in the medium to long term.

This is because it often results in economic challenges such as overdependence on imports that in turn affects the development and survival of local industries, the building of productive capacities and job creation. In order to reverse the current account imbalances associated with high consumption, countries often require drastic reductions in consumption that then have a severe negative impact on growth, the report notes.

It also asserts that recent evidence suggests that investment is a major driver of long-run growth in Africa and that current accounts deficit reversals are caused by investment booms which increase the production capacity for tradable goods and associated with better growth performance than those driven by consumption booms.

On the supply side, the report recommends that sources of growth should also be diversified, requiring a shift from low-to-high-productivity activities both across and within sectors.

According to the report, structural problems exist with Africa’s recent growth from a supply or sectoral perspective, with many countries yet to go through the normal process of structural transformation, characterised by a shift from low-to-high productivity activities and a declining share of agriculture in output and employment, as well as an increasing share of manufacturing and modern services in output.

While the development plans, visions or frameworks of most African countries identify infrastructure, agriculture and manufacturing sectors as strategic priority, commercial banks and financial institutions in Africa are reluctant to finance projects, preferring to lend to the non-production sectors. Indeed one of the challenges facing Governments in Africa is how to promote investment in strategic or priority sectors by redirecting resources to them.

The report argues that industrial policy has an important role to play in achieving this goal and suggests that central banks can encourage lending to strategic sectors through adopting financial policies that favour lending to these sectors. One way is to redirect investment to strategic sectors, particularly in the case of small and medium size enterprises seeking finance for productive investment.

The establishment of partial credit guarantee schemes can also increase the flow of funds to strategic sectors and groups such as small and medium size enterprises. There are also non-financial measures that Government could take to promote investment in the strategic sectors. One of them is the provision of market information and investment opportunities available in those sectors.