Structural Transformation in Sub-Saharan Africa Regional Economic Outlook: Sub-Saharan Africa African Department International Monetary Fund November 2012

1.Introduction and Context 2.Structural transformation: what has happened? 3.Barriers to diversification; lessons from success 4.Looking Ahead 2 International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012

3 Many countries in sub-Saharan Africa (SSA) have experienced strong economic growth since the mid-1990s. Has this growth been accompanied by structural transformation – the shift of workers to sectors/activities with higher average productivity? Motivation: – Is SSA growth more than a “natural resources” story? – Distinctive features of structural transformation in SSA? – Obstacles to further transformation?

4 International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012

5 Growth rate of real GDP per person in the labor force, (Annual, percent)

6 International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012 Excludes China for presentation purposes, as China's growth is much higher than that for the other countries. ASEAN 4 = Indonesia, Malaysia, the Philippines, Singapore and Thailand.

1. Large agricultural sectors, with low productivity levels compared to other sectors of the economy. 2.The formal sector accounts for a modest share of total employment – a situation that is unlikely to change significantly for the foreseeable future. 7 International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012

2.Structural transformation: what has happened? 8 International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012

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10 International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012

11 International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012 Average labor productivity in the agriculture sector (Agriculture value added per worker, constant 2000 US$, Index: 1995=100)

12 International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012 Growth in real value added per worker in the agricultural sector, (Annual, percent)

13 International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October The pace of productivity growth in the agricultural sector? 2.The growth of the manufacturing sector?

3.Barriers to diversification and lessons from success 14 International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012

15 International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012 Large infrastructure gap: transportation, energy High costs of exporting (transport costs) Small markets and barriers to intra-regional trade Quality of government service delivery

1.Wider use of fertilizer and better seeds 2.Stronger research and development efforts 3.Improved extension services 4.Improved water management (including irrigation) 5.Improved access to markets Source: UNDP, African Human Development Report 2012 “Towards a Food-Secure Future” 16 International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012

17 International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012 Cotton is the most important agricultural product: – employing directly or indirectly almost 20 percent of the population – annual output growth of 7% per annum during – resumed rapid growth from 2009 Key policy reforms: – realistic price-setting, with “price smoothing” arrangements and use of forward sales contracts; – revolving door “input” funds to mobilize seasonal bank financing and fertilizer subsidies; – risk pooling: loans to agricultural inputs/cooperatives New priorities: – Innovation (better seeds, controlled land rotation) – Expanded irrigation to hedge against drought

Services: the largest contributor to growth of GDP growth and foreign exchange revenue in recent years New growth areas: – Transport services (air and shipping), – IT-based services (e.g. call centers; business process outsourcing) – Regional financial services Sources of competitive advantage include low-cost telecomm services and higher education levels 18

4.Looking Ahead 19 International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012

20 International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012 The preponderance of economies in SSA have experienced sustained growth since 1995 – accompanied by some degree of structural transformation, varying across countries. The pace of agricultural productivity growth has been modest in the aggregate, but there have been many strong performers The manufacturing sector has played a modest role in economic expansion – a sharp contrast to the Asian model where exports of manufactures have been key to growth

21 International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012 Agriculture in most SSA countries remains large (in terms of employment share) and has low average productivity levels: raising productivity levels will be key to boosting GDP growth and rendering it more inclusive. The formal sector of the economy will continue to account for a modest share of employment over the medium-term: policies will need to avoid a pro-formal sector bias and give due attention to boosting productivity in the informal sector. Exporting manufactures is not the only route to sustained economic growth

Thank You 22 International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012