Dependence on resource export makes African economy vulnerable to the international political and economic situation and hinders African economy from achieving sustainable development. African countries need to diversify their exports, reduce their dependence on commodity exports and improve their economies’ ability to resist the global crisis. As a "promising continent", Africa can tap the growth potential of knowledge-intensive service industries, give play to the key role of small and medium-sized enterprises, release the kinetic energy of intra-African trade, promote economic and export diversification, and strive to climb to the middle and high end of the global value chain.
African countries are rich in natural resources, and the export of resources has created a lot of financial and foreign exchange income for African countries. However, the continuous fluctuation of commodity prices in recent years has also brought a big impact on African countries’ economies. As the Report on Economic Development in Africa 2022 released by the United Nations Conference on Trade and Development (UNCTAD) recently said, African countries need to diversify their exports, reduce their dependence on commodity exports, and improve their economies’ ability to resist the global crisis.
According to UNCTAD’s standards, when more than 60% of a country’s total commodity exports are commodities, the country is considered as a commodity export-dependent country. Data show that 45 out of 54 African countries depend on the export of primary products of agriculture, mining and extractive industries. Dependence on resource export makes African economy vulnerable to the international political and economic situation and hinders African economy from achieving sustainable development.
Take Nigeria, once the largest oil producer in Africa, as an example. Although Nigeria has been striving to promote economic diversification, crude oil export is still the core driving force for Nigeria’s economic growth, and its macroeconomic situation is obviously affected by international oil prices. However, Nigeria has always been a net importer of refined oil due to the lack of adequate refining facilities in the country. For this reason, when the international oil price rises, Nigeria can’t "lie down and win", but it will cause oil shortage and trigger a series of negative economic impacts. This is the disadvantage of relying on the export of primary products and ignoring the construction of industrial capacity.
Climate change also affects the income of resource-based countries in Africa. In response to global warming, the international community is accelerating the process of decarbonization, making great efforts to invest in clean energy and greatly reducing investment in the oil and gas industry. Many fossil fuels in Africa may sleep underground forever. Although South Africa, Zimbabwe and other countries have a lot of coal resources, due to the net zero carbon emission target, inconvenient freight transportation and abnormal weather in ports, the coal export volume has declined this year compared with previous years.
It can be seen that getting rid of dependence on commodity exports at an early date is crucial to the sustainable economic development of African countries. As a "promising continent", Africa can make efforts in the following aspects to promote economic and export diversification and strive to climb to the middle and high end of the global value chain.
The first is to tap the growth potential of knowledge-intensive service industries. According to UNCTAD data, from 2005 to 2019, the level of service trade in Africa was low, and service exports only accounted for 17% of the total exports of the African continent. Moreover, Africa’s service exports are mainly low value-added transactions, of which tourism and transportation account for about two-thirds of service exports, while knowledge-intensive services such as information technology and financial services only account for 20% of Africa’s service exports, and there is still huge room for growth.
African countries can increase investment in knowledge and technology, cultivate more local talents, and promote the transformation and upgrading of their economies and export structures. At present, some international enterprises take advantage of the close time difference between Africa and Europe and the high English level of African people, and outsource their accounting and telephone services to African countries, which is the best embodiment of Africa’s service export potential. What’s more, if the broad masses of people in Africa can receive more skills education, besides serving international enterprises, they also have the ability to make higher-end goods for Africa, change the current situation of Africa’s export of primary commodities and services, and reduce environmental degradation caused by the exploitation of natural resources.
The second is to play the key role of small and medium-sized enterprises. According to the International Finance Corporation of the World Bank, there are about 50 million formal small and medium-sized enterprises in Africa, accounting for about 90% of the total number of enterprises on the African continent and employing about 60% of the labor force. But at the same time, their annual financing needs of 416 billion dollars are not met. The private sector and small and medium-sized enterprises are more flexible in their business methods and more willing to innovate, and can become engines to promote the diversification of African countries’ economies and exports.
African countries should create a better business environment and provide more innovative financial tools for the private sector and small and medium-sized enterprises, so that they can obtain affordable financial services and meet their huge and long-term financing needs. Financial technology enterprises are in the ascendant in Africa. African countries can completely improve the traditional credit channels, encourage relevant financial enterprises to support small and medium-sized enterprises through policies, bridge the huge funding gap faced by small and medium-sized enterprises, and create more innovation and investment opportunities by using financial technology.
The third is to release the kinetic energy of intra-African trade. The African Continental Free Trade Area was symbolically launched in early 2021, which became another milestone for African countries to unite and strengthen themselves and promote economic transformation. The free trade zone aims to create a single market for the 1.4 billion people on the African continent, which is of great significance to promoting the diversification of African exports. However, regional economic integration can’t be achieved overnight. Due to the COVID-19 epidemic, the negotiations on FTAs were once slow to advance online. At the same time, some countries were worried, and the ratification of FTAs faced some resistance. The dividends of FTAs on the African continent have not been fully released.
The vision of the African continent free trade zone is very beautiful, and activating intra-African trade will form a virtuous circle on the African continent — — The trade cost of goods and services in the region is reduced, and the increase in trade demand drives industrial development, thus creating jobs and stimulating the economy. At the same time, economic development has improved the business environment, and Africa has the opportunity to attract more investment, promote the further development of many fields such as industry, and finally realize the transformation and upgrading of economic structure and sustainable development. In the face of the differences in interests of all parties, African leaders should not forget the African proverb of "walking alone quickly and traveling far". They should uphold the spirit of pan-Africanism, coordinate various domestic interest groups, make political decisions as soon as possible, promote the implementation of the free trade agreement on the African continent, and gather stronger synergy for economic recovery and development in Africa after the epidemic.
