To date, given the low starting point and the comparatively shorter period of above-average growth, and despite the continent’s impressive resilience to the recent financial and economic crisis, economic growth has not yet led to the same magnitude of rising living standards that has been observed in other regions with similar growth performance.

Low and falling productivity figures are at the core of these differences in living standards. Although Africa and the developing Asian continent started from similar, very low levels, labor in developing Asia has since become more productive, effectively converging with the Organisation for Economic Co-operation and Development (OECD) average.

Economic data shows that Africa in contrast, has not only been trailing Southeast Asia, but in fact the productivity gap has in fact deepened between the period between 1960 and 2000. However, the slight recovery in productivity seen since the early 2000s provides something of a silver lining, indicating that economic growth is increasingly driven by rising productivity in some African countries.

Indeed, the International Monetary Fund (IMF) examines productivity figures at a disaggregate level for 1995–2010, analyzing the extent to which structural transformation—defined as the shift of workers from low to high-average productivity activities—occurred in sub-Saharan Africa. The findings show that structural transformation has seen some countries (Ethiopia, Kenya, Mozambique, and Tanzania) developing a manufacturing sector, and Kenya and Mauritius - developing a service sector - although the report also notes that the remaining African economies have registered only slow growth in labor productivity.

The current and future levels of productivity, in turn sets the sustainable level of prosperity that can be earned by an economy. In other words, more competitive economies tend to be able to produce higher levels of income for their citizens.

Specifically, there are three stages of development.

The first stage includes economies that are factor-driven where countries compete based on their factor endowments—primarily unskilled labor and natural resources. Maintaining competitiveness in this stage depends primarily on well-functioning public and private institutions; well-developed infrastructure; a stable macroeconomic environment; and a healthy and literate workforce.

As wages rise with advancing development, countries move into the second, efficiency-driven stage of development, when they must begin to develop more efficient production processes and increase product quality. At this stage, competitiveness is driven by higher education and training; an efficient goods and services market; frictionless labor markets; developed financial markets; the ability to make use of latest technological developments; and the size of the domestic and foreign markets available to the country’s companies.

Finally, as countries move into the third, innovation-driven stage, they are able to sustain higher wages and the associated standard of living only if their businesses are able to compete with new and unique products. At this stage, companies must compete through producing new and different goods using the most sophisticated production and business processes and innovation.

African countries which are classified as factor-driven economies should make putting into place the basic fundamentals as mentioned above, their first critical step toward improving productivity and competitiveness. That is, these economies should prioritize providing sound institutions and macroeconomic policies, adequate infrastructure, and the means for ensuring a healthy and literate workforce before moving on to the next stages of development.

This is particularly important for five countries on the African continent which include; Algeria; Botswana; Egypt; Gabon; and Libya that are currently transitioning to the second—efficiency-driven—stage of development, which will require them to move into more efficient production processes and increase product quality to maintain growth.

In addition, six other African economies are currently in their efficiency-driven stage, where higher education and market efficiencies (goods, labor, financial) take a more prominent role. Only one African economy—Seychelles—is currently transitioning to the innovation-driven stage. For Seychelles to increase its competitiveness, therefore, more needs to be done to put into place a skilled workforce and a business environment that is supportive for innovation.