Economic transformation in AfricaPatterns, drivers, and implications for future growth strategies

Ousmane BadianeMargaret McMillan

OU

TLIN

E

KEY TOPICS

Structural Transformation Process

Role of Agriculture in Structural Change

Structural Change Patterns in Africa

Implications for Growth and Poverty

Per-capita Incomelow

HighAgricultural GDP per worker

Agricultural GDP

low high

AGRICULTURE IN THE ECONOMIC TRANSFORMATION PROCESS

Based on Timmer (2009)

Perc

enta

ge S

hare

Per-capita Income

Share of agriculture in total labor force

Share of agriculture in total GDP

low

HighAgricultural GDP per worker

Agricultural GDP

low high

AGRICULTURE IN THE ECONOMIC TRANSFORMATION PROCESS

Based on Timmer (2009)

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

(60)

(40)

(20)

-

20

40

60

80

Shar

e (%

)

Ag GDP Share

Ag Emp. Share

Difference

1960 - 2008

Transformation process has been extremely slow Difference between Ag employment and GDP shares almost constant

Stagnating Ag income + Rise in rural poverty

19801982

19841986

19881990

19921994

19961998

20002002

20042006

2008 -

20

40

60

80

100

120

140 Labor Productivity

Inde

x:19

80=1

00

Agriculture Non-agricultureSource: FAOSTAT 2011

-

10

20

30

40

50

60

70

80

Share of Economically Active Population

Shar

e (%

)

With stagnating agriculture:Labor migrated from that sector to the non-agricultural sector with rapidly declining productivity

Decline in total labor productivity Rising poverty rates

1980 - 2008

Macroeconomic Impact

Djibo

utiSe

yche

lles

Gabo

nAl

geria

Ango

laTu

nisia

Swaz

iland

Mor

occo

Zam

biaLe

soth

oEr

itrea

Cote

d'Ivo

ireM

adag

asca

rBu

rkina

Faso

Togo

Chad

Com

oros

Nige

rLib

eria

Mala

wiGh

ana

Tanz

ania

Ugan

da

0102030405060708090

100110

The stunting of the agricultural sector in Africa:Actual agricultural GDP shares are much lower than would be expected based

on countries’ level of development

ActualExpected

Equa

toria

l Guin

eaGu

inea-

Bissa

uM

alawi

Ugan

daGh

ana

Tanz

ania

Mali

Rwan

daGa

bon

Nige

rCa

mer

oon

Leso

tho

Suda

nGu

inea

Keny

aM

oroc

coBe

ninNa

mibi

aGa

mbia

Sout

h Afri

caM

auriti

usEr

itrea

Seyc

helle

s

0

10

20

30

40

50

60

70

80

90

The bloating of the informal goods and services (IGS) sector in Africa:Actual services GDP shares are higher in most cases than would be expected based on countries’ level of development

ActualExpected

ANG BEN

BOT

BRK

BUR

CPV

CAM

CAR

CHDCOM

DRC

CGO

COT

DJI

ETH

GAB

GHA

GUIGB

KEN

LES

LIBMAD

MWI

MLI

MAU

MOZ

NAM

NGR

NIG

RWA

SEN

SEY

SRL

SASUD

SWA

TAN

TOGUGA

ZAM

0

10

20

30

40

50

60

70

80

90

100

-50 -40 -30 -20 -10 0 10 20

Pove

rty

rate

(%)

Gap between actual and expected AgGDP sharesGap between expected and actual ag GDP shares

Pove

rty

rate

(%)

Agricultural sector underperformance and poverty levels

HI

ASIA

AFRICA

LAC

-1.00% 0.00% 1.00% 2.00% 3.00% 4.00%

withinstructural

HI

ASIA

AFRICA

LAC

-1.00% 0.00% 1.00% 2.00% 3.00% 4.00%

withinstructural

Decomposition of labor productivity growth: Africa vs other regions1990 - 1999 Post 2000

Transformation performance has improved markedly with recovery Within sector contribution increased significantly Structural change contribution went from negative to positive

-.08

-.06

-.04

-.02

0.0

2

Unwe

ight

ed C

ross

Cou

ntry

Ave

rage

Ten

Year

Cha

nge

in S

hare

in E

ach

Cate

gory

Agricul ture Serv ices Profess ional Unsk il led Sk il led Not Work ing

All Female Male

Employment dynamics during recovery:Average change in working population by occupation 2000 - 2012

Rural Areas

Skilled and unskilled relates to manual labor

-.06

-.04

-.02

0.0

2.0

4

Unwe

ight

ed C

ross

Cou

ntry

Ave

rage

Ten

Year

Cha

nge

in S

hare

in E

ach

Cate

gory

Agric ulture Serv ic es Profes s ional Unsk i l led Sk i l led Not Work ing

All Female Male

Employment dynamics during recovery:Average change in working population by occupation 2000 - 2012

Urban Areas

Skilled and unskilled relates to manual labor

Implications of poor structural transformation prior to recovery Informal goods and services sector (IGS) largest in African economies It is a large pool of low productivity labor Includes large share of proto-industrial handicrafts

o Wood, leather, metal workso Small mechanical and electrical partso Garments and tailoringo Food staples processing

Traditional model of industrial policy based on ag vs industry not enough

Industrial policy should include modernization of IGS thru:o Product sophisticationo Firm maturationo Enterprise growth

Profitability

No. of firms

Based on Sonobe and Otsuka

Current characteristics of IGS in Africa• Large number of firms producing the same low quality, often imitated goods• New entrants copy same products, driving profitability down• No capacity to invest and innovate

Profitability

No. of firms

Dotted (solid) lines denote progression of number of firms and profitability without (with) multifaceted innovation and enterprise maturation. Based on Sonobe and Otsuka

IGS modernization thru multifaceted innovation and firm maturation• Vocational training to improve management practices • Technology acquisition• Market development• Infrastructure investment: power, telecom, roads

CONCLUSIONS Economic transformation performance is improving Productivity raising structural change is taking place Decade-long stagnation has created a bloated IGS Modernization of IGS should be a key target of future industrial policy to:

o Leverage large pool of low productivity laboro Promote product quality / firm growth in proto-industrial handicraft

sectoro Capture demand in fast growing domestic marketo Raise incomes more broadly and reduce poverty faster

REFERENCESBadiane, O. 2014. “Agriculture and Structural Transformation in Africa.” In Frontiers in Food Policy: Perspectives on sub-Saharan Africa, edited by W. P. Falcon and R. L. Naylor. Stanford, CA, US: Stanford University, Center on Food Security and the Environment. Printed by CreateSpace.

Badiane, O., and J. Collins. Forthcoming. “Agricultural Growth and Productivity in Africa: Recent Trends and Future Outlook.” In Agricultural Research in Africa: Investing in Future Harvests, edited by J. Lynam, N. Beintema, J. Roseboom, and O. Badiane. Washington, DC: International Food Policy Research Institute.

Badiane, O., and T. Makombe. 2015. “Agriculture, Growth, and Development in Africa: Theory and Practice.” In Oxford Handbook of Africa and Economics, Vol. 2, edited by C. Monga and J. Lin. Oxford, UK: Oxford University Press.

Badiane, O., J. Ulimwengu, and T. Badibanga. 2012. “Structural Transformation among African Economies: Patterns and Performance.” Development 55 (4): 463–476.

REFERENCES (Continued)McMillan, M. S., and K. Harttgen. 2014. What Is Driving the 'African Growth Miracle'? NBER Working Paper No. 20077. Cambridge, MA, US: National Bureau of Economic Research.

McMillan, M. S., and D. Rodrik. 2011. Globalization, Structural Change and Productivity Growth. NBER Working Paper No. 17143. Cambridge, MA, US: National Bureau of Economic Research, Inc.

Sonobe, T., and K. Otsuka. 2006. Cluster-Based Industrial Development: An East Asian Model. New York: Palgrave Macmillan.

Sonobe, T., and K. Otsuka. 2011. Cluster-Based Industrial Development: A Comparative Study of Asia and Africa. New York: Palgrave Macmillan.

Timmer, P. 2009. A World without Agriculture: The Structural Transformation Process in Historical Perspective. Washington DC: American Enterprise Institute Press. Also available as Timmer, T., and S. Akkus. 2008. The Structural Transformation as Pathway from Poverty: Analytics, Empirics, and Politics. Working Paper No. 150. Washington, DC: Center for Global Development.