Part I - Trends
• The loss of economic momentum in the advanced economies is having knock-on effects for developing countries. African economies will grow on average only at 2 percent this year: 1.7 per cent in North Africa, 2.8 per cent in Sub-Saharan Africa (excl. South Africa) 0.3 per cent in South Africa, one point below the 2015 figure (Table 1.1).
• Commodity producers are particularly vulnerable. The commodity cycle is in its second year of a sharp downturn; the commodity price index is 5 per cent below its 2003-2008 average (Table 1.3). Growth and investment sharply slowed down in mining and oil exporters.
• Long-term investment finance is a challenge. Net capital inflows to Africa remained relatively high in the first quarter of 2016, but are volatile. The share of profits in national income increased since the mid-1990s (Chart 5.4), but they did not always translate into higher investment rates (Charts 5.3 and 5.4). In South Africa investment to profits ratio fell, while the ratio of dividends to profits increased (Table 5.3).
Part II - Weak industrialization and productivity growth
• Countries in the region created an industrial base between 1960 and 1975, but structural adjustment policies in the 1980s and 1990s had negative impacts on the sector. The growth rates of manufacturing jumped from an annual average of 0.2 between 1990 and 2000 to 5 per cent between 2001 and 2008, and to 7.6 per cent between 2009 and 2014. This does not necessarily indicate that a sustained process of industrialization is under way, since the starting point was low. In fact, the share of manufacturing in GDP has stagnated around 10 per cent since 2008. More than 80 per cent of the employment in Africa is created in low-productivity sectors (agriculture and informal services) (Chart 3.3).
• The expansion of merchandise trade that took place in the last 15 years in the continent was largely due to the rise in commodity prices and in volume traded. Growth was concentrated in minerals and fuels and it was also higher for unprocessed than processed commodities. Even those economies which succeeded in increasing manufacturing exports did not take full advantage. Interestingly, the larger exporters of manufactures had, on average, lower - not higher - subsequent labour productivity growth (Chart 4.5).
Part III - Policy
• Turning more towards the regional market may offer important benefits. Intra-African exports consist mostly of manufactures and processed commodities; it thus has the potential to support industrialization and diversification (Table 4.1 and Chart 4.2).
• Adequate management of natural resources is essential: (i) net exports of primary commodities contribute to the foreign exchange earnings needed for financing capital goods imports; (ii) processing of domestically available raw materials and developing inputs for the primary sector would promote forward- and backward linkages between the primary sector and industry; (iii) capturing a fair share of primary rents provide resources to fund infrastructure investment and industrial policies; (iv) resources should be used with a long-term perspective, avoiding pro-cyclicality and excessive currency appreciation.
• In less developed and predominantly rural countries, such as in sub-Saharan Africa, the State will need to assume a particularly active role to raise productivity in the rural economy in parallel with developing manufacturing activities in urban agglomerates.
• In middle-income economies, such as the Northern African countries and South Africa, imported intermediates substitution industrialization strategy (IISI) can be used to cultivate domestic capabilities.
Part I - Trends