A report by the United Nations Conference on Trade and Development (UNCTAD) released on July 14, 2022 suggested that African countries, whose economies have been severely impacted by the COVID-19 pandemic and the war in Ukraine, can prevent this from happening in the future by diversifying their efforts.
To diversify their exports, the 54 nations of the continent must move toward information technology and financial services and enhance their ties with manufacturing.
The fact that the majority of African nations’ economies are reliant on commodity exports is the fundamental factor explaining how international events like COVID-19 and the war in Ukraine affect those nations. When commodities account for more than 60% of a nation’s total goods exports, UNCTAD deems that nation to be dependent on them.
According to this classification, 83% of African nations and 45% of all countries depending on commodities fall into this category.
Of Africa’s 54 economies, 45 are dependent on exports of unstable primary goods. These items are those that can be obtained by growing raw resources without the use of a manufacturing technique. These include goods from forestry, mining, and agriculture:
- Oil, natural gas, and coal exports are the major sources of income for 12 African countries.
- Sixteen are mostly dependent on the export of mining commodities including gold, copper, and iron ore.
- 17 export primarily agricultural goods, such as cocoa, coffee, cotton, and tea.
Exports and government revenue decline as their prices fall, while unemployment and poverty rise.
Remaking Africa
According to the report, three initiatives might assist Africa in diversifying its exports:
- Investing in specialized services such as finance and information technology.
- Enhancing connections between the service industry and other industries, such manufacturing.
- Using the potential of African companies, particularly tech-oriented start-ups.
Neglecting the potentially revolutionary role of highly knowledge-intensive services, such information and communications technology services and financial services is the major factor causing export diversification to remain a struggle in Africa.
Only 17% of the continent’s exports are made up of the services sector. Traditional services like transportation and travel dominate it. According to the report, it might be a powerful catalyst for economic diversification, expansion, and structural change in Africa.
To achieve this, however, policies must be coordinated in order to strengthen ties between the services industry and other economic sectors, particularly manufacturing.
The establishment of the African Continental Free Trade Area may encourage national initiatives to connect these industries and services and to give priority to service sectors that are pertinent to value chains that are strategically significant for a particular nation.
Fintech companies’ rapid expansion in Africa is fostering greater innovation and investment opportunities. The paper highlighted that fintech has the potential to assist African nations in achieving financial and social inclusion.