Four high-growth sce­nar­ios for Africa

Agri­cul­ture, in­dus­tri­al­i­sa­tion, com­modi­ties or ser­vices – which holds the key for growth on the con­ti­nent?

Finweek English Edition - - OPIN­ION - Ed­i­to­rial@fin­ Jo­han Fourie is as­so­ciate pro­fes­sor in eco­nomics at Stel­len­bosch Univer­sity.

canAfrican coun­tries sus­tain the rel­a­tively high growth rates at­tained since 2000? This re­mains the most vex­ing ques­tion for those of us on the African con­ti­nent.

Stel­lar eco­nomic per­for­mance of sev­eral African coun­tries has cre­ated an “Africa ris­ing” nar­ra­tive where fur­ther progress – and catch­ing up to the de­vel­oped world – seems in­evitable. A more pes­simistic coun­ternar­ra­tive ar­gues that this growth, from a low base, re­sulted largely from favourable com­mod­ity prices and Chi­nese in­vest­ment.

Both nar­ra­tives had made lit­tle use of eco­nomic the­ory or his­tory.

Dani Ro­drik, pro­fes­sor of In­ter­na­tional Po­lit­i­cal Econ­omy at the John F. Kennedy School of Govern­ment at Har­vard Univer­sity, tack­les this ques­tion in a pa­per in the Jour­nal of African Economies.

He first shows that many African economies have in­deed im­proved since 2000, but that many, in­clud­ing Sene­gal, the Demo­cratic Repub­lic of Congo, Ivory Coast and Zam­bia, re­main on lev­els be­low those im­me­di­ately fol­low­ing colo­nial­ism (around 1960). Sec­ond, he es­tab­lishes that the rapid growth of the last dozen years has not led to a large struc­tural trans­for­ma­tion of the econ­omy. Whereas rapid growth in south­east Asian economies dur­ing the late 20th cen­tury re­sulted in man­u­fac­tur­ing growth, high growth rates in Africa haven’t had any ef­fect on the rel­a­tive size of man­u­fac­tur­ing. In fact, in many coun­tries the size of the man­u­fac­tur­ing sec­tor has de­clined since 1975.

Ro­drik at­tributes these changes not nec­es­sar­ily to fac­tors unique to Africa – like weak in­sti­tu­tions or bad ge­og­ra­phy – but to a global trend of dein­dus­tri­al­i­sa­tion. Even Viet­nam, which re­cently ex­pe­ri­enced rapid growth, has not seen much growth in man­u­fac­tur­ing. Tech­no­log­i­cal change – the move to au­to­ma­tion, for ex­am­ple – is one likely rea­son.

So de­spite high growth rates, African coun­tries have not in­dus­tri­alised – and, in fact, may have be­gun to dein­dus­tri­alise. This is why Ro­drik is pes­simistic about Africa’s growth prospects. He nev­er­the­less con­sid­ers po­ten­tial sce­nar­ios in which Africa can in­deed sus­tain high growth: 1. Re­vive man­u­fac­tur­ing and in­dus­tri­alise; 2. Gen­er­ate agri­cul­ture-led growth; 3. Gen­er­ate ser­vice-led growth; and 4. Gen­er­ate nat­u­ral re­source-led growth. Let’s start with agri­cul­ture. Although many African coun­tries have a great deal of po­ten­tial to ex­pand their agri­cul­tural sec­tors, pro­duc­tiv­ity in the sec­tor re­mains low. Many farm­ers are sub­sis­tence pro­duc­ers, with low economies of scale. Such a sce­nario will re­quire a re­ver­sal in the cur­rent trend away from agri­cul­ture.

A study by Diao, Harttgen and McMil­lan shows clearly how the share of agri­cul­ture is fall­ing, par­tic­u­larly as women older than 25 are mov­ing to cities and into man­u­fac­tur­ing and ser­vices. This trend seems ir­re­versible, even if changes to tech­nol­ogy (like seed va­ri­eties or mar­ket ac­cess op­por­tu­ni­ties) or in­sti­tu­tions (like pri­vate prop­erty) are made, which means that an agri­cul­ture-led high-growth sce­nario seems highly un­likely.

A nat­u­ral re­source-led strat­egy also seems un­likely. Yes, most coun­tries on the con­ti­nent are well-en­dowed with re­sources, but the prob­lems of the Nat­u­ral Re­source Curse and Dutch Dis­ease are well known. It may be an op­tion for some small economies, like Botswana, but one has to ques­tion to what ex­tent it can be sus­tain­able be­yond a cer­tain level of in­come.

Re­verse dein­dus­tri­al­i­sa­tion? Be­cause a grow­ing man­u­fac­tur­ing base seems to be, if we con­sider past ex­am­ples of in­dus­tri­al­i­sa­tion, the only way to in­crease labour pro­duc­tiv­ity over a sus­tained pe­riod of time, this op­tion is pre­ferred by many de­vel­op­ment agen­cies. Yet there are many ob­sta­cles to a thriv­ing man­u­fac­tur­ing sec­tor, in­clud­ing poor in­fra­struc­ture (trans­port and power in par­tic­u­lar), red tape, cor­rup­tion, low lev­els of hu­man cap­i­tal, as well as po­lit­i­cal and le­gal risk.

But Ro­drik be­lieves that even if these (very dif­fi­cult) bar­ri­ers can be over­come, it is not clear that man­u­fac­tur­ing will re­turn. The Fourth In­dus­trial Rev­o­lu­tion may com­pletely al­ter the na­ture of man­u­fac­tur­ing away from ab­sorb­ing un­skilled labour to cap­i­tal and knowl­edge-in­ten­sive pro­duc­tion. It is dan­ger­ous to fol­low a 20th-cen­tury blue­print when pro­duc­tion tech­nolo­gies are so dif­fer­ent.

That leaves us with ser­vices-led growth. Ser­vices have tra­di­tion­ally not acted as an “es­ca­la­tor sec­tor”, as Ro­drik ex­plains. Ser­vices typ­i­cally re­quire high-skilled labour­ers, which are in short sup­ply in de­vel­op­ing economies. Ro­drik does ac­knowl­edge, though, that the fu­ture will not nec­es­sar­ily look like the past. “Per­haps Africa will be the breed­ing ground of new tech­nolo­gies that will rev­o­lu­tionise ser­vices for broad masses, and do so in a way that cre­ates high-wage jobs for all. Per­haps; but it is too early to be con­fi­dent about the like­li­hood of this sce­nario.”

I don’t see an al­ter­na­tive, though. Yes, some coun­tries, like Mozam­bique or Tan­za­nia, could ex­pand their agri­cul­tural sec­tors – but higher pro­duc­tiv­ity will prob­a­bly mean larger farms with fewer work­ers. Some small coun­tries will be able to ben­e­fit from nat­u­ral re­sources. But oil-pro­duc­ing coun­tries will strug­gle as the cost of re­new­able en­er­gies keeps fall­ing. Some coastal coun­tries may de­velop their man­u­fac­tur­ing sec­tors, like Ethiopia and South Africa.

But for most of Africa, ser­vices of­fer the only re­prieve from low-pro­duc­tiv­ity, low-wage jobs. From semi-skilled jobs like call cen­tres and vir­tual au pairs (ap­par­ently the next big thing) to pro­fes­sional ser­vices like ac­coun­tants and de­sign­ers and pro­gram­mers, dig­i­tal tech­nolo­gies must help leapfrog the bar­ri­ers of poor in­fra­struc­ture, bad ge­og­ra­phy and weak in­sti­tu­tions. If not, Ro­drik’s pes­simistic vi­sion of Africa’s fu­ture is likely to come true. Pro­fes­sor of In­ter­na­tional Po­lit­i­cal Econ­omy at the John F. Kennedy School of Govern­ment at Har­vard Univer­sity

For most of Africa, ser­vices of­fer the only re­prieve from low-pro­duc­tiv­ity, low-wage jobs.

Dani Ro­drik

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