A Competitive Africa

• Author: Hippolyte Fofack
• Position: Chief economist at the African Export-Import Bank
• Pages: 49-51

Hippolyte Fofack

December 2018 | FINANCE & DEVELOPMENT 49

A Competitive

Africa

Economic integration could make the continent a global player

A

frica ranks near the bottom when

it comes to competing in the global

economy, held back by fragmented

markets that inhibit eciency and

constrain economic growt h.

Now a new player is emerging with the potential

to defragment Africa a nd boost the productivity of its

economies: the Africa n Continental Free Trade Area

(AfCFTA). In March 2018, 44 African hea ds of state

signed a framework to establi sh a single continental

market for goods and ser vices, with free movement

of capital and business travelers. Five additiona l coun-

tries, including South Africa, joined in July. e

AfCFTA still needs ratication by the parliaments

of at least 22 countries; seven have done so thus fa r.

In addition to increasing market e ciency and

reducing the cost of doing business by oering

opportunities for economies of scale, t he AfCFTA

could ease trade and investment ows and shift

the composition and direction of foreign direct

investment ows into Africa.

e big question is whether this eort w ill also

elevate the competitiveness of Afr ican economies.

Competitiveness—the set of institutions, policies,

and factors driving productivity—is a key deter-

minant of sustain able growth and provides a path

for eective integration into the global economy.

e Global Competitiveness Index, a performa nce

indicator generated every year by the World Economic

Forum to benchmark countries, s hows large variations

in national competitiveness ra nkings. ese have to

do with the stage of economic development, the gap

in physical and technologica l infrastruct ure between

developed and many developing economies, and

the inability of a number of developing economies

to undertake the critic al economic and institutional

reforms needed to raise their ma rket eciency.

e few African countries that have emerged as

the fastest-growing economies in t he past decade

have also been on an upward tr ajectory on the global

competitiveness ladder. Increasingly, these countries

(most notably Côte d’Ivoire, Ethiopia, and Rwanda)

are drawing on their i mproving competitiveness and

macroeconomic environment to diversify their s ources

of growth and trade and, in the process, expand

their share of the global ma rket pie. However, most

African countries are probably latecomers in the

race to boost competitiveness. Lately, the global eco -

nomic environment has been dominated by the rise

of beggar-thy-neighbor nationalism and creeping

protectionism. Leading ec onomies are moving away

from the rules-based s ystem that has governed global

trading arra ngements for decades toward a new mer-

cantilist sy stem that measures a country’s economic

performance by its trade sur plus.

In this new reality, competitiveness is per-

haps even more important for emerging market

and developing economies. In Africa, the push

to deepen economic integration and boost intra-

African trade under the AfCFTA is also likely to

mitigate the costs of adverse globa l shocks. A larger

eective domestic market acts as insurance against

disruptions to global trade associated either with

global volatility or with c ontraction in global demand.