Economic Growth and Structural Change: An African Perspective

Roundtable on Economic Growth and Structural Change: Priorities for Least Developed Countries

UN-ORHLLS, Columbia University, World Bank and APECColumbia University, Faculty House

March 9, 2012

LEONCE NDIKUMANAUniversity of Massachusetts Amherst

Africa from Stagnation to Dynamism?

• Rising growth rates, improving aggregate performance• The headlines are encouraging, often exuberant:

– New ‘success stories’: beyond Mauritius, Botswana and South Africa• Mali’s mango exports;• Rwanda’s coffee sector;• ICT and mobile payments systems• Etc.

– African ‘Lions’ on the move:• Quickened economic pulse• Commercial vibrancy• Africa, a good investment: Surging FDI• Etc;

From a closer look…

• Growth: Not ready to celebrate yet…• Major constraints remain…• Even as opportunities abound…• The challenge is to devise a strategy for

equitable & sustainable growth and transformation

Africa’s long-run growth: been there done that

Simple average of per capita GDP growth for 54 African countries. Source = WDI

19601962

19641966

19681970

19721974

19761978

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20082010

-3

-2

-1

0

1

2

3

4

5

6

f(x) = 0.00390160629321736 x² − 0.197700471407852 x + 3.02308396584073R² = 0.195672345452956

Average GDP per capita growth (%)

Africa’s long-run growth has exhibited the following features:

• Divergence relative to other regions: rising income gap• Slow capital accumulation and slow productivity growth• Lack of structural transformation• Volatility of growth: commodity dependence• Inequitable growth: inequality has constrained progress in

poverty reduction• Diversity across countries: miracles and disasters; there are

models of success in Africa– Classics: Botswana, Mauritius– Newer ‘success stories’: Mozambique, Ghana, Rwanda, …– Growth tragedies: Congo DR, Zimbabwe, …

19601962

19641966

19681970

19721974

19761978

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20082010

-10

-5

0

5

10

15

20

GDP growth (annual %) Real agricultural GDP growth rates (%)

A story of structural growth volatility

0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8

-0.5

0

0.5

1

1.5

f(x) = 0.343749633954369 x + 0.0460455175165574R² = 0.148009173413653

Diversification and normalized growth

0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8

-4

-2

0

2

4

6

8

10

12

14

f(x) = 0.242331290058782 x + 1.305008135582R² = 0.00217223983765469

Diversification and growth

But diversification buys ‘stable’ growth; minimizes growth instability

Diversification does not necessarily buy higher growth

Normalized growth = growth/stdev(growth)

Diversification buys stable growth

Growth = average 1961-2010; diversification index 2009 (logarithm)

“not fair, guy got a head start …”

19601962

19641966

19681970

19721974

19761978

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20082010

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

Real per capita GDP (constant 2000 $)

GabonKorea, Rep.

Or is it a better technology?

A story of divergence …

19651968

19711974

19771980

19831986

19891992

19951998

20012004

20072010

0

5

10

15

20

25

30

35

Manufacturing, value added (% of GDP)

GabonKorea, Rep.

Industrialization is a major factor of income divergence

19651967

19691971

19731975

19771979

19811983

19851987

19891991

19931995

19971999

20012003

20052007

200910111213141516171819

SSA: Manufacturing (VA, % of GDP)

Sub-Saharan Africa is experiencing “de-industrialization”

Congo, Dem. Rep.Liberia

NigerComoros

ZimbabweGuinea-Bissau

Cote d'IvoireChad

GhanaGambia, The

BeninMauritania

South AfricaMali

AlgeriaRwanda

Congo, Rep.Ethiopia

GabonLibya

UgandaSwaziland

Egypt, Arab Rep.Mauritius

Sao Tome and PrincipeBotswana

-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0

-2.1-1.3

-1.2-1.0-0.9

-0.7-0.6

-0.4-0.2-0.1

0.10.20.3

0.50.50.60.60.6

0.70.70.80.8

1.01.11.1

1.31.31.41.41.41.4

1.61.6

1.71.8

2.12.12.22.3

2.42.62.72.72.8

3.13.2

3.54.1

4.64.8

6.0

Average gdp per capita growth 1960-2010

Wide disparities in growth performance

Excluded Equatorial Guinea (12%); oil discovery (35% average over 1996-2001)

Source: WDI

Question: should we focus on the top or on lifting up the bottom?

Poverty and inequality

1981 1984 1987 1990 1993 1996 1999 2002 200546

48

50

52

54

56

58

60

53.37

55.84

54.49

57.5856.87

58.78 58.37

55.03

50.91

How fast is poverty in SSA declining? (Head count ratio %)

Inequality is a key constraint to poverty reduction

Not new but burning: emerging challenges for Africa

• (1) The youth and its 3 demands: Work, Voice, and Respect (deny them voice, and the V becomes an A – WAR)

Figure: Tunisian youth unemployment

1984 1989 1994 1999 2004 2005 2006 20100

5

10

15

20

25

16.414,2

2.3

20.3

Unemployment rateUnemployment rate of university graduates

Perc

enta

ge

Not ‘new’ but burning challenges…

• (2) The infrastructure deficit – Generation: moving along the low-carbon path?– Sustainable financing of infrastructure– Need a new model of investment in infrastructure:

profitable and sustainable investment (environment friendly)

• (3) Climate change – Disproportionate adverse impact on Africa:

• bio-physical risk • lack of adaptive capacity• lack of diversification

Two central questions for Africa

• Can the continent perform a heroic “hat trick” of:– Rapid growth of income– Rapid reduction in inequality– Rapid reduction in poverty

• Can the continent industrialize in an era of open trade?– How to incentivize and finance ‘discovery’?– How to nurture new industries?– What markets for African products?

• How to develop domestic? Is urban expansion an opportunity?• Can regional integration support industrialization?• Is the Global South more permeable to African products?

Elements of a strategy for structural change• Covering the base: Refocus the mission of agriculture to achieve food

security• Managing natural resources

– Moving up the value chain– A responsible private sector: Combatting corruption, illicit financial flows,

transfer pricing, and tax evasion• Nurturing ‘patient’ transitions:

– to productive and employment-generating service-sector-led growth– to low-carbon growth path– to technology-led growth path

• Avoid counter-productive dichotomies – A leading strong state [and, not or] efficient markets– Robust domestic markets [and, not or] trade based on dynamic comparative

advantage– Robust domestic resource mobilization [and, not or] productive foreign capital

• Democratic consolidation [and, not or] economic prosperity– Achieve economic prosperity but not at the cost of political freedom– Avoid inequality and economic alienation to build political stability