Africa Prosperity Rating

Competitiveness encourages a cycle of positive economic reinforcement whereby it offers a framework conducive to greater innovation and productivity, which in turn spurs economic activity and growth, and leads to higher wages. For African economies – particularly those that rely heavily on their natural resources to achieve growth – enhancing competitiveness can provide a path towards diversifying economic activities and reducing their dependency on volatile commodity markets. Such a process can ultimately lead to a more robust economic base and more sustainable development.

Economies with high levels of competitiveness are more likely to be attractive to foreign and domestic investors. Any improvements by African economies in measures of competitiveness, such as the quality of governance, infrastructure development, and business-friendly environment, could significantly improve the appeal of the economies as investment destinations. The latter could further drive job creation, technological transfer, and the retention of domestic talent, as well as attractiveness to foreign talent.

With the African continent experiencing rapid population growth and an increasing number of economically active individuals, having competitive local firms and industries can play a critical role in creating new jobs to absorb this growing labor force. Promoting competitiveness-enhancing policies, such as investments in infrastructure, can support industries and businesses and allow them to thrive, which can in turn generate new employment opportunities, reduce unemployment, and ultimately lead to lower poverty levels.

Some countries on the continent are still suffering from a lack of economic diversification, which is partly the result of inadequate development policies undertaken in the 1980s and 1990s. The adoption of these policies came following stringent and largely ineffective Structural Adjustment Programs (SAPs), imposed by international financial institutions as a precondition for receiving loans or debt restructuring. Competitiveness in this context can equip economies with the tools they need to withstand global challenges such as pandemics, climate-related shocks, or economic recessions. It does so by building strong institutions, encouraging investment in infrastructure, and fostering innovation. Such mechanisms eventually lead to increased resilience to external shocks and changing global dynamics.

The well-being of people is at the heart of competitiveness. Improving education, healthcare, infrastructure, governance, and welfare systems – all key pillars of competitiveness – directly impacts citizens’ quality of life. In the African context, depending on the economies’ initial productive inputs and demographic structures, using available resources to address gaps in these areas can lead to much broader societal benefits. 

Trade agreements and diversity in the number of export partners and goods play a key role in improving the competitiveness of economies. Through initiatives like the African Continental Free Trade Area (AfCFTA), effective since 2019 and fully operational since 2021, economies on the continent can strengthen regional trade and collaboration. This feeds intra-African trade but also positions Africa as a stronger player in global markets.