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Driving industrialisation in Africa through entrepreneurship

African governments urgently need to recognise the potential of the continent’s entrepreneurs and implement policies to promote entrepreneurship, according to the 2017 African Economic Outlook report.

The latest report – produced by the African Development Bank, the UN’s Development Programme and the OECD Development Centre – calls for African governments to continue their adoption of digital technologies that can enhance the provision of public services. It also emphasises that intra-African trade and industrialisation need to be a central tenet of Africa’s economic policy agenda.

“Foreign direct investment from large international businesses can serve a lot to disseminate a series of skills and competencies, but if industrialisation is going to benefit all Africans then we have to address our efforts to improve the standing of small firms and the informal sector,” says Mario Pezzini, director of the OECD Development Centre.

While 80 percent of Africans see entrepreneurship as a viable career opportunity, a high number of nascent business owners operate in industries with low productivity. Increasing the competitiveness of smaller companies that have low levels of formal training is vital to the success of industrialisation strategies.

Close to 50 percent of African countries have wide-ranging industrialisation plans, but they usually fail to represent the needs of companies with high growth targets, according to the report’s findings.

“Governments should design strategies that remove the existing binding constraints on high-potential entrepreneurs. Capacity to implement policies is also weak, often resulting in conflicting mandates across different government agencies,” the report says.

Low commodity prices and a weak global economy dragged down Africa’s growth rates but the continent is expected to prevail against economic headwinds in the medium term, according to the report. Africa’s economy is expected to grow by 3.4 percent in 2017 and 4.3 percent in 2018, up from 2.2 percent in 2016.

While inter-African trade is rising steadily, it is growing at a far slower pace than trade between  Africa and the rest of the world, which more than quadrupled over the past 20 years.

Mr Pezzini believes relieving logistical and infrastructure bottlenecks is key to accelerating trade within the region. Burdensome tariffs and regulatory barriers must come down for intra-African trade to grow uninhibited.

“Sub-standard infrastructure massively inflates the price of goods and when you take into account that Africa is mainly producing commodities with little added value, transportation costs impact the price a lot,” he points out.

Far-sighted and committed political leaders, alongside an engaged private sector, are required to push forward the ambitious industrialisation strategies. The successful implementation of these schemes will do much to improve Africa’s prospects, the authors write, but there is a great deal of work still to be done.

“Many of Africa’s poorest are not seeing the benefits that industrialisation can offer. While industrialisation is taking place across Africa, in many cases it’s not transforming the economy of cities. Africa critically needs coherent local policies if it’s to reach its full potential,” Mr Pezzini concludes.

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