Structural transformation and sustainable development in Africa
The Economic Development in Africa Report 2012, subtitled “Structural
Transformation and Sustainable Development in Africa”, examines how African
countries can promote sustainable development. The main message of the
Report is that achieving sustainable development in Africa requires deliberate,
concerted and proactive measures to promote structural transformation and the
relative decoupling of natural resource use and environmental impact from the
growth process. Sustainable structural transformation, as defined in the Report, is
structural transformation with such decoupling.
The Report builds on the Economic Development in Africa Report 2011 on
Fostering Industrial Development in Africa in the New Global Environment. It also
fits into UNCTAD’s broader work on the development of productive capacities.
The report is timely in the light of the United Nations Conference on Sustainable
Development (Rio+20), 20–22 June 2012 and the renewed global focus on
greening economies occasioned by the global financial and economic crisis of
2008–2009. The concept of sustainable structural transformation provides a
dynamic understanding of the efforts which are involved in greening an economy,
and also places such efforts into a development perspective.
- Fostering industrial development in Africa in the
new global environment
There is mounting evidence indicating that industrial development presents
great opportunities for sustained growth, employment and poverty reduction.
Consequently, over the past decade, African governments have renewed their
political commitment to industrialization and have adopted several initiatives
at the national and regional levels to enhance prospects of achieving their
The Economic Development in Africa Report (EDAR) 2011 examines the
status of industrial development in Africa with a focus on the identification of
"stylized facts" associated with African manufacturing. It also provides an
analysis of past attempts at promoting industrial development in the region and
the lessons learned from these experiences. Furthermore, it offers policy
recommendations on how to foster industrial development in Africa in the new
global environment characterized by changing international trade rules, growing
influence of industrial powers from the South, the internationalization of
production, and increasing concerns about climate change.
The Report argues that a new industrial policy is needed to induce structural
transformation and engender development in African economies.
The Report advocates a strategic approach to industrial policy-making which
is based on an industrial diagnosis and proposes a framework for industrial
strategy design which takes account of the heterogeneity of African economies
and is also tailored to country-specific circumstances.
Furthermore, the Report suggests that efforts to promote industrial
development in Africa should focus on:
- South-South Cooperation: Africa and the new forms
of development partnership
- The promotion of scientific and technological innovation
- The creation of linkages in the domestic economy
- The promotion of entrepreneurship
- The improvement of government capabilities
- Adoption of appropriate monetary and fiscal policies
- Avoiding exchange rate overvaluation
- Enhancing resource mobilization
- Strengthening regional integration
- Maintenance of political stability
- Strengthening Regional Economic Integration for
- Export performance following trade liberalization:
Some patterns and policy perspectives
- Reclaiming Policy Space, Domestic Resource Mobilization and
One of the most prominent objectives of the Millennium Development Goals is
to have member States halve their levels of absolute poverty by 2015. But,
Sub-Saharan Africa has been singled out as one region that is unlikely to meet
this target. One of the reasons for this is its relatively low rate of economic
To raise the growth rate and sustain it at the level that will allow African
countries to halve poverty by 2015 requires a significant increase in the volume
of foreign and domestic resources devoted to promoting overall development in
general, and poverty reduction programmes in particular.
The objective of this year´s Report is to examine the potential of
African countries to increase their total domestic financial resource envelope
in order to reduce dependence on official development assistance (ODA), and
diversify their development resources. A complementary objective is how to
channel these resources to productive investments in order to increase their
Most of the challenges to development in general and to domestic resource
mobilization and investment in particular, are manifestations of market failures
plaguing African economies. Addressing these challenges requires an appropriate
"policy mix" or "diversity of policies"
tailored to the specific situation of each country, rather than a
The Report highlights the need for "developmental
States" in Africa with the required policy space to design and
implement policies that address their priorities and make optimal use of
available resources in a way that leads to a virtuous circle of accumulation,
investment, growth and poverty reduction.
The Report argues that it is only by reclaiming its developmental
role that the African State could give true meaning to the rhetoric of
"ownership" of economic policies. It, however, warns that state
involvement in development should not be seen as repeating past mistakes, such
as over-protection and interventionism.
- Doubling Aid: Making the Big Push work
UNCTAD´s 2006 report on Economic Development in Africa
examines how the commitment by the international community to double aid
to Africa might place the continent on a sustainable development path.
The central message of the report is that, if this commitment is to translate
into big reductions in poverty and lasting gains in economic welfare, new
thinking is required to tackle the unbalanced state of the international aid
system. The report identifies the flaws in the existing system, such as high
transaction costs, politicization, lack of transparency, incoherence,
unpredictability, and excessive demands placed on the weak institutions of
According to the report, a "big push" provides a sensible
alternative in seeing how renewed capital accumulation (in both the private and
the public sector) can link up to structural and technological change,
unleashing a cumulative process of rising productivity, incomes and savings. A
"big push" would require a new aid architecture with a much
larger multilateral component, managed under different institutional
arrangements, and the provision of much greater policy autonomy to
The report, drawing on both positive and negative aid experiences, suggests
that greater multilateralization of aid "… can help to reduce
unnecessary and costly competition among donors, and thus greatly reduce
administration costs. It can also provide a buttress against the politicization
of aid which has been so damaging in the past." From the recipient
side, multilateral aid in the form of budget support can be subject to
parliamentary oversight, be based on national programmes and priorities, and be
responsive to national constituencies rather than donor Governments and
multilateral financial institutions. The report suggests that the time is
"perhaps right to revisit the idea, first broached in the 1950s, of a UN
funding window" tailored to African development needs.
- Rethinking the Role of FDI
In recent years, attracting FDI has assumed a prominent place in economic
development strategies as a key to financing development in African countries,
without adding further to their indebtedness. In addition, expectations have
been raised that by creating jobs, transferring new technologies and building
linkages with the rest of the economy, FDI will directly address the continents´
poverty challenge. Thus policy reforms aimed at improving the investment climate
in African countries have increasingly been centred on attracting FDI without
the desired results either in increasing FDI flows in productive sectors or in
ensuring more rapid growth and poverty reduction. The continent at present
accounts for just 2 to 3 per cent of global flows, down from a peak of 6 per
cent in the mid-1970s. Even on a per capita basis, the gap between Africa and
other developing regions widened significantly in the 1990s and remains very
Africa´s particular combination of geographical, historical and structural
features have traditionally attracted FDI into enclaves of export-oriented
primary production with limited linkages to the rest of the economy. This
situation has not changed much in recent years and has contributed to
undermining a self-sustaining and dynamic investment process, in particular as
the singular focus on attracting FDI through greater openness and downsizing of
the state has drawn attention away from more fundamental determinants of FDI
flows to Africa - namely market size and growth, resource endowments and
In the extractive sectors, competition to attract investment has led to an
incentive inflation prompting what some observers describe as "a race to the
bottom" not only in the more static sense of forgone fiscal earnings, but also
in terms of giving up policy options necessary to organize a more dynamic
long-term growth path.
The Report cautions that FDI carries costs as well as benefits for
the host country and consequently proceeds from the need to take a more critical
approach to evaluating the size, type, and impact of FDI in African countries.
It calls for a rethinking of the one-sided emphasis on attracting FDI and its
replacement with a more balanced and more strategic approach tailored to African
socio-economic conditions and development challenges.
- Debt Sustainability: Oasis or Mirage?
- Trade Performance and Commodity Dependence
- From Adjustment to Poverty Reduction: What is New?
- Performance, Prospects and Policy Issues
- Capital Flows and Growth in Africa
The international community has long recognized that developing countries
need a substantial inflow of external resources in order to fill the savings and
foreign exchange gaps associated with a rapid rate of capital accumulation and
growth. The latter are needed to overcome widespread poverty and to lift living
standards to acceptable levels. Among various developing regions, the need for
external financing is nowhere more pressing than in Africa, particularly in
sub-Saharan Africa, where income levels are too low to generate adequate
domestic resources for the attainment of even modest rates of investment and
Breaking this vicious circle requires, inter alia, a sustained
injection of external financing in amounts large enough to enable the region to
accelerate and maintain growth at levels higher than in the past. Since private
capital inflows, in particular foreign direct investment (FDI), lag behind
rather than lead growth, this initial push can only come from official sources
of finance, and it needs to be combined with policies that recognize the need
not only for market-based incentives, but also for a greater role for the State
and for institution building.
Such a process would help break aid dependence in two ways. First, rapidly
rising income would enable domestic savings to rise faster than output, thereby
raising total investable resources without additional external financing.
Second, sustained growth would attract private capital as a substitute for
official financing. Thus, the need for official financing would gradually
diminish as these alternative sources of financing began to predominate.
In other words, the only feasible way to end aid dependence is to launch a
massive aid programme and to sustain rapid growth long enough to allow domestic
savings and external private flows to gradually replace official aid. But if the
minimum amount of resources needed to initiate and sustain such a process is not
provided, aid dependence is likely to continue unabated.
This paper addresses these issues. It reviews recent trends and examines the
size and stability of Africa´s short-term capital flows, analysing the use of
such inflows to offset financial transactions and real resource transfers. The
paper presents various scenarios to analyse the possible evolution of domestic
savings and private capital inflows through a process of rapid and sustained
growth made possible by, inter alia, a large injection of foreign aid,
as well as the implications of this process for aid dependence. Finally, it
briefly discusses the policy approach needed to ensure that aid is translated
into investment and growth, keeping in mind the policy mistakes made during both
the pre- and post-adjustment periods.