Ernest Aryeetey The Political Economy of f Structural - PowerPoint PPT Presentation

WIDER Annual Lecture 22 Ernest Aryeetey

The Political Economy of f Structural Transformation: Has Democracy Fail iled Afr frican Economies? Ern rnest Aryeetey Afric ican Research Univ iversitie ies Alli lliance

. UNU-WIDER Annual Lecture Helsinki 14th September 2018

Motiv tivatio ion • My lecture today is influenced by three seemingly unrelated experiences: • Economic reforms in Ghana and elections in 1992. Fixing the problem in 1993 and beyond. “We didn ’ t ask you to win the elections” • First visit to Ethiopia in 1994 at the invitation of the Ethiopian Economics Association: “There will never be a change in our land tenure system so long as I remain Prime Minister” • Recent visit to Rwanda: Significant improvements without functioning democracy UNU-WIDER Annual Lecture Helsinki 14th September 2018

Presentation Outline ✓ Background ✓ The Unchanging Structure of Africa’s Economies ✓ Explaining the Absence of Structural Transformation ✓ Making Economic Policy and Development Decisions ✓ The New Political Environment and Planning for Structural Transformation ✓ Summary and Conclusion

Main ain Arguments • The lecture seeks to show that if economic management efforts of the last several decades have not led to structural transformation, it is not simply a question of whether democracy and associated practices are good for Africa. • The main argument is that African governments have not adapted democracy appropriately for the purpose of building institutions that generate the reforms to support structural transformation. • Thus, even when governments express interest in long-term development, they manage this interest in a short-term framework and look out for immediate outputs. • I will argue that appropriate policy and institutional reforms for structural transformation must be anchored in long-term development frameworks and institutional structures. UNU-WIDER Annual Lecture Helsinki 14th September 2018

1. . In Introduction • The positive stories: Growth in Africa has been good in recent times • The not-so positive stories: Africa will be home to the largest number of extremely poor people by 2013 • The structural transformation debates: Can Africa survive without structural transformation • Structural adjustment and after: Did we simply learn to survive? • Leadership and institutions: Was Barack Obama right? UNU-WIDER Annual Lecture Helsinki 14th September 2018

2. The Unchanging Structure of Africa’s Economies • Four essential and interrelated processes define structural transformation in any economy Timmer (2012),. These are; ➢ a declining share of agriculture in GDP and employment, ➢ A declining rural-to-urban migration underpinned by rural and urban development; ➢ the rise of a modern industrial and service economy; ➢ and a demographic transition from high rates of births and deaths to low rates of births and deaths. • This calls for growth that is inclusive and sustainable. The proceeds of such development should be shared fairly in terms of demographics, geographic, vertical and sustainable (now and the future) profiles. • There is renewed interest in the literature on structural transformation. The literature reflects a growing realization of the relevance of dual economy models other than the Solow model for studying the process of growth in developing countries (Temple, 2005). • Despite good growth experiences the region still suffers from volatility in commodity prices. UNU-WIDER Annual Lecture Helsinki 14th September 2018

10 12 14 GDP Growth Rate (1 -4 -2 0 2 4 6 8 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 (1960-2016) 1974 1975 1976 1977 UNU-WIDER Annual Lecture Helsinki 14th September 2018 1978 1979 All Developing Countries 1980 1981 1982 1983 1984 1985 1986 1987 1988 Sub-Saharan Africa (all income levels) 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Se Sectoral l Co Contrib ributio ion to GDP ac across Region ions (1 (1994-2017) 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 East Asia & Europe & Middle East & South Asia Sub-Saharan East Asia & Europe & Middle East & South Asia Sub-Saharan East Asia & Europe & Middle East & South Asia Sub-Saharan Pacific Central Asia North Africa Africa Pacific Central Asia North Africa Africa Pacific Central Asia North Africa Africa Agric Industry Services 1994-1997 1998-2001 2002-2005 2006-2009 2010-2013 2014-2017 UNU-WIDER Annual Lecture Helsinki 14th September 2018

The Unchanging Structure of Africa’s Economies • Following Sectoral Contribution to GDP in Africa (1981 to 2016) the structural transformation growth hypothesis, the contribution of the 70 agriculture sector to GDP declined from 23.9% in 1981 to 17.6% in 2016. The 60 contribution of the service sector to GDP increased from 42.1% in 1981 to 58.3% in the 50 same period. • The manufacturing sector on the other hand 40 had its share drop from 14.95% to 10.49% in that period. On a positive note, raw 30 agriculture export as a percentage of merchandise export declined from 9.5% in 20 1974 to 2.2% 2014. At the same time, manufacturing export as a percentage of 10 merchandised export increased from 12.04% in 1974 to 23.9% in 2014. 0 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Services Manufacturing Agriculture UNU-WIDER Annual Lecture Helsinki 14th September 2018

The Unchanging Structure of Africa’s Economies • The share of agriculture to GDP in Agriculture, forestry and fishing value added (% of GDP) across regions (1996-2016) Africa shows how important 80.00 agriculture is to national output compared to other regions of the 70.00 world. 60.00 50.00 Sub-Saharan Africa South Asia 40.00 Middle East & North Africa European Union Europe & Central Asia 30.00 East Asia & Pacific 20.00 10.00 0.00 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 UNU-WIDER Annual Lecture Helsinki 14th September 2018

The Unchanging Structure of Africa’s Economies Contribution of Agriculture to Total Employment (%) • Whereas in a normal process of structural transformation, labour 80 moves from rural agriculture to 70 urban manufacturing, the case in Sub-Saharan Africa has been 60 different. 50 • The proportion of the labour 40 force in agriculture is as high as 80% in some countries. 30 • The high share of the labour 20 force in agriculture is an 10 indication that the potential for structural change to lead to 0 growth and poverty alleviation in Africa is equally enormous. South Asia Europe & Central Asia Middle East & North Africa East Asia & Pacific Sub-Saharan Africa North America Latin America & Caribbean UNU-WIDER Annual Lecture Helsinki 14th September 2018

The Unchanging Structure of Africa’s Economies Contribution of Services to Total Employment (%) Contribution of Industry to Total Employment (%) 90 35 80 30 70 25 60 50 20 40 15 30 10 20 5 10 0 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Europe & Central Asia South Asia South Asia Europe & Central Asia Middle East & North Africa East Asia & Pacific Middle East & North Africa East Asia & Pacific Sub-Saharan Africa North America Sub-Saharan Africa North America Latin America & Caribbean Latin America & Caribbean UNU-WIDER Annual Lecture Helsinki 14th September 2018

The Unchanging Structure of Africa’s Economies • The growth trajectory of Sub-Saharan Africa is missing a very important middle section (the industrial sector with high labour absorptive capacity) in order for structural transformation to occur. • In almost all African countries, agriculture’s share of employment is significantly higher than its share of GDP. This raises important questions about productivity within the agricultural sector. • According to Rodrik (2014), the trend of labour transition to both the services and the informal manufacturing sectors reverses transformational growth. UNU-WIDER Annual Lecture Helsinki 14th September 2018

3. . Exp xplain inin ing th the Absence of f Str tructu tural Transformation • Although most African countries have passed laws and instituted policies that encourage development of the manufacturing/industry sector, not much has been achieved. Some of the factors identified include ; • lack of electricity access (Bhattacharyya 2012), • weak institutions (Bratton 2007) and • unfavourable business environment (Rodrik 2014 and Gelb et al. 2014). UNU-WIDER Annual Lecture Helsinki 14th September 2018