Challenges and
Opportunities of Private
Sector Development in SSA
Stephen Gelb, ODI
IDE-ODI-AERC Seminar:
Industrialization, Private Sector Development & Economic Transformation
Nairobi, 28 August 2016
Presentation outline
•
What is economic or structural transformation?
•
Overview of Africa’s manufacturing performance
•
Industrialisation in SSA: alternative paths
•
The role of the private sector
What is economic or structural transformation?
•
•
•
Economic transformation involves the shift of resources (labour) and output from
low productivity activities into higher productivity activities which offer more
sustainable productivity growth
• From agriculture into industry Across sectors/activities/firms within
manufacturing
• Into high-productivity services
• Where does extractive industries fit?
Stages of industrialisation
Pathways to industrialisation
• New technologies & innovation
• Entry of new firms
• Diversification of production and trade
• Integration into value chains and upgrading within them
Overview of Africa’s industrialisation performance
•
•
•
Overall performance has not been good when viewed in the long run
But there are some success stories – countries and sectors
And some grounds for optimism based on recent improvement
•
Charts and discussion in recent SET (ODI) papers: Balchin et al., Developing export-based
manufacturing in Sub-Saharan Africa, 2016, available at www.set.odi.org
Manufacturing as % of GDP in SSA, 1960-2010
Note: Series excludes South Africa. In constant 2005 US dollars.
Sources: UNIDO Industrial Development Database (2015); World Bank Africa Development Indicators
Manufacturing share in GDP falling
But real output increasing
Note: Charts include South Africa
1976
1995
1976
2014
1995
2014
Source: WDI.
The share
of manufacturing
in total formal and informal
employment (International Labour Organization
Manufacturing
share
in employment
falling
(ILO) data) fell from 6.4% in 1991 to 5.3% in 2013, but the total numbers of employees in SSA increased
fromemployment
11.0 million to 17.7 million.increasing
But absolute
Figure 2: Africa’s share of manufacturing in employment is falling
7.0%
Percentage share in total
employment
6.8%
6.6%
6.4%
6.2%
6.0%
5.8%
5.6%
5.4%
5.2%
5.0%
1991
1993
1995
1997
1999
2001
2003
Source: SET database using ILO data. Unweighted average.
2
2005
2007
2009
2011
2013
The Distribution of gross value addition by manufacturing sub-sector
80
% of manuf GVA
70
60
50
40
30
20
10
0
Food,
beverages,
tobacco
Nigeria (2014)
Source: National statistics.
Others
Rwanda (2014)
Textiles,
clothing,
leather,
footwear
Wood, paper
Kenya (2012)
Chemicals
Ethiopia (2012/2013)
Average annual growth in value of manufacturing exports, 2005-2014
Average annual growth (%)
40
35
30
25
20
15
10
5
0
Source: Own calculations using UN Comtrade data.
Note: * 2005-2013; ** 2006-2014.
Positive developments over past decade
•
Rapid growth in manufacturing real output, employment
and exports in SSA 2005-2014
o
o
o
o
Value of manufacturing production more than doubled:
average annual growth 3.5%
Manufacturing employment increased: 11 mill to 17.7 mill
Value of Africa’s manufacturing exports more than doubled:
average annual growth 7.4%
Intra-Africa trade is fastest growing amongst regional shares
• Increased participation in GVCs – garments, footwear,
horticulture, vehicles
Africa’s manufacturing
exports by destination
DEVELOPING EXPORT-BASED MANUFACTURING IN SUB-SAHARAN AFRICA
FDI in greenfield manufacturing, annual inflows ($m)
Figure 12: FDI annual inflows, Greenfield manufacturing ($ million)
6,000
5,000
Annual average 2003-2006
4,000
3,000
2,000
Annual average 2010-2014
1,000
0
Note: Data for Rwanda were not included.
Source: fDi Markets Database (www.fdimarkets.com), as reported in Chen et al. (2015).
These data should be treated with extra caution even as compared with official data, as it is not clear
how much cross-checking has been possible to ensure consistency of reporting across projects, nor how
exhaustive the reports are. Nonetheless, they provide some indication of trends in manufacturing FDI.
Industrialisation in SSA: alternative paths
•
•
•
•
Contrasting strategies
• Focused on natural resources (agricultural & mineral) versus
• Focused on light manufacturing assembly by unskilled labour
These have different implications
• For policy: trade (imports & exports), enterprise development (&
upgrading/innovation), competition, capital markets & FDI, skilled
labour/management
• For services including infrastructure & urbanisation (transactions-intensity)
• For macroeconomy & BoP
Must a ‘choice’ be made between these alternatives?
Growth strategy is linked to private sector development potential
• Sector focus versus generic resources
The private sector and industrial development
•
•
•
•
•
•
•
There are successful firms in African manufacturing, foreign & domestically-owned
But cost structure results in ‘missing middle’ of firms
• Productivity is different - ‘on the shopfloor’ versus ex-factory
• Linked to ‘incumbency’
‘Private sector development’ – improving the investment climate – is essential, but not a
panacea
Need competition from new entries – through FDI and domestic firms – in manufacturing
• But also in services providing inputs for manufacturing firms
Need support for firms’ innovation & capabilities development
• From public sector agencies and from VC lead firms
Need sectoral focus for policy – the importance of clusters
Need collective action by firms – business associations – political economy issues
Thank you
odi.org
set.odi.org