The Sustainable Development Goals are also bringing in a new perspective on how Africa can solve its core social-economic challenges. From being factor-driven economies, African countries are now transitioning into being efficiency-driven economies; before we can ultimately get into the ideal and most preferred innovation-driven economies status.
Factor-driven economies focus on the extraction and exportation of natural resources to grow the economy. This is often characterized by low cost efficiencies and low value addition to commodities which range from minerals such as oil to agricultural produce such as coffee. In the end, factor-driven economies result to low job creation capacity which ultimately stagnates economic growth.
Efficiency-driven economies on the other hand focus on efficient production practices and process; in order to maximize the output per given unit of input. These types of economies capitalize on economies of scale in order to lower their unit production costs. Massive manufacturing and assembling companies characterize these economies; and industrialization drives general economic growth. With most African economies being factor-driven currently, the next obvious step of evolution is into being efficiency driven.
Ultimately, every country wants to get to a state where economic growth is driven by creation of new disruptive products or services; or an improvement of the existing products and services. According to Schumpeterian theory of creative destruction, the introduction of new products and services to the market amounts to innovation which leads to increased entrepreneurial activities within an economy. The profits gained from these increased innovative entrepreneurial activities then lead to economic growth; and the cycle keeps repeating itself as new products and services get introduced into the market. When a country gets to this point where its growth is driven by entrepreneurial activities; then it is said to be an innovation-driven economy.
The third ideal state of innovation-driven economies is not out of reach for African economies today. Using technology, we can leapfrog our economies and play catch-up with other developed economies of the world. Obviously the process will take a decade or more, but it will definitely be much shorter a period; compared to the number of years the developed economies took to get where they are today. Fusing technology, innovation and entrepreneurship; we are able to unlock the potential that Africa has by utilizing our natural resources in a more productive manner, for the economic growth of our continent.
Author: Jeremy Riro – Managing Partner at Fie-Consult