African growth depends on value addition in exports
There is a popular quote by Billy Gross that says Accountants, machinists, medical technicians and even software writers like me that write the software for ‘machines’ are being displaced without upscaled replacement jobs. Retrain, rehire into higher paying and value-added jobs? That may be the political myth of the modern era. There aren’t enough of those jobs. That classically applies to what has been a dire situation in Africa. Luckily, high levels of foreign direct investment over the last decade has driven demand for capital goods and raw materials, while rising fuel consumption and soft commodity prices have contributed to the widening trade deficit in almost all countries in the continent. I was perusing some statistics availed to me by an investment company that is seeking investors for what I consider interesting projects and was quick to noted that the continent has been recording huge trade deficit over the same period. The continent seem to be struggling with is how to judge the quality of the value-added experience. I don’t think it’s impossible to do that, but it’s difficult because primarily because commodities make up 60 percent of Africa’s exports.
High commodity prices are good for the countries in Africa but from my little knowhow in economics, commodity prices are cyclical. In principle, the continent must export more finished goods to achieve balanced trade especially with China and European Union. There is need for African government’s to develop more downstream processing of raw commodities is the right path to this end. Countries like Zambia, South Africa, Democratic Republic of Congo and Tanzania among others with their rich natural resources can become major exporters of processed commodities. This means respective governments need to achieve downstream processing and encourage private sector involvement in investment in such industries. If this can be done, Africa could have a huge competitive advantage. Eventually, it will boost its exports and create millions of jobs indirectly in the next few years. In the booklet provided to me by the investment seeker, the statistics shows there will be rise in consumption, both from industrial and household consumers especially in Kenya, Angola and Nigeria as well as Tanzania. This means that fuel imports will eventually rise again in non oil economies. Overall, I think the most appropriate longer term solution will be to boost export competitiveness through improvement and development of the manufacturing sector as envisaged by Uganda and Mozambique governments.