African Miracle Presentation

8/10/2019 African Miracle Presentation

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AFRICAN MIRACLE


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STRUCTURE

The Economics of Convergence &

Structural Transformation Perspective

Structural Change & Industrializationin Africa

High Growth Scenarios for Africa

Is an African Growth Miracle Possible?


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THE ECONOMICS OF CONVERGENCE &

STRUCTURAL TRANSFORMATION

PERSPECTIVE


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CONVERGENCE

j=(ln y*(j)ln yj) + j

j= growth fundamentals

Institutions (Acemoglu et al)

Geography (Sachs)

Colonizers (Glaesar et al)


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Dual economy

= (ln y*() ln y)

+MMM(ln y*(M)ln yM)

+ (M-T)dM


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Investment infundamentals

(human capital,

institutions)

Structural transformation,

Industrialization (d)

Slow Rapid

Slow No growth Episodic

growth

Rapid Slow growth Rapid,

sustainedgrowth


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STRUCTURAL CHANGE AND

INDUSTRIALIZATION IN AFRICA


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STRUCTURAL CHANGE

Laborers move out from agriculture

and rural areas but primary beneficiary

has not been formal manufacturers Absorbed into less productive and

informal sector


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IMPORTANCE OF MANUFACTURING SECTOR

Manufacturing industry has been playing an insignificant role

After 1975: de-industrialization


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COMPARISON WITH ASIAN COUNTRIES

Under all level of income, Africa is underindustralized as compared to Asian

countries


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PATTERN OF STRUCTURAL CHANGE: VIETNAM

Labor move from agriculture to productive urban sectors


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ETHIOPIA AND KENYA

Labor move from agriculture to less productive services

Magnitude of growth-promoting structural change is smaller

Manufacturing sector expands less


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INFORMALITY

Formal manufacturing share is low as 6% in some countries;

manufacturing dominated by informal and less productive firms


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PRODUCTIVITY

Growth is rising but services and manufacturing are far behind in

terms of productivity-because of informal sector


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HIGHGROWTH SCENARIOS FOR AFRICA


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OPTIONS

Africa has 4 options to generate sustainedand rapid growth into the future :

1. revive manufacturing sector

2. generate agriculture-led growth

3. generate rapid growth in productivity in

services4. growth based on natural resources


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INDUSTRIALIZATION

So far, there has been signs ofgreenfield investments in many Africancountries

Africa has potential to take advantageof rising costs in Asia and become nextglobal manufacturing hub

But this is not happening. Why?


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POOR BUSINESS CLIMATE

Cost of doing business in Africa is high

Exchange rate can be used as a remedy

Undervaluation may help in spurringindustrialization, and therefore growth

Macroeconomic policy adjustments needed

to achieve and sustain competitive realexchange rate


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Countries are deindustrializing at lower levels of income

Possible reasons are a combo of global demand shifts, global competition and

technological changes

Africa has strong competition in a now tougher environment

PREMATURE INDUSTRIALIZATION


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AGRICULTURE

Poor business climate a hindrance here too

Extension, land rights and input provision are amongst

problems governments need to fix

Main argument against this, is lack of examples of

countries that have pulled it off

Strongest correlates of economic development is export

diversification away from agriculture

Outmigration from countryside in Africa


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SERVICES

Traditionally not an escalator sector

Services that can be productivity escalators

require high skills

Human capital, institutions and governance

growth needed


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NATURAL RESOURCE

Very few countries achieved rapid growth based

on natural resources

Those that did are small countries with

exceptional circumstances ; e.g. Botswana, CapeVerde, Equatorial Guinea

Rich in minerals and fuel

Resource sectors generally highly capital intensiveand absorb little labour


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NATURAL RESOURCE

Resource rich economies have volatile terms of

trade

Difficulty in managing resource rents

Institutional underdevelopment


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IS AFRICAN GROWTH

MIRACLE POSSIBLE?


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IS THE AFRICAN GROWTH MIRACLE POSSIBLE?

Knowing the reality

Why the growth? i.e. Drivers, factors

Is the growth sustainable?

Why if is/is not sustainable?

What to expect

Prospect of the continents growth


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A GLIMPSE OF AFRICAN GROWTH


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WHY THE GROWTH?

Due to temporary boosts

external factors i.e. Huge inflow of FDIs

Awaken from the prolonged economic decline

Improved fundamental

i.e. institutional quality, governance,

infrastructure


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WHY THE GROWTH? (CONTD)

Political and social stability

End of civil wars

Advantages of:

High commodity price (price high, interest low)

Increased trade and investment(Increasing direct investment i.e. China)

Minimal impact of Global Financial Crisis


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IS THE GROWTH SUSTAINABLE?

Fundamental improvements were seen, however, at

infantry stage

Traditional engines are operating at less than full

power High youth unemployment, which could lead social

unrest (Filmer and Fox, 2014)

High dependence on foreign aid and FDI

Business climate

E.g. Poor hygienic condition (Ebola outbreak)


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SUSTAINABILITY


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STABILITY


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TECHNOLOGY PROGRESS


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WHAT TO EXPECT?

It concludes the growth should be

moderate and stable rather than great

If the growth is great, the growth model is

said to be unique and different from

normal growth factors (e.g.

industrialization)


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QUESTIONS?

Documents

African Miracle Presentation