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The 21st century is widely touted as the “African century,” a period that promises unprecedented economic and technological growth for the continent. The future of Africa looks bright.
The continent has five of the ten fastest growing economies in the world. Its population is the youngest, with 60% of all African citizens under the age of 25.
And the world’s largest free trade area in terms of participating countries, the African Continental Free Trade Area, is now active and is expected to boost intra-African trade by as much as 52% by 2022.
As Africa’s fortunes continue to improve, one region stands out as a possible example for the rest of the continent.
As the world begins its slow recovery from a year of constant turmoil and immense challenges, a closer look at the East African region’s continued economic success story could inspire how the rest of the continent drives economic growth.
One of the fastest growing regions in the world
Two of the five fastest growing economies in the world are in East Africa: Ethiopia (2) and Rwanda (4). According to the Brookings Institute, East Africa’s share of the continent’s economic growth increased from less than 20% in 2018 to more than 32% in 2019.
By contrast, GDP growth in Southern Africa actually declined, mainly due to slower growth in South Africa. The impact of the events of 2020 is expected to worsen the situation, with an estimated 7.2% contraction of GDP in South Africa, the worst in almost 90 years.
Despite the disruptive events of 2020, the African Development Bank found that East Africa stands firm as the continent’s fastest growing region. This at a time when many countries, both emerging and developed economies, are facing record drops in economic growth.
What are the keys to the success of the region? Its attempts to build a vibrant service sector, its coordinated state-supported industrial growth efforts, and a renewed focus on education reform with an emphasis on fostering digital skills contain valuable lessons for the rest of the continent.
Building a dynamic service sector
According to data from the African Development Bank, the contribution of agriculture to East Africa’s gross domestic product decreased from 33.4% in the early 2000s to just 28.3% in 2018.
In its place, a vibrant and rapidly growing service sector emerges, contributing more than half (53.8%) of the region’s GDP.
This economic change is creating new job opportunities. According to data from the International Labor Organization, the number of employment opportunities in the region’s service sector is expected to double between 2000 and 2020, while opportunities in the agricultural sector will grow at a slower pace.
Digital transformation is one of the main growth engines of the service sector. In fact, the World Bank estimates that connecting all African companies, individuals and governments to digital technologies by 2030 can boost growth by up to 2% per year and reduce poverty by 1% per year.
Concerted industrial revival
In 2012, the East African Community (EAC), which encompasses Burundi, Kenya, Rwanda, South Sudan, Tanzania and Uganda, launched its Industrialization Policy 2012-2032.
The strategy aims to create a competitive, balanced and market-driven industry sector that takes advantage of the EAC region.
The goal is to increase the contribution of the manufacturing industry to the region’s GDP from 8.9% currently estimated to 25% by 2032.
However, the contribution of the industrial sector to regional GDP growth has stagnated in all EAC countries with the exception of Tanzania. In a 2019 report, the East African Development Bank (EADB) noted underinvestment in industrial transformation as the main reason for the declining contribution of industry to GDP growth.
According to the EADB, other countries wishing to push for further industrialization should improve regional infrastructure (such as roads, rail networks, energy and communications), establish special economic zones with compelling incentives, and greater investment in human capital development to ensure easy access to skills.
Educational reform for 21st century skills
Since 2000, the number of African boys attending primary school grew from 60 million to 150 million, with a fading gender gap that now sees almost as many girls as boys in school.
The development of human capital is a fundamental component to accelerate the development efforts of emerging economies.
Data shows that significant and ongoing investment in human capital development has direct benefits for GDP growth, and the Gates Foundation found that each additional year of education increases individual income by as much as 8%.
Kenya and Tanzania are noted for their efforts to push forward education reform and expand access to education for more children.
In Kenya, the number of people with a primary education is expected to increase by 25% by 2030, and the number of people who have completed secondary or tertiary education will grow by 60% over the next decade.
In Tanzania, an estimated six out of seven people will have completed some form of education by 2030. However, much work remains to be done: by 2030, only 12% of Tanzanians are expected to have completed secondary or tertiary education. .
Here, the private sector has an important role to play in supporting human capital development. Initiatives like Africa Code Week complement government curricula by providing easy access to digital training and education tools and resources, driving greater awareness of 21st century skills among students and teachers alike.
Additionally, SAP Skills for Africa offers tailored training to talented graduates to develop job-ready technical and social skills that can have an immediate impact in the workplace.
I strongly believe in the potential of Africa as the world’s leading region for economic growth and innovation. There are already several pockets of excellence from which the rest of the continent can learn.
Our task is to build on these successes and ensure that we realize the dream of an African century.
By Pedro Guerreiro, General Manager for Central Africa at SAP
