Trade and Development Board, 72nd executive session - Item 5: Economic development in Africa
20 October 2022
Rethinking the foundations of export diversification in Africa: The catalytic role of business and financial services
Your excellencies,
ladies and gentlemen,
dear friends:
It is my honour to present to you our 2022 edition of our Economic Development in Africa Report, whose theme this year is “rethinking the foundations of export diversification in Africa, the catalytic role of business and financial services”.
This topic could not be more important today, as Africa, as well as much as the developing world, battles to fight off a major cost-of-living crisis, marked by rising prices, onerous debt burdens, and the very real prospect of a new economic recession, barely two years after the COVID shock.
This is why finding structural, sustainable, and long-term sources of growth is so important for the African continent.
Africa remains one of the least diversified regions in the world. Commodities still account for more than 60 percent of total merchandise exports in 45 African countries.
Long-term commodity dependence has left Africans vulnerable to global shocks – a crucial issue today, as shocks are becoming more common, and Africa’s socioeconomic development is suffering as a result.
At UNCTAD, we believe that diversification is the most viable poverty reducing and growth enhancing development path for countries to follow.
However, in the last 20 years, only half of the African countries have added new products to their export baskets. Indeed, most of this diversification has actually taken place within the commodities and extractive sector itself.
Although some countries started exporting new products, not enough progress has been made in the production of high value-added manufactured goods and services.
Moving into more sophisticated manufacturing and leveraging technology-based services could enable African countries to participate in new, higher-value segments of global and regional value chains.
Services in particular are a huge opportunity. Services account for only 17 per cent of Africa’s exports, and the sector is dominated by traditional services like travel and transport, who represent more than two-thirds of the total.
Implementation of the African Continental Free Trade Agreement provides a real opportunity for Africa to diversify its economy, including through high-knowledge, intensive services. Africa should not miss this opportunity.
Our report highlights three specific areas that could help Africa in this process.
First. Invest in high-knowledge sectors such as information technology and financial services.
Digital and financial technologies have immense potential to transform economic and social interactions, as they lower barriers of entry, and allow entrepreneurs to invest in their businesses.
FinTech – a combination of these two technologies, digital and finance – is particularly promising in this regard. In my own region of Latin America, fintech has allowed us to really leapfrog in the issue of access to credit. To give you an idea, in Brazil, only ten years ago, less than one third of the population had a bank account and now the number has increased to 90 per cent. This is mostly thanks to digital and in particular mobile banking.
Second. Strengthen links between services and other economic sectors such as manufacturing.
Services is often the missing link for manufacturing to really take off – this is not an either/or debate. For example, to really profit from the full potential of lithium minerals, and diversify into the lithium battery value chain, vast amounts of financial and also legal services are needed. Countries should find and exploit these interlinkages.
Third, lastly, we must leverage the potential of African small businesses, especially in tech.
SME-targeted industrial policies, digital innovation, and financial access can really plant the field of a promising African startup industry. This way, African countries can create
the types of high-skilled, well-paying jobs that are much needed for a growing and ambitious population of young African entrepreneurs
Your excellencies, dear friends:
UNCTAD is committed to support the African continent in its path to sustainable development. We believe in Africa’s promise, in Africa’s potential, in Africa’s destiny. Our 2022 Economic Development in Africa Report seeks to unlock this potential. We hope African policymakers can use and profit from it.
I thank you.
