Growth Yes, but where’s the Transformation and Inclusion?

26 March 2014

Roger Williamson

Africa is growing, with The Economist noting that 6 out of 10 of the world’s fastest growing economies for 2000-10 were in Africa. But how optimistic should we be? UNU-WIDER’s new research priorities for 2014-18 are transformation, inclusion, and sustainability. All three played important roles in the conference ‘Inclusive Growth in Africa’, 20-21 September 2013, held in Helsinki.

Can Africa follow Asia in structural transformation?

Can African economies replicate, or even find an African ‘echo’, of the kind of structural transformation which paved the way for East Asia’s emergence from poverty? Africa’s failure to move large numbers of people out of low-productivity occupations into more productive areas for the economy—in particular from subsistence agriculture into manufacturing—has been identified by many as the root of the problem. The keynote speaker at the conference, Erik Thorbecke, described African conditions pre-2000 as a ‘migration of misery’ with workers pushed out of agriculture, rather than being pulled to more productive non-agricultural employment.

Now sub-Saharan Africa (SSA) conforms to a more normal structural transformation pattern, Thornbecke concluded as a result of updating the World Development Report 2008 dataset, and taking a sample of 14 SSA countries for 2010-11. But encouraging growth rates in many countries in Africa still leave much to be done in terms of inclusiveness.

Margaret McMillan also presented data suggesting that since 2000 African economies are increasingly illustrating a more standard picture of structural transformation. This radically revises the conclusions of her earlier work with Dani Rodrik (Rodrik and McMillan 2011). Andy McKay confirmed that growth has been positive since 1995 in 20 of24 countries (91% of the SSA population)—and in 11, the growth had been by a total of more than 50%. The exceptions were DRC, Cote d’Ivoire, Madagascar and Zimbabwe.

Inclusive growthneed for clarity and choices

Thewo ambitious keynote addresses framed the debates. Martin Ravallion showed that (after two centuries of reflection by economists) the generally accepted view is that poverty can and should be eradicated, and that public policy should address this challenge. The growth elasticity of poverty reduction remains a key issue, particularly how to get the poorest people in countries with high initial poverty out of extreme poverty. Erik Thorbecke outlined a vision of pro-growth poverty reduction with nationally inclusive institutions playing a decisive role.

James Foster defined inclusive growth as ‘growth that simultaneously achieves other ends’—for example, increasing income or overcoming multidimensional poverty. The measures could be absolute, relative, or benchmarked, and the inclusivity could be vertical, horizontal, or dimensional. But you have to determine policies according to the desired goals. Other papers looked at multidimensional poverty and the distinction between objective and subjective poverty rates—the difference between being measured as poor and feeling poor.

National and comparative case studies: learning from Latin America

National and comparative case studies presented portrayed widely differing pictures of the linkages between growth and inclusion in Africa. Multidimensional poverty indices and more comprehensive approaches to wellbeing were also profiled. The conference also provided an opportunity to profile the Growth and Poverty Project–GAPP, which aims to provide up-to-date and more sophisticated analyses of poverty in a dozen African countries. Initial studies were presented on Mozambique, Ethiopian, Madagascar, Rwanda, Tanzania, Cote d’Ivoire, Bubkina Faso, Malawi, Nigeria, and Uganda.

A particularly valuable aspect of the conference was the attempt to draw lessons from Brazilian and other Latin American experience which could benefit Africa. Andrea Cornia profiled new UNU-WIDER research which shows that income inequality is decreasing in Latin America and outlined at some of the inequality trends and determinants from sub-Saharan Africa 1990-2010. Ed Amann and Armando Barrientos presented on their ongoing project looking at Brazil. The comparison with South Africa is instructive. The Brazilian model shows the need for a national consensus to push through ambitious plans, the necessity of improving administrative and taxation performance, social policies which invest in human capital and infrastructure. Y Abba Omar reviewed the National Development Plan (2011) in South Africa, which stresses the extremely high level of unemployment, inadequate schooling for black children, deficient infrastructure, the persistence of apartheid spatial divides, excessive dependence on natural resources, ineffective public health system, uneven delivery of public services, high levels of corruption, and persisting divisions within South African society. On average, white incomes are still seven times as high as those of blacks. Haroon Bhorat provided a careful analysis of the skills base of the South African economy and stress the vulnerability of low-skilled jobs to international competition.

Data revolution: needed for evidence-based policy

Two papers, by Morten Jerven and Justin Sandefur, concentrated on the inadequacy of official statistics. Jerven’s was highly topical in the light of the controversy surrounding his book Poor Numbers and reactions to it. Sandefur argued that official data from African governments on health, education, agriculture, and poverty eradication systematically exaggerate progress. The call of the UN Secretary-General’s High-Level Panel for a ‘data revolution’ is very relevant here.

Policy – base it on reality

Machiko Nissanke’s plea for the developmental state (strong nation states with pro-development institutions and a realistic development strategy) took as its point of departure the influential work Why Nations Fail (Acemoglu and Robinson 2012). 

A study by Louise Fox and Obert Pimhidzai on Uganda looked at what actually happens in a state-led structural transformation process, their findings suggest a more complex picture. What happens is not a straight move from low-productivity agriculture into high-productivity employment, but rather augmenting agricultural earnings with non-waged work in household non-farm enterprises. Such detailed work shows that policy design depends on detailed knowledge of what really occurs.

Part of this reality is the informal urban sector. Ivan Turok analyzed informal settlements in South Africa  – where a percentage fall (22% to 18% from 2001 to 2011), but concurrent numerical rise, has been taking place. Government ambivalence to informal settlements is often framed, Turok says, by negative perceptions of them as places of ‘illegal invasions, criminality, unsightly, unproductive, hazardous locations, new housing solutions are available elsewhere, discontent, and opposition’. For their residents, they represent the hope of a toe-hold in the wage economy and a first step to better things—an affordable entry point to urban life. Imraan Valodia’s paper backed this up —the informal economy is part of the modern economy. Policy cannot be designed in the hope that informality will just go away.

Waste disposal is an analogous and related problem. Sub-Saharan Africa is far behind Latin America and Egypt in informal waste management. Informal waste services manage about 60% of the waste in Cairo, about 80% of which is recycled. This source of untapped social, economic and environmental benefits is there to be exploited according to Martin Medina.

Public works programmes (Rwanda study by Atanu Ghoshray) and conditional cash transfers (Rwanda paper by Renate Hartwig) also suggested policy options which could be transferable.

Future challenges

A lively final panel (McMillan, Alanko, Mwabu, Addison, Kanbur, and Tarp) picked up many of the themes of the conference and pointed the way for future research. Points of particular interest included:

  • The disengagement of urban youth from the labour market and how much worse off women and youth are when it comes to formal employment (McMillan).

  • The challenging range of policy dilemmas for international aid donors in a changing environment (Alanko).

  • Technology, knowledge, and voice are essential for poverty eradication, as is investment in human capital. But with 80% of employment in the informal sector, picking over waste in rubbish dumps may well be for some a realistic way to transform their livelihoods (Mwabu).

  • Data and careful measurement; the need to diversify economies and not be too dependent on commodities and regulation of the financial sector are all needed for policies to make economies more resilient (Addison).

  • Study of poverty requires the careful use of new datasets, and deeper study of group-based inequalities. It is easy enough to list issues all of which need attention, but priority setting and trade-offs remain complex (Kanbur).

In an exchange showing the complexity of structural transformation, Margaret McMillan profiled a major Chinese investment in the Ethiopian leather and footwear industry, showing what can be done with strategic leadership. Ravi Kanbur pointed out that urbanization is increasing in Africa, but the informal economy remains stubbornly resistant. Germano Mwabu stressed the need for African countries to invest in increasing food production and carry out land reform, and Tony Addison underlined the importance of sound public finances and a new fiscal contract to provide the tax revenue to finance a broader base for social benefits.

As chair of the panel, Finn Tarp, Director of UNU-WIDER, thanked the researchers and participants and announced the three guiding themes for UNU-WIDER research in the next period: transformation, inclusion, and sustainability.

Roger Williamson is a Visiting Fellow at the Institute of Development Studies at the University of Sussex, UK.

WIDERAngle newsletter
March 2014
ISSN 1238-9544