1. PRIVATE SECTOR DEVELOPMENT AND ECONOMIC DIVERSIFICATION: EVIDENCE FROM WEST AFRICAN STATES By Akpan H. Ekpo Udoma Afangideh Elijah Udoh Being a paper presented at the 4 th Annual Conference on Regional Integration in Abidjan, Ivory Coast (ACRIA 4) from July 4-5, 2013

2. Outline  Introduction  Overview  Review of related Literature  Data and Methodology  Cross-sectional regression results  Panel Results  Policy Recommendations and Conclusion Being a paper presented at the 4th Annual Conference on Regional Integration in Abidjan, Ivory Coast (ACRIA 4) from July 4-5, 2013

3. Introduction  Relative economic stability in a country or region often linked to extent of diversification of sources of income and employment.  To avoid wider fluctuations due to dependence on single or few commodities.  Remarkable growth observed last decade but no corresponding welfare improvement in the sub-region.  Consequence: emergence of serious security challenge of international dimension e.g BH in Nigeria, Mali. Being a paper presented at the 4th Annual Conference on Regional Integration in Abidjan, Ivory Coast (ACRIA 4) from July 4-5, 2013

4. Introduction cont’d  Major feature remains peasantry agriculture  Primary products for exports  Prices exogenously determined o Are thus vulnerable to external shocks from trading partners  Implications for efficient public finance management  Transmission of volatility into public finance and national income  To avoid Dutch Disease, depletion issues, economic diversification becomes imperative for economic sustainability  Success requires both public and private sectors collaboration  As engine of growth, the role of private sector is particularly apt Being a paper presented at the 4th Annual Conference on Regional Integration in Abidjan, Ivory Coast (ACRIA 4) from July 4-5, 2013

5. Overview  Until 2008, growth rate in the sub-region was below African rate but tied up in 2008 and 2009 before rising above it in 2010.  Senegal and Cape Verde have high level of diversification  Cote d’ Ivoire, Benin, Togo, Sierra Leone and The Gambia are moderately diversified  Ghana, Liberia and Guinea are unstable in their diversification index  Others such as Nigeria, Mali, Niger except 2008, Burkina Faso, Guinea Bissau were least diversified as they all fell below African index Being a paper presented at the 4th Annual Conference on Regional Integration in Abidjan, Ivory Coast (ACRIA 4) from July 4-5, 2013

6. Overview cont’d Being a paper presented at the 4th Annual Conference on Regional Integration in Abidjan, Ivory Coast (ACRIA 4) from July 4-5, 2013

7. Overview cont’d Being a paper presented at the 4th Annual Conference on Regional Integration in Abidjan, Ivory Coast (ACRIA 4) from July 4-5, 2013

8. Overview cont’d Assumptions:  Private sector would play leading role in the sub- regional economic diversification in medium and long run  Has the resilience to accommodate innovation and entrepreneurship e.g entertainment industry evolution in Nigeria and other West African countries  Tourism in The Gambia  Focus on young, innovative and creative individuals  In short-run, role of the state is crucial  Enabling environment e.g US$200m to develop the subsector in Nigeria  Legislations to strengthen and regulate it to check piracy, attract FDI, training and capacity building, other infrastructure Being a paper presented at the 4th Annual Conference on Regional Integration in Abidjan, Ivory Coast (ACRIA 4) from July 4-5, 2013

9. Overview cont’d  In the long term  Private sector takes the centre stage in production activities with little or no government protection or support  Key issues at this stage are investment in R&D, technological advancement  But because social rate of return in R&D is greater than private rate of return, govt must play leading role in R&D through innovation in firms by direct spending in education, businesses, human capital development, patent protection laws and capacity building.  Bottomline is for both public and private sectors to participate. Being a paper presented at the 4th Annual Conference on Regional Integration in Abidjan, Ivory Coast (ACRIA 4) from July 4-5, 2013

10. Literature Review  Not a recent debate, dates back to MacLauglin in the 1930s to explain economic cycles in American cities by degree of economic activities’ concentration  Rapid development in 1940s, 1950s through the end of 1970s  Early works showed it controls economic vagaries, particularly fluctuations in prices of raw materials in developing countries  Kuznets (1966) and Rostows (1960) made structural transformation of economies and their diversification indispensable passage for growth and development  Hirschman (1958) on sectoral priorities; Gerschenkron (1962) on industrial development and transformation of traditional economies and modernisation of productive structures;  Crisis of late 1970s and failure of import substitution strategies slowed down diversification in place of macroeconomic stabilisation and international specialisation; but a dramatic resurgence of diversification debate has emerged. Being a paper presented at the 4th Annual Conference on Regional Integration in Abidjan, Ivory Coast (ACRIA 4) from July 4-5, 2013

11. Literature review cont’d  Recent literature link diversification to level of income. For Imbs and Waciarg (2003) diversification has inverted U shaped relationship with development. Confirmed by Barthelemy (2004) and emphasised importance of healthy macroeconomic management for its success.  Other factors determining diversification is investment, industrial policy, new technologies and openness, trade policy  Some works on endogenous growth model stress the importance of diversification (Berthelemy and Soderling, 2001)  Acemoglu and Zilibotti (1997) emphasised on increased number of sectors and investment opportunities and reduced investors’ risks  Derived from financial portfolio and different diversification strategies, Stanley and Bunnag (2001) shows correlation between diversification and stability of export revenues Being a paper presented at the 4th Annual Conference on Regional Integration in Abidjan, Ivory Coast (ACRIA 4) from July 4-5, 2013

12. Literature Review cont’d Five categories of variables influencing diversification according to the literature are:  Physical factors e.g. investment, growth and human capital  Policy Decisions e.g. impact of trade and industrial policies  Macroeconomic variables such as exchange rate, inflation, other macro imbalances  Institutional variables like governance, conflicts, investment environment  Market Access through elimination of tariff peaks and tariff escalation  Hammouda, et al ( 2006) modeled determinants of economic diversification in Africa Being a paper presented at the 4th Annual Conference on Regional Integration in Abidjan, Ivory Coast (ACRIA 4) from July 4-5, 2013

13. Data and Methodology Being a paper presented at the 4th Annual Conference on Regional Integration in Abidjan, Ivory Coast (ACRIA 4) from July 4-5, 2013

14. Empirical Results Being a paper presented at the 4th Annual Conference on Regional Integration in Abidjan, Ivory Coast (ACRIA 4) from July 4-5, 2013

15. Policy Recommendations  Reliance on single or few commodities not healthy for West African economies.  Conflicts and anarchy not friendly to investment in the sub- region but political stability and good governance correlate with economic diversification.  Private sector innovation and investment should be encouraged as it support economic diversification in the sub-region.  There is need to provide standard infrastructural facilities to boost economic diversification in the sub-region Being a paper presented at the 4th Annual Conference on Regional Integration in Abidjan, Ivory Coast (ACRIA 4) from July 4-5, 2013

16. Conclusion  Although economic growth is good for any economy, this study has shown that it is not sufficient to ensure economic diversification needed for job creation and poverty reduction in West Africa.  The role of the private sector is important, especially, for the long term benefit where it is expected to play significant role in overall economic growth and development.  However, in the short run, the state has to provide the needed infrastructure and environment for the private sector to blossom. Being a paper presented at the 4th Annual Conference on Regional Integration in Abidjan, Ivory Coast (ACRIA 4) from July 4-5, 2013

17. Thanks for your attention Being a paper presented at the 4th Annual Conference on Regional Integration in Abidjan, Ivory Coast (ACRIA 4) from July 4-5, 2013