Notes

  1. See Herrendorf, Rogerson and Valentinyi (2011) for an overview of and many references on this subject.
  2. Herrendorf, Rogerson and Valentinyi (2011) document this pattern for a panel of mostly developed countries over the past two centuries, and Duarte and Restuccia (2010) document a similar process of structural change among 29 countries over the period 1956-2004.
  3. The converse is not true, however: not all countries with structural change also achieve poverty reduction. Structural change into protected or subsidised sectors comes at the expense of other activities, and is therefore not associated with sustained growth out of poverty for the population as a whole. Structural change is effective at reducing poverty only when people move from lower into higher productivity activities.
  4. For comparability with the results in M&R (2011) the sample of African countries here was restricted to the nine countries in their original sample (namely Ethiopia, Ghana, Kenya, Malawi, Mauritius, Nigeria, Senegal, South Africa and Zambia).
  5. Algeria, Angola, Cameroon, Egypt, Ethiopia, Ghana, Kenya, Malawi, Mali, Mauritius, Morocco, Mozambique, Nigeria, Rwanda, Senegal, South Africa, Tanzania, Uganda, Zambia.
  6. After adjusting for the Balassa-Samuelson effect; see Rodrik (2008).
  7. The productivity gaps described refer to differences in average labour productivity. When markets work well and structural constraints do not bind, it is productivities at the margin that should be equalised. Under a Cobb–Douglas production function specification, the marginal productivity of labour is the average productivity multiplied by the labour share. So, if labour shares differ greatly across economic activities, then comparing average labour productivities can be misleading. The fact that average productivity in mining is so high, for example, simply indicates that the labour share of value added in this capital-intensive sector is quite small. In the case of other sectors, however, there does not appear to be a clearly significant bias. Once the share of land is taken into account, for example, it is not obvious that the labour share in agriculture is significantly lower than in manufacturing (Mundlak, Butzer and Larson, 2008). So the sixfold difference in average labour productivity between manufacturing and agriculture does point to large gaps in marginal productivity.
  8. Hirschmann (1981) argued along similar lines, noting that the degree of technological “strangeness” relative to ongoing activities determines how easily linkages can be developed.
  9. See for example the IMF’s most recent Economic Outlook for Africa (IMF, 2012a).
  10. Note that Rodrik uses industry data beginning in the 1990s for his analysis of unconditional convergence. Import substitution policies had largely been abandoned by then.
  11. The raw material input, for example in the form of ore, is evidently essential, but only one of many inputs into the processed product. Energy is another one. In the United States aluminium smelting alone consumes 5% of total electricity production, which is equivalent to a third of Africa’s electricity production (Emsley, 2011). In most of Africa, however, electricity is a scarce good. At about 28 MW the energy capacity required to refine 10 000 tonnes of copper, roughly 2% of Zambia’s annual production, for example, would be equivalent to two times Benin’s current electricity- generating capacity.
  12. For example distance to markets: the higher the manufacturing value-added of a product, the higher the transport costs and the more important proximity to the customer. Chile decided against a copper-processing industry because the additional transport costs for copper products such as wire and sheets from Chile to consumer markets in Europe and the US would have been higher than the price difference between these products and simple copper concentrate
  13. Barely one quarter of industrial exports are true manufactures, and two major categories, automotive products from South Africa and clothing exports from low-income countries, are both supported by special incentive programmes (Gelb, 2009). In 2011, however, Africa’s most important manufactured export products were floating platforms for off-shore oil extraction, a product type directly related to natural-resource extraction, not processing.
  14. See Ramachandran, Gelb and Shah 2009 for an overview. The 2012 edition of this report (AfDB et al., 2012) highlighted the links between Africa’s business environment and the youth employment challenge. Most analyses are based on the World Bank Enterprise Surveys (World Bank, 2013a).
  15. Note that the party monopoly finding might be reflecting other underlying country-specific factors as it is measured as a dummy and a significant number of African countries exhibit party monopolies.
  16. compared to 60% in Brazil, 40% in India and 14% in China (all 2011).
  17. See Hidalgo (2011) for an analysis of the East Africa product space and opportunities for diversification based on the capabilities present in the region.
  18. Coal is ambiguous as it could arguably also be included in the hard commodity category, based on its physical properties and method of extraction. Nevertheless, it is classified as an energy resource in the international trade statistics that are the basis for this classification.
  19. The inputs for renewable energy (sun, wind, water and biomass) differ considerably in terms of their inherent characteristics and are therefore only treated tangentially.
  20. Counting a range of sectors that can be related to natural resource use (i.e. including first processing steps such as textiles, basic chemicals, food processing and basic metals, but also energy generation), total greenfield FDI into
  21. The link between primary completion and these resources is also positive, but not significant. The reasons could be simply a lack of observations, or the fact that other human capital measures than primary completion are more relevant to per capita resource production.
  22. The overall size of the economy plays an important role. The smaller the economy relative to the resources it produces the higher the share of resources in the economy will remain even as the rest of the economy develops. The core of the argument made here is the decreasing relative position of the resource economy.
  23. Between 1995 and 2005 subsoil assets in high-income OECD countries, which as a group exhibit very low dependence on natural resources, more than doubled in value (World Bank, 2012a)
  24. Unfortunately, in the case of timber, most exploitation in Africa goes far beyond the natural rate of regeneration and threatens severely to reduce, if not entirely destroy, many tropical forests. See World Bank (2012a) for an assessment of net savings and resource exploitation beyond sustainable rates.
  25. The worse the existing level of infrastructure, public services and the regulatory environment, the higher the costs incurred by resource extractors to make up for these shortcomings in the form of investment in new roads or railway lines or high expenses in transaction costs and security personnel.
  26. This is especially true for offshore oil production, which is largely independent of infrastructure or other conditions in the country. The only regulation that matters is the tax regime.
  27. Ascher (1999) provides a vivid account of the degeneration of Ghana’s cocoa sector as a result of the capturing of the marketing board by urban-based political interests.
  28. “Proven” reserves are those that can be extracted given geology, technology and market conditions (Gelb, Kaiser and Vinuela, 2012).
  29. In terms of new discoveries Africa managed to outpace world growth. African proven oil reserves increased by 59% between 2000 and 2010 compared to a world average of 33%.
  30. Although the investment needs for oil exploration and exploitation are enormous, production costs usually remain significantly below market prices.
  31. Stijns (2005) confirms the negative impact of resource dependence but finds no relationship between resource abundance and growth. Van der Ploeg and Poelhekke (2010) confirm this result, but find abundance to be good for growth once they control for volatility.
  32. An apartment rents for USD 10 000 to USD 15 000 a month, while a labourer makes USD 50 a month (The Economist, 2011)).
  33. “Aghion et al. (2009) show that with macroeconomic volatility driven by nominal exchange rate movements, firms are more likely to hit liquidity constraints and thus cannot afford to innovate which depresses growth, especially in economies with poorly developed financial institutions” (quoted from Van der Ploeg and Poelhekke, 2009).
  34. a)Inflation discourages people from holding liquid financial assets which are the basis for banking (Gylfason, 2004). b) In volatile countries, lending to natural resources is more attractive as other sectors carry higher risks, limiting the incentives for financial sector development (Besley and Persson, 2011; Maino, Imam and Ojima, 2013)
  35. The relationship between agricultural productivity and structural transformation is the subject of a large literature. The key points are the following: i) in models assuming non-homothetic preferences and a closed economy (e.g. Matsuyama, 1992; Gollin, Parente and Rogerson, 2002 and 2007), a rise in agricultural productivity releases labour for the modern sector (effect A), as people get richer, they spend more on manufactured goods and services, and higher wages in these sectors attract rural migrants; ii) in models assuming homothetic preferences but a constant elasticity of substitution below one (e.g. Ngai and Pissarides, 2007), any relative increase in the productivity of a sector leads to a relative decrease in its employment share because its relative price decreases (effect B) and thus, in a closed economy, the agricultural sector shrinks as productivity increases; iii) in an open economy, there is an additional effect which works through trade (effect C) - a rise in the productivity of a sector can make this sector grow in size if the country now has a comparative advantage in this sector.
  36. Such as the Kimberly process for diamonds and the OECD Council Recommendation on Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (OECD, 2011).
  37. fDiMarkets estimates the number of jobs created for each project by extrapolating known job figures from existing greenfield FDI projects that have similar characteristics. The estimate of 600,000 jobs is an upper bound estimate. Job creation is not known for every project. The “known” figure of created jobs by greenfield FDI in natural resource sectors is about 100 000 jobs.
  38. Although FDI projects in soft resources and in manufacturing industries are significantly more employment-intensive, investment volumes in these sectors were smaller and job creation lower.
  39. “For example, analysts estimate that the highest cost Canadian heavy-oil producers need Brent crude to be trading at least at USD 85 a barrel to cover their costs. In September 2012 prices fell close to the USD 85 level, triggering talk in the market of imminent output cuts. The role of high-cost producers is also evident in the iron ore market. About a third of Chinese miners need prices to stay above USD 100 a tonne to remain profitable, but prices this year fell as low as $90.75 a tonne, forcing some miners to shut down production.” (Financial Times, 2012)
  40. Some uncertainty remains. At the time of writing (March 2013) Vale’s massive investment project into iron ore in Guinea was suspended.
  41. Oil is much less dependent on general infrastructure. Onshore it relies on pipelines, offshore on boats.
  42. Collier (2011) confirms that more than USD 6 billion has been spent on electricity infrastructure while generating capacity remained at more or less the same level.
  43. As part of the implementation of the Africa Mining Vision an African Minerals Skills Initiative has been created to address some of these issues.
  44. It is useful to distinguish between skills and knowledge. Both are important, but skills are harder to obtain. Knowledge can be acquired through learning materials such as books, the Internet etc. Skills, on the other hand, are abilities that can best be obtained through practice. Schools and universities are best adapted to instilling knowledge, but learning skills requires a high practical content such as in vocational training, internships or on-the-job learning.
  45. Private conversation with Marc-Antoine Audet, CEO, Sama Resources Inc., Côte d’Ivoire in December 2012.
  46. The superior performance of competitively elected governments holds only for the African sample of countries.
  47. See the 2010 edition of this report (AfDB et al., 2010) for an explanation of the methodology
  48. Directly estimating the impact of exports of extractive resources, Harding and Venables (2013) find that one dollar of such exports on average decreases non-resource exports by 65 cents, increases imports by 20 cents and leaves 15 cents for savings. For a sub-Saharan Africa sub-sample they find the effects to be 55 cents fewer exports, 35 more imports and only 10 cents into savings.
  49. This has been interestingly referred to as “fox type” approach by Galvao Ferreira (2012), an uncoordinated and flexible approach to addressing complex and context specific challenges in natural resources.
  50. Such required broadening of focus is to some degree reflected in an initiative such as Publish What You Pay (PWYP), which now also encompasses issues such as Publish What You Earn and How You Spend as well as Publish What You Pay and What You Extract (see www.publishwhatyoupay.org/about/publish-what-you-earn-and-how-you-spend).
  51. Lead firms can be defined as small, medium, or large firms that have forward or backward commercial linkages with a significant number of micro, small and medium-sized enterprises.
  52. In September 2012, however, local farmers accused Ambatovy of destroying agricultural produce through its widespread use of toxic pesticides to protect its workers from mosquitoes (AFP, 2012).

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