Is Africa an Economic Enigma? Célestin Monga United Nations Industrial Development Organization (UNIDO) Twitter: @CelestinMonga Helsinki, September 17, 2015
Outline 1. Objectives and Principles 2. Some Highlights (Analytics and Policies) 3. What I Would Tell the Prime Minister 1
1. Objectives and Principles 2
A puzzling confession from Bob Solow 3
The Approach 2 recurring themes: How economics has been thought, taught, and applied in the African context What the study of Africa has brought and continue to bring to economics Diversity of opinions and approaches 137 contributors, 2 volumes, 93 chapters 4 4
Oxford Handbook of Africa and Economics: An all-stars cast (*) (*) Pictures selected (almost) randomly: economists are NOT expected to be good looking…
2. Some Highlights 6
3 Interrelated Questions and Issues Is the homo oeconomicus in Africa different ? The “irrational African agent” Does the rational man exist anywhere? Should economic thinking be different about Africa? Importance of the endowment structure Should economic policies be different in the African context? The rationale for differentiation Dealing optimally with the legacy of compounded distortions 7 7
(a) Macro policies are generally good — even too restrictive This is an extremely unusual case, not the rule… 8
Overall Fiscal Deficit/Surplus (Percent of GDP) 2012 2011 2010 2009 2008 2007 2006 2005 2004 -10 -5 0 5 10 15 20 Oil-importing countries excluding South Africa Oil-exporting countries excluding Nigeria 9
(b) Sectoral policies are in the right direction — but require funding Financial sector: Banks are doing quite well — and have done well during the crisis… Return on Average Equity (Percent) ROAE refers to commercial banks' net income to yearly averaged equity 10
(c) Institutional policies are good are too ambitious--unrealistic Some distortions are here to stay for a while — Removing them abruptly would cause social and political crises… The Nyerere-Houphouet-Boigny Contest: Who Wins? Whose regime was “Corrupt”? Which one was “Clean”? Who wins the contest for the better Head of State? 11 11
(d) Structural change is taking place, but slowly Employment shares of 3 broad sectors Comparing sample from Duarte and Restuccia (2010) and African countries (sample from Jan 2013) Agriculture Industry 1 1 sEhi_ind .2 .4.6 .8 .2 .4.6 .8 0 0 6 7 8 9 10 6 7 8 9 10 Log GDP per capita (1990 International $ Log GDP per capita (1990 International $ D&R sample Africa sample D&R sample Africa sample Services (with fitted values) 1 .2.4 .6.8 0 6 7 8 9 10 Log GDP per capita (1990 International $ D&R sample Africa sample Note that Africa data measure sectoral share of total employment whereas D&R data measure share of total hours. Hours shares from Duarte and Restuccia (2010) cover 29 countries from 1950-2006 Their data were accessed 07/24/2012 from Duarte's website GDP from Maddison (2010) Source: McMillan and and Hartgen 2015 12
(d) Structural change is taking place, but slowly Sub-Saharan Africa 2000-2010 1990-2000 Within 1975-1990 Between - static Between - dynamic 1960-1975 -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% average annual labour productivity growth Source: McMillan and and Hartgen 2015 13
(e) There could be a big demographic dividend on the horizon 1400 1 0.9 1200 Dependency Ratio 0.8 1000 0.7 Population (millions) 0.6 800 0.5 600 0.4 0.3 400 0.2 200 0.1 0 0 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 Age 0-14 Age 65+ Age 15-64 Dependency ratio Source: World Bank and UN projections 14
(f) Trade is still the key Measuring GVC participation as FVA + DVX Foreign Value Added in Own Exports Domestic Value Added in Other Countries’ Exports Country A Other Produces goods and Country A Other Countries services using both its own value added and Countries imported inputs (foreign A. Exports of Export intermediate value added) intermediate inputs inputs to Country A for Intermediate inputs (value added) absorbed the production of its (value added) used in exports by other countries to goods and services by other countries produce their exports: $ 40 A. Own value million added created B. Country A’s value added Country A’s valued added locally: $80 million contained in its final products, in the exports of final B. Imported exported to and consumed in products for consumption intermediate inputs other countries: $ 60 million in foreign markets (value added): $20 million C. Total exports of Country A: C. Total exports of Country A: $100 million $100 million In this case, FVA of Country A is In this case DVX of country A is 40% ( A / C ) 20% ( B / C ) Source: Background paper for UNIDO Industrial Development Report 2016, by Foster-McGregor, Kaulichand and Stehrer 15
GVC Participation by Region, 1995-2010 Participation in Global Value Chains is up almost Everywhere… 60.00% 50.00% 40.00% 30.00% 1995 2000 2005 20.00% 2010 10.00% 0.00% Source: Background paper for UNIDO Industrial Development Report 2016, by Foster-McGregor, Kaulichand and Stehrer 16 16 16
3. What I would Tell the Prime Minister 17
Wrong reference, wrong model economy Inappropriate focus on preconditions Need to find a niche — GVCs can help attract FDI into targeted, competitive industries Rwanda’s market is not Burundi. It is the world market 18
Size can be misleading —don’t bet on regional integration 19
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