How is africas economy

The data demonstrate a clear positive relationship between the two. This is unsurprising, given the results presented above and the fact that resource dependence and manufacturing value added are expected to be negatively correlated. Governance is also closely correlated with economic diversification. But while governance is widely accepted to be a key determinant of economic growth, 83 it remains underexplored in the economic diversification literature.

Figure 13 plots government effectiveness and export diversification. Favorable institutional conditions are necessary for economic diversification—but not sufficient. The concept of fiscal diversification as it relates to inducing or supporting structural economic change and transformation remains underexplored in economics literature, and analyses are constrained by data limitations.

Drawing on available data, figures 14—16 show a positive correlation between tax revenue as a percentage of GDP, government spending as a percentage of GDP, and government subsidies as a share of government spending and export diversification. Various explanations can be provided. The data may be suggesting that African governments are not leveraging their fiscal tools in a way that leads to economic diversification.

It could also be suggesting that governments, through taxation and spending, are crowding out economic actors from nondominant sectors. Of course, the impact of depending on natural resources for revenues and crowding out other sectors cannot be excluded. It is also possible that governments shield the dominant sectors of their economy from taxation or support them via government spending, which could reinforce economic concentration.

While exploring how country-specific characteristics are associated with diversification is useful, it does not account for subnational heterogeneity within countries themselves, which can sometimes be stark. It is common for countries to contain islands of relative economic diversification and productivity surrounded by a proverbial sea of low-productivity activity. This is particularly salient in Africa, which has high levels of interregional inequality at the subnational level.

These areas of productivity in African countries are often located along the coast while, further inland, huge swaths of land are used for subsistence farming. Within other countries, economically productive and diversified areas, or growth poles, are clustered around the national capital, while the hinterlands predominantly engage in subsistence agriculture.

This is the case in Ethiopia, Madagascar, and Rwanda. This phenomenon often takes place in countries that are home to special economic zones or export-processing zones, as the special tax-exempt status of such zones can make them more competitive than other areas. Both cross-country analyses and country-level policy recommendations are of limited utility in cases where stark interregional inequalities and corresponding diversification gaps persist. By looking at national-level measures of diversification like the ones presented in this paper, central governments may conclude that a lack of diversification is a problem at the national level when it may in fact be more predominant at a subnational level and necessitate different policy responses.

The literature surveyed in this paper make clear that economic specialization, as prescribed by classical international trade models, is not necessarily sufficient for sustained economic development.

Diversification is also associated with enhanced governance outcomes, though the literature that empirically explores the causal link between diversification and governance remains scant and inconclusive. Either of these three dimensions of diversification—GDP, exports, and fiscal—yields different insights. For example, the economies of major oil exporters might appear more concentrated when exports, rather than production, are used to assess diversification.

Nigeria provides a striking example of that phenomenon—oil production accounts for roughly 10 percent of its GDP but close to 90 percent of its exports and 60 percent of its fiscal revenues. Two sets of indices are relevant to measuring economic diversification. The Theil Index has the potential to capture the fiscal dimension of economic diversification—along both the intensive and extensive margins. Yet, efforts to take advantage of this feature have so far been concentrated on trade diversification.

But to do so, the framework would need to be used to assess fiscal or expenditure policy to determine the extent to which spending is sustainable, can catalyze economic transformation in relevant sectors, and can achieve other economic policy objectives. To identify the specific policy options for Africa, the structural characteristics of countries in the region should be taken into account to draw insights from these dimensions and measures of economic diversification.

Indeed, while some global trends are also at play among African countries—for instance the sharply negative relationship between resource dependence and diversification—others are not. More specifically, the relationship between per capita GDP and diversification follows a U-shape globally but not in Africa.

Furthermore, while government effectiveness appears to positively correlate with diversification, additional studies are needed, as the relationship has not been empirically tested. Finally, due to subnational differences, especially along urban-rural or coastal-inland divides, the challenges of economic diversification can assume a spatial dimension in some African countries; this dimension merits further research.

Overall, more studies are needed to explore fiscal revenues and expenditures as significant indicators of economic diversification. That said, to better identify appropriate policy solutions, these improved definitions and measurements of economic diversification must be complemented by better data, including at the subnational level. Her fields of expertise include institutions, economic policy, energy policy, and emerging economies in Africa.

The authors are solely responsible for any shortcomings and errors in the content. More recently, this line of scholarship has been further developed by Atish R. Ghosh and Jonathan D. Perry, Daniel Lederman, and William E. See, also, Robert E. Hall and Charles I. Durlauf eds. Fonchamnyo and Afuge R. See, also, Raghuram G. Alan Winters eds. Kaliappan, Normaz Ismail, and Hanny Z. C : 13— Buera, Joseph P. Mendes, Mario A. Bertella, and Rudolph F.

They found that, among developing countries, exports at the intensive margin account for the most important share of overall trade growth. Potter eds. They are simply meant to illustrate that country-specific features impact diversification.

As part of the EDI, lower values denote greater levels of diversification. Brunnschweiler and Erwin H. Max Corden and J. Sachs, and Joseph E. Sokoloff and Stanley L. Engerman and Kenneth L. Carnegie does not take institutional positions on public policy issues; the views represented herein are those of the author s and do not necessarily reflect the views of Carnegie, its staff, or its trustees.

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Carnegie Endowment for International Peace. Kerr Carnegie Middle East Center. Programs Projects Regions Blogs Podcasts. Summary: Many African countries have placed economic diversification high on the policy agenda, yet they first need to define what it means in their specific structural and socioeconomic contexts. Related Media and Tools Full Text. Print Page. Thank you! Check your email for details on your request. Summary For decades, economic diversification has been a policy priority for low- and middle-income economies.

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Follow Us. All rights reserved. More than a year into the pandemic, slower spread of the coronavirus and lower COVIDrelated mortality, decisive actions by countries to save lives and livelihoods, and a faster-than expected recovery in commodity prices have contributed to improve economic prospects of many Sub-Saharan African SSA economies. Yet, the pandemic continues to take a toll on African lives and has pushed up to 40 million people into extreme poverty.

Women, youth, low skill labor and those in the informal sector remain most affected by lack of access to social safety nets and income opportunities. Many countries have seized the opportunity within the crisis to move faster on key reforms and investments that will be crucial for long-term development.

The road to recovery will be long and vary significantly across economies and sub-regions. Our response efforts are focused around four main areas: saving lives, protecting poor people, protecting and creating jobs, and building back better.

Saving Lives: The World Bank has taken fast action to help African countries strengthen their pandemic response and health care systems and is now stepping up its support on vaccine purchase and deployment. With the vaccine roll-out underway in many African countries, ensuring an adequate supply of vaccines is a priority for the region.

Protecting poor people: To protect poor and vulnerable citizens and respond to the impact on their livelihoods, the Bank is helping African countries to scale up and adapt social safety net programs and ensure food security by supporting farmers to expand agricultural production as well as sustain food supply chains.

Protecting and creating jobs: Micro, Small and Medium-Sized Enterprises, which provide the majority of jobs, have been particularly hard hit across the region where informal firms dominate employment. Public works and urban programs are being launched or scaled up to facilitate job creation in low income communities and to help increase access to livelihood support for extremely poor and vulnerable people like women and the youth.

More than 20 SSA countries in have requested development policy operations or budget support from the Bank to assist them to manage the fiscal impacts of the pandemic.

These operations are focusing on supporting governments to mitigate the effects of the COVID pandemic, and at the same time promoting reforms that will create the conditions for economic recovery. It supports initiatives in favor of climate change adaptation and mitigation and deploys an approach to address the drivers of Fragility, Conflict and Violence. Finally, the World Bank is scaling up its work on regional integration, taking a holistic view of the continent to improve connectivity, leverage economies of scale, and advance collective action to address shared challenges.

Research and analysis : Knowledge is essential for governments to make better policies and institutions to make aid more effective. This paired with strong analytical work by sector can help promote substantive discussions and drive evidence-based policy making around key development issues. Swift detection, early testing and rapid response require cross-border collaboration and strong solidarity among neighboring countries and with the international community to combat the spread of infectious diseases.

Both projects have mobilized resources to help countries procure laboratory equipment and increase their capacities to address the COVID pandemic.

Together with governments, regional institutions, and development partners, the World Bank has expanded multi-sectoral programs with immediate and long-term solutions that invest in women and girls. In Zambia, the Girls Education and Women Empowerment and Livelihood project GEWEL has so far provided more than 28, girls from poor households with secondary school bursaries and 75, poor women with livelihood packages, including, life and business skills training, mentorship, and support through savings groups.

Green, resilient, and inclusive approaches will not only help to create new jobs, market opportunities, and economic savings but will also support the transition to low-carbon, climate-resilient development that benefits everyone. The first and most famous example of telecommunications creating a value chain is M-Pesa, the Kenyan mobile-money platform.

It was created to send money between people and has blossomed into a marketplace. Kenyans can use it to buy insurance, pay a barber, borrow money, or finance a pay-as-you-go solar-power system. My mother-in-law is 85 and she uses it.

While these new tools are helping to broaden investment rationales, the destinations of choice for FDI are mostly familiar, according to an EY blended ranking incorporating the overall number of jobs invested, capital expenditure and job creation: South Africa, Nigeria, Ghana, Kenya and Ethiopia.

South Africa is the most developed of sub-Saharan economies, with its deepest capital markets and understanding of the continent because, in addition to being a favored target for FDI, it is the fifth-largest source as well. Nigeria and Ethiopia are the two countries in sub-Saharan Africa with million people or more.

Nigeria is also a known investment destination for oil and gas and hosts an emerging technology hub and start-up culture. Ghana and Kenya stand out for their relative political stability and economic diversification. Their challenge is to develop more domestic supply chains to generate economic value before exporting.

Together, the two countries produce about two-thirds of global cocoa output. In this transformative age, CEOs and business leaders are challenged in how to achieve maximum value for their organization. FDI strategies vary by sector, but success stories in recent years illustrate common themes. In some cases, these government agencies, as well as international organizations and bilateral aid and development agencies, are willing to help investors overcome obstacles by offering sovereign guarantees, political-risk insurance, financing and instruments.

Local partnerships are often useful for land acquisition, which often triggers cultural sensitivities in many sub-Saharan states. Land registries are often incomplete or inaccurate, and non-governmental actors such as the leaders of ethnic groups or communities often wield power. Rather than attempting to buy land, investors have often instead provided a small slice of equity to landowners, which can be private or public entities.

Providing equity to state- or provincial-level governments for land helped Persianas Group develop malls in Nigeria, for example, boosting local support and political will for the projects.

Several main value chains have emerged in the two decades since FDI broadened beyond extractives, based on telecommunications, agricultural and energy. That created a virtuous cycle in which foreign entrepreneurs leveraged the payments system and the data it created to do things such as secured lending on a pay-as-you-go basis for home solar-energy kits.

This made-in-Africa model is now spreading elsewhere in the Global South. The gas-to-power narrative is a more complex one than telecommunications, with more counterparties and long-term contracts required to finance the considerable infrastructure required to move gas to power plants. But if more of these long-term projects reach completion, opportunities open up in manufacturing, and the coveted jobs that factories bring.

Governance is poised to evolve in other agencies and institutions, such as finance ministries, electricity utilities and tax authorities. The state says its contracts with private power producers leave it with a surplus it is contractually obligated to pay for, even if not used. Most African governments are open to private investment in power, particularly in building new generation capacity.

Investors like Ghana due to its reputation for good governance and the general peace it has enjoyed over time. Ghana has a judiciary seen as independent of the executive and the legislature and a free press. There is plenty of room for improvements in governance, but the basic building blocks are in place, says Solomon Lartey, who recently resigned as CEO of the insurance company Activa Ghana to found the Africa Sureties and Insurance Advisory Company, which aims to address access-to-finance issues for small businesses.

In many leading African countries, tax authorities were formed in the s, and are now implementing digital systems to boost collections and make the process easier for taxpayers. The group is developing new and open-source solutions for tax collection using new technologies such as blockchain and artificial intelligence.

African countries are now more stable and predictable places to live, work and build businesses. New value chains based on telecommunications platforms, agribusiness, and energy are now developing. EY is a global leader in assurance, consulting, strategy and transactions, and tax services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders.

In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. For more information about our organization, please visit ey. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice.