Speaking at the 52nd session of the Conference of Ministers of Finance, Planning and Economic Development (#2019COM), the Executive Secretary of the United Nations Economic Commission for Africa, Vera Songwe, highlighted the main points to be worked on to enhance the economic development of the continent, such as a new fiscal policy and stimulus for domestic trade.
Poverty levels on the continent remain shockingly high. Even though the proportion of Africans living in extreme poverty declined from 57 percent in 1990 to 43 percent in 2012, within the same period, the total number of people living in poverty in Africa increased from 287.6 million to 388.8 million.
Therefore, to set Africa firmly on the path towards economic and social transformation, it is imperative to focus on sustainable reforms, investment, and innovation.
“At the heart of this discourse is fiscal policy, which can serve as an effective tool for development. It is therefore imperative to identify how African countries can leverage fiscal policy to achieve inclusive growth, the SDGs and implement Agenda 2063 of the African Union,” justifies.
According to the Executive Secretary, Africa faces a huge and rising financing gap that is impeding its efforts to foster development.
“The infrastructure gap, which is a major constraint to improving productive capacity, is estimated to be between $130 billion and $170 billion annually, of which the continent raises approximately 50 percent. More broadly, for Africa to achieve the Goals set forth in the 2030 Agenda, its incremental financing needs are estimated to range between $61 billion and $638 billion per year, while for the funds needed to implement the 2030 Agenda in low-income countries and lower-middle-income countries total $1.2 trillion per year. This translates into an estimated 11 percent of GDP between 2015 and 2030”, aims.
Private sector: the engine of Africa´s economy
Another important dimension of the growth and poverty reduction debate is centered on the private sector and trade.
“The private sector is the engine of Africa’s economy and accounts for over 80 percent of total production, two-thirds of total investment, and three-fourths of lending within the economy. The private sector also provides jobs for about 90 percent of the employed working-age population. Nevertheless, jobs in the private sector are often informal and characterized by low productivity. Indeed, the informal sector accounts for 40 percent of Africa’s economy and more than 60 percent of employment. Permanent wage jobs in the private sector account, on average, for only 10 percent of total employment”.
Vera Songwe advocates the establishment of the Continental Free Trade Area, that will create a market for African goods and services for 1.2 billion people, and will provide an opportunity for bolstering Africa’s private sector. “This is particularly important because, given current global geopolitical trends, the prospects for African trade with the rest of the world remain uncertain”.
ECA estimates that the Continental Free Trade Area will increase intra-African Trade by over 50 percent, and will boost the continent’s GDP by more than $40 billion, and its exports by more than $55 billion. In the area of agriculture, which employs the majority of Africans, the Free Trade Area will improve market access and stimulate growth and employment
A “new” Economy
The growth of the digital economy is outpacing the “traditional economy” and in less than a decade, the digital economy is expected to account for 25 percent of global GDP. The digital economy was estimated by the World Bank to be worth $11 trillion in 2016, equivalent to 15.5 percent of global GDP.
“The digital economy is equally promising in Africa and has the potential to define the path that economic transformation is likely to take. In several African countries, the digital economy is becoming one of the main drivers of growth, accounting for more than 5 percent of GDP,” remembers Vera Songwe.
“The digital economy is having a major impact on a wide range of sectors, including information communication and technology, trade, transport, education, health, agriculture, and government services, and offers tremendous opportunities for inclusive growth on the continent,” she adds.
The digital economy is having a major impact on a wide range of sectors, including information communication and technology, trade, transport, education, health, agriculture, and government services, and offers tremendous opportunities for inclusive growth on the continent
In Kenya, mobile money has revolutionized the financial sector and increased the pace of financial inclusion. On average, Kenyans moved more than $100 million daily in mobile transactions in 2018, which totaled $40 billion over the year, equivalent to almost half the country’s GDP. Senegal has set a target of generating 10 percent of its GDP from the digital economy by 2025.
Similarly, digital trade in Africa is rapidly growing at an estimated annual rate of 40 percent and is expected to grow to more than $300 billion per year by 2025. Globally, digital trade is worth over $11.5 trillion and is set to rise to more than $23 trillion by 2025.
Read Also: UNECA discusses opportunities for Africa