Emergence and Convergence: The productivity challenge An update on Shifting Wealth and

1. Emergence and Convergence: The productivity challenge An update on Shifting Wealth and Africa’s Rise HB Solignac-Lecomte OECD Development Centre Norfund’s Summer Conference 2014 Infrastructure for Development: Energy and Financial Services 28 August, Oslo

2. News from a shifting world

3. Shifting weight of global economic activity is continuing Share of GDP in PPP terms Source: Authors’ calculations based on World Bank (2014), World Development Indicators (database) http://data.worldbank.org/data-catalog/world-development-indicators. Shifting global economic landscape

4. GDP as a share of total (constant 2005 USD) ... in terms of output, consumption and investment Source: Authors' calculations based on IMF (2014), World Economic Outlook (database) and World Bank (2014), World Development Indicators (database)

5. … and in terms of international trade and foreign direct investment Gross exports, world total (LHS) and BRIICS' shares of world total (RHS) Gross imports, world total (LHS) and BRIICS' shares of world total (RHS) Inward FDI flows, world total (LHS) and BRIICS’ shares of world total (RHS) Outward FDI flows, world total (LHS) and BRIICS’ shares of world total (RHS) Source: Authors' calculations based on UN Comtrade (2014), United Nations Commodity Trade Statistics (database)

6. But: The difference in growth rates has been narrowing since 2009 Source: Authors’ calculations based on World Bank (2013) ,World Development Indicators (database). Shifting global economic landscape

7. Many upper middle-income countries are not on course of convergence Shifting global economic landscape Source: Authors’ calculations based on World Bank (2013), World Development Indicators (database)

8. Low economic growth can be associated with low productivity growth • Poor prospects of convergence raise question of “middle-income trap” • Common (theoretical) framework to identify the trap does not exist • But: Evidence shows that many middle-income countries face sustained periods of lower economic growth • And:Growth slowdowns are often associated with significant slowdowns in total factor productivity (TFP): on average 85% of GDP slowdowns are explained by TFP slowdowns (Eichengreen et al. 2011*) • Productivity slowdowns can be associated with difficulties to move up the value chain, away from a factor accumulation-driven and low labour cost-driven to a an innovation-driven growth path • Focus on benchmarking middle-income countries’ productivity growth (and levels) against each other and against more advanced countries The challenge of productivity for convergence

9. Total factor productivity gap with advanced countries is significant The challenge of productivity for convergence

10. Africa’s transformation challenge

11. Africa’s growth: resilience in the face of headwinds from the global economy 11 Africa: Good news from growth

12. Growth typologies • Africa’s real GDP growth above global average of 3%. • In medium term, growth is expected to accelerate, reverting to pre-2009 crisis levels. Africa: Good news from growth

13. Regional growth prospects, 2013 Disparities in Economic Performance in 2012 GDP growth 1.9% North Africa West Africa GDP growth 6.7% Central Africa East Africa GDP growth 3.7% GDP growth 6.2% Southern Africa GDP growth 3.0% Africa: Good news from growth

14. Regional growth prospects, 2014 Disparities in Economic Performance in 2012 GDP growth 3.1% North Africa West Africa GDP growth 7.2% Central Africa East Africa GDP growth 6.2% GDP growth 6.0% Southern Africa GDP growth 4.0% Africa: Good news from growth

15. 10 fastest growing (>7%) African countries in 2014/15 Libya 11.6% Chad 10.1% Côte d’Ivoire 9.2% Nigeria 7.2% Ethiopia 7.4% Sierra Leone 12.7% Liberia 7.5% Congo Dem. Rep. 8.6% Rwanda 7.2% Angola8.4% Mozambique 8.4%

16. 10 slowest growing African countries in 2014/15 Morocco 3.9% Egypt 2.9% CaboVerde 3.2% Eritrea 2.1% Sudan 3.3% Guinea-Bissau 2.7% Equatorial Guinea -5.2% Mauritius 3.8% Swaziland 2.5% South Africa 2.9%

17. External financial flows: FDI picking up Africa: Good news from growth

18. ‘Structural Transformation’:the challenge of moving people and money from low productivity to higher productivity sectors has yet to be met

19. Natural resources: Africa benefitted from better terms of trade Africa: natural resources can help diversify but …

20. Processing resources: Infrastructure is the major bottleneck Energy needs for metal refining & Africa’s generation capacity Africa: natural resources can help diversify but …

21. Global Value Chains: Africa highly integrated but more as source of inputs than production hub Africa: a steep climb up the value chains

22. Africa’s share of trade in intermediate goods is growing but remains small 2.2% 1.4%

23. Southern Africa most integrated in both global and intra-African value chains Africa: a steep climb up the value chains

24. Financing Infrastructure in Africa

25. Infrastructure spending: 2/3 fromgovt budget Adapted from Briceño-Garmendia, Smits, and Foster (2008) in World Bank (2010) Africa: the infrastructure spending challenge

26. Public Financial Management in Infrastructure: new evidence • Use public funds = overall effective, efficient and subject to the rules of fiscal prudence… • … but weak economic, financial, social, environmental appraisal; inadequate attention to maintenance ; inefficiencies related to hidden costs. • Project selection could be improved: Cost-Benefit and/or Cost-Effectiveness Analyses • Planning levels (national, sectorial, local) overlap • Bias = new investment over maintenance • Source: Boateng et al. (2014), Public Financial Management in Infrastructure in Africa, OECD Development Centre WorkingPaper No. 323, OECD/CABRI. Africa: the infrastructure spending challenge

27. Thank you www.oecd.org/dev www.africaneconomicoutlook.org