One of the sub-themes of the UNCTAD 14 is ‘Advancing economic structural transformation and cooperation to build economic resilience and address trade development challenges’. But what does it mean to build economic resilience for African states? Fragile states have been described as those whose governments cannot provide basic human needs for their citizens therefore making them susceptible to political upheavals and economic shocks. Whilst resilient economies are those whose institutions are strong, and the governance structures are transparent and effective in their delivery of basic services to their populace.
In a study done last year, the IMF estimated that about 26 countries in Sub Saharan Africa could be defined as economically fragile and out of these, only 12 were expected to ‘become more resilient’ by the year 2039. But this bracket needs to be wider if we are to achieve our goals of sustainable futures and poverty eradication for the continent.
I can think of many ways in which we can build economic resilience but for now I will mention two distinct ones. One is to ensure that we employ taxation policies that will aid in increasing productive capacity for industry and the second is to initiate workforce development tactics that will meet sector-specific demands.
It is prudent to outline how the production capacity of industry is tied to the macroeconomic landscape and the factors that contribute to low production capacity including taxation. The reality is that taxation impacts the volumes and frequency of production, because it influences the allocation of resources in any business. Multiple taxation, applied arbitrarily, means that businesses dedicate a huge part of their resources to cater for the changes and perhaps methods or channels of distribution or access to raw materials.
If the taxation policy is such that these changes keep occurring over a long period, then the production capacity of businesses continually thins off, that is, the margins within which to ‘adjust’ to the changes narrows significantly. Eventually, when the economic shocks occur, the high cost adjustments are felt by consumers whose purchasing power is significantly reduced. So, where one would buy four packets of milk in a week for instance, they will be forced down to two or one packet, and saving money will prove difficult.
The only way to avoid this is to have a tax regime that protects local businesses, nurtures the SME sector and incentives regional investors to scale their businesses to different countries.
This brings me to my second point; different regions have varying sectoral strengths that can be fortified into resilient economic foundations capable of withstanding economic shocks. Other than looking into aligning our regulation frameworks to enable efficient inter-regional trade we need to be deliberate in training a workforce that has a good grasp of our continental needs.
President Uhuru Kenyatta this week rightly said that ‘our people cannot eat conferences’, in a conversation of the tangibility of the issues that would be discussed during the UNCTAD 14. I believe this is a crucial statement when looking at what is next for Africa. We need to invest in training our young populations to meet the needs of industry in the future. This means that they must have good knowledge of the histories of different geographies, why the challenges exist despite abundant natural resources, how this can be rectified and how we can diversify.
As I have mentioned, in the long run it is all about ensuring that we have a sustainable future and we can only do this by equipping the next generation with sufficient skill and knowledge to reinvigorate industry and eradicate poverty.
The writer is the Chairlady of Kenya Association of Manufacturers and the UN Global Compact Network Representative for Kenya.