Conundrums and Challenges Ahead Invited Address Jaime de Melo - PowerPoint PPT Presentation

Pathways to Structural Transformation in Africa: Conundrums and Challenges Ahead Invited Address Jaime de Melo FERDI, GBS, CEPR, EUDN 4th. annual conference of Italian Development Economists Conference, Rome, September 28-29, 2017

Outline Part I: Conundrums Reforms, Growth and Poverty: Green lights… • Internal and external reflected in positive outcomes • Early de-industrialization • Some causes of early de-industrialization • Can Services be the escalator to industrialization? • References for part I (RED symposium issue) (here) Part II: Challenges ahead • South-North migration is rising • Now: A Marshall Plan for the Sahel (G-5) • Looking Ahead: Facing up to the Climate Challenge • References for part II (here)

Part I Conundrums

Reforms, Growth and poverty • End of lost generation (70-95), reforms picked up and macroeconomic distortions fell (here) • … growth picked up; poverty down sharply (here) • … but the poverty gap with other regions persists (here) • Poverty reduction is highest in initially poor countries (here) • ... and the elasticity of poverty reduction to growth is low and varied (here) 4

Trade, trade costs and industrialization patterns • Trade costs have fallen less rapidly for LICs (here) • SSA export basket diversified «as expected» (here) • Export surges associated with real exchange rate depreciation have a ratchet effect (here) • Are we witnessing another resource-driven boom- bust cycle? (here) • Manufacturing growth reduces poverty (here) 5

De-industrialization and its causes • Premature de-industrialization confirmed (here) • Poor prospects for labor-intensive industrialization (here) • …as in Ethiopia and Mauritius ( here) • Labor has not shifted to high productivity growth sectors (here) • As latecomers, SSA have lower levels of mfg. VA and employment at mfg. peak (here) • Poor but not cheap (here) and (here) • Balassa-Samuelson effect (gap in PPA GDP of SSA to comparators: 35%) (here) and residuals (here) • Chipping away at price level enigma [SSA outlier] (here) 6

Services as Escalator to Industrialization • Lack of of overall conditional convergence GDP (here) • …but convergence in labor productivity in services (here) • … is more rapid than in manufacturing (here) • Sectoral contributions to Growth (here) • Other considerations: Rapid growth of trade in services; Strong complementarity of goods with services; rapid technological growth in some service sectors (IT) 7

Part II Challenges Ahead

South-North Migration is accelerating • S-N and N-N Migration decadal migration rates (here) • Migration from Sahel and Maghreb (here) • G5- inflow to Europe by country of origin (here) • G5- inflow by destination country (here)

Sahel (G-5) heading towards ‘ failed state’ status? • G-5 (BF, Chad, Mali, Mauritania, Niger): Background indicators (here) Sahel on the edge of…. • Conflict traps (here) • Poverty traps[fragile lands] (I) (here) • Poverty traps [net savings] (II) (here) • A Marshall Plan for the Sahel (here)

The Climate challenge • CO2 emissions vs. population shares (here) • Projected damages per region in 2050(here) • Deforestation rates: decadal averages (here) • Urbanisation projections: SSA vs. China (here) • CO2 intensity of urbanisation (here) • Funding for Common But Differentiated Responsabilities (CBDR) (here)

Figures part I 12

Macroeconomic Distorsions and Reforms in SSA 1960-2010 Reform Index : Giuliano et al. (2013) Black Market Premium (%) Black Market Reform Index Premium (left axis) (right axis) (Back) Source: UNECA (2014) based on Giuliano, Mishra and Spilimbergo (2013) 13

GDP Growth and Poverty GDP per capita growth by region (1950-2010) 60 1700 58 1600 56 Real GDP per capita Poverty Headcount 1500 54 GDP per capita and 52 1400 50 poverty headcount ratio 1300 48 in SSA 46 1200 44 1100 42 40 1000 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 (Back) Poverty Headcount Ratio at $1.25 a day (PPP) 14 GDP per capita (constant 2011$)

Poverty Headcount Ratio by Region, 1981-2011 80 70 60 Poverty Headcount 50 40 30 20 10 0 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 East Asia & Pacific Europe & Central Asia Latin America & the Caribbean Middle East & North Africa South Asia Sub-Saharan Africa Note : Poverty headcount ratio at 1.25$ per day (2005 PPP) Source: Cadot et al. (2016) (Back) 15

Poverty Reduction (  HC) and GDP per capita Growth 20% 0% 0% 2% 4% 6% 8% SSA 15% -10% y = -3.5631x - 0.0406 y = -4.8361x - 0.4157 -20% 10% SSA -30% 5% -40% 0% -50% ECA SA -2% -1% 0% 1% 2% 3% LAC -60% -5% EAP MENA ECA -70% -10% MENA -80% SA LAC EAP -15% -90% GDP per capita growth: (1980-1991) GDP per capita growth: (1991-2011) Note : Source: Cadot et al. (2016) Poverty line at 1.25$ per day (PPP). Sample of 101 countries ( 43 SSA). HC= head count (Back) 16

Industrialization is most poverty-reducing in countries with high initial poverty rates (Back)

Calibrated Trade costs (gravity model) lowering of trade costs accounts for 1/3 growth in trade (sample: 118 countries) LICs HICs (Back) LICs are losing ground (“distance puzzle”). ▪ Technical progress in transport cost reductions biased towards countries exporting high- value/low-weight bundles? 18 ▪ Governance: Capture of trade-cost-reducing reforms (e.g. freight forwarders Mozambique)?

Resource Abundance and Growth South is Africa excluded. RP have had a relatively stable growth ≈ 5% p.a.  Running out of steam attributable to RR group Note : Resource-rich = Resource rents > 15% of GDP (Back) Source: Cadot et al. 19

Export Concentration in SSSA is driven by RR Countries 8 6 4 2 4 6 8 10 12 GDP per capita (log), PPP Other Countries Resource-Poor (SSA) Resource-Rich (SSA) Fitted values (Back) Source: Cadot et al 20

Export Surges in SSA (event analysis results) 12 Export surges have a 11 ratchet effect on the 10 level of exports… 9 8 4.68 7 -5 -4 -3 -2 -1 0 1 2 3 4 5 4.66 Sub-Saharan Africa Other Countries 4.64 Source: Cadot et al. 4.62 … and seem to be associated with a 4.6 temporary REER 4.58 -5 -4 -3 -2 -1 0 1 2 3 4 5 depreciation Sub-Saharan Africa Other Countries (Back) 21

Manufacturing growth reduces poverty (HC elasticity to growth) Source: Cadot et al. (Back)

Premature de-industrialization (Back)

Prospects for labor-intensive industrialization appear bleak « From stuff to fluff » Can Africa reach middle class status by the development of industry? (Back)

Country-specific trajectories confirm premature de-industrialization in Sub-Saharan Africa (b) Ethiopia (a) Mauritius 10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.0 26.0 1987 1988 8.0 1990 1997 1998 1999 1992 1986 1989 1996 2000 1991 1997 1995 1993 2001 1994 2002 7.0 2003 1985 2004 2005 2002 1999 2006 . 1984 6.0 . 2008 2000 2009 2004 2007 1998 2011 1996 2013 1987 1983 2010 1981 1982 2012 1980 1988 1976 . 2005 2006 2007 1979 1995 1977 1978 5.0 1989 1990 1981 1986 1994 1982 1983 1985 2008 4.0 1993 2010 2011 2013 2009 2012 8.0 1991 3.0 1992 2000 3000 4000 5000 6000 7000 100 150 200 250 300 GDP per capita GDP per capita Source: Cadot et al. (Back)

Countries in Sub-Saharan Africa are latecomers in the industrialization arena and exhibit lower levels of manufacturing VA and employment (a) Manufacturing VA (% GDP) (b) Employment in manufacturing 50 .5 40 .4 ZMB MUS 30 ZWE .3 MUS ZAF LSO CMR GNB MWI 20 SYC SEN .2 RWA BFA MOZ GHA CIV NAM TCD KEN BDI GHA CPV MRT BEN AGO ERI TZA MDG CAF KEN BWA NGA 10 SOM SLE UGA COG GAB TGO SDN .1 SEN LBR ETH STP GIN MLI NGA BWA ETH NER COM MWI ZMB TZA 0 0 1960 1970 1980 1990 2000 2010 1940 1960 1980 2000 2020 Peak Year Peak Year Other Countries Sub-Saharan Africa Other Countries Sub-Saharan Africa, uncensored Trend, Sub-Saharan Africa Trend, Other Countries Sub-Saharan Africa, censored Fitted values VA and employment shares of GDP at manufacturing peak Source: Cadot et al. (Back)

Shift-share analysis of productivity growth in SSA:1960-2010 4 3 2 Static labor reallocation effect Within-sector effect 1 Dynamic labor reallocation effect 0 1960-1975 1975-1990 1990-2010 -1 -2 (Back) Source: Cadot et al. adapted from Timmer et al (2014) ▪ Labor productivity growth (weighted by sector share in VA) ▪ Within sector effect (“structural adjustment”) is positive if reallocation is from low to high labor productivity sectors. ▪ Dynamic effect positive if labor reallocation is from low-to high productivity growth sectors.

High labor costs in Sub-Saharan Africa seem to explain the lack of employment creation by the manufacturing sector 2500 (a) Country comparisons show high GDP per capita (2005 $) 2000 manufacturing labor costs in Labor cost, annual selected SSA countries … 1500 1000 8000 500 6000 0 Zambia Tanzania Kenya Nigeria Bangladesh India 4000 Source: Gelb et al. (2016) AGO 2000 KEN (b) … a pattern confirmed by ZMB TZA SEN UGA NGA MLI « regression analysis » MOZ ETH GHA 0 5 6 7 8 9 GDP per capita (log) Other Countries Sub-Saharan Africa Fitted values Fitted values (Back)