Integrating Kenya’s micro and small firms into leather, textiles and garments value chains: Creating jobs under Kenya’s Big Four agenda

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

The Government of Kenya has developed a range of policies, strategies and measures to promote industrialisation as part of President Kenyatta’s ‘Big Four’ agenda. However, this risks missing the opportunity for broad-based economic transformation if implementation of the strategies occurs without more focus on the role of small, local firms in the manufacturing sector. This study aims to support Kenya’s Executive Office of the President by suggesting ways to better integrate leather, textiles and garments MSMEs into value chains, economic zones and industrial parks. It concludes that Government should focus on three priorities, including Restructuring MSME institutional support structures, introduce dedicated MSME incubator programmes and involve county governments in MSME support.

Aarti Krishnan, Dirk Willem te Velde and Anzetse Were, May 2019

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The Government of Kenya has developed a range of policies, strategies and measures to promote industrialisation as part of President Kenyatta’s ‘Big Four’ agenda. However, this risks missing the opportunity for broad-based economic transformation if implementation of the strategies occurs without more focus on the role of small, local firms in the manufacturing sector. This study aims to support Kenya’s Executive Office of the President by suggesting ways to better integrate leather, textiles and garments MSMEs into value chains, economic zones and industrial parks. It concludes that Government should focus on three priorities, including restructuring MSME institutional support structures, introducing dedicated MSME incubator programmes and involving county governments in MSME support.

The paper was launched on Thursday 16 May 2019 by the Hon. Peter Munya, MGH, Cabinet Secretary, Ministry of Industry, Trade and Cooperatives, Government of Kenya, at the ‘Growing an Inclusive Economy’ event, organized by the Ministry of Industry, Trade and Cooperatives, Government of Kenya, ODI, Msingi East Africa and Invest in Africa.

 Photo: Curt Carnemark / World Bank CC BY-NC-ND 2.0

Economic Transformation in Cambodia: Prospects, Challenges and Avenues for Further Analysis

Dirk Willem te Velde, April 2019.

Cambodia has been the sixth-fastest growing country in the world over the past two decades and it has reduced poverty and inequality significantly. However, Cambodia currently also faces major challenges to its hitherto successful growth model. While the constraints to transformation and the measures to overcome constraints are well known, the question often left unanswered is how to make the next step. This paper introduces a number of options for immediate further policy analysis. It concludes that a crucial concern at present relates to gaining a better understanding of the role of appropriate and good quality education and skills in preparing for a digital economy.

Dirk Willem te Velde, April 2019

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Cambodia has been the sixth-fastest growing country in the world over the past two decades and it has reduced poverty and inequality significantly. It graduated to lower-middle-income country (LMIC) status in 2015. It has achieved remarkable growth in exports of garments, attracted record numbers of tourists, expanded agricultural land leading to significant exports of rice, benefited from high commodity prices and recently witnessed a construction boom. It has also shown signs of diversification into bicycles, footwear and, to some extent, maize, vegetables, sugar and palm oil. Special economic zones have played a crucial role in kickstarting manufacturing.

However, Cambodia currently also faces major challenges to its hitherto successful growth model in the form of expected graduation from least developed country (LDC) trade preferences; limits to the natural asset base; vulnerability to shocks; and lack of high-quality governance capacities. Cambodia also faces new prospects and challenges owing to automation and digitalisation. These factors provide a more uncertain and potentially threatening context for Cambodia’s future economic transformation, which requires appropriate action for transformation and diversification.

This scoping paper introduces a number of options for further immediate policy analysis. Our discussions on Cambodia’s future transformation paths centre on the quality of skills (including quality and completion in secondary education; issues on science, technology, engineering and mathematics; industry–university linkages); the impact of the digital economy on transformation models based on manufacturing; and the quality and implementation of policies. We conclude that a crucial concern commonly expressed at present relates to gaining a better understanding of the role of appropriate and good quality education and skills in preparing for a digital economy.

Photo: Students take a computer course at the Banana Center, Cambodia. Masaru Goto/ World Bank. License: CC BY-NC-ND 2.0.

Enhancing Spillovers from Foreign Direct Investment

Dirk Willem te Velde, March 2019

Public policy plays a crucial role in enhancing the spillovers from foreign direct investment (FDI). The role of FDI in driving economic growth and development has been contested at least since the 1960s. There have always been views in favour of FDI and against it. Some have argued that FDI leads to economic growth and productivity increases in the economy as a whole, and hence contributes to differences in economic growth and development performance across countries. Others have stressed the risk that FDI will destroy local capabilities, extract natural resources without adequately compensation, or introduce inappropriate technologies.

Dirk Willem te Velde, March 2019

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Public policy plays a crucial role in enhancing the spillovers from foreign direct investment (FDI). The role of FDI in driving economic growth and development has been contested at least since the 1960s. There have always been views in favour of FDI and against it. Some have argued that FDI leads to economic growth and productivity increases in the economy as a whole, and hence contributes to differences in economic growth and development performance across countries. Others have stressed the risk that FDI will destroy local capabilities, extract natural resources without adequately compensation, or introduce inappropriate technologies.

A more nuanced view on FDI and development is emerging in the research community but this has yet to be embraced fully by the policy community. The impact of FDI on economic growth is not only positive or only negative, but depends on the type of FDI, firm characteristics, economic conditions, policies and institutions. Moreover, the effect of FDI is not static, but involves a dynamic process that includes knowledge ‘spillovers’ from FDI to the local economy over time. And, crucially, policies and institutions can affect the impact of FDI, including the extent and impact of spillovers.

This paper aims to provide insights for policy-makers concerned with FDI spillovers by reviewing the empirical literature in a policy relevant way.

Photo: Instructors checking a newly made shirt at the Savar Export Processing Zone in Dhaka, Bangladesh, 2016. Dominic Chavez/ World Bank. CC BY-NC-ND 2.0

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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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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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

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

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.

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.

Five Policy Priorities to Facilitate East African Trade and Investment

With 3.9 million people predicted to join the labour market each year from now until 2030, there is a huge jobs challenge facing the East African Community (EAC): the creation of 7,000 jobs per day.
SET has worked with the East African Business Council (EABC) to develop a five-point plan for EAC governments to increase investment and intra-EAC trade and in doing so, help tackle the jobs crisis. The plan launches at the EABC’s 22nd anniversary celebrations in Nairobi. 

With 3.9 million people predicted to join the labour market each year from now until 2030, there is a huge jobs challenge facing the East African Community (EAC): the creation of 7,000 jobs per day.

SET has worked with the East African Business Council (EABC) to develop a five-point plan for EAC governments to increase investment and intra-EAC trade and in doing so, help tackle the jobs crisis:

  1. Eliminate non-tariff barriers to trade
  2. Reform the EAC Common External Tariff
  3. Improve regional infrastructure
  4. Fast track liberation of intra-EAC services trade
  5. Promote local sourcing

Further reading:

Balchin, N., Hoekman, B., Martin, H., Mendez-Parra, M. , Papadavid, P., Primack, D. and te Velde, D.W. (2016) Trade in services and economic transformation. SET Report. London: Overseas Development Institute (ODI) (https://set.odi.org/wp-content/uploads/2016/11/SET-Trade-in-Services-and-Economic-Transformation_Final-Nov2016.pdf).

Eberhard-Ruiz, A. and Calabrese, L. (2017) Trade facilitation, transport costs and the price of trucking services in East Africa. ODI Working Paper. London:  ODI (https://www.odi.org/publications/10868-trade-facilitation-transport-costs-and-price-trucking-services-east-africa).

Gasiorek, M., Mendez-Parra, M. and Willenbockel, D. (2017) ‘The costs of logistical and transport barriers to trade in East Africa’. ODI Briefing Paper. London: ODI (https://www.odi.org/publications/10816-costs-logistical-and-transport-barriers-trade-east-africa).

te Velde, D. W. (2017) ‘Supporting Kenya’s industrialisation: Mombasa port, SEZs and targeted development cooperation’. Supporting Economic Transformation (SET) Blog. London: ODI (https://set.odi.org/supporting-kenyas-industrialisation-mombasa-sezs-development/).

UNDESA Population Division (2017) World population prospects: the 2017 revision. DVD Edition.

The East African (2017) ‘Disputes are eroding intra-EAC trade gains’. 11 December (http://www.theeastafrican.co.ke/business/Disputes-are-eroding-intra-EAC-trade-gains-/2560-4223074-nr3bvd/index.html).

 

Photo credit: Salahaldeen Nadir / World Bank. License: CC BY-NC-ND 2.0.

Digitalisation and the Future of Manufacturing in Africa

Karishma Banga and Dirk Willem te Velde, March 2018

The growing digitalisation of economies and the associated rapid spread of advanced technologies like 3D printers, robots and cloud computing, is having a significant impact on manufacturing production globally. While the digital divide between developed and developing countries (particularly those in sub-Saharan Africa) is still significant, this does not mean developing countries will not be affected in the coming decades. With wages rising even in low-income countries, automation may become an increasingly attractive option to domestic firms, and furthermore, creeping automation of manufacturing in developed countries will have a knock-on effect globally.

Karishma Banga and Dirk Willem te Velde, March 2018

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The growing digitalisation of economies and the associated rapid spread of advanced technologies like 3D printers, robots and cloud computing, is having a significant impact on manufacturing production globally. While the digital divide between developed and developing countries (particularly those in sub-Saharan Africa) is still significant, this does not mean developing countries will not be affected in the coming decades. With wages rising even in low-income countries, automation may become an increasingly attractive option to domestic firms, and furthermore, creeping automation of manufacturing in developed countries will have a knock-on effect globally.

With investment and growth in manufacturing traditionally seen as one of the most promising pathways to industrialisation and economic transformation for developing economies, the question of how governments can prepare for this inevitable change is a crucial one for Africa’s long-term growth trajectory.

This paper presents new empirical analysis of the potential impact of growing digitalisation in manufacturing on Africa, and discusses what policymakers can do to exploit their current window of opportunity, address constraints in traditional manufacturing and prepare for the ‘digital wave’, which will bring with it a whole host of new opportunities and challenges.

Selected media and other coverage

‘US robots set to become cheaper than wages in Kenya’, East Africa Business Week, 16 March

‘Robots and automation: how Africa is at risk’, BBC Africa, 19 March

World Business Report, BBC World Service, 19 March (at 19.30)

Focus on Africa, BBC World Services, 19 March (at 4.18)

‘Selon l’Overseas Development Institute : Les robots seront moins chers que la main d’œuvre africaine à partir de 2034’, L’eral.net, 20 March (in French)

‘Will US robots take over African people’s jobs?‘ Software Testing News, 20 March

‘US robots ‘set to take’ African jobs’, Business Ghana, 20 March

‘US robots set to take African jobs’, Modern Ghana, 20 March

‘I robot e l’automazione dei processi, le nuove minacce per l’economia africana’, La Stampa Economia, 20 March (in Italian)

‘África se encuentra en riesgo en lo que respecta al servicio de automatización’, Blasting News, 20 March (in Spanish)

Infographics

Graphics: SET Programme. All rights reserved.

Photo: Factory workers producing shirts at Sleek Garment Export, in Accra, Ghana on October 13, 2015. © Dominic Chavez/World Bank.
License: CC BY-NC-ND 2.0.

WTO MC11 Negotiations: Implications for Economic Transformation in Developing Countries

The negotiations at the 11th World Trade Organization Ministerial Conference (WTO MC11) have so far failed to conclude with a comprehensive deal on agriculture, non-agricultural market access (NAMA), services and improvements in WTO rules that would make world trade freer, helping the global economy and developing countries in particular. There have, however, been small achievements in past rounds (MC9 in Bali and MC10 in Nairobi). This analysis examines the possible impact of current negotiating proposals in the main areas being discussed in the run-up to MC11 (agriculture, e-commerce, fisheries).

SUMMARY PAPER

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IN-DEPTH PAPERS

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The World Trade Organization (WTO) Ministerial Conference takes place in Buenos Aires from 10 to 13 December 2017. This will be the 11th Ministerial (MC11) since the start of the WTO and the 7th since the start of the Doha Round of WTO negotiations. The SET programme will host a side event on Trade, Trade Policy and Economic Transformation at the Trade & Sustainable Development Symposium alongside the WTO MC11 on 13th December.

The negotiations have so far failed to conclude with a comprehensive deal on agriculture, non-agricultural market access (NAMA), services and improvements in WTO rules that would make world trade freer, helping the global economy and developing countries in particular. There have, however, been small achievements in past rounds (MC9 in Bali and MC10 in Nairobi). The summary paper examines the possible impact of current negotiating proposals in the main areas being discussed in the run-up to MC11 (agriculture, e-commerce, fisheries).

There is much unfinished business in the Doha Round, as developing countries have highlighted. Further improvements on both market access in agriculture and NAMA remain to be negotiated. However, some key issues central to the interest of developing countries are expected to be at the centre of discussions in MC11. On agriculture, negotiations have been held on domestic support (including a permanent solution to public food stockholding) and the new special safeguard measure. At the same time, new issues, such as necessary new rules on e-commerce and the digital economy, have come up that could benefit from multilateral attention. Discussions are also being held on eliminating trade-distorting subsidies on fisheries. Three background papers by ODI cover each area in detail – agriculture, e-commerce and fisheries:

Balchin, N. and Mendez-Parra, M., ‘Agriculture: The implications of current WTO negotiations for economic transformation in developing countries

Lemma, A. F., ‘E-commerce: The implications of current WTO negotiations for economic transformation in developing countries’.

Worrall, L. and Mendez-Parra, M., ‘Fisheries: The implications of current WTO negotiations for economic transformation in developing countries

Photo credit: Containers in port by stalkERR via Flickr

Adjusting to Rising Costs in Chinese Light Manufacturing: What Opportunities for Developing Countries?

Jiajun Xu, Stephen Gelb, Jiewei Li and Zuoxiang Zhao, December 2017
Chinese light manufacturing has undergone a significant transformation in recent decades. As China progresses towards high-income status, real wage growth in the sector has accelerated, between 2014 and 2016 as high as 11% per annum. While this has made a welcome contribution to poverty reduction, it has also put pressure on firms as they struggle with rising costs – with one potential strategy for tacking this problem being partial or full relocation of production to lower-cost locations abroad.

Jiajun Xu, Stephen Gelb, Jiewei Li and Zuoxiang Zhao, December 2017

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Chinese light manufacturing has undergone a significant transformation in recent decades. As China progresses towards high-income status, real wage growth in the sector has accelerated by 11% per year (2014-2016). While this has made a welcome contribution to poverty reduction, it has also put pressure on firms as they struggle with rising costs. One potential strategy for tackling this problem has been the partial or full relocation of production to lower-cost locations abroad.

Optimists maintain that wage growth in China presents an opportunity for low-income countries (LICs) in Africa and elsewhere in Asia to help drive growth and structural transformation by attracting foreign direct investment and jobs from China. But the positive outcomes for LICs are uncertain. Country-level constraints such as poor infrastructure tend to turn-off foreign investors, Chinese manufacturing firms have developed alternative strategies for coping with rising wage costs, and other low-cost location options within China remain due to significant regional differences in wages.

This research report, which was undertaken in partnership with the Center for New Structural Economics (CNSE) at Peking University, presents the findings of a large-scale survey of 640 Chinese light manufacturing firms in the regions of the Yangztse River Delta and Pearl River Delta across four sub-sectors (garments, footwear, household appliances and toys).

This report was launched on 4th December 2017 at an event at Peking University, Beijing.

Media coverage

‘Chinese manufacturing may not be moving to Africa all that soon’, Quartz Africa, 5 December

‘China Light Industry Survey Report: Labor costs have become the number one challenge’, Shanghai Securities News, 5 December (in Mandarin)

‘China Light Industry Enterprises “Going Global” Survey: Nearly 30% of shoe companies have plans or have invested abroad’, 21st Century Business Herald, 6 December (in Mandarin)

‘China must focus on innovation in manufacturing as wages rise, says Apple’s Cook’, South China Morning Post, 6 December

‘Costs push shoemakers to set foot abroad’, Global Times, 7 December

‘Labor costs rose, 27% of China’s footwear companies surveyed to be “going out”‘, Yangcheng Evening News, 12 December

‘”Promote economic restructuring – China’s manufacturing enterprises to upgrade and go global research report” successfully released in Guangzhou’, Southern Network, 13 December

‘China’s manufacturing enterprises to upgrade and go out, research report released’, Guangming, 13 December

Photo credit: Daniel Foster via Flickr. Licence: CC BY-NC-SA 2.0.

 

DATA BRIEFING | Using SET data to identify economic transformation opportunities in low income countries

Using data available to download from the Supporting Economic Transformation (SET) data portal, this briefing shows that labour and total factor productivity differentials exist at all levels in the economy, both between sectors and with sectors. This suggest there are significant opportunities for promoting economic transformation. This data briefing first discusses productivity differentials between sectors and then productivity differentials between firms within sectors.

Dirk Willem te Velde, October 2017

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Using data available to download from the Supporting Economic Transformation (SET) data portal, this briefing shows that labour and total factor productivity differentials exist at all levels in the economy, both between sectors and with sectors. This suggest there are significant opportunities for promoting economic transformation.

This data briefing first discusses productivity differentials between sectors and then productivity differentials between firms within sectors.

Key messages

  • Data available on the SET data portal show that productivity differentials exist both between, and within sectors in low-income countries, which points to significant opportunities for promoting economic transformation.
  • Data show the recent pattern of economic growth in Africa has involved little structural change across sectors.
  • Labour productivity differentials between sectors decrease as levels of income increase, suggesting further opportunities for economic transformation in LICs
  • Firm-level productivity data suggest large productivity differentials between firms within sectors.

Photo credit: Addis Ababa Market, SET Programme, Overseas Development Institute ©

Private Sector Development in Liberia: Financing Economic Transformation in a Fragile Context

Judith Tyson, October 2017
In recent years, the development community has become focused on how to stabilise fragile and conflict-affected states (FCAS), not only to enhance economic development, but also to safeguard international security and stability. This paper examines Liberia as one instance of a FCAS that, it is hoped, is making this transition. It concentrates on one particular aspect of economic renewal – the revival of private sector growth.
Liberia is of particular interest because, although it remains fragile, it has made significant progress including establishing a stable democratic government. Further, it has set out an economic strategy that is well-grounded in the country’s comparative advantages and has attracted significant donor support. Nevertheless, Liberia remains one of the poorest countries the world and the barriers to moving beyond being a stable but poor country, towards economic prosperity remain significant.

Judith Tyson, October 2017

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In recent years, the development community has become focused on how to stabilise fragile and conflict-affected states (FCAS), not only to enhance economic development, but also to safeguard international security and stability. Political stability and accountability as well as economic stabilisation in FCAS are important in this endeavour. However, relatively few FCAS who have managed to move away from conflict achieve this.

This paper examines Liberia as one instance of a FCAS that, it is hoped, is making this transition. It concentrates on one particular aspect of economic renewal – the revival of private sector growth. Liberia is of particular interest because, although it remains fragile, it has made significant progress including establishing a stable democratic government. Further, it has set out an economic strategy that is well grounded in the country’s comparative advantages and has attracted significant donor support. Nevertheless, Liberia remains one of the poorest countries in the world and the barriers to moving beyond being a stable but poor country, towards economic prosperity, remain significant.

Photo credit: Morgana Wingard/ UNDP. License: CC BY-NC-ND 2.0

Pathways to Prosperity and Transformation in Nepal: A Four Sector Study

Giles Henley, Sonia Hoque, Alberto Lemma, Posh Raj Pandey and Dirk Willem te Velde, October 2017
Building a consensus view of how Nepal can transform and create jobs in the future is crucial to incentivise policy action. However, there seems to be little or no political debate on job creation. This presents an
opportunity to agree a consensus view and a unifying, practical vision on how the country can transform and create jobs. This project examines credible pathways to prosperity and inclusive job creation from a scenario perspective. It discusses the type of sectors that can help grow and transform Nepal to reduce its import dependency and increase its exports and what implications different sectors have for inclusive job creation.

Giles Henley, Sonia Hoque, Alberto Lemma, Posh Raj Pandey and Dirk Willem te Velde, October 2017

Reports

DOWNLOAD PATHWAYS PAPER               DOWNLOAD FOUR SECTOR STUDY PAPER

Sector case study papers

TOURISM SECTOR PAPER          AGRO-PROCESSING SECTOR PAPER

ICT SECTOR PAPER      MANUFACTURING SECTOR PAPER

Summary Briefing papers

DOWNLOAD PATHWAYS SUMMARY BRIEFING         DOWNLOAD FOUR SECTOR STUDY SUMMARY BRIEFING

In January 2017, a study was commissioned which examined Nepal’s potential for economic transformation, with an in-depth case study of four sectors with strong potential to drive transformation.

This paper ‘Pathways‘ examines credible pathways to prosperity and inclusive job creation from a scenario perspective. It discusses the type of sectors that can help grow and transform Nepal and what implications different sectors have for inclusive job creation.

The paper ‘Four Sector Study‘ analyses the state of Nepal’s labour market and examines what can be done to ease the country’s constraints to job creation on the basis of a new firm-level survey of over 40 firms carried out in January 2017 in four promising sectors for economic transformation and job creation. It also discusses policy suggestions on how to develop sectors. In addition to informing the government of Nepal, the paper also aims to inform the design of a policy component for the Department for International Development (DFID) Nepal Skills for Employment Programme.

The results of the surveys, for each sector, are presented in greater detail in individual sectoral papers for:

  • Agro-processing
  • Light manufacturing
  • Tourism
  • Information and Communication Technology (ICT)

Two briefing papers are available to download above, summarising the key findings from the main papers.

Media coverage

Leading English dailies (also in print)

Full editorial: Labour issues, Kathmandu Post, 31 October

Nepal to face labour shortage by 2030, Kathmandu Post, 27 October

Stakeholders stress on inclusive job creation, Himalayan Times, 27 October

Nepal to face labour shortage by 2030, Wio News, 27 October

National news coverage (from 4:40) Karobar news

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 National news coverage (from 22:00): Artha ko Artha

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Photo credit: ©Simone D. McCourtie, World Bank via Flickr

The Shift of Manufacturing Employment in China

Jun Hou, Stephen Gelb and Linda Calabrese, October 2017
Chinese manufacturers, in particular in labour-intensive industries, are striving hard for ways to withstand the pressures emerging during the ‘New Normal’ transition– such as slowing economic growth, labour force shortages and rising factor costs. As a result, many are in the process of, or at least considering, relocation of production to other low-cost destinations, or replacing workers with machines by upgrading technological capability levels. The relocation of Chinese manufacturing is forecast to open up major employment opportunities for low-cost regions and countries, with the potential for one to become the new global centre for manufacturing.

Stephen Gelb, Linda Calabrese and Jun Hou, October 2017

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Chinese manufacturers, in particular in labour-intensive industries, are striving hard for ways to withstand the pressures emerging during the ‘New Normal’ transition– such as slowing economic growth, labour force shortages and rising factor costs. As a result, many are in the process of, or at least considering, relocation of production to other low-cost destinations, or replacing workers with machines by upgrading technological capability levels. The relocation of Chinese manufacturing is forecast to open up major employment opportunities for low-cost regions and countries, with the potential for one to become the new global centre for manufacturing.

Light manufacturing offers growth solutions for under-developed regions and economies as it is driven by low-factor costs and an abundant workforce. These background papers, which have informed the direction of a large-scale survey of Chinese firms currently underway and led by SET and the Centre for New Structural Economics, look at light manufacturing in China across four sub-sectors: clothing and footwear, toys, household appliances and information and communication technology. The first paper explores the patterns of the shift of light manufacturing employment within China, focusing on regional and industrial disparities, while the second focuses on the enabling factors in Africa and Asia that are driving this change. The summary paper brings these themes together and concludes that there remain low-cost opportunities for manufacturers within China, and that if other developing countries are to capitalise on the current opportunity, they must seek to address the challenges associated with their location-specific costs, while also engaging directly with Chinese firms in relevant sectors.

Blog

The relocation of Chinese manufacturing companies to Africa (Jun Hou, ODI)

 

Photo credit: ©ILO. License: CC BY-NC-ND 2.0.

Economic Transformation and Job Creation in Mozambique

Neil Balchin, Peter Coughlin, Phyllis Papadavid, Dirk Willem te Velde and Kasper Vrolijk, October 2017
Mozambique’s gross domestic product (GDP) has grown annually by 5–7% in real terms over the past decade, but this has not been accompanied by structural change or sufficient job creation. The country requires a different focus towards economic transformation to address the very challenging short-term macroeconomic situation and create much-needed jobs in a sustainable way. This report on economic transformation and job creation in Mozambique synthesises 30 recent studies to understand commonalities and differences on promising sectors and value chains in Mozambique, binding constraints to developing these activities, and policies that have been suggested to achieve these.

Neil Balchin, Peter Coughlin, Phyllis Papadavid, Dirk Willem te Velde and Kasper Vrolijk, October 2017

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Mozambique’s gross domestic product (GDP) has grown annually by 5–7% in real terms over the past decade, but this has not been accompanied by structural change or sufficient job creation. The country requires a different focus towards economic transformation to address the very challenging short-term macroeconomic situation and create much-needed jobs in a sustainable way.

The SET report on economic transformation and job creation in Mozambique synthesises 30 recent studies to understand commonalities and differences on promising sectors and value chains in Mozambique, binding constraints to developing these activities, and policies that have been suggested to achieve these. Thus, rather than undertaking new analysis, this synthesis paper reflects on existing analyses broadly related to industrialisation and economic transformation in Mozambique in order to provide a base from which to move forward on the specifics of how to transform the economy.

The summary paper outlines the most pressing development challenges facing Mozambique and how they affect prospects for transformation and job creation; discusses the promising sectors for future transformation; and highlights the actions needed to accelerate transformation based on a review of 30 studies in the recent literature on economic transformation. It then discusses next steps for the Government of Mozambique (GoM) and its partners, such as the UK Department for International Development (DFID), around the development models (the what) and institutional capabilities (the how) required to implement a distinctly Mozambican transformation and job creation strategy.

Blog

Mozambique needs to act now to avert a jobs crisis (Neil Balchin, ODI)

Photo credit: Eric Miller/ World Bank via Flickr

Local Content Policies and Backward Integration in Nigeria

Neil McCulloch, Neil Balchin, Max Mendez-Parra and Kingsley Onyeka, October 2017
Nigeria has experienced rapid but low-quality growth over the past decade. This has been accompanied by limited structural change and little economic transformation. The share of manufacturing in Nigeria’s gross domestic product (GDP) is low relative to that in comparator countries, and the country’s heavy reliance on oil and gas exports has meant little attention has been paid to developing the manufacturing sector or diversifying into more complex products. This report, produced in partnership with the Nigerian Economic Summit Group (NESG) and launched at the Group’s annual Economic Summit in Abuja, analyses the different local policies options to increase backward and forward linkages in the Nigerian manufacturing sector.

Neil McCulloch, Neil Balchin, Max Mendez-Parra and Kingsley Onyeka, October 2017

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Nigeria has experienced rapid but low-quality growth over the past decade. This has been accompanied by limited structural change and little economic transformation. The share of manufacturing in Nigeria’s gross domestic product (GDP) is low relative to that in comparator countries, and the country’s heavy reliance on oil and gas exports has meant little attention has been paid to developing the manufacturing sector or diversifying into more complex products.

There is a clear need for greater diversification of the Nigerian economy to promote quality growth, economic transformation and employment. This can be aided by the development of value chains that facilitate higher-value added processing and manufacturing activities within Nigeria and make greater use of locally produced inputs and services in production through the creation of backward linkages. The latter can have positive effects in terms of stimulating economic development; promoting the development of local industries; creating economic linkages; building local capacity, capabilities and technologies; developing skills within the workforce; boosting employment; and minimising capital flight. Greater use of local content and more extensive backward linkages can also help Nigeria avoid the resource curse.

This report, produced in partnership with the Nigerian Economic Summit Group (NESG) and launched at the Group’s annual Economic Summit in Abuja, analyses the different local policies options to increase backward and forward linkages in the Nigerian manufacturing sector. This includes a review of the legislation that supports local content policies in the country, a literature review to identify how said policies have operated in different sectors in Nigeria as well as international experience in comparable countries such as Brazil and Indonesia, firm data to quantify backward integration in Nigeria, and finally, policy recommendations for the Nigerian government to move forward on this agenda.

Photo credit: ©IFPRI/Milo Mitchell. License: CC BY-NC-ND 2.0.

Tanzania’s Second Five-Year Development Plan (FYDP II): Briefing Papers

Neil Balchin and Dirk Willem te Velde, August 2017
Following extensive work done by the SET Programme on supporting the preparation of Tanzania’s Second Five-Year Development Plan (FYDP II), SET has continued to support the Planning Commission within the Ministry of Finance and Planning (MoFP). The Government of Tanzania launched the FYDP II – Nurturing Industrialisation for Economic Transformation and Human Development in 2016, and is currently finalising the FYDP II Implementation Strategy, for which SET has provided continued support.

Neil Balchin and Dirk Willem te Velde, August 2017

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Following extensive work done by the SET Programme on supporting the preparation of Tanzania’s Second Five-Year Development Plan (FYDP II), SET has continued to support the Planning Commission within the Ministry of Finance and Planning (MoFP).

The Government of Tanzania launched the FYDP II – Nurturing Industrialisation for Economic Transformation and Human Development in 2016, and is currently finalising the FYDP II Implementation Strategy, for which SET has provided continued support.

These three briefings cover:

1)  A summary of FYDP II  published last year

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).

The briefings can also be found on the website for our partner in this study, REPOA, a leading policy research think tank in Tanzania.

 

Photo credit: SET Programme, Overseas Development Institute ©

Zimbabwe: A Roadmap for Economic Transformation and Economic Outlook

Judith Tyson, August 2017
Zimbabwe has suffered from economic decline in the recent past, with a 60% reduction in its gross domestic product over the past two decades. There have been multiple acute crises and a deep structural regression in its economy. This has included deindustrialisation with degradation of capital stock and low capacity utilisation in the manufacturing sector. The paper on ‘A Roadmap for Economic Transformation’ argues that the most viable is a ‘single sector, single agent’ approach – whereby transformation is focused on a single sector with high potential and led by a single reformist agent within government – and this could ‘kick-start’ change.

Judith Tyson, August 2017

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Godfrey Kanyenze, Prosper Chitambara and Judith Tyson, September 2017

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Zimbabwe has suffered from economic decline in the recent past, with a 60% reduction in its gross domestic product over the past two decades. There have been multiple acute crises and a deep structural regression in its economy. This has included deindustrialisation with degradation of capital stock and low capacity utilisation in the manufacturing sector. The agriculture sector has suffered from declining productivity and only the mining sector has thrived, but this is mainly because of the commodity ‘super cycle’ that ended in 2015. Ideally, there would be broad and deep macroeconomic reforms but many commentators see this as unrealistic without significant political change. Instead, new strategies that are feasible in the political economy of Zimbabwe are needed to get the country’s economy back on track.

The paper A Roadmap for Economic Transformation argues that the most viable is a ‘single sector, single agent’ approach – whereby transformation is focused on a single sector with high potential and led by a single reformist agent within government – and this could ‘kick-start’ change. First, Zimbabwe has inherent competitive advantages. These include rich natural endowments in agriculture and extractives, including gold, platinum and diamonds; proximity to key regional markets in South Africa, Zambia and other neighbouring countries; and good levels of education and business skills. These provide Zimbabwe with the potential to develop value-added, export-led manufacturing and processing of its products, with resultant and much-needed formal, higher-wage employment and fiscal revenues.  Second, experiences in comparator countries show that, under such a strategy, there is no need for pre-existing ‘good governance’ for transformation to begin. Conditions such as a well-functioning democracy, transparency, civil society empowerment or the absence of corruption are not necessary. Indeed, there is no need for comprehensive change in institutions and power structures.

In the period from 1999 to 2008, Zimbabwe’s GDP declined by 52%. This ended in 2008 in a period of hyperinflation and dollarisation of the economy. Subsequently, the economy experienced anaemic growth which averaged 2.9% from 2009 to 2016. However, the Zimbabwean economy did more than simply underperform in relation to economic growth on a comparative basis with the region. It underwent a significant structural degeneration, which is characterised by a number of factors, and which are discussed in the Outlook of the Zimbabwe Economy background paper.

 

 

Photo credit: Martin Addison via Flickr

Coordinating Public and Private Action for Export Manufacturing: International Experience and Issues for Rwanda

David Booth, Linda Calabrese and Frederick Golooba-Mutebi, July 2017

One of the keys to economic transformation across Africa today is a greater role for employment-intensive, export-oriented manufacturing. After taking due account of differences in contexts and time periods, international experience – especially in Asia but also in Africa-region leaders such as Mauritius – points to employment-intensive manufacturing as a crucial and indispensable step in the transition from poverty to development.

David Booth, Linda Calabrese and Frederick Golooba-Mutebi, July 2017

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One of the keys to economic transformation across Africa today is a greater role for employment-intensive, export-oriented manufacturing. After taking due account of differences in contexts and time periods, international experience – especially in Asia but also in Africa-region leaders such as Mauritius – points to employment-intensive manufacturing as a crucial and indispensable step in the transition from poverty to development.

Rwanda is – along with Ethiopia – exceptional in Africa in that it has in place a nation-building project centred on the aim of economic transformation. Features of its political economy also mean Rwanda lends itself easily to comparison with the best-documented experiences in Asia. This paper explores the ways in which international experience of success in manufacturing-based economic transformation can provide valuable insight for Rwanda, in the areas of government coordination, engagement with and representation of the private sector, and the experimental learning process.

Photo credit: UNIDO, 2016 via Flickr

Financing Manufacturing in Africa: Macroeconomic Conditions and Mobilising Private Finance

Phyllis Papadavid and Judith Tyson, June 2017

Since the downturn in global commodity prices in 2015, sub-Saharan Africa’s macroeconomic conditions have deteriorated, with 2016 seeing the worst economic growth in more than two decades. To maintain progress in economic transformation, employment-intensive and higher-productivity sectors need to be developed. Manufacturing – including agricultural processing – offers this opportunity, including through participation in regional and global value chains. In order for the sector to get the investment it needs, the promotion and mobilising of private financing will be crucial.

Phyllis Papadavid and Judith Tyson, June 2017

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Since the downturn in global commodity prices in 2015, sub-Saharan Africa’s macroeconomic conditions have deteriorated, with 2016 seeing the worst economic growth in more than two decades. To maintain progress in economic transformation, employment-intensive and higher-productivity sectors need to be developed. Manufacturing – including agricultural processing – offers this opportunity, including through participation in regional and global value chains. In order for the sector to get the investment it needs, the promotion and mobilising of private financing will be crucial; however, this mobilisation is currently muted and, despite growing in absolute terms in the past decade, is not sufficient to support strong growth in the manufacturing sector.

These two complementary papers explore the current financing environment for manufacturing in sub-Saharan Africa including constraints on both investors and manufacturers, and offer suggestions for how barriers might be overcome with tailored policy solutions. The paper on conditions examines macroeconomic financing constraints in Kenya, Rwanda and Liberia in order to assess why manufacturing growth may have fallen behind services in these three countries at various stages of development. The paper on mobilising financing, meanwhile, looks at disparities between finance flows to the manufacturing sector and to others such as financial services, as well as the disparity between the financing of manufacturing in larger economies such as Ethiopia and Nigeria (which together account for 66% of financing manufacturing in the region) and in fragile and conflict-affected states. Finally, it offers policy recommendations to tackle these issues that include the expansion of impact accelerator funds and the supporting of value chain development.

This study has been released alongside a blog on East African manufacturing in Africa which can be found here.

 

Photo credit: Hawassa Industrial Park, SET Programme, Overseas Development Institute ©

Financing Manufacturing in Rwanda

Linda Calabrese, Phyllis Papadavid and Judith Tyson, June 2017

Rwanda is one of Africa’s “rising stars”. The country’s economy has seen solid rates of economic growth since the civil conflict in the mid-1990s. Strength in investment flows has followed in the path of this macroeconomic and institutional stability. As this paper highlights, a large part of Rwanda’s success has been the result of proactive policies undertaken by the government of Rwanda in facilitating a good domestic investment climate, which have been conducive to strong rates of growth in FDI into the economy.

Linda Calabrese, Phyllis Papadavid and Judith Tyson, June 2017

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Rwanda is one of Africa’s “rising stars”. The country’s economy has seen solid rates of economic growth since the civil conflict in the mid-1990s. Strength in investment flows has followed in the path of this macroeconomic and institutional stability. As this report highlights, a large part of Rwanda’s success has been the result of proactive policies undertaken by the government of Rwanda in facilitating a good domestic investment climate, which have been conducive to strong rates of growth in foreign direct investment (FDI) into the economy.

Despite the country’s successes, though, developments in manufacturing have not been as encouraging: the sector’s share of the economy and exports is still small. The report aims to analyse Rwanda’s financial backdrop, and the composition of its investment flows into manufacturing, with a view to exploring constraints and opportunities in manufacturing.

In analysing financial and economic challenges, this paper concludes that high transport and utility costs, the elevated real effective exchange rate and weakness in bank lending are key challenges to be tackled. Looking ahead, special economic zones should continue to be a focus alongside export-oriented investments; prudential measures could target manufacturing finance and disincentivise overly high levels of real estate lending

 

Photo credit: A’Melody Lee / World Bank (Flickr)

10 Policy Priorities for Transforming Manufacturing and Creating Jobs in Kenya

Anzetse Were, Dirk Willem te Velde and Gituro Wainaina, June 2017

Developed by SET in partnership with the Kenya Association of Manufacturers (KAM), this booklet addresses Kenya’s current economic predicament and makes the case for political and financial investment in manufacturing. The central 10-point policy plan lays out seven policies and regulations that should be enacted to create a conducive environment for manufacturing to flourish, and three further suggestions for how to implement them in practice.

Anzetse Were, Dirk Willem te Velde and Gituro Wainaina, June 2017

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The Kenyan manufacturing sector has the potential to transform the Kenyan economy and kick-start a process of industrialisation that could create hundreds of thousands of jobs and improve livelihoods across the country. However, to make this a reality by 2022 will take a concerted and coordinated effort by both government and the private sector.

Developed by SET in partnership with the Kenya Association of Manufacturers (KAM), this booklet addresses Kenya’s current economic predicament and makes the case for political and financial investment in manufacturing. The central 10-point policy plan lays out seven policies and regulations that should be enacted to create an environment in which the sector can flourish, and three further suggestions for how to implement them in practice.

The 10-point policy plan aims to support Kenya’s manufacturing sector, by presenting seven priorities for public policy and regulation to improve manufacturing competitiveness, and a further three recommendations on implementation explain how to make this happen.

Media coverage

Business Daily, 5 July

XinhuaNet, 5 July

The Standard, 6 July

Mediamax, 6 July

The Star, 6 July

Coastweek.com, 7 July

KBC Channel 1, 7 July

Liex Consult, 10 July (blog)

Business Daily, 16 July

The East African, 25 July

Photo credit: j_cadmus via Visual Hunt  | CC BY 2.0

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