A report by the African Development Bank (AfDB) titled, East Africa Economic Outlook 2020: Coping with Covid-19 pandemic, confirms the worries economists have about the region’s emerging development model, which is somewhat different from the traditional growth paths of other countries in the world.
The history of virtually all developed countries was that economic transformation moved from agrarian economy to industrialisation before diversifying into service and knowledge economies. Now, AfDB boldly reports that the East African economic structure is transforming with the services sector becoming more dominant.
That kind of change from agrarian to service industry still puzzles economists. There are those who argue that Africa’s only hope is to industrialise. The World Economic Forum on the other hand says Africa's future is innovation rather than industrialisation. Others even propose that the continent pursue manufacturing as well as services. There is no consensus that there can be real development by leapfrogging manufacturing into a service economy.
John Page, a former senior official of the World Bank, says in his recent Brookings Institution article, that economists have long regarded structural change—the movement of workers from lower to higher productivity employment—as essential to growth in low-income countries.
But Africa’s development path is diverging from the well-tested development model into a new realm and hence the reason there are differing views. Page says new technologies have spawned a growing number of services and agro-industries—including horticulture—that share many characteristics with manufacturing.
These emerging businesses are what Page and his co-authors, Newfarmer and Tarp, refer to as “industries without smokestacks,” in their 2018 book. They characterise these industries as “tradable, have high value added per worker, and can absorb large numbers of moderately skilled workers. Like manufacturing, they benefit from technological change, productivity growth, scale, and agglomeration economies.”
The authors of the AfDB report, however, have no doubts. The report seems to celebrate the idea that the contribution of agriculture to East Africa’s GDP declined from an average of 33.4 percent at the turn of the millennium to 28.3 percent in 2018. This was against an increase in the contribution of services to GDP from 44.6 percent in the early 2000s to 53.8 percent in 2018.
The change is more prominent in Seychelles, Eritrea, Kenya and Rwanda where services contribute 80 percent, 67 percent, 60 percent and 47 percent of GDP respectively. The GDP growth rates have dwarfed those of other countries with a slightly different model. In the region, Ethiopia stands out with its much more traditional development model.
Between 2008 and 2018, the share of agriculture in Ethiopia's gross domestic product declined from 45 percent to 31.19 percent. Manufacturing’s contribution increased from 10 percent to 27.26 percent and that of the services declined marginally from 38 percent to 37 percent. Ethiopia’s economy grew at double digits for most of the past 10 years.
The entry of Covid-19 brings new dimensions to the debate around the best development model that Africa should pursue.
AfDB in its report urges policy makers to reform education systems by linking universities and other tertiary institutions such as TVETs with industry; and integrating higher learning skills in the curricula by remodeling the syllabi to create critical and creative thinkers who are emotionally intelligent to fit in an automated and ICT-intensive society.
It is upon Africa to decide with conviction on which development model to pursue. The decision will then help to design the kind of strategies Africa needs to succeed.