WTO MC11 Negotiations: Implications for Economic Transformation in Developing Countries

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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

 

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. Multiple factors interact to re-establish stability and resilience after conflict. Re-establishment of political stability and accountability and economic stabilisation are important. However, relatively few FCAS have managed to move away from conflict follow a long-term path leading to becoming stability and prosperity.

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.

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

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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

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

 

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

Supporting Economic Transformation: Briefing Papers

Margaret McMillan, John Page, David Booth and Dirk Willem te Velde, March 2017

Launched alongside Supporting Economic Transformation: An Approach Paper, these briefings summarise the central tenets of SET’s approach to the challenge of promoting economic transformation and explore its importance for driving sustainable, inclusive development in the world’s poorest countries.

Margaret McMillan, John Page, David Booth and Dirk Willem te Velde, March 2017

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As continuous and sometimes remarkably fast economic growth has become more usual in much of the developing world over recent decades, attention has shifted to the pattern and quality of that growth. Issues of concern include the persistence of extreme poverty in many countries, despite growth in gross domestic product, and the weak capacity of many sectors to produce sustained increases in employment. Much of recent growth in sub-Saharan African economies has been due to factors like buoyant urbanisation, and an expansion in the service economy that serves only the middle- and upper-classes. This pattern of growth is both highly skewed and non-inclusive. Another way to express this is that these economies are achieving growth without depth, or economic growth without economic transformation.

Launched alongside Supporting Economic Transformation: An Approach Paper, these briefings summarise the central tenets of SET’s approach to the challenge of promoting economic transformation and explore its importance for driving sustainable, inclusive development in the world’s poorest countries.

Photo credit: ILO/Sarah-Jane Saltmarsh, 2010

Foreign Direct Investment and Economic Transformation in Myanmar

Stephen Gelb, Linda Calabrese and Xiaoyang Tang, March 2017, June 2017

The paper and briefing reviews the foreign (Chinese) presence in four sectors in Myanmar and its impact on economic transformation. Significant positive effects include employment and exports in garments, local enterprise development and downstream user costs in construction (and infrastructure), and exports, technology transfer and product market competition in agriculture and agro-processing and finally makes a number of policy recommendations for UK DFID.

Stephen Gelb, Linda Calabrese and Xiaoyang Tang, March 2017

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Stephen Gelb and Linda Calabrese, June 2017

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This study assesses the potential for foreign direct investment (FDI) to contribute to Myanmar’s economic transformation, by raising productivity and growth. The study focuses on four sectors – agriculture and agro-processing, garments, construction and tourism – selected for their significance for both transformation and FDI in Myanmar, particularly FDI from China.

The paper begins with a brief review demonstrating that economic transformation over the past two decades has been limited, though data limitations make it difficult to reach firm conclusions. Following this, a review of trade and investment looks at overall performance, as well as in the four selected sectors, and at relations with China. Exports have grown especially into China, but are dominated by extractives (particularly natural gas and precious stones). Garment export potential has raised manufacturing FDI since 2012. The trade and investment regimes are still undergoing liberalisation to encourage entry. Forty firms in the selected industries were interviewed, of which 31 were Chinese investors which suggest the Chinese firms are fairly satisfied with their performance in Myanmar, and with the productivity of low-skilled Myanmar labour (adjusted for wages). The Chinese and non-Chinese firms are not very different with respect to their main concerns: the quality of infrastructure (energy and transport particularly) and trade facilitation; the quality of local employees in higher-level managerial and technical positions; the limited breadth of the financial system, including the narrow scope of financial and foreign exchange instruments; and the unpredictability or absence of regulation.

The paper reviews in some detail the foreign presence in each of the four sectors and its impact on economic transformation. Significant positive effects include employment and exports in garments, local enterprise development and downstream user costs in construction (and infrastructure), and exports, technology transfer and product market competition in agriculture and agro-processing. The paper also concludes with a number of policy recommendations for UK DFID.

This study has contributed to a comment on factory jobs for the poor which can be read here.

Media coverage

Torino World Affairs Institute, 2 August

Myanmar Times, 9 August

Fibre2fashion, 10 August

Myanmar Times, 18 August

Photo credit: Axel Drainville (Flickr)

Supporting Economic Transformation: An Approach Paper

Margaret McMillan, John Page, David Booth and Dirk Willem te Velde, March 2017

This approach paper seeks to define economic transformation, offers an approach to measuring progress towards it, and examines case studies from African and Asian economies where transformative policies have been successful to greater and lesser extents. The paper concludes by presenting a multi-disciplinary approach to identifying opportunities, diagnosing constraints and mapping out realistic policy options for countries to use to turn their economic growth into genuine transformation.

Margaret McMillan, John Page, David Booth and Dirk Willem te Velde, March 2017

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As continuous and sometimes remarkably fast economic growth has become more usual in much of the developing world over recent decades, attention has shifted to the pattern and quality of that growth. Issues of concern include the persistence of extreme poverty in many countries, despite growth in gross domestic product, and the weak capacity of many sectors to produce sustained increases in employment. Much of recent growth in sub-Saharan African economies has been due to factors like buoyant urbanisation, and an expansion in the service economy that serves only the middle- and upper-classes. This pattern of growth is both highly skewed and non-inclusive. Another way to express this is that these economies are achieving growth without depth, or economic growth without economic transformation.

This approach paper seeks to define economic transformation, offers an approach to measuring progress towards it, and examines case studies from African and Asian economies where transformative policies have been successful to greater and lesser extents. The paper concludes by presenting a multi-disciplinary approach to identifying opportunities, diagnosing constraints and mapping out realistic policy options for countries to use to turn their economic growth into genuine transformation.

Photo credit: Dominic Chavez/World Bank, 2015


Economic transformation: the SET approach

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Credit: Overseas Development Institute

Trade in Services and Economic Transformation: A New Development Policy Priority

Edited by Bernard Hoekman and Dirk Willem te Velde, February 2017

Services play a vital role in economic transformation and job creation in poor countries, but the effects are different from those in agriculture or manufacturing. While much of the discussion on economic transformation centres on transforming agriculture and moving into manufacturing, services are an under-explored component of economic transformation strategies.
This set of essays analyses the role of services, and especially trade in services, in economic transformation.

Edited by Bernard Hoekman and Dirk Willem te Velde, February 2017

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Services play a vital role in economic transformation and job creation in poor countries, but the effects are different from those in agriculture or manufacturing. While much of the discussion on economic transformation centres on transforming agriculture and moving into manufacturing, services are an under-explored component of economic transformation strategies.

This set of essays analyses the role of services, and especially trade in services, in economic transformation. The essays are divided into three parts. The first set of contributions is about understanding the role of services in economic transformation and what the donor community could do over the next few years to support increases in economy-wide productivity and employment by focusing more on services policies and the performance of services sectors. The second part discusses the need to improve data on trade in services and where the focus should be. The third and final part examines ways to support developing countries through trade agreements and preferential access to markets, and help poorer countries benefit from greater trade opportunities. What should be the priorities for promoting services trade and providing services preferences for developing countries?

This essay collection follows a working paper on services trade and economic transformation and a roundtable event held at the London office of the Department for International Development in November 2016.

Photo: ODI/Antony Robbins, 2008

Trade in Services and Economic Transformation

Neil Balchin, Bernard Hoekman, Hope Martin, Maximiliano Mendez-Parra, Phyllis Papadavid, David Primack and Dirk Willem te Velde, November 2016

While much of the debate on economic transformation centres around transforming agriculture and moving into manufacturing, the potential of services is often left unexplored. It is crucially important for policy-makers in low-income countries, many of whom may not regard services, or trade in services, as a prime focus of action on economic transformation. This paper explores how policies both directly and indirectly affecting trade in services can have a major impact in terms of increasing the contribution of services to economic transformation.

Neil Balchin, Bernard Hoekman, Hope Martin, Maximiliano Mendez-Parra, Phyllis Papadavid, David Primack and Dirk Willem te Velde, November 2016

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While much of the debate on economic transformation centres around transforming agriculture and moving into manufacturing, the potential of services is often left unexplored. A proper understanding of the trade dimension of services lies at the frontier of new analytical work on economic transformation. It is crucially important for policy-makers in low-income countries, many of whom may not regard services, or trade in services, as a prime focus of action on economic transformation. This paper explores how policies both directly and indirectly affecting trade in services can have a major impact in terms of increasing the contribution of services to economic transformation.

It is often assumed that services follow transformation, but as in reality services also enable other sectors, it is important for economies to follow a balanced growth path where services and other sectors grow in tandem. Policy-makers need to update their evidence base on such linkages so they realise how services and other sectors grow together.

What is the role of trade in services in economic transformation and what can be done to improve the contribution? This paper seeks to answer these questions by reviewing what is known about the relationships between trade in services and economic development and identifying areas for further research, quantifying how these relationships work and exploring short case studies where countries have actively promoted exports of services.

Photo credit: Rob Beechey / World Bank

Africa’s New Climate Economy: Economic Transformation and Social and Environmental Change

Milan Brahmbhatt, Russell Bishop, Xiao Zhao, Alberto Lemma, Ilmi Granoff, Nick Godfrey and Dirk Willem te Velde, November 2016

Africa’s “Growth Miracle” in the 21st century has reversed a long standing narrative of pessimism about the region. It has emboldened hope for the future. GDP growth reached around 5% annually from 2001-2014. Rates of extreme poverty fell substantially.
Yet big challenges remain.

Milan Brahmbhatt, Russell Bishop, Xiao Zhao, Alberto Lemma, Ilmi Granoff, Nick Godfrey and Dirk Willem te Velde, November 2016

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Africa’s “Growth Miracle” in the 21st century has reversed a long standing narrative of pessimism about the region. It has emboldened hope for the future. GDP growth reached around 5% annually from 2001-2014. Rates of extreme poverty fell substantially.

Yet big challenges remain. Growth slumped in 2015 and 2016. The region lags far behind on most measures of human development. And climate change is taking an increasing toll on many countries: the region is warming faster than the world as a whole, and many areas will experience more frequent and intense droughts and floods. The economic impacts of climate change are expected to be severe, with agriculture and poor people especially at risk.

In this uncertain environment, policymakers in African countries and Pan- African institutions – the African Union in its “Agenda 2063”, the African Development Bank, and the United Nations Economic Commission for Africa – have identified economic transformation as a critical strategy to help boost the pace of inclusive growth in decades to come.

This report aims to help decision-makers take stock of the extraordinarily rich experience of recent years and draw lessons for the future. The choices made now will have implications for the decades ahead. This report lays out five key action areas for economic transformation and social and environmental progress in Africa: getting the fundamentals right, transforming agriculture and land use, diversifying into manufacturing and other high-productivity sectors, unleashing the power of urbanisation and fostering a modern energy transition.

This report was produced in collaboration with The New Climate Economy, part of The Global Commission on the Economy and Climate. 

Media and other coverage

Financial Nigeria, 4 November

Business & Financial Times (Ghana), 4 November

CleanTechnica, 6 November

Icoopera: knowledge for development (Spain) – 4 November

Capital Ethiopia, 15 November

Structural transformation and climate change in Africa – Alberto Lemma (blog, SET)

Confronting climate change: Africa’s leadership on an increasingly urgent issue – Russell Bishop (blog/book chapter, Brookings Institute)

Five ways Africa can build a new climate economy – Milan Brahmbhatt and Joel Jaeger (blog, WRI Insights)

In Africa green growth transition benefits outweigh costs by 3:1 – Global Catholic Climate Movement

Afrique sub-saharienne : 5 voies de transition économique pour réduire le risque climatique – Twi-Terre.net

Figures of the week: COP22 and climate action in sub-Saharan Africa – Amy Copley (blog, Brookings Institute)

Photo credit: Flickr/James Anderson

Supporting the Preparation of Tanzania’s Second Five-Year Development Plan (FYDP II)

Neil Balchin, Tim Kelsall, Blandina Kilama, Alberto Lemma, Max Mendez-Parra, Donald Mmari, Dirk Willem te Velde, Sam Wangwe, Leah Worrall, May 2016

The Government of Tanzania launched the second Five-Year Development Plan (FYDP II) (2016/17-2021/22) in June 2016, focusing on the theme Nurturing Industrialisation for Economic Transformation and Human Development. This study informed the preparation of FYDP II.

Neil Balchin, Tim Kelsall, Blandina Kilama, Alberto Lemma, Max Mendez-Parra, Donald Mmari, Dirk Willem te Velde, Sam Wangwe, Leah Worrall, May 2016

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The FYDPII (2016/17-2021/22) is now available to download.

The full paper is also available on the Tanzania Ministry of Finance and Planning website.

The summary paper is also available on the Tanzania Ministry of Finance and Planning website.

The Government of Tanzania, through the Planning Commission in the Ministry of Finance and Planning (MOFP), launched the second Five-Year Development Plan (FYDP II) (2016/17-2021/22) in June 2016, focusing on the theme Nurturing Industrialisation for Economic Transformation and Human Development. This study informed the preparation of FYDP II. It takes stock of Tanzania’s industrialisation and economic transformation record, policies and strategies, identifies activities for nurturing a semi-industrialised economy, introduces a range of measurable targets that could be considered for the next FYDP, presents a resource mobilisation framework and considers new ways to make industrialisation and economic transformation a reality.

The summary paper argues that Tanzania needs a radically different approach in the coming five years in order to seize the opportunities for industrialisation in a rapidly evolving environment and concludes that there are some early signs of structural transformation in Tanzania. The country needs to build on these by addressing generally agreed policy options, but in a different way compared to the past. It can best do this in practical terms by considering a number of collaborative projects that would illustrate how it can nudge the economy further onto a more transformational path in the following areas: infrastructure development, human capital development, tax policy reform, investment climate reform and practical industrial policy. But this requires learning and adaptive development throughout the duration of the plan – a new approach that is appropriate given the new challenges.

Media and other coverage

Daily News, 8 June 2016

REPOA, 15 June 2016

Photo credit: Dar es Salaam port by Rob Beechey, World Bank

Supporting Economic Transformation in Nigeria

Dirk Willem te Velde, David Booth, Danny Leipziger and Ebere Uneze, May 2016
Nigeria has enjoyed fast economic growth over the past decade but has seen low-quality growth. Now, with oil prices down significantly, and weak growth, new areas of economic growth need to be identified. Business-as-usual will not safeguard productive jobs for the future or reduce poverty significantly. Promoting quality growth and economic transformation is crucial. This paper discusses the issues, drawing on economic analysis and political-economy assessment.

Dirk Willem te Velde, David Booth, Danny Leipziger and Ebere Uneze, May 2016

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Nigeria has enjoyed fast economic growth over the past decade but, compared with other large oil exporters and many other African countries, it has experienced little economic transformation and has seen low-quality growth. Now, with oil prices down significantly, and weak growth, new areas of economic growth need to be identified. Business-as-usual will not safeguard productive jobs for the future and will not reduce poverty significantly. This is a cul-de-sac. Promoting quality growth and economic transformation is crucial. But how can this be done?

This paper addresses that question, drawing on a combination of economic analysis, to identify potential areas for action, and political-economy assessment, to clarify the conditions under which such action may be able to succeed. We draw on relevant international experience, especially from large countries that have managed to transform the structure of their economies, as well as on the record of economic policy reform in Nigeria to date.

The paper written by Nigerian and international experts draws on international experience from large developing countries that have managed to transform the structure of their economies, as well as the record of economic transformation and economic policy in Nigeria to date, to chart a way forward for Nigeria’s economic transformation efforts.

An earlier related brief on Reinvigorating Economic Transformation in Nigeria is available online.

This paper was publicly launched in Abuja on 31 May 2016.

Videos of launch event

Highlights:

Full summary:

Media coverage

Online

Channel S TV, 31 May 2016

Okrote Blogspot, 31 May 2016

Nigerian Times, 31 May 2016

Business Day Online, 1 June 2016

Sarewah, 1 June 2016

Leadership, 2 June 2016

All Africa, 3 June 2016

This Day Live, 3 June 2016

News360, 3 June 2016

Bizwatch Nigeria, 3 June 2016

TechTrendsng, 8 June 2016

Friday Posts, 8 June 2016

African Business Magazine, 6 Feb 2017

Print:

Leadership Newspaper p38 – 2/6/16
The  Authority p8 – 1/6/16
National Mirror p4 – 1/6/16
Nigerian pilot p7 – 1/6/16
People’s Daily p22, 1/6/16
New telegraph p28 – 1/6/16
African Business Magazine – 6/2/17

Developing Export-Based Manufacturing in Sub-Saharan Africa

Neil Balchin, Stephen Gelb, Jane Kennan, Hope Martin, Dirk Willem te Velde and Carolin Williams, March 2016
Strong growth in the African region, rebalancing and rising wages in China, and improvements in the policy and institutional context provide a unique opportunity that African countries can use to attract investment in higher value-added, export-led manufacturing. This paper describes how production, employment, trade and FDI in the manufacturing sectors in nine selected Sub-Saharan African (SSA) countries has increased and identifies opportunities for promising sectors.

Neil Balchin, Stephen Gelb, Jane Kennan, Hope Martin, Dirk Willem te Velde and Carolin Williams, March 2016

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This report describes how production, employment, trade and foreign direct investment (FDI) in the manufacturing sectors in nine selected sub-Saharan African (SSA) countries has increased in the recent decade and identifies opportunities for the development of promising manufacturing sectors in the future.

The paper employs a number of techniques to examine country specific promising sectors. Africa already has a share that is greater than 2% of world trade in fertilizers, chemicals, leather products, apparel, oil, iron and steel. Qualitative accounts and calculations using standard techniques indicate that there are some very interesting opportunities in the following African manufacturing sectors: garments, agri-business, mineral processing, manufactures of consumer goods, pharmaceuticals, automobiles and food, beverages and tobacco.

Finally, the report examines rankings for selected countries in the area of geographical advantages, market size, economic fundamentals, general investment climate, and specific policies. Some countries are well positioned in relation to comparators. For example, Nigeria’s size and growth in Tanzania and Ethiopia stand out, as do Ethiopia’s low labour costs, Rwanda’s investment climate and Ghanaian skills.

The paper concludes that while some are positioned better than others, all of the countries we examined will need to improve in several areas if they are going to attract high levels of investment into export-based manufacturing sectors. African countries should act to take advantage of recent trends such as African regional growth and rising wages in Asia.

Media coverage

Axel Addy and Ratnakar Adhikari, African Independent, 14 Jul 2017

Axel Addy and Ratnakar Adhikari, World Economic Forum, 7 Jul 2017

Neil Ford, African Business Magazine, 25 Nov 2016

Anzetse Were, Business Daily Africa, 01 May 2016

Dirk Willem te Velde, Financial Times, 03 May 2016

CNBC Africa interview with Dirk Willem te Velde, 20 April 2015

Blog by Dirk Willem te Velde

Why African manufacturing is doing better than you think

Infographics

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Infographics by ODI.
Sources:
Image 1a: WDI, 1b: UNCTADStat.
Image 2: USITC Interactive Tariff and Trade DataWeb (https://dataweb.usitc.gov/scripts/user_set.asp);
Eurostat COMEXT database (http://epp.eurostat.ec.europa.eu/newxtweb/mainxtnet.do);
Trade Statistics of Japan (http://www.customs.go.jp/toukei/info/tsdl_e.htm).
OECD.Stat (https://stats.oecd.org/index.aspx?queryid=6779).
Note: ‘Manufactures’ = SITC 5–8, minus 667 and 68.

Photo credit: Dominic Chavez

Gender, Economic Transformation and Women’s Economic Empowerment in Tanzania

Louise Fox, March 2016. The government of Tanzania is currently preparing its next Five Year Development Plan (FYDP II). Ensuring women benefit from the development processes envisaged in the plan is instrumental to achieving its objectives. Analysis of recent data on employment and time use shows women have benefited from a decade of economic transformation in Tanzania. This paper discusses many issues, including how they have gained access to new employment opportunities in higher-productivity sectors such as manufacturing, trade and hotel and food services and the expansion of public services has increased the education of women in in the labour force.

Louise Fox, March 2016

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The government of Tanzania is currently preparing its next Five Year Development Plan (FYDP II). Ensuring women benefit from the development processes envisaged in the plan is instrumental to achieving its objectives. Analysis of recent data on employment and time use shows women have benefited from a decade of economic transformation in Tanzania. They have gained access to new employment opportunities in higher-productivity sectors such as manufacturing, trade and hotel and food services. The expansion of public services made possible by a decade of growth has increased the education of women in in the labour force, as well as bringing about longer life expectancy.

Some disadvantages have persisted, however. Yields per hectare in agriculture are still lower on land worked primarily by women compared with those on land worked by men. While men’s time taken up by household chores has reduced, women’s has not; this burden begins as early as 10 years old for females. Too many young women still marry before age 18 and start their families soon after, reducing their education and employment options in the future.

To the extent possible, FYDP II should include measures to reduce longstanding gender inequities, especially those that both reduce growth and transformation and worsen poverty. In non-agriculture sectors, programmes can help women gain access to new opportunities by supporting them to enter sectors and occupations from which they have been excluded. This may involve using tools such government procurement to encourage the private sector to be involved in this effort. In the agriculture sector, existing investments need to analyse why and how women have been left out. Plans for new investment and project designs need to diagnose the constraints to women’s participation at the start, with results monitored as projects proceed. Plans for service delivery improvements should prioritise investments that will reduce the time burden on women of housework and caring for household members.

In developing the FYDP II monitoring plan, efforts should be made to target the collection of data on employment and earnings by gender. This will require a review of how employment data are collected. Additional surveys should not be needed; instead, the current programme should be strengthened and streamlined to yield the necessary data. Client survey data need to be collected regularly for publicly provided services, and published in gender-disaggregated formats to ensure women have the access they need.

Photo credit: Russell Watkins, Department for International Development

Public and Private Sector Collaboration for Economic Transformation

Yaw Ansu, David Booth, Tim Kelsall and Dirk Willem te Velde, March 2016. Achieving a pattern of economic growth where productivity, export competitiveness and employment are continuously increased calls for an active search for solutions to numerous specific problems currently blocking or delaying needed investments. This paper looks at how to establish a strategic relationship between government and private sector actors that makes it possible to address these problems without repeating the errors that derailed transformational ventures in the past.

Yaw Ansu, David Booth, Tim Kelsall and Dirk Willem te Velde, March 2016

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The goal of economic transformation raises the stakes for policy-making in Africa. Achieving a pattern of economic growth where productivity, export competitiveness and employment are continuously increased is not just a matter of agreeing a higher level of ambition. It calls for an active search for solutions to numerous specific problems currently blocking or delaying needed investments. Underlying each of those particular challenges, moreover, is a deeper and more general issue: how to establish a strategic relationship between government and private sector actors that makes it possible to address these problems without repeating the errors that derailed transformational ventures in the past.

Reviewing global experience, the roles of state and private enterprises, of large and small firms and of formal or informal business associations have been very different among countries. The successful models have in common, however, that they have been able to satisfy a small number of basic requirements that appear universally relevant. This finding seems to be reinforced, in both positive and negative ways, by Africa’s so far limited success in constructing more transformation-friendly state–business relations. The basic requirements seem to include:

  • constructing a consensus among key actors that establishes economic transformation as a nation-building project, with shared commitments extending well beyond a single electoral term
  • giving at least one public agency sufficient autonomy, budgetary control and political authorisation to override interdepartmental coordination problems and engage in a practical way with credible private sector organisations
  • creating institutional arrangements that can coordinate a sufficient set of powerful public and private actors so as to ensure (1) an appropriate level of technically justified public support to promising sectors or firms; and (2) that this support is conditioned on mutually enforceable performance standards
  • enabling discovery of approaches that work for transformation in the particular country context by means of explicit experimentation, good feedback and timely correction

Key issues to be considered are:

  • Which types of public agency are most suited to providing authoritative policy coordination and to leading engagement with the private sector? How can they be empowered to perform effectively?
  • What kinds of private sector organisations are likely to prove the most credible strategic partners of governments seeking to support transformation?
  • How do we ensure that annual budgets align with the transformation strategy and are implemented effectively? What works best to obtain value-for-money in government investments? What should be the roles of the ministry of finance, the ministry of planning and the coordinating agency, where the three are not the same?
  • Are there feasible mechanisms for ensuring that discretionary support to promising sectors or firms is consistent with transformation objectives and governed by enforceable performance standards, so as to achieve results and avoid patronage and corruption? What should they look like?
  • What forms of state–business consultation are most likely to deliver fast feedback on the way policies and programmes are working, allowing timely correction of errors and joint discovery of paths of transformation that work?

This paper was produced in collaboration with the African Center for Economic Transformation (ACET), as a background paper for the African Transformation Forum (ATF) in Kigali, Rwanda on 14-15 March 2016.

Photo credit: Simon Davis, Department for International Development

Trade Facilitation and Economic Transformation in Africa

Joe Amoako-Tuffour, Neil Balchin, Linda Calabrese and Max Mendez-Parra, March 2016
Trade facilitation can stimulate economic transformation in Africa by raising exports, supporting export diversification, reallocating resources to more productive activities, improving access to cheaper and better-quality imported inputs and enabling participation in value chains. Many African regions have begun to formulate regional approaches to trade facilitation, and there are important examples of particular approaches working well.

Joe Amoako-Tuffour, Neil Balchin, Linda Calabrese and Max Mendez-Parra, March 2016

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Trade facilitation can stimulate economic transformation in Africa by raising exports, supporting export diversification, reallocating resources to more productive activities, improving access to cheaper and better-quality imported inputs and enabling participation in value chains. Many African regions have begun to formulate regional approaches to trade facilitation, and there are important examples of particular approaches working well. The introduction of one-stop border posts (OSBPs) at Chirundu (on the Zambia–Zimbabwe border) and at the Busia border crossing between Kenya and Uganda have reduced the time and costs involved in moving goods across borders. The OSBP at Busia has also made it easier for small traders to cross the border, giving them access to a wider market and improving their livelihoods. Similar improvements in border crossing times have been recorded along the Trans Kalahari, Maputo Development and Northern Corridors.

Outside of these examples, however, the implementation of trade facilitation agreements has generally been problematic. It remains a challenge to translate the good intentions expressed in Africa’s regional trade agreements into concrete actions towards trade facilitation.

Key issues to be considered are:

  • What more can be done to harmonise regional trade facilitation instruments in cases where countries have overlapping membership in more than one regional economic community?
  • What are the remaining constraints (political and other) to the elimination of NTBs hampering cross-border trade flows in Africa? How can these be addressed?
  • What can be done to ensure effective implementation of mutually agreed protocols, programmes or schemes aimed at promoting intra-regional trade in Africa?
  • Do governments provide enough space for engagement with the private sector on issues related to trade facilitation?
  • Why are African countries not jumping to ratify the World Trade Organization Trade Facilitation Agreement? Is it a governance problem? Or is it because of a lack of policy coherence?

In addition, the paper raises issues related to specific regions:

SADC

  • How can SADC countries improve coordination in the management of regional transit systems?
  • What should be done to address concerns about the potentially adverse effects of trade facilitation on local employment, revenues and the livelihoods of the most vulnerable?

EAC

  • How can cross-country coordination in the operationalisation of trade facilitation be improved in a way that takes into account the varying levels of commitment to regional integration across EAC member states?

ECOWAS

  • How can ECOWAS countries mitigate internal constraints hampering them from being more effective partners in regional development and integration processes?
  • How can ECOWAS countries enhance the role of the private sector in regional integration in order to promote economic transformation?

ECCAS

  • What are the remaining bottlenecks hampering implementation of the free trade area in the ECCAS region? How can they be addressed?

This paper was produced in collaboration with the African Center for Economic Transformation (ACET), as a background paper for the African Transformation Forum (ATF) in Kigali, Rwanda on 14-15 March 2016.

Photo credit: Pete Lewis, Department for International Development

Promoting Manufacturing in Africa

Yaw Ansu, Margaret McMillan, John Page and Dirk Willem te Velde, March 2016.
Industrialisation, particularly the expansion and increased sophistication of manufacturing production and exports, and also the expansion of manufacturing employment, remains an essential part of Africa’s economic transformation. Unfortunately, manufacturing as a share of gross domestic product has declined over the past few decades in most African countries, even though in absolute terms it is growing.

Yaw Ansu, Margaret McMillan, John Page and Dirk Willem te Velde, March 2016

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Industrialisation, particularly the expansion and increased sophistication of manufacturing production and exports, and also the expansion of manufacturing employment, remains an essential part of Africa’s economic transformation. Unfortunately, manufacturing as a share of gross domestic product has declined over the past few decades in most African countries, even though in absolute terms it is growing.

Although African countries face difficult challenges in breaking into world manufacturing markets, new developments work in their favour. These include rising wages in China and a rebalancing in Asia away from export-led towards domestic and regional consumption-led growth; Africa’s growing regional markets; falling transport costs; greater access to abundant natural resources; improved firm productivity and access to global value chains; and better general economic policy environments. But governments should not stand aloof; to seize these new opportunities they will have to formulate and implement coherent industrial development strategies. The key elements of such strategies must include:

  • continued improvements in the basics, including sound macroeconomic management, stronger general investment climate and support for the private sector and development of public infrastructure and relevant skills
  • an export push, including regional trade and integration
  • agglomeration through building and running efficient special economic zones (SEZs) and industrial parks
  • active foreign direct investment (FDI) promotion and building linkages with local firms
  • supporting productivity enhancement of local small and medium enterprises (SMEs) and their access to technology and long-term finance to help them venture into production of new or technologically more sophisticated products
  • improved coherence and implementation coordination within government and
  • strengthened consultation and collaboration between government and the private sector

Key issues

Separate panels at the African Transformation Forum were dedicated to several of the elements of the strategy above (e.g. panels on public infrastructure, skills development, regional trade and integration, public–private consultation mechanisms). For this panel, the key issues participants may wish to consider are as follows:

  • How do countries raise their focus and commitment to manufacturing and develop a coherent strategy to promote it? In what visible forms should this be expressed?
  • What key measures can countries take to improve their FDI promotion efforts and link the FDI firms to domestic suppliers?
  • How can the performance of SEZs and industrial parks be improved? Should the private sector’s role in developing and managing SEZs and industrial parks be increased? How can public–private collaboration be increased in this area?
  • How best can the state support access of local SMEs to technology?

How do we increase access of SMEs to long-term finance? In particular, how can development banks (and similar institutions) be made more market- and performance-oriented? What are the changes needed in their governance? What is the scope for public–private sector collaboration in improving SME access to long-term finance for manufacturing?

This paper was produced in collaboration with the African Center for Economic Transformation (ACET), as a background paper for the African Transformation Forum (ATF) in Kigali, Rwanda on 14-15 March 2016.

Photo credit: Simone D. McCourtie, World Bank

The Role of Services in Economic Transformation – With an Application to Kenya

Anupam Khanna, Phyllis Papadavid, Judith Tyson and Dirk Willem te Velde, February 2016.
Much of the debate on economic transformation in low-income countries (LICs) has centred on moving out of agriculture and into manufacturing, but this fails to appreciate the role services can play in driving growth in developing countries. This paper examines the role of services in economic transformation, by discussing the main conceptual issues and applying these to the case study of Kenya. The analysis suggests we need to update our traditional, often negative, views on the role of services in economic transformation.

Anupam Khanna, Phyllis Papadavid, Judith Tyson and Dirk Willem te Velde, February 2016

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Much of the debate on economic transformation in low-income countries (LICs) has centred on moving out of agriculture and into manufacturing, but this fails to appreciate the role services can play in driving growth in developing countries. This paper examines the role of services in economic transformation, by discussing the main conceptual issues and applying these to the case study of Kenya. The analysis suggests we need to update our traditional, often negative, views on the role of services in economic transformation.

Presenting a new framework, the authors argue that services can lead economic transformation through direct, indirect, induced and second-order/productivity effects, depending on the specific services sector. Two observations are behind this positive view. Firstly, services are increasingly important for their direct contribution to gross domestic product (GDP), exports and employment. Secondly, a balanced view of services also considers their role in creating indirect effects through second-order productivity effects. However, there are potentially negative implications from too much focus on services when service sector development leads to an exchange rate appreciation.

The paper applies a comprehensive framework of the services sector to four sectors in Kenya (financial sector, IT services, transport services and tourism services) and finds Kenya’s exports of services are buoyant in these sectors, providing real potential for growth and economic transformation, but the linkages with the domestic economy are too few.

The paper concludes by arguing that there is a need to consider a more comprehensive role of services in economic transformation, in a way that is more complex than only examining the direct GDP or direct employment effects. The new way of looking is by examining the role of services in supporting other sectors through value chain development. This opens up new avenues; for example, it is not necessary to be as pessimistic as Rodrik on the role of services, as we are not looking at services sector indicators alone when assessing the role of services.

We are grateful to participants at the ODI-Vision 2030 conference on the role of services in economic transformation in Nairobi, 28 April 2015.

Media coverage

Standard Media, 11 February 2016

Standard Media, 2 May 2015

Business Daily Africa, 20 March 2016

Anzetse Were Blog, 21 March 2016

 

Photo credit: Jonathan Ernst, World Bank

Baseline on Economic Transformation

Neil Balchin, Claire Mason, Kasper Vrolijk and Leah Worrall, 2015. While the broad definition of economic transformation is relatively consistent across actors in the economic transformation literature, the existing research on policies and strategies designed to support economic transformation varies across different types of country stakeholders and across country contexts. In this paper we conduct a stocktake of the literature on economic transformation in order to determine pre-existing actor discourse on the topic.

Neil Balchin, Claire Mason, Kasper Vrolijk and Leah Worrall, 2015

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While the broad definition of economic transformation is relatively consistent across actors in the economic transformation literature, the existing research on policies and strategies designed to support economic transformation varies across different types of country stakeholders and across country contexts. In this paper we conduct a stocktake of the literature on economic transformation in order to determine pre-existing actor discourse on the topic. This is achieved through an overview of published materials that address recent economic transformation, structural transformation (or structural change), industrialisation, and sectoral labour strategies. The paper covers a diverse range of perspectives on economic transformation among several leading academics and think tanks and provides an overview of the international academic, regional and domestic literature.

The paper finds notable variation in the existing research on policies and strategies designed to support economic transformation across different country stakeholders and contexts. The analysis underlines the importance of the specific context in which transformation is occurring. Underlying contextual factors have a bearing on the most appropriate type of policies and strategies to promote economic transformation and, ultimately, influence their effectiveness. The stocktake also highlights the lack of substance in the existing actor discourse on the manner in which policies designed to facilitate economic transformation should be implemented. This suggests that future actor discourse on economic transformation at the international, regional and domestic levels would benefit from increased focus on the practical aspects of the transformation process. This is particularly important with respect to how policies designed to facilitate economic transformation will be implemented and how specific economic transformation targets will be achieved.

Photo credit: Arne Hoel; World Bank

Economic Transformation Lessons From Large Developing Countries

Danny Leipziger, November 2015. This paper examines the key lessons for successful economic transformation based on experiences, both positive and negative, of large economies in East Asia and Latin America. As a general guide, it can be noted that countries that have successfully managed major economic transformations have done so with consistent, sustained and coordinated policies across a number of key markets. This paper highlights a number of areas for policymakers to consider in designing their own transformative policies.

Danny Leipziger, November 2015

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This paper examines the key lessons for successful economic transformation based on experiences, both positive and negative, of large economies in East Asia and Latin America. As a general guide, it can be noted that countries that have successfully managed major economic transformations have done so with consistent, sustained and coordinated policies across a number of key markets. Many countries err on the side of single policy interventions that are unsupported by the many other policy actions needed to transform economies. Those that have managed their transformations well have had a longterm vision and have been able to sustain policies towards long-run objectives. They have used price signals from international markets and have been able to craft coordinated policies between the private sector and public policy agendas. This paper highlights a number of areas for policymakers to consider in designing their own transformative policies.

This paper has been prepared by Danny Leipziger (Managing Director of the Growth Dialogue) as part of a wider project on Supporting Economic Transformation in Nigeria. For more information on the work of the Growth Dialogue, go to www.growthdialogue.org.