This chapter started with the proposition that African economies today are facing nothing less than the formidable challenge of creating more and better jobs, not just by sustaining the pace of growth, but also by making it more inclusive. Compared to Africa’s historical trend, the pace of GDP growth has indeed been impressive and is likely to continue. Growth has averaged 5.1% since 2000, doubling the average growth rate of the 1990s and this report predicts a continued favourable outlook for the coming years (Chapter 1). However, the employment-to-population ratio, which measures the share of the working-age population in active employment, has remained virtually unchanged over the last 20 years. It reached 60% in 2011, compared with 59% in 1991.
To be job-intensive growth must be accompanied by structural transformation: that is, the reallocation of economic resources from activities with low productivity to more productive ones. This contains two elements: the rise of new, more productive activities and the movement of resources and labour from traditional activities to these newer ones, raising overall productivity and with it wages and the quality of jobs. Africa’s record of structural transformation is mixed. Productivity growth has been slower than in other regions of the world, but, after a decade of readjustment, labour has started moving in the right direction since 2000 – from less to more productive activities. Africa thus compares well with Latin America, which continues to experience net movements of labour into less productive activities, but the gap with Asia is widening.
To accelerate this nascent structural transformation, African countries must make the most of existing sectors and capabilities. With a few exceptions (notably the small island states) natural resources of agricultural and extractive origin account for an important share of economic activity and exports in most African countries. Several countries around the globe have shown that natural resource sectors can drive structural transformation when governments put in place the right conditions and policies and focus on managing their resource wealth for the common good. From past mistakes it is also known that pushing for structural transformation without regard for existing capabilities and a strong primary sector is unsustainable. Strong demand from emerging partners and historically favourable terms of trade of natural resources offer a great opportunity for African countries to seize.
However, only a few African countries can claim to have developed a primary sector that lives up to its potential. Agriculture, in particular, has long been penalised for its perceived backwardness instead of receiving the support that could have turned it into a driver of structural transformation as in China or India. But extractive resources have not faced an optimal environment, either. Despite the last decade’s global resource boom, Africa’s resource wealth grew more slowly than elsewhere, indicating that there is much room for improvement.
The key message of this chapter is that structural transformation towards more productive activities and better jobs is closely linked with a strong natural resource sector. While dependence on any set of products, but especially dependence on high-rent extractive commodities, can stand in the way of diversification and inclusive growth, countries with a diversified commodity sector also tend to have more diversified activities in other sectors. Many of the crucial ingredients for structural transformation such as infrastructure, education and skills, good institutions and regulations, government capacity, a balanced tax system, financial access, and sufficiently large effective markets are also necessary conditions for strong agriculture and extractive industries, with off-shore oil being an exception.
The four layers of policies for natural resource-based structural transformation laid out in this report are challenging, but can help African countries choose the right path. Evidently, each country differs in its endowments and level of development so that a broad-brush analysis such as the one presented here necessarily requires adaptation. The more diversified African economies need to worry less about overcoming dependence and more about providing the research, skills and regulatory environment that allow natural resources to further drive structural transformation. Countries such as Uganda, Tanzania, Mozambique and Kenya, where significant production of hydrocarbons will start soon, have the opportunity to learn the lessons of failure and success of their peers and build a policy framework that takes into account all four layers of natural-resource based structural transformation. This includes putting in place the right conditions for diversification and strong natural-resource sectors; optimising revenue from resources through taxation and negotiation managing its investment, taking into account absorptive capacity; actively pushing structural transformation through support to agriculture; and working with foreign investors and domestic firms to create strong linkages and learning opportunities around commodities.
Africa’s natural resources also require commitment from its partners. Rising global demand for natural resources has boosted Africa’s exports and brought large amounts of foreign investment to the continent (Chapter 2). Yet not all foreign involvement has been unequivocally positive, especially where done without regard to transparency and sustainability. Investors and partner countries can do much to improve this state of affairs. Transparency initiatives and multi-stakeholder dialogues are a positive force in this respect. Further, international firms can do much to partner local firms and schools to ensure that local jobs and capabilities are created. Partner countries can do more to allow for African exports of processed goods. As global trade negotiations are stuck and regional agreements flourish, care must be taken to ensure that Africa receives the access to traditional and emerging markets it needs for structural transformation to become a reality.
Finally, strong co-operation among African nations themselves is fundamental to natural resource-based structural transformation towards economic structures that can provide income and employment for all. The African market promises immense opportunities but suffers from limited access. Similarly, to get the best deal from investors it is important to agree on minimum standards and preventing races to the bottom.
Where partners and African countries work together towards the common goal of making Africa’s structural transformation happen, the chances are better that they will succeed.