structural transformation in sub-saharan africa regional economic outlook: sub-saharan africa

Structural Transformation in Sub-Saharan Africa

Regional Economic Outlook: Sub-Saharan Africa

African DepartmentInternational Monetary Fund

November 2012

Structure of the presentation

1. Introduction and Context

2. Structural transformation: what has happened?

3. Barriers to diversification; lessons from success

4. Looking Ahead2International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012

Introduction

3International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012

• Many countries in sub-Saharan Africa (SSA) have experienced strong economic growth since the mid-1990s.

• Has this growth been accompanied by structural transformation – the shift of workers to sectors/activities with higher average productivity?

• Motivation:– Is SSA growth more than a “natural resources”

story?– Distinctive features of structural transformation

in SSA?– Obstacles to further transformation?

SSA countries as an aggregate experienced solid growth since the mid 1990s


90100110120130140150160170180190200210220230240250

1995 1997 1999 2001 2003 2005 2007 2009 2011

WorldSub-Saharan AfricaLow-income Countries, excluding Fragile (SSA)

Real GDP, 1995-2011 (Index 1995=100)

Source: IMF, World Economic Outlook.

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Sources: IMF staff estimates.

Marked differences across SSA countries in output and productivity growth rates


Growth rate of real GDP per person in the labor force, 1995-2010(Annual, percent)

Several countries have experienced something of a take-off over the period


India Asean 5

Vietnam (1990)

Uganda (1986)

Mozambique (1992)

Rwanda (1995)

100

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1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39

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Years after TakeoffSource: IMF. World Economic Outlook.Source: IMF. World Economic Outlook.

Tanzania (1995)

Excludes China for presentation purposes, as China's growth is much higher than that for the other countries. ASEAN 4 = Indonesia, Malaysia, the Philippines, Singapore and Thailand.

SSA Low Income Countries: Key Stylized Features

1. Large agricultural sectors, with low productivity levels compared to other sectors of the economy.

2. The formal sector accounts for a modest share of total employment – a situation that is unlikely to change significantly for the foreseeable future.



2. Structural transformation: what has happened?


Low income countries : falling agricultural share, rising labor productivity


Initial Final

LICs 2.3 2.1 36.6 33.6 2.6Of which

Mozambique 4.8 4.8 41.7 26.3 4.1Uganda 3.6 3.9 24.6 16.0 -3.5Ethiopia 4.3 3.6 49.4 41.0 2.0Rwanda 3.8 3.2 45.9 39.4 3.4Tanzania 3.2 3.1 31.8 23.9 2.9Burkina Faso 3.1 2.9 36.3 28.6 1.8Malawi 1.6 1.2 33.3 27.2 5.3Kenya 0.8 0.8 29.4 24.4 1.1Sources: IMF staff calculations based on African Department database; and World Bank, World Development Indicators.

Agricultural output shareGrowth rate of real GDP per capita

Growth rate of real GDP per person in the labor

force

Average agricultural productivity

growth

Low income countries : resources moving into construction and services


Initial Final Initial Final Initial Final Initial Final

LICs -3.0 2.1 2.9 8.5 7.7 4.3 5.8 45.0 46.3Of which

Mozambique -15.3 0.5 1.2 8.5 13.1 2.8 3.6 45.8 50.7Uganda (2000-2010) -8.6 0.3 0.4 7.9 7.5 11.8 16.2 51.0 56.7Ethiopia (2000-2010) -8.3 0.5 0.5 3.6 3.4 4.2 5.7 38.1 45.9Rwanda -6.5 0.2 0.5 8.1 6.7 5.1 7.8 39.5 44.8Tanzania (1998-2010) -7.9 1.5 2.4 8.5 9.5 5.2 7.0 45.8 48.3Burkina Faso -7.7 0.5 2.5 13.4 9.4 4.5 5.8 43.9 49.1Malawi (2002-2010) -6.1 0.3 2.3 8.2 10.4 2.6 3.1 51.3 53.7Kenya (2000-2010) -5.0 0.4 0.4 10.3 9.9 2.9 3.2 55.1 59.8Sources: IMF African Department database; World Bank World Development Indicators; and FAOSTAT.*For resource-abundant countries, sector shares of non-resource GDP are reported instead, and thus do not add up to 100.

Change in agricultural GDP share

Mining Manufacturing Construction Tertiary

SSA: agricultural productivity growth has been disappointing in the aggregate


Average labor productivity in the agriculture sector(Agriculture value added per worker, constant 2000 US$, Index: 1995=100)

Source: World Bank, World Development Indicators.

100

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150

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1995

1996

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1998

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2000

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2004

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2010

East Asia and the Pacific

South Asia

Sub-Saharan Africa

Sectoral Perspectives: agricultural labor productivity growth across countries in SSA


Growth in real value added per worker in the agricultural sector, 1995-2010(Annual, percent)

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Sources: Food and Agricultural Organization, FAOSTAT.

Structural change in SSA: what is missing?


1. The pace of productivity growth in the agricultural sector?

2. The growth of the manufacturing sector?


3. Barriers to diversification and lessons from success


Some impediments to structural transformation in SSA


• Large infrastructure gap: transportation, energy

• High costs of exporting (transport costs)

• Small markets and barriers to intra-regional trade

• Quality of government service delivery

Boosting agricultural sector productivity

1. Wider use of fertilizer and better seeds

2. Stronger research and development efforts

3. Improved extension services4. Improved water management

(including irrigation)5. Improved access to markets

Source: UNDP, African Human Development Report 2012

“Towards a Food-Secure Future”16International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012

Burkina Faso: agriculture-led growth


Cotton is the most important agricultural product:– employing directly or indirectly almost 20 percent of the

population– annual output growth of 7% per annum during 1995-

2006– resumed rapid growth from 2009

Key policy reforms: – realistic price-setting, with “price smoothing”

arrangements and use of forward sales contracts;– revolving door “input” funds to mobilize seasonal bank

financing and fertilizer subsidies;– risk pooling: loans to agricultural inputs/cooperatives

New priorities: – Innovation (better seeds, controlled land rotation)– Expanded irrigation to hedge against drought

Kenya: boosting service sector exports

• Services: the largest contributor to growth of GDP growth and foreign exchange revenue in recent years

• New growth areas:– Transport services (air and shipping), – IT-based services (e.g. call centers; business

process outsourcing)– Regional financial services

• Sources of competitive advantage include low-cost telecomm services and higher education levels

18


4. Looking Ahead


Looking back:


• The preponderance of economies in SSA have experienced sustained growth since 1995 – accompanied by some degree of structural transformation, varying across countries.

• The pace of agricultural productivity growth has been modest in the aggregate, but there have been many strong performers

• The manufacturing sector has played a modest role in economic expansion – a sharp contrast to the Asian model where exports of manufactures have been key to growth

Looking Ahead:


• Agriculture in most SSA countries remains large (in terms of employment share) and has low average productivity levels: raising productivity levels will be key to boosting GDP growth and rendering it more inclusive.

• The formal sector of the economy will continue to account for a modest share of employment over the medium-term: policies will need to avoid a pro-formal sector bias and give due attention to boosting productivity in the informal sector.

• Exporting manufactures is not the only route to sustained economic growth

Thank You


structural transformation in sub-saharan africa regional economic outlook: sub-saharan africa

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