The global financial and economic crisis has revealed Africa’s vulnerability to external economic shocks. Largely dependent on the export of commodities, many of the continent’s economies suffered setbacks in economic growth and in their efforts to meet the Millennium Development Goals by 2015.

The original draft of this study was prepared by John HE Maré, a South Africa-based consultant. Subsequent updates have been undertaken and comments and suggestions have been provided by Kerri Elgar, Said Kechida, Dambudzo Muzenda and Mike Pfister (NEPAD-OECD Africa Investment Initiative), and Olivier Schwank , Katrin Toomel and Juliet Wasswa-Mugambwa (UN Office of the Special Adviser on Africa). The study also benefited from comments by Ben Idrissa Ouedraogo and David Wright, (UN Office of the Special Adviser on Africa). Carol Sakubita (UN OSAA) provided logistic support. The work was carried out under the overall direction and guidance of David Mehdi Hamam, Chief, Policy Analysis and Monitoring Unit, UN OSAA and Karim Dahou, Executive Manager, NEPAD-OECD Africa Investment Initiative.

The global financial and economic crises exposed one of the major weaknesses of a number of African economies: their dependence on too few export commodities and one or two sectors. Such dependence makes many countries vulnerable to fluctuations in commodity prices, demand and extreme weather events such as droughts and floods. This study looks at how African governments can diversify their economies and analyses five countries’ economic diversification profiles in particular. It begins by examining some of the major determinants of diversification and also looks at how the private sector plays a key role by being at the forefront of innovation, research and development and production. Good governance is needed to create an enabling environment for investment and trade; to manage natural resources; and to set policies to develop strategic sectors. A regional approach to economic diversification is particularly important, especially given the small size of African economies and the benefits of economies of scale from regional initiatives. New economic partnerships, including South-South co-operation and relations, offer Africa the opportunity to expand its economic options. Lastly, infrastructure and human resources help to facilitate trade, productivity and innovation and are key drivers of diversification.

For more than a decade, African countries have been enjoying high levels of economic growth, human development, and political stability. As they continue along the path of economic progress, it is imperative that they find ways to diversify their economies, namely by strengthening non-traditional sectors; expanding their range of products and exports; and engaging with new economic and development partners.

The five countries selected for this study are Angola, Benin, Kenya, South Africa and Tunisia, all of which can offer insights about diversification in Africa. Angola represents a country that is dependent on one main product, oil, to fuel its growth. So far, oil revenues have helped make Angola one of the fastest growing economies in the world, but it has also made the country vulnerable to boom-and-bust cycles due to fluctuations in oil prices.1 The report will consider how Angola can wean itself from its oil dependency and develop a broader range of exports and revenue sources. Kenya has made a great deal of progress in diversifying its economy and is poised to become an economic powerhouse in East Africa and even on the continent. Benin, on the other hand, has not been as successful in strengthening its economy and is hampered by its lack of lucrative natural resources. Strategies for Benin and countries with a similar profile will be analysed. South Africa and Tunisia have more diversified and developed economies than most countries in Africa and act as hubs in their respective regional economies. The Report will look at how they have built such diverse economies and what lessons could be drawn from these experiences in the region.

Diversifying Africa’s economies is an important part of the continent’s development strategy. This study has analysed the wide range of experiences that various countries have had with diversification, as well as the variety of factors that influence the process. Although experiences differ from country to country, there are some common findings that can be used to draw conclusions and recommendations for improved actions to support economic diversification.