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How can the European Union help developing countries address the socioeconomic impacts of the coronavirus crisis?

The EU’s response package of aid, development finance, trade and business should be a crucial part of a more ambitious G20 action plan that addresses the socioeconomic cost of coronavirus in developing countries.
The EU should step up, fast-track, front-load and leverage its aid and development finance, and foster coordination

San Bilal and Dirk Willem te Velde, April 2020

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With the global economy going into a steep recession, developing countries are facing considerable financing shortfalls. The UN Conference on Trade and Development warns of a $2.5 trillion finance shortfall; Asian forecasts are down by 5–10 percentage points; Africa is already facing major impacts. The UN Secretary-General has called for a $2.5 trillion fund for developing countries. African finance ministers have called for $100 billion. The average fiscal stimulus in Europe so far (12% of gross domestic product) is 15 times higher than in the poorer African countries (0.8%) – as the latter cannot afford it. This note discusses EU actions to support developing countries to address the coronavirus crisis

Photo: Loan repayment schedule. Simone D. McCourtie / World Bank. Licence: (CC BY-NC-ND 2.0)

The coronavirus pandemic and the governance of global value chains: emerging evidence

Global value chains (GVCs) had already begun to shorten after the Global Financial Crisis; the coronavirus outbreak may intensify this process, affecting the trade and development trajectories of some suppliers. Relaxing competition policy to support purchases and maintain supply by UK retailers should be accompanied by policy measures to support developing country producers; many face drastic reductions in orders and prices, which will prompt bankruptcies and induce new firm-level reorganisation. Lead firms have a duty of care towards their employees and the countries in which they operate; UK-led GVCs should stand by their employees across the value chain, in line with other social commitments. Development partners can do more to support links in the GVC; some lead firms are already supporting diversification efforts related to COVID-19; trade-related adjustment support should be provided.

Jodie Keane, April 2020

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Unlike the 2008/09 Global Financial Crisis, which preceded the Great Recession, COVID-19 is both a Keynesian demand shock and a supply shock. In addition to the transmission of a collapse in demand, supply shocks will occur because economic activity itself must stop to contain the spread of COVID-19. There is no historical parallel to this in modern times.

Comparative developing country case studies during the GFC showed how value chain governance – between firms and as influenced by governments – mediated vulnerability to the exogenous trade shock and its transmission. The effects will depend on the fiscal and monetary policies of governments and private sector/consumer behaviour within the country as well as across and between countries. Understanding these systems and their interaction is crucial to effective risk management. This is why the relationships between buyers and suppliers within global value chains (GVCs) matter.

Photo: Current scene in a market place in Kenya. World Bank / Sambrian Mbaabu. Licence: (CC BY-NC-ND 2.0)

Trade in services and the coronavirus: many developing countries are at risk

The pandemic, travel bans and lockdowns are reducing demand for transportation and travel services. Communications and internet commerce services are increasing. Exports of services in many developing countries are above the global average (as a share of total trade), putting them at even greater risk.
Measured exports of services tend to be concentrated in travel and transportation, which are already in decline. Ethiopia, Mauritius and Morocco may be particularly hit through this channel, as 44%, 33 and 25%, respectively, of their combined goods and services exports are vulnerable. Travel exports in Cambodia represent 17% of GDP.

Max Mendez- Parra, March 2020

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The coronavirus pandemic has already led to major economic and social impacts across the world. In many developing countries, the fall in commodity prices is having a very strong effect. Moreover, the fall in demand is affecting other exports, such as those of manufactures. Trade in services appears to be being overlooked in considerations of the implications of the lockdowns on economies. Lack of good data makes it harder to understand the importance of services in trade. This note discusses how the lockdowns could affect trade in services. It also assesses the vulnerability of many developing countries based on the importance of services in their exports and on the composition of the most affected sectors in their exports.

Photo: Trade activity in a port in Cambodia. Chhor Sokunthea/ World Bank. Licence: (CC BY-NC-ND 2.0)

Development finance institutions and the coronavirus crisis

Development finance institutions (DFIs) are mandated by their shareholders to provide finance to the private sector (usually at commercial terms, but subsidised implicitly), crowd in private sector finance and have a development impact.
While DFIs aim to be additional to the market, they have not been sufficiently counter-cyclical in past crises. That has to change, as poor country firms and their workers face major hardship now. Today’s crisis is larger than those in the past. We suggest shareholders provide regulatory and financial space for DFIs to fast-track new investments, allow for some repayment postponements and announce a Bounce Back Better facility, to save companies and workers from bankruptcy and to protect previous transformation efforts so that the bounce-back is faster and better.

Stephany Griffith-Jones and Dirk Willem te Velde, March 2020

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Developing countries are facing considerable financing shortfalls as the global economy is going into a steep recession. Immediate challenges exist with regard to financing firms and workers in the poorest countries, including in Africa. If these firms collapse, and others stop investing, some of the major engines of a country’s transformation path may not survive, and will start shedding jobs. Traditional trade finance solutions that emerged during the 2008 global financial crisis will not solve these problems, as there is little trade now.

Development finance institutions (DFIs, such as IFC, CDC, FMO and DEG) provide finance (loans, equity, guarantees) and technical assistance to the private sector in low- and middle-income countries. The majority shareholders are governments. The mandates of DFIs usually combine provision of finance on commercial terms, additional to the market, earning a financial return and contributing to development.

DFIs should be more counter-cyclical in the current crisis. This may involve them abandoning conservative lending practices, if shareholders allow potential future losses on a portion of DFI portfolios. This is urgently needed, as businesses across the developing world are, or are at risk of, going under. A subsidised Bounce Back Better facility will have major returns in protecting workers and investments. It may facilitate future higher payments by businesses, if it leads to quicker growth.

Photo: Empty street in Nairobi, Kenya. World Bank / Sambrian Mbaabu. Licence: (CC BY-NC-ND 2.0)

The coronavirus pandemic and small states: a focus on Small and Vulnerable Economies

The global coronavirus pandemic has struck at a time when Small and Vulnerable Economies (SVEs) were already facing weak trade growth, with year-on-year trade growth already negative by Q3 2019 for the Caribbean region. Tourism exports could be halved in 2020, with major economic repercussions, with losses that could range between 4% and 26% of gross domestic product, varying by SVE. The value of stimulus packages announced so far by selected SVEs amounts to between 0.03% of GDP (Antigua and Barbuda) and 2.6% of GDP (Fiji), compared with 8% on average by G20 members. Data availability is scarce and assessments are partial, yet we need ongoing tracking of impacts.

Jodie Keane, March 2020

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Unlike the 2008/09 global financial crisis (GFC), which preceded the Great Recession, COVID-19 represents both a Keynesian demand shock and a supply shock. In addition to the transmission of a collapse in final and effective demand, an endogenous supply shock will occur because economic activity itself must stop to make it possible to contain the spread of COVID-19. There is no parallel for this in modern times. The interaction between the above shocks and economic effects depends on governments’ fiscal and monetary policies and private sector/consumer behaviour within each country as well as across and between countries. The provision of major financial stimuli along with social safety nets and actions taken by ‘socially responsible’ firms will be pivotal to avoid dire social effects. But not all countries are in a position to respond, especially Small and Vulnerable Economies (SVEs), a number of which have been hit by a series of major economic shocks in recent years. This note discusses the channels through which SVES will be affected, focusing on tourism and remittances.

Photo: Scenic view of a beach in Tonga. Asian World Bank. Licence: (CC BY-NC-ND 2.0)

Trade and the coronavirus: Africa’s commodity exports expected to fall dramatically

The prices of commodities have fallen by between 9% (coffee) and 61% (oil) since the start of the year mainly because of the fall in global demand generated by the current lockdowns. African countries are extremely exposed to commodity price swings, as half of their merchandise exports is concentrated in 10 commodities. Africa could lose between US$ 36 billion and US$ 54 billion in export revenue. For some countries, this could be as high as 20% of their gross domestic product. Oil exporters such as Nigeria, South Sudan and Angola may see their export revenues falling by more than 20%.

Max Mendez- Parra, March 2020

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The coronavirus pandemic is having notable economic and social effects across the world. Even in countries where the disease has not yet affected a large number of people, the impacts are beginning to be seen. Trade appears to be particularly affected as countries enter into lockdowns and economic activity stops. While trade statistics are not yet available, the evolution of commodity prices and the exposure of many African countries suggest the effects of the crisis will be severe.

Photo: Port in Tema, Ghana. Jonathan Ernst / World Bank. Licence: (CC BY-NC-ND 2.0)

Three proposals to support African garments workers during the coronavirus crisis

US and European orders for garments have ceased, with effects rippling throughout value chains, affecting factories in Asia and Africa. Their workers face extreme hardship.
We explore three options to protect such workers during this recession in an African context: (i) a worker subsidy scheme (ii) a subsidised training package to retain workers and manufacturing capabilities (iii) retooling of garment factories to produce garments to satisfy medical needs.
Each option requires different commitments from buyers, factories, workers, the public sector and donors.

Dominic McVey and Dirk Willem te Velde, March 2020

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Exports of African textiles and garments have grown rapidly over the past decade. Exports from African Growth and Opportunity Act (AGOA)-eligible countries to the US have nearly doubled, from $790 million in 2010 to $ 1.5 billion in 2019, with Kenya one of the largest suppliers and Ethiopia the fastest growing. Unfortunately, US orders are considerably down following store closures, and operations in African factories could cease to operate within weeks.

If nothing is done, factories in Kenya would find it too expensive to pay their workers during uncertain times. They could be forced to close and implement lay-offs. Workers in Ethiopia will leave factories, even if they received subsidised pay. But in other contexts, factories with the right networks and capabilities may be able to retool.

This note provides three proposals to support garment workers in African countries who may lose their jobs in two to three weeks time. The proposals may have applicability in other sectors but need to be tailored to the specific context.

Photo: Factory workers producing shirts at Sleek Garment Export, in Accra, Ghana Dominic Chavez /The World Bank. Licence: (CC BY-NC-ND 2.0)

A $100 billion stimulus to address the fall out from the coronavirus in Africa

African leaders and the global community urgently need to agree a $100 billion financial stimulus for sub-Saharan Africa to address the fall-out from the coronavirus crisis. This is just 2.3% of the value of global stimulus packages announced so far, and worth 5.6% of sub-Saharan Africa GDP in line with the global average of stimulus to GDP of 5.1%. A stimulus with appropriate financial instruments will protect the most vulnerable livelihoods from the crisis. African countries need to step up and donors need to support them.
The G20 should coordinate a major financial stimulus, and part of this should support Africa.

Dirk Willem te Velde, March 2020

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Sub-Saharan Africa is facing at least a $100 billion balance of payment shortfall in 2020 compared with what was previously forecast. The coronavirus crisis is still unfolding, and impacts are only slowly becoming clearer. But there will be considerable declines in trade revenues and financial flows this year, as well as other effects. All of this needs detailed examination, and the effects will differ markedly by country. Previous ODI SET analysis has examined which countries are most at risk to a global slowdown. Estimates also face uncertainty depending on the spread of the coronavirus in Africa itself, and there is separate analysis ongoing.

Trade

At current oil price levels, net oil exports will fall by at least $35 billion (the costs are $30 billion following the halving of the oil price, but prices have dropped by more). Other exports (and imports) of goods and services will also decline. There will be other effects. International tourism revenues were some $35 billion in 2018, and most of this is at risk this year. Transport services are under threat (e.g. ships not docking in Mombasa). IATA estimates that African airlines lose $4.4 billion this year. Countries will be affected differently.

Photo: Dar Es Salaam Port, Tanzania. Rob Beechey /The World Bank. Licence: (CC BY-NC-ND 2.0)

Economic impacts of and policy responses to the coronavirus pandemic: early evidence from Africa

Dirk Willem te Velde, March 2020
This note marks the beginning of the monitoring of economic impacts (trade, finance and other impacts), social impacts and impacts on government revenues in Africa and considers early economic policy responses in Africa. Previous analyses centred on vulnerability assessments and aggregate impacts. It suggested that Kenya, Zambia, Rwanda, Sudan and Ghana are the African countries most vulnerable to the pandemic. Previous analysis also suggested that Africa was likely to be hit by at least $100 billion in economic costs (or 5% of gross domestic product) this year as a result of the crisis. Beyond this headline number, several detailed impacts are now becoming clearer. Considerable effects (across trade, finance, employment, prices, government revenues, stock prices, exchange rates and bond yields) have already become visible; they differ markedly by country, but overall paint a bleak picture. Data availability is limited and assessments are partial, yet ongoing tracking is needed to inform policy responses. Over time, more systematic analysis will become available.

Dirk Willem te Velde, March 2020

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African countries will be hit hard by the coronavirus pandemic. ODI’s vulnerability assessment paper, published when the virus first emerged in China, suggested that Angola, Congo, Sierra Leone, Lesotho and Zambia were the countries most exposed. Taking into account ability to respond and resilience more widely (e.g. Ethiopia and Ghana have high debt), the most vulnerable countries included Kenya, Zambia, Rwanda, Sudan and Ghana.

Africa is likely to be hit by at least $100 billion in economic costs (or approximately 5% of gross domestic product (GDP)) this year as a result of the coronavirus crisis. Beyond this headline number, several detailed impacts are already becoming clearer. The G20 is hammering out its stimulus packages; African countries need to step up their economic response too, and the G20 could help them. The purpose of this note is to examine early evidence on actual economic impacts (trade, finance and other impacts), social impacts and impacts on government revenues and considers economic policy responses in Africa.

Photo: Flower kiosk in Nairobi, Kenya. Luigi Guarino/The World Bank. Licence: (CC BY-NC-ND 2.0)

ECONOMIC VULNERABILITIES TO HEALTH PANDEMICS: WHICH COUNTRIES ARE MOST VULNERABLE TO IMPACT OF CORONAVIRUS

Sherillyn Raga and Dirk Willem te Velde, February 2020

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Growth and economic transformation pathways are subject to a range of shocks that will affect economies in varying ways. In the past we have examined the impact of shocks such as financial crises, the eurozone crisis, or a slowdown in China. Health emergencies can also have major economic impacts on low and middle income countries and we examine these in this paper.

On 28^th January 2020, the WHO declared a public health emergency of international concern around Novel Corona Virus 2019, following previous emergencies around H1N1 (2009), Ebola in West Africa (2014), Polio (2014), Zika (2016) and Ebola in DRC (2019). At this stage it is difficult to understand the precise impact of the latest virus, but it has already claimed the lives of more than 360 people (as of 3 February 2020) and has disrupted travel.

This paper assesses the possible vulnerabilities and impacts in low and middle income countries to the effects of this outbreak. Much of the outbreak is currently centred around China with the affected areas effectively being under lock-down. This will affect the Chinese economy and beyond. Many countries in South East Asia and Africa are increasingly dependent on economic links with China for their growth and economic transformation.

Photo: Economic impact due to air travel restrictions as a result of health pandemic. Arne Hoel/The World Bank. Licence: (CC BY-NC-ND 2.0)

Industrial development in Uganda

The Ugandan economy has experienced sustained growth since the 1990s. During the same period, Uganda has seen some degree of economic transformation, with the industrial and services sectors growing compared with the agriculture sector. However, the manufacturing sector has remained stagnant. This has been accompanied by low levels of job creation, diagnosed as ‘jobless growth’ (MGLSD, 2018).

This is a challenge for Uganda, as its rapid population
growth requires large-scale job creation to absorb new entrants into the labour
market. The Supporting Economic Transformation (SET) programme has estimated
that, between 2015 and 2030, Uganda needs to create 650,000 new jobs annually
(or 1,780 jobs each day) to employ its people (SET, 2018). Large-scale employment
creation can be achieved through labour-intensive manufacturing.

Linda Calabrese, Frederick Golooba-Mutebi and Maximiliano Mendez-Parra, December 2019

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This is a challenge for Uganda, as its rapid population growth requires large-scale job creation to absorb new entrants into the labour market. The Supporting Economic Transformation (SET) programme has estimated that, between 2015 and 2030, Uganda needs to create 650,000 new jobs annually (or 1,780 jobs each day) to employ its people (SET, 2018). Large-scale employment creation can be achieved through labour-intensive manufacturing.

This report aims to review the framework for industrial policy in Uganda and to assess its potential to support the development of manufacturing. It looks at the policies and institutions in charge of supporting the manufacturing sector. We focus on manufacturing because other activities classified under the industrial sector (construction and mining) require separate discussions and different policy tools.

Photo: Farmer in Uganda supporting the country’s agricultural productivity and contributing to its GDP. Stephan Gladieu / World Bank . Licence: (CC BY-NC-ND 2.0)

Economic transformation and poverty

Vidya Diwakar, Alberto Lemma, Andrew Shepherd and Dirk Willem te Velde, December 2019

Economic transformation (ET), the continuous movement of resources (such as labour and capital) from low- to higher-productivity activities, is crucial for sustained job creation and a more resilient economy, but little attention is paid to the detailed mechanisms by means of which ET relates to the poorest and most vulnerable people in society. This paper describes the main channels through which ET links to poverty, including through production patterns involving the poor directly or indirectly, consumption by the poor and other routes, including government services and context more generally. There are many direct and indirect ways through which ET supports the livelihoods of the poorest in society, but there may also be unintended effects that exclude benefits because of gender, ethnicity or other factors (unless complementary actions are implemented).

Vidya Diwakar, Alberto Lemma, Andrew Shepherd and Dirk Willem te Velde, December 2019

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The paper proposes the use of a range of indicators to better understand which transformation pathways are more poverty-reducing.

Photo: Farmers harvest their crops in the field near Kisumu in Kenya. Peter Kapuscinski / World Bank . Licence: (CC BY-NC-ND 2.0)

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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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

‘Q-and-A-with-KAM-CEO-Phyllis-Wakiaga ‘,The Nation, 15 December 2019

‘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

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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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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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.

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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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)

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

‘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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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.

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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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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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:

Eliminate non-tariff barriers to trade
Reform the EAC Common External Tariff
Improve regional infrastructure
Fast track liberation of intra-EAC services trade
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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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

Will US robots take over African people’s jobs?, Software Testing News, 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)

Automatischer Aufschwung für Afrika?, Welt Sichten, 28 March (in German)

The Jobs The Robots Are Taking Might Not Be The Ones You Think, Fast Company, 28 March

Robots Pose Big Threat to Jobs in Africa, Researchers Warn, VOA news, 28 March

Future Development Reads: Reconciling the politics with the economics, Brookings Institute, 26 March

Robots Could Take Jobs from Africans, Researchers Warn, VOA Learning English, 8 April

Infographics

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.