Economic transformation in africa drivers, challenges and options

Issues Paper
“Economic transformation in Africa: Drivers, Challenges and Options”
Prepared for the Third Meeting of the High Level Panel of Eminent Persons,
30th January to 1th February, 2013

Contents
Introduction 3
Rationale for promoting economic and structural
transformation in Africa 3
What is economic transformation? 3
Promoting economic transformation in Africa:
challenges and key issues to be addressed 5
Conclusion 17
References 19

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1. Introduction
The United Nations Secretary General has appointed a High Level Panel (HLP) of
Eminent Persons to provide independent recommendations on what international
development framework might succeed the Millennium Development Goals, after
their expiration in 2015. The HLP is co-chaired by their Excellencies Ms. Ellen
Johnson-Sirleaf, President of Liberia, Mr Susilo Bambang Yudhoyono, President of
Indonesia, and Mr David Cameron, Prime Minister of the United Kingdom. The
HLP has already met in New York and in London to deliver on its mandate, and its
next meeting will take place in Monrovia, Liberia from January 30th to February 1st
2013. The general theme of the Monrovia meeting is “National Building Blocks for
Sustained Prosperity” with special emphasis economic transformation.
Africa’s low level of development have been attributed in a large part to the continent’s
failure to transform its’ predominantly primary commodity based economies into
manufacturing-based structures. This issues paper seeks to trigger a discussion on
the role of economic transformation in promoting inclusive growth and sustainable
development particularly in primary commodity dependent economies. The overall
objective is to promote the adoption of an alternative global approach to fostering
social development and prosperity in Africa, that not only recognizes the importance
of economic transformation in boosting productivity, accelerating growth, increasing
incomes and improving living standards, but also acknowledges its relevance to the
post-2015 development agenda.
The paper first defines economic transformation, outlines its main drivers, and
explains why it is central to Africa’s development process. It proceeds by discussing
the the key challenges to transformation in Africa and provides perspectives on how
the continent can achieve a successful transformation agenda. The paper concludes
with a series of questions for discussion.
2. Rationale for promoting
economic and structural
transformation in Africa
What is economic transformation?
Four essential and interrelated processes define transformation: a declining share of
agriculture in GDP and employment; a rural-to-urban migration underpinned by
rural and urban development; the rise of a modern industrial and service economy;
and a demographic transition from high rates of births and deaths (common in

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underdeveloped and rural areas) to low rates of births and deaths (associated with
better health standards in developed and urban areas). Economic and structural
transformation is also associated with rising agricultural productivty, an integrated
economy and rising per capita growth rates. (Timmer 2008).
Links to Growth
Economic and structural transformation is a dynamic process that is correlated with
economic growth through the improvement of productivity in the agriculture and
other sectors of the economy. Accordingly, the drivers found in the literature for
economic transformation are the drivers of economic growth and the determinants
of agricultural productivity. Those mentioned most repeatedly are (i) the utilization
of improved technologies, (ii) investment in higher educational and skills levels for
the labor force, (iii) lower transactions costs to connect and integrate economic
activities, and (iv) more efficient allocation of resources (Syrquin, 2006; UNECA
2011)
Why transform?
Africa’s growth acceleration in recent years has not been associated with economic
transformation. Careful assessment of the economies in the region reveals the
following characteristics: most economies are natural resource and or primary
commodity driven; the manufacturing sector remains embryonic, limiting
the potential employment gains from the processing of primary commodities;
agricultural productivity remains low and characterized by limited application of
modern technologies; the rural sector remains highly underdeveloped setting in
motion a massive rural urban drift that has transformed urban areas into a haven
for slum dwellers; birth and death rates have declined but only marginally and Africa
continues to have the world’s highest rates of maternal mortality, child mortality and
HIV prevalence; social protection programmes are undeveloped and underfunded
heightening the vulnerability of the aged, the disabled as well as the unemployed and
underemployed labor force.
These conditions persist even though the continent ranked the second fastest growing
region of the world after East Asia (UNECA, 2012). In effect, Africa’s growth can be
described as largely non-inclusive because of its limited contribution to job creation
and overall improvement to people’s living standards (UNECA 2011). Indeed
despite a decline in the absolute number of poor people and a 5 percentage points
decline in poverty rate between 2005 and 2008, the continent is home to the world’s
highest proportion of poor people, with a poverty rate over 47 percent in 2008.
Thus, Africa needs to transform its economies to create wealth, reduce poverty,
minimize inequalities, strengthen productive capacities, enhance social conditions
of its people and achieve sustainable development. Economic transformation

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promotes social development and inclusive growth by: diversifying the sources of
growth; creating job opportunities; promoting rural development; and enhancing
human capital and productivity through strengthened health and education systems
as well fiscally sustainable social protection systems.
3. Promoting economic
transformation in Africa: challenges
and key issues to be addressed
Africa’s capacity to design and implement a successful transformation agenda has
been undermined by internal and external factors. While some of these factors are
currently being addressed, others persist. Internal factors include poor economic
management capacities typified by macro-economic instablity, poor planning design
and implementation capacities, weak institutional and individual capacities, limited
investments in social and economic infrastructure, limited investment in technology
and R&D and political instability.
External factors include: limited policy space due in part to conditionalities imposed
by the Bretton Woods organizations and development partners that overstate
the importance of market led approaches to development; barriers to trade that
undermine export revenues and constrain exports of manufactured goods; and the
disproportionate concentration of ODA on the social sectors as opposed to the
directly productive sectors of agriculture and industry; and the concentration of FDI
in extractive mineral and gas sectors of the economy with limited investments in
value addition. Furthermore, in recent years climate change has emerged as a threat
to development through its destructive impact on infrastructure and livelihoods.
Collectively the challenges identified above have contributed to the low level of
economic diversification, the continued dominance of the agriculture sector in the
GDP and inadequate financial resources for sustainable development. Achieving
economic transformation requires addressing the challenges at both levels. This
section elaborates on these issues and identifies some of the key interventions
required to facilitate or drive the transformation agenda.

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The political environment and ownership of
development
There is a greater consensus among Africans on what needs to be done to
accelerate growth, reduce poverty, improve governance and assume leadership
and accountability for their own development. The New Partnership for African
Development (NEPAD) not only reflects this consensus but builds on it by
identifying key priority areas for action. He mandate given by African heads of
State to the African Union Commission and its pan-African partners namely ECA,
ADB and UNDP-RBA to undertake consultations aimed at articulating an African
common position for the post-2015 development agenda is another illustration
of Africa’s comitment to owning its development agenda. With better leadership,
economic governance is improving, resulting in fewer conflicts and an improvement
in the general economic outlook, business environment and investment outlook.
Furthermore, several African countries such as Ghana and Ethiopia have put in place
appropriate macroeconomic, structural and social policies, which have contributed
to increasing economic diversification, sustaining growth rates and some progress
towards meeting the MDGs and other social development goals.
Issues for discussion:
• How can Africa strengthen ownership of the development agenda?
• To what extent is NEPAD promoting economic transformation in Africa?
Capitalizing on the demographic dividend
The proportion of the young people living in Africa which stood at 18% in 2012
is expected to rise to 28% by 2040 while the share of other regions is expected
to decline. Young people are central to Africa’s mission to promote economic
transformation, sustainable and inclusive social and economic development on
the continent and end poverty. Youth unemployment is particularly high in North
Africa and played a role in instigating the “Arab Spring”. But the relatively lower
youth employment rates in the rest of Africa mask high levels of informal sector
employment which is characterized by low wages and poor conditions of service.
The absence of social insurance programmes in Africa, excluding the North, implies
tha the youth have no option but to work even in the most undesireable conditions.
Thus, while the employment challenge in North Africa is one of job availability, in
the rest of Africa the problem is job quality. The misalignment of the educational
curricula with the needs of the labor market has been cited as an important reason
for the employment challenge. Appropriately designed skills pogrammes and a
re-orientation of the educational curricula to labor market priorities can play

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an important role in improving the employability of the youth, thus allowing
governments to realize the demographic dividend (R. Sogunro, 2012). However, in
addition to the skills mismatch challenge, it is important to emphasize, as discussed
above, that the current structure of the economies of most African countries does
not support the creation of adequate levels of jobs. Information flows between job
seekers and employers constitutes another challenge. Often job seekers rely on word
of mouth and contacts to identify employment opportunities. In this context, the
development of employment agencies or mechanisms focused on matching job
seekers with employers can be an important factor in reducing job search costs for
both employers and potential employees.
• What specific interventions are required to improve the skills and
productivity of the youth?
• What can educational institutions do to improve the relevance of their
curricula to the labor market?
• What specific interventions can the government put in place to reduce job
search costs?
The role of the state
The invisible hand of the markets alone cannot ensure the transformation of Africa’s
economies. The central role of the State in the economic success of the Asian tigers
and some Latin American countries reaffirms the important role that it can play
in the transformation process. The experience of the Asian tigers suggests that
strengthening the capacities of firms including through investments in research and
development,skillsdevelopmentandinfrastructuredevelopmentcanbeinstrumental
for development. Also important is ensuring overall macro-stability and a regulatory
regime conducive to private sector investment. On the political level transformation
has not always been associated with western stlye democracies as demonstrated by
the experience of China. However, some might argue that a transformation process
that is inclusive and democratic enough to ensure buy-in by a broad spectrum
of stakeholders is vital for sustainability. Overall, the effectiveness of the state in
shaping the transformation agenda hinges on the appropriatness of its vision and
the level of its capacity for prudent management of the economy. This kind of state
is often referred to as a “developmental”. However, governance, institutions and
economic management capacity remain weak in the majority of African countries,
despite notable improvements. A survey conducted in thirty-five African countries
on good governance, suggests slight progress, since 2005, in rule of law and the
observance of human rights. In addition, economic management and efficiency of
the tax system have also improved. However, access to and quality of service delivery
remains far from satisfactory and accountability is also weak (UNECA, 2009).These

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shortfalls are likely to have adverse effects on, inter alia, the allocation of resources,
which constitute a key driver for growth and transformation.
Issues for discussion :
1. How important is democracy for the transformation process?
2. What is required to facilitate the emergence of developmental states in
Africa?
3. What types of institutions are necessary for structural transformation?
4. How can African institutions be strengthened for a better allocation of
resources?
Investing in infrastructure and reducing
transaction costs for increased competitiveness,
growth and transformation
Africa lacks key infrastructure such as paved roads, access to reliable sources of energy,
safe water and the internet. In fact, less than 10 per cent (in 10 countries) and less
than 50 per cent (in 33 countries) of roads in Africa are paved, 40 per cent of Africa’s
population lack access to safe water and despite a fast penetration rate of ICTs across
the continent, access to the internet (3 percent) is extremely low. Studies suggest
that in most African countries, particularly the low income countries, infrastructure
is a constraint on doing business and undermines firm productivity by around 40
per cent (Escribano et al., 2008). Yet infrastructure is paramount ingredient for a
sustainable growth and structural transformation. Contributing to the infrastructure
deficit are fiscal constraints limited incentives for private sector investment due to
the public goods nature of investments, lack of stable long-term finance, high sector-
specific risks as well as high macro-risk arising from political instability and poor
governance.
Estimates show that closing Africa’s infrastructure gap would require approximately
US$93 billion a year over the next decade – including new investments and
maintenance of existing infrastructure. Potential internal sources of finance include
raising additional taxes and harnessing domestic capital markets. Public Private
Partnerships (PPPs) and other innovative sources of financing and tapping into
global savings for investment in infrastructure development in Africa can help Africa
address its infrastructure needs, increase global aggregate demand and address the
twin problems of low global growth and imbalances. Improving access to energy
and transport and communication will reduce production costs, improve global
competitiveness and foster economic transformation.

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• What strategies could be envisaged to bridge Africa’s infrastructure gap?
Investing in human capital, developing skills for
economic transformation
Many African countries are faced with a mismatch between the education systems
and the needs of labor markets. Indeed while Africa has made substantial progress to
improving primary education, complementary investments in secondary, tertiary and
vocational education have been insufficient. And despite rising primary enrolment
rates, completion rates and the quality of education remains low and characterised
by striking rural urban and gender disparities.
Education constitutes a major driver of economic transformation; coupled with
health it provides the basis for building national capabilities to improve the
productivity and competitiveness of countries. Investing in human capital ensures
that citizens are equipped to earn a livelihood and be productive members of society.
The availability of a rich pool of skilled workers is an incentive for foreign and
domestic investors. It also contributes to social inclusion and integration of youth
in society. Health is also critical for enhancing productive capacities however this
is an area that remains a major challenge for African countries and where progress
on the MDGs has been weakest. In effect, health is vital for transformation. For
example, it is estimated that malaria reduces GDP growth by about 1.3 per cent per
year in countries with high disease burdens. Indeed, high rates of HIV infection in
southern Africa, have reduced the life expectancy of the population from 62 years in
1990–1995 to 48 years in 2000–2005.
Addressing the challenges in these areas requires both supply and demand side
measures. Equally, it is also important to identify the reasons why people are not
using the current services being provided. Basic investments in immunizations,
nutrition and quality education as well as targeted skills development are necessary
to grow and develop the necessary capabilities for the increasingly competitive labour
market and for meeting requirements for transformation.
• What measures are required to improve human capital and provide the skills
required for economic transformation?
• What measures are required to address the health challenges in Africa?

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Transforming agriculture, diversifying economies
Most African countries economies are driven by mineral and primary commodity
exports with volatile prices and limited contribution to employment. For example,
in 2008, crude petroleum, natural gas, etc. accounted for 60 per cent of total
exports from Africa (AfDB 2010). In 2010, Africa accounted for a total share of
12.2 percent of the global oil production. Mineral resource exports contribute
to merchandise exports in 24 (44 per cent) of Africa’s 54 countries. Progress in
diversifying the economies away from primary sectors and modernizing production
and services systems has been very slow. African agriculture continues to suffer
from weak linkages with other sectors, including agro-processing and agribusiness,
fragmented markets and weak regional integration of commodity chains. These
factors render, the continent extremely vulnerable to external shocks due to inelastic
global commodity demand and price volatility. As a result of all these constraints
and despite its huge land and agricultural potential, the continent continues to be a
net food importer.
Agriculture is central to achieving economic transformation and broad-based
development. In fact, it constitutes the starting point for such transformation, given
the dominance of the sector in most of the economies and livelihoods it provides
across the continent. In Africa, the sector employs 60 per cent of the total labour
force, accounts for as much as 40 per cent of total export earnings, and provides
over 50 per cent of household income (ECA and AUC, 2009). However, the sector
is characterized by low productivity, and low output yield, especially for cereals,
and stagnant growth rate. The low productivity and growth rates result from the
low level of investments and limited use of fertilizer and modern technology as well
as low levels of irrigation, inadequate land management, low tractor use, limited
access to credit and insurance schemes, poor access to physical infrastructure, and
limited funding for R&D. As a result, Africa’s trade balance measured by the ratio
of the value of total agricultural exports to imports has been declining continuously
and stood around 0.6 in 2007. Indeed, many African countries have become net
importers of agricultural products.
Value chains linking raw material producers to end users can play a vital role in the
promoting value addition to agricultural and othe primary commodities. However,
in reality, African firms are often located at the extremes of the global value chain.
They either trade in finished products or sell primary commodities with little or no
investments in the transformation process. The challenge is to ensure greater local
participation in the global value chain. Local content measures facilitate value chain
development by strengthening linkages with local suppliers. But to be effective,
local content measures must be complemented by measures that strengthen the

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competitiveness of local suppliers. Such measures include skills development and
upgrading, adoption and adaptation of appropriate technologies and access to
capital.
Local and regional markets are a convenient entry point in the initial stage of value
chain development since these markets tend to be less demanding in terms of entry
barriers thereby allowing local firms to build the necessary production capabilities
required by more demanding global chains. In this context, it is in the interest of
African countries to deepen the regional integration agenda including through the
implementation of the proposed Continental Free Trade Area. It is important to
add that coherent value chain initiatives are framed within the broader context of
an Industrial policy that is continually reviewed to address existing and emerging
bottlenecks. However several African countries do not have a functioning industrial
policy.
• How can African countries better diversify their economies? How can they
shift from dependence on the export of primary and mineral products to
manufactured and processed products and move later to heavy industries?
• How can agricultural productivity be enhanced?
• What policies should African countries put in place to promote value
addition?
• What challenges has Africa experienced in the implementation of local
content measures?
• What are the key factors that could enhance the competitiveness of local
agro-based firms?
Promoting innovation and technology transfer for
structural transformation and value addition
Although Africa has performed relatively well in terms of technology transfer in
a number of areas such as royalties and import of capital goods, it lags behind on
areas related to new and emerging knowledge. This has contributed to an industrial
base that is weak and largely dependent on imported technology which is often to
appropriate to local conditions.
Technology is recognized as one of the key drivers for accelerated growth and
economic transformation throuuugh its impact on productivity and incomes.
For African economies, technological advancement and innovation can provide a
platform for diversification and a shift from reliance on agriculture and exports of
raw materials to manufacturing. Some of the challenges that Africa faces include

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lack of adequate domestic and institutional policies in setting the general direction
of the development acquisition, adaptation, use and diffusion of new and emerging
technologies. Related to this is limited human and financial resources and inadequate
infrastructure for technology advancement. These challenges can be addressed
through quality education, skills development and entrepreneurship training
and by encouraging joint ventures and industrial alliances between domestic and
foreign firms. The promotion of international science and technology cooperation
agreements between African countries and leading or emerging technology exporters
would also be useful.
Issues for discussion.
• How can policymakers strengthen the innovative and technological
capabilities for increased productivity and economic transformation?
Addressing the daunting challenge of climate
change
Climate change poses a threat to Africa’s ambitions of transformation in several
ways. Firstly despite the fact that Africa has contributed minimally to the emissions
the continent is among the most vulnerable to the effects of climate change. This
is because of the impact on agricultural yields, food security and livelihoods as well
as the destructive effects of floods on an already weak infrastructure base. Harmful
impacts of climate change are predicted to fall unduly upon the poor exacerbating
inequalities in health status, education, labour-force participation, and access to
adequate food and clean water. Such consequences are likely to affect negatively the
skills and productivity of the labor force, especially in the agriculture sector with
adverse consequences for economic transformation. A subsequent challenge is how
to enable a large and vulnerable population to adapt and respond to the threats
brought on by climate change.
Secondly, climate change has implications for Africa’s approach to growth and
development. Ultimately the continent will have to adopt a development and
growth pathway that reduces its carbon footprint. The short run costs and capacity
implications will likely be large. In effect, Africa’s fiscal and technical capacity to
respond to the threats of climate change is limited. At present, it is barely meeting
its traditional development investment needs from domestic resources, let alone
managing the risks of climate change.
Accordingly, financial support to Africa for mitigation and adaptation is vital to
ensure adequate reponse to the challenges of climate change. Fortunately, in
addition to normal development flows, the “polluter pays” principle prevails and the

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developed economies have recognized their obligation to support African adaptation
and mitigation. In Copenhagen, developed countries committed to contribute
US$100 billion each year by 2020 to help poorer nations cope with the impacts of
climate change.
But climate change presents threats as well as opportunities. China for example is
making significant investments in solar energy and is currently the leading producer
of solar panels. These investments are a pontential source of employment. Other
job creating opportunities include: retrofitting buildings to respond to the threats
of climate change; developing mass transit systems; developing energy-efficient
automobiles; investing in wind power and cellulosic biomass fuels. For instance,
constructing wind farms creates jobs for sheet metal workers, machinists and truck
drivers, among many others. Increasing the energy efficiency of buildings through
retrofitting relies, among others, on roofers, insulators and building inspectors
(PERI June, 2008). Policymakers need to reflect more deeply on how to design and
capitalize on green jobs initiatives as part of their transformation agenda.

• How can policymakers pursue simultaneously the objectives of economic
transformation and sustainable development?
• What opportunities exist for Africa to benefit from the green economy
initiatives?
Promoting trade and accelerating regional
integration
The share of intra-African trade is extremely low compared to other major regions,
stagnating around 10-12% with no major progress registered over the last decade.
Over the period 2004-2006 intra-African exports represented 8.7% of the region’s
total exports and 9.6% of total imports (UNCTAD 2009c; UNECA 2010a). In
other words, Africa sourced more than 90 percent of its imports from beyond Africa
and exported 90 percent of its products to the rest of the world, rather than to
neighbouring countries.
The share of the continent in the world trade is also quite low (around 3 percent),
and Africa’s poor export diversification in terms of both products and destination
renders the Continent particularly vulnerable to external shocks.
However, Africa has started modifying its trade relationships over the last decade
by escalating ties with emerging economies at the expense of traditional partners.

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Indeed, while the European Union and the United States attracted together about
two-third of African exports and sourced more than half of African imports just
10 years ago, their influence has waned over the last decade. Over the same period,
India, and especially, China have evolved from marginal to strategic partners for
Africa, and there is certainly room for trade expansion between Africa and China
in the future, as Africa possesses the natural resources demanded by the Asian
giants while China is equipped with capital and capital goods which can be used
towards improving Africa’s infrastructure. These observed trends however, do not
necessarily provide extremely bright prospects for structural transformation of
African economies. Indeed, most of Africa’s exports to traditional as well as emerging
trade partners comprise raw materials and primary commodities, while Africa’s
imports from the outside world are mainly manufactured products. In that sense,
China’s increasing demand for African primary commodities may not encourage
export diversification of African nations. Africa cannot indefinitely rely on foreign
counterparts for its industrial needs. It must build required capacities to add value
to the goods it produces.
Nevertheless, African countries face numerous trade-related constraints which
strongly hinder trade within the continent and with the rest of the world. Non tarrif
barriers and tarrif escalation, which targets processed, goods are prime examples.
While efforts must be made to address these challenges in the long run, over the short
term regional intergrtion offers opportunities for expanding trade in manufactured
goods. Currently, 60 percent of intra-regional trade comprises manufactured goods.
Thus economic integration can lead to substantial economic and social benefits in
terms of helping to address supply side constraints, diversifying the productive base,
ensuring economies of scale for production, expanding markets and improving
competitiveness and economic efficiency, fostering technology and knowledge
transfer and boosting investment.
African countries have established the African Union, created various regional
economic communities (RECs) to expand intra-African trade by breaking down
tariffs and non-tariff barriers through trade liberalization schemes. In January 2012,
African Heads of State and Government endorsed, during the 18th African Union
(AU) Summit held in Addis Ababa, an AU Action Plan for “Boosting Intra-African
Trade and the Establishment of the Continental Free Trade Area”. This decision
aims at reinforcing trade relationships between African economies, focusing on a
number of specific activities for seven key priority clusters, namely trade policy,
trade facilitation, productive capacity, trade-related infrastructure, trade finance,
trade information and factor market integration. It is hoped that such measures
will contribute to doubling the share of intra-African trade over the next decade,
from around 10-12% today to 20-25% in 2022. It is projected that the full removal
of tariff barriers accompanied by adoption of measures to ease trade within the

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continent will bring the share of industrial commodities in intra-African trade to
about 70% (UNECA 2013).
• How can the international community support efforts to facilitate regional
integration, foster value addition, diversify production and exports?
Rationalizing African global partnerships
- Strengthening South-South cooperation - Mobilizing resources for economic
transformation and take-off
Africa is faced with an evident financing gap regarding both internal and external
sources of financing that is prejudicial to the realization of its ambition of economic
transformation. Stagnating savings, investment, foreign capital inflows and trade
balances relative to GDP are restraining the increase in financing available for Africa.
The financial system is shallow and incapable of mobilizing domestic savings that
are needed to finance the long-term growth required for economic transformation.
Potential domestic savers, including those in the large informal sector, are thus forced
to invest in land or in buildings for which they receive little immediate economic
returns. Revenue collection and tax administration difficulties further hamper the
domestic financing abilities of African governments.
Financial market deepening and development remains low and capital markets are
fragmented and isolated from the global markets, undermining efforts to mobilize
domestic and external private resources.
On the external front, Africa’s current account position improved over the last decade,
but turned to a deficit in the wake of the financial crisis. Africa’s trade balance as a
percentage of GDP, which was below 8 per cent in the past decade, fell significantly
after the crisis with a subsequent drop in demand for African exports following crises
in the eurozone and North America. Despite growing global demand and rising
prices for Africa’s natural resource exports, the possibility of a double dip recession
in trade partner economies and a further drop in foreign resources calls for greater
efforts to identify alternative financing sources.
FDI flows to Africa increased significantly prior to the global crisis, and fell less than
in other regions of the world after the crisis. However, as a percentage of GDP, the
increase has not been significant. Furthermore, the bulk of the investments has
been concentrated in a few countries and in the extractive industries with limited
value addition. Consequently FDI has not contributed significantly to structural
transformation in Africa. North Africa and petroleum-exporting African countries

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dominate all FDI receipts, with Angola, Egypt, Libya and Nigeria receiving the
four largest flows of FDI in 2010 (UNCTADStat 2011). The selective destination
of the FDIs heightens the risk of a lock-in to primary export trajectory as well as
reduces the opportunity to increase value addition and export earnings (ECA and
AUC, 2011). Additionally, illicit financial flows from Africa are considerable and
primarily linked to extractive and mining industries, benefiting multinationals from
developed economies as well as emerging ones, such as China (ECA 2013).
Thenetimpactofinternationalcooperationingeneralandofsouth-southcooperation
inparticularonAfricaneconomiesneedstobebeneficialtotheobjectivesofeconomic
transformation of the continent. As such, the central challenge of African countries
is to ensure that FDI facilitates value addition. It is equally crucial to ensure that
loans from development partners are used to finance projects that enhance capacities
for productive employment especially for the youth, given the population structure
of Africa.
Guiding FDI towards new sectors such as manufacturing requires the adoption of
strategic incentives and policies that both encourage and obligate foreign investors to
use domestic inputs, labor and partnerships in the pursuit of their goals. Deliberate
efforts to pursue joint ventures with Southern firms should also be explored to
contribute to the diffusion of knowledge for local entrepreneurs and hence contribute
to the structural transformation of economies (UNECA and AUC, 2011).
• How can African countries be supported in building capacities to enhance,
rationalize and maximize gains from all their global partners? In particular
how can the flows and the quality of FDI be improved?
• How can Africa be supported in mobilizing new resources, both domestic
and external?
• How can the domestic financial systems be improved?
• How can national and regional financial markets be improved and expanded?
• How can Africa improve the role of remittances in the transformation
process?
• How can cooperation with the rest of the world promote technological
transfer?

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4. Conclusion
The huge natural potential and the recent economic and social developments suggest
that Africa can escape the scourge of poverty and underdevelopment and embark
on the process of industrialization and transformation just as China, India and
other emerging and developing countries have done over the past decades. This is
possible under the guidance of a capable and development-oriented state committed
to mobilizing all development stakeholders and the population, with the dedicated
support of the international community around a common national development
project aimed at improving the popular welfare.
The consultation currently conducted by the HLP on the shape of the next
development agenda provides a compelling occasion for Africa and for all the
developing countries to go beyond the conventional approach of promoting
economic growth and social development. Under previous development agendas,
this approach has been based on dependency on external aid, low internal capacity
and productivity, low level of diversification and transformation and export of raw
materials. Notably, the MDGs focused on key social development goals without
paying due attention to the domestic economic means of creating the wealth needed
to achieve these goals.
The reflections on the post-2015 era is an opportunity to begin to lay the foundations
for an alternative approach where economic transformation takes centre stage in
developing countries with the view of providing them with the required domestic
means for driving and controlling their own development process. Economic
transformation needs to be promoted with the view of boosting productivity in all
sectors, accelerating growth, increasing earnings of workers and incomes of families
and graduating countries from the status of developing countries to the one of
emerging countries.
The African Union Commission and its pan-African partners namely ECA, ADB
and UNDP Regional Bureau for Africa, upon instruction of African heads of States,
have conducted a series of consultations in the five geographical sub-regions of the
continent. The findings clearly call for prioritizing economic transformation in the
next development agenda. It is hoped that the report of the HLP to the United
Nations Secretary General will strongly reflect this recommendation.
The analysis presented in this paper can trigger a number of issues relating to the
future of economic transformation in developing countries. Some of them are
outlined below:

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• How should the objective of economic transformation be reflected into the
post 2015 development agenda? Should it be a specific goal?
• Can measurable indicators on productive capacities, capacity development
in science and technology and resource mobilization be developed?
• What challenges and required initiatives should be given priority in a global
development framework?
• What would be the criteria of success of the transformation?
• What are the roles and responsibilities of each stakeholder, namely
governments as well as sub-regional and regional public entities, domestic
and international private sectors, rich countries, emerging economies, other
developing countries, civil societies, etc.
• How could the next development framework ensure accountability,
compliance and enforcement from each side on the transformation objective?
The HLP meeting of Monrovia is expected to provide clear and consensual answers
to these questions.

19
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