Why Africa must shift from dependence to diversification, now
Over the last decade, Sub-Saharan Africa (SSA) has experienced historically high economic growth rates. The region has made significant social progress too. These gains have largely been driven by favourable commodity prices, financing conditions and improvement in macroeconomic management.
However, the high growth rates have not been sustained for long periods in many of these African countries. The plunge in prices of commodities like oil, copper and cocoa, with its resultant adverse impact on many economies reveals how dependent African countries are on natural resources. According to the International Monetary Fund, about 28 countries in sub-Saharan Africa are resource-rich, with these resources accounting for over 80% of Gross Domestic Product (GDP). Many of these countries depend on a few commodities, which account for the bulk of GDP, exports and fiscal revenues. Some other countries have often experienced recurring macroeconomic instabilities because of fluctuations in commodity prices, external demand and extreme weather conditions such as droughts and floods.
For instance, the collapse of oil prices tipped the Nigerian economy into a five-quarter recession in 2016, from which it is now just recovering. Angola, Equatorial Guinea, Congo Republic and Gabon also experienced sharp economic slowdowns in 2015-2016 due to low oil prices. Zambia, where copper accounts for 60% of exports, was also hard hit by the slump in copper prices. These experiences underscore the need to diversify economies and build resilience against such large external shocks.
Growth accelerations in most African countries in the last few years have not been driven by expanding manufacturing sectors, which usually underpins structural transformation. In fact, the contribution of the manufacturing sector for SSA has decreased from 15% of GDP in 1981 to about 10% of GDP in 2016. Indeed, Africa’s structural transformation has lagged behind that of other regions.