The dearth of entrepreneurs has long been a binding constraint on Africa's economic development. To remedy it, African governments should foster business environments that ensure a level playing field and coordinate their actions at the regional and continental level.
CAMBRIDGE – For decades, Africa has been the world’s most commodity-dependent continent. At the same time, it has become overly reliant on imports from the rest of the world: intracontinental trade accounts for only 15% of total African trade, compared to 60% in Asia and 70% in the European Union. Worryingly, imports of manufactured goods into African countries have grown by more than 25% over the decade ending in 2022.
The continent’s import dependency can be explained primarily by the dearth of African industrial entrepreneurs. And Africa’s projected population growth and burgeoning middle class suggests that this dependency will only grow in the medium term, with significant implications for macroeconomic stability, unless local actors begin driving innovation and creating new products and services to meet the needs and desires of domestic consumers.
The problem, however, is not sustained import growth per se, especially when the rise of global value chains and increasing fragmentation of production have reduced the power of exports as a driver of short-term demand. Instead, the main issue is that African countries are participating in global value chains largely through backward activities, systematically exporting natural resources and primary commodities and importing manufactured goods, an imbalance that drains wealth away from the continent. For African fossil fuel-producing countries, the carbon-intensive “round-tripping” model of exporting crude oil and importing refined petroleum has been costly, resulting in immense deadweight losses and foreign-exchange leakages. In Nigeria, for example, the opening of a much-anticipated oil refinery could save the country $26 billion annually.
CAMBRIDGE – For decades, Africa has been the world’s most commodity-dependent continent. At the same time, it has become overly reliant on imports from the rest of the world: intracontinental trade accounts for only 15% of total African trade, compared to 60% in Asia and 70% in the European Union. Worryingly, imports of manufactured goods into African countries have grown by more than 25% over the decade ending in 2022.
The continent’s import dependency can be explained primarily by the dearth of African industrial entrepreneurs. And Africa’s projected population growth and burgeoning middle class suggests that this dependency will only grow in the medium term, with significant implications for macroeconomic stability, unless local actors begin driving innovation and creating new products and services to meet the needs and desires of domestic consumers.
The problem, however, is not sustained import growth per se, especially when the rise of global value chains and increasing fragmentation of production have reduced the power of exports as a driver of short-term demand. Instead, the main issue is that African countries are participating in global value chains largely through backward activities, systematically exporting natural resources and primary commodities and importing manufactured goods, an imbalance that drains wealth away from the continent. For African fossil fuel-producing countries, the carbon-intensive “round-tripping” model of exporting crude oil and importing refined petroleum has been costly, resulting in immense deadweight losses and foreign-exchange leakages. In Nigeria, for example, the opening of a much-anticipated oil refinery could save the country $26 billion annually.