Public Lecture (Professor John Sutton)
Can Sub-Saharan Africa Industrialise? Lessons from History
Professor John Sutton (LSE) delivered the opening public lecture at the Africa Growth Forum on the subject of industrialisation in Sub-Saharan Africa. The session was chaired by H.E Ato Newai Gebreab (Chief Economic Advisor to the Prime Minister and Executive Director, EDRI). The discussant for the session was Mr. Fitsum Arega (Director General, Ethiopian Investment Commission).
Prof. Sutton described the experience of five rapidly industrialising countries of Sub-Saharan Africa, namely, Ethiopia, Ghana, Tanzania, Zambia, and Mozambique. He noted that the most important question is, whether these rates of growth can be sustained over the next decade. Notably the industrial base of each of these countries is comprised of similar industries: food and drink, metals, plastics and building material. He cautioned that a decade of fast growth is typically followed by sluggish growth, and that higher growth rates can only be sustained through a qualitative change in the industrial base of the sector. However, there is reason to be optimistic, as there is a diverse range of firm types driving these industries, not just a handful of multinational companies.
Going forward, two frontiers for industrial development remain of vital importance. Firstly, growing existing industries, and secondly, broadening the industrial base to support the transition towards greater middle manufacturing. The focus of Prof. Sutton’s talk was on the latter.
Drawing on historical examples, Prof. Sutton explained that countries (Ireland, Israel, Republic of Korea, Portugal, Singapore, Spain) that had industrialised rapidly over the past 50 years have been associated with a major broadening of the pattern of industrial activity that has led them to develop as integral parts of global supply chains. Whilst technology transfers are easier to engineer, Prof. Sutton argued that strong industrial policy must also include emphasis on improving working practices. In addition to expanding industrial capacity, improving production quality, through better working practices, is vital to supporting entry into middle manufacturing and global supply chains.
He mentioned that three key areas wherein Africa could draw lessons from India and China, namely, (i) expanding greenfield operations, (ii) upgrading skills and (iii) integrating domestic supply chains with the vertical international supply chains to facilitate knowledge transfers.
Finally, he remarked that the growing existing industrial activities were as important as broadening the industrial base and a good industrial policy should put equal emphasis on both to achieve sustained long-term growth.
In agreeing with Prof. Sutton’s views, the discussant Mr. Arega remarked that the Ethiopian Investment Commission plans to engage a wide range of investors to support greater investment promotion activities, and as a means of learning from global best practices.
Summary written by Noopur Abhishek, Country Economist – IGC India Central
Opening Session (H.E. Dr Arkebe Oqubay)
Conference opening, introductory remarks
Dr. Alemayehu Seyoum Taffesse, Country Director IGC Ethiopia, opened the proceedings of Africa Growth Forum 2015 by welcoming the H.E. Dr Arkebe Oqubay and conference participants. He set the stage for the keynote address by raising fundamental questions about the industrialisation prospects of Africa as well as non-industrial avenues for achieving economic growth.
H.E. Dr Arkebe Oqubay, Advisor to the Prime Minister of Ethiopia, expanded on the question of whether Africa can industrialise. Starting from a low base, African countries have the potential to grow at a much faster rate relative to their present performance. Given the substantial levels of variation in economic performance across Sub-Saharan Africa, there is significant opportunity for policymakers to learn from each other.
Ethiopia, having managed to achieve double-digit growth, can provide valuable lessons for other African nations. Despite lacking a substantial mineral resource wealth, the country has grown at more than ten percent over the last decade, on the back of agricultural and industrial growth. The credit for this performance goes to smart design and implementation of effective industrial government policies. The Ethiopian experience identifies three key lessons for successful policymaking in Africa:
- Careful experimentation may be the key to unlocking continued growth.
- Policy success requires a capable state; good policy design can only drive growth when coupled with proper implementation.
- Undifferentiated policy prescriptions are inadequate. The continent is made up of diverse states, each demanding a more locally tailored approach to policymaking for achieving economic growth.
Dr. Jonathan Leape emphasised the role of IGC in supporting developing nations in coming up with policies grounded in local realities. IGC’s main goal is to facilitate co-generation of knowledge in partner countries by bringing together academics and policymakers. The purpose is to support the collection of evidence that policymakers can use to decide on the most effective policies for their countries. Dr. Leape outlined the four major areas of work where IGC’s efforts can support evidence-based policymaking and push the frontiers of knowledge. These four areas are creating effective states, efficient firms, liveable cities and reliable energy resources. He invited participants to contribute to the various sessions designed to discuss key questions in these areas during the two days of the conference.
Summary written by Yasir Khan, Country Economist – IGC Pakistan
Framework Session: Firms
The session focused on the determinants of productivity, constraints to productivity, and the means with which governments can increase productivity.
Dr. Rocco Macchiavello, (Professor, University of Warwick) started by describing how economies of Sub Saharan Africa have witnessed increases in the manufacturing sector but that agriculture remains the most important part of GDP, engaging larger shares of the labour force. Deliberating on East African countries and Kenya, he noted that the majority of employment is aggregated in low value added sectors, whilst high-value sector jobs are in minority. To sustain competitive growth an economy will not only have to provide new jobs but also invest in and increase participation in higher-value sectors at both the intensive and extensive margins of productivity. He further explained that productivity across developing countries is stalled by any combination of three basic factors: high dispersion in levels of productivity, correlation of managerial quality with productivity, and a weak relationship between physical productivity and profitability.
Citing examples from studies on Rwandan Coffee washing stations and the garment industry in Bangladesh, and comparing total factor productivity across US, India and China, Prof. Macchiavello emphasised the fact that productivity dispersion is larger in poorer countries than richer ones. The explanation, in part, is because multinationals, with their knowledge of supply-chains, are more productive than nationals. He further explained the relationship between managerial quality and productivity. Citing results from a series of studies done by researchers, he showed that average management scores in the manufacturing sector varies significantly across countries. For example, the US tops the chart, benchmarking managerial quality while many African countries at the bottom. Presenting figures on USA, Brazil, India and China, he further shows a strong positive relationship between managerial quality and total factor productivity.
Further to facts on productivity, he presented a broad set of factors that determine productivity and the mechanism of achieving it – competition. Efficient and competitive markets should naturally drive inefficient firms out of the market (survival of the fittest). Competition drives down prices, which are then passed on to consumers. Explaining the role competition plays in increasing productivity, Prof. Macchiavello gave the example of the US Iron ore industry, when it was opened to Brazilian firms, the pressure of foreign competition drove top US firms to become more productive forcing prices down and improving the industries productivity levels. However, he cautioned against generating too much entry, which could produce other barriers to running competitive businesses. At the end, Professor delved into areas for further research such as the impact of vertical integration on social returns. He concluded the session with a “wish-list” where, he said, much of current research is focussed on productivity, and not enough on market structures or intensity of regulation. Answers should be drawn from beyond industrial manufacturing, instead from sectors such as Agribusiness, Banking, Insurance and Services.
Summary was written by Pankaj Verma, Country Economist – IGC India, Bihar
Framework Session: Increasing agricultural productivity in Africa
Low-quality, low-trust and low-adoption: Agriculture in Sub-Saharan Africa
The rate of return of using authentic agriculture inputs like fertilizer and hybrid seed is large. However as poor quality inputs appear to be the norm in the Ugandan local retail markets, adoption of modern inputs with average retail quality is not profitable. These results suggest that one reason smallholder farmers do not adopt fertilizer and hybrid seeds is that the technologies available in local markets are simply not profitable, and this ultimately hampers agricultural productivity.
In this session, Professor Jakob Svensson’s (IIES, Stockholm University) presentation ‘Low-quality, low-trust and low-adoption: Agriculture in Sub-Saharan Africa’ is based on a study which investigates if agriculture input market failure – low quality inputs in the local market due to some combination of adulteration, poor storage and inappropriate handling procedures, is the reason why smallholder farmers refrain from adopting basic agriculture technologies.
This large-scale empirical study investigates the quality of a popular high-yield variety (HYV) maize seed in the Ugandan market and generic nitrogen-based fertilizer (urea).To measure the quality of the technologies in the market, the study combines data on the nitrogen content of fertilizer (measured in a laboratory) from retail shops and hybrid seed purchased from retail shops to generate experimental yield data by conducting agricultural trials.
The study finds modern technologies available in local retail markets are of poor quality. Farmers believe the quality of agricultural inputs in local markets are low and they do not expect adoption of such inputs to be profitable, on average.
The market is partly characterized by a low-quality, low-trust, low-adoption equilibrium. Fertilizer and hybrid seed are experience goods and in markets for such goods a seller’s incentive to provide high-quality products crucially hinges on consumers’ ability to learn about quality. The study finds that for a given quality, there exists a large variation in yields and this uncertainty may affect farmers’ ability to learn about quality. The difficulty in learning about quality, in turn, can help explain why retailers sell low quality inputs and why farmers’ do not use them.
In order to understand low adoption, further research is needed to understand the underlying reasons for low quality and the factors which contribute towards farmers’ ability to learn about the technology when the quality of the technology is uncertain. Policies to facilitate the entry of a larger firm or a market chain may be able to address the trust issue facing the current weakly regulated and unmonitored markets. It can also tap into small farmer’s ability to learn about and pay for higher-quality inputs.
The Policymaker Discussant for the session (Agricultural Transformation Agency, Ethiopia) commented that although modern technology adoption rates among small holder farmers have increased in the last decade, improving the adaptation of fertilizer and HYV seeds remains a policy concern in Ethiopia as well. In Ethiopia, inputs are not marketed by the private sector but through a distribution system which operates through cooperatives. The policy in place is to slowly open up the market for inputs and the findings of the study should be taken into account to ensure the market is regulated and quality inputs are available at an affordable price.
Comments were received on adverse environmental impact of overuse of chemical fertilizers which can in turn lower yield. Farmers in India are now encouraged to use traditional technology and organic fertilizers to minimize the harmful effect of fertilizers on soil and water quality.
Summary written by Farria Naeem, Country Economist, IGC Bangladesh
Session 1: Mobile Money
Experimentation and impact of mobile money
Professor Pedro Vicente (Universidad Nova de Lisboa) opened the session by giving an overview of his long-term engagement in Mozambique on projects related to mobile money. There are some shared findings among his studies. On the one hand, mobile money is a powerful tool to foster household savings and remittances, while reducing a households’ exposure to risk. On the other hand, the availability of mobile money instruments could also imply more pressure to share resources within large households. The intervention of Professor William Jack (Georgetown University) focused more on Kenya, a pioneer in the mobile money space, due to the boom of ‘M-PESA’. Professor Jack highlighted how in a developing country context, mobile money can be powerful risk-spreading tool, as it allows families to exploit the full potential of an extended social network. The perspectives of two policymakers concluded the session. Mr Thomas Mabulambi, head of the operative division of the payments department at the Central Bank of Mozambique, explained how his home institution is trying to leverage on the financial inclusion potential of mobile money in the Mozambican context. Clearly there is no simple recipe to achieve this aim, as the Central Bank needs to protect consumers from excess risk and fraud while at the same time allowing innovations. Dr Adam Mugume, Executive Director of Research at the Central Bank of Uganda, shared these concerns and presented the Ugandan experience. In particular, he remarked how it is not clear whether mobile money regulations should pertain to central banks or to telecommunications authorities. In the future he said there is the possibility that a hybrid regulatory institution needs to be created for mobile money instruments, potentially raises the difficulties of service provision further.
Summary written by Novella Maugeri, Country Economist – IGC Mozambique
Panel Discussion: The global energy and growth challenge
Challenges of securing reliable energy access to fuel sustainable growth in developing countries
Dr. Robin Burgess, Director of the IGC and Professor at the London School of Economics, gave a presentation emphasising that rising to the challenge of structural transformation is impossible without access to cheap energy. From that perspective, it is worrying that global energy consumption is characterised by staggering inequality, surpassing per capita income inequality.
While part of the solution lies in generation capacity on the supply side, Dr. Burgess stressed the need to also focus on the demand side. Electricity markets in many developing countries function inefficiently, with low repayment rates leading to circular debt, essentially trapping countries into low-cost low-quality equilibriums. The challenge for policymakers is breaking out of that equilibrium.
Bearing this in mind, research was presented from the Indian state of Bihar. There used to be no relationship between payment for electricity and supply, at the feeder level. The Government of Bihar decided to try and link those two through a scheme rewarding better paying areas with more hours of electricity, as a means of incentivising payment. Since the reward is provided at the feeder level, the scheme uses group-level incentives, relying on mass communication and marketing to encourage payment. A Randomized Control Trial was carried out to analyse the effects. Preliminary results show that payment rates in treatment areas increased drastically within a short period.
Panellist Anjani Kumar Singh, Chief Secretary of the Government of Bihar, offered additional insights, stressing that main problem was that people were not in the habit of paying for electricity but that these kinds of innovative policies can break that habit.
A further issue discussed by Dr. Burgess relates to energy mispricing. Subsidies are often poorly targeted and fail to incorporate externality costs of pollution and climate change. These pricing structures tend to favour fossil fuels. Although off-grid solutions such as solar can play a role in remote rural areas, it cannot yet provide an alternative to grid-based energy needed for industrial development.
Panellist Robert Sogbadji (Ghanaian Ministry of Power) presented challenges in the Ghanaian energy sector, reinforcing aspects from the earlier presentation. One challenge he raised is the poor financial health of utility companies, linked to non-payment by users, which Ghana is trying to address through prepaid energy. He also confirmed the relevance of off-grid solar energy for remote areas, lighting up not only houses but also schools and clinics.
Summary written by Jorrit Oppewal, Country Economist – IGC Mozambique
Conference Dinner Keynote (Professor Tony Venables)
Growing African Cities: Economic Principles for functional cities
Prof. Venables started his dinner keynote speech with a look at the numbers:
- Africa is 1/3 of way through its urbanisation
- 500 million Africans will enter cities in the next 30 years
- That means 350.000 Africans enter cities per week
How can African cities cope with this high rate of urbanisation? To answer this question, Prof. Venables drew lessons from success stories of urban growth. He framed his analysis along three types of capital stocks that a successful city needs to get right: (1) the business and commercial building stock, (2) the residential housing stock and (3) the stock of public infrastructure including roads, schools, hospitals etc.
Generally, successful cities are characterised by a very high degree of density, so by a high number of businesses and residents per area. Optimal forms of urbanisation produce a vertical density, resulting in a cone-shaped urban form, contrasted against the suboptimal horizontal densification that characterises slum-dwellings in developing cities. Optimal forms of urban density also apply to the distribution of business and commercial activity. The reason that successful cities are dense stems from agglomeration benefits: easier and cheaper communication, more competition, and greater specialization, to name a few. People working in such a high productivity environments have high opportunity costs for their commuting time; hence higher residential density. All three types of capital stock can help make cities denser, and alleviate the pressure on land, the scarcest resource in cities.
In efficient markets, high degrees of density are achieved through price incentives, but outcomes vary hugely based on the infrastructure put in place. So apart from providing direct user benefits, infrastructure also plays an important coordination role. One crucial challenge for developing cities is therefore managing to finance the infrastructure needed to capture the benefits of agglomeration. These investments pay back: taxing the appreciation of land value that results from providing the right kind of public infrastructure is enough to provide for a good rate of return. Taxing appreciated land values provides an ethical and administratively efficient tax revenue base.
But public infrastructure by itself is insufficient to create dense and productive cities. Investments in commercial and residential building stock that helps achieve density also rely on secure property rights, functioning capital markets and good regulation. Most crucially however, Prof. Venables cautioned that for dense cities to be successful, they must attract the right kind of businesses; businesses in industries that reap the benefits of agglomeration, as density alone is not the objective. Without attracting businesses that benefit from agglomeration, cities run danger of moving towards high-cost, low productivity equilibria, paying low real wages and unable to raise living standards.
Summary written by Sebastian Wolf, Country Economist – IGC Uganda
Framework Session: Improving the delivery of services
Framework session “Improving the Delivery of Services”
The framework session focused on four key questions, namely: (1) How can governments improve the systematic recruitment of public servants? (2) How can governments improve and incentivise the performance of public servants? (3) Are there ways to harness private monitoring efforts to improve public services? and (4) How can governments use private firms to spur service delivery?
The Session was chaired by Dr Richard Newfarmer and presentations were made by Professor Oriana Bandiera, Professor Andrew Zeitlin, Dr Rachel Glennerster, Mr Serge Kamuhinda and Mr. Chanchal Kumar.
The framework presentation was given by Professor Oriana Bandiera. She started by noting the importance of public sector for the provision of inputs to economic growth, including human capital (health and education), physical capital (infrastructure, transport), property rights and contract enforcement. She then discussed the available evidence on incentives effects on service delivery and whether such rewards improve performance. There are many successful examples of good performance resulting from measures that tie rewards to performance. At the same time, she continued, there are also examples of when such rewards create perverse incentives, namely (a) spurious improvements in performance measures that are not supported by actual improvements in performance; (b) improvements on measured dimensions produced at the expense of other measures and (c) crowding out of other sources of motivation or incentives.
Professor Bandiera then presented her study (co-authored) on how career incentives impact selection / recruitment of community health workers (CHW), as well as their performance during service. They collaborated with the Government of Zambia to experimentally vary the salience of career vs. social benefits to newly created health worker positions when recruiting agents nationally. The results showed that highlighting salient career incentives attracted more qualified applicants with strong career ambitions, without displacing pro-social preferences. Career incentives, far from selecting the “wrong” types, attract talented workers who delivered health services effectively.
Second speaker, Dr. Rachel Glennerster spoke about “Learning from research to improve health delivery: The case of Sierra Leone” – some of the important learning’s she highlighted were (a) incentivising demand for health services is cheaper than building more clinics; (b) provider accountability programming have failed to mitigate absenteeism; (c) hiring less-qualified staff to provide prevention technologies is an Intuitive idea, but still lacks evidentiary support; (d) recruiting the right people is more important than monitoring; and (e) community report cards can monitor disbursed health workers and improve health.
Professor Andrew Zeitlin then presented his study “Improving Services Delivery: An Assessment of Absenteeism Data”. The study found firstly that local monitoring improves teacher attendance, but only when the head teacher is responsible for monitoring and there are financial incentives for teachers at stake. Under this scheme, teacher presence is 11 percentage points higher than in the control group. Importantly, this design is also the most cost-effective since bonus payments were no larger than when parents were responsible for monitoring and secondly, although monitors report frequently, they understate teacher absenteeism. Head teachers report an average of 2.5 times per week and parents, encouraged to select a single reporting day, report on average once per week. Understatement of teacher absenteeism is substantial across all four schemes: the actual presence rate, as measured by independent surprise visits, is 14 percentage points lower than the reported presence rate. Parents generate significantly less reliable reports than head teachers. There is no evidence that reporting is less reliable when bonuses are paid. Further tests suggest that report quality is wanting because all monitors have a tendency to falsely report absent teachers as present. This is exacerbated under parent-led schemes, because parents opt to report on days when more teachers are present. Stricter reporting protocols under head-teacher-led schemes discourage head teachers from doing the same.
Mr Serge Kamuhinda and Mr. Chanchal Kumar spoke about the experiences from their own countries at the end of the session.
Summary written by Vikas Dimble, Country Economist – IGC, India Central
Session 2: Taxation
Reforms to improve revenue collections and widen the tax base
The Taxation session was chaired by Prof. Alan Hirsch, the IGC-Zambia Country Director. Prof. Nada Eissa, Lead Academic for IGC South Sudan opened the discussion during which she presented on Tax Capacity in Africa emphasising the role of tax administration, tax policy, tax enforcement and tax payment morale in determining countries’ tax capacity. She notes that the Tax to GDP ratio in most developing countries is significantly lower than that of developed countries, even with similar tax rates. Two approaches to enhancing this would be through a Macro Policy approach or a more targeted Micro approach focusing on identifying specific problems in a given country using rigorous research to design incremental policy innovations. This approach requires close collaboration between researchers and policy makers.
Dr. Adnan Khan, the IGC Research and Policy Director presented his research on incentives for tax collectors regarding implementation of Tax Policy. He presented on the importance of taxation in state development, and the key components of tax policy focusing on Tax Enforcement, Tax Administration and Tax Morale with reference to Pakistan’s tax system. He called for enhanced research in tax policy administration which requires co-generation of knowledge with tax authorities.
Policy discussants from Zambia, Tanzania and Rwanda gave their practical experiences in taxation policy implementation. Agness Kanyangero from the Rwanda Revenue Authority discussed how tax exemptions given to investors have a serious negative revenue collection effect, due in part to misuse of these exemptions which results in lower tax collection capacity.Mr. Ezekiel Phiri, Director of Research and Planning of the Zambia Revenue Authority outlined current policy challenges and opportunities with regards tax collection enhancement in Zambia which among others included the enhancement of the mining tax unit which in part was supported by the IGC alongside other cooperating partners. He shared that the large informal sector contributed to Zambia’s low Tax/GDP ratio. The session concluded with a presentation from Mary Maganga, a policy discussant from the Tanzania Revenue Authority who discussed the Tanzania Revenue Authority’s priority areas under tax administration as being that of enhancing compliance and the need for robust research to estimate the tax gap in Tanzania.
The session left the audience to further consider the questions of the issue of ‘tax holidays’ given to investors and the optimal large scale mining tax options as well as the need to enhance governance and accountability in tax policy beyond just raising revenues.
Summary written by Herryman Moono, Country Economist, IGC Zambia
Session 3: Building resilient economies - Lessons from Ebola
Post Ebola: Humanitarian resilience and recovery
Rachael Glennerster (IGC Sierra Leone) highlighted the role of researchers and good data in a crisis, to ensure assistance goes to the right places and policymakers focus in the right directions. Fast turnaround is essential for which there needs to be work on the ground already. While it is hard to do high-quality work in crisis situations, even good descriptive data can be very useful.
For instance, there was widespread reporting of skyrocketing food prices due to Ebola. Glennerster and Suri find this was only true in certain communities and in general, prices followed patterns similar to previous years. Hence, it was important to point this out and target aid to the right areas. Similarly, contrary to the belief that agriculture in rural areas was the worst hit, it was the informal urban sector where the impact was felt the most.
It is also important to take into account the psychology of crisis. Policymakers need to yell fire to capture the attention of the international community. However, this leads to panic in-country and has negative domestic economic consequences.
Abou Bakarr Kamara (Country Economist, IGC Sierra Leone) presented the remarks of Sheka Bangura (Director of Planning, Ministry of Finance and Economic Development, Sierra Leone). He emphasised the need for a careful review of existing policies and programmes and building more resilient national systems. The Ebola recovery strategy broadly comprises: (i) Getting to/ maintaining zero infections, and (ii) Mitigating and managing socioeconomic and governance effects of the epidemic. He also said that the crisis serves as a reminder of the need to strengthen sub-regional socioeconomic integration.
Herbert Mcleod (Country Director, IGC Sierra Leone) discussed feasible economic options and strategic planning for recovery and reconstruction post-Ebola. The crisis has revealed weaknesses in health systems, public administration and service delivery, and opportunities for regional collaboration, public-private partnerships, and policy reforms, particularly, decentralisation. He highlighted the mitigating effects of ‘Ebola dividend’ in the form of employment on hazard pay, enhanced civic responsibility and work ethics, international support, boost to tourism etc.
The simultaneous fall in prices of major exports accentuated policy challenges and exposed the fragility of the sub-region. Policymakers need to focus on dealing with vulnerabilities revealed during the epidemic, and building back a system better than the current one. Some of the areas for research are building appropriate low-cost health systems, enhancing public service delivery, political economy of decentralisation, options for diversification, and regional collaboration.
Summary written by Nalini Gulati, Country Economist, IGC – India Central
Panel Discussion: Cities and urbanisation in Africa
Encouraging productive and efficient growth through urbanisation in African cities
The process of urbanization is increasingly occurring at much lower levels of GDP than that experienced by developed countries. The profiles of developing country cities, as they emerge, often vary substantially. Despite these variations, it is an accepted fact that urbanisation is a necessary prerequisite to economic growth and productivity. The challenge remains understanding which underlying structural and policy factors are essential to producing both productive and livable cities. To explore these questions, the panel discussion focused on understanding how researchers and policymakers can work together, not only define the right policy questions, but also to begin gathering robust evidence to strengthen decision-making.
In an effort to continue building up the knowledge-base the panel argued for exploration through experimentation to uncover how best to reproduce effective and productive urban forms, particular emphasis was put on the use of randomised control trials (RCTs) in generating high-quality evidence. Prof. Bryan started by introducing the example of an RCT testing the benefits of rural-to-urban migration. The study, conducted in Bangladesh, found that offering small subsidies to pay for bus tickets encouraged migration into cities during the hunger periods between harvests, when families otherwise experience extreme hardship.
Another such example was a transportation study conducted in Addis Ababa, which tested whether commuting costs hindered the functioning of labour markets. The study offered a partial subsidy to job-seekers, and tested whether this encouraged more people to migrate into the city centre to search for jobs, and found that doing so led to higher rates of employment, resulting from higher rates of job search and therefore job matching.
A final example came from the MetroBus system in Lahore, experimenting to see what the benefits of the introduction of such a system were to residents in the area. Expanding the bus system into outlying areas facilitated residential mobility for residents in the farthest reaches of the network (with routes known as “feeder lines”). The project subsidised the opening of some of these routes and saw that it did lead to an effective commuting solution.
There are many other ongoing experiments attempting to answer questions on how we can craft and develop optimal urban policies, including affordable housing, rehousing schemes, transit schemes, and effective economic clustering. Using these experiments, we can hope to find out what works before major and largely irreversible investments are made. It is the IGC’s goal to help bridge the gaps between research and policy, through co-generation of knowledge.
Summary written by Aaron Weisbrod, Country Economist – IGC Myanmar
Panel Discussion: Key transformational challenges in Africa
Professor Tony Venables opened the session, posing a rather ambitious question to the panellists: what are the key transformational challenges in Africa?
H.E. Ato Newai Gebreab said the two main challenges are, first, graduating from subsistence agriculture, and second, jump-starting industrialisation. The tricky part is that the two must happen side by side.
Luka Biong Deng (South Sudan) said that four traps would haunt Africa. The first is that 73% of Africa has been at war. Second, 29% of countries are dealing with natural resources. Third, others are land-locked with bad neighbours. And fourth, yet more suffer from bad governance. South Sudan has suffered all of these and overcoming them, or finding ways around them, will be key. In Asia, rule of law, open markets, macro-economic stability, plus strong human capital, played a key role. In South Sudan, oil has disrupted these and the economy more broadly. Regional integration, he opined, may help South Sudan develop a stronger government and broader economic base.
Alan Hirsch noted that although we are looking at economic issues, security still remains a significant challenge given the rise of terrorism. On the economy, though: Fiscal challenges are most prominent; when commodity prices rise and fall, African countries struggle to restructure their economies. Looking to the longer term, emerging economies in Africa need to focus on the shift from access to quality across a range of services, especially health and education. This is a theme of the SDGs, which replace the more quantitative targets of the MDGs. Another core challenge is to improve productivity across the board – in agriculture, services, and manufacturing. Related to this is higher education and vocational training; these areas are neglected in many African countries which are trying to transition to higher productivity and growth.
Hirsch also noted successes to be applauded, including world-class poultry and maize production and fantastic opportunities from regional trade. In Zambia, non-traditional exports grew as fast as commodity exports during the boom. Within East Africa, we should applaud the progress made in regional integration, which is improving peace, efficiency, and knowledge sharing.
Peter Ajak (South Sudan) tackled the question by opining that the key issue for Africa is building institutional capabilities. The most fragile states are all in Africa, whereas bringing about economic transformation requires effective government. A second key issue is trade infrastructure, which will improve efficiency and welfare and is still severely lacking. Thirdly, will Africa get better at managing natural resources? At present, assets are being depleted without productive investments to show for it. Finally, populations are growing faster than GDPs, so there is a major demographic challenge for welfare and stability. In South Sudan, there are strong opportunities to exploit, from regional integration to developing the state and the economy, and from importing technologies and lessons from around the world.
Herbert M’cleod (Sierra Leone) noted that a group of African countries are emerging that have quite different interests from those countries struggling to achieve stability. IGC should consider how to prepare and serve the different interest groups likely to emerge. Secondly, when we talk about transformation in African economies, we really talk about industrialisation. In the global economy, we cannot talk about industrialisation using the paradigm of the past, we are so low down in the value chain that focusing on local content is not enough: we need to identify links in the global supply chain and aim to be competitively globally.
John Spray noted that the question of achieving economic transformation is enormous, and can only be addressed by being broken down. He gave an anecdote, that the cost of importing a container is hugely more expensive in Rwanda ($5000) than neighbouring countries with access to ports, and even than land-locked developed countries. He argued that this highlights three key challenges Africa faces: First, infrastructure- if a country can’t get its goods from the market where they are to be sold, it can’t grow. The second is a lack of export growth: one reason it costs $5000 to import a container into Rwanda is that it costs $3000 to import the container, and $2000 to export this back to Dar es Salaam. More broadly Africa cannot move forward without export-led growth. Financial services, transport services, and tourism are all opportunities, with significant value added, which suggest Africa’s growth needn’t take exactly the same form as that in other regions.
Tony Venables, the session chair, then highlighted that many of the challenges above have been on the table for decades, and asked the panellists, how do we really move beyond these? The panellists opined that there are new opportunities to grow because of stronger prospects for regional integration and the ability to import technologies around the world. Some said that a stronger appetite for a competitive private sector and understanding of its needs would also be crucial. H. E. Ato Newai said that each country should have at least two or three products or services at which it can be competitive at an international level, and the governments should protect these. Peter Ajak and Luka Biong highlighted that countries must consolidate when they make gains- countries where leaders think of the longer term and of national needs have consolidated gains to build a stable base for growth, but states like the Democratic Republic of Congo and South Sudan have been unable to consolidate, but rather slipped far back after initial gains.
Floor comments were then welcomed. The first floor speaker believed that earlier discussions had made the mistake of assuming macroeconomic stability and then chasing sectoral and micro developments; macro-stability remains crucial and deserves more attention. Richard Newfarmer highlighted that expectations were rising, especially with globalised media and cheap communication, and that growth must catch up with these expectations; new technologies (physical and organisational) will also play an important role in meeting those expectations, for example through manufacturing efficiencies. A third contributor said that Africa will only truly transform once countries open borders and recognise comparative advantages. A fourth noted that almost every presentation at the AGF had stressed productivity, but there are fewer than ten institutions on the continent that are well-designed to drive productivity; in Asia, effective national institutions set up to drive productivity were key. One commentator highlighted the growing challenge of a burgeoning youth population, where over 50% of the countries in many African countries are under 18. He also highlighted that energy consumption is forecast to grow at 6% per annum, yet there’s no foreseeable way to meet that demand with the financing that’s available or forecasted. All of the issues that have been discussed- and industrialisation especially- depend on energy. The last contributor said that in Africa’s case, agriculture is the key challenge. Considering the global experience, industrial development followed only after agricultural transformation created large surpluses.
The final question posed by the chair was to the panel: If there was one policy, and one area for IGC research, the panellists could recommend, what would they be?
John Spray: Integrate integrate integrate! IGC has excellent research capacities in integration and trade.
Herbert M’Cleod: Integrate, with the aim of setting up competitive industries.
Peter Ajak: Prioritise investment properly. It’s tempting to try to catch up all at once, but without priorities, policy fragmentation will stall real progress. IGC has enormous capabilities in research, but the challenge will be to get leaders to think and commit to long-term visions.
Alan Hirsch: There isn’t enough research into productivity in Africa or the quality of government services. IGC should produce research to guide this.
Luka Biong: Make the most of scarce land through agricultural research.
H.E. Ato Newai agreed with the panellists, but noted that urbanisation was also key as it has been a proven lever of productivity and growth.