Dirk Willem te Velde (ODI) | Economic transformation and job creation: trends to watch in 2018

Dirk Willem te Velde (SET Programme Director, ODI)

4 January 2018

Job creation has taken centre stage globally as an issue over the past few years. Failure to create jobs in the inland US was key to the presidential victory of Donald Trump, job losses in northern England contributed to the Brexit referendum outcome in 2016 and new promises related to job creation for the young helped lead to electoral outcomes in Ghana in 2016 and Liberia in 2017. Related to this, countries, regions and social groupings need to adjust and transform themselves continuously or risk political upheaval, social unrest and ‘being left behind’. The year 2018 offers a range of global and national opportunities to improve prospects for job creation.

Harnessing the opportunities of technical change

Globalisation and technical change are creating both challenges and opportunities. The debate here is not new. Tinbergen wrote in the 1970s about a race between technology and education. Widening inequality in the 1990s in developed and emerging markets was blamed on trade, foreign investment, skill-biased technology and institutional weakening. In 2018, the reality is that there is not enough technical change or productivity growth in the poorest countries, especially the sort of change that will enhance the job opportunities of the poorest.

We will be asking whether and how technology and manufacturing feature in ever-changing development strategies in low-income countries to create jobs and transform economies. With the African Center for Economic Transformation (ACET), we are exploring which efforts are effective in promoting manufacturing, which is sorely needed in such countries. We will also continue our work on services. A major question, for countries around the world, is whether groups are prepared to use global value chains, import and export opportunities and new technologies for job creation.

Pursuing smart globalisation

Recent political outcomes in the US and the UK remind us we need to tackle the distributional impacts of (any) economic change at the same time as the economic change occurs. Rodrik recently reiterated the economic origins of populist forces and that detailed economic analysis can help us understand resistance to some types of trade deals. Moreover, the failure of recent WTO negotiations to agree anything substantial suggests we need to work more at a plurilateral level. Smart globalisation means (i) advancing globalisation when it matters (and in developing countries both the static and the dynamic effects of trade are still really important) and (ii) globalising only when complementary policies are in place to address those that may gain the least.

A changed global governance

With the US showing little interest in climate discussions, the WTO and the UN, many are looking to China to provide the global public goods the world needs. We noted this trend in 2014. If anything, a period of increasing governance gaps (a hegemon in retreat with others not yet stepping up) is unrolling faster than anticipated. In 2018, we will be looking how cities, the private sector and the world minus-1 will be progressing on climate change discussions, plurilateral trade negotiations and other forms of global cooperation. Trade, investment and migration may see their greatest chance of progress through bilateral and regional deals. Africa’s continental free trade agreement, to be concluded in 2018, may provide impetus for greater cooperation on Africa’s trade, investment and transformation.

Country trends to watch in 2018

ODI’s work often operates at the interface between new development challenges and country realities. In 2018, we will continue to work with local institutions such as ESRF, REPOA, SAWTEE, ACET, UNECA and EAC to provide national governments with the analysis and practical policy suggestions that can turn rhetoric around transformation into evidence-based policies to create jobs.

After Kenya’s second attempt at elections in October 2017, in which the opposition did not take part, will the two sides join hands to develop the economy, creating jobs and manufacturing activity? SET’s 10 policy priorities developed with the Kenyan Association of Manufacturing need a push towards implementation. A serious look at special economic zones (SEZs) fits into this thinking.

After Nepal’s elections at the end of 2017, the new communist government needs to live up to its promises on job creation. SET will follow up on its recent research and use a manufacturing event to promote the creation of quality jobs that aim to dampen the emigration of young and skilled workers.

We will continue to examine Ethiopia’s evolution from an agriculture-led development model towards an industrialisation-led model. The implementation of SEZs such as Hawassa Industrial Park shows progress can be made. Such lessons need to be shared more widely across Africa.

Recent elections in Liberia and upcoming elections in Sierra Leone provide an opportunity for these countries to show they are now fully on the path of inclusive growth, after a difficult period hit by disease. We are supporting Liberia to attract investment, including by organisations such as CDC.

Zimbabwe’s removal of President Mugabe offers some hope for 2018, but, as SET’s roadmap for economic transformation suggests, nothing is easy. Nonetheless, smart interventions have the potential to generate some limited progress.

Tanzania is continuing to grow but there are questions marks on its models of industrialisation. Its share of manufacturing in GDP has been below 10% for a long time, and has declined further in recent years. The question now is how to implement the second five-year development plan (halfway in and with a focus on industrialisation), and in particular how to pursue practical industrialisation models that will not fall into the traps of either laissez-faire or state ownership.

Mozambique is still some way behind Tanzania. Manufacturing’s share of total employment is below 1%. Will the government be able to seize the considerable opportunities for transformation and job creation in 2018? Can it employ positive public action to use a range of mega deals for local industrialisation?

Opportunities for global cooperation in 2018

A range of global opportunities could support job creation in poorer countries in 2018.

Both the G20 and the G7 are prioritising the future of work on their agendas. This will provide impetus for international organisations to bring together their knowledge on the topic and suggest ways forward. Outreach by the G20 towards poorer countries, especially around the G20 compact with Africa, should be continued under the Argentinian presidency.

The IMF and World Bank aim to support economic transformation and job creation globally. They have contributed to a core objective on economic transformation and job creation (one of five) in IDA18; we now need to see how this will be operationalised from 2018 onwards.

The Commonwealth Heads of Government Meeting in the UK in April 2018 will be the largest gathering of heads of government the UK has ever hosted. While UK trade with the Commonwealth is obviously no substitute for weakening economic ties with the EU, the summit is a key opportunity to strengthen trade and investment ties among the Commonwealth, which consists of more than 50 small and large, developed and developing, landlocked and coastal countries. The APPG–ODI inquiry on the Commonwealth and trade, of which I am a member, will report at the beginning of this year.

Brexit itself requires new thinking around the UK’s future trade relations with developing countries. ODI provided a number of insights in this regard in 2017. Whatever the outcomes of the negotiations, the increased importance given to trade, investment and economic development more generally in development debates is a silver lining.

The UK’s development debate may be polarised as a result of the suggestion that, because we do not like to see UK aid tied only to UK interests (which is also not allowed by law), we should not be thinking about UK interests in development at all, and instead that the UK should provide aid grants to health and education (sometimes irrespective of country priorities). However, for countries to transition out of aid, non-grant aid instruments are needed too (e.g. equity and loans through CDC); for countries to develop and pay for their own health and education needs, real economic transformation, trade, investment and private sector development are needed; and countries often like to see more UK trade and investment, not less. Ensuring further integration among aid, trade and investment to support development will be a key UK development policy trend to watch in 2018.


Photo credit: Simon Davis/DFID, 2013. License: CC BY 2.0.