Structural Transformation and Natural Resources

Given Africa’s comparatively low skill-to-labour ratio, it needs mainly low-skilled jobs to ensure wide and faster structural transformation. Manufacturing rather than services provides the basis for low-skilled jobs. However, in many countries the conditions are not yet in place. To get there, Africa must work on its strengths. The continent has a strong comparative advantage in natural resources, either in the form of energy, minerals or agriculture. These can be drivers of structural transformation through linkages, employment, revenue and foreign investments, provided adequate business environment and supporting policies are in place. There is no inherent trade-off between commodity-based and labour-intensive industries: countries with diversified natural resource sectors also exhibit more diversified manufacturing.

This report argues that since natural resources – energy, minerals, and agriculture – will remain the continent’s comparative advantage for the foreseeable future, by contrast with most of Asia, the priority of an active transformation strategy should be to establish a strong, diversified resource-based economy. To harness Africa’s natural resources for structural transformation, a four-layer policy approach is suggested:
i. establish general framework conditions for structural transformation such as education, infrastructure and access to sufficiently large, regional markets;
ii. establish specific conditions required for natural resource sectors to thrive;
iii. optimize the revenues from natural resources and invest them strategically to promote structural transformation;
iv. address structural transformation directly by increasing agricultural productivity and enabling economic linkages between the natural-resource sector and the economy as a whole.