Sahil Tesfu: “Digitization provides a significant opportunity for the African continent.”
GP Interview on strengthening the African economy through trade and local production
Sahil Tesfu is a Partner with McKinsey & Company based in Munich. She advises private sector clients and public institutions. Moreover, she advises public institutions on economic development related studies with a particular focus on the African continent. Ms Tesfu is also a passionate researcher and advocate on the topic of gender equality.
At The Africa Roundtable, Ms Tesfu presented the McKinsey white paper “Reimagining Africa”. We talked with her in order to get a closer view on three mayor levers for economic recovery:
1) Extending the value chain; 2) Digitalization and 3) Strengthening cooperation with the African Union.
All of these three are important issues at the upcoming G20 Investment Summit.
(All data points and analysis referenced in the answers can be found the White Paper.) Click here to read the McKinsey study.
GPI: McKinsey’s White Paper “Reimagining Africa” considers different ways manufacturing in Africa can be refocused to enhance local production and extend existing value chains. What advantages could this bring for the African continent and what actions will help it succeed?
Currently, for every USD 1.00 of goods manufactured in Africa, USD 0.40 is spent on imports – higher than many other regions in the world, showcasing a dependence on global supply chains. McKinsey’s analysis shows that over a five-year period, enhancing sustainable industrialization could reduce reliance on global supply chains and increase the continent’s manufacturing output by an initial USD 10 billion to USD 20 billion, if 5 to 10 percent of imported intermediates could be produced on the continent.
The main advantage for African economies from shifting productions into their own countries and extending their value chains is stronger global competitiveness. Such investments may also foster learning effects on the local labor force. Moreover, once firms start producing locally, new local networks of suppliers and distributors could evolve leading to functioning local and regional intra-African value chains.
There are four key success factors that could help reshape the African manufacturing and services sectors 1) Foster intra-African trade, for example by accelerating the implementation of the African Continental Free Trade Area; 2) Improve the ease of doing business across borders, for example by facilitating logistics and harmonizing standards and regulations for intra-African commerce; 3) Coordinate industrial strategy and policy at the regional level. Regional economic communities could build up industries that align with countries’ comparative advantages; 4) Explore new industries and product-space opportunities that could be competitive regionally and eventually globally.
GPI: The Covid-10 pandemic has increased the importance of digitization in business, education and many other areas of society. How can digitization foster economic growth in Africa? What actions can help support this process?
The COVID-19 pandemic has begun to accelerate Africa’s digital transformation. For example, 61 percent of a sample of businesses surveyed by the Economic Commission for Africa (ECA) reported an increased level of online sales since the pandemic began. This emerging digitization provides a significant opportunity for the African continent. When scaled, it could help Africa sustainably industrialize through digital-led optimization and innovation. To help enable this shift, companies could look to expand their online presence and broaden their digital offerings to respond to customers’ strong appetite, for example in the online insurance and retail sphere. Moreover, public sector institutions can consider accelerating their own digital transformation by offering digital services and deploying data collection and management tools. A key enabler for digitization of the private and public sector are respective infrastructure investments such as broadband networks, last-mile connectivity, and electricity supply. Scaling up of both basic and advanced digital skills is also an important factor to consider.
GPI: What role can pan-African cooperation play in helping the continent successfully move on from the COVID-19 pandemic?
African unity and cooperation have strengthened during the COVID-19 pandemic. Greater cooperation has, for example, been demonstrated by significant progress in central procurement of critical medical supplies. African policy makers could use this momentum to help accelerate planned reforms of pan-African institutions – including the African Union – and strengthen regional institutions, such as the West Africa Health Organization. Regional institutions could play a critical role in the continent’s COVID-19 recovery, as regional economic communities can support member countries in designing and executing coordinated development strategies, in areas such as human capital development. They may also involve closer relationships between the public, private, and development sectors that can translate into cooperation in new areas (e.g. for setting up efficient procurement and distribution systems).
Moreover, cooperation across regions or the entire continent could help African governments enhance their partnerships with neighboring regions, such as Europe. A united African position could support the continent’s negotiating position with the EU, e.g., regarding the documentation of carbon emissions or the consideration of regional idiosyncrasies.
- Sahil Tesfu, Partner, McKinsey & Company
Judith Ramadan, Project Management