26 February 2019 | Prospects for Economic Transformation in Cambodia: Scoping New Activities

Tuesday 26 February 2019
Phnom Penh, Cambodia

The Cambodia Development Resource Institute (CDRI), in partnership with the SET programme at the Overseas Development Institute (ODI) and supported by Australia’s Department of Foreign Affairs and Trade, host a workshop on prospects for Cambodia’s economic transformation in Phnom Penh on 26 February 2019.Cambodia has achieved 7% per annum growth over the last decade, which has spurred job creation in garments, tourism and agriculture. However, the economy faces challenges of diversification and further economic transformation, especially in the face of major challenges in sectors such as garments.

Tuesday 26 February 2019
Phnom Penh, Cambodia

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The Cambodia Development Resource Institute (CDRI), in partnership with the SET programme at the Overseas Development Institute (ODI) and supported by Australia’s Department of Foreign Affairs and Trade, host a workshop on prospects for Cambodia’s economic transformation in Phnom Penh on 26 February 2019.

Cambodia has achieved 7% per annum growth over the last decade, which has spurred job creation in garments, tourism and agriculture. However, the economy faces challenges of diversification and further economic transformation, especially in the face of major challenges in sectors such as garments.

This half-day event explores these issues and discusses: (i) what are the constraints preventing progress towards economic transformation and job creation; (ii) what are the most promising sectors for policy-makers to focus on; and (iii) which sectors and/or constraints are most worthy of further analysis by the SET programme during 2019?

Agenda

08.30 – 09.00: Arrival and registration

09.00 – 09.20: Welcome and introduction to the SET programme
Dr Chhem Rethy, Executive Director, CDRI
Dr Dirk Willem te Velde, SET Director and Head of IEDG, ODI

09.20 – 9.50: Keynote: Economic transformation in Cambodia: prospects and challenges
HE Dr Phan Phalla, Under-Secretary of State, Ministry of Economics and Finance, Royal Government of Cambodia

9.50 – 10.10: Economic transformation in Cambodia: key issues and possible approaches
Presentation by the ODI/SET team

10.10 – 10.30: Cambodia’s economy and constraints to economic transformation
Dr Ouch Chandarany, Head of Economics Unit, CDRI

10.30 – 10.45: Coffee break

10.45 – 12.00: Discussion on next steps and best areas of focus for new analysis
Moderator: Dr Chhem Rethy, Executive Director, CDRI

12.00 – 14.00: Lunch

Event photographs by CDRI available here 


Photo: A motorcycle ‘taxi’ driver transports a trader and dry goods to the Phnom Penh market. World Bank. License: CC BY-NC-ND 2.0.

28 November 2018 | Digital Transformation in Kenyan Manufacturing and Job Creation

Amidst the many opportunities associated with the use of digital technologies in Kenya manufacturing, one concern expressed commonly is the impact technological change might have on labour. Since manufacturing forms part of Kenya’s Big Four agenda, the implications of growing digitalisation, both within Kenya and globally, brings into question the very role of manufacturing as a development pathway and a generator of employment.

This event, hosted in partnership with the Kenya Association of Manufacturers (KAM), explores how digital technologies are affecting labour in Kenyan manufacturing and the discussion will identify policy priorities for digitally transforming Kenyan’s manufacturing sector and creating more productive jobs.

Wednesday 28 November 2018
Intercontinental Hotel, Nairobi

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While Kenya has emerged as leader of digitalisation in the African context, there is still a significant digital divide within Kenya in terms of access to and use of technology. Kenya therefore needs to engage with the digital economy actively by developing a well-informed digital industrial policy that aims at improving efficiencies of firms but also boosts employment opportunities and inclusive development. For this to occur, the digital industrial policy needs to be embedded within the wider industrial policy so that all segments of society can gain.

Amidst the many opportunities associated with the use of digital technologies in Kenya manufacturing, one concern expressed commonly is the impact technological change might have on labour. Since manufacturing forms part of Kenya’s Big Four agenda, the implications of growing digitalisation, both within Kenya and globally, brings into question the very role of manufacturing as a development pathway and a generator of employment.

This event, hosted in partnership with the Kenya Association of Manufacturers (KAM), explores how digital technologies are affecting labour in Kenyan manufacturing and the discussion will identify policy priorities for digitally transforming Kenyan’s manufacturing sector and creating more productive jobs.

Photo: Real-time monitoring of the production line, through digitalisation, at New Wide Garments factory in Kenya’s Athi River EPZ, July 2018. Karishma Banga, all rights reserved.

4 October 2018 | Financing Tanzania’s Five-Year Development Plan 2016/17 – 2020/21

The Tanzanian government laid out ambitious industrialisation goals in its Five-Year Development Plan (FYDP II) 2016/17 – 2020/21, and the subsequent implementation plan. However, for those goals to be realised, progress must be made in a number of key development projects identified in the plan across the energy, transport, industry, agriculture, and minerals sectors. The challenge for the government lies in garnering sufficient finance from the private sector to move these projects forward.
This high-level workshop, hosted by the government of Tanzania and ODI, aims to address this challenge by bringing together government and potential investors and financiers to discuss constraints to financing for the key projects and to explore how, through public-private partnerships and other mechanisms, Tanzania’s industrialisation vision can be realised.

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The Tanzanian government laid out ambitious industrialisation goals in its Five-Year Development Plan (FYDP II) 2016/17 – 2020/21, and the subsequent implementation plan. However, for those goals to be realised, progress must be made in a number of key development projects identified in the plan across the energy, transport, industry, agriculture, and minerals sectors. The challenge for the government lies in garnering sufficient finance from the private sector to move these projects forward.

This technical working session, hosted by the government of Tanzania and ODI, aimed to address this challenge by bringing together government and potential investors and financiers to discuss constraints to financing for the key projects and to explore how, through public-private partnerships and other mechanisms, Tanzania’s industrialisation vision can be realised.

Photo: Tanzania’s new bus transit system, 2016. World Bank. CC BY-NC-ND 2.0.

10 September 2018 | Kick-Starting Economic Transformation in Rwanda: Main Takeaways

Rwanda has committed itself to economic transformation as a pillar of its seven-year government programme, the National Strategy for Transformation (NST, 2017-24). The strategy has at its core the goal of generating 214,000 new jobs per year for the next seven years.
On 10 September 2018, the Rwandan Ministry of Trade and Industry (MINICOM) and the Supporting Economic Transformation (SET) team hosted a high-level roundtable: ‘Kick-starting Rwanda’s economic transformation: what needs to be done, when and by whom?’.

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Rwanda has committed itself to economic transformation as a pillar of its seven-year government programme, the National Strategy for Transformation (NST, 2017-24). The strategy has at its core the goal of generating 214,000 new jobs per year for the next seven years.

On 10 September 2018, the Rwandan Ministry of Trade and Industry (MINICOM) and the Supporting Economic Transformation (SET) team hosted a high-level roundtable: ‘Kick-starting Rwanda’s economic transformation: what needs to be done, when and by whom?’.

The objective of the roundtable was to stimulate discussion of the practical questions raised by the SET research programme, as set out in the briefing paper: Kick-starting economic transformation in Rwanda: four policy lessons and their implications.

Photo: Kigali factory, 2010. George Barya/Commonwealth Secretariat via Flickr. CC BY-NC 2.0.

8 August 2018 | Presentation | Skills Development Funds: Lessons from Asia

The SET programme is working with the Aung Myin Hmu (AMH) Garment Skills Training Centre, based in Yangon, Myanmar, to support its long-term sustainability, and to influence the development of the Myanmar Government’s skills development law, specifically a proposed skills development fund (SDF). Initial analysis of SDF models in other Asian countries was presented to stakeholders including senior figures at the Myanmar Ministry of Labour, Immigration and Population (MOLIP) at a meeting in Yangon in August 2018. Following the meeting, a multi-stakeholder SDF Technical Committee was set up by MOLIP, and Dr Krishnan addressed its first meeting on 11 August.

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The SET programme is working with the Aung Myin Hmu (AMH) Garment Skills Training Centre, based in Yangon, Myanmar, to support its long-term sustainability, and to influence the development of the Myanmar Government’s skills development law, specifically a proposed skills development fund (SDF).

Initial analysis of SDF models in other Asian countries was presented to stakeholders including senior figures at the Myanmar Ministry of Labour, Immigration and Population (MOLIP) at a meeting in Yangon in August 2018. Following the meeting, a multi-stakeholder SDF Technical Committee was set up by MOLIP, and Dr Krishnan addressed its first meeting on 11 August.

A final report, drawing out lessons specifically for policymakers in Myanmar, will be presented to government and other stakeholders in September 2018.

Photo: Shopkeeper working in a souvenir shop at the Bogyoke Market in Yangon. Asian Development Bank via Flickr. CC BY-NC-ND 2.0. 

20 July 2018 | Kenya Trade Week & Exposition Breakfast: Launch of Kenya-UK Trade Study

On 20th July 2018, the Kenyan Export Promotion Council (EPC) hosted the breakfast launch of SET’s latest report, Kenya-UK trade and investment relations: taking stock and promoting exports to the UK.  The event also served as the opening of the EPC’s Trade Week, to celebrate 25 years of promoting Kenya’s exports.

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On 20th July, the Kenyan Export Promotion Council (EPC) hosted the breakfast launch of SET’s latest report, Kenya-UK trade and investment relations: taking stock and promoting exports to the UK.  The event also served as the opening of the EPC’s Trade Week, to celebrate 25 years of promoting Kenya’s exports.

Media coverage

‘Government urges exporters to rebrand products’, KBC Channel, 20 July

‘Kenya’s share of UK market shrinks by 13.2 per cent’, Mediamax Network, 20 July

‘Kenya’s UK export slack opens door to regional rivals’, Citizen Digital, 20 July

‘Rwanda, Ethiopia edge out Kenya in UK trade’, The Star (Kenya), 21 July

‘Kenya loses market share to Rwanda, Dar’, Rwanda Today, 23 July (also printed in Business Daily Africa)

‘Kenya losing her UK-market to neighbouring countries’, Soko Directory, 23 July

‘Kenya’s export value to UK declining’, Kenyan Citizen TV (via YouTube)

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‘Brexit offers Kenya an opportunity to negotiate beneficial trade deals’, Business Daily Africa (via YouTube)

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Photo credit: EPC. All rights reserved.

 

18 July 2018 | Building the Capabilities of MSMEs in Manufacturing to Support Kenya’s Big Four Agenda

The SET programme, in partnership Kenya’s Executive Office of the Presidency, convenes government representatives, manufacturing firms, funders and industry leads in special economic zones (SEZs) and export-processing zones to discuss the importance of SEZ building for the ‘Big Four’ agenda and the role of micro-, small-and medium-sized enterprises within this. With manufacturing forming a core part of the industrialisation ‘pillar’ of the Big Four agenda, SEZs can be an important tool for addressing constraints to growth in the sector, such as infrastructure and energy supply. MSMEs are crucial agents of growth in manufacturing, and overall, represent 90% of Kenyan employment. However, they face considerable challenges in expanding and integrating into value chains. 

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On 18 July 2018, the SET programme, in partnership Kenya’s Executive Office of the Presidency, convenes government representatives, manufacturing firms, funders and industry leads in special economic zones (SEZs) and export-processing zones to discuss the importance of SEZ building for the ‘Big Four’ agenda and the role of micro-, small-and medium-sized enterprises (MSMEs) within this.

With manufacturing forming a core part of the industrialisation ‘pillar’ of the Big Four agenda, SEZs can be an important tool for addressing constraints to growth in the sector, such as infrastructure and energy supply. MSMEs are crucial agents of growth in manufacturing, and overall, represent 90% of Kenyan employment. However, they face considerable challenges in expanding and integrating into value chains.

This event brought together senior policymakers, MSMEs and industry experts to examine these challenges and build trust and relationships between firms and government as the policy implementation process for the Big Four agenda develops.

Photo credit: USAID/Riccardo Gangale.

17 July 2018 | Financing Garment Manufacturing in Kenya

On 17 July 2018, the SET programme at ODI, in partnership with the Kenyan Ministry of Industry, Trade and Cooperatives, convened a group of manufacturing firms, financers, Government representatives and others, to discuss Kenyan manufacturing within the industrialisation ‘pillar’ of President Kenyatta’s ‘Big Four’ agenda, and opportunities and challenges in the financing of textiles and garment manufacturing.

The workshop sought to bring firms and potential investors together to talk through constraints on both sides, and to begin to build relationships to support investments in the long term.

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On 17 July 2018, the SET programme at ODI, in partnership with the Kenyan Ministry of Industry, Trade and Cooperatives, convened a group of manufacturing firms, financers, Government representatives and others, to discuss Kenyan manufacturing within the industrialisation ‘pillar’ of President Kenyatta’s ‘Big Four’ agenda, and opportunities and challenges in the financing of textiles and garment manufacturing.

The workshop sought to bring firms and potential investors together to talk through constraints on both sides, and to begin to build relationships to support investments in the long term.

Photo: Dominic Chavez/World Bank.

20 June 2018 | ACET African Transformation Forum: Manufacturing Chapter Session

SET has worked closely with the African Center for Economic Transformation (ACET) since the first African Transformation Forum (ATF) in 2016.

ACET, in collaboration with the Government of Ghana, hosts the second ATF on June 20-21 2018. The ATF is a unique, policy-focused event that will bring together leading experts and practitioners to share perspectives on how to accelerate job growth, boost investment, and implement transformation policies.

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SET has worked closely with the African Center for Economic Transformation (ACET) since the first African Transformation Forum (ATF) in 2016.

ACET, in collaboration with the Government of Ghana, hosts the second ATF on June 20-21 2018. The ATF is a unique, policy-focused event that will bring together leading experts and practitioners to share perspectives on how to accelerate job growth, boost investment, and implement transformation policies.

As part of an ongoing collaboration as knowledge partners, SET hosts the third session of the Manufacturing Chapter. The aim of the Chapter (launched in June 2017, followed by a working session in December 2017) is to drive continuous conversation for African leaders to shape their countries’ industrialisation issues in the context of Africa’s transformation agenda.

The objective of this third session is to share experiences around the factors for success in African manufacturing. Country representatives from Ghana, Uganda, Ethiopia, Tanzania, Kenya, Nigeria, Rwanda and others will share their successes, challenges faced and plans for the future. Industry experts and senior officials from key government ministries, departments and agencies from selected African countries, development partners, civil society organisations, academia and the media are invited to participate.

Agenda

10:15 – 10:30 Welcome

Hon. Robert Ahomka-Lindsay: Deputy Minister (Industry) Ministry of Trade and Industry, Ghana

10:30 – 10:45 Summary of PACT Chapter progress

Buddy Buruku, ACET

This session will provide the summary of activities of the light manufacturing chapter of PACT since its inception.

10:45 – 13:00 Moderated Q&A

Moderator: Dr. Dirk Willem te Velde, Overseas Development Institute (ODI)

This session will focus on knowledge sharing around the core areas deemed pivotal to unlocking light manufacturing in Africa. Discussion will focus on how to get the basics of industrialisation right and how to mount an effective export push, among other topics. This session will provide an opportunity to hear from country representatives on how they are addressing various issues, specifically highlighting what has and hasn’t worked well. The session will include Q&A with participants.

13:00 – 14:00   Lunch

14:00 – 15:00  Panel on key issues in manufacturing

Moderator: Tony Oteng Gyasi – Managing Director, Tropical Cables and Conductors

Panelists:

  • Hanna Zemichael, Chief of Staff, Ethiopia Investment Commission
  • Alphonse Kwizera, Director, Rwanda Association of Manufacturers
  • Gituro Wainana, Former Head of Kenya’s Vision 2030

This session will feature stakeholders from various sectors who will respond to the issues raised in the morning discussion based on their own perspectives.  The objective is to bring in the view point of private sector, development partners, and CSO/think tank, etc. on the central challenges and opportunities highlighted by policy makers from various countries. The session will include Q&A with participants.

15:00 – 15:45  Presentation and discussion on future of industrialisation and Job Creation

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Presenter: Karishma Banga – Senior Research Officer, Overseas Development Institute (ODI)

This session will explore key new issues related to job creation and the future of industrialisation. African countries need to create 15 million additional jobs each year until 2030 (or 40,000 each day) in order to keep up with demographic challenges, yet the manufacturing sector has so far not met these needs. It is critical that countries consider the changing nature of work and where job creation opportunities are most likely to present themselves given the global shift toward digitalisation and automation (i.e. the 4th industrial revolution). Policy makers, private sector, development partners and research institutions, etc. will discuss their role in transforming the manufacturing space. The session will include Q&A with participants.

15:45- 16:00  Coffee break

16:00 – 17:15   PACT Consensus and way forward

Dr. Dirk Willem te Velde

Nigel Gwynne-Evans, Chief Director African Industrial Development, The Department of Trade and Industry South Africa

This session will synthesise the key issues discussed throughout the day, including distilling the key issues to be addressed in the sector for there to be measurable progress in the short- to medium-term. The objective is for the participants to come to a broad consensus on what the PACT chapter will focus on going forward and which activities it will aim to prioritise. These will be reported back to all ATF 2018 participants at the plenary on Day 2.

Background materials

DOWNLOAD: Manufacturing Chapter Launch – 5 June 2017

DOWNLOAD: Manufacturing Chapter Working Session One – 11 Dec 2017

DOWNLOAD: Manufacturing Chapter Working Session Two – 20 June 2018

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5-6 June 2018 | Financing the Development of Special Economic Zones in Tanzania

Tanzania has registered relatively little progress to date in establishing industrial parks and special economic zones (SEZs). None of the SEZ projects included in the country’s second Five-Year Development Plan (FYDP II) have yet been realised. The private sector is increasingly expected to step in to develop new zones. Securing the necessary finance to develop these zones still appears to be challenging, although negotiations to attract investment into certain zones, such as the Bagamoyo Port project, are more advanced.

Against this backdrop, the SET  programme held a two-day workshop in Dar es Salaam in June 2018 to discuss options for financing the development of SEZs and related infrastructure in Tanzania.

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Tanzania has registered relatively little progress to date in establishing industrial parks and special economic zones (SEZs). None of the SEZ projects included in the country’s second Five-Year Development Plan (FYDP II) have yet been realised. SEZs and industrial parks were not mentioned in the Minister of Finance and Planning’s latest speech to present the estimates of government revenue and expenditure for 2018/19, and the government appears to be prioritising spending on other infrastructure development over zones.

Instead, the private sector is increasingly expected to step in to develop new zones. Securing the necessary finance to develop these zones still appears to be challenging, although negotiations to attract investment into certain zones, such as the Bagamoyo Port project, are more advanced.

Against this backdrop, the SET  programme held a two-day workshop in Dar es Salaam on 5–6 June 2018 to discuss options for financing the development of SEZs and related infrastructure in Tanzania.

The workshop agenda and focus were designed in collaboration with Tanzania’s Export Processing Zones Authority (EPZA). It was attended by a range of different stakeholders, including representatives of Tanzanian development finance institutions, Tanzania’s Ministry of Industry, Trade and Investment (through the ministry’s Textile Development Unit) and a range of external experts with knowledge of, or interest in, financing and other elements of developing industrial parks and SEZs in Tanzania and elsewhere in the East African region.

Photo: Dar es Salaam waterfront, 2017. David Stanley via Flickr. CC BY 2.0.

Impact case study: Establishing the SET programme as a ‘centre for global knowledge’ on economic transformation

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Summary

One core objective of the Supporting Economic Transformation (SET) programme has been to establish the programme as a ‘centre for global knowledge’ on economic transformation and make a significant contribution to academic and policy debates on the best ways to achieve it in practice.

This impact case study explores how SET has achieved these aims through:

  • Producing high-quality, in-depth, comparative and thematic analyses on topics related to economic transformation, including on gender, digitalisation, manufacturing, services, trade and macroeconomics, which has generated uptake by key audiences
  • forging sustainable partnerships with in-country organisations, such as the African Center for Economic Transformation (ACET), Kenya Association of Manufacturers (KAM), Peking University, the Economic and Social Research Foundation (ESRF) and REPOA in Tanzania
  • convening globally renowned economists and policy experts such as Dani Rodrik, Helen Hai, Louise Fox, John Page, and Adair Turner at public events and high-level workshops in London and in developing countries
  • engaging ministers from Ethiopia, Ghana, Kenya, Liberia, Mozambique, Nepal, Nigeria, Rwanda and Tanzania with SET analysis and policy advice
  • disseminating research findings and policy recommendations effectively, achieving over 200 mentions in national and international media outlets (TV, print and online) including the Financial Times, the Economist, Africa Business Magazine and local media
  • influencing the analysis of international organisations (e.g. AfDB, World Bank, UNECA, UNIDO, IGC) other research outlets and prominent economists, evidenced by direct citations of SET data, findings and recommendations
  • Inspiring donors to take up and engage with the findings for their own programmes of analysis (e.g. DFID’s Invest Africa programme, Mastercard, SIDA)
  • growing the SET programme’s website into a centre for data and other information on economic transformation, evidenced by the figure of just under 150,000 tracked downloads.

In-depth analysis: contributing to global thinking on economic transformation

Producing quality, in-depth, thematic and comparative analysis on topics relevant to contemporary debates on economic transformation is a core element of the SET programme. Topics covered by SET analysis include gender, foreign direct investment, trade policy, manufacturing, services sectors, financing, macroeconomics and climate and environmental change. In many cases, SET analysis has contributed to shaping global debate, and the work of other institutions and economists, such as in the case of the programme’s flagship approach paper (see Box 1), and research on digitalisation in African manufacturing (see Box 2). Additionally, a firm-level survey of 640 Chinese manufacturing firms exploring responses to rising costs and appetite for investing abroad has challenged the prevailing narrative around the scale of Chinese manufacturing jobs likely to relocate to Africa in the coming decades, and was cited both in a recent piece from the Financial Times and on multiple occasions by renowned economist Justin Lin.


Box 1: Supporting economic transformation: an approach paper

SET’s central anchor paper, laying out the programme’s definition of economic transformation and approach to promoting it in developing countries, was developed over the course of the programme’s inception phase, and launched at a high-profile public event hosted at ODI in March 2017. Panel speakers included Louise Fox, now Chief Economist at USAID and globally-renowned economist (and report co-author) Maggie McMillan.

The paper, and its unique approach to the study of the what, why and how of economic transformation (see diagram below) that brings together political economy analysis with sound diagnostic analysis and provides practical policy advice, has been cited in academic publications from the African Development Bank, Centre for Development Alternatives, Sheffield Political Economy Research Institute and others.

The programme’s approach has also contributed to the work of organisations in the wider development community. The Tony Blair Institute, for instance, informed SET the approach paper was regularly referred to in their work. The paper also sparked engagement between SET and the Mastercard Foundation, who reached out to suggest a webinar for their staff based on SET’s approach; SIDA, too, sought training from the SET team on their methodology and approach to in-country working. The approach has also been presented to international development partners UNIDO, UNCTAD, SOAS, the World Bank and the ILO. SET’s approach additionally built connections between the programme and Gatsby Africa which led to a research partnership being developed (outside SET).

Finally, the paper also influenced DFID; it was cited in the recently published Invest Africa business case and was used by country offices in the development of inclusive growth diagnostics.


The SET approach.

 


 


SET’s ways of undertaking comparative and thematic analyses encompass many of the elements of the way the programme has established itself as a centre for global knowledge, that is, working with partners and disseminating effectively to achieve pickup in the media and uptake by other research outlets and prominent economists. A number of papers were produced in collaboration with international or local development partners, including the African Center for Economic Transformation (ACET) and New Climate Economy (NCE). SET’s research (and other outputs) achieved over 200 hits in online and print media since 2014.

Working with partners to embed SET analysis and policy advice

As part of striving for long-term sustainable impact, SET has worked from the beginning to forge strong partnerships with other international development think tanks, research bodies and in-country think-tanks, private associations and senior policymakers, firstly to strengthen analysis by encompassing different perspectives and secondly to encourage uptake of analysis and policy advice that will last beyond the end of the programme.

A select number of examples (by no means an exhaustive list) of SET’s collaborative working with partners and high-level stakeholder engagement to share knowledge and influence are explored here. Additional examples not covered here include in-depth work with private associations the Kenya Association of Manufacturers to promote manufacturing on the political agenda and the Nigerian Economic Summit Group to produce analysis on local integration and backward integration in Nigeria.

Local think tanks

African Center for Economic Transformation (ACET)

SET and ACET have been collaborating since October 2015 to support economic transformation efforts across African countries. This was done through a two-pronged approach – (i) producing high-quality, policy-focussed papers and comparative analysis, and (ii) convening meetings that bring together stakeholders to discuss how to promote manufacturing in Africa. ACET is known for its instrumental impact across the continent thanks to its excellent government and senior stakeholder links, and has seen significant capacity building gains, reflected by winning an award in 2018 for best (international) economic think tank.

SET support of the ACET-led African Transformation Forum (ATF), which took place in 2016 and 2018 and was attended by ministers and leaders from several African governments, placed the programme at the centre of policy debate on the continent. In 2018, SET was invited to lead a breakout session on the role of manufacturing in industrial policy, offering a platform for the dissemination of the programme’s analysis and policy advice to senior policymakers in sub-Saharan African governments.

President of Rwanda Paul Kagame and SET Director Dirk Willem te Velde speaking at the African Transformation Forum Manufacturing Chapter session in Accra, Ghana, June 2018.

Tanzania: Economic and Social Research Foundation (ESRF) and REPOA

SET has been working with Tanzanian think tanks REPOA and ESRF since 2015 as part of work to support the industrialisation process in the country. SET worked initially with REPOA to support the government’s process of producing the second Five-Year Development Plan (FYDP II) 2016/17–2021/22, including to host a consultative workshop with the private sector in Dar es Salaam. SET later worked with ESRF in the process of analysis and monitoring the government’s progress against the ambitious industrialisation goals laid out in the FYDP II, leading to the production of a paper, ‘Recent progress towards industrialisation in Tanzania’, exploring what has been achieved and challenges to further progress, which was published on both SET’s and ESRF’s websites. ESRF and SET also worked together to put together an implementation workshop for government and private sector actors following the launch of the FYDP II.

Development partners

World Bank

Through support to DFID, SET has influenced the work of the World Bank, improving the prioritisation of economic transformation in their country strategies. SET’s work on this was heavily drawn upon by the World Bank, who agreed as a result to add a portfolio-level indicator in IDA18 discussions around economic transformation. Through his work, SET succeeded in influencing a key part of the international aid system. SET later took on another piece of work for the World Bank (also through DFID), evaluating their investments in infrastructure.

SET has also worked with World Bank offices in-country and has been cited in the World Bank’s jobs diagnostics for Mozambique. SET hosted the launch event for the World Banks’s research into the future of manufacturing-led development.

United Nations Economic Commission for Africa (UNECA)

SET worked with UNECA to support two of their regional offices in preparing pilot diagnostics and country profiles. SET’s guidance left a lasting impact on UNECA’s work, and subsequent reports cite SET analysis extensively, showing how UNECA is using SET findings in its work moving forward.

CDC Group

SET engaged with the UK Government’s development finance institution (DFI) CDC throughout the programme in various ways, seeking to support them in their investment decision-making by encouraging them to be more transformational.

SET invited CDC to an investment event with the Government of Liberia and the Liberian National Investment Commission in September 2017, which resulted in meaningful connections being forged between CDC and the Liberian government. CDC later attended and presented at a workshop held jointly in Nairobi by SET and the Kenyan Ministry of Industry on financing Kenya’s textile, cotton and garment manufacturing firms. CDC were able to make new connections with garment firms, and put forward the challenges faced by DFIs when seeking sound investments in manufacturing. Five members of CDC staff also attended a meeting SET hosted in the House of Commons on the role of the City of London in Africa’s development in February 2017.

As well as facilitating their participation in key events, SET produced a report targeted at DFIs such as CDC, providing guidance on how to evaluate the economic transformation potential of DFI investments., CDC colleagues reviewed and provided comments on the report.

Government policymakers

Nigeria

SET worked with DFID Nigeria to undertake analysis that would re-open the debate in the country as to Nigeria’s industrialisation progress. The resulting report, ‘Supporting economic transformation in Nigeria’ was shared by DFID with figures in the ministries of both agriculture and industry, and later launched at a high-profile event in Abuja, at which the keynote speech was delivered by the federal Minister for State for the Ministry of Trade and Industry. The Minister confirmed that the report would provide great opportunity to consider reforms for creating jobs and improving prosperity in the country. The event also received positive, widespread coverage in the media, including on CNBC Africa.

Mozambique

SET engaged with senior Mozambique government officials through the launch of its study on economic transformation and job creation, produced in partnership with DFID Mozambique. The study was discussed in Maputo at targeted, high-level roundtable events that brought together the UK High Commissioner in Mozambique with the Minister of Economy and Finance, the Deputy Minister of Industry and Commerce, and other figures from across the government.

Left: Aisha Abubakar, Hon. Minister for State, Nigerian Ministry for Trade and Industry, delivering the keynote speech at the launch of SET’s analysis on economic transformation in Nigeria, Abuja, May 2016. Right: Dirk Willem te Velde discussing job creation and economic transformation with Mozambique’s Deputy Minister for Industry, Maputo, August 2017.

Nepal

SET analysis on promising sectors for inclusive job creation in Nepal achieved engagement at a high level through attendance and participation of Swarnim Wagle, Vice-Chair of the National Planning Commission at the launch event in Kathmandu. Wagle expressed his appreciation for the analysis and event, and interest in future work with the SET programme.

East Africa: Tanzania, Rwanda and Kenya

In Tanzania, engagement with the Minister for Finance and Planning on the country’s Five-Year Development Plan has been ongoing since 2015, and more recently discussions have been had with the Vice President to drive action forward on key industrial projects. In Rwanda, the Ministry of Industry, Trade and Commerce has benefited from analysis on the manufacturing sector and guidance on investment appraisals, work culminating in a SET and Rwandan government jointly-hosted roundtable on next steps for Rwanda’s transformation in September 2018. In Kenya, the government has engaged with SET work on numerous occasions and at different levels; officials from the Ministry of Industry have engaged with SET on the topic of services and financing manufacturing, senior advisors in the Office of the Presidency have worked closely with the programme to utilise analysis on MSMEs in manufacturing, and SET met the Cabinet Secretary for Trade (now for the East African Community) on the fringe of the Commonwealth Heads of Government Meetings in London in 2018.

Left: Dirk Willem te Velde discussing SET’s work with the Kenya Association of Manufacturers to develop a 10-point plan for manufacturing with the then-Cabinet Secretary for Trade, in London, April 2018. Right: SET team meeting with the Vice President of Tanzania, Minister for Finance and other trade and industry officials in Dar es Salaam, July 2018.

Convening experts

Convening world-leading experts, academics and senior policymakers to discuss developments and debates and new findings from SET analysis has helped establish the programme as a centre for knowledge and excellence in economic transformation. A number of public events, convening academic and policy experts, have been held at ODI’s offices in London:

  • June 2015 – SET hosted Harvard professor Dani Rodrik for a keynote speech on the future of economic transformation in developing countries (the video of which has been viewed over 2250 times on YouTube)
  • November 2015 – SET hosted Lord Adair Turner, former chairman of the Financial Services Authority, for a keynote speech on finance and inclusive economic transformation
  • March 2017 – SET convened speakers including Louise Fox (Chief Economist, USAID) and Margaret McMillan (Associate Professor, Tufts University) to launch flagship approach paper
  • August 2017 – SET hosted Justin Lin, Director of Peking University’s Institute for New Structural Economics, to deliver a keynote to launch his books on development cooperation and jump-starting economic transformation.
Dani Rodrik delivering the keynote at an ODI public panel event, London, June 2015.

Additionally, SET has convened senior policymakers, private sector actors and in-country experts for targeted, private workshops in developing countries:

  • October 2015 (Dar es Salaam) – SET and Tanzanian think tank REPOA hosted policymakers from the Ministry of Finance and Planning, private associations including the CEO’s Roundtable and the Tanzanian Private Sector Foundation (TPSF) and others for a consultation workshop on the government’s drafted Five-Year Development Plan for 2016/17-2021/22
  • October 2017 (Kathmandu) – SET and Nepalese think tank South Asia Watch on Trade, Economics and Environment (SAWTEE) hosted private manufacturing, ICT, tourism and agro-processing firms and associations and Nepalese Planning Commission Chair Swarmin Wagle at the launch of SET analysis on sectors for inclusive job creation
  • July 2018 (Nairobi) – SET hosted senior figures from the Office of the Presidency, the Kenyan Ministry of Trade and Industry, MSMEs in manufacturing and development partners to discuss initial findings of SET analysis on MSMEs in value chains and SEZ plans.

Media engagement and citations

Media hits

Over the course of the programme, SET analysis, commentary and events have received coverage from international and national media outlets across five continents, and across TV, radio, print and online platforms. Over 200 hits have been tracked (a selection listed online) in print and online including in the Financial Times, the Economist, African Business Weekly, the East Africa, the Star (Kenya), the New Straits Times (Malaysia), the Kathmandu Post (Nepal), the Guardian (Tanzania), the Reporter (Ethiopia) and Rwanda Today, and TV including BBC, CNBC Africa, Channel S (Nigeria) and Karobar News (Nepal).  The papers that achieved significant pickup in the media are:

  1. ‘Digitalisation and the future of African manufacturing’ (2018, 98 hits)
  2. ‘Economic transformation in Nigeria’ and the launch event (2016, 21 hits)
  3. ‘Rising costs in Chinese light manufacturing: what opportunity for developing countries?’ (2017, 18 hits).

Box 2: Digitalisation and the future of manufacturing in Africa

As part of a drive to explore beyond traditional manufacturing, SET undertook an analysis of indicators of digitalisation in sub-Saharan Africa and the likely impact of further digitalisation on African manufacturing. The report was launched at a panel session at the Global Development Network’s conference in New Delhi, ‘Science, Technology and Innovation for Development’ in March 2018.

The launch was picked up by the global media, with over 95 hits in print and online media including BBC Africa, East African Business Week, Business Ghana, La Vanguardia (Spain) and the New Straits Times (Malaysia), as well as radio segments on two BBC World Service programmes and a TV segment on Voice of America. The report, briefing and infographics were also republished in their entirety on the ILO’s ‘Technology@Work’ website, a platform for its initiative on the future of work.

Harvard scholar Dani Rodrik cited the paper in a recently study, ‘New technologies, global value chains and developing economies’ for Oxford University’s Pathways Commission, as did a study from the African Development Bank, and the paper also influenced a Mastercard Foundation (as yet unpublished) scoping paper on a new programme on the future of work.

Since publication, report lead author Karishma Banga has been invited to and presented the findings of the work at:

  • UNCTAD’s e-commerce week in Geneva (April 2018)
  • UNECA, FES and OHCHR workshop on digital trade and human rights in Addis Ababa (May 2018) (following which, the report authors were commissioned for a chapter on the right to work for a joint publication with UNECA, due 2019)
  • African Union e-commerce conference in Nairobi (June 2018)
  • the WTO Public Forum in Geneva (October 2018).

Citations

The programme has also tracked a number of citations of SET analysis in research papers from prominent economists, academic institutions and think tanks, as well as ‘roundups’ of recent research from organisations such as the DCED. Tracked citations total over 70 and include those in papers from the African Development Bank, the World Bank, Brookings, Oxford University, the Journal of Economic Integration, and Cambridge University’s Journal of Demographic Economics.

As well as showing the reach and quality of SET analysis, citations such as those in programme proposals or business cases (for DFID’s Invest Africa) also indicate the influence of analysis on the direction of future research.

SET’s website as a centre for knowledge

The SET programme’s website was launched in 2015 with the aim of creating a dedicated space for research, comment, data and events on economic transformation for the programme’s key audiences. Since its inception, the website’s audience has grown exponentially, and downloads[1] of research, event reports and other documents from the site have also increased (see Figure 1).  Downloads over the course of 2018 reached 88,087, more than twice 2017’s total.

The website has also been established as a source for authoritative commentary on economic transformation topics and developments in UK or developing-country policy, in the form of blogs. Expert economists including Morten Jerven and Gaaizen de Vries, former Permanent Secretary for Transport in Kenya Gerrishon Ikiara, and Made in Africa founder Helen Hai are amongst those who have produced SET blogs.

Downloads from the SET programme website, September 2015-December 2018
Note: Lack of data from pre-September 2015, as well as missing data between May and July 2016, means that the downloads presented here will be lower than the real total.

 

 

 

 

 

 

 

[1] By downloads we mean those of PDF documents hosted on the SET website, including research reports, briefings, event reports, and other event materials such as PowerPoint slides or agendas. This is not the same as website visitors.

 

Impact case study: Influencing government industrial policy and supporting improvements to DFID programming in Rwanda

The Supporting Economic Transformation (SET) programme has been working in Rwanda since 2016. The primary focus of the work has been supporting the evolution of government policy towards a coherent approach to economic transformation. Policy research and engagement carried out with this aim has contributed to a gradual but perceptible improvement in the quality of policy thinking despite some notable counter-currents. This work has spun off secondary benefits in terms of stimulation and guidance to DFID governance and growth advisers, DFID partners and the local private sector.

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Introduction

The Supporting Economic Transformation (SET) programme has been working in Rwanda since 2016. The primary focus of the work has been supporting the evolution of government policy towards a coherent approach to economic transformation. Policy research and engagement carried out with this aim has contributed to a gradual but perceptible improvement in the quality of policy thinking despite some notable counter-currents. This work has spun off secondary benefits in terms of stimulation and guidance to DFID governance and growth advisers, DFID partners and the local private sector. The programme’s key contributions were:

  • A cumulative series of research papers and conversations with high-level Rwandan stakeholders around international experiences of economic transformation and implications for Rwanda, starting with the SET/ACET background papers discussed in Kigali with Rwandan ministers at the 2016 African Transformation Forum and continuing with outputs on public-private sector coordination, financing manufacturing and the evolution of the local business community.
  • A major influencing effort culminating in September 2018 in a briefing and roundtable: ‘Kickstarting Rwanda’s economic transformation: what needs to be done, when and by whom?’. Attended by over 30 senior policymakers, including the Minister of Trade, two Permanent Secretaries, several Director-Generals and the government’s Chief Economist, this produced a consensus on priorities around employment-intensive manufacturing that is now influencing implementation of the 2017-24 government programme, now called the National Strategy for Transformation (NST).
  • A staff training initiative and guidance note on analytical techniques to support decision-making on investment priorities, carried out as part of the Ministry of Trade and Industry (MINICOM)’s Economic Diplomacy programme. The training built the capacity of the Economic Diplomacy focal points in key ministries to assess and prioritise industry, trade and investment options, and fed into the programme’s assessment.
  • Regular exchanges of information and ideas with DFID growth, governance and private sector development leads, including on the design of Invest Africa, around DFID-Rwanda’s Governance for Growth (G4G) initiative, and on synergies and operational methods across the country portfolio.

The policy challenge

The Rwandan economy has experienced moderate growth, of around 7% per annum, in recent years. Improvements in agricultural productivity have helped income inequality and poverty to fall. This is set to continue but needs to be complemented with new sources of growth providing productive employment outside of agriculture on a substantial scale, while increasing the resilience of the national economy by diversifying its export earnings. The Government of Rwanda (GoR) has taken important initial steps towards a coherent industrial policy framework, including establishing a special economic zone (SEZ) in Kigali and planning for a further eight industrial parks in other parts of the country. However, it is only recently that its overall policy approach has been framed as economic transformation, with manufacturing growth and suitably ambitious job-creation goal at its centre. There continue to be significant counter-influences on policy, including beliefs around economic self-reliance and the feasibility of skipping developmental stages.

Rwanda has needed tailored advice and research support to help in getting closer to the targets set in its Economic Development and Poverty Reduction Strategy II (EDPRS2), its revised Vision 2020 and, most recently, its National Strategy for Transformation (NST1). Based on an initial scoping exercise, the SET Rwanda project was tasked with supporting the GoR and its partners to design and implement policies that could put the country on a more transformational path, with work in four priority areas:

  1. The selection and design of policies and instruments for the development of an employment-intensive, export-oriented manufacturing sector with robust linkages to the domestic, regional and global economies.
  2. The identification of new sources of foreign and domestic private investment for the sector and related services, taking into account the importance of generating knowledge spill-overs on business models and marketing strategies.
  3. Arrangements for dialogue, consultation, feedback and lesson learning among the different government and private sector actors with interests in the sector, including the adequacy of current forms of coordination and interest-representation.
  4. The ability of GoR to provide intellectual and experience-based leadership on economic transformation to regional bodies, including the East African Community and the manufacturing and regional integration chapters of the Coalition for Transformation launched at the African Transformation Forum 2016.
The SET team and GoR officials meet for high-level roundtable on kickstarting Rwanda’s transformation, 10 September 2018.

What SET did

Leading political economist and Principal Research Fellow at ODI, David Booth, and Research Fellow Linda Calabrese worked closed with locally-based consultant Frederick Golooba-Mutebi on a cumulative series of research papers and linked conversations with high-level Rwandan stakeholders. The core aim was to influence and support government policy, with benefits to DFID and the local private sector as an additional goal. The common focus of the work was international (especially Asian) experience in economic transformation and its implications for Rwanda. The principal steps were:

  1. Contributions, with the African Centre for Economic Transformation (ACET), to the design and proceedings of the first African Transformation Forum, co-hosted in Kigali by ACET and GoR in March 2016. This process was important for kicking-off the Rwanda project’s high-level conversations with GoR as well as for stimulating GoR’s reformulation of its strategic goals towards economic transformation.
  2. A policy paper comparing Rwanda’s current institutional arrangements for coordinated action and dialogue on foreign direct investment and private sector development with a range of Asian and African models. This included a range of relevant examples of effective practice in public-private collaboration and the steering of industrial policy. It was well received by then Minister of Trade and Industry Francois Kanimba, was circulated widely among the senior stakeholders interviewed during the research, and was frequently referenced in the follow-up conversations in the country by locally resident team member and East African thought-leader Golooba-Mutebi. This paper was also uploaded by the Government of Rwanda in the newly created Rwanda Trade Portal (only accessible to government staff).
  3. Two complementary research papers. One, on financing manufacturing in Rwanda was widely circulated in 2017, and it was uploaded by the GoR in its newly created Rwanda Trade Portal (only accessible to government staff). This paper was presented in a new form at the International Growth Centre (IGC)-supported conference on ‘Industrial Policy for the Next Decade’ in September 2018. The other, the product of field research on ‘The local business community in Rwanda: prospects for an expanded role in economic transformation’ has been shared with DFID and submitted to a scholarly journal.
  4. A major influencing effort on the principal policy lessons highlighted by the SET research. High-level conversations around a synthesis briefing culminated in September 2018 with an invitation-only, high-level roundtable: ‘Kickstarting Rwanda’s economic transformation: what needs to be done, when and by whom?’. Attended by over 30 senior policy makers, including the Minister of Trade, two Permanent Secretaries, several Director-Generals and the government’s Chief Economist, this produced a consensus on priorities around employment-intensive manufacturing that is now influencing implementation of the NST1. The main takeaways of the roundtable are presented in the document ‘Kickstarting economic transformation in Rwanda: key takeaways’, jointly produced by the SET team and the Ministry of Trade and Industry (MINICOM). This was brought to a wider audience through a second SET presentation at the above-mentioned MINICOM/IGC conference. The material has also been used by the Ministry in their own presentations and strategic thinking.
  5. A guidance note on appraising export-growth and import-substituting options was written and shared with the MINICOM with the support of the embedded trade specialist of the Tony Blair Institute. This was included in MINICOM’s Economic Diplomacy Strategy as part of the programme documentation. Following this, a series of staff training workshops on analytical techniques to support decision-making on investment priorities were held by ODI/SET experts in July-August 2018. The training activities built the capacity of the Economic Diplomacy focal points in key ministries to assess and prioritise industry, trade and investment options.
  6. Regular exchanges of information and ideas with DFID growth, governance and private sector development leads, drawing on the GoR-facing research and other ODI work. Contributions included a written input to the design of the Invest Africa programme, and several conversations about the form to be assumed by DFID-Rwanda’s Governance for Growth (G4G) initiative. This work culminated in a workshop in August 2018 with DFID implementing partners, on ‘Tools for Transformation’, explored synergies and operational methods across the country portfolio, drawing on SET/ODI thinking.

ODI Principal Research Fellow David Booth (far right) discussing SET analysis with government representatives at IGC and GoR conference on industrial policy, 17-18 September 2018.

Impact

The SET Rwanda project has had demonstrable success in respect of two of the core aims of the SET programme: (i) supporting the planning and implementation of policies that drive economic transformation at government level, and (ii) supporting improvements in DFID programming at country-office level. In particular, SET has contributed with others to put economic transformation at the centre of GoR’s strategic agenda (as in NST1) and to appreciate better what this commitment means, in terms of choice of industrial priorities, modalities of policy steering and private-public collaboration that work best in export-oriented, employment intensive manufacturing, and capacity limitations to be addressed in appraising investment options.

We consider the impact of the SET programme’s work in Rwanda across four broad types as outlined by DFID-ESRC Growth Research Programme (DEGRP): conceptual impacts (changing perceptions, knowledge or approaches/attitude), instrumental impacts (tangible changes in either policy or practice), capacity building impacts, and improvements to connectivity between different actors.

Conceptual impacts

While Rwandan policies have famously taken inspiration from certain Asian countries (notably Singapore), the most relevant experiences of economic transformation from Asia and the Africa region (e.g. Mauritius) have not been taken as seriously as they should have been. The most relevant lessons are about the early priority given to raising agricultural productivity and the subsequent turn to employment-intensive, export-oriented manufacturing. Specialisation according to latent comparative advantage and concentrated effort around industrial clusters are among the key concepts.

The work speaks to the core of our priorities at RDB, and topic is very interesting for us at this very time” – Chief Operations Officer, Rwanda Development Board (RDB)

The SET programme has contributed to the communication of these highly relevant concepts to the highest policy circles in the country. It did not do this single-handedly but, by exploring and discussing with stakeholders the specific application to Rwanda of the policy principles advocated globally by policy organisations such as ACET and economists such as Joe Studwell, Justin Yifu Lin, Celestin Monga and others, it has brought the implications closer to home than they otherwise would have been. Evidence of the reach of the SET-supported concepts includes the tabling of the programme’s first Rwanda-specific paper, on public-private collaboration, a meeting of the Presidential Advisory Council (PAC) by ex-Trade and Industry Minister Francois Kanimba, and the calibre of the attendance and quality of the discussion at the high-level roundtable in September 2018, which included the Minister of Trade and Industry Hon. Vincent Munyeshyaka, two Permanent Secretaries, several Director-Generals and the Chief Economist.

Instrumental impacts

The GoR’s soon-to-be-published seven-year programme for 2017-24 is called a strategy for transformation, with the first chapter dedicated to economic transformation. The February 2018 draft of the NST1 also put an ambitious job target at its centre and recognised a key role will be played by manufacturing. The change in policy language is partly the reflection of a trend across the Africa region, but SET’s collaboration with ACET in 2016 made a significant contribution to this reframing among others.

SET’s recommended policy priorities reflected in Rwandan government policy action ‘takeaways’ at high-level roundtable, 10 September 2018.

Of course, it is the implementation of the NST1 that will matter, not the document on its own. The most important tests in this respect lie ahead. However, the strength of the high-level consensus at the September 2018 roundtable gives grounds for hope around the four commitments discussed there:

  • Giving greater effective priority to employment intensive manufacturing
  • Accelerating the SEZ programme with closer attention to industrial clustering
  • Mobilising the domestic private sector behind the manufacturing effort
  • Strengthening the framework for government-wide coordination of industrial policy

These four commitments were already owned and presented by MINICOM in policy fora, such as the industry and exports sub-sector working group held in October 2018.

“I was at the industry and exports sub-sector working group this morning at MINICOM, where they presented the slides from your high level roundtable and focused on these 4 lessons! So it already seems to have made a mark on them in the short term.” – Anna Gibson, DFID Rwanda

Capacity building impacts

Government of Rwanda

The guidance note on appraising export-growth and import-substituting options led to a collaboration with MINICOM embedded advisors (from the Tony Blair Institute (TBI)) that was designed to fit closely the work and objectives of the Ministry’s Economic Diplomacy programme and the government-wide NST1. Buy-in was secured from the Permanent Secretary to MINICOM, and a training programme in Kigali in July 2018 was attended by 14 government representatives. The follow-up activity in August had similar levels of participation and focussed on the practical applications of the concepts discussed in the first training.

The notes and presentations of the training will be uploaded in the government’s Economic Diplomacy intranet to be accessible also to those who were not primarily selected for the training but are keen to deepen their understanding of these topics.

I’ve heard from MINICOM that Linda and Max’s training was really relevant and well received, which is great” – Anna Gibson, DFID Rwanda

This training helped me to take/undertake an analysis on how we could improve our economic transformation through developed industry, trade and investment” – Economist, MINECOFIN

DFID Rwanda

SET worked with DFID Rwanda to inform their programming and policies by conducting research into one of its key focus areas, manufacturing. The papers were influential in the development of their manufacturing interventions under the Invest Africa programme and the G4G initiative.

SET also helped DFID achieve lasting improvements in the way DFID programmes and implementing partners work together to help transform Rwanda by hosting meetings with new G4G leads, discussing the business community study and its implications for working on business voice and representation.

Tony Blair Institute

The guidance note on appraising export-growth and import-substituting options is being used by the TBI’s representative in the GoR as training background documentation, and it will have direct influence on the direction of the GoR’s new Economic Diplomacy Programme by informing the action plan for its development. SET’s outputs, including the synthesis briefing paper, have been shared with and presented to the TBI Rwanda team as a whole.

Connectivity impacts

The project has strengthened networks of stakeholders both in the development and utilisation of the research. Training workshops which secured the attendance of representatives from multiple government departments reflected SET’s ability to convene across government and share knowledge with a common objective.

SET has also provided DFID Rwanda with invaluable support in being able to access, and independently work with, Rwandan government in ways not directly open to it as a donor.

SET has also been able to promote a frank discussion about export-led manufacturing within the GoR and to bring the main points of this discussion to the public forum at the MINICOM/IGC industrial policy conference.

SET has also linked Rwanda’s development path to the work of Celestin Monga, Vice-President and Chief Economist of the African Development Bank, whose work was used to inform the policy lessons on kick-starting economic transformation in Rwanda. The SET team has connected Dr Monga to Hon. Min. Munyeshyaka (MINICOM) and his team.

What SET learned

One of the main lessons the SET programme has learned is about the importance of working with the institutional players in Rwanda. MINICOM has a mandate in the areas of trade and industry, and plays a strong role in these areas. The SET programme worked closely with MINICOM to organise the high-level roundtable in September 2018. The Ministry played an active role in the organisation and dissemination of the work. The Ministry were also keen to develop specific action points from the conference, which they have already taken forward as part of their own work. This has ensured strong buy-in and sustainability of the SET messages.

On another level, the Rwanda experience has generated some fresh insights about the relationship between political economy and policy work, nuancing the framework described in SET’s 2017 approach paper. The political economy context for economic transformation is clearly different, and on balance more favourable, in Rwanda than in, say, Tanzania or Kenya. Less clearly favourable elements in the country’s political economy include incentives to engage in voluntaristic policymaking, where goals are set without sufficient reference to the country’s current resource endowments. Consistent commitment to supporting employment-intensive manufacturing would have been achieved sooner in the absence of this factor.

Useful links

Karishma Banga (ODI) | Making Firms Work Series | Using digital technology to become globally competitive: Funkidz

Karishma Banga, ODI
18 December 2018
Funkidz, a one-of-a-kind Kenyan small or medium enterprise (SME), has successfully managed to leverage digital technologies to increase its global competitiveness. Founded by a female entrepreneur, Wanjiru Waweru-Waithaka, Funkidz manufactures furniture for children locally. It has successfully embraced digital technology to innovate, diversify and survive in a challenging market place.

Karishma Banga (Senior Research Officer, ODI)

18 December 2018

This blog is part of our ‘Making Firms Work’ series. Read other blogs in the series: on Tanzanian textile manufacturer A to ZNepali ICT firm CloudFactory, Kenyan garment firm Hela and Midal in Mozambique. 

Funkidz, a one-of-a-kind Kenyan small or medium enterprise (SME), has successfully managed to leverage digital technologies to increase its global competitiveness. Founded by a female entrepreneur, Wanjiru Waweru-Waithaka, Funkidz manufactures furniture for children locally. It has successfully embraced digital technology to innovate, diversify and survive in a challenging market place.

Information and communication technology (ICT) is already regarded as a key development pillar in Kenya, and efforts are currently being focused on leveraging the digital economy to expand manufacturing, as one of the ‘pillars’ of the Kenyan government’s Big Four agenda. However, there is still a significant digital divide in access to digital technologies in Kenya compared with other developing economies, as well as a digital divide in use of such technologies within the country’s manufacturing sector. While digitalisation brings with it certain challenges, it also presents new opportunities for economic growth and employment creation. It is crucial for African countries to identify these opportunities and to capitalise on them in order to not be left behind.

The window of opportunity in Kenya’s furniture manufacturing industry

Given the relatively low levels of digitalisation in Kenya, compared with developing countries in Asia, there may still be a window of opportunity for the nation to move into sectors less affected by technology and global changes. But how long will this window of opportunity remain open? With regard to the furniture sector in Kenya, operating a robot becomes cheaper than Kenyan (formal) labour in 2034. Moreover, operating a robot in the US furniture industry becomes cheaper than Kenyan labour in 2033. This indicates that the window of opportunity in the Kenyan furniture sector is around 15–16 years, following which there may be increased automation within the sector, or possible re-shoring of furniture manufacturing to developed economies. This will affect both growth and employment in the sector.

It is also worth noting that the furniture sector is a relatively low-skilled, labour-intensive tradable sector with relatively high robot density. In other sectors with higher robot density, such as automobiles and electronics, the window of opportunity is likely to be shorter; in other sectors, such as garments, it is likely to be longer, given issues related to economic and technological feasibility.

Funkidz: Harnessing digital technologies to become globally competitive

What makes Funkidz different from other furniture SMEs in Kenya is that it has invested heavily in technology, particularly in Computer Numerical Control, or CNC, machinery – that is, the automation of machine tools by means of computers. In modern CNC systems, there are two technologies at play: first, the mechanical dimensions of the furniture parts are defined using computer-aided design (CAD) software; and second, they are translated into manufacturing instructions using computer-aided manufacturing (CAM).

The CNC technology Funkidz has installed, along with large digital printers, enables the multiplication of furniture designs, with exact specifications and high quality. As a result, the beds, desks, cots, etc. manufactured have similar characteristics to what you would find at Ikea – those of good-quality furniture that is flat and packable. The firm’s new range of furniture is in fact completely packable, easier to transport and multifunctional. The company also offers flexibility in price via different customisation options. For example, a bed can be purchased either unpainted or painted, with choices of different prints depending on the customer’s preferences.

Funkidz has also recently launched an augmented reality app – one of the very few in Kenya – that will allow customers to log in from their phone, browse the firm’s e-catalogue for furniture and use 3D modelling and scanning to virtually place it in their house. It is also possible to change the colour of the furniture and its position for a better user experience.

Leveraging digital technologies has allowed Funkidz to increase its global competitiveness by lowering the cost of furniture manufacturing and enabling exact specification mass production that has generated economies of scale. In a span of about five years, the firm has expanded beyond the domestic market of Kenya and is now exporting to Rwanda and Uganda, and since more recently, to the UK.

Finding innovative solutions to manufacturing challenges

One of the biggest constraints the firm faces is lack of relevant skills in the workforce to operate the machinery fitted with digital technologies such as CNC systems. There is a dearth in Kenya, and in Africa in general, of the technicians needed to operate computer-controlled machines, making it necessary to hire expensive engineers to do the job. There is thus a need to retrain workers in new skills and to upgrade education. A subsidiary of Funkidz, known as Funkidz Tech, has partnered with Safaricom to design its own curriculum that provides training on how to make furniture with different specifications and dimensions, and also provides training in CNC numerical cutters.

‘Urban mining’ in furniture production.

While power supply is not the biggest constraint for the firm (the factory receives 3-phase power at rural electrification rates for light industries), rising timber prices, as well as financial and market access, present important challenges to its operations. There is a ban on logging in operation in Kenya at present, which has increased the price of wood drastically; a wooden plank now costs 96 shillings a foot compared with 42 shillings before. To address this problem, the firm has embraced innovative thinking and research and development, and is now making use of ‘urban mining’ – that is, recycling and reusing waste from cities. It has started acquiring pallet wood, one of the easiest and cheapest types of wood waste to recycle, which then undergoes nail removal, finishing and sanding within the firm. Electronic waste such as batteries, electrical circuits, computer hardware, etc. is being used as design components in table tops, showpieces and lamps. Imported second hand clothing, known in Swahili as “Mitumba”, is being used as cushion covers for furniture.

The way forward

To ensure the Kenyan manufacturing sector is able to leverage digital technologies to boost manufacturing and job creation, both the public and the private sector will need to make continuous joint efforts. Targeted policies and effective public–private collaborations are needed to:

  1. reduce the cost of raw materials
  2. increase access to and affordability of internet and ICT hardware such as routers, sensors, computers, etc. for manufacturing firms
  3. retrain the workforce to increase its employability but also to ensure retention of labour once trained
  4. increase absorptive capacity of the workforce to understand, adopt and adapt digital technologies to meet local challenges and needs and
  5. promote advancements in firm-level capabilities and innovation.

Photo: Use of CNC machinery to cut wood, FunKidz factory, Kenya, 2018. Karishma Banga, all rights reserved. 

How to Grow Manufacturing and Create Jobs in a Digital Economy: 10 Policy Priorities for Kenya

Karishma Banga and Dirk Willem te Velde, November 2018

The global manufacturing landscape is changing rapidly with the increasing use of digital technologies such as robotics and artificial intelligence, presenting both important opportunities and challenges for manufacturing and job creation. While Kenya has emerged as the leader of digitalisation in the African context, there is still a significant digital divide within the country, when compared with developed countries and Asian economies, in terms of access to and use of available technologies. At the same time, there are growing fears that rapid digitalisation might hamper job creation efforts, particularly in the manufacturing sector.

Karishma Banga and Dirk Willem te Velde, November 2018

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DOWNLOAD BRIEFING

The global manufacturing landscape is changing rapidly with the increasing use of digital technologies such as robotics and artificial intelligence, presenting both important opportunities and challenges for manufacturing and job creation. While Kenya has emerged as the leader of digitalisation in the African context there is still a significant digital divide within the country, when compared with developed countries and Asian economies, in terms of access to and use of technology. At the same time, there are growing fears that rapid digitalisation might hamper job creation efforts, particularly in the manufacturing sector.

This report, produced in partnership with the Kenya Association of Manufacturers (KAM), develops a framework of 10 policy priorities to support the successful digital transformation of Kenyan manufacturing, by building digital capabilities, fostering competitiveness and managing inclusive digital change.

This report was launched at a workshop in Nairobi on 28 November 2018. For more detail, click here.

Media coverage

‘Kenya’s manufacturers urged to embrace robotics, artificial intelligence’, The Exchange, 26 November

‘New report roots for robotics and artificial intelligence’, Capital FM Business, 29 November

‘Kenyan manufacturing at risk if government and firms fail to embrace digitalization future – report’, Soko Directory, 29 November

‘Kenyan gov’t, firms urged to embrace innovation to spur manufacturing’, Xinhua, 29 November

‘More Kenyans tipped to lose jobs to machines’, Standard Digital, 30 November

‘Low digitisation to stunt Kenya’s competitiveness’, The Star, 1 December

‘SGR doing more harm than good, says KAM’, The Star, 1 December

 

Photo: Use of computer-aided design software/computer-aided manufacturing for t-shirt production at New Wide Garments, Kenya (2018). Karishma Banga/SET programme. All rights reserved.

 

 

 

Monitoring Policies to Support Industrialisation in Tanzania

Josaphat Kweka, December 2018

Industrialisation has been recognised as the overarching policy priority guiding the design and implementation of all policies and strategies within and around Tanzania’s Five-Year Development Plan 2016/17–2021/22 (FYDP II). The Government of Tanzania has taken tangible steps to spur implementation of the industrialisation objective, including by preparing a national strategy, identifying priority projects, strengthening the institutional framework to address coordination challenges and developing supportive infrastructure projects.

Josaphat Kweka (Talanta International), December 2018

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DOWNLOAD REPORT: HARNESSING SEZS

Industrialisation has been recognised as the overarching policy priority guiding the design and implementation of all policies and strategies within and around Tanzania’s Five-Year Development Plan 2016/17–2021/22 (FYDP II). The Government of Tanzania has taken tangible steps to spur implementation of the industrialisation objective, including by preparing a national strategy, identifying priority projects, strengthening the institutional framework to address coordination challenges and developing supportive infrastructure projects.

The key elements for developing a competitive manufacturing sector appear to exist in Tanzania but a number of constraints prevent it from being realised. Some constraints affect the implementation capacity of the government, while others affect the competitiveness of firms.

‘Monitoring policies to support industrialisation’ explores recent progress made against the FYDP II and offers policy suggestions for overcoming some of the constraints that have emerged, while ‘Harnessing SEZs’ provides illustrative examples of industrial developments in SEZs, regulatory reforms that could support their development and effectiveness, and again offers policy reforms that could drive further progress.

Photo: Dar es Salaam port, Tanzania, 2014. Photo: Rob Beechey / World Bank. 

Using Data to Assess the Contribution of Development Finance Institutions to Economic Transformation

Alberto Lemma, October 2018

Recent studies have analysed the investment activities of development finance institutions (DFIs), attempting to understand if these are, or could be, contributing to economic transformation. DFIs frequently report their portfolio activities, including the sectoral composition, and employment and gross value added (GVA) data can be used to compute sectoral productivity level at sector level and over time. When combined, such data help us understand if DFI investments are targeting sectors that have higher productivity or activities to increase productivity levels within a sector.

Alberto Lemma, October 2018

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Recent studies have analysed the investment activities of development finance institutions (DFIs), attempting to understand if these are, or could be, contributing to economic transformation. DFIs frequently report their portfolio activities, including the sectoral composition, and employment and gross value added (GVA) data can be used to compute sectoral productivity level at sector level and over time. When combined, such data help us understand if DFI investments are targeting sectors that have higher productivity or activities to increase productivity levels within a sector.

The data used for this analysis can be found here (link to PDF) on the SET data portal. 

Photo: Ethiopia, 2008. Antony Robbins. License: CC BY-NC 2.0.

Large and Mega-Projects in Mozambique: Negotiations Management for Creating Linkages and Jobs in Manufacturing

Peter E. Coughlin, October 2018

Since the Lusaka Peace Accords of 1992, Mozambique has relied heavily on large and mega-investments by multinational corporations to spur economic transformation in manufacturing. To understand what has been done well or badly in the negotiations for these and what can be learnt to improve the country’s negotiation capabilities and the consequent benefits, this study examines six negotiations for large and mega-projects. Though the document files for these cases are far from complete, their analysis reveals major structural, technical and legal deficiencies affecting the ability of Mozambique’s negotiators to shape agreements for large and mega-projects to best promote jobs, upstream and downstream linkages and economic and social development.

Peter E. Coughlin, October 2018

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Since the Peace Accords of 1992, Mozambique has relied heavily on large and mega-investments by multinational corporations to spur economic transformation in manufacturing. This has entailed negotiations that have often been from an ill-prepared and professionally and competitively disadvantaged position.

To understand what has been done well or badly and what can be learnt to improve the country’s negotiation capabilities and the consequent benefits, this study examines six negotiations for large and mega-projects with investors in sectors outside of coal and gas mining—namely aluminium, aluminium rods and cables, steel, petroleum refining, transport vehicles and beverages. Though the document files for these cases are far from complete, their analysis revealed major structural, technical and legal deficiencies affecting the ability of Mozambique’s negotiators to shape agreements for large and mega-projects to best promote jobs, upstream and downstream linkages and economic and social development.

Photo: Maputo, Mozambique. Via Pexels. 

Financing Special Economic Zones: Different Models of Financing and Public Policy Support

Judith E. Tyson, September 2018

An SEZ is a piece of serviced land, typically industrial, that provides infrastructure and connectivity for private firms investing within it. Such zones can support economic transformation in developing countries by helping to overcome some of the typical constraints to private firms’ growth, such as the high-cost of energy and poor-quality infrastructure.

This paper focuses on one aspect of SEZ execution – their financing. It includes case studies on existing SEZ financing and examines in detail the possibilities for private financing of SEZs.

Judith E. Tyson, September 2018

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A special economic zone (SEZ) is a piece of serviced land, typically industrial, that provides infrastructure and connectivity for private firms investing within it. Such zones can support economic transformation in developing countries by helping to overcome some of the typical constraints to private firms’ growth, such as the high-cost of energy and poor-quality infrastructure.

However, SEZs have a mixed history of success. Risks associated with their implementation are greater in developing countries where the institutional environment is weaker, including in relation to government capacity, legal and regulatory frameworks and construction capabilities.

This paper focuses on one aspect of SEZ execution – their financing. The purpose is to provide guidance on financing options and their advantages and disadvantages. The paper includes case studies on existing SEZ financing and examines in detail the possibilities for private financing of SEZs.

Photo: A woman irons fabric at a garments factory at the Sihanoukville special economic zone, Cambodia, 2013. Chhor Sokunthea / World Bank. CC BY-NC-ND 2.0.

Measuring the Potential Contribution of Development Finance Institutions to Economic Transformation

Alberto Lemma, September 2018

With the UK Department for International Development (DFID) channelling increasing amounts of UK Aid through development finance institutions (DFIs) as part of the department’s core goal of reducing poverty, it is important to evaluate the extent to which the investments made by DFIs are contributing to economic transformation.

Alberto Lemma, September 2018

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Economic transformation is defined as the continuous process of moving labour and other resources from low- to high-productivity sectors (structural change) and raising within-sector productivity growth. Evidence suggests the economic transformation of developing countries drives job creation and improves livelihoods by increasing per capita incomes.

With the UK Department for International Development (DFID) channelling increasing amounts of UK Aid through development finance institutions (DFIs) as part of the department’s core goal of reducing poverty, it is important to evaluate the extent to which the investments made by DFIs are contributing to economic transformation.

This report provides an overview of the economic transformation potential of DFIs (focusing on DFID’s strategic priority DFIs – the CDC Group UK and the International Finance Corporation) based on publicly available portfolio data. It finds some exposure and capacity to channel investments towards economic transformation sectors. Finally, the report proposes 13 indicators that DFIs could use to assess the transformational potential of their investments. Such indicators can be used both ex-ante for investment decision-making and ex-post for impact monitoring and evaluation.

Photo: The port at Tema, Ghana. Jonathan Ernst / World Bank, 2006.
Licence: CC BY-NC-ND 2.0.

Kenya-UK Trade and Investment Relations: Taking Stock and Promoting Exports to the UK

Aarti Krishnan, Dirk Willem te Velde and Anzetse Were, July 2018

The UK and Kenya have historically close trade and investment ties; however, both the value of Kenyan exports to the UK and Kenya’s share of the UK’s imports have been declining for a decade, with regional competitors such as Rwanda and Ethiopia capturing Kenya’s market share in key export products like tea, coffee, fresh vegetables and cut flowers. This paper explores the state of UK-Kenya trade and sets out recommendations to support Kenya to regain competitiveness and increase its share of UK imports.

Aarti Krishnan, Dirk Willem te Velde and Anzetse Were, July 2018

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The UK and Kenya have historically close trade and investment ties; however, both the value of Kenyan exports to the UK and Kenya’s share of the UK’s imports have been declining for a decade, with regional competitors such as Rwanda and Ethiopia capturing Kenya’s market share in key export products like tea, coffee, fresh vegetables and cut flowers.

This research, produced in partnership with the Kenyan Export Promotion Council to inform its new export strategy, explores the current state of trade patterns and investment flows between the two countries and proposes a prioritisation tool to help policymakers identify promising products and sectors for export. The report posits that unless Kenya diversifies its export offer and improves the quality and marketing of its existing core export products, it will continue to lose out to its trading competitors.

Media coverage

‘High costs taking shine off tea, coffee exports to UK’, Daily Nation, 17 May (also published by Business Daily Africa)

‘High production costs could lose Kenya its competitive edge in coffee, tea and flower exports to the UK’, Brits in Kenya, 30 May

‘Government urges exporters to rebrand products’, KBC Channel, 20 July

‘Kenya’s share of UK market shrinks by 13.2 per cent’, Mediamax Network, 20 July

‘Kenya’s UK export slack opens door to regional rivals’, Citizen Digital, 20 July

‘Rwanda, Ethiopia edge out Kenya in UK trade’, The Star (Kenya), 21 July

‘Kenya loses market share to Rwanda, Dar’, Rwanda Today, 23 July (also printed in Business Daily Africa)

‘Kenya losing her UK-market to neighbouring countries’, Soko Directory, 23 July

‘Kenya’s export value to UK declining’, Kenyan Citizen TV (via YouTube)

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‘Brexit offers Kenya an opportunity to negotiate beneficial trade deals’, Business Daily Africa (via YouTube)

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‘Kenya-UK trade activities suffer glitches due to new policies’, Standard Media, 25 July

 

Photo credit: Pete Lewis/Department for International Development via Flickr

Phyllis Papadavid (ODI) | Kenya needs to gear up its macroeconomy to boost its manufacturing sector

Phyllis Papadavid (Senior Research Fellow – Team Leader of International Macroeconomics, ODI) 

19 July 2018

Kenya needs to gear up its macroeconomy to boost its manufacturing sector

Kenya has a compelling story to tell when it comes to its economic diversification. The country has sizeable agriculture and services sectors, which account for a respective 32% and 45% of total value added in the economy, according to the World Bank. And, with the introduction of its Early Oil Pilot Scheme, it is also now an oil-exporting economy, drawing production from its Turkana region.

At the same time, having been identified as a priority sector under the government’s Big 4 Agenda, manufacturing, and the textiles and apparels (T&A) sub-sector in particular, could be a game-changer for economic transformation and job creation – if close attention is paid to the country’s macroeconomic environment.

The time for diversification is opportune, given the current challenging environment for resource-based economies, owing in part to the commodity price downturn since mid-2014: inward foreign direct investment (FDI) into Sub-Saharan Africa (SSA) declined from $53bn in 2016 to $41bn in 2017. For example, Nigeria’s economy in particular continued to be depressed, with FDI down 21% in 2017 relative to 2016. By contrast, the more diversified economies of East Africa have shown more resilience of late. At $3.5bn in 2017, FDI inflows in Ethiopia continue to be nearly double the level seen in 2014 (Figure 1), and the country is the second largest recipient of investment inflows in Africa, owing in part to its apparel sector.

Figure 1: FDI inflows in selected SSA economies ($mn)

 

 

 

 

 

 

Source: UNCTAD World Investment Report Annex Tables

A conducive macroeconomic environment is key for diversification

Kenya is already the largest exporter of apparels under the African Growth and Opportunity Act, according to the Kenya Association of Manufacturers (KAM), which makes the sector a key one for the future. The country has seen phenomenal growth: US imports of Kenyan apparel products increased 675% between 2000 and 2017. Exports to the US market are also crucial for the sector, given the dominance of textiles compared with other industries. Pursuing further expansion in this largely labour-intensive sector could help reduce Kenya’s youth unemployment rate, which, at 26%, is one of the highest in SSA. Such investment could also catalyse Kenya’s growth at a time when the textiles, clothing and leather sector has doubled its global share of greenfield FDI projects, according to the UN Conference on Trade and Development.

Kenya’s success in diversifying depends in part on its cultivating a conducive macroeconomic environment – and there are three important pathways to follow in this regard (in addition to paying attention to a range of other factors explained in last year’s KAM-ODI booklet):

Three pathways to boost diversification into Kenyan textiles

Complementary industries

Kenya’s information and communication technologies (ICT) sector has seen significant growth, with innovations such as M-Pesa leading its domestic financial services development. In 2017, the economy saw a 71% increase in FDI as a result of inflows into ICT. This owed in part to its investment climate and particularly the construction of Konza Technology City, which has attracted major corporations such as Microsoft and Oracle. Despite this, a digital divide persists: although almost 90% of Kenyan manufacturing firms have computers and internet, only 50% have a web presence, only 40% have an IT policy and only 27% use the internet to sell online.[1] Increased use of ICT will enable both large T&A companies and small and medium enterprises (SMEs) to participate in digital supply chains and function more efficiently.

Meanwhile, when it comes to investment inflows, Kenya can leverage its growing domestic retail sector, and domestic growth in consumer demand, to spur local and international investment. This could be important at a time when the return to FDI has halved in SSA, from roughly 12.3% in 2012 to 6.3% in 2017. Additionally, wages for Kenya’s garment workers are cited as much costlier than those in, for example, Ethiopia. This is notwithstanding Kenya’s labour productivity significantly outstripping Ethiopia’s, when looking at the experience of Hela Garment factories in both countries. Expected retail demand growth could mean that Kenya attracts market-seeking FDI, to serve the domestic market, which would offset any weakness in FDI that targets cheap inputs.

Finally, Kenya’s logistics sector, in transporting and warehousing goods, stands to benefit its T&A sector. In particular, upgrading its railway and transport sector closer to international standards will facilitate greater commerce; Kenya’s logistics ‘giant’, Siginon Group, cites this as an obstacle. Together with Kenya’s industrial and technology parks, this will continue to contribute to Kenya becoming a ‘logistics hub’ and creating more logistics companies through clustering. The emergent knowledge economy will have knock-on effects on T&A, as a result of better support to knowledge uptake by Kenya’s industry. This should be founded on wider partnerships, to include universities. The experience of other success stories suggests that successful economic clustering depends on – among other things – the inclusion of research institutes for enhanced innovation and sophistication of local companies.

A reduction in the shilling’s real effective exchange rate

Kenya does not fare well in terms of currency developments. Having a fairly priced trade-weighted exchange rate is important to source affordable imports – which Kenya’s T&A manufacturers have consistently cited as a key cost. In particular, for the larger companies, the high cost of imported material is significant. Although the shilling continues to depreciate against the US dollar – a key export market for Kenya – the real effective exchange rate (REER) is historically high, raising questions around Kenya’s competitiveness. Its REER has appreciated by 27% since 2014, putting it roughly 34% above its long-term average and suggesting overvaluation against its trading partners’ currencies (Figure 2).[2]

Figure 2: Kenyan shilling real effective exchange rate

 

 

 

 

 

Source: World Bank World Development Indicators, Bloomberg.

Broader access to finance

Elevated overhead costs in the sector and lack of collateral have also restrained access to finance. High interest rates and the short time horizons available for loans are key obstacles, according to KAM. Equally, Kenya’s current interest rate cap has disincentivised banks to lend to SMEs and to small manufacturers, in that they cannot obtain a high enough return to match perceived risk associated with SMEs. The Central Bank of Kenya reports that banks reduced credit provision to the private sector following the cap, with few expectations of a re-acceleration. A silver lining is that domestic banks, rather than foreign banks, are increasingly driving SME lending.

Targeted programmes, such as those of Equity Bank, instituting the Maridadi Business credit facility of between Sh5,000 and Sh100mn for Kenya’s T&A SMEs, fashion designers and tailors, have been encouraging. The facility’s aim of targeting businesses and entrepreneurs along the entire value chain has been lauded as a particularly strong feature, given Kenya’s need to import fabrics. The higher risk profile of smaller SMEs has led other domestic banks to pair with public institutions, such as the International Finance Corporation, to lend to SMEs. Kenya’s second largest bank – the Co-op Bank – has received a $105mn loan for Kenya’s micro, small and medium-sized enterprises.

Kenya’s macroeconomic challenges and opportunities need to be squared with the government’s ambitious plans in its Big 4 Agenda – which include employing 50,000 young adults and women in the T&A sector, increasing revenue exponentially from the textile industry from Sh3.5bn to Sh2tr and creating 500,000 cotton jobs and 100,000 new clothes jobs by 2022. In order to achieve this, the domestic macroeconomic environment will have to be recalibrated to foster increased competitiveness, more affordable access to finance and continued attention to incentivising diversified investment inflows.

[1] Banga, K. and te Velde, D.W. (2018) ‘Digitalisation and the future of manufacturing in Africa’. London: ODI, SET Programme.

[2] Kenyan REER overvaluation is calculated as the percentage deviation of the current REER from its average since 2000. The REER is calculated using the World Bank World Development Indicator database and Bloomberg data.

 

 

Photo credit: Brian Snelson via Flickr

Recent Progress Towards Industrialisation in Tanzania

Professor Amon Mbelle and Hafidh Kabanda (Economic and Social Research Foundation), July 2018

Tanzania has set an ambitious industrialisation agenda in pursuit of the goals articulated in the TDV 2025. The observed status and performance of industry is partly a consequence of past policies, plans and strategies. The FYDP II and its accompanying Implementation Strategy have revitalised the industrialisation agenda by articulating concrete interventions. This briefing provides an update on recent industrialisation progress in Tanzania, with a particular focus on the status of the manufacturing sector.

Professor Amon Mbelle and Hafidh Kabanda (Economic and Social Research Foundation), July 2018

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Tanzania has set an ambitious industrialisation agenda in pursuit of the goals articulated in the TDV 2025. The observed status and performance of industry is partly a consequence of past policies, plans and strategies. The FYDP II and its accompanying Implementation Strategy have revitalised the industrialisation agenda by articulating concrete interventions. This briefing provides an update on recent industrialisation progress in Tanzania, with a particular focus on the status of the manufacturing sector. It draws on recent statistics for relevant industrialisation indicators, using both national and international data.

This briefing is part of a series produced by SET in collaboration with the Tanzania Economic & Social Research Foundation (ESRF). The first three briefings are:

1)  A summary of FYDP II

2) A summary of FYDP II implementation strategy including actions and financing, and progress so far

3) A briefing linking FYDP II and the implementation strategies to other important actors (including donors/private sector).

This briefing was prepared by Professor Amon Mbelle and Hafidh Kabanda (ESRF) with input from Neil Balchin and Dirk Willem te Velde (ODI).

Photo credit: SET Programme, Overseas Development Institute ©

Manufacturing in Africa: Factors for Success

Neil Balchin, Karishma Banga , Sonia Hoque and Dirk Willem te Velde, June 2018

Many African countries have a desire to industrialise, as witnessed in national and regional policy statements. Significant progress is being made in selected countries (e.g. real manufacturing value added grew at around or more than 7% annually over 2005–2015 in Ethiopia, Rwanda and Tanzania). However, without a greater practical focus on implementing a consistent strategy to promote manufacturing, many African countries will miss the significant opportunities presented by their comparative and natural advantages, rising wages in Asia and growing regional markets.

Neil Balchin, Karishma Banga Sonia Hoque and Dirk Willem te Velde, June 2018

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This paper was launched at the ACET Manufacturing Chapter third working session. More information on the Chapter, including previous sessions, can be viewed here.

Moving labour out of low-productivity agriculture and into higher-productivity manufacturing is crucial for structural change in Africa. Expanding manufacturing production and exports, and increasing their sophistication, can drive industrialisation and create much-needed jobs. Indeed, export-led manufacturing is the only proven model to drive economic transformation and boost employment. This is evident in the experiences of many Asian countries, which show that export-intensive manufacturing can generate significant numbers of jobs. Countries such as Bangladesh, China, Malaysia and Vietnam have developed light manufacturing – by building textiles and garment industries – to kick-start industrialisation.

Many African countries have a desire to industrialise, as witnessed in national and regional policy statements. Significant progress is being made in selected countries (e.g. real manufacturing value added grew at around or more than 7% annually over 2005–2015 in Ethiopia, Rwanda and Tanzania). However, without a greater practical focus on implementing a consistent strategy to promote manufacturing, many African countries will miss the significant opportunities presented by their comparative and natural advantages, rising wages in Asia and growing regional markets.

This paper discusses key characteristics of a good industrial policy regime and factors behind effective implementation. It also uncovers a range of successes. Using country examples, we recognise that, while there are broad commonalities, the specifics will always vary across different contexts.

Photo credit: Factory workers producing fruit drinks at Blue Skies, in Accra, Ghana on October 13, 2015. Dominic Chavez/World Bank via Flickr

Dirk Willem te Velde (ODI) | Sports balls, disruptive change and opportunities for manufacturing production

Dirk Willem te Velde (Principal Research Fellow, ODI)

15 June 2018

The production of footballs, tennis balls, table tennis balls, golf balls and baseballs is highly concentrated in a few countries. However, much production is frequently subject to disruptive change, which involves opportunities – and challenges – in relation to attracting manufacturing production. Understanding how change happens and how it is managed is crucial for those wanting to transform their economy. This blog discusses geographical location in the production of balls, the influence of disruptive change on this and the lessons it offers for managing transformation.

Concentration of production

The 2018 Football World Cup started in Russia this week but not everyone will know that all footballs used at the World Cup have been produced in the city of Sialkot, near the border between Pakistan and India. One Pakistani company, Forward Sports, is the core provider of footballs to this World Cup, producing some 700,000 balls per month and employing 3,000 workers, of whom 900 are women.

Sialkot gained an international brand name in the 1980s when it produced the Tango Ball for the Football World Cup in 1982. Major international brands such as Adidas, Nike, Puma, Umbro, Diadora and others have sourced their supply of footballs from this export-oriented cluster. Pakistan currently earns an annual $1bn from sports goods exports, which includes $350mn–$500mn from footballs, or 10% of Pakistani exports, creating some 200,000 jobs. Around 60-70% of the world’s hand-stitched footballs, or between 40mn and 60mn per year, are made here.

Such significant concentration has also been a factor in the production of table tennis balls for more than a century. Halex used to be the world’s biggest manufacturer, with almost every single table tennis ball in the world made in Highams Park in London.

A similar level of concentration applies to the production of tennis balls. Slazenger Dunlop, a leading UK manufacturer, produces 300mn tennis balls per year, worth nearly £200mn (a fifth of its turnover). Previously produced in the UK, the tennis balls for the Wimbledon tournament have since 2002 come from the special economic zone in Bataan in the Philippines. Before the finished product reaches the UK, inputs come from the US (clay), Greece (silica), Malaysia (rubber), New Zealand (wool) and the UK (felt), with processing taking place in Bataan. A ball travels 50,000 miles, through 11 countries.

A differential picture is thrown up by the production of golf balls and baseballs for US consumption. Some 1.2bn golf balls are produced each year in what is a capital-intensive process, mainly in the US. Companies such as Spalding and Titleist have traditionally dominated production, which has involved significant research activities and creation of patents. Some 40% of the production of golf balls for the US is carried out in New Bedford, Massachusetts. Baseballs, on the other hand, have remained labour-intensive. Rawlings has had an exclusive contract to supply the major leagues with baseballs since 1977. A plant in Costa Rica produces 2.2mn balls a year, worth around $35mn.

Production of sports balls is highly concentrated and it is difficult, but not impossible for poor countries to enter this market.

Managing disruptive change

Disruptive change has had a major impact on the manufacturing of balls. Allegations of child labour and then a change in regulations requiring a move from hand-stitched to machine-stitched footballs have had major implications. The share of Pakistan in football production dropped significantly between 2006 and 2010 (see chart below) in part because orders from Nike to Sialkot were dropped, with the Football World Cup in 2010 sourcing Adidas Jabulani footballs from China. Only after the manufacturers invested in equipment and skills and introduced machine-stitched footballs did Sialkot regain its status as supplier for the 2014 World Cup and again for the 2018 World Cup. The cluster is supported by private infrastructure (e.g. airports) and streamlined border procedures.

Disruptive change in the production of footballs

Note: Share in value of world exports of inflatable balls (950662), which includes mainly footballs.
Source: ITC Trade Map

Changes in the production of raw materials led to the end of table tennis ball production in London. Celluloid balls replaced rubber and cork ones in 1900, but by the 1990s celluloid was being produced only to make table tennis balls. It rapidly became an obsolete material when it was replaced by plastic in most applications except for the production of table tennis balls. Demand for the material decreased and celluloid production ceased in Europe as it became too costly. This left only two Chinese factories producing celluloid, solely for table tennis balls, a material which remained flammable and difficult to transport. In 2014, producers began working with the International Table Tennis Federation to move towards production of plastic balls. This is now dominated by two plastic tennis ball producers in China and one in Germany and in Japan, fighting for official recognition.

Political changes led to the production of baseballs moving from Haiti to Costa Rica. Rawlings came to Costa Rica after a 1986 coup deposed the dictator Jean-Claude Duvalier. Production is still based on hand-stitching, despite efforts as early as 1949 to move to machine-stitching. Production of Wimbledon tennis balls took place in Barnsley for a hundred years until 2002 when the factory moved its equipment to the Philippines because of cost-efficiency reasons.

All this shows that changes can be disruptive (whether for regulatory or economic reasons), relocating all or most of production to other countries. This observation opens up opportunities for other countries that have so far not yet benefitted.

Lessons

Disruptive change happens and poses major challenges for manufacturing but countries can seize the opportunities by being prepared and working in a targeted way. Pakistan lost market share through a policy change (a change in standards) but then regained the contract to produce World Cup footballs through innovation, supported further by investment in skills and equipment and targeted (privately operated) infrastructure. China used an opportunity presented by a change in the raw material base of table tennis balls, again working with standard setting bodies. Political instability led to the relocation of baseball production from one low-wage location to another (Costa Rica). Some processes, such as the production of golf balls, have remained capital-intensive, located in developed countries (US); meanwhile, baseballs have not caught up yet with mechanisation. But, as disruptive change continues, geographical concentration in the manufacturing of balls may again change considerably in the future (consider e.g. the effects of a change in UK trade policy, or a change in international regulation of say baseballs), offering opportunities for some, challenges for others– and policy and regulation matters for this.

Photo credit: File photo, Ary News

Kick-Starting Economic Transformation in Rwanda: Four Policy Lessons and their Implications

David Booth, Linda Calabrese and Frederick Golooba-Mutebi, June 2018

Rwanda has committed itself to economic transformation as a pillar of the current seven-year government programme, the National Strategy for Transformation (NSTP1, 2017-24). Whether the country succeeds in this endeavour will depend in good part on whether it learns a small set of key policy lessons from international experience in economic transformation. This briefing sets out four such lessons, drawing on the most distinguished global thinking on the subject, as well as past research on Rwanda by the SET programme.

David Booth, Linda Calabrese and Frederick Golooba-Mutebi, June 2018

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Rwanda has committed itself to economic transformation as a pillar of the current seven-year government programme, the National Strategy for Transformation (NSTP1, 2017-24). Whether the country succeeds in this endeavour will depend in good part on whether it learns a small set of key policy lessons from international experience in economic transformation.

This briefing sets out four such lessons, drawing on the most distinguished global thinking on the subject, as well as past research on Rwanda by the SET programme:

(i) Specialising wisely

(ii) Clustering and concentrating

(iii) Coordinating foreign and domestic capabilities

(iv) Organising for steering and learning.

 

Photo credit: Sarah Farhat/World Bank. Licence: CC BY-NC-ND 2.0.

Neil Balchin (ODI) | Making Firms Work Series | Midal and clustering around megaprojects in Mozambique

Neil Balchin (Research Fellow, ODI)

11 June 2018

This blog is part of our ‘Making Firms Work’ series. Read other blogs in the series: on Tanzanian textile manufacturer A to Z, Nepali ICT firm CloudFactory and Kenyan garment firm Hela.

The presence of Midal shows that clustering around megaprojects can help build manufacturing in Mozambique, but very specific factors – including, in this case, Mozal’s decision to sell molten aluminium locally – can play a key role in determining success. Examples such as Midal, with its direct linkages to Mozal (the largest company in Mozambique and one of the country’s most prominent megaprojects), show how megaprojects can support economic transformation and job creation in Mozambique. Transforming the economy will be critical for Mozambique to address short-term macroeconomic challenges and create much-needed jobs in a sustainable way.

The product of an initial $65 million investment, Midal Cables International Limited is a local subsidiary of Midal Cables Limited, a multinational headquartered in Bahrain with a production footprint spanning Saudi Arabia, Turkey and Australia (and now Mozambique). After signing a deal with Mozal in 2013, Midal commenced production in Mozambique in December 2014 and began exporting in January 2015. The company’s 14,500 m2 plant is situated adjacent to Mozal in Beluluane Industrial Park, a duty-free zone in Matola, about 25 km north-west of downtown Maputo.

Midal produces aluminium rods, wire and conductors primarily for export to Europe (Spain and Italy) and Africa (including Kenya, Namibia, Nigeria, South Africa and Tanzania). The company’s current annual total production capacity is in the order of 50,000 metric tonnes. Around 98% of this is exported, with only a small volume going to the domestic market. On average, Midal produces 4,200 metric tonnes of aluminium rods each year, mostly for export to Africa and Europe. The wires and conductors the firm produces are primarily exported to other Southern African Development Community (SADC) countries to support electricity transmission and distribution, with a strong focus on rural electrification.

Midal’s presence is important for economic transformation in Mozambique. It is the first firm operating in the country to add value to the aluminium produced by the Mozal smelter and represents an important step towards higher value-added industrial production. Examples such as this show how private firms can support economic transformation; and in some sectors these contributions can be enhanced through effective public–private collaboration.

More of this is needed to help spur diversification into higher-productivity industrial activity and manufacturing. Despite strong growth of 5–7% annually over the past decade, little progress has been made in altering the structure of the economy and accelerating job creation. Manufacturing still has a peripheral role in the economy, absorbing just 0.6% of the labour force and accounting for less than 10% of total gross value added (down from 29.7% in 1975).

A recent survey shows that, while there are some positive signs of the persistence of Mozambican manufacturing firms, growth among these firms has been limited and some have shrunk over the past five years (particularly those operating in the textiles, wood, metal, machinery, furniture and other manufacturing sectors). Many manufacturers have closed in the face of an increasingly challenging business climate aggravated by political conflict and a subsequent economic crisis. A significant share of the remaining firms are unprofitable, particularly in Tete and Nampula provinces. Very few Mozambican manufacturers are exporting – just 19 out of 520 firms (or less than 4%) surveyed in 2017. Job losses have also been significant, with more than 5,000 shed across the surveyed companies between 2009 and 2017.

Even amid this turmoil, Midal has managed to grow a manufacturing base and create jobs. The firm currently employs 142 people directly in Mozambique, and it is estimated to generate employment indirectly for more than 1,000 people as service contractors. Creating more jobs is critically important given that Mozambique faces a looming jobs crisis and an ongoing debt crisis. Approximately 420,000 young people enter the labour market each year and formal employment needs to grow substantially if they are to be absorbed into jobs. Generating new employment on this scale will require a different focus towards economic transformation. SET’s Making Firms Work series showcases firms that are generating large-scale transformational jobs in Kenya, Tanzania and Nepal.

Midal, with its linkages to Mozal, offers a model for manufacturing development that can potentially be upscaled and replicated, but it is important to understand the details behind these inter-firm relationships.

A set of four specific circumstances encouraged Midal to establish operations in Mozambique. First, geographical proximity to Mozal’s aluminium smelter – the largest of its kind in Africa – promised ready access to a key input: good quality molten aluminium.

Second, the Midal Group was attracted by strong regional growth in Africa. Locating in Mozambique provided further advantages in terms of supplying major electricity transmission projects within the country and elsewhere across the SADC.

Third, the prospect of exporting duty-free to certain African countries as well as the US (under the African Growth and Opportunity Act) and the EU (through the Everything But Arms initiative) provided further motivation.

Finally, Mozambique also offered electricity and gas (although the reliability of the supply remains an issue), an important factor given the firm’s energy-intensive production processes.

However, since Midal began operations, other aspects of the business environment have proven problematic. Midal believed that proximity and access to Maputo Port would mean it would be able to export cheaply. However, the firm’s initial cost assumptions were overly optimistic and logistics costs associated with the use of Maputo Port remain very high. These costs are said to surge to $800 per container once customs and other expenses have been factored in. The alternative option, using the port in Durban, is equally costly owing to the need to transport products over more than 600 km to get to the port.

Despite these challenges, Midal’s presence in Mozambique is a compelling example of what can be done to grow the country’s manufacturing base. It shows how clustering around megaprojects can help develop local linkages and downstream activity as long as specific business and pricing factors are supportive. This suggests an important role for government, not least in setting up a conducive framework for megaprojects and for locally based upstream or downstream firms to interact effectively with such megaprojects.

 

This blog has been adapted from a previous version.

Photo credit: Midal cables

 

Sonia Hoque (ODI) | Women and economic transformation: It’s a win-win if #SheTransforms

Sonia Hoque  (Programme & Operations Manager, ODI)

7 June 2018

It’s no secret that women are key to unlocking the full potential of economies across the developing world. They are not a ‘marginalised group’ (they make up half of the population), but nor should it be assumed they benefit evenly from increased opportunities through economic transformation. Women spend more on their children’s health and education, and bring numerous benefits to employers and business owners. Proposed policies/programmes designed to drive economic transformation should embed a gender lens to enhance women’s access to new jobs and ensure they are not left behind.

Why women are key to economic transformation

Advancing women’s equality could add an estimated $28 trillion to global gross domestic product by 2025, and numerous studies have shown that increasing the numbers of women participating in the labour force has a positive impact on business owners as well as women themselves. For this reason, women’s economic empowerment has always been at the forefront of development debates. For example, the recent SheTrades initiative, led by the International Trade Centre, seeks to connect women entrepreneurs to markets. Women could also contribute to, and benefit from, economic transformation, which occurs when resources (including human resources) shift to more productive uses, which improves the quality of growth and helps sustain job creation.

Discussions on ‘inclusive transformation’ look at the impact of such transformation on women, youth, disabled persons, minority groups, etc. However, women should not be seen just as a marginalised group that needs to be targeted in economic transformation planning simply because of moral drivers (a desire to provide equal opportunities to and empower such groups). Including women makes economic sense. Efforts to increase their participation in the labour force are paying off across some developing countries, and increasing the number of women employees has proved highly productive (think of Bangladesh garments, where approximately 60% of the 3.5m workers are female). Designing policies that support and/or better enable women to take the opportunities brought about by economic transformation is crucial for continued growth, prosperity and broad-based job creation.

Will women get lost in economic transformation?

In a 2016 SET paper, Louise Fox (now USAID’s Chief Economist) explored important questions about the role of gender in economic transformation, emphasising that economic change always brings winners and losers. Economic transformation is defined as the process where resources, including labour, shift from low-productivity activities such as agriculture to higher-productivity ones such as manufacturing and services (productivity improvements within sectors are also counted). Importantly, evidence suggests that, where women can access productive jobs, wage employment in modern enterprises provides higher and more secure income. Louise Fox explores which sectors benefit women’s economic opportunities, and argues the need for complementary policies to increase equality of opportunities when they arise – as it cannot be assumed women will benefit the same way as men.

Increasing the role of women in manufacturing and services sector jobs: a change of mindset

Policies can help bring women into wage employment but some barriers are hard to dismantle. For example, expectations that women will be the primary carers for children, the elderly and the home are still prevalent in many low-income countries. Pressure to stick to traditional roles in what is called the ‘care economy’ mean that women tend to have fewer hours available for waged work. This was also apparent during interviews for a previous SET study on inclusive jobs in Nepal; several (male) firm owners stated that women ‘preferred’ to do care and housework and did not want/have time to work outside.

However, one tourism firm shared a different view: ‘Around 50% of our staff are female. Although they are usually not skilled when they start working here, they are more focused and hard-working.’ This was echoed by the director of A to Z, a major factory in Tanzania that produces light manufacturing goods including garments, household plastics and bednets: ‘We have found that female workers produce higher quality outputs. Their work ethic is better, and they work more efficiently. They are also better at training new people working in the factories.’ This touches on an important finding in a study led by Christopher Woodruff – that training women had supported them to develop managerial skills and increased their chances of promotion in garment factories in Bangladesh.

Studies have shown that increases in income controlled by women lead to greater spending on items that bring more benefits to children. Women invest more in children’s human capital, which has dynamic positive effects on economic growth and future employment prospects. A to Z also supports mothers in particular, as they encourage generations of families working in the factory and see their children as potentially loyal future employees. ‘We like to see families working in the factories and give extra benefits to them for their loyalty, so having mothers working here is a good thing. We also see that those women spend more of their income on their children.

#SheTransforms – Aadila in Tanzania

Aadila grew up on her father’s farm in a rural district near Arusha, Tanzania. With little education beyond primary school level, she had few prospects for work and spent her adolescent years working on the farm with her family.

When local factory A to Z advertised that they were hiring workers in a range of roles, she took the chance to apply. Given her lack of formal education or other skills, she was offered the role of cleaner. With hard work, she worked her way up through a number of roles within A to Z factories, including sewing machine operator, stitcher and office administrator. She is now working in the factory head office in a garment merchandise role, earning 10 times as much as when she was a cleaner and comfortably supporting her family with the additional income.

Although this is an exceptional story, Aadila is not alone as a woman to have gained economic benefits from taking an opportunity to work in a factory. A to Z state that around 90% of their female workers come from rural backgrounds, and embody not only the real-life economic transformation process as they move to more productive employment but also the ability to transform their lives as Aadila has done.

Source: Author interview with A to Z

A to Z is a manufacturing firm with a clear social responsibility approach, but women working in manufacturing firms in other contexts also have spillovers. Heath and Mobarak (2014) examined the Bangladesh garment industry and found spillover benefits to women’s villages – an increase in the age of marriage and first childbirth, health gains and education levels of children.

It’s a win-win if #SheTransfoms

By acknowledging the potential gains at both the individual and the wider societal level that women bring by participating in the labour force, policy-makers have the chance to bring new opportunities to women. While it does not make sense for governments to target industries for development based on whether they tend to employ males or females, policy-makers can ensure programmes and investments are gender-sensitive. This includes making sure females have access to the education and training opportunities needed to compete for new opportunities. Having more women in the marketplace has a positive impact on businesses, which benefit from a larger productive workforce, more competition and, as a result, more choices between better products in all sectors. As mentioned, women spend more of their income on education and health for their children, which can be beneficial for society in the long term. Policy-makers and development partners with the goal of economic transformation should not assume women will benefit evenly from increased opportunities, or see them as a marginalised group. Rather, they are a key force, and any proposed policies/programmes designed to drive economic transformation should contain a gender lens – the cost of not doing so will undoubtedly be higher in the long term.

Sonia Hoque is the Programme & Operations Manager of the Supporting Economic Transformation programme at ODI.

Photo credit: Visual News Associates / World Bank via Flickr

 

 

Karishma Banga (ODI) | A globally competitive, locally relevant Africa: managing the new oil, currency and commodities of the digital era

Karishma Banga (Senior Research Officer, ODI)

5 June 2018

An African digital industrial strategy is needed to consolidate a common stance on data governance and control; build digital trust in African countries for regional e-commerce; re-equip workers with suitable skills; and protect digital labour against exploitation.

Africa in the digital era

In March 2018, 44 countries signed the African Continental Free Trade Agreement (AfCFTA), as an important step towards increasing market integration, infrastructure development and industrialisation. It is, however, increasingly important to look at regional trade through a ‘digital lens’. Digitalisation presents important opportunities to boost the historically low intra-Africa trade but also important challenges.

Not only is there a digital gap between African countries and others but also Africa benefits less from digital technologies, once installed (Banga and te Velde, 2018). There are many reasons for this – poor internet access, limited information on e-commerce platforms, lack of e-payment services and cost-effective logistics, lower purchasing power, unreliable power supply and basic infrastructure, poorer ICT infrastructure and skills and an inconducive legal and fiscal framework. Africa thus lags behind in the digital era as a result of a poorer ‘systems infrastructure’.

To leverage the benefits of digitalisation, African countries need to ‘think globally’ but ‘act locally’. Growth in e-commerce has remained low compared with in other regions, and mainly serves foreign demand. If this continues to be the trend, AfCFTA will not be able to deliver on the continent’s much-needed economic transformation. Countries need to address issues pertaining to and develop collective actions on 1) governing data- the ‘new oil’; 2) building consumers’ digital trust – the ‘new currency’ and 3) protecting digital labour – the ‘new commodity’ in the digital economy.

Collective actions on data governance

In recent years, Big Data has emerged as a key aspect of the digital economy, as essential as oil is to the industrial economy. Mined freely from developing countries, it is converted into ‘digital intelligence’ in developed countries, further feeding the power of giant e-commerce platforms- such as Amazon and eBay (and also Alibaba in China). Earlier, these platforms operated on a ‘lean economy’ model – they owned data but not any actual physical assets. However, such models are not sustainable in the long run, and these e-commerce platforms are slowly transforming into ‘intelligent infrastructures’. For example, Amazon has started buying planes and Alibaba is investing in physical stores.

While international rules on e-commerce can help foster trade in the digital era, there has been resistance to some of the recent proposals developed countries have made to the World Trade Organization, on the grounds that these threaten to further increase the control of powerful monopolies. Several common provisions in such proposals aim to create an even more digital and borderless economy. These include:

  • liberalisation or removal of tariffs on digital goods and services and removal of preferential treatment for domestic companies or products and services
  • free cross-border flow of data, which can prohibit countries from ensuring their data remains within their borders (in this case, data is governed not by the country that owns it but by the laws of the country where it is held)
  • removal of localisation laws that require foreign providers to set up in host countries and
  • removal of compulsions on technology transfers – for instance through sharing of source code – from foreign providers to host countries.

Such rules may be detrimental to job creation and infant industries in African economies, and risk deepening the digital divide across countries. They threaten to increase ‘platform capitalism’, making it even more important for African countries to ensure data-sharing arrangements that will increase their competitiveness globally.

African sellers can sell on third-party international e-commerce platforms, but 75% of the time Amazon will push its own product first, and there is also a hefty commission charge in getting on these platforms, sometimes as high as 45%. Domestic or regional ownership of e-commerce platforms is thus important. African countries must take a continental approach and put in place regional strategies ensuring ‘collective rights to collective data’, with AfCFTA as an effective platform to consolidate a common stance on e-commerce rules.

This can also make AfCFTA significantly more effective in boosting regional integration, as it will help countries attain commodity diversificationa long-standing challenge in intra-Africa trade. At present, intra-Africa trade remains  at only about 10%, mainly because of the higher costs of trading within Africa, which means primary products dominate such trade: the share of manufacturing in fact declined from 18% in 2005 to 15% between 2010 and 2015 (AFDB, 2017). If most African countries continue to export raw materials, and not processed goods, regional demand for their products will remain low. Having deindustrialised prematurely, and in the context of the increasing extractive nature of powerful monopolies in developed economies, Africa faces key development challenges related to export diversification and commodity dependence.

In this regard, important lessons can be learnt from Asia. Here, online trade has not only reduced the costs of trading and coordination but also led to successful diversification of exports in some least developed countries. Research by the International Trade Centre looks at demand for e-commerce products on Alibaba in five Asian LDCs – Bangladesh, Cambodia, Lao PDR, Myanmar and Nepal – and finds that products in which these countries have comparative advantage, such as textiles and agriculture, feature prominently in online trade, but that new products are also emerging . For example, in Bangladesh, apparel and clothing dominate offline trade (accounting for 86% of total exports), but online demand is much lower (47%), and the country has diversified into agriculture, food and beverages and consumer electronic products. In Cambodia, e-commerce has enabled diversification into higher value-added segments; fresh mangoes and cashew nuts have replaced cereals as top-demanded agricultural products in online trade.

Collective actions on building digital trust

Domestically or regionally owned e-commerce platforms are not enough; for successful regional integration through e-commerce, African countries also need to boost demand for products sold through online trade. African e-commerce platforms such as Jumia and KiliMall have gained popularity, but the consumer ‘digital trust’ remains a crucial factor constraining growth. For example, privacy concerns in Kenya grew by 19% from 2014 to 2016, which may in part explain why there is still a 40–50% gap between the proportion of Kenyans with access to the internet and that using it for e-commerce.

As transactions become increasingly digital, affecting several aspects of people’s lives, so does the importance of digital trust. Tufts University ascribes four dimensions to digital trust: 1) the trustworthiness of each country’s digital environment, 2) the quality of users’ experiences, 3) attitudes towards key institutions and organisations and 4) people’s behaviour when they interact with the digital world. Countries where digitalisation is highly evolved, or evolving rapidly, typically have strong government/policy support. Again in Kenya, the government is taking steps to build digital trust: government services are increasingly being digitalised to familiarise consumers with using the internet for making payments in a ‘cash-less’ culture. Policy challenges remain context-specific, but all African countries need to develop laws on data protection and privacy.

Collective actions on re-skilling labour and protecting digital labour

If Africa takes no collective actions to address the issues of the digital economy, labour will continue to face a two-pronged threat. Job losses in  manufacturing are likely to increase as tasks are re-shored to the advanced developed economies. Meanwhile, there may be a further fall in the bargaining power of African workers engaged in digital labour platforms.

The possible decline in jobs can, to some extent, be offset if Africa can leverage digitalisation to increase regional integration. As intra-Africa trade increases, so will the demand for skills, since such trade has a higher skill and technology content than does Africa’s trade with others (UNCTAD, 2017). Successfully selling to regional markets through e-commerce platforms will thus require investment in skilling the workforce. This not only can make labour more productive directly but also may increase the impact of internet penetration on labour productivity (Banga and te Velde, 2018). For e-commerce in particular, labour needs to be re-skilled with an ‘e-commerce skills set’, which includes ICT and digital skills but also skills pertaining to strategy, sales and advertising, project management and social media. Collective actions on reorienting curricula in African institutions around STEM subjects and TVET can be effective, along with integrating local knowledge of the private sector within curricula.

In terms of digital labour – labour performing digital tasks that are outsourced online – demand comes mainly from wealthy countries, with workers across the world competing. This distributed supply and concentrated demand have led to a significant increase in competition, and poorer or unfair work. Digital labour is increasingly being treated as a commodity, with online work being re-outsourced under worse conditions. African countries have no compensating mechanisms in place, and thus need to promote unions and social protection for digital labour, and through this workers’ collective bargaining power.

 

Photo credit: © Arne Hoel / The World Bank. Licence: CC BY-NC-ND 2.0.

Economic Development in Fragile Contexts: Learning from Success and Failure

Alastair McKechnie, Andrew Lightner and Dirk Willem te Velde, May 2018

Fragile and conflict-affected developing countries face major challenges in transforming their economies. As with low-income countries generally, some countries affected by fragility experience periods of rapid economic growth, particularly at the end of a conflict, but this growth is typically low quality and unsustainable. Governments of the g7+ group of fragile states are growing increasing critical of the lack of attention paid by their development partners to job creation and infrastructure investment. 

Alastair McKechnie, Andrew Lightner and Dirk Willem te Velde, May 2018

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Fragile and conflict-affected developing countries face major challenges in transforming their economies. As with low-income countries generally, some countries affected by fragility experience periods of rapid economic growth – particularly at the end of a conflict – but this growth is typically unsustainable and of low quality.

Promotion of economic transformation is not typically a priority in such states, despite the fact that it may help reduce the risk of future conflict and increase resilience to shocks. As a result, governments of the g7+ group of fragile states are becoming increasing critical of the lack of attention paid by their development partners to issues such as job creation and infrastructure investment.

There have been a number of success cases in some fragile states – such as where political opportunities have arisen in specific sectors at the conclusion of armed conflict. Notable examples include the growth of the telecommunications sector (specifically mobile phones) in Afghanistan after 2001 and the development of cocoa farming in Sierra Leone after 2003.

This paper seeks to understand not only the reasons why economic transformation is so challenging in fragile contexts, but to examine case studies of success. By doing so, we hope to draw out lessons and identify practical steps that can be taken by governments and development partners to replicate these successes and support a sustainable, peaceful path to prosperity for fragile states.

 

As part of this project, an interactive data portal was developed to showcase the available data on economic development indicators in fragile and conflict-affected states. 

 

Photo: Billboards displaying advertisements for international money transfer companies, are seen new the Kilometre 4 junction in the Somali capital Mogadishu. AU/UN IST Photo/ Stuart Price.

Alberto Lemma (ODI) | Making Firms Work Series | Harnessing the power of digital technology in Nepal: CloudFactory

This blog is part of our ‘Making Firms Work’ series. Read other blogs in the series: on textile manufacturer A to Z and Kenyan garment firm Hela. 

Alberto Lemma (Research Fellow, ODI)

4 May 2018

CloudFactory is a remarkable example of a multinational digital firm. Operating from Nepal, it has 2,000 well-paid jobs worldwide, with around 1,300 workers in Nepal itself. This firm shows how digital technology can provide a lifeline and a link to the global economy for some of the most remote places in the world if they have appropriate skills and internet access.

Growing digitalisation is an opportunity for Nepal

Digitalisation is playing and will continue to play a crucial role in Nepal’s economic transformation process. As a landlocked and resource-limited country, Nepal’s economic activities are constrained by limited transport links with India to export its manufactured goods. However, digital goods and services do not have such limitations.

Development of a digital economy requires a stable and fast-enough connection to the internet, a workforce that can speak global languages (e.g. English, etc.) and appropriate skills. Nepal already has these ingredients, which, combined in the right way, can help promote a high-value services sector in the country.

This will not only provide benefits in terms of jobs and exports but also promote productivity across other sectors. For example, a recent SET study on digitalisation and the future of manufacturing highlights the need for developing countries to invest in digitalisation to help their manufacturing sectors improve productivity. If they fail to do this, they will be left behind and face a growing global digital divide, making it harder for them to promote sectors that are increasingly dependent on digital processes.

CloudFactory: harnessing the potential of digital technology

Some Nepalese firms are already taking part in this process. A remarkable example is CloudFactory, an information and communication technology business process outsourcing (ICT-BPO) company that provides services to enterprises worldwide. CloudFactory uses a cloud-based platform (hence its name) to allocate various tasks that firms around the world require to teams of workers based in Nepal and Kenya.

Software developer Mark Sears founded the company in 2008, training young Nepali computer engineers and developing web applications for start-up companies around the world. As the company grew, it seized the opportunity to create a platform to connect the technical routine data-oriented work that various companies demanded with the untapped pools of human capital that Nepal had in supply.

Human resources are crucial. The workforce strategy is based on the traditional assembly lines Ford introduced more than 100 years ago. Rather than having a few highly skilled workers completing one large complex task, the task is broken down into several simple reproducible steps that low-skilled workers can work on. Essentially, CloudFactory has created a virtual assembly line where workers can contribute to tasks that used to be limited to individuals with advanced programming degrees. Each day, CloudFactory employees process over 1,000,000 tasks. These include:

  • Document transcriptions, whereby physical documents such as receipts, business cards and financial statements are scanned and sent to workers to turn into digital files;
  • Recognition work – that is, helping software automatically recognise faces, printed words and inputs for algorithms to improve automatic chat-bots; and
  • Commercial data aggregation and analysis, such as financial report analysis and real estate information aggregation and analysis.

CloudFactory shows great promise for Nepal for several reasons.

The first is the fact that it now employs over 2,000 workers, who are paid, at the least, two and half times the local minimum wage rate. Although these are contract-based staff (hence not permanent employees), the sheer number of them has already made CloudFactory a success story in terms of employment creation in high-value and high-productivity services in Nepal. This is the kind of employment that Nepal needs if it is to grow into a middle-income country, as discussed in a previous SET study on skills in Nepal, which pointed to ICT as a key driver of economic transformation in the country.

Second, the firm plans to expand to open more offices across the country. The fact that its employees could be spread out across the country, requiring only simple infrastructure such as a computer and an internet connection, will eliminate the geographic barriers that limit access to employment for workers in disadvantaged (or resource-constrained) areas. This is very significant for a country with mountainous and remote areas like Nepal. Employing people in remote areas can help stimulate the local economy without putting pressure on larger urban centres such as Kathmandu. Workers also have the freedom to choose their work hours through flexible scheduling that allows them to devote time to other areas of their life, such as education and family. Upskilling is also an important part of the employment process. In 2015, the company provided 837 hours of training to its employees, reporting that 27% of the workforce gained new technical skills and 47% new management skills.

Finally, CloudFactory has become an international organisation. The firm does not operate just in Nepal. In 2013, it expanded its operations to Kenya, with plans to cover other locations too. The company also has a sales office in the US and a new corporate office in the UK. This expansion, five years after it first opened in Nepal, shows that developing country ICT-BPOs can evolve into successful global production networks based on the human resources rather than the physical attributes of the country. These networks benefit Nepal as they foster greater trade flows between countries, further boosting growth and improving the economic resilience of Nepal as it expands into a more diversified export basket.

How Nepal’s ICT sector can be developed 

The ICT sector faces a serious challenge retaining staff in Nepal, with high constant turnover rates, fuelled by employee migration, limiting the capacity of Nepalese ICT firms like CloudFactory to grow. If Nepal is serious about its commitment to the ICT sector, as the Government of Nepal’s Investment Board states, it needs to look at some policy shifts to help local ICT firms further integrate into the global market. While some great strides have been taken to fortify the country’s ICT infrastructure, considering investments in local data centres could help increase data security and access speeds for local firms and improve security perceptions for international investors.

At the policy level, three key moves could help the sector evolve. Reforms to capital account systems could incentivise international investors to set up regional ICT-BPO hubs in Nepal and, at the same time, help local firms strengthen links to the global economy by facilitating international transactions. Allowing more talent into the country can, conversely to logic, help keep workers in the Nepalese market. Some key skills are still in short supply in the Nepalese ICT sector (marketing, high-level managerial skills, etc.); allowing local ICT firms to recruit from abroad can only help strengthen them, promoting firm growth, better wages and the retention of local workers. Finally, the promotion of healthy state–business relations could prove invaluable for the sector. If businesses can promote their growth and employment potential and highlight the challenges they face to the Nepalese government, through business associations such as the Computer Association of Nepal, issues could be rapidly addressed and opportunities harnessed to ensure the ICT sector, like tourism, becomes a pillar of exports for the country.

 

Photo credit: A Nepalese young man works on a computer in a small photo lab in Kathmandu on May 2, 2011. © ILO/ Pradip Shakya.