East Africa could teach the continent about economic growth

The continued economic success story of the East African region could hold inspiration for how the rest of the continent drives economic growth.

According to Pedro Guerreiro, Managing Director Central Africa at SAP, the region attempts at building a vibrant services sector, its coordinated state-supported industrial growth efforts, and a renewed focus on education reform with an emphasis on fostering digital skills all hold valuable lessons for the rest of the continent.

According to data by the AfDB, agriculture’s contribution to East Africa’s gross domestic product declined to 28.3 per cent in 2018 from 33.4 per cent in the early 2000s.

Increasing in its place is a vibrant and fast-growing services sector that contributes more than half (53.8pc) of the region’s gross domestic product (GDP). This economic shift is creating new employment opportunities.

Based on data by the ILO, the number of employment opportunities in the region’s services sector is set to more than double between 2000 and 2020, while opportunities in the agriculture sector will grow at a slower pace.

Digital transformation is one of the main drivers of growth in the services sector.

In 2012, the East African Community (EAC), which covers Burundi, Kenya, Rwanda, South Sudan, Tanzania and Uganda, launched its 2012-2032 Industrialisation Policy aims at creating a market-driven, competitive and balanced industrial sector that draws on the advantages of the EAC region.

The move is to grow the contribution of manufacturing to the region’s GDP to 25 per cent by 2032 from an estimated 8.9 per cent currently.

However, the contribution of the industrial sector to regional GDP growth has stalled in all EAC countries with the exception of Tanzania.

In 2019 report, the East Africa Development Bank (EADB) noted inadequate investment in industrial transformation as the main reason for the decreasing contribution of industry to GDP growth.

According to the EADB, other countries wishing to drive greater industrialisation 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 ready access to key skills.

Education restructuring

Since 2000, the number of African kids attending primary school grew to 150 million from 60 million, with a vanishing gender gap that now sees nearly as many girls attend school as boys.

Human capital development is a core component of accelerating the development efforts of emerging economies.

Figures show that significant and ongoing investment in human capital development has direct benefits to GDP growth, with the Gates Foundation finding that every additional year of schooling boosts individual income by as much as 8 per cent.

Kenya and Tanzania are notable for their efforts to drive education reform and expand access to schooling for more children.

In Kenya, the number of people with primary education is expected to increase by 25 per cent by 2030, with the number of people who have completed secondary or tertiary education growing by 60 per cent over the next decade.

In Tanzania, it is estimated that six out of seven people will have completed some form of education by 2030.

However, there is much work still to be done: by 2030, only 12 per cent of Tanzanians are expected to have completed secondary or tertiary education.

Guerreiro concludes that the private sector has a critical role to play in supporting human capital development.