Economic Growth and Structural Change: An African Perspective Roundtable on Economic Growth and Structural Change: Priorities for Least Developed Countries UN-ORHLLS, Columbia University, World Bank and APEC Columbia University, Faculty House March 9, 2012 LEONCE NDIKUMANA University of Massachusetts Amherst

Africa from Stagnation to Dynamism? Rising growth rates, improving aggregate performance The headlines are encouraging, often exuberant: – New ‘success stories’: beyond Mauritius, Botswana and South Africa Mali’s mango exports; Rwanda’s coffee sector; ICT and mobile payments systems Etc. – African ‘Lions’ on the move: Quickened economic pulse Commercial vibrancy Africa, a good investment: Surging FDI Etc;

From a closer look… Growth: Not ready to celebrate yet… Major constraints remain… Even as opportunities abound… The challenge is to devise a strategy for equitable & sustainable growth and transformation

Africa’s long-run growth: been there done that Simple average of per capita GDP growth for 54 African countries. Source = WDI

Africa’s long-run growth has exhibited the following features: Divergence relative to other regions: rising income gap Slow capital accumulation and slow productivity growth Lack of structural transformation Volatility of growth: commodity dependence Inequitable growth: inequality has constrained progress in poverty reduction Diversity across countries: miracles and disasters; there are models of success in Africa – Classics: Botswana, Mauritius – Newer ‘success stories’: Mozambique, Ghana, Rwanda, … – Growth tragedies: Congo DR, Zimbabwe, …

A story of structural growth volatility

But diversification buys ‘stable’ growth; minimizes growth instability Diversification does not necessarily buy higher growth Normalized growth = growth/stdev(growth) Diversification buys stable growth Growth = average ; diversification index 2009 (logarithm)

A story of divergence …

Industrialization is a major factor of income divergence Sub-Saharan Africa is experiencing “de-industrialization”

Wide disparities in growth performance Excluded Equatorial Guinea (12%); oil discovery (35% average over ) Source: WDI Question: should we focus on the top or on lifting up the bottom?

Poverty and inequality Inequality is a key constraint to poverty reduction

Not new but burning: emerging challenges for Africa (1) The youth and its 3 demands: Work, Voice, and Respect (deny them voice, and the V becomes an A – WAR) Figure: Tunisian youth unemployment

Not ‘new’ but burning challenges… (2) The infrastructure deficit – Generation: moving along the low-carbon path? – Sustainable financing of infrastructure – Need a new model of investment in infrastructure: profitable and sustainable investment (environment friendly) (3) Climate change – Disproportionate adverse impact on Africa: bio-physical risk lack of adaptive capacity lack of diversification

Two central questions for Africa Can the continent perform a heroic “hat trick” of: – Rapid growth of income – Rapid reduction in inequality – Rapid reduction in poverty Can the continent industrialize in an era of open trade? – How to incentivize and finance ‘discovery’? – How to nurture new industries? – What markets for African products? How to develop domestic? Is urban expansion an opportunity? Can regional integration support industrialization? Is the Global South more permeable to African products?

Elements of a strategy for structural change Covering the base: Refocus the mission of agriculture to achieve food security Managing natural resources – Moving up the value chain – A responsible private sector: Combatting corruption, illicit financial flows, transfer pricing, and tax evasion Nurturing ‘patient’ transitions: – to productive and employment-generating service-sector-led growth – to low-carbon growth path – to technology-led growth path Avoid counter-productive dichotomies – A leading strong state [and, not or] efficient markets – Robust domestic markets [and, not or] trade based on dynamic comparative advantage – Robust domestic resource mobilization [and, not or] productive foreign capital Democratic consolidation [and, not or] economic prosperity – Achieve economic prosperity but not at the cost of political freedom – Avoid inequality and economic alienation to build political stability