African countries must diversify their exports to survive economic shocks from global crises such as the COVID-19 pandemic and the war in Ukraine, says the United Nations Conference on Trade and Development (UNCTAD).

Paul Akiwumi, The director of Africa at UNCTAD, least developed countries, and special programs, says the continent must rethink how it diversifies its economies to build its resilience to economic shocks.

He notes that diversifying the economy will not be only about diversifying simply within the commodity sector but going beyond.

The war in Ukraine coupled with crop failures due to drought in parts of Africa has worsened the food crisis. The cost of living has also risen as the cost of transportation increased due to a hike in global fuel prices.

Uganda has not been spared from the effects of the war in Ukraine. Studies have indicated that the current hike in the cost of living can be compared to the levels of 2017. The North Eastern parts of the country particularly Karamoja is facing worsening hunger level with a number of deaths reported.

Some countries have urged donors to increase aid to African countries faced with worsening food crises. But Akinumi observes that donor aid alone is not a sustainable solution.

“Donor aid at the end of the day has never developed a country. It is important that a country puts the right police and it develops itself,” he said.

“I envisage that there will more problems to come, there will struggle, there will be difficulties. We have seen this where we have been food crisis is having an impact in various countries. And there is some unrest so we do expect that,” predicted Akinumi.

In its Economic Development in Africa Report 2022 published on 14 July, UNCTAD, says that African countries can diversify their economies by boosting exports of high-value services, expanding the access of private business to financial services, tapping into new financial technologies, and implementing effective policies.

Despite decades-long efforts to diversify, 45 out of the continent’s 54 countries remain dependent on exports of primary products in the agricultural, mining, and extractive industries.

UNCTAD considers a country to be dependent on commodities when these products make up more than 60% of its total merchandise exports. The report outlines how African countries can rethink efforts to diversify their economies.

“Dependence on commodity exports has left African economies vulnerable to global shocks and hindered inclusive development for far too long,” said UNCTAD Secretary-General Rebeca Grynspan. She said Africa has enormous potential to break commodity dependence and ensure its effective integration into high-end global value chains.

“By addressing barriers to trade in services, boosting relevant skills, and improving access to innovative alternative financing, the region’s manufacturing productivity can be enhanced, driving Africa’s economic growth and structural transformation for many years to come,” Ms. Grynspan added.

UNCTAD says high knowledge-intensive services, such as information technology and financial services, could be a game-changer for Africa. But they account for only 20% of the continent’s service exports leaving immense room for growth.

Africa’s services sector is dominated by low-value-added transactions, making it unable to support productive activities for the industry, manufacturing, and agriculture sectors.

Trade in services is also low in Africa. Between 2005 and 2019, services made up only 17% percent of the continent’s exports. Travel and transport accounted for about two-thirds, representing a high concentration of traditional service sectors.

To change its fortunes, UNCTAD says the continent should promote the use of high knowledge- and technology-intensive inputs to enable the manufacture and export of more complex goods and services rather than primary commodities.

The report says technologies and smart services such as blockchain can improve access to diverse and competitive markets both within and outside the continent. More trade in services can also reduce the environmental degradation caused by the exploitation of natural resources.

To diversify economies, UNCTAD calls on African countries to implement policies to better link trade in high-value services with other sectors, especially manufacturing. Countries also need to cut costs of services trade, remove protectionist policies, expand digitalization and boost the skills of workers in the sector.

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