Competitiveness in Sub-Saharan Africa: Time to Move Ahead
IMF Blog, January 28, 2016
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- Authors: Antoinette M Sayeh
- Published: January 28, 2016
Context and purpose
- The sub-Saharan Africa region is facing severe shocks associated with the steep decline in commodity prices and tightening global financial conditions.
- The note examines the relationship between growth rates and competitiveness and asks whether the extent to which sub-Saharan African companies can compete against foreign competitors could play a role in sustaining growth going ahead.
Recent growth record
- Sub-Saharan Africa’s rapid growth in recent years is described as one of the success stories of the global economy.
- Growth has been broad-based:
- two-thirds of the countries have enjoyed more than ten years of sustained growth;
- a quarter, more than 20 years of uninterrupted growth.
- This growth has been accompanied by a decline in poverty and improvements in life expectancy, maternal and infant mortality rates.
Growth’s soft underbelly: deficits and export performance
- In the vast majority of countries, with growth came deterioration in external current account deficits, partly reflecting big investments with high import content to address infrastructure needs.
- The region’s export performance over the last two decades has not been encouraging despite high commodity prices:
- the region’s exports as a percentage of global trade have barely increased since the mid-1990s;
- manufacturing exports have lagged well behind the rest of the world.
Traditional competitiveness indicators: two main findings
- After gaining competitiveness for a portion of the 1990s, many sub-Saharan African countries steadily lost ground.
- The competitiveness of commodity exporters especially was severely eroded as their real effective exchange rates appreciated nearly 40 percent over 2002-14.
- By 2014, price levels in many sub-Saharan African countries, most notably commodity exporters, were substantially higher than in a group of comparator low-income countries (Bangladesh, Cambodia, Lao Peoples Democratic Republic, and Vietnam) which have enjoyed success in recent years in diversifying their exports and integrating into global value chains.
- The lack of price competitiveness has been exacerbated by structural impediments:
- weak institutions;
- limited supply of skilled labor;
- infrastructure gaps, making the region costly for producers.
- World Economic Forum Global Competitiveness Index (GCI) findings:
- sub-Saharan African countries received some of the lowest scores in the world;
- limited improvement since the mid-2000s, with key bottlenecks persisting in infrastructure, technological readiness and provision of health and education.
- Encouraging exceptions with GCI scores comparable to average scores in other emerging and developing regions: Mauritius, South Africa, Rwanda, Botswana, Namibia, Kenya and Seychelles — indicating that the surge in infrastructure spending has lowered costs in several countries.
- Increased participation in global trade by low-cost emerging and developing countries has intensified competition, often offsetting price reductions achieved by sub-Saharan African countries.
Competitiveness and sustained growth episodes
- Definition used: sustained growth is periods of five or more years of consecutive annual real per capita growth in excess of 2 percent.
- Over the whole sample (1980-2014):
- sub-Saharan Africa experienced fewer growth spells than other regions, but the incidence of such episodes has increased substantially since 2000.
- Since 2000, two distinct types of sustained growth episodes appear to have emerged:
- In about half the countries, higher commodity prices and/or a rebound from conflict seem to have played a strong role in fostering growth.
- In the other half or so cases, growth was accompanied by sustained competitiveness and even some diversification in exports in some countries (Burkina Faso, Ethiopia, Ghana, Kenya, Rwanda, Tanzania and Uganda).
Policy implications and recommendations
- Three important takeaways:
- The strong growth outcomes of recent years should not obscure the fact that competitiveness has deteriorated, particularly in many of the region’s hard commodity exporters, and strong policy action, both on the macroeconomic and structural fronts, is needed to restore competitiveness.
- In the immediate near-term it is important to maintain economic stability — including, where there are flexible exchange rate regimes — by allowing the exchange rate to depreciate and absorb the impact of the shocks.
- Medium-term structural reforms are equally, if not more important, to achieve lasting improvements in competitiveness:
- further trade liberalization;
- enhanced skills in the labor market;
- improved institutions and infrastructure.
- Urgency: As high commodity prices and abundant global liquidity are quickly fading, sub-Saharan Africa needs to restore competitiveness now to diversify its economies, sustain high rates of growth and create jobs for its burgeoning and young labor force, which is expected to increase dramatically just as the rest of the world starts ageing.
Antoinette M. Sayeh, January 28, 2016