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Guest post by: United Nations Economic Commission for Africa Become an Author

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Using the results for Africa shown in table A5.1, it is possible to compute what one
could call a turning point in the relationship between investment and diversification.
This turning point ought to occur at that point of the diversification measure where
the index is lowest. It is important to recall that the lower the index, the deeper the
diversification. Therefore, a country ought to undertake investment in such a way
that this turning point occurs where deep diversification has been attained. From
the results seen, this turning point occurs at an index point that is not sufficient for
deep diversification to be achieved and sustained. The low level of investment that
African countries have undertaken over the last two decades and a half explain these
unsatisfactory results. As figure 5.1 shows, the turning point for an average African
economy occurs at an investment point of only 12.5 per cent of GDP. This level
of investment has not been sufficient to shift the turning point to a deep enough
diversification level.

Only a very low proportion of income has been invested to lead to an early turning
point in the two-stage diversification process for African countries. This early
turning point coincides with the failure to attain deep diversification in Africa. The
South-East Asian economies on the other hand, have been investing more than twice
the average level of investment by African economies. This has not only supported
their galloping economic growth rates in the 1980s to the present but explain why the Asian NIEs are more diversified than those in Africa. The African economies
need to invest more on the basis of these results so that the relationship between
diversification and investment in figure 5.1 could be shifted both downwards and to
the right, allowing the turning point to occur when deeper diversification has been
achieved.

While increasing the level of investment helps promote diversification, the sectoral
allocation of investment is also crucial. To boost diversification, governments should
therefore design incentive mechanisms to encourage investment in new activities. At
the same time, public investment in infrastructure must receive priority, which will
in turn crowd in private investment.

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  4.0 Diversification trends in Africa: Economic Report on Africa 2007
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  4.4 References: Economic Report on Africa 2007
  Overview VIII: Economic Report on Africa 2007
  5.3 Conclusion: Economic Report on Africa 2007
  5.1 Investment is vital for an economy to diversify: Economic Report on Africa 2007
  5.2 Growth, productivity and diversification: Economic Report on Africa 2007
  5.1 There can be little diversification without an optimal trade policy: Economic Report on Africa 2007
  V. D. The Future of China-Africa Economic Relations: FACTORS INFLUENCING THE GROWING TIES
  4.3 Conclusion: Economic Report on Africa 2007
  5.1 Determinants of diversification in Africa: Economic Report on Africa 2007
  4.1 Diversification trends at the regional level: Economic Report on Africa 2007
  5.4 References: Economic Report on Africa 2007
  Overview VII: Economic Report on Africa 2007
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  6.0 The Way Forward: Economic Report on Africa 2007
  CONCLUSION: What Drives China’s Growing Role in Africa?
  5.1 Faster economic growth could assist in diversification efforts: Economic Report on Africa 2007
  6.4 Industrialization policies key to deepened diversification: Economic Report on Africa 2007
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