Transcript Productive capacities: what they are, why they are important, and

Building Productive Capacities
in LDCs as a Means to Reduce Poverty
Productive capacities: what they are,
why they are important and how they
develop
Michael Herrmann
Expert
Division for Africa, Least Developed Countries and
Special Programmes
United Nations Conference on Trade and Development
The LDCs
United Nations Conference on Trade and Development
The Presentation
Introduction
Productive capacity development
• Elements, development
Processes
• Capital accumulation, technological progress, structural change
Constraints
• Infrastructure, institutions, demand
Policy implications
United Nations Conference on Trade and Development
Introduction
United Nations Conference on Trade and Development
Productive Capacities: Elements
United Nations Conference on Trade and Development
Productive Capacities: Development
Productive capacities are determined by 3 processes
• Capital accumulation (physical, financial)
• Technological progress (low- to medium-tech)
• Structural change (agriculture to industry, low to high productivity jobs)
Productive capacities are impeded by 3 constraints
• Infrastructure (transport, utilities, etc.)
• Financial system (commercial and development banks, etc.)
• Knowledge system (schooling, training, R&D, extensions, etc.)
United Nations Conference on Trade and Development
Processes: Overview
Growth experience, capital accumulation and structural change
Converging
Growth experience and structuraleconomies
change
Weak-growth
economies
Capital accumulation
Converging Weak-growth Regressing
Domestic savings
++
+
economies economies economies
Domestic
investment
++
+
Capital
accumulation
FDI savings
++
Domestic
++
+ +
Domestic
++
+ +
ODA investment
+
FDI
+
++
+
Structural change, production +
+
+
ODA
Agriculture/
GDP
+
Economic transformation
Industry/GDP
GDP
+
Agriculture/
+ ++
++
Industry/
GDP
++
+ +
Manufacturing/
GDP
Manufacturing
+
Non-manufacturing/ GDP
+
+
Non-manufacturing
+
+
Services/ GDP
+
+
Services/ GDP
Structuraltransition
change, labor productivity
Employment
Agricultural
labor productivity
Agriculture
+
+
+ +
Non-agricultural
labor
productivity
+
Non-agriculture
+
+
+
Total labor productivity
Total
+
+
Regressing
economies
+
+
++
-
Note: Economies classified, based on growth experience between 1980-2003.
Converging economies (9 LDCs): GDP/ capita growth >2.15% p.a.
Weak-growth economies (15 LDCs): GDP/ capita growth <2.15% p.a.
Regressing economies (17 LDCs): GDP/ capita growth <0% p.a.
United Nations Conference on Trade and Development
Process I: Capital Accumulation
United Nations Conference on Trade and Development
Process I: Capital Accumulation
Over the 1990s investment rates declined in many LDCs.
• Public fixed investment declined in 8 of 12 LDCs
• Private fixed investment also declined in 8 out of 12 LDCs
In 1999--2003 investment rates were relatively low in LDCs.
• Average investment rate was 22 % GDP,
• Average savings rate was 14% GDP,
• Average resource gap was about 8% of GDP.
In 1999--2003 almost 40% of investments was financed by external
sources
• Net FDI inflows to LDCs were about 2.6% of GDP
• Net ODA disbursements to LDCs were about 9% of GDP (in 2004).
United Nations Conference on Trade and Development
Process I: Capital Accumulation
Aid can be major source for capital formation.
• In 2004 it accounted for more than 10% of GDP in 36 out of 43 LDCs.
Aid targeted at capital formation has declined over past years.
 The share of ODA to LDCs associated with debt relief, emergency assistance and
social sectors development increased from 34.6% in 1992-1994 to 62.1% in 20022004.
 The share of ODA to LDCs associated with development of economic
infrastructure and production sectors decreased from 47.9% to 23.5% over the
same period.
United Nations Conference on Trade and Development
Process I: Capital Accumulation
Formation of human capital is weakened by low levels of education
• In 2000 the average years of schooling of the adult population was only 3 years
in the LDCs, less than in other developing countries in 1960.
• In 2001 technical and vocational education constituted only 2.6% in total
secondary enrolment in the LDCs, as against 10.4% in developing countries.
• In recent years only 6% of the population aged 20-24 in LDCs was enrolled in
tertiary education, compared with 23% in other developing countries.
… and high levels of brain drain
• About one in five of the high-skill workers (persons with 13 years schooling
and above) were working in OECD countries in 2000
• The intensity of the brain drain from African and Asian LDCs increased
significantly in the 1990s
United Nations Conference on Trade and Development
Process II: Technological Progress
Limited investment in technological development
• In 2003 gross expenditures on R&D were only 0.2% of GDP in the LDCs.
Between 1980s and 1990s public expenditures for agricultural R&D declined in
8 out of 13 LDCs.
Limited licensing of technology
• In recent years only 7% of domestic firms in LDCs licensed foreign
technology, compared with 27% of foreign firms, and only 21% of domestic
firms in LDCs use a website for business, compared with 44% of foreign firms.
Limited import of technology
• Firm-Level Investment Climate Surveys (World Bank) show new machinery
and equipment is the most important channel of technological acquisition in the
LDCs. Yet, they have not increased over the last two decades in real per capita
terms.
United Nations Conference on Trade and Development
Process III: Structural Change: Production
United Nations Conference on Trade and Development
Process III: Structural Change: Employment Transition
Changing size and locus of labor force
1990
2000
2010
242
312
401
in non-agriculture (% total)
24
29
35
in urban areas (% total)
21
25
30
Size of LDC labor force (million)
19801990
19902000
20002010
51
71
88
in agriculture (million)
32
37
39
in non-agriculture (million)
19
34
49
Increase of labor force (million)
United Nations Conference on Trade and Development
Process III: Structural Change: Labor Productivity
Fact 1:
• Relatively large increase of labor force in non-agriculture (indicated by
large growth of economically active population),
Fact 2:
• Relatively small expansion of economic activities in non-agriculture
(indicate by small growth of value added)
Implication:
• Decline of non-agricultural labor productivity (indicated by the ratio of
value added to labor force).
United Nations Conference on Trade and Development
Process III: Structural Change: Labor Productivity
United Nations Conference on Trade and Development
Process III: Structural Change: Employment Challenge
Rapid increase of non-agricultural labor force
Push factors
Growth of agricultural labor force > agricultural land.
• Land holdings per agriculturalist decline
• Dependency on fragile land increases.
• Productivity of agricultural workers increase slowly or decrease.
• Yield of land increase slowly or decrease.
• Few prospects to overcome rural poverty.
• Decision to leave rural areas/ agricultural sector.
Pull factors
Growth of non-agricultural labor productivity > agricultural labor productivity.
• Potential to earn higher wages.
• Decision to migrate to urban areas/ non-agricultural sector.
United Nations Conference on Trade and Development
Process III: Structural Change: Employment Challenge
Weak absorption of non-agricultural labor force
• In Tanzania the non-agricultural labor force grew 2.26 million; wage employment
outside agriculture grew by 172 thousand between 1990/91 and 2000/01.
• In Uganda the non-agricultural labor force grew by 428 thousand, wage
employment outside agriculture grey by 82 thousand between 1992 and
1999/2000.
• In Burkina Faso only 5% of males and 3% of females found their first paid job in
private formal sector in 2000.
• In sub-Saharan Africa about 93% new employment opportunities are in informal
sector, in recent years.
United Nations Conference on Trade and Development
Process III: Structural Change: Employment Challenge
TABLE 45. UNEMPLOYMENT AND UNDEREMPLOYMENT IN URBAN LABOUR MARKETS
OF SELECTED AFRICAN LDCS, 2000-2001 (% EMPLOYED POPULATION)
Cotonou
(Benin)
Unemployment rate:
ILO definition
Enlarged definition
Visible underemployment rate
Invisible underemployment rate
Global unemployment rate
5.5
6.8
13.4
61.1
69.2
Ouagadougou
(Burkina Faso)
15.4
22.4
10.6
66.5
73
Bamako
(Mali)
7.1
12.5
17.1
45.4
58.8
Dakar
(Senegal)
Average
11.7
18.9
16.2
57.8
69.4
9.9
15.2
14.3
57.7
67.6
Unemployment rate: Unlike ILO definition, enlarged definition includes discouraged workers.
Visible underemployment: Those who work less than 35 hours per week.
Invisible underemployment: Those who work long hours but have wages below national minimum wage.
United Nations Conference on Trade and Development
Constraints: Overview
Weak Infrastructure
•
ICT and beyond
Weak Institutions
•
•
•
Financial
Business-support
Knowledge-management
Weak Demand
•
•
External
Domestic
United Nations Conference on Trade and Development
Policy Implications
Current approach
•
Human and social development
(e.g., health and education)
•
Integration in world economy
(liberalization will result in supply)
Current approach PLUS
•
Economic development
(i.e., growth, production, employment)
•
Create conditions for production
(enterprise development, technology
transfers, innovation, invention)
•
Framework conditions
(e.g., investment climate, governance,
rules)
•
Domestic supply-side
(lifting constraint on investors; compliance
with rules and regulations, customs
procedures, product standards)
•
•
•
Tradables
FDI
Welfare State
•
Ingredients
(e.g., institutions at meso level; enterprise
capabilities at micro level)
•
Domestic demand-side
(stimulation demand of investors through
linkages and population through
productive employment)
•
•
•
Non-tradables
Domestic investment
Development State
United Nations Conference on Trade and Development