What are the major economic and social trends in Africa? What is Africa’s role in globalisation? This annual report presents an Africa open to the world and towards the future. Africa’s Development Dynamics uses the lessons learned in the five African regions – Central, East, North, Southern and West Africa – to develop recommendations and share good practices.

The report identifies innovative policies and offers practical policy recommendations, adapted to the specificities of African economies. Drawing on the most recent available statistics, this analysis of development dynamics aims to help African leaders reach the targets of the African Union’s Agenda 2063 at all levels: continental, regional, national, and local. Every year this report will focus on one strategic theme.

This 2019 edition explores policies for productive transformation. It proposes three main policy focus for transforming firms: providing business services to clusters of firms; developing regional production networks; and improving exporting firms’ ability to thrive in fast-changing markets.

This volume feeds into a policy debate between African Union’s nations, citizens, entrepreneurs and researchers. It aims to be part of a new co-operation between countries and regions focused on mutual learning and the preservation of common goods. This report is the result of a partnership between the African Union Commission and the OECD Development Centre.

Africa needs to accelerate its productive transformation to create quality jobs for the 29 million Africans reaching working age each year from now until 2030. Quality jobs remain an exception for Africa’s youth and women: about 42% of Africa’s working youth live on less than USD 1.90 a day (at purchasing power parity), and only 12% of Africa’s working-age women were in waged employment in 2016.

While African people are the most entrepreneurial globally, many entrepreneurs lack basic capabilities. Most youth entrepreneurs in Côte d’Ivoire and Madagascar lack the capabilities necessary to do basic bookkeeping, lay out a plant, use tools to plan over a multiyear horizon, identify a relevant technological advance and cultivate human resources.

A systemic approach to productive transformation in Africa entails focusing on three sets of policies:

1. Developing strategic clusters of firms. Governments can use clusters strategically to develop an economy’s comparative advantages. The success of such policy depends on choosing the right location, attracting the right capabilities and providing business services to ensure linkages inside clusters. While African governments have made considerable progress in the first two areas, targeted support for local firms can help develop a stronger supplier base.

2. Facilitating regional production networks. Policies must strengthen regional production networks. Regional sourcing remains under 15%. Regional norms help smallholders integrate into regional value chains, particularly in agriculture, which accounts for 50% of all employment. Co-ordinating strategies for foreign direct investment will attract investors, develop regional capabilities and avoid undercutting taxes.

3. Enhancing firms’ abilities to thrive in new markets. Policies must help African exporters thrive by tailoring to the destination markets. Removing non-tariff barriers reduces uncertainties for exporters and may increase fivefold the gains from tariff removal. Exporters need simpler administrative procedures and better connectivity and infrastructure, especially flights, roads and ports. Exporters must meet quality standards: African firms file three times more ISO certifications today compared to 2000. Still, Malaysian firms alone filed as many certifications as all African firms in 2015.

The African continent has changed greatly and will continue to do so in the coming years. Five megatrends at the continental and global levels create significant opportunities and challenges for African firms in starting, managing and growing their businesses. These trends include demographic growth, rapid urbanisation, climate change, the New Industrial Revolution and the shifting terms of trade to other emerging economies in the eastern part of the globe.