In the latest Global Competitiveness Report, the World Economic Forum’s review of indicators responsible for the productivity and long-term growth of selected countries, African countries ranked the worst.
Out of the 140 countries studied, the highest placed African economy was Mauritius, at 49, and the closest after that was South Africa, which came in at 67. The majority of the ranked countries from the continent languish in the bottom third. The only non-African countries in that category are Venezuela, Haiti, and Yemen.
This abysmal performance in one of the key reports on measuring economic progress reiterates the deplorable state Africa’s economy finds itself in, at least with regard to the recent past. And below is a breakdown of the four primary factors responsible.
Market Monopoly and Low Innovation
The principal reason it is difficult for African countries to break into the top half of this index hinges on market monopolies. The concerned economies have varying degrees of unhealthy relationships between politics and business, which leaves control over the means of production with only a few corporations.
This effectively eliminates the required competition needed to improve the ability of the market to meet demand.
The best situation ought to be an open space for interested entrepreneurs or corporations to compete with each other at an individualized pace. In contrast, we currently find key sectors—including transportation, petroleum, and energy—usually have the government as the sole provider of services.
In the few cases where there is private participation, prices and supply are dictated by big corporations in liaison with corrupt politicians. This effectively eliminates the required competition needed to improve the ability of the market to meet demand at the lowest cost to African consumers, who have the lowest income earnings globally.
It also translates to the loss of modifications necessary to increase consumer choice and satisfaction. With the consumer having little to no option to reject a commodity or its source, the traditional channel of communication in the market is eliminated, hence the eventual weakness of these economies over time. Perhaps what can be considered the closest factor to market competitiveness is innovation—the process of idea generation geared towards maximizing gains from investments.
None of the low-ranked African countries have successfully embraced science and technology in their educational systems.
While the rest of the world is frequently updating to the latest inventions in robotics and artificial intelligence, none of the low-ranked African countries have successfully embraced science and technology in their educational systems. This problem is exacerbated by various sectors that comprise the economy.
For instance, agriculture, which contributes most to GDPs across the continent, is still not mechanized—probably with the exception of a few state-owned corporations. Leaders of these countries should already know that modernizing an important sector like agriculture ought to be the first on their economic agenda if they truly want to be competitive.
Unfavorable Business Environment
The Business Enabling Environment (BEE) in most parts of the continent is a far cry from what should be an acceptable minimum. This means that factors that determine the BEE of an economy, specifically regulatory policies and business laws, cannot generally be considered tolerable in Africa. This constitutes a great challenge to businesses’ ability to thrive.
One might even consider the low degree of competition as telling signs of why Africa finds it hard to score high in the study.
For example, starting a business or registering a property in most places in sub-Saharan Africa usually takes longer than elsewhere. Though it is an effort that ordinarily should not exceed one to three working days, in Nigeria, for instance, it typically takes six weeks to register a business; the same goes for Cameroon, while in places like DR Congo, Niger, and Burundi, it may take even longer.
This is one reason why sub-Saharan Africa is recognized as the worst place for entrepreneurs to succeed, and consequently, these bureaucratic delays are a red flag when studying the competitiveness of an economy. One might even consider the low degree of competition among state-owned enterprises, bigger corporations, and micro-and small enterprises (MSEs) as telling signs of why Africa finds it hard to score high in the study.
These challenges could be avoided if African governments simply stopped imposing unnecessary regulations.
This red tape, coupled with the weak protection of private property, complicates the decision-making process for value chain actors like farmers, local merchants, and the consumer. In the end, it makes the amount of value they add to the economy as a function of market competition to be quite low.
These challenges could be avoided if African governments simply stopped imposing unnecessary regulations. However, since that is unlikely to happen any time soon, the business environment will remain hostile.
Weak Human Capital
This has more to do with how Africans contribute to the GDP of their countries, a considerably low quota due to the deplorable state of education and quality of life.
The ability of an average African worker to significantly contribute to the market process has remained relatively stagnant for decades, while the youth population continues to grow without increases in job availability or skills.
There is a wide gap between the availability of required skills and modern industrial demand for labor.
This puts the market value of the skill set of an average African worker among the lowest in the world, according to the recent Human Capital Index of the World Bank Group (WBG).
It has created a wide gap between the availability of required skills and modern industrial demand for labor. It is also the reason why 70 percent of the continent’s labor force finds itself in the agricultural sector.
Meanwhile, education is key to driving human productivity. In fact, the more countries invest in technical education nowadays, the further their economies are likely to improve in areas of science and technology.
For the concerned African countries, the next step in improving their human capital is to invest more in education. Other needs like health, security, and nutrition will fall into place once improvements to education and the ease of doing business come into line.