Past, Present and Future of
Economic Transformation in
Africa
The Role of Agriculture
Xinshen Diao and Margaret McMillan
D...
Session Overview
• Present research questions/agenda (we don’t have lots of answers!)
• Present evidence on Africa’s past ...
Our Questions
• Is Africa’s current growth different from its past?
• Agriculture vs. Non-Agriculture
• Fundamentals, Mode...
-8
-6
-4
-2
0
2
4
6
8
10
Angola
Chad
Ethiopia
Ghana
Mozambique
Nigeria
Rwanda
Tanzania
Uganda
9countries
SSA-ZAF
Average A...
Africa’s Current and Past Agricultural Productivity Growth: Current
Growth is Rapid
-7
-5
-3
-1
1
3
5
7
Angola
Chad
Ethiop...
A Framework for Thinking About Growth (based on
Rodrik (2013))
Channel (A): The conditional convergence channel
Channel (B): The unconditional convergence
channel
Channel (C): The structural change channel
Alternative paths to high growth? (Dani
Rodrik 2014)
How Much of Africa’s Recent Growth is Due
to Improvements in Fundamentals? (Channel
A)
• Not sure yet exactly how to quant...
Significant Improvement in the Quality of
Governance
12
Source: Author's calculations using data from the Polity IV Projec...
13
-.1
0
.1.2.3.4
Gabon
Madagascar
Zimbabwe
Niger
Mozambique
BurkinaFaso
Malawi
Coted'Ivoire
Ethiopia
Cameroon
Ghana
Tanza...
1961-1989 1990-2011
Max. gross
output per
worker per year
(2004-2006
constant $US)
Year
Max. gross
output per
worker per y...
How Much of Africa’s Recent Growth is
Due to Structural Change? (Channels B
and C)• According to McMillan, Rodrik and Verd...
What About Africa’s Future Growth?
Fundamentals make us optimistic about Africa’s future:
• Agriculture is becoming more b...
What’s The Potential for Manufacturing in Africa?
1. Labor-intensive manufacturing can be developed in a poor country with...
What About Agriculture?
• The current level of labor productivity in African agriculture is just
slightly higher than its ...
We Would Like Your Input
• How will agriculture contribute to future growth in Africa?
• Level Effects
• Escalator Activit...
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Past, Present and Future of Economic Transformation in Africa

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"Past, Present and Future of Economic Transformation in Africa : The Role of Agriculture", DSG Division Retreat, February 18, 2014

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  • Source: Author's calculations using data from the Polity IV Project and The World Bank's WDI dataset. Graph shows a weighted average of the polity2 score (weighted by population) in the Polity IV dataset. The polity2 score is the revised combined polity score which, is the result of substracting the "autoc" score from the "democ" score. It scores how democratic or autocratic a regime is and ranges from -10 (strongly autocratic) to +10 (strongly democratic).Solid bright lines are population-weighted averages of the individual country scores for each cohort: the 1960 cohort (red), 1965 cohort (yellow), 1975 cohort (green), and the 1990 cohort (blue).Solid light lines are population-weighted averages of the individual country scores for 10 random subsamples of 50% of the countries in each cohort. Dashed light lines are population-weighted averages of the individual country scores for 10 random subsamples of 25% of the countries in each cohort.Countries included are: Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Congo Brazzaville, Congo Kinshasa, Ethiopia, Gabon, Ghana, Guinea, Ivory Coast, Liberia, Madagascar, Mali, Mauritania, Niger, Nigeria, Senegal, Somalia, South Africa, Sudan, Togo, Rwanda, Sierra Leone, Tanzania, Burundi, Uganda, Kenya, Malawi, Zambia, Gambia, Botswana, Lesotho, Equatorial Guinea, Mauritius, Swaziland, Zimbabwe, Guinea-Bissau, Angola, Cape Verde, Comoros, Mozambique, Namibia, Eritrea, and South Sudan.
  • Source: Author's calculation using DHS data.Graph shows the predicted 10-year change in the share of individuals currently attending school for African countries in our sample. Changes correspond to the coefficient on the final year dummy of a country specific regression of occupation (in this case, whether individual is attending school) on time dummies with the first year excluded. These changes were then annualized and multiplied times ten to get the predicted 10-year change. Sample for young (age 16 to 24) rural male individuals.Countries in sample include: Burkina Faso, Chad, Cote d'Ivoire, Cameroon, Ethiopia, Gabon, Ghana, Guinea, Kenya, Madagascar, Mali, Mozambique, Malawi, Niger, Nigeria, Rwanda, Senegal, Tanzania, Uganda, Zambia, Zimbabwe.
  • Agricultural growth primarily led by improved fundamentals. Africa still has plenty of room along the fundamentals channel in agricultural growth by catching up with it’s own trends in the 1960s. While current growth in agricultural productivity is at historical high, to catch up with it’s own historical trends of 1960s in agricultural productivity, Africa needs 3% annual growth rate, which is South Africa’s growth rate in 1960-2011 for more than five decades
  • Past, Present and Future of Economic Transformation in Africa

    1. 1. Past, Present and Future of Economic Transformation in Africa The Role of Agriculture Xinshen Diao and Margaret McMillan DSGD 2014 retreat He (the master-economist) must study the present in the light of the past for the purposes of the future - from John Maynard Keynes
    2. 2. Session Overview • Present research questions/agenda (we don’t have lots of answers!) • Present evidence on Africa’s past and current growth • Present a theoretical framework that helps us to think about the questions • Present clues about Africa’s future growth • Ask you to think about drivers of Africa’s future growth - To preview, Rodrik and others have written about manufacturing as the driver of structural change but we want you to think about alternatives and/or complements to manufacturing and the role of agriculture
    3. 3. Our Questions • Is Africa’s current growth different from its past? • Agriculture vs. Non-Agriculture • Fundamentals, Modern Activities, Structural Change • Is Africa’s current growth sustainable? • Commodity Prices, Foreign Aid, Natural Resources? • Structural Change? • What will Africa’s future growth look like? • East Asian model led by light manufacturing? • Alternative model led by commercial agriculture? • Which activities can be modernized relatively quickly?
    4. 4. -8 -6 -4 -2 0 2 4 6 8 10 Angola Chad Ethiopia Ghana Mozambique Nigeria Rwanda Tanzania Uganda 9countries SSA-ZAF Average Annual GDP per capita growth rates (%) 1980-1989 1990-1999 2000-2012 Source: Own calculations using data from WDI 2014 Africa’s Current and Past Growth: Current Growth is Rapid • 37 Sub-Saharan African countries with data available are included in our database • SSA-ZAF are for the 36 countries without South Africa; the region’s current GDPpc growth rate of 3.2% per year is at recorded high • The fast growing countries are chosen according to their growth performance in 2000-2012. There are 9 such countries with growth rate at least 4% per year in
    5. 5. Africa’s Current and Past Agricultural Productivity Growth: Current Growth is Rapid -7 -5 -3 -1 1 3 5 7 Angola Chad Ethiopia Ghana Mozambique Nigeria Rwanda Tanzania Uganda 9countries SSA-ZAF Average Annual Growth Rates in Agricultural Output per worker (%) 1961-1969 1970-1979 1980-1989 1990-1999 2000-2011• Africa’s current agricultural labor productivity growth rate is also at recorded high – 1.2% per year in 2000-2011 • In five of the nine fast growing African countries, agricultur al labor productivity growth rate more than doubled the region’s average Source: Own calculations using data from Nin-Pratt 2014
    6. 6. A Framework for Thinking About Growth (based on Rodrik (2013))
    7. 7. Channel (A): The conditional convergence channel
    8. 8. Channel (B): The unconditional convergence channel
    9. 9. Channel (C): The structural change channel
    10. 10. Alternative paths to high growth? (Dani Rodrik 2014)
    11. 11. How Much of Africa’s Recent Growth is Due to Improvements in Fundamentals? (Channel A) • Not sure yet exactly how to quantify this. • However, we have evidence that there have been significant investments in human capital and infrastructure and that the quality of governance is improving • Agriculture is catching up with its historical trends, but for agriculture to be a driver of growth, much more investment in fundamental capabilities are needed
    12. 12. Significant Improvement in the Quality of Governance 12 Source: Author's calculations using data from the Polity IV Project and The World Bank's WDI dataset. 1. Graph shows a weighted average of the polity2 score (weighted by population) in the Polity IV dataset. The polity2 score is the revised combined polity score which, is the result of substracting the "autoc" score from the "democ" score. It scores how democartic or autocratic a regime is and ranges from -10 (strongly autocratic) to +10 (strongly democratic). 2. Solid bright lines are population-weighted averages of the individual country scores for each cohort: the 1960 cohort (red), 1965 cohort (yellow), 1975 cohort (green), and the 1990 cohort (blue). 3. Solid light lines are population-weighted averages of the individual country scores for 10 random subsamples of 50% of the countries in each cohort. Dashed light lines are population-weighted averages of the individual country scores for 10 random subsamples of 25% of the countries in each cohort. 4. Countries included are: Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Congo Brazzaville, Congo Kinshasa, Ethiopia, Gabon, Ghana, Guinea, Ivory Coast, Liberia, Madagascar, Mali, Mauritania, Niger, Nigeria, Senegal, Somalia, South Africa, Sudan, Togo, Rwanda, Sierra Leone, Tanzania, Burundi, Uganda, Kenya, Malawi, Zambia, Gambia, Botswana, Lesotho, Equatorial Guinea, Mauritius, Swaziland, Zimbabwe, Guinea-Bissau, Angola, Cape Verde, Comoros, Mozambique, Namibia, Eritrea, and South Sudan.
    13. 13. 13 -.1 0 .1.2.3.4 Gabon Madagascar Zimbabwe Niger Mozambique BurkinaFaso Malawi Coted'Ivoire Ethiopia Cameroon Ghana Tanzania Uganda Mali Nigeria Senegal Zambia Kenya Rwanda Chad Guinea Young (age 16 to 24),male,rural individuals. Attending School Big Increases in Investment in Human Capital in Rural Areas 2000-2010 Source: Author's calculation using DHS data. Graph shows the predicted 10-year change in the share of individuals currently attending school for African countries in our sample. Changes correspond to the coefficient on the final year dummy of a country specific regression of occupation (in this case, whether individual is attending school) on time dummies with the first year excluded. These changes were then annualized and multiplied times ten to get the predicted 10-year change.
    14. 14. 1961-1989 1990-2011 Max. gross output per worker per year (2004-2006 constant $US) Year Max. gross output per worker per year (2004-2006 constant $US) Year Angola 550 1971 657 2011 Chad 653 1963 546 1998 Ethiopia 338 1970 312 2011 Ghana 905 1974 1,104 2010 Mozambique 329 1973 260 2011 Nigeria 989 1970 1,522 2006 Rwanda 431 1962 294 2006 Tanzania 408 1979 476 2011 Uganda 897 1970 620 2002 Total 9 countries 612 1970 669 2010 SSA excluding South Africa 606 1970 663 2006 [VALUE] BWA GHA [CELLREF] NER MWI SLE 400 500 600 700 800 900 1,000 1,100 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 AgriculturalOutputPerWorker(2004-06constant$) All countries-ZAF 1960s growth path Max. 1960s 2000s growth path Level of Africa’s Agricultural Productivity is Catching up with It’s Historical Trends, But …. 3% annual growth required to catch up with the historical trends of African agricultural productivity Source: Own calculations using data from Nin-Pratt 2014. 1.1% annual growth rate 1.2% annual growth rate 3% annual growth rate Current level of agricultural labor productivity is still lower than the past in many African countries
    15. 15. How Much of Africa’s Recent Growth is Due to Structural Change? (Channels B and C)• According to McMillan, Rodrik and Verduzco (2013), roughly 1 percent of Africa’s recent growth is due to structural change. • HOWEVER, it is not the kind of structural change that has traditionally driven growth. The bulk of the structural change that we see in Africa is driven by movements out of agriculture and into mostly informal services. • IMPORTANTLY, this kind of structural change is part of what has made Africa’s recent growth more broad based. • Still, some observers worry about it because productivity is still relatively low in the kinds of services that are expanding and may even be declining.
    16. 16. What About Africa’s Future Growth? Fundamentals make us optimistic about Africa’s future: • Agriculture is becoming more business oriented – examples? • The environment is starting to nourish entrepreneurial activity • Human capabilities are improving – Young are more educated and are taking risks But more rapid growth requires the expansion of ‘escalator’ activities: • The activities must involve large numbers of people • The activities must have the potential for long term productivity gains (as opposed to one off level effects) • Labor intensive manufactures (e.g., Huajian investment in the shoe factory in Ethiopia) are often seen as escalator activities, particularly when they have strong linkages with domestic economy (e.g., the linkages of shoe factories to livestock sector)
    17. 17. What’s The Potential for Manufacturing in Africa? 1. Labor-intensive manufacturing can be developed in a poor country without establishing the entire industry supply chain (e.g., garment, shoe and other assembly activities) – Question: why it has not come to Africa in a scale seen in Bangladesh and Cambodia? Labor constraint? Capital constraint? • If no cheap food and no cheap labor, countries can’t have manufacturing but many African countries have urbanized more rapidly than the poor Asian countries (rural population is 80% of total population in Cambodia) • Traditional argument about Agriculture’s constraint on cheap labor supply to manufacturing seems irrelevant today • However, labor cost in manufacturing matters: Cambodian union supported by the opposition party had a failed strike recently to ask double minimum wage rate to $160 a month (Economist); while in Kigali, Rwanda, for a Chinese firm to open a factory there, it was asked to pay $150-$200 a month to a newly untrained worker • Lack of capital? However, many emerging economies (China, India, Turkey, …) are looking for new locations for their labor-intensive manufactures 2. Agro-processing has strong linkage effects and seems to be able to serve as an escalator activity in Africa. However, … • Tomato processing factories failed to operate in Ghana due to lack of enough low-cost tomato at the right quality and supplied at the right time (Shashi’s case study) • Many agro-processing firms cannot fully operate in Africa, complaining lack of materials (Sutton, 2012)
    18. 18. What About Agriculture? • The current level of labor productivity in African agriculture is just slightly higher than its historical high in the 1970s • To return to the 1960-1970 path (catching up with its own growth), African agricultural labor productivity would be 45% higher than its current level • Required annual growth rate to bring Africa back to its historical trend is 3% (similar as in South Africa) instead of 1.2% as in 2000-2011 • The productivity gap with the world average or the other regions is very high – potential for growth through catching up with others
    19. 19. We Would Like Your Input • How will agriculture contribute to future growth in Africa? • Level Effects • Escalator Activities (large numbers of people, significant gap between traditional and modern technology, potential for sustained growth) • Do you have any evidence that this is already happening? • What needs to happen to make these activities possible? • Government? • Private Sector? • Civil Society?

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