Transcript IR Africa Presentation Pengyu_Xiang

Structural Transformation and Natural Resources in
Africa
The article illustrated how Africa can achieve its Structural
Transformation effectively by utilizing their Natural
Resources.
It also 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
establish a strong, diversified resource-based economy.
Structural Transformation
 Structural transformation is the reallocation of
economic activity away from the least productive
sectors of the economy to more productive ones. It
is one fundamental driver of economic
development.
Structural
Transfor
mation
Increase new
Productive
Activity
Resource move
from Traditional
activities to New
A 4-layer policy approach is suggested for Africa’s
natural resource based Structural Transformation
towards more productive activities and better jobs.
 Establish general framework
conditions.(Infrastructure & Education)
 Establish specific conditions required for natural
resources sectors to thrive.
 Optimize revenues and invest them wisely and
strategically.
 Increase agricultural productivity and connect
natural resource sector and economy as a whole.
Africa’s Strong Natural Resource
Comparative Advantage
 Agricultural commodities, timber, mineral and
hydrocarbons = 35% of African’s growth since 2000
 Resource-based raw and semi-processed goods =
80% of African export in 2011. (60% in Brazil, 40%
in India, 14% in China)
 Most greenfield FDI goes to Africa’s resourced
related activities.
Africa:
1990s: Early adjustment.
2000s: Beginning of growth miracle (Coincides with
Globalization.
 54 Countries in Africa with 4 Characteristic
Groups:
1) Resource-driven economy (Extractive resources):
Oil, Minerals.
2) Diversified established economy (High levels of
Per Capita Income)
3) Emerging economy (High GDP due to
agriculture)
4) Pre-transition Economy (lowest Per Capita
Income)
Misallocation
of
Labor:
However, in spite of the recent progress in structural
transformation the productivity gaps between sectors in Africa
remain immense. “The poorer a country, the wider the gap
between the most productive and least productive sectors”.
What would have happened to poverty reduction if labor had
moved from low productivity to the most productive sectors of
the economy at a faster pace than that actually observed. (The
Shift Effect)
Building on a Strong Primary Sector as the basis for
Structural Transformation and it also can be the
fastest way to Structural Transformation
The 4 Criteria (incentives) to accelerate Structural
Change:
1) Provide large- scale employment for unskilled
workers.
2) Be of higher productivity than existing activities.
3) Be subject to pressure to perform (Half glass
empty).
4) Be sufficiently close to a country’s comparative
advantage and capabilities.
Any Adaptable existing models for Africa?
 Indian Model is not adaptable (Service Sector):
Given the large number of low-skilled workers in
Africa, aiming for high-skilled services as a
vehicle of structural transformation too soon may
not work. (Low Level Education)
 Manufacturing holds the potential promise of
large numbers of low-skilled jobs and new
capabilities. However, past productivity increases
were not met with commensurate expansion of
employment.
 The Importance of “Capabilities and Learning
Processes” had been overlooked.
Obstacles
 African firms are held back by the environment they
face. Small market size, poor public services and
financial access, and the role of government are the
main obstacles, translating into higher external costs.
 In addition, in African low-income countries labor
costs are higher than elsewhere, suggesting that lowwage labor is not actually a competitive advantage for
Africa.
 Africa’s land abundance presents a challenge for
creating a better infrastructure environment.
(Scarcely Populated)
African Primary Resource Sectors
Agricultural:
Food and
Fisheries
Key to broadbased structural
transformation as
the Largest
Employer of lowskilled labor
Extractive:
Primary
Resource
Sectors
Attract
FDI
Minerals, metals
and
hydrocarbons
Creates sizable
revenues for
structural
transformation
Relative Comparative Advantage (RCA): The link between a
strong resource sector and a strong manufacturing sector. A
strong and diversified primary sector is an important step
towards a diversified economy that creates productive jobs.
Geographical abundance of resources does not
automatically translate into a strong primary sector.
Africa’s natural resource exports are less diversified
than other nations.
Structural transformation based on naturalresource sector
 Need Right Conditions. (Investors and farmers)
 Specific Requirements must be met. (Right skills,
transport and energy infrastructure, land
management and sector-specific regulations)
 Importance of investments in human capital and
R&D
Question
 Since Africa is highly rely on its natural resource,
are there any structural transformation strategies
from other BRIC countries are applicable?