IMPROVING AFRICA’S SERVICE ECONOMY

Courtesy of the Worldbank.org

Gone are the days when Africa was only famous for its poverty-stricken, backward and underdeveloped state. In the new world economy Africa is beginning to reinvent itself as an audacious emerging market, with a bulging middle class which offers a promising future for the continent’s rapidly changing economic and political sectors.

In 2011 the African Development Bank Group estimated that the number of middle-class Africans had tripled over the past 30 years to 313 million translating to over 34% of the African population. The reason for the increase in size and purchasing power of the middle class in a number of African countries is said to emerge from a wide range of opportunities offered by a blooming private sector. Many middle class individuals tend to be local entrepreneurs, a growing number of whom are young Africans. In spite of the changes so far, the private or better still the service sector in Africa is expected to further expand due to the current population growth rate and urbanization trends, in a bid to satisfy the growing demands on the continent (Africa’s population is predicted to reach 2 billion by 2050).

How relevant is the Service Economy to Africa?

The service sector stands out as an extraordinarily great opportunity for the future economic prosperity of Africa. According to the UNCTAD Economic Development Report in 2015, the service sector contributes to almost half of the continent’s output; with a number of African countries emerging as services-oriented economies. Popular examples of the so called “Emerging Regional Services” are the financial and banking services industries of Mauritius and Nigeria, the commercial and cargo air transport industry in Ethiopia and South Africa, the educational services industries of Uganda and Ghana, the telecommunication services of Egypt and the port services industries of Djibouti and Kenya.

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The African service economy has been tremendously vibrant, growing at more than twice the average growth rate for the world between 2009-2012. The service sector was identified as the most important driver of growth in 30 out of 54 African countries during this period. African services exports and imports reportedly totalled $271 billion in 2012. Furthermore, the shares of subsectors within the services sector were as follows: wholesale trade, retail trade, restaurants and hotels accounted for 14.5% of output; transport, storage and communications accounted for 9.2% of output; and other activities generated 25.2%. Overall, the services sector in Africa accounted for one third of formal employment within the same time frame making it a vital source of income and employment especially for the youths. Though Africa remains a marginal player in global services trade, with an export share of only 2.2%, the services sector represents an important source of export revenue that should be further developed if Africa is to assume a role as a global player in services trade. Only 11 African countries have consistently been net services exporters since 2005, with Egypt and South Africa being the two main global exporters, accounting for 0.49 per cent.

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Challenges and a way forward

An increase in demand on the one hand and the importance of a potent private sector on the other hand, clearly highlights a pressing need to address the current problems of an unconducive business environment, a dysfunctional legislation system and unskilled labor particularly among the youths “Africa’s future”, in an effort to find appropriate solutions which will embrace specific and unique demands within the African market.

Redesigning the educational system (from primary through higher education) is crucial to tackling the problem of unskilled workforce and eventual unemployment. Easy access to education and career orientation during the early stages are prerequisite to skill development and easy integration into today’s dynamic job market. Technical and vocational education should be given a better chance in blossom through major investments in equipment, trained educators, scholarships etc. By establishing partnerships between local businesses and educational institutions, students would be given a chance to witness firsthand, the dynamics, opportunities and challenges of the modern job market within and out of Africa.

Moreover, the creation of independent institutional organizations free of political or electoral pressures is highly recommended. Brown et al (2006) suggest that an independent economic regulation of network utilities and infrastructure services is essential in developing transparent and predictable procedures for tariff setting without reducing the incentive of infrastructure services providers and thereby increase efficiency. Doing Business (2015):Going Beyond Efficiency” found that Benin, the Democratic Republic of Congo, Côte d’Ivoire, Senegal, and Togo were among the 10 top improvers worldwide, having improved business regulations the most in the past year among the 189 economies covered. Although Sub-Saharan Africa reportedly had the highest number of business regulatory reforms globally in 2013/14, with 75% of the region’s economies improving their business regulatory environment for local entrepreneurs according to a World Bank Group Report, much is still to be done to create a business friendly environment. “Sub-Saharan African economies have come a long way in reducing burdensome business regulations…Yet despite broad regulatory reform agendas, challenges persist in the region, where business incorporation continues to be costlier and more complex on average than in any other region.” said Melissa Johns, Advisor, Global Indicators Group, Development Economics, World Bank Group.

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Africa’s infrastructure services, in particular road freight, are more expensive and of lower quality than in any other region of the world. Also, access to electricity is low across Africa and the amount of electricity being generated, reliably and consistently, is too low to meet rising demand. The development of efficient and competitive services economies and trade, especially in infrastructure services such as telecommunications, transport, energy and finance through strictly controlled major investments, could significantly improve the economic outlook in Africa. Africa needs to boost its electricity generation by enabling private power producer projects and facilitating private co-generation.

The process of improving Africa’s service economy would be a gradual and daunting journey. However, a steady cooperation among all relevant players, ranging from national governments to grass root communities, would go a long way to break through barriers hindering the growth potential of this lucrative sector.

-African Development Bank Report (2010)

-Vagliasindi and Nellie (2009). Africa’s Infrastructure: A time for transformation.

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