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.

 

13 December 2017 | Trade, Trade Policy and Economic Transformation at the WTO MC11

Side Event at the WTO Ministerial Trade & Sustainable Development Symposium, Bolsa de Cereales, Buenos Aires, Argentina 

ODI side event hosted by Supporting Economic Transformation:
Breakout Room 3,  on Wednesday 13 December 2017 at 13:30-15:00*

*The event will be livestreamed on the ICTSD website at 10:30-12:00 GMT.  

Economic transformation is crucial for the type of growth that reduces poverty, create jobs and is resilient to shocks. But many low-income countries have failed to transform successfully. Trade has nearly always been a key component in those countries that have transformed successfully. This event will unpack the role that trade has played in the process of transformation in a number of countries and regions and discuss how trade policy provisions such as those currently under discussion at the WTO can further contribute.

The Supporting Economic Transformation (SET) at ODI defines economic transformation as the process of moving from low productivity to high productivity activities, either between or within sectors. Trade, or exposure to trade, can increase productivity in existing sectors or firms as well as move resources from inefficient into efficient firms and sectors.

Multilateral trade provisions can help set the right incentives to invest, innovate, produce and trade in sectors with comparative advantage. They can also generate maintain opportunities in new sectors currently affected by global protectionism and other trade distortions. Current discussions at the WTO that might affect ET includes the elimination of subsidies in fishing, tightening disciplines on domestic support of agriculture and further provisions on digital trade and e-commerce.

This event is part of the Trade & Sustainable Development Symposium (TSDS), which is running alongside the WTO MC11 conference in Buenos Aires.

A link to register for free to attend the TDS can be found online here.

Chair

Dirk Willem te Velde  – Principal Research Fellow and Head, International Economic Development Group, ODI @DWteVelde

Speakers

Dr. Lucio Castro – Secretary for Productive Transformation, Ministry of Production of Argentina @LucioCastro_

Patricia Francis – Former Executive Director of ITC, and former member UN Secretary-General’s High-Level Panel on Women’s Economic Empowerment @patrfrancis

Anabel Gonzalez – Senior Director, The World Bank Group @Gonzalez_WBG

Andrew McCoubrey – Deputy Director for Trade for Development, Department for International Trade, UK

Dr Maximiliano Mendez-Parra – Senior Research Fellow, Overseas Development Institute @m_mendezparra

Tanzania Impact Case Study: Supporting Tanzania’s Second Five Year Development Plan (FYDPII)

The Supporting Economic Transformation (SET) programme helped to inform and design Tanzania’s Second Five-Year Development Plan (FYDP II) 2016/17-2020/21 and continues to guide prioritisation and strategic thinking around the country’s economic transformation. The programme also directly supported the preparation of an Implementation Strategy (IS) for the FYDP II, ensuring it was underpinned by relevant principles and factors to achieve successful implementation. SET was also influential in motivating a monitoring and evaluation (M&E) framework to track progress and demonstrate results.

Introduction

The Supporting Economic Transformation (SET) programme helped to inform and design Tanzania’s Second Five-Year Development Plan (FYDP II) 2016/17-2020/21 and continues to guide prioritisation and strategic thinking around the country’s economic transformation. The programme also directly supported the preparation of an Implementation Strategy (IS) for the FYDP II, ensuring it was underpinned by relevant principles and factors to achieve successful implementation. SET was also influential in motivating a monitoring and evaluation (M&E) framework to track progress and demonstrate results.

SET helped Tanzania’s Planning Commission to prioritise sectors most relevant for economic transformation, identify policy options and ways of working to address binding constraints to transformation, and devise ways to mobilise finance and engage development partners and enlist their support for interventions, as witnessed in the FYDP II. SET also supported the Government of Tanzania (GoT) to adopt a more inclusive and consultative approach to the preparation of the FYDP II and its implementation.

SET helped to build networks spanning government, businesses and donors in Tanzania. This included direct support for better engagement between the government and the private sector and the facilitation of dialogue between the GoT and Tanzania’s development partners.

The Policy Challenge

Tanzania has ambitious targets to become a semi-industrialised nation by 2025. Tanzania’s past attempts at industrialisation have not always been successful. Implementation in Tanzania is a very complex issue; a major challenge has been to develop a comprehensive national strategy, and effective national development plans, to guide the economic transformation process, and to generate broad consensus across different stakeholders around an industrialisation agenda. The GoT has also struggled to prioritise interventions to support industrialisation and economic transformation and to implement (and monitor) much-needed interventions effectively. The challenge was to design and implement a FYDP II 2016/17-2020/21 that emphasises the importance of industrialisation to generate both sustained economic transformation and human development.

What SET did

SET supported Tanzania’s Planning Commission (located within the Ministry of Finance and Planning) with in-depth analytical work to inform the preparation of the FYDP II and policy advice to guide prioritisation and strategic thinking around the country’s economic transformation. The SET programme also provided direct support to the Planning Commission in the preparation of an IS for the FYDP II.

Impact

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

Conceptual impacts

SET was influential in shaping the content, thrust and direction of the FYDP II. This included support to key actors in the Planning Commission to identify and prioritise the sectors most relevant for economic transformation in Tanzania. SET also helped the Planning Commission to identify policy options – both horizontal and sector-specific interventions – to address binding constraints to economic transformation. Moreover, SET influenced the GoT’s thinking on ways to engage development partners and mobilise their support for interventions that aid the achievement of the FYDP II objectives in a more coordinated and efficient manner.

SET was also instrumental in helping the GoT to adopt a more inclusive and consultative approach to the preparation of the FYDP II and its implementation. In collaboration with REPOA, SET organised the first ever consultation on the FYDP II in Dar es Salaam in October 2015. The Honourable Dr. Philip Mpango, the then Executive Secretary of the Planning Commission and now Tanzania’s Minister of Finance, attended the consultation, extending a long-running working relationship with SET that began with discussions in February 2015. The consultation provided an opportunity for Tanzania’s Planning Commission to engage with around 100 stakeholders from both the

“The Government of Tanzania will look to move forward with the same passion that ODI-SET has for the transformation of Tanzania.”

Paul Maduka Kessy, Planning Commission, MOFP, GoT

public and private sectors in Tanzania and facilitated discussion on emerging priority areas and potential implementation mechanisms. This represented a marked improvement over the first five-year development plan, for which little public consultation took place.

 

 

 

Philip Mpango, Tanzanian Minister of Finance

 

The SET programme helped devise key principles for Tanzania to follow for successful implementation of the FYDP II and highlighted relevant lessons from successful experiences in implementing economic transformation policies in other countries. These insights helped the Planning Commission to prioritise issues and activities for successful implementation to nurture an industrial economy.

Instrumental impacts

SET’s work and its core findings were instrumental in supporting the drafting of the FYDP II and a number of insights fed directly into the Plan published in 2016. For instance, SET’s analytical work on manufacturing exports, labour productivity change, FYDP I progress against targets, and financial flows in Tanzania was cited directly in the FYDP II. SET was also responsible for the Plan’s emphasis on political economy factors and effective ways of working – including the importance of experimentation and problem-driven and flexible approaches to implementation – to make industrialisation and economic transformation a reality.

SET also helped the Planning Commission to devise an implementation strategy and financing plans to guide the implementation of the FYDP II, via direct input in shaping the content of the FYDP II IS. Together with the Economic and Social Research Foundation (ESRF), SET provided backstopping support to assist the Planning Commission to devise action plans for three sectors (cotton-to-textiles, leather and leather products, and pharmaceuticals) and two cross-cutting themes (special economic zones and urbanisation) which will be prioritised in the initial phase of implementation. With this support, the Planning Commission prepared a detailed IS comprising four components: (i) an action plan; (ii) a financing strategy; (iii) a communication strategy; and (iv) a M&E framework. SET advocated for the inclusion of the M&E framework to track progress and demonstrate results. This represents an important step towards ensuring effective implementation.

“We thank the ODI-SET for its tireless efforts to assist the Government of Tanzania and the citizens of Tanzania.”

 Paul Maduka Kessy, Planning Commission, MOFP, GoT

SET’s influence in shaping key policy documents in Tanzania goes beyond the FYDP II and its accompanying IS. Suggestions stemming from SET’s research – including those emphasising the need to combat tax evasion and minimise tax exemptions, introduce more effective taxation of the informal sector, strengthen the collection of property taxes and effectively facilitate electronic payment of taxes – were also reflected in the GoT’s budget priorities and policies for the 2016/17 financial year. In particular, the work helped to influence policies around domestic resource mobilisation and budget structuring, and in relation to supporting priority industries and improving the enabling environment for private sector participation. SET also provided peer review and guidance to the authors (Ali Mufuruki, a renowned Tanzanian business leader, along with Rahim Mawji, Gilman Kasiga and Moremi Marwa) of a recently published book on Tanzania’s Industrialisation Journey, 2016-2056: From and Agrarian to a Modern Industrialised State in Forty Years. The book contains several excellent proposals to drive future industrialisation in Tanzania and makes an important contribution to fostering a debate on the efficacy of different industrialisation models in the country.

Capacity building impacts

SET supported a number of Tanzanian institutions and organisations. In addition to the direct support provided to the Planning Commission, SET supported the FYDP II drafting team and worked together with two local research partners, REPOA and the ESRF, to aid the preparation of the FYDP II and accompanying FYDP II IS, respectively. SET also provided a platform for the CEO Roundtable in Tanzania to discuss issues related to the FYDP II in a public setting.

 Workshop on FYDP implementation strategy, Oct 2016

Connectivity impacts

SET helped to build networks across the government, businesses and donors in Tanzania. SET supported better engagement between the government and the private sector in the strategic implementation of the FYDP II by organising a private sector consultative workshop in collaboration with the ESRF in October 2016. This played a crucial role in facilitating private sector engagement with the FYDP II for the first time, and raised awareness of the role that the private sector can play in its

“The private sector appreciates the fact that the FYDP II is being conceived through consultation. This is a clear positive in comparison to the previous FYDP.”

Tanzania Private Sector Foundation

implementation. The workshop, which was attended by a range of different private sector actors as well as government officials, development partners, civil society organisations, research institutions, think tanks and non-governmental organisations, helped to build consensus around how to approach implementation of the FYDP II and on the core elements that should constitute a strategy and framework to guide the effective implementation of the Plan. In addition, the workshop contributed to developing a shared understanding of the practical roles that different stakeholders – both in the public and private sectors – should play in implementing the FYDP II.

In addition, SET directly facilitated dialogue between the GoT and Tanzania’s development partners (DFID and the European Union) on ways in which donors can support the implementation of the Plan.

SET also helped Tanzania’s Planning Commission to communicate the goals, objectives and priorities of the FYDP II and its plans for implementation to different stakeholders by preparing and publishing a set of three briefings: (i) summarising the FYDP II and its key action points; (ii) summarising proposed actions and financing plans for implementation; and (iii) and outlining options to link government plans with donors and businesses. In relation to the latter, SET also linked donors (including DFID and the European Union) with the GoT after a period in which donors had suspended budget support for Tanzania. These donors are now looking for new ways to support Tanzania. Members of the SET team also published commentary in the Tanzanian media on the GoT’s 2017/18 budget, the country’s remaining economic transformation challenges and the need for Tanzania to form a consensus on how to achieve industrialisation. This has helped to raise awareness of Tanzania’s industrialisation and economic transformation challenges and priorities.

What SET learned

SET’s work in Tanzania has highlighted the power of coordinating support from the public and private sector and local research institutions around an agreed set of principles, priority areas and interventions to drive industrialisation, economic transformation and human development.

Useful links

For further details on SET’s work in Tanzania please see the following:

Event report from a consultative workshop on the drafting of FYDPII on 6 October 2015:  https://set.odi.org/6-october-2015-shaping-tanzanias-second-five-year-development-plan/

Final full SET study and summary paper for the drafting of FYDPII: https://set.odi.org/supporting-preparation-tanzanias-second-five-year-development-plan-fydpii/

Event report from a consultative workshop on the implementation of FYDPII on 27 October 2016:  https://set.odi.org/27-october-2016-effective-implementation-tanzanias-second-five-year-development-plan-fydpii/

Briefing papers on the Implementation Strategy for FYDPII: https://set.odi.org/tanzanias-second-five-year-development-plan-fydp-ii-briefing-papers/

Blog by Dirk Willem te Velde on practical industrialisation models in Tanzania: https://set.odi.org/fostering-debate-industrialisation-models-tanzania/

A PDF version of this impact study can be downloaded here: SET Impact Case Study – Tanzania

This impact study has been prepared by Neil Balchin, ODI Research Fellow. For further information contact details are available here.

 

Kenya Impact Case Study: Promoting industrialisation, manufacturing and job creation

The Supporting Economic Transformation (SET) programme successfully promoted the importance of manufacturing in Kenya, and guided the prioritisation of policy actions targeting policymakers at an opportune time – ahead of the 2017 Kenyan elections, working directly with local research partners, world call academics and a major private sector association. This followed in-depth and high-quality scoping background work which was presented to, and received inputs from, development partners including the World Bank, donors and the Government of Kenya.

Introduction

The Supporting Economic Transformation (SET) programme successfully promoted the importance of manufacturing in Kenya, and guided the prioritisation of policy actions targeting policymakers at an opportune time – ahead of the 2017 Kenyan elections, working directly with local research partners, world class academics and a major private sector association. This followed in-depth and high-quality scoping background work which was presented to, and received inputs from, development partners including the World Bank, donors and the Government of Kenya.

SET collaborated with the Kenya Association of Manufacturers (KAM), a private sector organisation to develop a 10-point policy priority plan around manufacturing, which was used to discuss, and directly influence the content of political party manifestos. Tangible success was demonstrated with a high-profile signing of a commitment to the priorities by two major political parties at a public launch event. The work, and the engagement of political party representatives also generated significant national media coverage and helped to communicate the messages of in-depth research to a wide audience.

The SET work helped to build KAM’s strong networks, and the tangible result was a policy- and action-focused document which they were able to use to engage with (and influence) the Kenyan government.


(From left to right): Neil Balchin, Research Fellow (ODI), Ms. Phyllis Wakiaga, Chief Executive Officer (KAM), Oduor Ong’wen, Executive Director, ODM, National Super Alliance (NASA), Ms. Flora Mutahi, Chairperson (KAM) and Ekuru Aukot, Party Leader, Third Way Alliance Kenya

The Policy Challenge

There is currently a window of opportunity African countries in manufacturing. Rising wages in Asia, rebalancing in China, strong regional growth in Africa and improving policies and institutions are creating positive conditions for manufacturing, and there is significant room to develop manufacturing output. However, the window of opportunity in labour-intensive manufacturing is closing fast (possibly in the next 20-30 years) due to increasing mechanisation and automation. Intense competition from Asian countries (e.g. Vietnam, Cambodia, Bangladesh) who have similar or lower wages, higher productivity, better infrastructure, more skilled labour forces, and higher levels of integration into GVCs is also a major challenge. In order to take advantage of the current opportunities, Kenya needs to act fast to develop its manufacturing sector, as other African countries will be looking to do the same.

It was in this context that KAM approached SET to collaborate on a project aiming to influence politicians and policy-makers to incorporate manufacturing priorities when developing their economic plans in the pre- and post-election periods in 2017. A broader policy challenge was to promote the importance of economic transformation and industrialisation as driving forces behind job creation and poverty reduction. More specifically, the main objective of the project was to position the development of manufacturing and industry in Kenya as a priority for the country’s economic transformation and job creation for the next five years.

What SET did

Leading SET researchers from ODI, local consultant Anzetse Were and KAM consultant Gituro Wainaina worked closely with KAM to develop a policy priority plan around manufacturing. As the target audience for the work was to reach and influence politicians and other policy-makers, the team decided to develop a concise 10-point booklet listing priorities for manufacturing, with corresponding suggested ‘actions’ informed by expert analysis of the current state of the Kenyan manufacturing sector. The 10 points covered issues including land accessibility and ownership, energy, value chains, public-private sector collaboration and labour market skills, and for each a selection of tailored policy solution (actions) were suggested. In order to be as comprehensive as possible, the content was developed with active inputs from the Office of the President of Kenya, the State Department for the Environment, the State Department for Trade, Kenya Industrial Estates, IDB Capital Kenya, KEPSA, MSEA, TMEA, ICDC and the KAM Board.

In July 2017, two launch events for the booklet were held in Nairobi. The first was a private meeting for KAM’s member organisations, and the second was a high-profile launch event on 5 July, attended by two major political parties. The aim of the launch was to engage with the major political parties in the upcoming Kenyan general elections (in August 2017) and push for buy-in and cross-party support for the priorities identified in the agenda to transform manufacturing in Kenya. At the event, the Executive Director of ODM (NASA party) and the presidential candidate/leader of Thirdway Alliance Kenya signed a ceremonial commitment to the 10 policy recommendations. This was one excellent example of tangible impact of the SET research; further impacts are discussed below.

Impact

Broadly, the work had demonstrable success towards one of core aims of the SET Programme: supporting the private sector. Through the project, SET supported KAM’s engagement with future policymakers on which policies the private sector believe are needed for high growth and job creation. The event also generated significant media coverage including over 10 hits in national media, reflecting the importance and relevance of the topic to a wide audience.

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

Conceptual impacts

SET contributed to the knowledge around Kenyan manufacturing by carrying out detailed scoping studies by leading experts such as John Page (Senior Fellow, Brookings Institution) and Phyllis Papadavid (Team Leader, International Macroeconomics, ODI). These were presented to a group of stakeholders at a closed roundtable in Nairobi in August 2016 including representatives from African Development Bank, World Bank, TMEA, JICA, DFID Kenya, Government of Kenya, KAM, ACET, private sector and others. These papers contributed to the perceptions of those in attendance, who came to a consensus that manufacturing and industry needed to be the focus of the next administration.

“The KAM launch event was a great example of getting cross-party support on useful reforms”

Daniel Marks, Economic Advisor, DFID Kenya

Tangible evidence of conceptual impact from this project can be seen by the extensive media coverage of the 5 July 2017 launch of the 10-point policy priority plan which gave high visibility and prominence to both the SET programme and the key messages of the manufacturing agenda.

Finally, the work also had conceptual impacts on the political party representatives who were present at the launch meetings, who agreed that a commitment to manufacturing should be a priority for the next administration.

Instrumental impacts

SET also had tangible instrumental impact from this work. One of the most significant was seen following discussions between KAM and the Government of Kenya on the 10 policy priorities: comparisons with party manifestos showed several suggestions were taken on board and incorporated. These included issues such as public fiscal management, the role of SEZs and the importance of improved access to reliable and sustainable energy, and industrialisation was a key focus of the manifestos (where it had not been previously), demonstrating SET and KAM’s possible influence on policy-forming processes.

Evidence of instrumental impact was most powerful at the launch event on 5 July 2017, where representatives from the two political parties in attendance both signed a ceremonial commitment to the 10 points in the policy priority agenda, pledging to incorporate them into future policies. The representatives specified the industrial agenda as central to Kenya’s economic transformation in general terms, with NASA emphasising innovative initiatives, small and medium enterprise (SME) and informal sector, and Jubilee and the Third Way Alliance were more specific about industry related policies in their recommendations.

The work was also influential on the KAM more broadly, as it was presented to KAM’s member organisations at their Annual General Meeting. This ensured the exposure of a wide range of private sector firms to research and policy analysis on the manufacturing sector.

Signing commitment to the 10-point plan on 5 July 2017

 

 

 

 

(From left to right): Ms. Phyllis Wakiaga, Chief Executive Officer, KAM, Oduor Ong’wen, Executive Director, ODM, National Super Alliance (NASA), Ms. Flora Mutahi, Chairperson, KAM

Capacity building impacts

This work significantly supported the KAM with prioritisation related to manufacturing and will be used in the future, beyond the election period, to advocate private sector interests with the government. KAM have already begun further work to develop policy briefs for the purposes of engaging the County Government and other stakeholders at the county level (which was one of SET’s recommendations). This shows a demonstrable and effective SET ‘exit’, with strong local actors taking forward a transformational agenda built on, and following SET research and support.

“We remain greatly indebted to you for the support.

We now have a document that has clearly and concisely elaborated the manufacturing priorities, and which has so far been very well- received by the main political parties we have engaged.”

Dalmas Okendo, Head of Operations, KAM

By engaging local experts including Anzetse Were (development economist and columnist for Business Daily in Kenya) and Gituro Wainana (Professor and KAM consultant) SET has ensured that there will be ongoing engagement on the work.

An example of this is Anzetse Were’s coverage of a major investment by East Africa Breweries Limited’s (EABL) to establish a Sh15 billion brewery in Kisumu, which aligns with the messages of the work (namely that increasing manufacturing is a key part of economic development). This was also discussed at a private roundtable with a private sector firm, Diageo.

As mentioned previously, KAM also used the booklet to secure meetings with political parties ahead of the unveiling of election manifestos, at which they were able to put forward the case for investment in manufacturing.

Connectivity impacts

This work has strengthened networks of stakeholders both in the development and utilisation of the research. The former was reflected by the wide-ranging experts present at the scoping meetings on 29 August, including over 30 representatives from DFID Kenya, the Kenyan Government, the World Bank, and research organisations including the African Center for Economic Transformation (ACET).

In addition, the main launch on 5 July 2017 was a very successful event, generating approximately 10 national media hits, including an independent blog and attracted two major political parties. Examples of media coverage includes The Star, The Standard, Business Daily and KBC News.

Finally, through the process of developing the booklet, SET provided a mechanism for KAM (and its members organisations) to engage with the Kenyan Government and other political parties/coalitions at a critical time for Kenyan politics. The process also facilitated dialogue between DFID Kenya and KAM over the relative weight of various priorities for policy-makers.

What SET learned

SET’s work with KAM and wider work on manufacturing in Kenya highlights successes of working collaboratively with local partners, private and analytical, to translate analytical and in-depth research into actionable, concise policy recommendations, and then communicating these to Government through influential local (private sector) organisations with strong networks.

The importance of timing is also a positive lesson learned; by targeting and meeting with political parties ahead of elections, there was a strong incentive for politicians to engage with the research findings.

Finally, the positive result of a well-thought communications plan was evident in this project – a 10-point easy-to-consume booklet and public launch helped to communicate the messages to both government and media, attracting attention and influencing the thinking of a wide audience.

Useful links

The 10 policy priorities booklet and summary handout can be downloaded here.
For a detailed event report of the public launch on 5 July 2017, click here.
The in-depth background papers and roundtable report on 29 August 2016 can be found here.

A PDF version of this impact study can be downloaded here: SET Impact Case Study – Kenya

This impact study has been prepared by Sonia Hoque, SET Programme & Operations Manager. For further information contact details are available here.

 

26 October 2017 | Pathways to Prosperity and Inclusive Job Creation in Nepal

On 26th October 2017, the Overseas Development Institute (ODI) in collaboration with South Asia Watch on Trade, Economics and Environment (SAWTEE) presented new research on job creation and pathways to prosperity in Nepal. This research was launched at a high-profile event in Kathmandu, attended by stakeholders from the four sectors studied, development partners and various private sector associations including the Federation of Nepalese Chambers of Commerce and Industry, the ILO and the Confederation of Nepalese Industries. The Honourable Vice Chairman of the Nepal National Planning Commission, Swarnim Wagle also attended.

DOWNLOAD EVENT REPORT

DOWNLOAD EVENT REPORT

On 26th October 2017, the Overseas Development Institute (ODI) in collaboration with South Asia Watch on Trade, Economics and Environment (SAWTEE) presented new research on job creation and pathways to prosperity in Nepal.

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 presented an opportunity to agree a consensus view and unifying, practical vision on how the country can transform and create jobs. A new extensive study carried out in January 2017 examined what can be done to ease Nepal’s constraints to job creation, based on a new firm-level survey in four promising sectors: agro-processing; light manufacturing; information and communication technology (ICT); and tourism. The study examined major constraints to the firm-level growth and the Nepalese labour market in terms of labour market tightness and labour market skills and proposes general recommendations as well as sector-specific policy suggestions.

This research was launched at a high-profile event in Kathmandu, attended by stakeholders from the four sectors studied, development partners and various private sector associations including the Federation of Nepalese Chambers of Commerce and Industry, the ILO and the Confederation of Nepalese Industries. The Honourable Vice Chairman of the Nepal National Planning Commission, Swarnim Wagle also attended.

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

 

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

DOWNLOAD DATA BRIEFING

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 ©

Karishma Banga (ODI) | The digital industrial revolution: will African countries sink or swim?

Karishma Banga (Senior Research Officer, ODI)
The digital economy is here, and is rapidly growing, ushering in the Fourth Industrial Revolution. Though definitions have evolved over time, it is broadly agreed that the digital economy describes a worldwide network of economic and social activities enabled by digital technologies, including mobile and communication networks, ‘Cloud Computing’, Artificial Intelligence, ‘Machine Learning’, ‘Internet of Things’ and ‘Big Data’. Such new and cutting-edge technologies have led to creation of ‘smart machines’, such as driverless vehicles and cognitive robots, as well as widespread adoption of ‘smart platforms’ like Google, Amazon, Apple, Facebook and Alibaba. Digitalisation of the economy, through the increasing use of digital technologies, is changing the global landscape of manufacturing, presenting both challenges and opportunities in less-developed countries.  Often an alarmist approach is taken while discussing the future of manufacturing-led development in African economies, which have traditionally used manufacturing as a first step towards economic transformation and employment generation.

Karishma Banga (Senior Research Officer, ODI)

13 November 2017

The digital economy is here, and is rapidly growing, ushering in the Fourth Industrial Revolution. Though definitions have evolved over time, it is broadly agreed that the digital economy describes a worldwide network of economic and social activities enabled by digital technologies, including mobile and communication networks, ‘Cloud Computing’, Artificial Intelligence, ‘Machine Learning’, ‘Internet of Things’ and ‘Big Data’. Such new and cutting-edge technologies have led to creation of ‘smart machines’, such as driverless vehicles and cognitive robots, as well as widespread adoption of ‘smart platforms’ like Google, Amazon, Apple, Facebook and Alibaba.

Digitalisation of the economy, through the increasing use of digital technologies, is changing the global landscape of manufacturing, presenting both challenges and opportunities in less-developed countries.  Often an alarmist approach is taken while discussing the future of manufacturing-led development in African economies, which have traditionally used manufacturing as a first step towards economic transformation and employment generation. However, considering that many African countries are yet to industrialise, digitalisation may not directly impact them to the same extent as their developed counterparts. At the same time, it is important to not underestimate the power of technology to bring about disruptive change. It is essential for African countries to not only boost manufacturing but also adapt to the changing nature of manufacturing and prepare for the digital future.

How big is the digital divide?

Internet penetration – that is, the share of population with access to the internet – is often used as a proxy for digitalisation, based on the assumption that internet is the basic and necessary condition to digitalise. Internet penetration has grown by 5% in developed countries, compared to 15-20% in developing countries (World Economic Forum, 2015), and some sub-Saharan African economies have witnessed remarkable growth in internet penetration, particularly Ghana, Nigeria, Rwanda and Uganda. Yet developed countries still dominate the internet economy, with a staggering 78% share overall. In fact, the internet economy’s contribution to GDP in developed countries (3.4%) is more than three times the internet economy’s contribution to GDP in African countries. Moreover, of those countries with less than 10% internet penetration, most are African. These statistics suggest that the capability of African economies to be competitive in digitalised trade is low.

Globally, there is vast disparity in country shares in e-commerce across developed and developing countries: just six countries – China, France, Germany, Japan, the UK and the US – occupy 85% of cross-border e-commerce trade, of which all except China are developed nations. Developing economies are also lagging behind in deployment of ‘Smart Machines’- devices with machine-to-machine and/or cognitive computing technologies. Data from the International Federation of Robotics shows that in 2015, around 75% of robot sales were concentrated in just five markets: China, Germany, Japan, the Republic of Korea and the US. Africa’s share in global robot sales has in fact fallen since 2013, reaching just 0.2% in 2014 – a figure that is almost ten times lower than Africa’s share in global GDP.

Challenges for developing countries

In the race to digitalise, many developing countries (with the exception of China) are clearly falling behind. This is likely due to prohibitive costs of capital in these countries and low ‘digital-readiness’ in terms of infrastructure and skills. Many African countries are still struggling to industrialise, and in some cases lack even basic infrastructure – for instance, a reliable power supply, roads, ports and telecommunication – showing the need to primarily invest in these areas.

While this suggests that the direct impact of the growing digital economy on African countries may be limited, digitalisation can indirectly impact them by affecting global competition and changing the criteria of what constitutes an attractive manufacturing location. The emerging digital technologies may lower the costs of coordination and trading, thereby strengthening global value chains and enabling smaller firms to access international markets. But there are also risks of manufacturing activities being re-shored back to the developed world, as was the case with Phillips shavers and Adidas shoes. Moreover, goods in the digital economy are much more advanced and may require good infrastructure, research and development, and skilled labour at all points along the global value chain, leading to concentration of manufacturing in developed countries, and pressure on wages in less developed economies.

A central concern in the debate on digitalisation is that of a ‘jobless future’. The International Federation of Robotics estimates that that more than 2.5 million robots will be at work by 2019, indicating a 12% growth in deployment of robots between 2016 and 2019. McKinsey’s 2017 report estimates high percentages of jobs in African countries that will be automated away– 52% in Kenya, 46% in Nigeria and 50% in Ethiopia. However, recent case studies suggest that low- and middle-income economies need not be alarmed (Dutz et al., forthcoming); if we break down occupations into tasks, with distinct levels of automatability, then the share of jobs that can be automated away falls to 2-8%, as per Ahmed and Chen’s (2017) estimates. That said, these estimates do not account for the ‘potential’ jobs that may be lost by never being created, and the sizeable number of informal jobs in many developing and less developed countries.

Adapting to the changing nature of manufacturing

  1. Boost manufacturing

Using the window of opportunity in less-automated sectors

The impact of technology depends on the type of technology employed, and varies across countries and sectors. There are some sub-sectors in which technological change has been slow until now – such as food, beverage and tobacco products, basic metals, wood and wood products, paper and paper products, and other non-metallic minerals. These sectors present opportunities for LDCs to undertake local production and regional trade.

Using a dual-track approach to industrialisation

Countries should look to develop agro-processing and attract investment in higher value-added export-based manufacturing activities. A move towards services can also serve as an alternate path to development. Beyond improving the investment climate, effective policies include improving firm capabilities, innovations systems and direct financing opportunities.

  1. Digitalise manufacturing

Become digitally-ready

Emerging SET analysis on the future of manufacturing in Sub-Saharan African countries suggests that both technological progress and digitalisation increases labour productivity. But, while the impact of technological progress is higher in low-income and Sub-Saharan African countries, rendering support to convergence, the impact of digitalisation is lower in these economies. Moreover, the impact of technological progress on productivity increases as a country digitalises, but this impact is also lower for low-income countries and Sub-Saharan African countries. These findings may indicate a significant difference between low-income countries and high-income countries in ‘digital-readiness’; the ability to absorb and utilise digitalisation. Further results confirm that the impact of both technological progress and digitalisation increases as the work-force becomes more skilled, highlighting the importance of becoming digitally-ready by investing in skills development.

Skills for the future

Data is key to examining the sectors into which the labour force should move in the next few years. Previously, skill development strategies focused on moving from agriculture to manufacturing in less developed countries, and from manufacturing to services in more developed economies. On the future of work, Richard Baldwin (Professor, Graduate Institute) discusses that with the rise of digitalisation and consequently ‘tele-migrants’ and robots, soft-skills such as managerial skills, team-building skills and teaching will become more important.  Although the pace of change in adoption of 3D printers has been relatively slow, as 3D printers become more affordable, design capabilities will become important. This can create important opportunities for developing economies to leverage their design and creative skills in the growing digital economy. Spread of 3D printers to developing economies can also lead to de-centralisation of manufacturing and customised production on demand.

With rise and expansion of the ‘digital labour-force’, work may become increasingly precarious. To ensure that workers are not treated as digital commodities, it is important to re-orient social protection in the digital economy to follow people, rather than companies.

 

Photo credit: Andrea Moroni via Flickr. License: CC BY-NC-ND 2.0. 

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

DOWNLOAD REPORT

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

DOWNLOAD PATHWAYS SUMMARY BRIEFING         DOWNLOAD FOUR SECTOR STUDY SUMMARY BRIEFING

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

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

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

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

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

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

Media coverage

Leading English dailies (also in print)

Full editorial: Labour issues, Kathmandu Post, 31 October

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

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

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

National news coverage (from 4:40) Karobar news

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

 

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