A new report by the United Nations Conference on Trade and Development says Africa is driven by the services sector. But, UNCTAD’s Economic Development in Africa Report 2015 finds the sector’s potential is being undermined by poor infrastructure and regulatory shortcomings.
The UNCTAD report says Africa’s services sector is attracting an increasing number of investors. It notes services now account for 30 percent of the economy in Africa. In fact, it says the industry has propelled growth in the gross domestic product in 30 out of 54 countries between 2009 and 2012.
Examples of the booming services sector include mobile telephone communications in Kenya; lucrative financial services in Nigeria, South Africa and Morocco and growth in the tourism trade in the Seychelles and Mauritius.
While services are on the rise, UNCTAD Deputy Secretary-General Joakim Reiter says development of this sector is too little and too scattered. He says lack of well-functioning effective infrastructure is a major problem.
"For example, energy, water, telecoms, distribution, logistics, transport - just to mention a few that we recognize as belonging to infrastructure services. These are very important economically because in actual fact it is very difficult to be competitive as a trader in manufacturing or in agriculture unless you have the infrastructure services functioning,” he said.
Behind the curve
Reiter says Africa lags behind the rest of the world when it comes to upgrading infrastructure services. And, this, he warns is having a negative impact on the ability of governments to meet the social needs of their people.
He says many social services, such as the improvement of water and sanitation, are critical for achieving sustainable development goals.
“The rise of services in Africa seems to be more by default than by design. So, to give you a very concrete example, out of the countries that we looked at, very few countries had fundamentally incorporated the growth of services in the promotional services into their national development plans. It is mentioned, but it is not integrated into the plan,” he said.
The report says effective regulation of infrastructure is essential to boost Africa’s services sector and attract foreign investment. One area of concern is road freight, which it says is more expensive and of lower quality in Africa than in any other region of the world.
Another problematic area is access to reliable sources of energy. U.N. economists say energy access across Africa is low and the amount of electricity being generated is unreliable, inconsistent and unable to meet the rising demand. They say 74 percent of the continent’s population is without access to electricity - and this deficiency acts as a disincentive for investment.