Economic Development in Africa Report, 2022: Rethinking the Foundations of Export Diversification in Africa: The catalytic role of business and financial services

Submitted by on Fri, 03/15/2024 - 13:08

Africa’s exports are heavily reliant on primary products in the agricultural, mineral and extractive sectors, making it one of the least diversified regions on the globe. Out of the 54 African countries, 45 are commodity-dependent (83%), indicating that each country’s share of primary commodity exports to total merchandise exports translates to over 60%. This dependency on commodities makes the continent vulnerable to fluctuations in global commodity prices thus hindering its potential for inclusive growth and development.

This report points to neglect of the private sector and high knowledge-intensive services, such as Information and Communications Technology (ICT) and financial services as the key reasons for the lack of export diversification in Africa. The report argues that these services have the potential to bring transformative changes to the continent's economic landscape given that they build complementarities with other sectors, especially manufacturing.

Policy recommendations prescribed for a greater diversity and complexity of African products involves incentivizing services utilization in the manufacturing sector and enhancing entrepreneurship activities towards potential new products, with benefits for structural change, while optimizing opportunities for deeper integration in regional and global value chains. Therefore, African Governments and businesses can achieve this by building capacities to innovate, enhancing technologies and infrastructure for industrialization, strategically catering to financing needs of domestic businesses, fostering innovation and efficiency for financial services and business models, and leveraging regional gains and potential to support export diversification and structural change.