2014-african-transformation-report

2African Transformation Report 2014 | OverviewAn essentialpart of economictransformationis acquiring thecapability toproduce a wideningarray of goodsand services andthen choosingwhich ones tospecialize in basedon internationalrelative pricesAnd strong third-party mechanismsof accountability can draw in parliaments,independent media, academics,think tanks, and other partsof civil society to ensure that closecollaboration between officials andfirms does indeed support economictransformation.Economic transformation isnow the agendaThe UN High Level Panel on thedevelopment agenda after 2015identifies four priorities to transformeconomies for jobs andinclusive growth. 1 First is creatingopportunities for productivejobs and secure livelihoods thatmake growth inclusive and reducepoverty and inequality. Second israising productivity to accelerateand sustain growth everywhereby intensifying agriculture, developingindustry, and expandingservices—in whatever mix matchesa country’s endowment. Third issetting an environment for businessto flourish and connect throughvalue chains to major markets athome and abroad. And fourth issupporting new ways of producingand consuming that sustain theenvironment.The African Union’s 2063 Agendacalls for the region’s economiesto integrate and to join the globaleconomy. 2 This will require developinghuman capital through educationand training, especially inscience, technology, and innovation.It will also require acceleratinginfrastructure development to linkAfrican economies and people bymeeting the targets set for energy,transport, and information andcommunication technologies. Andit will require fostering meaningfulpartnerships with the private sector.The UN Economic Commission forAfrica’s 2013 Economic Report onAfrica calls for making the most ofthe continent’s commodities byindustrializing for jobs, growth, andeconomic transformation. 3 It notesthat major firms are outsourcingtasks beyond their core competenciesand thus shifting the structureof global value chains. That couldchange the relationships betweenthe exploitation of oil, gas, and mineralsand the location of industriesthat process them.Those are just a few of the organizationspropounding structural shiftsfrom agriculture and mining tomanufacturing and to services thatare at the heart of economic transformation.But as this first AfricanTransformation Report argues, thereis more to transforming economiesthan shifting their structures.Growth with depth totransform African economiesMany African economies aregrowing faster than they have in 40years. Six of the world’s 10 fastestgrowing countries in the 2000swere in Sub- Saharan Africa: Angolaat 11.1% a year, Nigeria 8.9%, Ethiopia8.4%, Chad 7.9%, Mozambique7.9%, and Rwanda 7.6%. 4 Andseveral others were above or nearthe 7% growth needed to doubletheir economies in 10 years.Behind the growth are the implementationof better economicpolicies, the end of the decadeslongdebt crisis, high commodityprices and rising discovery andexports of oil, gas, and minerals,and the beneficial impacts of newinformation and communicationtechnologies. But the structure ofmost Sub- Saharan economies hasnot changed much over the past40 years. Production and exportsare still based on a narrow rangeof commodities; the share of manufacturingin production andexports remains relatively low, asdo the levels of technology andproductivity across economies. Onglobal markets African countriesgenerally find it a challenge tocompete, except in primary agriculturalcommodities and extractives.And the levels of vulnerable andinformal employment are high—around 80% in many countries—which translate to high povertylevels—with around 50% of thepopulation living on less than $1.25a day. Pursuing economic transformation,or the growth with DEPTHagenda, is therefore imperative forAfrican countries.To make the case for transformationas growth with depth, wecompare Africa’s performance withthat of eight earlier transformers:Brazil, Chile, Indonesia, Malaysia,Singapore, South Korea, Thailand,and Vietnam. Forty years agotheir economies had features thattoday characterize many Africancountries—widespread poverty,low productivity, low technology,and limited exports. But theyignited and sustained long periodsof high GDP and export growth,economic diversification, technologyupgrading, and productivityincreases and greatly improved thelives of their people. Today severalof them are upper middle- or evenhigh-income countries (figure 1).Diversified productionAn essential part of economic transformationis acquiring the capabilityto produce a widening array ofgoods and services and then choosingwhich ones to specialize in basedon international relative prices. Thishas been the experience of today’sdeveloped countries: increasing thediversity of production before specializingto better take advantage ofmarket opportunities. Today, Sub-Saharan countries are confined toa narrow range of commodity productionand exports not becausethey choose to specialize, butbecause they lack the technical andother capabilities to expand intoother higher technology productsand services. The region’s average