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The Africa Competitiveness Report 2007 Part 1/6

The Africa Competitiveness Report 2007 Part 1/6



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Measures competitiveness of countries and economies in Africa.
This document is the overview.
Measures competitiveness of countries and economies in Africa.
This document is the overview.

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Published by: World Economic Forum on Sep 30, 2008
Copyright:Attribution Non-commercial


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After years of economic stagnation,Africa is experiencingan economic resurgence.Between 2001 and 2006,growth in gross domestic product (GDP) on the conti-nent averaged 4.9 percent annually.In 2006,the continentgrew by an impressive 5.5 percent,and in 2007,this isexpected to increase even further to 6.2 percent—thehighest growth registered for decades.Despite the improved economic performance,questions remain as to how sustainable this growthwill be over the longer run.Although the continent isexperiencing its highest growth since the 1970s,andeven though significant progress has been achieved instabilizing the macroeconomic environment in manyAfrican countries,most of the current growth has beenfueled by a confluence of external events and interven-tions,including high commodity prices,debt relief,anda favorable international economic environment.Trulysustainable growth,however,must be based on soliddomestic foundations rather than on cyclical or exogenous circumstances.Moreover,high rates of growth over decades,suchas those observed in developing Asian countries,are des-perately needed in Africa to raise the living standards of its people.Present growth rates in Africa,although highby historical standards,are still short of the estimated 7percent annual growth that would be required to meetthe Millennium Development Goal (MDG) of halvingpoverty rates in the region by 2015.
There is every reason to expect that Africa canachieve a sustainable growth path,given proper policiesand investment.Even before the present economicupturn,studies were focusing on the great economicpotential of the continent,given the right policy envi-ronment.For example,the study
Can Africa Claim the 21st Century?
(2000)—a joint study by the AfricanDevelopment Bank,the African Economic ResearchConsortium,the Global Coalition for Africa,the UNEconomic Commission for Africa,and the WorldBank—made the argument that Africa has enormousunexploited potential.It has hidden growth reserves inits people,including the potential of its women,whonow provide more than half the region’s labor but lackequal access to education and factors of production.
Infact,the substantial economic role of women,especiallyin sub-Saharan Africa,is one of the characteristics thatdistinguishes Africa from other regions,and,oncebarriers to entrepreneurship are overcome,women’sbusinesses are at least as productive as men’s,as will beexplored further in Chapter 1.4.A recently completedWorld Bank study identified infrastructure,investment,innovation,and institutional capacity as the most criticalareas demanding action if Africa is to make up for miss-ing two decades of global growth or replicate the growthmodels that have lifted millions of people out of povertyin other regions of the developing world.
The international community is focusing on theregion with renewed commitment to assist countries inexpanding this growth and in reducing poverty.It is thusparticularly fitting now to take stock of the efforts tobenchmark and analyze the impact of critical dimensionsof the business environment in Africa.This year’s
 Africa Competitiveness Report 
marks a newpartnership between three institutions.The WorldEconomic Forum,the World Bank,and the AfricanDevelopment Bank have come together to underscorethe importance of discussing the challenges of competi-tiveness in Africa.Each institution approaches the topicin its own way,which,when combined in this volume,provides the reader with a rich set of complementaryviews about how to expand opportunities and increaseproductivity and growth in Africa.This joint publication is organized in five chaptersand reports on several data-collection efforts in itsassessment of the competitive environment across thecontinent.The World Economic Forum conducts its yearly Executive Opinion Survey (Box 1),which isused,along with hard data sources,to derive the GlobalCompetitiveness Index (GCI).Now in its 28th year,thissurvey benchmarks countries on multiple dimensionsbased on the perceptions of CEOs and managersoperating in each country.The World Bank launched itsprogram of Enterprise Surveys in 2001 (Box 2) to collectsimilar subjective data along with more objective measuresof the time and monetary costs associated with access tovarious services and interactions with the government.The Enterprise Survey also collects data on the firms’performance,and on key ownership and other firmcharacteristics,allowing the impact of the investmentclimate conditions to be analyzed.The larger samplesizes also allow for comparisons across types of firms,for example,by size or ownership.Both of these approaches rely on what entrepreneursreport is their experience.These data can usefully becompared with another source of data benchmarking
countries,the World Bank’s Doing Business indicators(Box 3).For 10 areas of regulation,this project providesinformation on the time and monetary costs a genericfirm would face if it fully complied with all the legalrequirements.In many cases,what is on the books andwhat firms report in practice are aligned.But it can beinformative when there are discrepancies.Sometimesthe challenge to policymakers is to change the laws;butother times,the challenge is to get consistent enforcementof the rules.The African Development Bank undertakes a num-ber of studies of its regional member countries on anannual basis.These include Private Sector CountryProfiles,Country Governance Profiles,and
 AfricanEconomic Outlook
 —a publication jointly produced withthe OECD—which are outlined in Box 4.The aim of bringing the approaches together is toreinforce the complementary nature of different indica-tors.Each brings a different perspective that,takentogether,enrich the insights into the accomplishmentsand challenges still facing countries in Africa.
Five themes for sustaining development
highlights five common themes that emergefrom the analysis of the competitiveness landscape inAfrica.First,the
importance of good policies
to establish asound business environment is clearly demonstrated inthis
.More than geography or geology,countriesthat have implemented sound polices score better onsubjective rankings,with more objective measuresshowing better conditions and better growth and pro-ductivity outcomes.Resource-endowed countries andcountries with direct access to the sea do enjoy a fewadvantages,such as lower transportation costs.However,overall,when we take into account a wider set of issues,entrepreneurs in Africa do not see these countries aspresenting a business climate that is significantly better than those in landlocked or resource-scarce countries.No matter whether we use Enterprise Survey data or the Executive Opinion Survey,the average ranking of resource-endowed countries is not statistically differentfrom that of resource-scarce countries.Similar resultshold for landlocked countries.Hence,to the extent thatcompetitiveness and productivity are determined by agood business environment,African countries in thecontinent should not rely on their natural endowmentsto foster productivity and competitiveness.Wherepolicies respond to the needs of women as well as menentrepreneurs,Africa has the opportunity to unlockconsiderable additional productive potential.Moreover,it is clear that family enterprises,and family dynamicsmore generally,are integral to the business landscape inAfrica,with important ramifications for productivity andcompetitiveness.Finally,high-quality educational systemsremain a critical element underlying a good business
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Box 1: World Economic Forum: Executive OpinionSurveyBox 2: World Bank Group: Enterprise Surveys
The World Bank’s Enterprise Surveys collect data throughface-to-face interviews with hundreds of entrepreneurs ineach country to describe the impact of their country’s invest-ment climate on their firms. Responses reflect their man-agers’ actual experiences. The data collected span all majorinvestment climate topics, ranging from infrastructure andaccess to finance, to corruption and crime. Detailed produc- tivity information includes firm finances, costs such as laborand materials, sales, and investment. The breadth and depthof data allow cross-country analysis by firm attributes (size,ownership, industry), and can probe the relationshipbetween investment climate characteristics and firm produc- tivity. Every year, 15 to 30 Enterprise Surveys are implement-ed, with updates planned for each country every three to fiveyears. This reflects the intense nature of administering firmsurveys and for the firms responding to the many, detailedquestions. So far over 100 countries have been surveyed,including 11,600 entrepreneurs, senior managers, and CEOsin 34 African countries. For more information, visitwww.enterprisesurveys.org.The Executive Opinion Survey conducted annually by theWorld Economic Forum captures the perceptions of leadingbusiness executives on numerous dimensions of the econo-my from a cross-section of firms representing the main sec- tors of the economy. The Survey compiles data points in thefollowing areas: technology, government and the public sec- tor, public institutions, infrastructure, human resources andhealth, finance and openness, domestic competition, compa-ny operations and strategy, and environmental and socialresponsibility. All these areas feed into the nine pillars of theGlobal Competitiveness Index.The Executive Opinion Survey serves as a gauge of thecurrent condition of a given economy’s business climate, and the data generated from the Survey comprise the core quali- tative ingredient of the
Competitiveness Report 
series. Themost recent data cover 128 countries, with an overallresponse rate of 11,436 worldwide and 2,374 senior manage-ment respondents in 29 African countries.More information on the Executive Opinion Survey isavailable from the World Economic Forum on request atgcp@weforum.org.
environment,preparing the continent’s individuals withthe skills needed to contribute efficiently to the produc-tivity of their firms,and enabling African countries tomove up the value chain by producing more sophisticatedor higher value-added products.Second,a critical constraint to businesses in Africaremains access to
.This is more acute in lower-income countries,for small firms and for locally ownedfirms,and constrains both men and women entrepre-neurs.Worryingly,expanding firms report that finance isparticularly constraining and that making more financeavailable would significantly raise employment growth.Across countries,resource-rich countries view access tofinance as more of a problem,illustrating some of thedifficulties of diversifying activities in those countries.Efforts to expand access to finance on the continent hasbeen facilitated and improved recently,but more mustbe done.Finance is still elusive to most firms in Africa,especially small and rural firms.With the expansion of new technology (such as mobile phones) there is greatpotential for technology to help overcome location andcost barriers to expand access to financial servicesthroughout the continent.Nevertheless,improvementsin the regulatory environment (such as better collateral-ization,transparency,and auditing) represent a necessarystep for unleashing the potential impact of finance onfirm competitiveness in Africa.Third,
remains one of the top constraintsto businesses in Africa.Indirect costs can represent asubstantial drag on productivity enhancements in Africaand can account for as much as 30 percent of overallcosts.This can easily erode any labor efficiency gainAfrican firms might enjoy.Both subjective and objectiveindicators clearly show that energy and transportationare among the main bottlenecks to productivity growthand competitiveness in Africa.Firms lose as much as 8percent of sales to power outages,and transportationdelays can account for as much as 3 percent of lost sales.Infrastructure costs do not impact all countries and allfirms equally.Geography and firm characteristics canhelp some enterprises cope with such problems moreeasily than others.Coastal countries face less of a burdenof transportation,and large firms can more easily affordto buy a generator.Nevertheless,this infrastructure costcan represent as much as 4 percent of sales and themajority of African firms,small and medium,do not
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Box 3: World Bank Group: Doing Business
The World Bank’s Doing Business Indicators are based on asurvey of local experts in law and accounting who interactwith a large number of firms. The indicators presented meas-ure business regulation and the protection of property rightsas well as their effect on businesses, especially small andmedium-sized domestic firms. Constancy of firm descriptionacross countries allows for a straightforward comparisonand ranking by country for the various indicators. Ease of usemakes this a useful tool for policy analysis. The data entailsin-depth research and exchange with experts on 10 sets oflaws, regulations, and institutions covering specific aspectsof firm entry, operation, and exit. The most recent data cover175 economies. Forty-five countries in Africa are represent-ed, reflecting the responses of 900 lawyers, accountants,and regulatory experts. Data are collected annually, andeach year expanded collection (covering more economiesand indicators) is planned. For more information, visitwww.doingbusiness.org.
Box 4: The AfDB: Knowledge to improve theinvestment climate and competitiveness
The AfDB Private Sector Country Profiles
The African Development Bank (AfDB) prepared four PrivateSector Country Profiles—for Algeria, Egypt, Mali, and SouthAfrica— in 2006, as part of its efforts to support an enablingenvironment for private-sector development in the continent.These profiles provide an in-depth analysis of the privatesector; the political, economic, and legal environment, oppor- tunities, and constraints; and a strategy for the future.
The AfDB Country Governance Profiles
The AfDB Group’s governance policy and its implementationguidelines provide the basis for addressing governanceissues facing Regional Member Countries. Also, good gover-nance remains a key criterion in the performance-basedallocation of African Development Fund resources, with moreresources going to countries with high governance ratings.The AfDB prepares Country Governance Profiles for a num-ber of countries annually. These profiles provide detailedassessments of major governance issues in the concernedcountries. They analyze the governance situation in the polit-ical, social, economic, and corporate governance areas.They also review existing policies, institutional frameworks,and related capacity issues. Finally, these profiles highlightgovernance challenges and propose measures and recom-mendations to move the governance agenda forward. TheAfDB Group’s support for good governance and anticorrup- tion programs is through projects in public-sector manage-ment, industrial import facilitation, export promotion, andinstitutional support.
African Economic Outlook 
African Economic Outlook 
is an annual publication jointlyproduced by the AfDB and the OECD Development Centresince 2001/02. It reviews recent economic developments inAfrica by adopting a comparative approach and a commonanalytical framework. It provides forecasts for key macro-economic variables. The 2006/07 AEO covers 31 countrieswith the theme “Access to Drinking Water and Sanitation.”

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