Growth Without Industrialization?

I share with you a very good article by Dani Rodrik, an economist whom I appreciate very much. This paper also illustrates how reality sometimes goes faster than economists can predict. We must therefore be agile and flexible in our approach to industrialization policies.

Low-income African countries can sustain moderate rates of productivity growth into the future, on the back of steady improvements in human capital and governance. But the evidence suggests that, without manufacturing gains, the growth rates brought about recently by rapid structural change are exceptional and may not last.

CAMBRIDGE – Despite low world prices for the commodities on which they tend to depend, many of the world’s poorest economies have been doing well. Sub-Saharan Africa’s economic growth has slowed precipitously since 2015, but this reflects specific problems in three of its largest economies (Nigeria, Angola, and South Africa). Ethiopia, Côte d’Ivoire, Tanzania, Senegal, Burkina Faso, and Rwanda are all projected to achieve growth of 6% or higher this year. In Asia, the same is true of India, Myanmar, Bangladesh, Lao PDR, Cambodia, and Vietnam.

This is all good news, but it is also puzzling. Developing economies that manage to grow rapidly on a sustained basis without relying on natural-resource booms – as most of these countries have for a decade or more – typically do so through export-oriented industrialization. But few of these countries are experiencing much industrialization. The share of manufacturing in low-income Sub-Saharan countries is broadly stagnant – and in some cases declining. And despite much talk about “Make in India,” one of Prime Minister Narendra Modi’s catchphrases, the country shows little indication of rapid industrialization.

Full article here

South Africa, Nigeria: turning growth into wealth for all

For the past few days, economists and analysts have been cautiously pleased that two economic locomotives in Africa are returning to positive growth rates. Nigeria and South Africa, which have competed for years as the continent’s leading economies, are experiencing a growth rate of 0.55% and 2.5% respectively.

These numbers are positive, but is that enough? These statistics are only a reflection of a situation at a given moment, the expression of some interesting performances in certain areas, in particular agricultural or mineral raw materials. The economic agency Bloomberg explains in this regard that “both economies had agriculture largely to thank: in South Africa, a bumper corn harvest following the worst drought in more than a century saw the sector surge 34 percent from the prior quarter, while in Nigeria, where farming vies with industries as the second-biggest contributor to GDP, it increased 3 percent from a year earlier despite the period being in the planting season”. In both countries, as in others, growth remains fragile. A slight change in world prices (cereals, oil, for example) can reduce the economy.

The political and security situation can also affect investment, and therefore growth capacity. And then the situation of these two countries is very different: Nigeria is the leading producer of crude oil and the most populous country in Africa today and needs at least 3% growth just to absorb the growth of its population. I am not even talking about creating enough jobs for all the young people who arrive every year on the labor market.

South Africa remains the most industrialized country on the continent, but its population, so its market, is not very large. The country already has important infrastructure, including nuclear power plants, and significant natural resources, but is it sufficient to maintain a high rate of growth that ensures a better standard of living for all?

The link between growth and the well-being of populations, which might seem obvious, is not an absolute rule. The example of Nigeria is enlightening, because if the country finally emerges from one of the worst economic phases of its history, it should be remembered that between 2004 and 2010, when its economy grew on average 8.32% per year, observers noted with surprise that the level of poverty was increasing from 54.7% to 60.9% of the population.

The growth of the economy does not mean an equitable distribution of wealth. Nigeria is no exception to a trend seen elsewhere, namely the widening gap between the very rich and the very poor, and the large increase of the very poor share of the population.

Only long-term growth-sustaining programs and equitable redistribution of the fruits of this growth can lead to an improvement in the situation over time.

Birth control or better development policies?

It seems that time has come to debate the demography of Africa. Reports, experts and politicians have been concerned for some time on the subject, which is sensitive in most developing countries, of the rapidly growing population and sometimes even dealing with the idea of birth control. Some are referring to some ancient theories, like Malthus’, and, not without a certain logic, compare the rate of population growth with the rate of growth of the economy. Others are witnessing in the demographic growth a sign of liveliness and future wealth for our countries.

Let us first look at the figures: the latest report by the UN Department of Economic and Social Affairs (DESA), “World Population Prospects, the 2017 revision”, indicates that Africa will have nearly 4.5 billion inhabitants by 2100, 40% of humanity compared to 1.3 billion today (17% of the total population). Africa will have a population comparable to that of Asia (Asia should see its population stabilize at 4.8 billion, whereas it is 4.5 billion today – 60% of the world population). The global population should then be 11.2 billion inhabitants compared with 7.5 today.

By 2030, Nigeria is supposed to account for 410 million inhabitants, more than the United States. The UN report adds an interesting point: most of the world’s population growth should be concentrated in only nine countries, most of them in Africa: Nigeria, the Democratic Republic of Congo, Ethiopia, Tanzania and Uganda. Currently, the African population is growing by 2.5% against 1.7 at the world level.

Population growth is due to several factors: the fertility rate (5.5 in 2006 vs. 5.0 in 2016) is very high – with Niger’s extreme example of 7.4 children per woman of reproductive age – but also the increase in life expectancy which has gained 20 years in Africa since 1950 and is now 57 years old. One point to remember also: population density in Africa is one of the lowest in the world.

Of course, one can’t be as specific about the rates of economic growth. But the optimistic projections indicate for the coming years a growth of 4 to 6 points per year in Africa. A figure envied by most other regions of the world. We have already said how much these growth rates did not take into account the whole economic reality of our countries, the informal sector in particular, and that they were often distorted in one way or another. Faced with this situation, which party to choose? Should we even choose a camp? Is it possible? At a time when China has reversed its enforced policy of birth control, Africa must in turn try to limit births by constraint, while studies show the desired number of children per woman in Africa Sub-Saharan Africa is greater than five?

Children are still seen in Africa as a source of wealth and an economic and social safety net: manpower for farming and other works, but also pension insurance in countries that do not have any system of the sort. These are all factors that must be taken into account and which make it impossible for us to adopt binding policies. Besides, no one reckons that China has been handicapped in its economic development by its strong demographic and its 1.3 billion inhabitants.

On the other hand, making women’s health and education a priority, fostering access to modern means of contraception while creating the conditions for the real emancipation of women and girls so that they can choose to or not undergo their pregnancies, that could lead to lower fertility rates.

The combination of private and public strengths will allow Africa to reach true rural growth

Africa recently experienced an unusually long spell of steady growth. Sadly, it is a well-known fact that our economies failed to ensure the equitable sharing of the benefits of one of the highest growth rate in the world. So we are today in a specific context of a general decline in commodity prices and a consecutive slowdown in growth in Africa. This downward trend in commodity prices may be a constraint, but I would also like to see it as an opportunity because both public and private stakeholders will have to be more innovative in order to unlock new sources of endogenous growth, wealth and inclusive employment with greater spill over effects for the region’s economies.

Addressing the challenge of employment and wealth in the rural world is crucial for Africa’s development. The situation is highly paradoxical: Africa imports the equivalent of USD 50 billion in food each year, even though more than half of the world’s uncultivated arable land is on the continent and 60% of the population still lives in the rural world! The development of this agricultural potential, at a high productivity and competitiveness level, is essential if Africa is to feed 2.5 billion people by 2050.

Today, the challenge is to identify new tools for sustainable economic growth, this time based on principles of inclusion and equity, while maintaining a steady growth rate. Meeting these conditions will enable African economies to cope with a population that is still booming and with the ever-growing number of young people looking for education, training and jobs. These challenges are set against a backdrop of climate change and resource depletion, calling for the use of production techniques that are tailored to environmental challenges.

The principles of inclusion and equity imply adopting spatial and territorial approaches and policies that ensure rural areas benefit from the same developments and initiatives as urban areas; that responsible investments are made in rural areas; and that women and young people have access to the factors of production, especially training, land, water, finance, renewable energy, markets and income that reflects the fruits of their labour.

There are promising signs that private sector money is finding its way towards more inclusive development models. Conservation finance is one of the most exciting corners of agriculture development in emerging countries today. Conservation finance strives to reach three major and complementary goals to finance the agro-ecologic transition by calculating three different kinds of returns: economic, environmental and social.

These new investment projects are based on limited land acquisition and partnerships with farmers networks that are empowered with new techniques. The new actors take care of their production and of its transformation and ensure an access to the market, whether locally or internationally. Private investment in agroforestry businesses is a big driver for the intensification of farmer’s activities while restoring degraded lands, protecting forests and raising farmers’ incomes.

The African public sector should invest more money in incubators and accelerators to channel funding and technical support at the beginning of the cycle of these projects. This investment will pay off because the incubators could create a network of agroforestry start-ups with the infrastructure, knowledge and access to the funding needed to realize their concept. The consequences in terms of employment and resource developent could be tremedous. In this regard, the support of international governments and donors will also be essential. The progressive transition from solidarity systems to mixed market systems will help to stimulate investment and the development of structural activities capable of laying the foundations for this much-needed change.

Renewing public policies on the basis of local development would also help to tackle the root causes by providing appropriate solutions to ensure people settle and remain in their areas of origin. The empowerment of local authorities should be based on their specific characteristics, their ecosystems, their cultural heritage and their know-how combined with technological innovation and learning, especially for young people and women.

The governance of our natural resources and the financial resources they generate are the cornerstone of our structural change; they require appropriate solutions at the continental, regional, national and local levels, the most critical ones being the regional and local levels. Change will be sustainable when it happens at these two levels.

Leapfrogging Progress

I am sharing an excellent article from my friend Calestous Juma on leapfrogging progress via The Breakthrough website:

ithin two years of its launch in 2007, money transfers through M-Pesa, a cell-phone-based mobile banking application, already equaled the equivalent of 10 percent of Kenya’s GDP. What started as a local system to serve populations too poor for traditional banking has since grown into a global industry, one that threatens to disrupt traditional banking systems around the world. Today, M-Pesa’s network includes 30 million users across 10 countries, and its services have expanded to include international transfers, loans, and even health care.1

Image credit: CNN, “M-Pesa: Kenya’s mobile money success story turns 10” (2017), http://www.cnn.com/2017/02/21/africa/mpesa-10th-anniversary/.

The wide adoption of mobile phones in Africa, along with applications like M-Pesa that it has enabled, has created remarkable technological enthusiasm on the continent. Symbolizing the great potential that lies in technological catch-up and leapfrogging, M-Pesa has served as an inspirational example of what Africa could accomplish in other sectors like energy, education, health, transportation, and agriculture. Indeed, countries such as Rwanda are already using drones to transport medical supplies, while the dramatic drop in the cost of solar energy points to the widespread adoption of the technology across Africa.

Full article here

Why the solutions to global challenges are found at the pan-African level

At a time when more and more voices are being heard to challenge the European Union (EU), the idea of ​​unity of the Old Continent and especially the functioning of its institutions, the African Union (AU) has just accepted a new member: Morocco.

This demonstrates the attractiveness of the continental organization, which, although not perfect, has to its credit many achievements that are conducive to stability and development. It must be said that the AU was able to renew itself. From the OAU of independence to the AU that we know today – in fact largely inspired by the EU – there has been a real qualitative leap we must welcome.

Today the AU is an essential interlocutor for the international community. Africa is able to speak with one voice in the major international arenas, whether on climate or trade. Unity is strength, as the saying goes. But union, especially when it goes beyond the mere economic framework, is not easy: one sees it in other parts of the world, in the Middle East for example, but also in North America where deep divisions have been growing.

In Africa, on the contrary, the continental unity is now strengthened. It is interesting to note that even when countries are divided, at no time do the new entities envisage leaving the AU. I’m thinking here about the latest example to date, South Sudan. Morocco has clearly understood this, which is back in the ideological lap of the founding fathers of Africa, who, after independence, wanted this African unity because they dreamed of a community of destiny and interests.

Already with NEPAD, or with the African Development Bank (AfDB), the vision of development, projects and commitments are continental. We have succeeded in producing an overall African project, where each country sees its interest and can hope to be part of the general effort. This is true for infrastructures – rail, electricity – but also for the social issue through Agenda 2063, which includes measures over 50 years to stimulate socio-economic transformation across the continent.

A key element of this transformation is to take full advantage of the “demographic dividend” to ensure that economic progress improves growth, social development and the sharing of wealth. This is also the case for health with the “African Health Strategy” and the “Catalytic Framework for the Elimination of AIDS, Tuberculosis and Malaria in Africa by 2030”, set up by the AU. There is still progress to be made, especially in integration, the free movement of people and goods, but in 15 years progress has been quite extraordinary.

With its values, ambitions and strengths – economic and demographic growth, important natural resources and dynamic youth – Africa today can face the challenges coming from a world in perpetual change by cultivating unity. In the UN, for example, our countries weigh more when they are united. And it is with this unity that we can also open ourselves to the rest of the world. The AU is our home, our safe haven. We can look at other geographical areas, such as the EU, for example, for Morocco and Tunisia, or as the BRICS for South Africa, but in the end we know where we come from. That is our strength. These extensions from Africa to the rest of the world via individual countries, or also via diaspora, is a key strength. It remains to ensure that there is a principle of “diplomatic sharing” or preferential access set up within pan-African bodies.

Our partners are already very active: for example, on the board committee of the AfDB, we find France, the United Kingdom, the United States, Japan and China, among others. These partner countries and friends of Africa therefore participate directly in the projects implemented by the continental bank. This facilitates action and makes the partnership more effective. Our inequalities can also be forces: if Moroccan and South African banks play their role as a capital distributor, this can benefit other countries and their respective private sectors.

Integrating the pan-African perspective into reflection can only benefit the actors in this immense market that has become Africa.

 

Africa: an emerging destination for investments

One of the major audit firms recently published its index on the attractiveness of Africa for 2017[1]. The report puts into perspective the economic trend of the continent in a rigorous and detailed way, enabling us to avoid the two pitfalls of Afro-optimism or Afro-pessimism.

It should first be noted that 2016 has been the worst year in terms of economic growth for sub-Saharan Africa over the past 20 years. The continent has been hardly hit by the end of the super-cycle of commodities, particularly impacting Nigeria, Angola and South Africa. The geopolitical upheavals of the West such as the Brexit and the election of Donald Trump also contributed to diminishing or at least stagnating investments from these countries which are important investors in Africa. However, while the number of FDI projects fell by 12% in 2016, they increased by 32% in value terms (reaching $ 94.1 billion), making it the second region of FDI growth at world.

Obviously, Africa is not a homogeneous bloc and in fact there are great disparities between countries. The three major countries impacted by the drop in the commodity prices mentioned above should not distract us from the bigger picture that reveals the growing young shoots in French-speaking Africa as in East Africa. While Morocco, South Africa, Kenya, Egypt and Nigeria attract the bulk of FDI projects (57%), other investment hubs appear. Ghana (4th), Côte d’Ivoire (7th) and Senegal (9th) attract investors, as evidenced by their ranking in the Africa Attractiveness Index. On the other side of the continent, growth is also very strong with an average of 6% for Kenya, Ethiopia, Tanzania and Uganda. These last two being boosted by the recent discoveries of oil and gas fields.

As nature abhors the vacuum, Asia-Pacific, especially China, has filled the decline in investment from the United States and Great Britain. China is now the third largest investor in terms of FDI projects in Africa, with the strongest growth in terms of jobs created. Note also the breakthrough Japan has seen its level of investment and jobs created increase by 757% and 106% respectively.

These figures, which show a real enthusiasm of investors for the African continent, remain to be relativized and taken in retrospect. Africa still receives an inadequate share of global FDI (11.4%) in terms of its population and its potential. Long coveted for its natural resources, the diversification of the African economy is underway, driven by the dynamism of sectors such as transport and logistics or the automobile. It is also worrying that the share of investment projects carried by African investors has continued to decline since 2013, falling to 15.5% in 2016. This contributes to the degradation of Africa’s resilience to external shocks ‘economy.

That Africa is attractive to foreign investors is a good thing, but it must also become an opportunity for African investors themselves! That is why we must redouble our efforts to achieve greater regional integration and a policy of reducing barriers to trade between the countries of the continent. History has shown that these choices lead not only to economic development but also to political stability, two essential objectives for ensuring the well-being of the population.

[1] EY’s Attractiveness Program Africa, « Connectivity redefined », May 2017

A message for the youth of South Africa

On June 16, South Africa commemorates Youth Day, a day to honour the role played by South Africa’s young women and men in the pursuit of independence and social economic development. As we reflect on the gains of the past, we also celebrate the successes of South Africa’s young entrepreneurs and innovators – taking on new frontiers and staking their claim in the country’s socio-economic growth.

On the other hand, as we look for hope towards a brighter future, we need to also reflect on the high unemployment levels and education challenges faced by young adults. This is against a backdrop of 27,7% national unemployment rate of which youth unemployment consists 38,6% in the country (SA Stats).

This scenario is not unique to South Africa, as it resonates with the rest of the African continent in which about 200 million of its people are aged between 15 and 24. Africa has countries with the 10 youngest populations in the world and the youth populations continent-wide are set to double by 2050. Furthermore, approximately 66% of young people are unemployed.  They are unable to find jobs within the job market due to a mismatch of skills and demand. Recognising the critical role of youths in shaping the continent’s future, the African Union theme for 2017 is Harnessing the Demographic Dividend through Investments in Youth.

However, without more deliberate and concerted efforts to address the challenges faced by youths today, such as unemployment and lack of meaningful economic opportunities which rank high, Africa faces the real risk of frustration from the youth leading to a spike in instability and civil conflicts. Youth Day should therefore remind us all to take action, and to take that action now, to put in place conditions for our youths to develop into skilled entrepreneurs and innovators, as well as provide meaningful employment and economic opportunities for them.

To this end, NEPAD Agency promotes policy and capacity development interventions such as support towards the development of National Action Plans on youth employment and skills development, enhancing the employability and entrepreneurial activity for young people. The interventions include promoting innovative approaches for employment orientated Technical Vocational Education Training (TVET) and promoting decent rural youth employment and entrepreneurship in agriculture and agribusiness.

On the bright side, Africa’s youthful population is one from which real dividends can be drawn, since they make up the much needed working-age population that is crucial for the continent’s economic growth. According to the World Bank, Africa’s youth demographic dividend can potentially generate 11-15% GDP growth between 2011 and 2030. What is more, if African countries were to take full advantage of this potential dividend and provide adequate education and jobs, up to $500bn a year could be added to its economies for 30 years.

As South Africa celebrates Youth Day, let us not forget that it was the events in 1976 that contributed to changing the socio-political landscape of the whole country. Oppression through inferior education and limited choices for youths was not acceptable then, and it is not acceptable now.  It is up to us then to work together with youths today, in creating a brighter future for generations to come, even as we build ‘The Africa We Want’ in the African Union’s Agenda 2063.  In making this appeal, I would like to echo the words of Nelson Mandela, “To the youth of today, I also have a wish to make: Be the script writers of your destiny and feature yourselves as stars that showed the way towards a brighter future.”

What the preservation of our heritage tells us about our future

Recently, in certain countries of Sahelian Africa such as Burkina Faso and Mali, there has been a renewed interest in the so-called “Nubian vault” architectural technique. Houses built according to this ancestral model, probably coming from the ancient Egyptians, are less costly, because they use the local earth for the bricks, more perennial (about fifty years), better insulated than the iron sheets covered houses, and ecological since they do not use wood. These fresh houses with small and chiselled openings that retain heat on the outside, allow the easy addition of a roof terrace. NGOs have made it the basis for some development projects in response to the lack of decent housing, lack of employment and the challenge of ecological preservation.

This example illustrates a legitimate questioning of some of our States about the accumulation of capital. Should we accumulate physical capital or knowledge? At first sight we naturally answer both. But in this case, what should be prioritized between knowledge that is difficult to measure, which is a bet on the future, and the accumulation of infrastructures and financial capital, more easily quantifiable? I believe that we can lead the two accumulations head on, one helping the other, supporting the other, nourishing it, making it even wealthier.

The example of the Nubian vault shows that it is important to preserve the techniques specific to Africa, to know how to adapt them, but also to defend them as our genuine heritage. The effort must be global: finding funding and partnerships for the development of our continent, but also maintaining control over what we want to do, according to our needs and cultures. The days when we were forced to make laterite tracks rather than paved highways are gone. That is why we must also give ourselves the means to choose and build. And this requires a renewed effort to educate, preserve and transmit the intellectual capital that we have, sometimes without even noticing.

Likewise, without knowledge, how can we maintain the physical capital that we have received as an inheritance, too often fallen into decay? Africa, today more than ever, needs hydraulic engineers, renewable energy specialists, mining engineers and geologists to exploit its immense natural resources. We also need to better protect our inventions. The world observes us – to say that it spies on us would be too strong – and tries in good industrial logic to take over what belongs to us, sometimes legally, sometimes illegally. I think of Ethiopia’s long battle against the American giant Starbucks to recover the appellations of origin of its finest varieties of coffee: Yirgacheffe, Sidamo and Harrar. In this case, David defeated Goliath, and these three names which evoke voluptuous perfumes are now registered Ethiopian trademarks. As a result of this initiative, some 15 million people living in the coffee sector in Ethiopia have seen their incomes increase, while the state has exported more. Ethiopia is today one of the leaders of the continent in the protection of intellectual property.

Like the Nubian vault, coffee is a heritage, both genetic, agricultural and cultural, which we must preserve and develop. We must continue to invest in the production of knowledge. The State, with its public sector, the private sector and citizens, each at their level, must participate in this effort. Let us not doubt that the profits, which seem sometimes impalpable, will eventually bring about a sound and stumbling effect, as shown by these two examples.

Formal sector versus informal sector: towards reconciliation

More often than not, particularly in Africa, we are used to opposing the formal and informal sectors. Shouldn’t we adopt for once a holistic approach of our economies and try to integrate more and more the informal sectors of our economies by the means of smart and fair policies?

Behind this somewhat negative word, the informal sector – understood as all activities that are beyond the control of the state, whether legal, social or fiscal – there are artisans, mechanics, tailors, merchants, taxi drivers, masons. In short, people who scrap a living. But in this logic of day to day survival, these men and women also walk down a precarious path in the medium to long term. What can you do if you get sick when you only have a small job to earn money to pay for the day’s food? What happens when the informal worker, one he is too old, no longer has the strength to work? It is easy to understand that above all, one must escape from the logic of survival in which too many of our fellow citizens are stuck, often against their will.

According to the African Development Bank (AfDB), the informal sector accounts for an average of 55% of cumulative GDP in sub-Saharan Africa. In some of our countries, the workers who produce this wealth sometimes count for the majority of the active population. Statistics are lacking, but in a report on the informal sector published last May, the International Monetary Fund (IMF)[1] indicated that informal employment accounts for between 30 and 90 per cent of non-agricultural employment in sub-Saharan Africa. Let us recall that there is no clear frontier between the formal and informal sectors: legitimate companies may indeed use informal contractors for certain matters, for example on a construction site.Even the IMF, a former vocal critic of the informal sector, in the report we have just mentioned, shows that times have changed and that the informal sector can be a growth opportunity for our economies.

While international experience indicates that the share of the informal economy declines as the level of development increases, most economies in sub-Saharan Africa are likely to have large informal sectors for many years to come, presenting both opportunities and challenges for policymakers”, the report says. This is all the more true as the number of jobseekers increases exponentially and as a “fight” against the informal sector will deprive our states of an important safety valve, especially for youth. Remember that to absorb new workers, Africa must create 122 million jobs in the next ten years. The IMF adds: The challenge for policymakers, therefore, is to create an economic environment in which the formal sector can thrive while creating opportunities for those working in the informal sector to maintain or improve their living standards”.

Bringing these individual or family businesses into common law is not an easy task, but there are ways and means to make it happen, and above all a strong argument in favor of this move: entering the system makes it possible to fight precariousness, especially if sound policies of health insurance and retirement pensions are accompanying this regularisation. Under no circumstances should policies appear to be a tax burden on micro and very small informal enterprises. Policies must promote access to banking services and improve productivity of these small businesses, so that they create more jobs, pay social contributions for employees, and, only in a second phase, provide tax revenues to the state.

 

[1] Regional Economic Outlook, IMF, May 2017.