Industrialization Industrialization, , growth growth, , trade - PowerPoint PPT Presentation

Industrialization Industrialization, , growth growth, , trade trade and and employment employment in in Africa Africa: : what what options options for for economic economic transformation? transformation? GIOVANNI VALENSISI GIOVANNI VALENSISI Regional Integration and Trade Division – UNECA Multi-stakeholder dialogue “On the way to Bali” Dakar, 25-26 September 2013

OUTLINE OF THE PRESENTATION � Why is economic transformation necessary? 1. Economic reasons 2. Social reasons 3. Environmental reasons � Growth and structural transformation � The role of trade � Policy issues

Why is economic transformation necessary? Look at the 3 pillars of sustainable development… 1) PURELY ECONOMIC REASONS � To boost economic growth (especially in non-resource-rich countries). � To upgrade production structure and diversify the economy. � To scale up investment and fill infrastructural gaps. � To reduce vulnerability to exogenous shocks (commodity price girations, balance of payment problems, etc.) Basically, to enhance the sustainability to Africa’s growth acceleration , so far largely dependent on primary commodities (Haussman, Pritchett and Rodrick, 2004; Arbache and Page, 2007).

Why is economic transformation necessary? (continued) 2) SOCIAL REASONS � To enhance growth contribution to MDGs and poverty reduction, since African countries tend to have a rather low income elasticity of poverty. Income elasticity of poverty (regional mean) East Asia and Eastern Europe Latin America Middle East and Sub-Saharan Pacific and Central Asia and Caribbean North Africa South Asia Africa 0 -0,5 -1 -1,5 -2 -2,5 -3 -3,5 -4 -4,5 $ 1.25/day $ 2.50/day Source: Fosu, 2011

Why is economic transformation necessary? (continued) � Africa’s incipient demographic transition (i.e. high though declining pop. growth, youth bulge, and rapid urbanization) is bound to exert pressure on labor markets. � A considerable nr. of LDCs are likely to struggle generating sufficient employment to keep the pace with rising labour force throughout 2020, even if they were to LDC were to growth at the rate of 7% as per IPoA. Decomposition of forecasted labor force growth in LDC; 2013-2020 4,5% 4,0% 3,5% 3,5% 3,0% 2,5% 2,0% 1,5% 1,0% 0,5% 0,0% Afghanistan Bhutan Burundi Djibouti Lesotho Mauritania Mozambique Myanmar Tanzania -0,5% Angola Bangladesh Benin Burkina Faso Cambodia Central African Rep. Chad Comoros Congo, Dem. Rep. Equatorial Guinea Eritrea Ethiopia Gambia Guinea Guinea-Bissau Haiti Lao People's Dem. Rep. Liberia Madagascar Malawi Mali Nepal Niger Rwanda Samoa Sao Tome and Principe Senegal Sierra Leone Solomon Islands Somalia Sudan Togo Uganda Vanuatu Yemen Zambia -1,0% Demografic growth 1 - Age dependency Labor force participation rate Source: Valensisi & Gauci, 2013

Why is economic transformation necessary? (continued) 3) ENVIRONMENTAL REASONS Africa is growing fast, but is the pattern of growth conducive to make the best out of the continent’s natural resource wealth? Adjusted net savings in Sub-Saharan Africa as percentage of GNI 20% 15% 10% 5% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 -5% -10% Gross savings Natural resources depletion Consumption of fixed capital Adjusted net savings, excl. particulate emission damage Source: World Development Indicators

Growth and structural transformation Two key dimensions of growth and transformation Manufacturing contribution to value added (2009-2011 average) In 1980–2009, the share of 30% manufacturing value added to GDP 25% increased marginally in North Africa from 20% 12.6 % to 13.6 %, but fell from 16.6 % to 15% 12.7 % in the rest of Africa. 10% 5% 0% 0% Developing Developing Developing Developing economies: economies: economies: Asia economies: Gross fixed capital formation as a share of GDP Africa America Oceania (2009-2011 average) 40% 35% Though with large variability across 30% African countries, investment has slowly 25% climbed up since the early 2000s, but is 20% 15% still low in relation to Africa’s long- 10% standing needs. 5% → domestic resource mobilization 0% Developing Developing Developing Developing economies: economies: economies: Asia economies: Source: UNCTADSTAT Africa America Oceania

Growth and structural transformation (continued) � Key issue is labour re-allocation outside (mainly subsistence) agriculture, which still employs some 60% of Africa’s labor force. � Given the differences in L productivity across sectors, if labour moves towards more productive sectors you may have an overall increase in TFP. Decomposition of productivity growth by country group, 1990-2005 (weighted averages) Source: McMillan and Rodrik, 2011

The role of trade Given the retalively small size of domestic market in most African countries, trade is bound to play a key role in supporting Africa’s transformative agenda. Yet, African exports are heavily concentrated on primary products, and increasingly so (ex. AGOA: oil accounts for 85% of products exported to US!). Export concentration index by region (developing countries only) 0,50 n index 0,45 Normalized Herfindahl-Hirschmann in 0,40 0,35 0,30 0,25 0,20 0,15 0,10 0,05 0,00 Africa America Asia Oceania Source: UNCTADSTAT

Trade and value addition ex. of cocoa value chain Source: ECA, 2013 � African countries remain largely confined to low-end activities in the value chain, even in sectors where in principle they should have comparative advantage. � Smallholder farmers & SMEs struggle to integrate into international markets, and even if they do, they often accrue limited benefits due to market asymmetries and governance issues.

Trade in intermediates in Africa (Lisinge, Valensisi and Karingi 2013) Share of intermediate imports sourced from Africa Intermediates imports in Africa (USD million) Zimbabwe 0 2 500 5 000 7 50010 000 12 500 15 000 17 500 20 000 Namibia Botswana Egypt Zambia South Africa Burundi Algeria Rwanda Nigeria Mali Morocco Malawi Tunisia Niger Zimbabwe Mozambique Ghana Burkina Faso Sudan Uganda Ethiopia Tanzania Gambia Mozambique Central African Rep. Zambia Tanzania Uganda Madagascar Cote d'Ivoire Mauritania Cameroon Ghana Ghana Mauritius Mauritius Senegal Senegal Botswana Mauritius Namibia 2001 Cote d'Ivoire 2011 Senegal Sudan Madagascar 2011 Cameroon 2001 Mali Ethiopia Malawi Burkina Faso Togo Niger South Africa Rwanda Algeria Togo Nigeria Mauritania Morocco Burundi Egypt Cape Verde Tunisia Gambia Sao Tome & Principe Central African Rep. Cape Verde Sao Tome & Principe Swaziland Benin Seychelles Comoros Lesotho Gabon Kenya Guinea Kenya Guinea Lesotho Gabon Seychelles Comoros Swaziland Benin 0% 20% 40% 60% 80% 100% 120%

Trade and the potential role of regional integration in Africa Composition of intra-Africa Composition of African exports to exports, 2010-2012 the rest of the world, 2010-2012 All food items 2% All food items 7% 13% 17% Agricultural raw Agricultural raw 4% 10% materials 2% materials Ores and metals 40% Ores and metals 5% Fuels Fuels Pearls, precious stones and non-monetary gold Pearls, precious stones and non-monetary gold and non-monetary gold Manufactured goods Manufactured goods 32% 32% 64% 64% 4% Manufactured goods Source: UNCTADSTAT The regional market still has limited size (12 % of Africa’s total trade), but intra-Africa trade is significantly more diversified than trade with the rest of the world. Regional integration can therefore support Africa’s transformative agenda, allowing firms to embark into greater value addition, and achieving more profitable economies of scale. It can also foster the emergence of regional supply chains, thereby contributing to more stable supplies against idiosyncratic shocks (for instance in agro-food products).

POLICY ISSUES I. Though macroeconomic stability is necessary for growth, there is a need for a development-friendly economic policy, crowding-in private investment to spur capital accumulation. Supporting technological upgrading, paying attention not only to physical but also to human capital and its externalities and spillover effects. II. The state has a bold role to play in relation to well-known market failures, in close and systematic coordination with the private sector. Surveys and case studies highlight the following as key constraints for African firms to move up the value chains: infrastructural provision, access to credit, poor business environment, & high transaction costs.

POLICY ISSUES III. It is important to formulate a context-specific industrial policy framework, preserving and making use of available policy space (SDT) to pursue economic transformation. The “New structuralist economics” stimulated an interesting debate on whether to follow or defy comparative advantages; essentially follow but push them further step by step (→ commodity-based industrialization). push them further step by step (→ commodity-based industrialization). IV. Harness trade strategically to support structural transformation, and leverage complementarities and synergies across partners. Regional integration offers ample scope to support ec. diversification, but progress has been uneven (tariffs and NTBs); South-South cooperation provides other opportunities (growing demand, frugal innovation, etc.)