development for today’s markets: aligning practices with economic …€¦ · development for...

13
JULY 2018 1 DEVELOPMENT FOR TODAY’S MARKETS: ALIGNING PRACTICES WITH ECONOMIC TRANSFORMATION EXECUTIVE SUMMARY We are at an important juncture in international economic development. Globalization has led to an era of unprecedented interconnectivity of commodity and financial markets. The world’s developing economies are in the midst of significant structural transformations, as agriculture slowly cedes its share of gross domestic product (GDP) to manufacturing and services across every continent. Incomes around the world are rising and the global middle class is growing. These dynamics have influenced (and have been influenced by) significant changes in where and how we live. Globally, humans became a majority urban species more than 10 years ago. Africa’s share of the world’s urban population is forecast to nearly double by 2050, but this is a slightly outdated distinction: increasingly, city and countryside blur together into a rural-urban continuum with constant migration between the two. Africa’s population continues to grow, leading to the much-discussed youth bulge. But what do these dynamics mean for economic development practitioners like us who work on these issues daily? Through this paper, we try to provide a brief—and necessarily incomplete—answer to these questions in three parts: 1. We sketch out the broad contours of developing countries’ structural transformation and how it differs from the structural transformation pathways 1 followed by today’s developed economies. 2. We look at how livelihood strategies are evolving in the midst of these transformations. 3. We outline several implications for our work as economic development specialists. Audience: This paper is intended primarily for development practitioners and policy makers who don’t often get the opportunity to look up from their professional niches and consider the implications of larger macroeconomic, demographic, and other dynamics. Our findings draw from recent research on these topics. Our objective is to synthesize key elements of this research in a way that is accessible for development practitioners, enabling us to gain a better understanding of what structural transformation could mean for our work. 1 By pathways, we mean the magnitude and sequence of growth across the agricultural, manufacturing, and service sectors, as well as their cumulative developmental impacts, over time. WHITE PAPER

Upload: others

Post on 06-Jun-2020

0 views

Category:

Documents


0 download

TRANSCRIPT

Page 1: DEVELOPMENT FOR TODAY’S MARKETS: ALIGNING PRACTICES WITH ECONOMIC …€¦ · DEVELOPMENT FOR TODAY’S MARKETS: ALIGNING PRACTICES WITH ECONOMIC TRANSFORMATION EXECUTIVE SUMMARY

JULY 2018

1

DEVELOPMENT FOR TODAY’S MARKETS: ALIGNING

PRACTICES WITH ECONOMIC TRANSFORMATION

EXECUTIVE SUMMARY

We are at an important juncture in international economic development. Globalization has led to an

era of unprecedented interconnectivity of commodity and financial markets. The world’s developing

economies are in the midst of significant structural transformations, as agriculture slowly cedes its share

of gross domestic product (GDP) to manufacturing and services across every continent. Incomes around

the world are rising and the global middle class is growing.

These dynamics have influenced (and have been influenced by) significant changes in where and how

we live. Globally, humans became a majority urban species more than 10 years ago. Africa’s share of the

world’s urban population is forecast to nearly double by 2050, but this is a slightly outdated distinction:

increasingly, city and countryside blur together into a rural-urban continuum with constant migration

between the two. Africa’s population continues to grow, leading to the much-discussed youth bulge.

But what do these dynamics mean for economic development practitioners like us who work on these

issues daily? Through this paper, we try to provide a brief—and necessarily incomplete—answer to

these questions in three parts:

1. We sketch out the broad contours of developing countries’ structural transformation and how it

differs from the structural transformation pathways1 followed by today’s developed economies.

2. We look at how livelihood strategies are evolving in the midst of these transformations.

3. We outline several implications for our work as economic development specialists.

Audience: This paper is intended primarily for development practitioners and policy makers who don’t

often get the opportunity to look up from their professional niches and consider the implications of

larger macroeconomic, demographic, and other dynamics. Our findings draw from recent research on

these topics. Our objective is to synthesize key elements of this research in a way that is accessible for

development practitioners, enabling us to gain a better understanding of what structural transformation

could mean for our work.

1 By pathways, we mean the magnitude and sequence of growth across the agricultural, manufacturing, and service sectors, as well as their cumulative developmental impacts, over time.

WHITE PAPER

Page 2: DEVELOPMENT FOR TODAY’S MARKETS: ALIGNING PRACTICES WITH ECONOMIC …€¦ · DEVELOPMENT FOR TODAY’S MARKETS: ALIGNING PRACTICES WITH ECONOMIC TRANSFORMATION EXECUTIVE SUMMARY

2

HOW ARE ECONOMIES TRANSFORMING?

For decades, economic development paradigms

have looked to the histories of currently

developed countries to create a roadmap for

developing countries today. The impulse is

understandable: the wave of structural

transformation that began with the Industrial

Revolution in 18th century North America and

Europe created economies and societies that

are economically complex and diverse, have

educated and relatively healthy populations,

and a substantial middle class. Indeed, we are

seeing several positive echoes of these past

successes in developing countries today (see

text box on next page).

Globally, populations and economies are

getting wealthier and moving off the farm.

Across Africa, those living in extreme poverty

(at or below US$1.75/day) dropped from 54.3

percent to 44.5 percent. Globally, the middle

class more than doubled in size from 2000 (1.5

billion people) to 2016 (3.2 billion people)

(Karas, 2017). In Africa, the middle class grew

from 24 percent of the population in 1990 to 33

percent in 2008, more than doubling from 119

million to 271 million people in that period.

Looking ahead, nearly 90 percent of middle

class growth from now to 2022 is forecast to be

in Asia, with the vast majority in China and India

(ibid).

Populations and economies are diversifying out

of primary agriculture into more productive

0

10

20

30

40

50

60

70

80

1981 1986 1991 1996 2001 2006 2011 2016

EA services ECA services LAC services S Asia services

SSA services EA ag ECA ag LAC ag

S Asia ag SSA ag

Figure 1. Services (solid) and Agriculture (dashed) percent value add to GDP by region, 1980-2017

Across Africa, those living in extreme poverty (at or

below US$1.75/day) dropped from 54.3 percent to

44.5 percent.

Page 3: DEVELOPMENT FOR TODAY’S MARKETS: ALIGNING PRACTICES WITH ECONOMIC …€¦ · DEVELOPMENT FOR TODAY’S MARKETS: ALIGNING PRACTICES WITH ECONOMIC TRANSFORMATION EXECUTIVE SUMMARY

JULY 2018

3

sectors of the economy (see Figure 1). Services

and manufacturing benefit from proximity to

consumers, infrastructure, and production

inputs known as agglomeration effects. As

these sectors grow, they become a key driver of

urbanization. Africa’s share of the global urban

population is expected to nearly double from

11.3 percent in 2010 to 20.2 percent in 2050

(Awumbila, 2017). Asia’s population is forecast

to become majority urban in the latter half the

2020s (UN ESCAP, 2013). As incomes rise and

populations urbanize, their diets are becoming

more diverse, both in composition (more meat,

fish, dairy, fruits and vegetables, and processed

foods) and origin (imports, particularly for dry

goods, displacing local production) (Crush, et

al., 2011; USDA, 2015; Masters, et al., 2016).

But there are many reasons to put these

historical roadmaps aside. In spite of the

unprecedented wealth expansion and other

benefits created by the first wave of structural

transformation, they also had significant

downsides. After a period of reduced inequality

in the mid-late 20th century, wealth inequality

and barriers in economic mobility have been

rising in developed economies for the past

several decades (Saez, 2008; Milanovic, 2014;

Piketty, 2014). The first wave of structural

development also built much of its wealth

through appalling social, economic, and

environmental exploitation. Slavery,

sweatshops, and colonial imperialism provided

cheap labor and primary inputs that unlocked

the capital needed for industrialization. The first

era of modernization saw the rise of farming

and environmental practices that led to

ecological disasters and greenhouse gas

emissions that have led to potentially

catastrophic and irreversible climate change,

the potential extinction of one in six species by

2100, and the potential extinction of humanity

as well (Urban, 2015; Ripple, et al., 2017;

Gutierrez, 2018) (Wallace-Wells, 2017).

But even if they wanted it, there are three

reasons the old pathway to development is

unavailable to currently developing countries:

1. The manufacturing ladder to development

is being replaced by services

Manufacturing was a critical part of early

structural transformations, driving

unprecedented increases in productivity and

(eventually) distributing those productivity

gains broadly. Manufacturing, particularly in its

earlier forms, absorbed large numbers of

unskilled labor, pulling farmers out of fields.

This labor dynamic was a key factor in

agricultural productivity growth. Shrinking labor

pools in agriculture stimulated agricultural

productivity through innovation to compensate

(Barrett, et al., 2017). The new ranks of

employees in cities became new markets,

further driving agricultural transformation to

meet growing demand (Temin, 1999; Rodrik,

2018; Barrett, et al., 2017). Manufacturing

Africa’s share of the global urban population

is expected to nearly double 2050

Figure 2. Share of manufacturing jobs in emerging market and developing economies vs. advanced economies

0.0

5.0

10.0

15.0

20.0

25.0

30.0

19

76

19

82

19

88

19

93

19

99

20

05

20

11

% A

ggre

gate

Em

plo

ymen

t

Emerging &Developing

Advanced

Source: World Bank Open Data

Page 4: DEVELOPMENT FOR TODAY’S MARKETS: ALIGNING PRACTICES WITH ECONOMIC …€¦ · DEVELOPMENT FOR TODAY’S MARKETS: ALIGNING PRACTICES WITH ECONOMIC TRANSFORMATION EXECUTIVE SUMMARY

JULY 2018

4

intrinsically creates tradable goods—physical

commodities that could ship anywhere. In

contrast to non-tradable goods, like education,

healthcare, or retail services, the potential

markets for tradable goods is much larger, and

countries that contain commensurately more

room for potential growth (Rodrik, 2015).

Manufacturing also tended to encourage

growth trajectories that are more inclusive.

Manufacturing concentrated similar workers in

the same buildings, shop floors, and city

sectors, enabling the collective bargaining that

was historically a big driver of inclusive growth

(Mandel, 2017; Rodrik, 2018). This was

particularly true for women—their trade unions

became drivers for the suffrage movement and

a key force in opening the public sphere to

women (Eschner, 2017). Urban spaces built

around manufacturing tend to cater more to

worker needs in housing, public goods, and

other amenities (Gollin, et al., 2016). In cities

stimulated through nontradable sectors

(otherwise known as consumer cities, including

most African service sectors), spaces and

subsectors tend to cater to elite preferences,

and are associated with more slums, less public

goods, and greater inequality (ibid).

Unfortunately, manufacturing is an unlikely

pathway for currently developing countries

today. Productivity gains from technology and

globalization have largely eliminated the

manufacturing stepping-stone towards broad-

based development (Rodrik, 2015). Technology

has enabled startling productivity per worker

and globalization has integrated billions of

workers and firms into a global marketplace

with unprecedented competition and low prices

for manufactured goods (Alpert, 2013). As a

share of GDP, manufacturing has flattened or

declined across both developed and developing

economies, while agriculture continues to

contract in developing economies. Where the

share of the manufacturing labor for most

countries in the Organisation for Economic Co-

operation and Development (OECD) peaked at

or around 30 percent before its decline,

currently developing countries in Sub-Saharan

Africa (SSA) and South Asia’s manufacturing

labor peaked at less than half that, around 14

percent (see Figure 2) (IMF, 2018).

Globally, services are expanding to fill this

employment gap left by agriculture and

manufacturing (IMF, 2018). Much of this

expansion is in services with lower growth

prospects: construction and local commercial

trading, for example, comprise a large

percentage of service sector growth across

Africa, but these sectors have limits to scale—

they are highly location specific. A local

construction or informal trading firm in Accra,

for example, is unlikely to compete

internationally. These sectors are also less likely

to bring large numbers of workers together in

the same way as manufacturing, making

collective bargaining and job quality gains more

difficult.

There are, however, service subsectors that

have greater potential for exportable trade and

job creation for low- and moderately-skilled

workers that are showing promise, particularly

in Africa. Tourism, transportation, high value

horticulture, and ICT are key elements of

structural transformation across the continent

(Page, 2018).

2. Demographic change

For Africa in particular, it is not clear that the

current transformation pathway will create

sufficient job gains to keep up with population

growth. Africa stands out as the only continent

with a population forecasted to continue

growing by the end of the century (see Figure

3). This rapid growth has meant that, even in

the face of net urban migration and expanding

economic opportunities, the number of

extremely poor is still growing in absolute terms

Page 5: DEVELOPMENT FOR TODAY’S MARKETS: ALIGNING PRACTICES WITH ECONOMIC …€¦ · DEVELOPMENT FOR TODAY’S MARKETS: ALIGNING PRACTICES WITH ECONOMIC TRANSFORMATION EXECUTIVE SUMMARY

JULY 2018

5

(Masters, et al., 2016). Over the past 30 years,

the total number of people living in extreme

poverty in Africa has still increased from 276

million to 389 million over the same period

(Barrett, et al., 2017).

3. Natural resource depletion and climate

change

The developing world is facing serious legacy

challenges largely driven by the first wave of

developers: natural resource depletion and

climate change. In 1961, there were 0.37 Ha of

arable land per person globally; by 2015 this

had shrunk to 0.194 Ha/person due to both

population growth and climate change issues

(World Bank, 2018).

Sixty percent of all land across SSA is at risk of

desertification (Benson, et al., 1997). The IMF

has estimated that for countries with average

temperatures of 25˚C or higher (including large

parts of SSA and South Asia), a 1˚C increase in

temperature will reduce per capita output by

1.5 percent (IMF, 2017). Climate change will

drive increased variability in weather,

temperatures, floods, and droughts

(Stephenson, et al., 2010). The particular

vulnerability of rain-fed crops—which comprise

the backbone of food security for the most poor

around the world—to shifting rainfall patterns

will continue to slow structural transformation

by wiping out assets and surplus foodstuffs

(Wheeler & Braun, 2013). Duku et al. estimate

that anywhere from 50 to 95 percent of

agroecological zones that currently reap two

rain-fed harvests per year will be reduced to

just one harvest by shortened or altered rain

patterns (Duku, et al., 2018). These burdens are

most acutely born by women. Women tend to

have less access to viable lands, and when land,

water, and other resource pressures increase,

are the first be displaced or have access

otherwise reduced (USAID, 2016).

HOW ARE LIVELIHOODS ADAPTING?

Becoming more diversified

People are responding to these challenges and

opportunities by diversifying their livelihood

strategies. This includes retaining subsistence

0.000

1 000 000.000

2 000 000.000

3 000 000.000

4 000 000.000

5 000 000.000

6 000 000.000

Africa Asia

Europe Latin America and the Caribbean

Northern America Oceania

Figure 3. Population forecasts by continent through 2100

Source: UN Population Division database

Page 6: DEVELOPMENT FOR TODAY’S MARKETS: ALIGNING PRACTICES WITH ECONOMIC …€¦ · DEVELOPMENT FOR TODAY’S MARKETS: ALIGNING PRACTICES WITH ECONOMIC TRANSFORMATION EXECUTIVE SUMMARY

JULY 2018

6

agriculture, even in peri-urban and urban

settings (on smaller plots, or through land

rental). In urban Uganda, for example, the

lowest income quintile still derives 25 percent

of their livelihoods from staple crop production

(Djido & Shiferaw, 2018).

In rural areas, where agriculture dominates, the

growing reach of the cash economy has opened

up new options. In a meta-analysis of their

multi-country household economy analysis

datasets, the Food Economy Group found that,

even in rural areas, the cash economy—both

labor off-farm and cash food purchases as a

share of food sources—is growing. Across the

countries in the study, which included Burkina

Faso, Ethiopia, and Zimbabwe, the majority of

poorer households met their food security

needs from sources other than their own

production (Boudreau, 2013). This included

diversification within agricultural production to

include multiple crops for income and home

consumption, livestock as assets, and off-farm

wage labor. In Nigeria, Djido and Shiferaw

found that all income quintiles in rural and

urban areas earned a majority of their

livelihood through off-farm sources (Djido &

Shiferaw, 2018). In Ghana and Uganda, the

Mastercard Foundation studied a

nonrandomized sample of 127 youth and found

that they were engaged in between seven to 12

different livelihood strategies concurrently

(Williams, 2018). In part, this diversification

reflects the growing proximity of urban or peri-

urban markets in towns and secondary cities. As

these urban spaces grow, they creep further

into previously cut-off rural areas, making cash

cropping or off-farm employment options more

accessible (Vandercasteelen, et al., 2018).

Increasingly mobile

Many of the above-listed livelihood

opportunities—agricultural production, off-farm

work, rearing livestock—do not all exist in one

place. Migration, particularly temporary

movement between cities and rural areas, is a

common reality and a means of diversified

livelihood. In Bangladesh, a recent survey found

remittances from migrants in urban centers and

abroad were the largest source of rural

household income (Ahmed, et al., 2015).

Surveys of rural households in Mali, Nigeria,

Tanzania, and Ghana show that 50 to 65

percent of rural households have at least one

migrant sending back remittances (Awumbila,

2017). In many places, this predominantly male

mobility has led to increasing household

responsibilities for women, as well as increased

engagement in the rural employment sector.

While this can contribute to empowerment, it

also adds to women’s labor and drudgery

(Demetriades & Esplen, 2010). In parts of the

world with limited women’s rights to land, male

migration can make it difficult to retain

customary control over productive land when

men migrate (Laudazi, 2003). Climate change is

also increasing the frequency and range of

migration, particularly in arid and semi-arid

regions (Raleigh, et al., n.d.).

Remaining at persistent risk of

impoverishment

While the youth bulge in Africa holds

opportunities at the macroeconomic level, it

puts livelihoods at risk for individuals and

households. A USAID-funded study of three-

and four-wave household panel data in

Ethiopia, Uganda, and Bangladesh found that

smaller households were more likely to

experience sustained poverty escapes across all

cases; larger households were more likely to

return to poverty even after escaping at some

point (Diwakar, 2016). More broadly, women’s

economic empowerment is highly correlated

with lower birth rates (Upadhyay, et al., 2014).

As shocks from climate change increase in

frequency, they also pose increased risks to

Page 7: DEVELOPMENT FOR TODAY’S MARKETS: ALIGNING PRACTICES WITH ECONOMIC …€¦ · DEVELOPMENT FOR TODAY’S MARKETS: ALIGNING PRACTICES WITH ECONOMIC TRANSFORMATION EXECUTIVE SUMMARY

JULY 2018

7

household assets and income sources

(Boudreau, 2013).

IMPLICATIONS FOR DEVELOPMENT PRACTICE

The risk is that the above challenges lead to a

future where emerging economies transform

either too slowly or in ways that will leaving

hundreds of millions of people without

pathways to escape poverty. Structural

transformation may bypass productive, tradable

service subsectors with high potential for

inclusive job creation. Instead, growth may

concentrate in capital intensive resource

exports and manufacturing, leading to jobless

(or at least, ‘job-light’) growth. Population

pressures and climate change will continue to

squeeze smallholder farmers, whose livelihoods

will grow increasingly more fragile, without

urban job growth to pull them out of poverty.

The economic development sector must

respond to these challenges by nudging

developing economies’ transformation

pathways in a direction that promotes

economic inclusion and productive livelihood

diversification.

Broadly, development practitioners need to

respond to these changes by accepting that

developing economies and societies are

becoming more complex, urbanized, and less

concentrated on subsistence agriculture. In the

face of the growing risks from climate change,

the world’s poor will continue to adapt through

mobility and diversification. Often, these

adaptation strategies involve tradeoffs between

risk and security, and short-term and long-term

objectives. Not all diversification strategies, for

example, will build resilience. Our goal should

be to catalyze capacity building, the provision of

services, and capital, as well as other support

that will help households, market, and food

systems build resilience and incomes. Potential

approaches to this include:

At project planning:

Target services and agro-industries that mimic

the structural transformation effects of

manufacturing

ICT, tourism, and transport are fast growing

components of the service sector that mimic

several of the structural transformation effects

of manufacturing in past growth cycles.

Combined with labor intensive agro-industries

like horticulture, they are proving to be highly

tradable, generate significant productivity gains

per worker, and (with the exception of ICT),

have the capacity to absorb lots of reserve labor

from farm fields (Page, 2018).

Practitioners can strengthen these sectors

through:

• Expanding the focus from value chain to

market system development activities to

strengthen supporting sectors like

transportation.

• Strategically coordinating value chain

interventions with infrastructure

investments: As new roads and high-speed

internet come online, they can make high

value horticulture, transport, ICT, and

tourism sectors significantly more

competitive. Identify where these

investments are completing, and target

support to these sectors in the geographies.

• In labor intensive sectors, focus on

improving job quality and security as well as

the number of jobs. 2

• 2

2For more information on integrating job quality and security into

project design and implementation, see this USAID LEO Brief,

“The Importance of Wage Labor for achieving agricultural market development objectives.”

Page 8: DEVELOPMENT FOR TODAY’S MARKETS: ALIGNING PRACTICES WITH ECONOMIC …€¦ · DEVELOPMENT FOR TODAY’S MARKETS: ALIGNING PRACTICES WITH ECONOMIC TRANSFORMATION EXECUTIVE SUMMARY

JULY 2018

8

Better integrate urban and rural livelihood

support activities

As urban and rural spaces increasingly blur, and

ICT and road infrastructure continues to

improve, there is an opportunity to innovate

new programming paradigms that engage this

more complex reality and do away with strictly

‘rural’ or ‘urban’ conceptions of beneficiaries.

Activities should use systems-based analytical

and implementation approaches to understand

how rural and urban food systems interact.

For example, in contexts where migration and

remittance geographies are well known, pair

agricultural livelihood development activities in

rural areas with urban market and

entrepreneurship development activities that

would leverage social ties between urban youth

and their home villages to strengthen food

system channels.

Prioritize regional markets for export

opportunities

Particularly in Africa, regional trade has grown

substantially over the past two decades across

all major tradable sectors (Hallward-Driemeier

& Nayyar, 2018). Particularly as regional

markets become more integrated, and global

markets increase quality, food safety, and

traceability requirements, the relative proximity

and similarities in consumer tastes and quality

requirements in regional markets can act as a

useful stepping stone to global market

competitiveness. This means:

• Prioritize regional export markets in value

chain and market system opportunity

analyses.

• Support regional export facilitation services,

including cross-border trade

groups/associations and intra-regional

trade policy harmonization.

During implementation:

Strengthening resilience means treating risk

mitigation and growth as a dual mandate for

development

Recognize the value of risk management, even

if it may come at the expense of income. Too

often, development projects focus on

encouraging risk-taking by farmers and

entrepreneurs. We need to recognize that,

particularly in the context of the challenges

we’ve listed above, development institutions

should see their goal as supporting market

systems by both protecting households from

the worst downsides of shocks and stressors in

addition to encouraging them to take risks to

potentially increase incomes.

This means:

• Before recommending technologies for

adoption, look beyond just the potential

yield increases from the technology in good

production years. Understand what would

happen if the crop failed, as well.

• Prioritize crops, technologies, and practices

that are less resource intensive for farmers

to adopt.

• Encourage productive diversification. Some

diversification strategies are better than

others at building resilience, and there is a

role for development projects to help

households optimize their livelihood

strategy mix to diversify risk and potential

returns. For example, agricultural programs

should not automatically encourage

specialization in specific crops if time and

money would be better spent in other

activities that could complement

agricultural activities. Research under

USAID’s Leveraging Economic Opportunities

(LEO) activity, for example, found that off-

farm employment was a critical component

of households escaping poverty and not

backsliding into it (Diwakar, 2016).

Page 9: DEVELOPMENT FOR TODAY’S MARKETS: ALIGNING PRACTICES WITH ECONOMIC …€¦ · DEVELOPMENT FOR TODAY’S MARKETS: ALIGNING PRACTICES WITH ECONOMIC TRANSFORMATION EXECUTIVE SUMMARY

JULY 2018

9

Deploy different enterprise development

support programs for firms with high growth

and formality potential as well as those that

are likely to remain small, informal, and part

of a larger livelihood strategy

Several studies have highlighted that there are

two forms of entrepreneurs: those voluntarily

chasing business opportunities with a mindset

and resources to pursue growth (opportunistic

entrepreneurs), and those engaged in business

out of necessity (subsistence entrepreneurs).

The subsistence entrepreneur’s business is

often part of a diversified livelihood strategy

and unlikely to grow past one or two employees

(Amin, 2010; Schoar, 2010). The needs and

development impact of these two types of

entrepreneurs are different and should be

engaged with differently.

Recognizing that the majority of opportunistic

entrepreneurs’ impact tends to come from the

highest performers, their support should be

deeper than it is wide, with business

accelerators, service providers, grants, and

capital directed towards firms demonstrating

success. It should catalyze further specialization

where necessary. Ensuring these approaches

are sensitive to women’s different needs will be

important—research from the Global

Accelerator Learning Initiative (GALI) found that

cohorts of accelerator entrepreneurs that

focused on women and minority applicants

tended to have better outcomes across the

whole cohort (GALI, 2018). This means:

• Where there are workforce capacity

challenges for these firms, it will likely be

more efficient to support firms to develop

their own in-house specialized training for

new employees than to deploy large-scale

workforce training for these firms, which

can quickly overshoot labor demand in

specialized sectors (Fox and Kaul, 2017).

• Support to subsistence entrepreneurs

should put more emphasis on developing

skills that are broadly transferable across

sectors and roles (as employees and

entrepreneurs) and enabling adaptation

and productivity improvements across the

full livelihood portfolio. This would include

support in soft-skill development like critical

thinking, problem solving, and time

management (Fox and Kaul, 2017), as well

as basic business skills. While subsistence

entrepreneurs may be less likely to create

the next Google, a significant number of

them will have no formal employment

alternatives. Particularly in the context of

Africa’s youth bulge, even extraordinary job

growth in the formal sector will only

provide employment for a fraction of

today’s youth (Fox and Kaul, 2017). Helping

them improve productivity and resilience

across informal and supplemental livelihood

strategies will be critical to helping them

profit from structural transformation.

Support financial innovation to bridge the

formal and informal

Even in the context of high rates of growth, the

informal sector will remain a core livelihood

strategy for a majority of the world’s poor for

decades to come (Fox and Kaul, 2017). Yet

formal and informal economies are not distinct

but tend to blur together. Formal firms

consistently rely on less formal firms for key

inputs (such as textiles) and end market services

(such as street hawkers). Development

practitioners should:

• Leverage these formal/informal

connections to extend financial coverage in

value chains to include informal supply and

distribution nodes. ICT-based transaction

platforms and mobile money are generating

data for historically opaque informal actors

and are increasingly being used for credit

scoring and financial access (Cheney, 2016).

It will be critical to support innovations to

Page 10: DEVELOPMENT FOR TODAY’S MARKETS: ALIGNING PRACTICES WITH ECONOMIC …€¦ · DEVELOPMENT FOR TODAY’S MARKETS: ALIGNING PRACTICES WITH ECONOMIC TRANSFORMATION EXECUTIVE SUMMARY

JULY 2018

10

ensure they address women’s needs equally

in these regards.

• Continue to build on promising innovations

in financial technology and products to

leverage the formal-informal continuum

and build financial access for informal firms.

Blended finance schemes can layer first-loss

philanthropic and development finance

with private and commercial capital to

extend financial coverage in value chains to

include informal supply and distribution

nodes as well as formal firms.

CONCLUSION

Today’s developing economies are transforming

in new ways, forging new pathways towards

structural transformation. While the world has

seen remarkable advances in poverty reduction

and middle-class growth, several barriers,

including the decline of manufacturing,

population growth in Africa, and environmental

challenges increase the risk that the current

wave of structural transformation leaves

hundreds of millions of the world’s poor behind,

stuck in a poverty trap driven by low

productivity farming and fragile informal

markets.

Our job as development practitioners is to

update our practice to these ever-changing

challenges and opportunities. We need to

design activities that engage households across

the full range of their livelihoods, adapting to

opportunities to strengthen productive

diversification to build household resilience and

prevent backsliding into poverty. This means

catalyzing innovation in new approaches to

entrepreneurship, workforce development, and

business development and finance that can

spread resilience and livelihood growth further.

To expand on practical ways to respond to

these trends, this paper will be followed by

several case studies of ACDI/VOCA projects

successfully leveraging these dynamics to drive

inclusive growth and poverty alleviation.

Founded in 1963, ACDI/VOCA is an international development nonprofit organization. We have fostered broad-based economic growth in 146 countries. We empower people to succeed in the global economy by building inclusive, resilient market systems. Learn more at www.acdivoca.org.

Lead Writer: Daniel White | [email protected]

Page 11: DEVELOPMENT FOR TODAY’S MARKETS: ALIGNING PRACTICES WITH ECONOMIC …€¦ · DEVELOPMENT FOR TODAY’S MARKETS: ALIGNING PRACTICES WITH ECONOMIC TRANSFORMATION EXECUTIVE SUMMARY

JULY 2018

11

WORKS CITED Ahmed, M. T. et al., 2015. Diversification of rural livelihoods in Bangladesh. Journal of Agricultural

Economics and Rural Development, 2(2), pp. 32-38.

Alpert, D., 2013. The Age of Oversupply. New York, NY: Penguin Books.

Amin, M., 2010. Necessity vs. Opportunity Entrepreneurs in the Informal Sector (Enterprise Surveys Note

Series), Washington, DC: World Bank Group.

Awumbila, M., 2017. Drivers of Migration and Urbanization in Africa: Key Trends and Issues, New York,

NY: United Nations Population Division.

Awumbila, M., 2017. Drivers of Migration and Urbanization in Africa: Key Trends and Issues, Legon,

Ghana: UN Expert Group Meeting on Sustainable Cities, Human Mobility, and International Migration.

Barrett, C., Christiaensen, L., Sheahan, M. & Shimeles, A., 2017. On the Structural Transformation of

Rural Africa (Policy Research Working Paper 7938), Washington, DC: World Bank.

Benson, C., Thomson, A. & Clay, E., 1997. The macroeconomic impact of drought. Gaborone, SADC.

Boudreau, T., 2013. Livelihoods at the limit: Food Security in a Changing World, London, UK: Save the

Children.

Cheney, C., 2016. How alternative credit scoring is transforming lending in the developing world,

Washington, DC: Devex.

Coulibaly, B. S., 2018. Africa's alternative path to development, Washington, DC: Brookings Institution.

Crush, J., Frayne, B. & McLachlan, M., 2011. Rapid Urbanization & the Nutrition Transition in Southern

Africa, Cape Town, SA: Queen's University and AFSUN.

Demetriades, J. & Esplen, E., 2010. The Gender Dimensions of Poverty and Climate Change Adaptation.

In: R. Mearns & A. Norton, eds. Social Dimensions of Climate Change: Equity and Vulnerability in a

Warming World. Washington, DC: World Bank Group.

Diwakar, V., 2016. Sustainable Poverty Escapes: Spotlight on Multidimensional Poverty, Washington, DC:

USAID Leveraging Economic Opportunities (LEO) Report #50.

Djido, A. & Shiferaw, B., 2018. Patterns of Labor Productivity and Income Diversification: Empirical

Evidence from Uganda and Nigeria. World Development, Volume 105.

Duku, C., Zwart, S. J. & Hein, L., 2018. Impacts of climate change on cropping patterns in tropical, sub-

humid watersheds. Plos Oneq.

Eschner, K., 2017. Smithsonian.com. [Online]

Available at: https://www.smithsonianmag.com/smart-news/american-garment-workers-who-helped-

inspire-international-womens-day-180962364/

[Accessed 11 July 2018].

Fox, L. & Kaul, U., 2017. The evidence is in: How should youth employment programs in low-income

countries be designed?, Washington, DC: USAID.

Page 12: DEVELOPMENT FOR TODAY’S MARKETS: ALIGNING PRACTICES WITH ECONOMIC …€¦ · DEVELOPMENT FOR TODAY’S MARKETS: ALIGNING PRACTICES WITH ECONOMIC TRANSFORMATION EXECUTIVE SUMMARY

JULY 2018

12

GALI, 2018. Accelerating the Flow of Funds into Early-Stage Ventures: An Initial Look at Program

Differences and Design Choices, s.l.: GALI.

Gollin, D., Jedwab, R. & Vollrath, D., 2016. Urbanization with and without Industrialization. Journal of

Economic Growth, Volume 21, pp. 35-70.

Gutierrez, A., 2018. UN Secretary-General's remarks at Austrian World Summit. Vienna: s.n.

Hallward-Driemeier, M. & Nayyar, G., 2018. Is automation undermining Africa's industrialization?. In:

Washington, DC: World Bank Group.

IFAD, 2016. Rural Development Report 2016, Rome, IT: IFAD.

IMF, 2017. World Economic Outlook, October 2017, Seeking Sustainable Growth: Short-Term Recovery,

Long-Term Challenges, Washington, DC: International Monetary Fund.

IMF, 2018. World Economic Outlook April, 2018: Cyclical Upswing, Structural Change, Washington, DC:

International Monetary Fund.

Karas, H., 2017. The Unprecedented Expansion of the Global Middle Class, Washington, DC: Brookings

Institution.

Laudazi, M., 2003. Gender and Sustainable Development in Drylands: An Analysis of Field Experiences,

Rome, IT: Food and Agricultural Organization.

Mandel, M., 2017. The Creation of a New MIddle Class?: A Historical and Analytic Perspective on Job and

Wage Growth in the Digital Sector: Part 1, Washington, DC: Progressive Policy Institute.

Masters, W. A., Rosenblum, N. Z. & Alemu, R. G., 2016. Agricultural Transformation, nutrition transition,

and food policy in Africa: Preston Curves reveal new stylized facts, Boston, MA: Tufts University.

Masters, W. et al., 2013. Urbanization and farm size in Asia and Africa: Implications for food security and

agricultural research. Global Food Security.

Milanovic, B., 2014. Global Income Inequality by the numbers: In history and now. Moscow, HSE

Publishing House.

Page, J., 2018. The road not taken: Structural change in Africa reconsidered. In: Foresight Africa: Top

Priorities for the Continent in 2018. Washington, DC: Brookings Institution Africa Growth Initiative.

Piketty, T., 2014. Capital in the 21st Century. 1st ed. Cambridge, MA: Belknap Press of Harvard University

Press.

Raleigh, C., Jordan, L. & Salehyan, I., n.d. Assessing the Impact of Climate Change on Migration and

Conflict, Washington, DC: World Bank.

Ripple, W. et al., 2017. World Scientists' Warning to Humanity: A Second Notice. BioScience, 67(12), pp.

1026-1028.

Rodrik, D., 2015. Premature Deindustrialization, Cambridge, MA: Harvard University Kennedy School of

Government.

Rodrik, D., 2015. Premature Deindustrialization, Economics Working Papers #107, Princeton, NJ: Institute

of Advanced Studies School of Social Science.

Page 13: DEVELOPMENT FOR TODAY’S MARKETS: ALIGNING PRACTICES WITH ECONOMIC …€¦ · DEVELOPMENT FOR TODAY’S MARKETS: ALIGNING PRACTICES WITH ECONOMIC TRANSFORMATION EXECUTIVE SUMMARY

JULY 2018

13

Rodrik, D., 2018. Straight Talk on Trade. Princeton, NJ: Princeton University Press.

Saez, E., 2008. Striking It Richer: The Evolution of Top Incomes in the United States. Pathways Magazein.

Schoar, A., 2010. The Divide between Subsistence and Transformational Entrepreneurship. In: J. Lerner

& S. Stern, eds. Innovation Policy and the Economy. Chicago: University of Chicago Press, pp. 57-81.

Stephenson, J., Newman, K. & Mayhew, S., 2010. Population dynamics and climate change: what are the

links?. Journal of Public Health, 32(2), pp. 150-156.

Temin, P., 1999. The Industrialization of New England 1830--1880 , Historical Paper 114, Cambridge, MA:

National Bureau of Economic Research.

UN ESCAP, 2013. Urbanization trends in Asia and the Pacific, s.l.: UN ESCAP.

Upadhyay, U. et al., 2014. Women's empowerment and fertility: A review of the literature. Social Science

& Medicine, pp. 111-120.

Urban, M., 2015. Accelerating extinction risk from climate change. Science, 01 May, pp. 571-573.

USAID, 2016. Fact Sheet: Land Tenure and Women's Empowerment. [Online]

Available at: https://www.land-links.org/issue-brief/fact-sheet-land-tenure-womens-empowerment/

[Accessed 13 July 2018].

USDA, 2015. A Turning Point for Agricultural Exports to Sub-Saharan Africa, Washington, DC: USDA.

Vadercasteelen, J., Beyene, S. T., Minten, B. & Swinnen, J., 2018. Cities and agricultural transformation in

Africa: Evidence from Ethiopia. World Development, Volume 105, pp. 383-399.

Vandercasteelen, J., Beyene, S., Minten, B. & Swinnen, J., 2018. Cities and agricultural transformation in

Africa: Evidence from Ethiopia. World Development, Volume 105, pp. 383-399.

Wallace-Wells, D., 2017. The Uninhabitable Earth. New York Magazine , 9 July.

Wheeler, T. & Braun, J. v., 2013. Climate Change Impacts on Global Food Security. Science, 2 August, pp.

508-513.

Williams, T., 2018. Understanding youth livelihoods in Ghana and Uganda. Washington, DC, USAID

BIFAD.

World Bank, 2018. World Bank Databank. [Online]

Available at: https://data.worldbank.org/indicator/AG.LND.ARBL.HA.PC