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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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).
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.
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.
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.
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.
Jun Hou, Stephen Gelb and Linda Calabrese, October 2017
Chinese manufacturers, in particular in labour-intensive industries, are striving hard for ways to withstand the pressures emerging during the ‘New Normal’ transition– such as slowing economic growth, labour force shortages and rising factor costs. As a result, many are in the process of, or at least considering, relocation of production to other low-cost destinations, or replacing workers with machines by upgrading technological capability levels. The relocation of Chinese manufacturing is forecast to open up major employment opportunities for low-cost regions and countries, with the potential for one to become the new global centre for manufacturing.
Economic Transformation and Job Creation in Mozambique
Neil Balchin, Peter Coughlin, Phyllis Papadavid, Dirk Willem te Velde and Kasper Vrolijk, October 2017
Mozambique’s gross domestic product (GDP) has grown annually by 5–7% in real terms over the past decade, but this has not been accompanied by structural change or sufficient job creation. The country requires a different focus towards economic transformation to address the very challenging short-term macroeconomic situation and create much-needed jobs in a sustainable way. This report on economic transformation and job creation in Mozambique synthesises 30 recent studies to understand commonalities and differences on promising sectors and value chains in Mozambique, binding constraints to developing these activities, and policies that have been suggested to achieve these.
Local Content Policies and Backward Integration in Nigeria
Neil McCulloch, Neil Balchin, Max Mendez-Parra and Kingsley Onyeka, October 2017
Nigeria has experienced rapid but low-quality growth over the past decade. This has been accompanied by limited structural change and little economic transformation. The share of manufacturing in Nigeria’s gross domestic product (GDP) is low relative to that in comparator countries, and the country’s heavy reliance on oil and gas exports has meant little attention has been paid to developing the manufacturing sector or diversifying into more complex products. This report, produced in partnership with the Nigerian Economic Summit Group (NESG) and launched at the Group’s annual Economic Summit in Abuja, analyses the different local policies options to increase backward and forward linkages in the Nigerian manufacturing sector.
Tanzania’s Second Five-Year Development Plan (FYDP II): Briefing Papers
Neil Balchin and Dirk Willem te Velde, August 2017
Following extensive work done by the SET Programme on supporting the preparation of Tanzania’s Second Five-Year Development Plan (FYDP II), SET has continued to support the Planning Commission within the Ministry of Finance and Planning (MoFP). The Government of Tanzania launched the FYDP II – Nurturing Industrialisation for Economic Transformation and Human Development in 2016, and is currently finalising the FYDP II Implementation Strategy, for which SET has provided continued support.
Zimbabwe: A Roadmap for Economic Transformation and Economic Outlook
Judith Tyson, August 2017
Zimbabwe has suffered from economic decline in the recent past, with a 60% reduction in its gross domestic product over the past two decades. There have been multiple acute crises and a deep structural regression in its economy. This has included deindustrialisation with degradation of capital stock and low capacity utilisation in the manufacturing sector. The paper on ‘A Roadmap for Economic Transformation’ argues that the most viable is a ‘single sector, single agent’ approach – whereby transformation is focused on a single sector with high potential and led by a single reformist agent within government – and this could ‘kick-start’ change.
Coordinating Public and Private Action for Export Manufacturing: International Experience and Issues for Rwanda
David Booth, Linda Calabrese and Frederick Golooba-Mutebi, July 2017
One of the keys to economic transformation across Africa today is a greater role for employment-intensive, export-oriented manufacturing. After taking due account of differences in contexts and time periods, international experience – especially in Asia but also in Africa-region leaders such as Mauritius – points to employment-intensive manufacturing as a crucial and indispensable step in the transition from poverty to development.
Financing Manufacturing in Africa: Macroeconomic Conditions and Mobilising Private Finance
Phyllis Papadavid and Judith Tyson, June 2017
Since the downturn in global commodity prices in 2015, sub-Saharan Africa’s macroeconomic conditions have deteriorated, with 2016 seeing the worst economic growth in more than two decades. To maintain progress in economic transformation, employment-intensive and higher-productivity sectors need to be developed. Manufacturing – including agricultural processing – offers this opportunity, including through participation in regional and global value chains. In order for the sector to get the investment it needs, the promotion and mobilising of private financing will be crucial.
Linda Calabrese, Phyllis Papadavid and Judith Tyson, June 2017
Rwanda is one of Africa’s “rising stars”. The country’s economy has seen solid rates of economic growth since the civil conflict in the mid-1990s. Strength in investment flows has followed in the path of this macroeconomic and institutional stability. As this paper highlights, a large part of Rwanda’s success has been the result of proactive policies undertaken by the government of Rwanda in facilitating a good domestic investment climate, which have been conducive to strong rates of growth in FDI into the economy.
10 Policy Priorities for Transforming Manufacturing and Creating Jobs in Kenya
Anzetse Were, Dirk Willem te Velde and Gituro Wainaina, June 2017
Developed by SET in partnership with the Kenya Association of Manufacturers (KAM), this booklet addresses Kenya’s current economic predicament and makes the case for political and financial investment in manufacturing. The central 10-point policy plan lays out seven policies and regulations that should be enacted to create a conducive environment for manufacturing to flourish, and three further suggestions for how to implement them in practice.
Margaret McMillan, John Page, David Booth and Dirk Willem te Velde, March 2017
Launched alongside Supporting Economic Transformation: An Approach Paper, these briefings summarise the central tenets of SET’s approach to the challenge of promoting economic transformation and explore its importance for driving sustainable, inclusive development in the world’s poorest countries.
Foreign Direct Investment and Economic Transformation in Myanmar
Stephen Gelb, Linda Calabrese and Xiaoyang Tang, March 2017, June 2017
The paper and briefing reviews the foreign (Chinese) presence in four sectors in Myanmar and its impact on economic transformation. Significant positive effects include employment and exports in garments, local enterprise development and downstream user costs in construction (and infrastructure), and exports, technology transfer and product market competition in agriculture and agro-processing and finally makes a number of policy recommendations for UK DFID.
Supporting Economic Transformation: An Approach Paper
Margaret McMillan, John Page, David Booth and Dirk Willem te Velde, March 2017
This approach paper seeks to define economic transformation, offers an approach to measuring progress towards it, and examines case studies from African and Asian economies where transformative policies have been successful to greater and lesser extents. The paper concludes by presenting a multi-disciplinary approach to identifying opportunities, diagnosing constraints and mapping out realistic policy options for countries to use to turn their economic growth into genuine transformation.
Trade in Services and Economic Transformation: A New Development Policy Priority
Edited by Bernard Hoekman and Dirk Willem te Velde, February 2017
Services play a vital role in economic transformation and job creation in poor countries, but the effects are different from those in agriculture or manufacturing. While much of the discussion on economic transformation centres on transforming agriculture and moving into manufacturing, services are an under-explored component of economic transformation strategies.
This set of essays analyses the role of services, and especially trade in services, in economic transformation.
Neil Balchin, Bernard Hoekman, Hope Martin, Maximiliano Mendez-Parra, Phyllis Papadavid, David Primack and Dirk Willem te Velde, November 2016
While much of the debate on economic transformation centres around transforming agriculture and moving into manufacturing, the potential of services is often left unexplored. It is crucially important for policy-makers in low-income countries, many of whom may not regard services, or trade in services, as a prime focus of action on economic transformation. This paper explores how policies both directly and indirectly affecting trade in services can have a major impact in terms of increasing the contribution of services to economic transformation.
Africa’s New Climate Economy: Economic Transformation and Social and Environmental Change
Milan Brahmbhatt, Russell Bishop, Xiao Zhao, Alberto Lemma, Ilmi Granoff, Nick Godfrey and Dirk Willem te Velde, November 2016
Africa’s “Growth Miracle” in the 21st century has reversed a long standing narrative of pessimism about the region. It has emboldened hope for the future. GDP growth reached around 5% annually from 2001-2014. Rates of extreme poverty fell substantially.
Yet big challenges remain.
Supporting the Preparation of Tanzania’s Second Five-Year Development Plan (FYDP II)
Neil Balchin, Tim Kelsall, Blandina Kilama, Alberto Lemma, Max Mendez-Parra, Donald Mmari, Dirk Willem te Velde, Sam Wangwe, Leah Worrall, May 2016
The Government of Tanzania launched the second Five-Year Development Plan (FYDP II) (2016/17-2021/22) in June 2016, focusing on the theme Nurturing Industrialisation for Economic Transformation and Human Development. This study informed the preparation of FYDP II.
Dirk Willem te Velde, David Booth, Danny Leipziger and Ebere Uneze, May 2016
Nigeria has enjoyed fast economic growth over the past decade but has seen low-quality growth. Now, with oil prices down significantly, and weak growth, new areas of economic growth need to be identified. Business-as-usual will not safeguard productive jobs for the future or reduce poverty significantly. Promoting quality growth and economic transformation is crucial. This paper discusses the issues, drawing on economic analysis and political-economy assessment.
Developing Export-Based Manufacturing in Sub-Saharan Africa
Neil Balchin, Stephen Gelb, Jane Kennan, Hope Martin, Dirk Willem te Velde and Carolin Williams, March 2016
Strong growth in the African region, rebalancing and rising wages in China, and improvements in the policy and institutional context provide a unique opportunity that African countries can use to attract investment in higher value-added, export-led manufacturing. This paper describes how production, employment, trade and FDI in the manufacturing sectors in nine selected Sub-Saharan African (SSA) countries has increased and identifies opportunities for promising sectors.
Gender, Economic Transformation and Women’s Economic Empowerment in Tanzania
Louise Fox, March 2016. The government of Tanzania is currently preparing its next Five Year Development Plan (FYDP II). Ensuring women benefit from the development processes envisaged in the plan is instrumental to achieving its objectives. Analysis of recent data on employment and time use shows women have benefited from a decade of economic transformation in Tanzania. This paper discusses many issues, including how they have gained access to new employment opportunities in higher-productivity sectors such as manufacturing, trade and hotel and food services and the expansion of public services has increased the education of women in in the labour force.
Public and Private Sector Collaboration for Economic Transformation
Yaw Ansu, David Booth, Tim Kelsall and Dirk Willem te Velde, March 2016. Achieving a pattern of economic growth where productivity, export competitiveness and employment are continuously increased calls for an active search for solutions to numerous specific problems currently blocking or delaying needed investments. This paper looks at how to establish a strategic relationship between government and private sector actors that makes it possible to address these problems without repeating the errors that derailed transformational ventures in the past.
Trade Facilitation and Economic Transformation in Africa
Joe Amoako-Tuffour, Neil Balchin, Linda Calabrese and Max Mendez-Parra, March 2016
Trade facilitation can stimulate economic transformation in Africa by raising exports, supporting export diversification, reallocating resources to more productive activities, improving access to cheaper and better-quality imported inputs and enabling participation in value chains. Many African regions have begun to formulate regional approaches to trade facilitation, and there are important examples of particular approaches working well.
Yaw Ansu, Margaret McMillan, John Page and Dirk Willem te Velde, March 2016.
Industrialisation, particularly the expansion and increased sophistication of manufacturing production and exports, and also the expansion of manufacturing employment, remains an essential part of Africa’s economic transformation. Unfortunately, manufacturing as a share of gross domestic product has declined over the past few decades in most African countries, even though in absolute terms it is growing.
The Role of Services in Economic Transformation – With an Application to Kenya
Anupam Khanna, Phyllis Papadavid, Judith Tyson and Dirk Willem te Velde, February 2016.
Much of the debate on economic transformation in low-income countries (LICs) has centred on moving out of agriculture and into manufacturing, but this fails to appreciate the role services can play in driving growth in developing countries. This paper examines the role of services in economic transformation, by discussing the main conceptual issues and applying these to the case study of Kenya. The analysis suggests we need to update our traditional, often negative, views on the role of services in economic transformation.
Neil Balchin, Claire Mason, Kasper Vrolijk and Leah Worrall, 2015. While the broad definition of economic transformation is relatively consistent across actors in the economic transformation literature, the existing research on policies and strategies designed to support economic transformation varies across different types of country stakeholders and across country contexts. In this paper we conduct a stocktake of the literature on economic transformation in order to determine pre-existing actor discourse on the topic.
Economic Transformation Lessons From Large Developing Countries
Danny Leipziger, November 2015. This paper examines the key lessons for successful economic transformation based on experiences, both positive and negative, of large economies in East Asia and Latin America. As a general guide, it can be noted that countries that have successfully managed major economic transformations have done so with consistent, sustained and coordinated policies across a number of key markets. This paper highlights a number of areas for policymakers to consider in designing their own transformative policies.
Louise Fox, February 2016.
Economic transformation is defined as the movement of resources (factors of production) to high productivity activities, both within and between sectors. It encompasses both the process of structural change (movement of resources between sectors) and within sector labour productivity improvements. Economic transformation is essential for improving the quality of growth.
Marie-Agnes Jouanjean, Max Mendez-Parra and Dirk Willem te Velde, July 2015.
Trade has historically played a crucial role in the debate on economic transformation (ET), but the transmission mechanisms of different types of trade policies have not always been clearly articulated and empirical evidence is lacking in specific areas.
Tang Xiaoyang, July 2015.
Africa is no longer satisfied with growth that is limited to traditional economic sectors, such as agriculture or mining. Policy-makers aiming to bring in more manufacturing, technology and innovations to the continent are attaching more importance to structural transformation in their vision of development.
Using Hydroelectricity to Power Economic Transformation in Nepal
Gagan Thapa and Yurendra Basnett, May 2015.
Key messages from the brief include that hydropower can help Nepal decouple growth from rising carbon emissions and propel economic transformation. To do so will require creating agglomeration effects around hydropower development. Nepal should consider investing hydropower revenue to ensure that the country stays on a low-carbon economic growth pathway; to build the much needed transport infrastructure and power it with electricity; and to develop industries.
Dirk Willem te Velde, David Booth, Danny Leipziger and Ebere Uneze, May 2015
Nigeria’s recent economic growth has not brought about economic transformation. The new administration has an opportunity to address new areas of economic growth and the briefing sets about the six key aspects of policy formulation and implementation from the relevant international experience. One clear conclusion is the importance of emphasising global competitiveness, even in a large economy with a growing domestic market.