UNCTAD warns Africa to diversify exports to save economy

The United Nations Conference on Trade and Development (UNCTAD), one of the UN affiliates, has just issued a warning to African countries through its African Economic Development Report to take effective and rapid action. The agency says that if these countries do not start diversifying their exports, they will not be able to survive the global crises. 

In Africa, about 45 of the continent's 54 countries, their main economic activity is exports of primary and basic commodities, related to agriculture and mining. All these products account for 60% of Africa's total exports.

"Dependence on commodity exports has left African economies vulnerable to global crises and has hindered inclusive development for too long," said UNCTAD Secretary-General Rebeca Grynspan. She said that the sooner they start to become aware of the problem and seek alternative ways of working, "the sooner manufacturing productivity in the region can be improved, boosting Africa's economic growth and structural transformation for many years to come," she continued.

The recent coronavirus pandemic and the war in Ukraine have shaken the foundations of the global economy. All countries have had to look for alternatives in order to continue doing business and not enter a recession from which it will be difficult to emerge. This is why all the focus is on Africa because its systems are weaker and can easily break down.

Right now, with the Russian invasion, food imports into Africa have skyrocketed. And world prices have also risen because the conflict has reduced Ukraine's grain exports. Recall that both Ukraine and its Russian enemy are major exporters of some staple foods such as wheat. 

If the continent does not take action, this food shortage is expected to affect more than 60 million people in all parts of Africa by next month. The figures warn that 43 million Africans could put themselves at risk of nutritional insecurity.

But UNCTAD says it is not too late to address the shortcomings. "Africa has enormous potential to break its dependence on commodities and ensure that the continent is effectively integrated into high-end global value chains," the report says.

Experts say Africa can be the gateway to the development of many sectors and factories. For example, UNCTAD says that ICTs, knowledge-intensive services and financial services can play an important role. However, these need to be developed further because they currently account for only 20% of the total. 

The UN agency says that technology can be the real choice for African nations, and so culturalisation and knowledge in this sector is being promoted. Later, more complex goods and services can be exported. This would lead to entry into a more competitive and forward-looking market.

Africa could also move into the services sector, but until a few years ago it had a very low share of exports. Traditional services sectors are still over-represented. 

However, UNCTAD argues that in order to diversify economies, policies that link trade in high-value services with other sectors must be implemented. This will be done through the reduction of costs of trade in services, protectionist measures and a full entry into the world of digitalisation. 

In particular, SMEs would be of great help to enter fully into this diversification. SMEs account for around 90% of businesses in Africa, but they have very little financial support, and therefore access to finance is urged to be made easier so that the crisis does not hit. 

"Countries should better position African SMEs as drivers of diversification by facilitating their access to affordable finance and services," the report says. Africa needs to start imposing policies that boost production and encourage investment. According to UNCTAD, the African Continental Free Trade Area can help make this a reality and move the continent out of the danger zone.