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TRANSCRIPT
O. Badiane
Director for Africa
Structural Transformationand Future Agro-industrialization
Strategies in Africa
Outline
❖Growth and Structural Transformation Process
❖Agricultural Growth and Structural Change
❖Patterns and Quality of Structural Change
❖Transformation of Agribusiness Value Chains
❖Implications for Industrialization Strategies
KEY MESSAGES
Two distinct phases of structural transformation
Productivity reducing structural change prior to recovery in 2000s
Strong positive structural change during recovery years
Stunting (rapid decline) of agriculture during decades of slow growth
Bloated (rapid expansion of) informal goods and services sector (IGS)
IGS is largest pool of low productivity labor
dual economy model (ag vs non-ag) no longer applicable
Three-dimensional model of industrialization is required
Outline
❖Growth and Structural Transformation Process
❖Agricultural Growth and Structural Change
❖Patterns and Quality of Structural Change
❖Transformation of Agribusiness Value Chains
❖Implications for Industrialization Strategies
ECONOMIC GROWTH AND TRANSFORMATION PROCESS
COUNTRIES BECOME RICH BY PRODUCING MORE OUTPUT PER GIVEN WORKER
THIS INVOLVES PRODUCING MORE OF THE SAME GOOD
AND MORE IMPORTANTLY, PRODUCING A LARGER BASKET OF HIGHER VALUE GOODS
COUNTRIES ALSO BECOME RICH OVER TIME
STARTING FROM AN AGRICULTURAL AND RURAL BASE
MOVING TO AN URBAN AND INDUSTRIAL BASE
THE DOUBLE CHALLENGE OF MANAGING THE GROWTH PROCESS
RAISING PRODUCTIVITY IN THE AGRICULTURAL AND RURAL ECONOMY
WHILE DIVERSIFYING INTO HIGHER VALUE GOODS OUTSIDE OF AGRICULTURE
LABOR PRODUCTIVITY GROWTH DURING TRANSFORMATION PROCESS
WITHIN SECTOR GROWTHIncrease in output per worker resulting from innovation and investments in factors of production in individual sectors
GROWTH FROM STRUCTURAL CHANGEIncrease in output per worker resulting from labor moving out of lower into higher productivity sectors
ECONOMIC GROWTH AND TRANSFORMATION PROCESS
Scope for productivity raising structural change in AfricaMoving labor from agriculture to non-agriculture
0
200
400
600
800
1,000
1,200
1,400
1,600
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Sec
tor-
rela
tiv
e la
bo
r p
rod
uct
ivit
y,
Eco
no
myw
ide
lab
or
pro
du
ctiv
ity =
10
0
Share of total employment (%)
Agriculture (62.3%) Personal services (6.1%) Trade services (16.2%)
Construction (2.8%) Manufacturing (7%) Transport services (2.7%)
Business services (2.6%) Utilities (0.5%) Mining (1.0%)
1,681
35 69111
162
484
325
171
422Economywide labor productivity = 100
Africa in 2010
Source: Diao, Harttgen and McMillan 2017.
Outline
❖Growth and Structural Transformation Process
❖Agricultural Growth and Structural Change
❖Patterns and Quality of Structural Change
❖Transformation of Agribusiness Value Chains
❖Implications for Industrialization Strategies
Per-capita Income
low
High
Agricultural GDP per worker
Agricultural GDP
low high
AGRICULTURE IN THE ECONOMIC TRANSFORMATION PROCESS
Badiane (2014) bassed on Timmer (2009)
Per-capita Income
Share of agriculture in total labor force
Share of agriculture in total GDP
low
High
Agricultural GDP per worker
Agricultural GDP
low high
AGRICULTURE IN THE ECONOMIC TRANSFORMATION PROCESS
Badiane (2014) bassed on Timmer (2009)
(60)
(40)
(20)
-
20
40
60
80
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
Shar
e (%
)
Ag GDP Share
Ag Emp. Share
Difference
40 African Countries: 1960 - 2008
HISTORICALLY SLOW TRANSFORMATION PROOCESS IN AGRICULTURE
Source: Badiane (2014)
✓ Transformation process has been extremely slow✓ Difference between Ag employment and GDP shares almost constant
Stagnating Ag income + Rise in rural poverty
Outline
❖Growth and Structural Transformation Process
❖Agricultural Growth and Structural Change
❖Patterns and Quality of Structural Change
❖Transformation of Agribusiness Value Chains
❖Implications for Industrialization Strategies
WITHIN SECTOR GROWTHIncrease in output per worker resulting from innovation and investments in factors of production in individual sectors
STRUCTURAL CHANGEIncrease in output per worker resulting from labor moving out of lower into higher productivity sectors
MEASURING STRUCTURAL CHANGE
-1.00% -0.50% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00%
HI
ASIA
AFRICA
LAC
within structural
Decomposition of labor productivity growth: Africa vs other regions
Transformation performance lags significantly behind other regions
✓ Within sector contribution positive but very low✓ Structural change contribution negative and much larger
PRODUCTIVITY REDUCING STRUCTURAL CHANGE IN AFRICA BEFORE RECOVERY PERIOD (1990-1999)
Within Sector Contribution
Structural Change Contribution
Source: Badiane and McMillan (2016)
-
20
40
60
80
100
120
140
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Ind
ex:1
98
0=1
00
Labor Productivity
Agriculture Non-agriculture
Source: Badiane (2014)
-
10
20
30
40
50
60
70
80
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Shar
e (
%)
Share of Economically Active Population
With stagnating agriculture:Labor migrated to an non-agricultural sector with rapidly declining productivity
✓ Decline in totallabor productivity
✓ Rising poverty rates
STRUCLTURAL TRANSFORMATION NOT DRIVEN BY FASTER PRODUCTIVITY GROWTH OUTSIDE OF AGRICULTURE
40 African Countries: 1960 - 2008
Source: Oehmke, J. 2017
Rate of Growth 1996-2015
GROWTH RECOVERY IN AFRICA
Africa performed better than BRICs and world average in last 20 years
Annual Agricultural Expenditure
Ag. Gross Domestic Product
+86%
+63%
GROWTH RECOVERY IN AFRICA
-1.00% -0.50% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00%
HI
ASIA
AFRICA
LACwithin structural
Decomposition of labor productivity growth: Africa vs other regions
Transformation performance in Africa has improved markedly with onset of recovery
✓ Within sector contribution increased significantly✓ Structural change contribution went from negative to positive
PRODUCTIITY RAISING STRUCTURAL CHANGE IN AFRICA DURING RECOVERY PERIOD (POST 2000)
Within Sector Contribution
Structural Change Contribution
Source: Badiane and McMillan (2016)
STRUCTURAL CHANGE IN AFRICA IS BASED ON SERVICES, NOT MANUFACTURING
Example of Ghana
Source: Jedwab and Osei, in McMillan et al (2017)
✓ Informal goods and services sector (IGS) largest in African economies
✓ It is the largest pool of low productivity labor
✓ Includes large share of proto-industrial handicrafts and processing
o Wood, leather, metal works
o Small mechanical and electrical parts
o Garments and tailoring
o Food staples processing
IMPLICATIONS OF POOR STRUCTURAL TRANSFORMATION PRIOR TO RECOVERY (1)
Traditional dual economy model of industrial policy based on agriculture vs industry no longer adequate
It is also agriculture vs. services, hence a three-dimensional
problem
Industrial policy should also focus on modernization of IGS, including nascent agro-processing sector thru:
o Product sophistication
o Firm maturation
o Enterprise growth
IMPLICATIONS OF POOR STRUCTURAL TRANSFORMATION PRIOR TO RECOVERY (2)
Outline
❖Growth and Structural Transformation Process
❖Agricultural Growth and Structural Change
❖Patterns and Quality of Structural Change
❖Transformation of Agribusiness Value Chains
❖Implications for Industrialization Strategies
UNPROCESSED
PROCESSED
LOW VALUE
ADDED
PROCESSED
HIGH VALUE
ADDED
Non-Perishable
4x(8%)
5.5x(17%)
7x(23%)
Perishable 6.5x(20%)
8X(18%)
10X(15%)
THE RISE OF PROCESSED FOOD SECTORS
Projected Demand Growth 2010 – 2040 (Estimated Purchased Food Budget Share in 2040)
Source: Tschirley, D et al. 2014.
DEMAND GROWTH AND THE SCOPE FOR AGROINDUSTRIALIZATION IN AFRICA
1. TRADITIONAL MILLET VALUE IN SENEGAL
RAPDIDLY TRANSFORMING REGIONAL VALUE CHAINS
2. MILLET BASED MEALS
RAPDIDLY TRANSFORMING REGIONAL VALUE CHAINS
HOME BASEDMILLET PROCESSING
READY TO COOK
MILLET PRODCUTSON THE SHELF
3. THE NEW MILLET VALUE CHAIN
RAPDIDLY TRANSFORMING REGIONAL VALUE CHAINS
TRADITIONAL MILLET BASED MEALS
HOME BASEDMILLET PROCESSING
READY TO COOK
MILLET PRODCUTSON THE SHELF
3. THE NEW MILLET VALUE CHAIN
RAPDIDLY TRANSFORMING REGIONAL VALUE CHAINS
READY TO EAT
MILLET MEALS ON THE SHELF
TRADITIONAL MILLET BASED MEALS
HOME BASEDMILLET PROCESSING
READY TO COOK
MILLET PRODCUTSON THE SHELF
3. THE NEW MILLET VALUE CHAIN
RAPDIDLY TRANSFORMING REGIONAL VALUE CHAINS
Outline
❖Growth and Structural Transformation Process
❖Agricultural Growth and Structural Change
❖Patterns and Quality of Structural Change
❖Transformation of Agribusiness Value Chains
❖Implications for Industrialization Strategies
No. of firms
Current characteristics of regional agro-allied industries• Rising number of firms producing the same low quality, often imitated goods
#
Time
EMERGING AGRO-ALLIED INDUSTRIAL SECTORProfitability, Growth And Maturation
Source: Badiane, and McMillan. 2016; Based on Otsuka and Sonobe (2011)
Profitability
No. of firms
Current characteristics of regional agro-allied industries• Rising number of firms producing the same low quality, often imitated goods
• As new entrants copy same products, profitability declines for everyone• No capacity to invest and innovate; stifling firm growth and maturation
$#
Time
EMERGING AGRO-ALLIED INDUSTRIAL SECTORProfitability, Growth And Maturation
Source: Badiane, O. and M. McMillan. 2016; Based on Otsuka and Sonobe (2011)
Two Key Questions
How to bend the profitability curve and escape from low and declining profits?How to promote enterprise growth through consolidation and specialization?
AGRO-ALLIED INDUSTRIALIZATION STRATEGIES
Source: Badiane, O. and M. McMillan. 2016; Based on Otsuka and Sonobe (2011)
Profitability
No. of firms
Dotted (solid) lines denote progression of number of firms and profitability without
$#
Time
Profitability
No. of firms
Dotted (solid) lines denote progression of number of firms and profitability without
Three Priority Areas for Policy and Investment
A. Process and product innovation: Vocational training & Technology acquisitionB. Market development: Trade & competition policy, quality & standards
C. Cost of services and Infrastructure access: Power, Telecom, Transport
$#
Time
AGRO-ALLIED INDUSTRIALIZATION STRATEGIES
Source: Badiane, O. and M. McMillan. 2016; Based on Otsuka and Sonobe (2011)
A. PRIORITY AREA 1: SKILLS DEVELOPMENT FOR PRODUCT AND PROCESS INNOVATION
① No skill upgrading for existing smallholder farmers
② No skill development for emerging value chain professions
▪ Machine operations and maintenance
▪ Processing technology skills
- Product and process innovations- Management and sales
▪ Packaging and distribution
▪ Food quality and safety
Absence of professional & vocational training opportunities means:
Potential agribusiness growth and expected income
to farmersUS$ billion
38
50
10 10.5
150
High value
exports
Commodities Urban food
2000
2030
2.9 1.6 30
Potential Increased
farmer income in
2030
Expected sector growth to 2030
Increase in Demand and Incomes in Billion US$
IFPRI/Badiane
Regional Trade In Staples: Major Source of Future Income Growth
+ $100B = Growth of staple food demand in urban markets in Africa
+ $30B = Potential income for smallholder farmers
B. PRIORITY AREA 2: TRADE & COMPETITION POLICIES FOR TRANSFORMING VALUE CHAINS
B. PRIORITY AREA 2: TRADE & COMPETITION POLICIES FOR TRANSFORMING VALUE CHAINS
Source: Badiane et al. 2014
Three policy options for competitive domestic value chains in regional markets
Notes: Notes: * COMESA+Tanzania. Figures on top of bars indicate cumulative increases in regional export supply in 1000 mt.
C. PRIORITY AREA 3: COST EFFECTIVE INFRASTRUCDTURE SERVICES
❑ Africa’s infrastructure gap is lowest in the Telecom Sector
❑ While investing in power and transport infrastructure
❑ Tap into Modern ICT to leapfrog
Torero, M. (2014)
Harness ICT for Quick Gains
USING ICT TO INNOVATE, CUT COST AND GO TO SCALE
① Lower cost of overcoming physical and institutional obstacles
▪ Bridge the distance to millions of dispersed smallholders
▪ Extend the reach of limited technical staff
② Lower cost of access to technology and services
▪ Tap into global knowledge networks
▪ Enable self-learning and peer-to-peer learning
③ Link smallholders to other value chain operators
▪ Traders, exporters, processors
▪ Financial services providers
▪ Technology services providers
How ICT can be leveraged for smallholder agriculture
REFERENCES
Badiane, 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 T. Makombe (Eds). Beyond a Middle Income Africa: Transforming African Economies for Sustained Growth with Rising Employment and Incomes. ReSAKSS Annual Trends and Outlook Report.
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. and McMillan, M. 2016. Economic transformation in Africa: Patterns, drivers, and implications for future growth strategies. In Badiane, O. and T. Makombe (Eds). Beyond a Middle Income Africa: Transforming African Economies for Sustained Growth with Rising Employment and Incomes. ReSAKSS Annual Trends and Outlook Report.
McMillan, M. S., D. Rodrik and C. Sepulveda. 2017. Structural Change, Fundamentals and Growth: A framework and Case Studies. International Food Policy Research Institute. Washington DC.
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.