Economic Diversification in Africa A REVIEW OF SELECTED COUNTRIES This study provides an empirical review of the role of governments, the private sector, Economic Diversification regional economic institutions and the broader international community in driving economic diversification. Individual case studies of five African economies, Angola, in Africa Benin, Kenya, South Africa and Tunisia, describe both the catalysts of and barriers to diversification. The study is published jointly by the United Nations Office of the Special Adviser on Africa (UN-OSAA) and the NEPAD-OECD Africa Investment Initiative. A REVIEW OF SELECTED COUNTRIES www.oecd.org/daf/investment/africa E c o n o m ic D iv e r s ifi c a t io n in A fr ic a A R E V IE W O F S E L E C T Please cite this publication as: E D OECD/United Nations (2011), Economic Diversification in Africa: A Review of Selected Countries, C O OECD Publishing. U N http://dx.doi.org/10.1787/9789264096233-en T R This work is published on the OECD iLibrary, which gathers all OECD books, periodicals and IES statistical databases. Visit www.oecd-ilibrary.org, and do not hesitate to contact us for more information. ISBN 978-92-64-03805-9 -:HSTCQE=UX]UZ^: 20 2011 01 1 P Economic Diversification in Africa A REVIEW OF SELECTED COUNTRIES This work is published on the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the Organisation or of the governments of its member countries. Please cite this publication as: OECD/United Nations (2011), Economic Diversification in Africa: AReview of Selected Countries, OECD Publishing. http://dx.doi.org/10.1787/9789264038059-en ISBN 978-92-64-03805-9 (print) ISBN 978-92-64-09623-3 (PDF) Corrigenda to OECD publications may be found on line at: www.oecd.org/publishing/corrigenda. © OECD 2011 You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgment of OECD as source and copyright owner is given. All requests for public or commercial use and translation rights should be submitted to [email protected]. Requests for permission to photocopy portions of this material for public or commercial use shall be addressed directly to the Copyright Clearance Center (CCC) at [email protected] or the Centre français d’exploitation du droit de copie (CFC) at [email protected]. FOREWORD Foreword T he global financial and economic crisis has revealed Africa’s vulnerability to external economic shocks. Largely dependent on the export of commodities, many of the continent’s economies suffered setbacks in economic growth and in their efforts to meet the Millennium Development Goals by2015. Economic diversification holds great potential to increase Africa’s resilience and would contribute to achieving and sustaining long term economic growth and development in the continent. Broadly-based economies, active in a wide range of sectors, and firmly integrated into their regions, are better able to generate robust growth and sustainable growth. However, the expansion of activities in underdeveloped sectors, or indeed the development of new activities, is a significant challenge and requires a combined effort by African governments, the private sector and the international community. In addition, and in light of the small size of many African economies, a regional approach to economic diversification is imperative to reap the benefits of larger domestic markets and economies of scale. This study analyses the economies of selected African countries’ and their diversification profiles and strategies. The five case studies, of Angola, Benin, Kenya, South Africa, and Tunisia, provide a detailed view on the state of economic diversification in the continent. From these experiences, policy recommendations are drawn for African governments, regional institutions and the international community. Economic diversification in Africa can deliver the improved utilization of the continent’s vast agricultural and mineral resources. Minerals processing, the expansion of manufacturing activities, the production and export of non-traditional agricultural and industrial products, and the further development of services sectors such as tourism, will all improve Africa’s economic prospects. Setting African economies on amore balanced, broad-based and diversified growth path will not be easy. Aconducive business environment, responsible management of natural resources and good governance are all indispensable to support private enterprises, harness their innovative potential, and implement other innovative ideas put forward in this study. Cheick Sidi Diarra Angel Gurria Ibrahim Mayaki United Nations Secretary-General Chief Executive Officer Under-Secretary-General Organisation for Economic NEPAD Planning and Special Adviser Co-operation and Co-ordinating on Africa and Development (OECD) Agency ECONOMIC DIVERSIFICATION IN AFRICA: A REVIEW OF SELECTED COUNTRIES © OECD 2011 3 ACKNOWLEDGEMENTS Acknowledgements The original draft of this study was prepared by JohnHEMaré, a South Africa-based consultant. Subsequent updates have been undertaken and comments and suggestions have been provided by KerriElgar, SaidKechida, DambudzoMuzenda and MikePfister (NEPAD-OECD Africa Investment Initiative), and OlivierSchwank , KatrinToomel and JulietWasswa-Mugambwa (UNOffice of the Special Adviser on Africa). The study also benefited from comments by BenIdrissaOuedraogo and DavidWright, (UNOffice of the Special Adviser on Africa). CarolSakubita (UNOSAA) provided logistic support. The work was carried out under the overall direction and guidance of DavidMehdi Hamam, Chief, Policy Analysis and Monitoring Unit, UN OSAA and KarimDahou, Executive Manager, NEPAD-OECD Africa Investment Initiative. The report was enriched by the discussions at the Expert Group Meeting on Economic Diversification in Africa: AReview of Selected Countries, held in Addis Ababa, in November2009, with the participation of: AbdallaHamdok, EmmanuelNnadozie, JosephAtta-Mensah (United Nations Economic Commission for Africa); FestusFajana, MerahNadir, InyeNathanBriggs (African Union Commission); IbrahimGourouza (New Partnership for Africa’s Development Agency); Richard Randriamandrato, Jamel Boujdaria, DotunAjayi, (Regional Economic Communities); ElIzaMohamedou (African Development Bank); KarimDahou (Organisation for Economic Co-operation and Development); Fidele Sarassoro (United Nations Development Programme); AureliaCalabro (United Nations Industrial Development Organisation); YoussefChaitani (United Nations Economic and Social Commission for Western Africa); MumbiKiereini (Kenya Private Sector Alliance); and AlemayehuGeda (Addis Ababa University). 4 ECONOMIC DIVERSIFICATION IN AFRICA: A REVIEW OF SELECTED COUNTRIES © OECD 2011 TABLE OF CONTENTS Table of Contents List of Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Chapter 1.Introduction to Economic Diversification . . . . . . . . . . . . . . . . . . 13 1.1. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 1.2. Major Determinants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 1.3. Major challenges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Chapter 2.Experiences in National Economic Diversification in Africa . . 27 2.1. South Africa case study. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 2.2. Kenya case study. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 2.3. Tunisia case study. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 2.4. Angola case study. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 2.5. Benin case study. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Chapter 3.Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 3.1. Building blocks for economic diversification . . . . . . . . . . . . . . . . . . . 68 3.2. Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 3.3. The way forward. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Abbreviated Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Publications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Periodicals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Newspapers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Country-level consultations through country missions to:. . . . . . . . . 83 Tables 1.1. Trading regulations in SSA and case study countries. . . . . . . . . . . . 16 2.1. Kenya: Selected economic/trade indicators, 2006-12 . . . . . . . . . . . . 39 2.2. Access to finance for firms in Kenya. . . . . . . . . . . . . . . . . . . . . . . . . . 42 ECONOMIC DIVERSIFICATION IN AFRICA: A REVIEW OF SELECTED COUNTRIES © OECD 2011 5 TABLE OF CONTENTS 2.3. Tunisia’s infrastructure sectors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 2.4. Tunisia’s financial sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 2.5. Angola’s economy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Figures 2.1. South Africa’s GDP growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 2.2. Composition of South Africa’s GDP2008. . . . . . . . . . . . . . . . . . . . . . . 29 2.3. Tunisia’s diverse economy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 2.4. Indicators of Tunisia’s competitiveness . . . . . . . . . . . . . . . . . . . . . . . 47 2.5. Composition of Benin’s GDP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 2.6. Benin’s competitiveness indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 6 ECONOMIC DIVERSIFICATION IN AFRICA: A REVIEW OF SELECTED COUNTRIES © OECD 2011 LIST OF ACRONYMS List of Acronyms ABR Africa Business Roundtable ACP African, Caribbean and Pacific AfDB African Development Bank AGOA Africa Growth and Opportunity Act APRM African Peer Review Mechanism (of the NEPAD process) ASEAN Association of South East Asian Nations ASGISA Accelerated and Shared Growth Initiative for South Africa AU African Union BDA Banco de Desenvolvimento de Angola-BDA (Angolan Development Bank) BUSA Business Unity South Africa CAADP The Comprehensive Africa Agriculture Development Programme CAD The China Africa Development Bank CBI Cross Border Initiative CEN-SAD Community of Sahel-Saharan States CHAMSA Chambers of Commerce and Industry South Africa COMESA Common Market for Eastern and Southern Africa DBSA Development Bank of Southern Africa DRC Democratic Republic of Congo DTI Department of Trade and Industry (of South Africa) EAC East African Community EASSy Eastern Africa Submarine Cable System EBA Everything But Arms ECCAS Economic Community of Central African States ECGLC Economic Community of the Great Lakes Countries ECOWAS Economic Community of West African States EPA Economic Partnership Agreement ERS Economic Recovery Strategy ESIPP EU SADC Investment Promotion Programme EU European Union FES Friedrich Ebert Stiftung FND Fundo Nasional de Desenvolvimento (National Development Fund) ECONOMIC DIVERSIFICATION IN AFRICA: A REVIEW OF SELECTED COUNTRIES © OECD 2011 7 LIST OF ACRONYMS FTA Free Trade Agreement GDP Gross Domestic Product GEAR Growth, Employment and Redistribution Strategy HCDA Horticultural Crop Development Agency ICT Information and Communications Technology IDC Industrial Development Corporation IGD Institute for Global Dialogue IGAD Intergovernmental Authority on Development ILO International Labour Organisation IPAP Industrial Policy Action Plan LDC Least Developed Country MEDA Mediterranean Economic Development Agreement MERCOSUR Common Market of the South MIDP Motor Industry Development Program MFN Most Favoured Nation NBF NEPAD Business Foundation NBG NEPAD Business Group NEDLAC National Economic Development and Labour Council NEPAD New Partnership for Africa’s Development NESC National Economic and Social Council NIPF National Industrial Policy Framework NGO Non Governmental Organisation PPP Public-Private Partnerships/Projects RDP Reconstruction and Development Programme REC(s) Regional Economic Community/ies RIDS Regional Industrial Development Strategy SABS South African Bureau of Standards ACOB South African Chamber of Business SACU Southern African Customs Union SADC Southern African Development Community SADCBF Southern African Development Community (SADC) Business Forum SDI Spatial Development Initiative SDP Spatial Development Programme SME Small Medium Scale Enterprise SSA Sub-Saharan Africa SWA Sovereign Wealth Fund TDCA Trade, Co-operation and Development Agreement TICAD Tokyo International Conference for African Development UN United Nations UNECA United Nations Economic Commission for Africa UNIDO United Nations Industrial Development Organisation 8 ECONOMIC DIVERSIFICATION IN AFRICA: A REVIEW OF SELECTED COUNTRIES © OECD 2011