Business Reporter
THE prolonged commodity price slump has provided the impetus for sectorial rebalancing of African economies away from the extractive sector, towards a greater diversification of economic base, Economic Insight Africa Report by Oxford Economics said.

In its quarterly briefing for the first quarter of 2016, it said the continent is at a threshold of a large-scale rotational shift towards the services and manufacturing sectors.

Although growing at a fast pace, the contribution of the manufacturing sector to Africa’s gross domestic product remains minimal. A retraction from the extractive sector opportunities, due to subdued commodity prices could provide scope for development of downstream activities. Moreover, development of the manufacturing sector would provide Africa with alternative to increase direct benefits derived from natural resources, including improved tax potential and job opportunities.

Globally, Africa is the most commodity-dependent continent, partly because manufacturing still accounts for a relatively small share of output. Most goods are exported in a raw state without being processed, refined or having had value added on them.

This is unlike in the Middle East where oil exporting economies have extensive petro-chemical sectors.

Africa is therefore, susceptible to fluctuations in global commodity prices. The commodity price boom of 2000 and the early 2010s ensured huge cash inflows for Africa’s commodity exporters, as well as a boom in foreign investment in a range of natural resources.

As such the report said the sectorial rebalancing would be driven by a rising middle class, government policies, greater integration into the global economy and technological advancement. The services and manufacturing sectors’ rising contribution to the GDP are both a natural extension of economic maturity and born out of necessity.

The report said the sectorial rebalancing from investment-driven capital goods as a primary driver of economic growth, towards a domestic consumption-based growth model offered significant upside potential and first-mover advantage to the private sector.

“This will be driven by a broad-based shift towards improved investment attractiveness on the back of increased government incentives, low penetration levels, continued development of transport, power and social infrastructure and (to a lesser extent) increased consumer disposable income,” said the research report.

The role of government support and institutional reform in sectorial rebalancing cannot be overstated.

Government support of infrastructural and human skills development would form the cornerstone of inclusive economic growth and includes policies aimed at lifting the standard of education and improved female labour force participation, added the report.

“These innovations ultimately underpin the rotational shift towards enhanced formal sector development from subsistence farming and artisanal mining,” it said.

For the foreign investor, this socio-economic shift opens the door to a wide spectrum of services and manufacturing opportunities.

“Recognising this potential, African countries have stepped up support of manufacturing sector development by increasing free trade zones and offering a menu of fiscal incentives. Multinational companies have taken note: retail giant H&M sources materials from Ethiopia, while General Electric tapped Nigeria for the manufacturing of electrical goods.

“In turn, multinational companies that have set up manufacturing facilities in Ghana include consumer goods producer Unilever, health care products manufacturer PZ Cussons, Denmark-based dairy and fruit juice maker Fan Milk, as well as Indian vehicle manufacturer Mahindra.”

The report also projected the GDP growth in Africa to average 4,3 percent between 2015 and 2020.

Nigeria, the largest economy on the continent, is expected to contribute significantly to Africa’s economic expansion, at an average real rate of 4,8 percent per annum between 2015 and 2020, contributing over 25 percent to the continent’s forecast growth in this time-frame. In the East Africa region, Kenya’s economy should to expand by around 6 percent during the 2017 to 2020 period.

Globally, Africa is the most commodity-dependent continent, partly because manufacturing still accounts for a relatively small share of output. Most goods are exported in a raw state without being processed, refined or having had value added on them.

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