Inclusive structural and Rural Transformation Hans P. Binswanger-Mkhize ICABR Ravello June 26, 2016

IFAD: Towards Inclusive rural transformation Past decades have been of rapid economic growth, especially in Asia, less so in Africa and Latin America In Asia rapid economic growth has been associated with sharp poverty reduction, but not so much in Africa Inclusion has emerged as a major issue in development debates: of women, youth, ethnic minorities, indigenous groups, and others The report focuses on understanding structural and inclusive rural transformation across the different regional and country contexts After an overview chapter it has four regional chapters dealing with the four major developing regions of the world It then evaluates, subsector by subsector, recent development in growth and inclusion, and

Context and Vocabulary

Structural transformation and economic growth Share of GDP and employment in agriculture decline The shares of manufacturing and services rise Agricultural productivity growth provides food and labor for industry Productivity in manufacturing grows much faster Widening the urban rural income gap The economy diversifies across sectors and within them

Rural transformation trends arising out of urbanization and per capita income growth Trend Commercialization: From subsistence to the market Diversification of agriculture towards horticulture and livestock products Diversification of rural areas from agriculture to the rural non-farm sector Part time farming Example In Africa even poor farmers sell output and buy processed food The share of cereals in India’s agricultural output is likely to fall from 29% in 2009 to 12% in 2045 The share of non-farm income in farm households very often above 50% In India farm sizes are still declining, leading to more part time farming

Fast transformation is helpful for poverty growth, but there are many exceptions

Forms of transformation Classic OECD pattern: China, Vietnam Stunted: India Slow: Much of Sub- Saharan Africa Features of transformation Rapid initial agricultural productivity growth and rapid growth of labor-intensive manufacturing Rapid rural-urban migration which, after the rural labor surplus is exhausted, leads to rising wages Rapid initial agricultural productivity growth but labor-intensive manufacturing stagnates or declines. Rural-urban migration is slow and most employment is generated in the rural non-farm sector Slow agricultural productivity growth Low share of manufacturing`- growing too slowly Often combined with a youth bulge Employment prospects are mostly in the informal sector, both in urban and rural areas Wages stagnate, poverty reduction is slow, and youth unemployment is very high

Prospects and Options

Major manufacturing trends and differences Because manufactures must compete internationally, manufacturing is the fastest way to reach the global productivity frontier In countries with rapid or moderate population growth employment must grow even faster. Therefore labor-intensive manufacturing growth is the most desirable form of manufacturing While East and SE Asia have rapid labor-intensive manufacturing growth, Africa has barely started and, post import substitution Latin America has deindustrialized In high wage countries and those with growing wages, robotics is reducing labor requirements, reducing the need to search for cheap labor Nevertheless, rising wages will drive labor intensive manufacturing to low wage economies such as Bangladesh Because African countries typically have higher wages than low income Asia, Africa, with few exceptions, is not able to attract labor intensive manufacturing

Options for employment growth India Labor-intensive manufacturing unlikely to boom: Infrastructure, rising wages The rural non-farm sector will continue to grow if economic growth generates enough spillovers This will reduce poverty, even for landless workers who benefit from the rise in agricultural wages But does not create “decent jobs” with contracts and benefits Much of sub-Saharan Africa Inadequate growth of labor-intensive manufacturing Agricultural productivity growth is unlikely to accelerate soon The youth bulge will hold wages low Fostering large scale employment growth requires rapid informal sector growth in both rural and urban areas As well as more and better farming options especially for youth

Conclusions for Africa Key ingredients for rapid structural transformation are (still?) missing If economic growth falters, outlook is even more pessimistic Rural populations will keep growing rapidly and farm sizes will decline in many countries, and more so if larger scale farming is fostered Instead part time farming will increase further The vision of larger farm units of Collier and Dercon is not consistent with demographic and land availability trends Informal sector deregulation and more positive policies in its support are critical for inclusive transformation Rapid agricultural development remains a major priority

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