Africa is receiving significant capital inflows in the form of official development assistance and external borrowing. However, this is not sufficient to foster sustained economic development. The continent faces many other challenges, including resource dependence and low domestic saving rates, which increase the risk of a country becoming vulnerable to external shocks. One of the key drivers of sustainable development in Africa is effective domestic resource mobilization. A high domestic saving rate enables domestic investment and job creation.
One way to address the domestic savings issue is to enhance access to financial services, including mobile banking. In order to achieve sustainable economic growth, African countries need to design effective strategies for scaling up development financing. This can boost growth and improve living standards. Access to finance is particularly critical in rural areas. Although recent advances in mobile banking have helped to close the gap, gaps in access to finance remain large, especially in the informal sector.
Another important driver of economic development is the technology that facilitates it. The adoption of new technology is often the catalyst for structural transformation and increased productivity. The benefits of technological progress are numerous, including better production, reduced labor costs, and a reduction in environmental impacts. But it is not enough to use new technologies for the sake of increasing productivity; African countries need to leverage their full capabilities in order to ensure that their economies have the resilience and dynamism to sustain growth over the long term.
Economic diversification is the process by which a country transforms from low to higher productivity activities, and it is often associated with improved governance and shock resilience. The goal of economic diversification has shaped policy direction in many African countries. Yet, not all economic diversification measures are equally applicable for all African countries.
Despite the benefits of economic diversification, the concept remains understudied in the economics literature. It is difficult to determine the exact degree of impact of various technology adoption mechanisms on economic growth, but they are likely to be relevant to national development policies and regional development initiatives.
Technology adoption mechanisms are complex, but a good example of an innovative technology is the Internet. The Web has made it possible to conduct transactions across distances, and it has allowed for the expansion of global communication. Unfortunately, it is also expensive, making it difficult to attract private investment. Nonetheless, technological progress is crucial to economic development in Africa.
Another major factor is capital flight. Capital flight from Africa is large, relative to the size of the continent’s economy. This is a significant concern because it implies forgone domestic investment. There are also mounting evidence that large volumes of unrecorded resources are leaving the continent, raising serious concerns about governance. As a result, economic development in Africa is in jeopardy.
While many factors have a role to play in driving economic development in Africa, access to finance is one of the most important. In many African countries, a large fraction of the population lacks modern financial means. Moreover, the cost of financial services in many parts of the continent remains high, putting a damper on development and consumption. Boosting access to finance can lead to improved living standards for African citizens and boost industrialization.