By Bob Twinomugisha
Structural transformation in Africa is taking place, albeit at a slow pace. This raises the question of why, despite economic growth, transformation has been slow, and what can be done to shift workers and other resources from low- to high-productivity activities and sectors across countries in Africa? For instance, the process involves shifting resources and labor from low-value-added activities and sectors to higher-value-added ones.
To begin with, in Africa, agriculture accounts, on average, for over half of total employment and one-fifth of gross domestic product (GDP). However, Africa continues to experience slow growth in agricultural productivity at an average annual total factor productivity (TFP) growth of 0.37 percent, lower than the global TFP of 0.74 percent, according to the global agricultural productivity report for 2024.
Africa is currently at the bottom of global agricultural value chains, exporting goods with very little or no processing, indicating that little structural transformation has taken place in this sector. Relatedly, there has also been limited experience with the processing of minerals. Even though services already play an important role in many African countries, there are encouraging signs that they could be developed further. There is still room for the sector to grow, especially as it remains heavily concentrated in low-value-added informal services such as retail trade, and in the more sophisticated, tech-intensive sectors like banking and telecommunications, which employ very few people.
The slower rate of structural transformation continues to hold back economic growth in Africa. For instance, in 2020, Sub-Saharan Africa’s economy contracted by 2 percent due to the impact of the COVID-19 pandemic, rebounding to 4.3 percent in 2021 before declining to 4.1 percent in 2022 and 3.8 percent in 2023 due to geopolitical conflicts between Russia and Ukraine and in the Middle East. Looking ahead, sub-Saharan Africa’s economic growth is forecast to decline from 4.0 percent in 2024 to 3.8 percent in 2025, according to the latest economic forecast by the IMF, as trade wars add further strain to global economies and Africa in particular.
The economic fundamentals of most African economies, such as economic structure, have remained largely unchanged over the last three decades, creating a significant concern for the continent’s capacity to withstand and recover from economic shocks that continue to hit the global economy, such as global geopolitical tensions, trade wars, and financial crises, as well as climate change. It’s time to bet big on strategies and policy reforms to enhance the capacity of African countries to mitigate the impacts of multiple and recurrent shocks on both short-term and long-term economic performance, business development, and household welfare.
We need to develop strategies that enable countries to transition to a state where the magnitude and recurrence of shocks are minimized through mitigative and adaptive actions, while building resilience that alleviates the impacts of shocks and accelerates recovery. This is because global crises have become a new normal. Successive shocks have had scarring effects, making it difficult for African economies to recover fully even after a short-lived shock.
African countries can draw inspiration from the Asian tigers, who initiated their development with agricultural intensification to boost productivity, transitioned to light manufacturing rooted in agriculture, and ultimately progressed to sophisticated manufacturing. Depending on resource endowments, labor skills, and other factors, some African countries may follow the Asian path through labor-intensive manufacturing, others may transform their economies through services, and still others may modernize their agricultural sector.
Achieving sustainable growth and building resilience requires structural transformation through smart industrial policies. The current global economic architecture presents opportunities for African countries to leapfrog and accelerate industrialization by carefully practicing what has worked elsewhere and adapting it to local conditions.
Additionally, Africa needs to promote its regional value chain and leverage the African Continental Free Trade Area (AfCFTA) to build enormous resilience to shocks and provide opportunities for accelerating Africa’s drive toward industrialization and agricultural transformation. Africa has the potential to engage in regional value chains, which are of high significance in the current environment, where shocks have severely disrupted global value chains.
Relatedly, experience both within and outside Africa suggests that raising agricultural productivity will need to be an important part of the answer. Because in most economies in Africa, productivity levels are so low, there is a significant opportunity to raise living standards through agricultural productivity improvements.
For instance, Uganda’s significant economic growth of 6 percent on average over the last two decades seemed to create favorable conditions for increased agricultural productivity, but productivity has failed to increase concordantly. As a result, most increases in aggregate crop production have been achieved from the expansion of cultivated land rather than increased investment in production technologies to raise crop yields per unit area of land. There is a wide gap in yields between research stations and farmer fields in Uganda. This is more pronounced in dairy, fish and fish products, cassava, and maize.
According to the Uganda Bureau of Statistics Report 2020, farmers in Uganda produce 2.3 tons of maize per hectare on average, much lower than the 8.0 tons per hectare potential, 3.3 tons of cassava per hectare against 20 tons per hectare potential, and 1.5 million litres of milk against 24 million litres potential. Policymakers should focus their efforts on increasing agricultural productivity through mechanization, application of fertilizers, investment in modern livestock breeds, and improved seeds, among others.
To secure Africa’s destiny, we must invest boldly in resilience, embrace structural transformation, and foster development. Banks must hold the key to inclusive recovery and sustainable growth. With strategic interventions, Africa can transition from vulnerability to strength, building resilient economies that withstand shocks and empowering its people to thrive.
The writer is a Senior Economist, Macroeconomics and Trade, Uganda Development Bank Ltd.
