In recent years, economies in Africa have increasingly been exposed to the vagaries of global markets. Whereas previously, periods of economic growth were stimulated by local demand and a sense of national pride with respect to the ability to produce domestically, export markets now dominate driving economic growth. With this change has come increased competition from other developing countries that also have access to these markets. This opening up of African economies can be seen as an opportunity for them to diversify their exports beyond primary commodities such as oil, minerals, and agricultural products.
The challenge for the continent is to present a select number of products that can operate in global markets alongside the products of industrialised countries. However, this is not an easy task; competition from Africa’s neighbours has stimulated intense rivalry. To succeed, economies will need to generate coherence in policy-making across sectoral and geographic levels to ensure that efforts are geared toward building competitive industries. The challenge also includes building a knowledge base within Africa that can support the continuous upgrading of the continent’s industries and productive capacities. This knowledge base must include an understanding of which factors influence competitiveness and how they can be influenced through the design and implementation of appropriate policies. The latter aspect of this challenge is of particular importance given the economic stakes involved in Africa’s competition for global markets.
Competitive industries are those that can compete in the world markets with products and services manufactured by foreign firms. A competitive industry is one where firms have access to foreign technology, capital and export markets. This access is provided by various policies that governments implement and that make export industries more likely to thrive. These policies include:
- Market access through the reduction of tariffs and non-tariff barriers, in addition to the reduction of trade restrictions that limit exports.
- Tax incentives to firms whose earnings come from the export market. These tax benefits are needed because there will be limited returns from domestic sales given that it is easier for foreign firms to penetrate local markets, making profits from exports more attractive.
- In addition, governments should also implement tax policies that make it expensive for firms to use imported inputs in production and then, re-import the final product at a lower price. This discourages the practice of ‘dumping’ or selling at a loss. Dumping is not profitable in the long run; hence, governments should take measures to discourage it.
- Export credit schemes that provide funding for exporters to finance the purchase of inputs – such as transportation, raw materials, and high-technology equipment.
- Government procurement policies that favour production inputs from local firms. For example, governments can make it a practice to buy locally manufactured goods for official use. This ensures that a percentage of tax revenues are returned to the industry in the form of purchases of locally produced goods and services.
A knowledge-based economy is built on more than just a knowledge base as it involves capacity-building and training programmes for local citizens as well as foreign investors, who are willing to invest in the local economy. Such programmes are also needed to raise the skill levels and competency of local workers. Following the exploration of whether to develop a competitive industry, the policy-maker must assess what are the key indicators needed to measure competitiveness. This will include, among others, policies that improve the quality and quantity of human resources, institutions that ensure access to information technology (IT) for firms, efficient regulations and deregulation measures aimed at boosting export competitiveness.
Another important aspect of competitiveness is also the fact that local firms must be able to compete with foreign ones in terms of both their products and activities. That is, firms will only be able to compete if they have access to human resources and knowledge, as well as local technologies and materials that can sustain their competitiveness. The role of government in the creation of competitive industries is significant given the economies’ need for private sector initiatives. Governments are required to provide the right regulatory environment for the private sector so that it can thrive; this may include a proper legal framework that allows firms to take advantage of all opportunities available within their markets. It will also require policies that allow various public agencies in a given country to work together toward common goals. This has been notably successful in countries such as South Korea and France, where governments have established agencies dedicated to promoting exports in various sectors – including agriculture and tourism.
The role of government is also important in the allocation of capital for investments that give a competitive advantage. Capital plays an important role in the creation of new firms and the expansion/modernisation of existing ones. Governments can help increase the competitiveness of firms by providing them with access to foreign sources of capital as well as loans from local banks for the modernisation and expansion process. Another feature that governments can promote to enhance competitiveness involves the provision of incentives to both local and foreign investors, which can be done through tax breaks, training programmes and other financial incentives aimed at improving exports from various sectors.
Developing robust industrial infrastructure is also vital for building competitive industries. African governments should prioritise investments in transportation networks, power generation, and digital infrastructure to enable efficient production and export activities. To achieve this, strategic special economic zones can be established, such as the Dawa Industrial Zone in Ghana, which serves as a prime example of attracting domestic and foreign investment, providing favourable conditions for industries to thrive. The Government of Ghana offers various incentives which can be accessed through the Dawa Industrial Zone. These include tax breaks and access to foreign sources of capital to enable the creation of an environment conducive for the growth of competitive industries. Moreover, through successful public-private partnerships, the Dawa Industrial Zone leverages resources and expertise for infrastructure development, thereby significantly enhancing Ghana’s overall industrial competitiveness.
Increased access to markets is another critical component of competitiveness. The key issue here is to make sure that governments are able to manage the export operations of their factories or industries successfully. This involves the creation of a conducive environment in which public and private enterprises can operate. A conducive environment may require policies that stimulate investment, such as reducing tariffs and providing tax incentives on the importation of raw materials; this will also influence the market price of exports. Other policies that promote competition include public-private partnerships for infrastructure development, providing financial incentives for manufacturing activities, and reducing customs duties on imports from African countries.
Intra-regional trade presents a significant opportunity for African nations to diversify their exports and increase competitiveness. Governments should prioritise regional integration efforts, including harmonising trade regulations, reducing non-tariff barriers, and improving transportation infrastructure, to facilitate the movement of goods and services across borders. Collaborative initiatives, such as the African Continental Free Trade Area (AfCFTA), create a larger market and provide a platform for African industries to expand their reach and compete globally.
Governments should also focus on creating laws and policies that help firms to compete. This will involve ensuring legal frameworks for firms, reducing bureaucratic delays, and facilitating the free flow of information to private companies. Improving regulatory environments for private enterprises is essential as it creates more business opportunities for firms within Africa and improves their overall competitiveness. Another important feature of competitiveness is access to technology, which will allow local firms to increase their efficiency in production and processing activities; therefore, improving their competitiveness in export markets. The absence of technology can be linked to low domestic production rates and an inability of African countries to expand their exports into new markets or diversify from traditional products consumed locally.
With regard to technology, African nations should consider the idea of creating ‘technology parks’ that serve as a hub for technological development and research. This will help transfer traditional technologies used in Africa to new products by encouraging foreign investments and providing African companies with access to foreign expertise and technologies. In addition, the main sectors that need this kind of support are agriculture, food processing, construction materials, pharmaceuticals and security.
The last but not the least feature of competitiveness in Africa is human capital development. With regard to human capital development (the education system), governments must ensure access to education opportunities through scholarships for students from disadvantaged backgrounds; this will assist them in their integration into society and improve their competitiveness in the labour market. The appointment of good managers and supervisors who understand business operations is also crucial in promoting competitiveness. However, this only happens when governments provide proper leadership and promote good governance.
Overall, enhancing competitiveness is an important but difficult task. It requires the right kind of policies and commitment by both governments and private companies. If African nations are able to strengthen their competitiveness in the global market, they will be able to expand their export revenue base significantly over time. This is an essential component in the development of social services, infrastructure, human capital development and overall economic growth on the continent.
The writer is an award-winning financial advisory, trade and transformation consulting professional with almost two decades of enterprise leadership experience across EMEA
