Intra-Africa trade, value addition key to sustainable growth on the continent

The debate about economic growth and economic development in third world countries has been going on for decades and is not about to stop. For instance, policies that work in some countries, but failing in other nations, is one of the issues that arouse debate. In addition, though growth has gained momentum over the last two decades in some developing countries, it cannot be sustainable until it is localised or based on exploitation of local resources. As a result of these and other contradictions, most countries in the southern hemisphere are characterised by low levels of economic growth and development. Several reasons have been cited for low rate of development and growth in these countries, including colonisation, dependency, political instability, neo-liberalisation, and foreign involvement, among others. Many of these are external factors acting as constraints to their development. Some economists consider structural deficiencies and institutional weaknesses as reasons for low levels of economic development in third world economies. They believe that structural deficiencies and institutional weaknesses create conditions that keep developing countries at low levels of development and growth. In sub-Saharan Africa, domination of agriculture sector has led to continued heavy reliance on commodity exports as a major source of foreign exchange earnings, subjecting these countries to fluctuation in prices and weather conditions. Geographical factors were also considered as affecting Africa’s and developing countries’ economic growth. Landlocked countries which are also resource scarce, are some of least growing economies in Africa. Those do not have good bilateral and free trade agreements with neighbours like Eritrea and South Sudan are the most affected. Challenges to African development Due to structural, institutional and geographical factors, developing countries have not gained much in terms of trade even after liberalising their economies and introducing structural reforms promoted by the International Monetary Fund (IMF) and World Bank. Sub-Saharan Africa has grown less rapidly economically than its population since 1950, and there had been overexploitation of resources without bringing beneficial outcomes to these economies. One World Bank study considers a pervasive influence of institutions and social organisation as reasons for this. Low trade between African countries has also kept them at minimal levels of development as focus is on exports of primary commodities. Besides, developed countries have put in place tariffs against manufactured goods, making it harder for the poor nations to add value to primary products. Economic growth in Rwanda According to IMF data, Nauru, Ethiopia, Turkmenistan, Qatar, China and Uzbekistan were the fastest growing economies in the world in 2017. Some of these fast-growing economies are developing economies. Rwanda is also one of fastest-growing economies. The country has recorded stable high economic growth for past few years averaging 8 per cent. The country’s economy expanded by 5.9 per cent last year and is projected to grow by 6.2 per cent this year. Strong institutions and policies are contributing to this robust growth rate. Rwanda is the most competitive economy in East African Community and one of the top three most competitive economies in sub-Saharan Africa, according to WB’s world competitiveness reports. Some of its policies like emphasis on home grown solutions, prudent financial and fiscal policies, and import substitution based trade and external aid policy have resulted in sustained growth in per capita income and low inflation rates. The performance of Rwanda’s economy has proved that constraints to growth are temporary barriers and strong institutions can help in overcoming such barriers. Way Forward Internal and external constraints to development have affected economic growth in the so-called third world countries for a long period of time. Therefore, there is need to eradicate these constraints through proper planning. Strong political commitment through leadership will help in overcoming these barriers to growth and development on the continent. Development of trade at both regional and international levels will also help in overcoming constraints. According to an ECA-AU report, increasing continental trade and improving regional infrastructure has facilitated Africa’s development and interaction in international markets “because there is a high global demand for African resources such as oil and metals”. In addition, for African countries to have sustainable and equitable development, they have to refocus on optimal utilisation of economic resources. African countries need to re-examine their bias toward external trade, and the continent should focus on local markets and increase trade between states. Drawing on regional models of comparative advantage and trading regionally will help in securing good terms of trade among trading partners on the continent, and will also help spur growth among African countries. The writer is a Kigali-based economist and consultant.

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Intra-Africa trade, value addition key to sustainable growth on the continent