Africa's Development Dynamics 2018 from OECD
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This is a presentation from Arthur Minsat, Head of Unit for Africa at the OECD to the AGM of the APPG for Africa on 23rd October 2018.
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Africa's Development Dynamics 2018 from OECD
- 1. AFRICA’S DEVELOPMENT DYNAMICS 2018 Growth, jobs and inequalities Arthur Minsat Head of Africa Unit, OECD Development Centre APPG Annual General Meeting London, 17 October 2018
- 2. Main messages 1. Africa’s high growth has not created enough jobs nor reduced inequalities 2. Achieving the African Union’s Agenda 2063 depends on how development strategies are implemented 2
- 3. Africa’s growth is projected to return to its 2009-14 regime, but … African economies have grown by 4.6% since 2000…but challenges remain -4 -2 0 2 4 6 8 10 12 1990 1994 1998 2002 2006 2010 2014 2018 (p) 2022 (p) Africa Developing Asia LAC % Real GDP growth, 1990-2022 3
- 4. 282 million workers (66%) are vulnerable 0 10 20 30 40 50 60 70 80 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018(p) 2019(p) 2020(p) 2021(p) 2022(p) 2023(p) % employment Paid employees and employers Vulnerable employment Vulnerable employment 2023 target Working poverty 2023 target Employment status for Africans, and Agenda 2063’s 2023 targets 4
- 5. Shifting wealth New production revolution Demographic dividends Urban transition Climate change 5 Megatrends will shape Africa’s development strategies 5
- 6. Development strategies have sustained growth in several African countries Off-shore sectors : Egypt, Ethiopia, Senegal, Morocco Medium and high value added sectors : Egypt, Morocco, South Africa Support to export markets Incentives to FDI Côte d’Ivoire, Egypt, Ethiopia, South Africa Public-led infrastructures investment Côte d’Ivoire, Ethiopia
- 7. Strategies could target 20 African markets that grow faster than global averages 0 50 100 150 200 250 300 350 0 5 10 15 20 25 30 35 40 45 Total 10-year increase (%)Billion USD Africa's total imports (Av.2013-2015, in billion USD) Africa: Total ten-year increase (% ) World: Total ten-year increase (% ) Africa’s top imports, 2013-15
- 8. Different sources of financing will scale up productive investment 20.0 27.1 18.5 16.8 15.1 17.7 8.8 3.8 5.2 0 5 10 15 20 25 30 Africa Asia LAC % of GDP Gross private saving General government taxes External financial inflows Domestic savings in Africa represented USD 422 billion annually over the period 2009-16
- 9. Components for a better growth strategy 1. Diversify exports, especially by deepening regional integration: Design export strategies that are consistent with the country’s potential Facilitate access to intermediate and capital goods Empower export and promotion agencies 2. Strengthen rural-urban linkages to tap fast- growing domestic markets Reform land ownership and management Upgrade urban infrastructure and services Strengthen rural-urban linkages through sustainable intermediary cities 3. Encourage investment to strengthen the domestic private sector Simplify investment for domestic firms Ensure consistency between FDI promotion strategies and the capacity of local firms Increase the efficiency of public investment Domestic savings External financial inflows 9
- 10. 10 priority policy areas and 3 pillars 10
- 11. THANK YOU!
- 12. BACKUP SLIDES 12
- 13. Shifting wealth brings new development partners, but policies are needed Africa has diversified its trade partners China 22 IND+BRA + KOR + TUR + RUS Traditional partners Other Emerging 0 100 200 300 400 500 600 0 10 20 30 40 50 60 70 80 90 2000 2004 2008 2012 2016 % Billion USD Emerging partners Risks Opportunities Shifting wealth New global competitors - One-dollar jobs - - New markets - FDI & Development finance 13
- 14. Africa’s rapid demographic growth and urbanisation bring a window of opportunities 14 By 2050, Africa will account for 69% of the total increase in global labour force 0 500 1,000 1,500 2,000 2,500 Africa’s population by 2050 (in milions) Total Urban Rural 902 (+136%) -200 (-20%) 263 (+31%) -85 (-17%) 25 (+12%) Africa China India Europe United States Workforce changes by 2050, in millions Demographic dividends ↑ demand for jobs - ↑ demand for basic services - - ↑ domestic market - ↑ savings for investment Urban transition Urban poverty - Urban congestion - - ↑ urban markets - Infrastructure development Africa’s urbanisation occurs twice as fast as Europe’s Risks Opportunities
- 15. New production revolution = new opportunities if governments adapt their development strategies Industry 4.0 creates new opportunities for industrialisation Risks Opportunities New production revolution ↓ Demand for low-skilled labour - Cybersecurity - - Leapfrog technological barriers - New niches and markets Africa’s manufacturers have also a great opportunity at home 2 3 4 3 4 40 2 1 1 2 1 -2 -1 0 1 2 3 4 5 6 7 1990-99 2000-08 2009-16 1990-99 2000-08 2009-16 Africa Asia (excld. China) Consumption Investment External balance GDP 15
- 17. Using AfDD to realise the ambitions of Agenda 2063 Monitor e Policy dialogue on Africa’s development Policy coordination among Pan-African institutions Assessment, Benchmarking, Consultation, & Data 17
- 18. AfDD is the result of a broad partnership between DEV and AUC Memorandum of Understanding (2014-16 and 2016-21) Better statistics Policy dialogue Annual report 18
- 19. AfDD is a joint horizontal collaboration | DCD | CFE | CTP | SGE + Other in-house Expertise + African academics 19
- 20. Policy Dialogues through the AfDD 2018 11 July 2018: Launch at AU in Addis Ababa Regional Launches (tbc) Global Presentations (tbc) • Lisbon + CPLP summit (Portuguese edition) • September: UNGA – New York • 31 October: International Economic Forum on Africa • Berlin, London, Rome, Brussels, Tokyo, etc. • Southern Africa: Pretoria + Lusaka • East Africa: Kigali • North Africa: Rabat • West Africa: Abuja • Central Africa: Libreville 20
Notes de l'éditeur
- Growth is still volatile Growth not linked to improvements in well-being Quality jobs remain scarce Inequalities and poverty are high Productivity gains are weak African economies have grown by 4.6% since 2000. For the next five-year period (2018-22), Africa’s real GDP growth is projected at 3.9%. The African continent has experienced strong growth since 2000, leading to a “rising Africa” narrative. Between 2000 and 2016, Africa enjoyed higher growth rates (4.6%) than Latin America and the Caribbean (2.8%), though not as high as developing Asia (7.2%). Africa’s growth benefited from high commodity prices, improved macroeconomic management and growth diversification strategies in some countries. Many African countries have invested strongly in public infrastructure. Countries have also diversified their trade partnerships, in particular with China, India and other emerging partners. Continental growth has shown its resilience to shocks.
- Main message: Quality jobs remain scarce. If current trends persist, the share of vulnerable employment in Africa is projected to remain at 66% in 2022 – far from the Agenda 2063 target of 41% by 2023. Today, 282 million workers are already in vulnerable employment. Growth has not translated into enough jobs, and quality jobs remain scarce across the continent. If current trends persist, the share of vulnerable employment in Africa is projected to remain at 66% in 2022 – far from meeting the target of 41% by 2023 set by Agenda 2063 (Figure 1). Today, 282 million workers are already in vulnerable employment. The continent also has one of the highest rates of informality outside the agricultural sector. The income level for informal workers is often highly vulnerable to various economic shocks, and the social protection system covers few informal workers. Despite general progress, women and youth particularly suffer from underemployment and a lack of wage-paying jobs.
- Five megatrends are affecting Africa’s development dynamics and integration into the global economy. Each of these megatrends brings large opportunities and risks that may reshape countries’ comparative advantages and industrialization potential. How Africa responds to megatrends will affect growth, job creation and equality.
- Three main strategies are mainly or cotargeted by African countries: Support to export markets Egypt : The strategy targets an increase in the overall exports propensity of the manufacturing sector from 20% to 40% by 2025. The objective is not to increase the level of manufactured exports but also to reinvigorate the technological structure of manufactured exports. This incremental increase will be realized as the Egyptian industrial sector responds to export development policies and to improve quality of production. The sectors targeted are medium and high technology activities as new industrial niches for the Egyptian manufacturing industries: renewable energy activities, labour intensive consumer electronics, automotive components, life sciences, biotechnology and ethnic products. The resource based and low technology won’t be discarded but the previous will be more supported for the long run competitiveness. Ethiopia : The government’s Industrial Development Strategy aims to romote exports in labour intensive sectors such as textiles and garments, leather, sugar, flowers and cement. Morocco : The Emergence strategy for 2009-15 has been focused on the seven World Crafts of Morocco: the aeronautics, automotive, electrical equipment, agro processing, textile and leather sectors and service related off shoring activities. The automotive industry became the country’s biggest export sector in 2014 and reached USD 5.3 billion in 2015. Senegal : The governement has successfully begun diversifying its exports through an agricultural value-chain approach (with rice, onions, groundnuts, fruits, horticultural products). Nevertheless, post production segments of the value chain, such as processing, storage and marketing, face important binding contraints. Moreover, the economy proved vulnerable to the exogenous shocks of the energy, food and financial crisis between 2007-09. Tunisia : The Kearney’s Global Services Location Index ranked Tuninia as the 35th most attractive offshoring destination in the world in 2017. Tunisia has succeed to become an attractive environment for export oriented foreign investors from Europe, BRICS and North America. Nevertheless, the exports are still too dependent of textile and agro food sectors, which represent 50% of the production and 60% of employment, but limited to a handful of EU countries (France, Germany and Italy) and face a strong competition from Asian exporters. Thus, high technology sectors should be supported to be integrated with the rest of the economy and global value chain. South Africa : South Africa upgrades into global value chains and functions as an assembly hub for the automative industry, a global supplier of components. Public-led investment in infrastructures Côte d’Ivoire : MDCR advices Côte d’Ivoire to improve the industrial land attribution and management and to pursue investment in special economic zone. The governement should develop public private partnership and support rewenable energy sectors infrastructures. The ICT regulation should be better reglemented to be more competitive and remove obstacle to their development. Ethiopia : Massive public-led infrastructures investments have taken place in the energy, tansport, comunications, agriculture and social sectors, albeit their initial levels were low. Incentives for FDI Côte d’Ivoire : Following MDCR advices, Côte d’Ivoire should adopt business friendly legislation and support investors . Egypt : Attracting FDI is necessary to create a proliferating network of medium technology industries. The General Authority for Investment and Free Zones to adopt a sectoral FDI targeting strategy that is closely aligned with the sectoral focus. The primary objective of FDI promotion is to inserte competent Egyptian producers into global value chains via suitable modalities. FDI promotion would be to emphasize the natural resource endowments of the Egyptian economy and the existence of an adequate level of skills suitable for low technology nature. Ethiopia : Investors in strategic sectors benefit from generous fiscal incentives, reduced import duties for capital goods and raw materials necessary for production, and preferential access to land and concessionary funding. South Africa : The Industrial Policy Actions Plans provide incentives and co ordinate actions to strengthen skills and industrial and scientific capabilities (Zalk, 2012). These policies have enhanced co operation and discussion among government ministries, national development bank, private sector stakeholders, civil society and universities. South Africa’s lead companies in the telecommunication, banking and mining sectors are also making direct investments in other African countries to exploit the regional markets.
- Note: Excluding oil products. Source: Authors’ calculations based on UN Statistics Division (2017), UN COMTRADE (database). Main message: Demand is shifting towards more processed goods. The rapid urban growth of African economies and a higher purchasing power of Africa’s emerging middle class are underpinning the growth of private consumption. The middle class, defined as those spending between USD 5 and USD 20 a day, increased from 108 million people in 1990 to 247 million by 2013. COMTRADE data shows that demand for processed food is growing fast, more than 1.5 times faster than the global average between 2005 and 2015. Africa’s food markets should triple by 2030 (Byerlee et al., 2013).
- Local economies can attract more long-term and productive investment if policies can better mobilise domestic resources and external financial inflows. Domestic savings in Africa represented USD 422 billion annually over the period 2009-16, which is 20% of the continent’s GDP. This is higher than tax revenues (16.8% of GDP) over the same period. Governments can help African firms catch up with global productivity by building stronger industrial linkages and developing local capacity. Innovative policies can help channel financial inflows to unlock private investment. Financial intermediation needs to be strengthened In countries with deep capital markets, SMEs and young companies can be listed on stock exchanges, following the example of the Johannesburg Stock Exchange’s platform for SMEs. Rwanda has recently waived the USD 23 000 listing fee for SMEs and will subsidise the cost of hiring transaction advisors, brokerage services and legal services (Esiara, 2018). Government revenue come second as a share of Africa’s GDP. It is even higher than in LAC. At country level, as we see in RevStat, thirteen countries had a lower tax-to-GDP ratio than the Latin American and the Caribbean (LAC) average of 22.8% in 2015, with the exceptions being Morocco, South Africa and Tunisia. Tax-to-GDP ratios in Tunisia’s (30.3% ) is comparable to the OECD level (34.3%). External financial inflows can play an important role in sustaining productive investment, in particular in landlocked or non-resource-rich countries. Total financial inflows (remittances, FDI, portfolio inflows and net ODA) into Africa reached USD 183 billion in 2015, about 8.8% of GDP. This level is significantly higher than the average for Asia (4.5%) and LAC (6.9%). FDI can help but more in term of technology. Africa’s business opportunities are now attracting international investors. The potential of domestic and regional markets attracted 53.4% of new foreign direct investment (FDI) projects to Africa in 2013-17. This share is similar to Asia’s level (55.7%) and ten percentage points higher than LAC’s (44.8%). Remittance can be channelled into private investments. ODA can help de-risk private investment and help SMEs comply with international standards. For example: the OECD Aid for Trade initiative.
- There are several new avenues for better growth: Export diversification can help Africa benefit more from integration in the global economy. Deepening regional integration, particularly increasing intra-African trade in intermediate goods, can also help. Deepening regional integration could boost Africa’s GDP by 1%, total employment by 1.2% and intra-African trade by 33% 2. Domestic demand in Africa offers new opportunities for local companies, such as entrepreneurs and small and mediumsized enterprises. African governments can do more to help them catch up with global productivity, especially through building industrial linkages and developing local capacity. 3. To mobilise more financial resources for countries’ development, African governments can improve tax policies and revenue collection, enhance the effectiveness of public spending and promote better financial intermediation to channel savings towards investment in local economies.
- Note: India (IND), Brazil (BRA), Korea Rep. (KOR), Turkey (TUR), and Russia (RUS). Trade is the sum of Africa’s exports and imports. Africa’s emerging partners are those defined by OECD et al. (2011). Shifting wealth holds promise for more African entrepreneurs to take part in new supply networks The rising share of emerging countries in the global economy – referred to as “shifting wealth” − will offer African countries the opportunity to diversify, upgrade in global value chains (GVCs) and find new sources of finance for development. During its two first phases (1990-2000 and 2001-08) the shifting wealth process accelerated Africa’s integration into the global economy, notably by diversifying its global partnerships Africa’s trade with emerging partners expanded significantly since 2000. Between 2000 and 2016, Africa tripled its trade with the rest of the world, from USD 276 billion to USD 806 billion. Trade flows with emerging partners like China and India expanded significantly. As a result, Africa’s trade shifted from traditional to emerging trade partners. This holds both for African exports and imports. Trade with emerging economies accounted for 51% of Africa’s exports and 46% of Africa’s imports in 2016. Looking forward, shifting wealth offers several new opportunities to Africa. First, Africa can use its emerging partners to diversify its export basket. Second, shifting wealth brings new development finance and innovation to Africa. Third, for African countries, the benefit of China’s rebalancing will not be automatic.
- Source: UN DESA (2017). The scale of African population increase is huge and cannot be underestimated: Between 1970 and 2010, China, India and sub-Saharan Africa all grew in similar numbers, by some 550-650 million people. Today, Africa has the second largest workforce in the world after Asia, and its workforce will continue to grow. Between 2015 and 2050, Africa’s working age population (defined as 15-64 year olds) will increase by 902 million people, about 69% of the total increase across the world. This growth exceeds that of India (263 million). In Europe, the figure should drop by 85 million and in China by 200 million. Africa is going through a very rapid urban transition Africa’s urbanisation occurs twice as fast as Europe Africa’s urban population has doubled from 1995 to 472 million in 2015 Before 2040, the African continent will become in majority urban Urbanisation has a huge impact on rural development too; rural and urban agendas are the same agenda. Africa’s urbanisation is mainly taking place in intermediate cities and towns, with cities and towns with less than 500 000 residents accounted for 67% of urban growth between 2000 and 2018.
- Barrier to technology to meet Africa’s goods demand is lower, which leaves rooms for more local entrepreneurs to take part in supply networks. The complexity level of consumption goods imported to Africa has decreased by half, from 0.8 to 0.4 between 1998 and 2016. The lower complexity level suggests that the production technology for those products is becoming more widespread, allowing more countries to supply them. Lower fixed costs allow African firms to vary their products. Industry 4.0 offers new promise for African SMEs and start up too: First, the efficient scale of production now becomes lower. African start-ups can utilise new digital infrastructure such as cloud computing to scale up quickly, or use technologies such as 3D printing to tailor their products to the local markets. Second, Africa has an opportunity to leap frog to the newest technology and avoid path-dependence. Already, Africa uses more mobile banking than all other developing regions put together. There are almost 300 million mobile money accounts in Africa, compared to just over 10 million in Europe and Central Asia. Third, new technologies can boost firms’ abilities to access new markets and find niches in GVCs. Africa’s trade in services are expanding beyond tourism and business offshoring activities. Cape Town, Lagos, Nairobi, Sfax and Tangiers are emerging hubs for start-ups selling services on global markets, especially in financial technology, ICT, movies, logistics and renewable energies. Africa’s regional demand is growing and shifting towards more processed goods. The rapid urban growth of African economies and a higher purchasing power of Africa’s emerging middle class are underpinning the growth of private consumption. The middle class, defined as those spending between USD 5 and USD 20 a day, increased from 108 million people in 1990 to 247 million by 2013. COMTRADE data shows that demand for processed food is growing fast, more than 1.5 times faster than the global average between 2005 and 2015. Demand for food products alone is expected to triple by 2030 (Byerlee et al., 2013). However Local firms must upgrade their technology and production processes if they are to meet the new domestic demand. For instance, improving production processes and products technology, adding desirable features, quality labelling and certification are necessary to compete on global markets. Currently African firms largely lag behind the global technology frontier in most fast-growing sectors. Currently, intermediate goods, for example, account for less than 15% of Africa’s trade. Deepening GVCs and regional integration can provide sizable opportunities for stronger growth patterns.
- The Dynamics of Africa’s Development report (ADD) is a vehicle for evidence-base policy making and policy dialogue. Deepening policy dialogue among African policy makers and with Africa’s main partners on the implementation of the African Union Agenda 2063. International comparisons will provide further evidence for policy dialogue. Advancing the coordination among continental organisations, regional communities, national and sub-national governments, and international partners. As a monitoring tool to support the implementation of the objectives of – among others – the G20 Compact With Africa, the 2017 AU-EU Declaration of Abidjan and the related Action Plans.
- A partnership between the African Union Commission and the OECD Development Centre that combines Pan-African ownership, the continental agenda and policy processes with a globally oriented organisation and its experience with policy analysis and statistics. The proposal has been developed as part of the on-going co-operation between the African Union and the OECD Development Centre. The OECD and African Union entered into a MOU in 2014, renewed in 2016 for a period of 5 years, aimed at setting out the conditions for cooperation between the two organisations (see box). The MOU focuses on advancing common goals in the area of sustainable development in Africa, in particular in the areas of statistics, tax policy and policies for economic and social development. The MOU has resulted in the joint production of the Revenue Statistics in Africa report, the joint organisation of the International Economic Forum on Africa, and cooperation in the areas of extractive industries, global value chains and social policies. The more recent result of the partnership is the joint report “The Dynamics of Africa’s Development” (DAD). The first edition will be released in 2018. The main purpose of the AU-OECD partnership is to assist the AU in designing better economic and social policies. To formulate efficient policies, reliable statistics are of paramount importance, an area in which the OECD has developed considerable expertise.
- Academic institutions involved from African Union: West African Monetary Agency Université de Dschang University of Zambia Makerere University Le Centre de Recherches Microéconomiques de Développement (CREMIDE), Côte d’Ivoire Universite d’Angers