The Africa competitiveness report came out in mid-December 2009 and seems to have gone pretty much unnoticed on our blog. That is a shame.
The report is developed by World Economic Forum, Africa Development Bank and the World Bank Africa. It uses three different approaches to analyze Africa competitiveness (macroeconomic competitiveness, microeconomic competitiveness and case studies), making it quite useful for colleagues working on PSD issues in Africa. It leaves the reader with the clear understanding of the challenges Africa faces. It also highlights the country specific diagnostic results and, therefore, the country specific policy advice needed for our client countries.
Some of the results that struck me and raised questions were from the chapter on Africa’s costs and competitiveness. The report points to the fact that in Africa, the invisible costs (due to poor quality of business environment) and indirect costs (transport, regulatory environment and taxes) are higher than in other regions (see figure 16A of the report).
While constraints related to the business environment, such as difficulties getting credit or putting up more collateral and corruption payments, are critical, they can be alleviated if there is political will and capacity-building to implement reforms properly. Some of the African countries, such as Rwanda, have shown a strong drive for reform and registered successful economic results (growth, investment, etc…). It is important to note that business environment reforms need to be developed and implemented within a country-specific integrated reform program to ensure effectiveness. They should also involve careful design, as many African countries are becoming more integrated in regional arrangements (see previous post) and need to ensure consistency with regional, legal and regulatory frameworks.
Infrastructure (roads, ports, electricity, etc…) is expensive and unavailable. How can one alleviate this? Trade facilitation will certainly help ease the costs of transport (see the interesting chapter in the report on “enabling trade” and its related index). Regional integration will also help some infrastructure needs through regional solutions (such as the electricity pools). Also, it will facilitate access to consumer markets and policy instruments to lock in reform commitments.
But integration is not an easy, fast or cheap process. It took the EU over 50 years to get where it is, and not without serious growing pains. As talk and research focuses on helping African countries develop more of an industrial base through light industries and agro-processing, it is important to take into account the lead time, regional coordination and funds needed to build major supporting infrastructure for the success of such industries.
The report also notes that labor costs in Africa are higher than in South Asia and East Asia. It would be interesting to decompose these costs and see how and why. Aside from more education and training, how can African labor become more competitive?