1 Industrial Policies and Structural Change - Strategies for Development in Africa and a Research Agenda YAW ANSU (African Center for Economic Transformation—ACET)

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Industrial Policies and Structural Change - Strategies for Development in Africa and a Research Agenda

YAW ANSU (African Center for Economic Transformation—ACET)

Industrial policy in the African context

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This presentation will: Provide ACET’s definition of Economic Transformation Discuss ACET’s research to measure and track economic

transformation Present data showing the lack of economic transformation over

the 40-year period from 1970 to 2010 in SSA Provide a clear statement of our understanding of what Industrial

Policy is—i.e. “market-supporting industrial policy” Use the definition to provide a framework for assessing “market-

supporting industrial policy” and Show examples of use of the framework

What is economic transformation?

3

For ACET,

Economic transformation means rapid

economic growth accompanied by diversification

and technological upgrading of production and

exports, growing international competitiveness

and rising employment rates leading to shared

prosperity.

Measuring and tracking economic transformation

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In line of our definition of economic transformation, we use the following as indicators:

Production Diversity (share of manufacturing in GDP) Technology (Lall decomposition of manufacturing value-added Productivity (MVA per wage bill – i.e. per worker productivity divided by the average wage; cereal yield

per hector Exports

Diversity (share of top 5 exports; share of manufacturing and services exports in total exports) Technology (Lall decomposition of commodity exports) Competitiveness (EXPYl country export growth divided by world export growth)

Investment and savings Gross fixed Capital formation, adjusted by domestic savings effort

Human Impact Poverty (US $ 1.25 per day measure) Employment (% formal) Health (Maternal Mortality)

ACET 15 Countries

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Ethiopia Kenya Uganda Tanzania Rwanda

Senegal Burkina Faso Ghana Nigeria

Zambia Botswana South Africa Mozambique Mauritius

Cameroon

Shares in SSA in 2010 (%)• Population = 70• GDP = 76• MVA = 85• AVA = 65• Exports (G & S) = 80

6

-6-4

-20

24

6

1970 1975 1980 1985 1990 1995 2000 2005 2010Year

SSA Average ACET15 Average Comp Average

Data Source:World Bank Development Indicators

Figure1a:GDP per capita growth (annual %)

11.5

22.5

33.5

44.5

1970 1975 1980 1985 1990 1995 2000 2005 2010Year



In 2010 Relative to 1970Figure 1b: GDP per capita (constant 2000 US$)

7

1015

2025

(%) P

erce

nt

1970 1975 1980 1985 1990 1995 2000 2005 2010Year



Figure 2a: Production Share-MVA (% of GDP)

020

4060

8010

0(%

) P

erce

nt1970 1975 1980 1985 1990 1995 2000 2005 2010

Year


Data Source:UNIDO INDSTAT2, Rev 3 Digit 2

% of Med. & High Tech. ManufacturesFigure 2b: Manufacturing Technology

8

05

1015

20M

VA

1970 1975 1980 1985 1990 1995 2000 2005 2010Year

SSA Average ACET15 Average

Comp Average


Figure 3b: MVA Per Wage Bill

020

000

4000

060

000

8000

0M

VA

1970 1975 1980 1985 1990 1995 2000 2005 2010Year

SSA Average ACET15 Average

Comp Average


Figure 3a: MVA per Capita

9

40

50

60

70

80

90

(%)

Perc

ent

1975 1980 1985 1990 1995 2000 2005 2010Year


Data Source:UN ComTrade. Rev 2 Digit 3

Figure 4a: Concentration of Exports-% Top 5 Exports

10

010

2030

40(%

) P

erce

nt

1980 1985 1990 1995 2000 2005 2010Year



Figure 4b:Technology of Exports-% of Med. & High Tech. Exports

11

050

00

10

00

015

00

0E

XP

Y

1980 1985 1990 1995 2000 2005 2010Year



Figure 4c: Sophistication in Exports-EXPY

12

-15

-10

-50

510

1970 1975 1980 1985 1990 1995 2000 2005 2010Year



Relative to World's Growth RateFigure 4d:Growth Rate of Exports of Goods and Services

-3-2

-10

12

3

1970 1975 1980 1985 1990 1995 2000 2005 2010Year



Relative to World's Rate, 5-Year Moving AverageFigure 4e: Growth Rate of Exports

13

1520

2530

35(%

) Per

cent

1970 1975 1980 1985 1990 1995 2000 2005 2010Year



Figure 5a: Investment-Gross Fixed Capital Formation(% of GDP)

510

1520

2530

35(%

) Per

cent

1970 1975 1980 1985 1990 1995 2000 2005 2010Year



Figure 5b: Domestic Savings-Gross Domestic Savings (% of GDP)

14

1020

3040

5060

7080

(%) P

erce

nt

1980 1985 1990 1995 2000 2005 2010Year



Figure 6a: Human Impact-Poverty

020

040

060

080

010

00(%

) Per

cent

1980 1985 1990 1995 2000 2005 2010Year



Figure 6b: Human Impact-Maternal Mortality

The African Transformation Index

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What is it?• A composite index of the indicators to compare countries over

time and among each other, starting from the ACET – 15

What drives transformation?

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State capacity for economic management

Business environment for private sector, including state-private sector

collaboration

Infrastructure

Finance and domestic resource mobilization

Educations and skills

Technology upgrading policies

Proactive export promotion strategies

Foreign direct investment (FDI) policies

Labor and employment policies,

Targeted sector strategies, including for modernization of agriculture

and promotion of manufacturing and high-value services.

What is industrial policy (IP)?

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It’s controversial

1960s to early 1980s in SSA Socialist-inspired, state-led development strategy

o Import substitution and industrializationo Anti private sector

Failed--failure of state-led development strategy or of IP?

1980s to 2000s Replaced state-led strategy with Bretton-Woods reforms

o Pro-market, anti state involvement Failed to change structure of economies--failure of pro-market

strategy or of IP?

What is industrial policy (IP)?

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Policies pursued by government to promote the expansion or upgrading of production, or to boost competitiveness of exports or import-substitution of a targeted set of products or services.

o Policies that aim to improve the general economic environment, while desirable, are not by themselves, in our view, sufficient to constitute the existence on an Industrial Policy regime.

o The definition is not restricted to industrial products; a set of policies aimed at expanding or upgrading production or exports of targeted agricultural products or service activities also qualifies as IP.

Market-Supporting industrial Policy: State-enabled, but private-sector driven

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Elements:• Medium or Long-term Transformation strategy or plan • A set of targeted activities nested in transformation plan• A condusive business environment for private sector (macro,

exchange rate and trade, regulations, public goods—infrastructure)

• Strategic partnership between the state and the private sector (plan formulation, targeting of activities, and implementation)

• Support instruments for targeted activities• Performance control of targeted activities and associated support

instruments• State capacity; at least “centers of excellence” for transformation

drive

The Africa experience

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No Sub-Saharan Africa (except Mauritius and possibly South Africa) has ever practiced IP (in the sense outlined here)

Nevertheless framework can be used along 2 dimensions :

1. Country approximations: Evaluate current/recent plans, policies and institutions with respect to the above framework to judge the extent to which a country is moving towards an IP regime—i.e. country IP regimes

2. Sub-Sector approximations: Evaluate developments in particular economic sub-sectors or products to judge, with respect to the foregoing framework, the extent to which they reflect the pursuit of aspects of IP—i.e. specific product/sub-sector examples of IP

3. Initial illustration with 3 Countries and 3 Products

Ethiopia - Horticulture

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AssessmentUnder General Inst & Policy Environment, means good; means not good/strong✔ ✖

Under Support Instruments, means applied or favorable to activity; means not.✔ ✖

Gen. Institutional & Policy Env Support Instruments

Transformation Plan ✔? F. Subsidies—Direct ✖ FDI Promotion ✔

Targeted Econ Activities ✔ F. Subsidies—Indirect ✔ Research/Tech Institutes & Services

?

Business Env Access to Finance ✔ State Procurement ✖

Macro inflation ✖ Interest rate Subsidies ✔ Info on Export Markets ✖

Exchange Rate ✖ Trade Protection ? Export Market Opening ✖

Trade Policy ✖ Land Access ? State Enterprises ✖

Regulation ✖ Gen. Infrastr & Port Logistics

✔? PPP Ventures ✖

State-Private Sector Collaboration ✔? Industrial Parks/SEZs ✖ Privatization ✖

State Capacity ✖ Target Skills Training ?

Performance Control ?

Mauritius – Textiles & Garments

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Transformation Plan ? F. Subsidies—Direct ? FDI Promotion ✔

Targeted Econ Activities ✔ F. Subsidies—Indirect ✔ Research/Tech Institutes & Services

?

Business Env Access to Finance ✔ State Procurement ✖

Macro inflation ✔ Interest rate Subsidies ? Info on Export Markets ✔?

Exchange Rate ✔ Trade Protection ✖ Export Market Opening ✔

Trade Policy ✖? Land Access State Enterprises ✖

Regulation ✔ Gen. Infrastr & Port Logistics

✔ PPP Ventures ✖

State-Private Sector Collaboration ✔ Industrial Parks/SEZs ✔ Privatization ✖

State Capacity ✔ Target Skills Training ?


Ghana (2000+) – Cocoa Production & Processing

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Transformation Plan ✔- F. Subsidies—Direct ✔? FDI Promotion ✔

Targeted Econ Activities ✔-

F. Subsidies—Indirect ✔? Research/Tech Institutes & Services

✔

Business Env Access to Finance ✖ State Procurement ✔

Macro inflation ✖ Interest rate Subsidies ✖ Info on Export Markets ?

Exchange Rate ✔ Trade Protection ✖ Export Market Opening ?

Trade Policy ✔ Land Access ✖ State Enterprises ✔

Regulation ✔ Gen. Infrastr & Port Logistics

✖ PPP Ventures ✖

State-Private Sector Collaboration ✖ Industrial Parks/SEZs ✔ Privatization ✖

State Capacity ✔-- Target Skills Training ✔-


Documents

1 Industrial Policies and Structural Change - Strategies for Development in Africa and a Research Agenda YAW ANSU (African Center for Economic Transformation—ACET)