Services Drive Economic Growth In Africa, Especially In The Informal Economy

Services Drive Economic Growth In Africa, Especially In The Informal Economy

The informal sector — the leading source of employment in many African countries — is predominantly service based and services are expected to become the main engine of growth in sub-Saharan Africa, Jeff Otieno said in a column in TheEastAfrican.

Latest data from U.N. Conference on Trade and Development show that the services contribute half of Africa’s output, outpacing manufacturing.

Services include businesses that make money providing transportation, tourism, banking, wholesale and retail, rather than those that manufacture goods.

A number of African countries have emerged as service-oriented economies, prompting the U.N. to identify the sector, along with agriculture, as core to Africa’s future growth.

Services in Africa grew 4.6 percent per year — more than double the global average — between 2009 and 2012.

“The sector’s performance has undoubtedly contributed to Africa’s growth trajectory of the past decade,” the U.N. said in its latest report on economic development in Africa.

Judging by the recent performance of services in East Africa, the economies of five countries are slowly becoming services dependent, said agricultural economist George Mwangi. It’s where new jobs are being created, so the sector is critical to the region’s development.

The East African countries of Rwanda and Burundi are among the biggest performers on the continent, ranked among the top 10 countries in Africa where services grew fastest in real terms at an annual rate of more than 8 percent during the study period.

Services accounted for more than 50 percent of real economic growth — the rate at which a nation’s GDP grows from one year to another — in 30 out of 54 countries from 2009 to 2012, weathering the 2008-2009 global crisis.

In East Africa, services accounted for 33 percent of formal employment for 2009 to 2012. If the informal sector were included, the role of the service sector would be even greater, said Marco Kamiya, an urban economist at U.N. Habitat, according to TheEastAfrican.

That’s because the informal sector, which is currently the leading source of employment in many countries, is predominantly service-based.

A survey by the U.N. Economic Commission for Africa in selected African countries also showed services as one of the fastest growing sectors in Africa.

Kenya has the highest informal sector employment in East Africa outside agriculture, at 77.9 percent — higher than Rwanda’s 73.4 percent, Uganda’s 59.2 percent and Tanzania’s 8.5 percent.

“As Africa’s middle class continues to grow, and given the current population and urban trends, this sector is expected to expand even more,” Kamiya said.

In East Africa, between 2004 and 2012, the real total value of the services sector grew in Kenya from 54 percent to 58 percent; in Burundi from 40 percent to 47 percent, in Tanzania 46 percent to 49 percent, in Rwanda from 41 per cent to 50 percent and in Uganda from 50 percent to 54 percent.