African countries should be targeting minimum investment levels of 25% of gross domestic product to sustain economic growth and to improve prospects for job creation and poverty reduction. But a new United Nations Conference on Trade and Development (Unctad) report also warns that simply increasing the quantity of investment will be insufficient and that countries should, therefore, also become more active in directing investments towards priority infrastructure and key sectors such as agriculture and manufacturing.

The ‘Economic Development in Africa Report 2014’ argues that increasing the productivity or quality of investment will also be important, while also noting major gains in this area over the past two decades.

Unctad’s Patrick Osakwe, who released the report in Johannesburg, stresses that, while Africa has had high and continuous economic growth over the past decade, serious structural problems remain with the pattern of that growth both on the demand and the supply sides of the economy.

The demand-side is overly consumption driven, with average investment rates standing at around only 18% across the continent. In addition, many investments have been directed towards resource extraction and transportation, with limited spin-offs for the other productive sectors.

On the supply-side, meanwhile, the services sector dominates, while there has been far less activity in agriculture and manufacturing, where the potential for job-rich growth and economic transformation is far higher.

Osakwe says policymakers need to pay closer attention to improving the balance between consumption- and investment-led growth, while also aligning macro- and micro-economic policies towards encouraging greater domestic and foreign direct investment (FDI).

“While consumption is an important source of domestic demand and has been the dominant driver of growth in Africa over the past decade, it is evident that a consumption-based growth strategy cannot be sustained in the medium to long term because it often results in overdependence on imports of consumer goods, which presents challenges for the development and survival of local industries, the building of productive capacities and employment creation,” the report argues.

A far more coherent approach will be required to promote investment, however, including policies that address prevailing constraints to investment.

Osakwe says the main bottlenecks have been identified as a lack of access to credit, as well as the cost of finance, high levels of risk and uncertainty and a weak policy, governance and investment environment.

But there is also an urgent need to stimulate investment in critical energy and transport infrastructure, the absence of which remains a serious impediment to private investment, especially in manufacturing and agriculture.

The report concludes that more public infrastructure investment will be critical to catalysing private investment and laments the fact that there has been a decline in public investment rates in at least 23 countries over the past two decades.

Greater coherence in overall investment promotion policies will also require policymakers to ensure that FDI is not supported at the expense of domestic investment.

“African governments offer generous incentives to foreign investors that put local investors at a disadvantage and go against efforts to promote domestic entrepreneurship and investment,” the report argues.

Unctad, thus, advocates for a strengthening of linkages between local and foreign enterprises, through promoting joint ventures, developing workforce skills, and making FDI policy consistent with the promotion of domestic entrepreneurship.