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 APEC Columbia University, Faculty House March 9, 2012 LEONCE NDIKUMANA University 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
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, …
Diversification buys stable growth Diversification does not necessarily buy higher growth But diversification buys ‘stable’ growth; minimizes growth instability Growth = average 1961-2010; diversification index 2009 (logarithm) Normalized growth = growth/stdev(growth)
A story of divergence … “not fair, guy got a head start …” Or is it a better technology?
Industrialization is a major factor of income divergence Sub-Saharan Africa is experiencing “de-industrialization”
Wide disparities in growth performance Excluded Equatorial Guinea (12%); oil discovery (35% average over 1996-2001) Question: should we focus on the top or on lifting up the bottom? Source: WDI
Poverty and inequality 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
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