Africa: Tackling Some Big Economic Questions

Economic development typically involves a group of transitions, like the shift from agriculture to manufacturing to services.

The Winter 2022 issue of the Journal of Economic Perspectives (where I work as Managing Editor) includes five papers on aspects of development-related transitions in the nations of Africa. Here are some of the big questions:

Does Africa have a manufacturing path to economic development?

In “Labor Productivity Growth and Industrialization in Africa,” Margaret McMillan and Albert Zeufack investigate Africa’s manufacturing sector. As they point out, a shift from agriculture to low-skilled manufacturing to high-skilled manufacturing to services has been a standard pattern of economic development for countries around the world. However, there are concerns that this path may not work well in the 21st century, because automated production keeps getting cheaper and thus reducing the opportunities for low-skilled jobs.

Some of the signs for industrialization in Africa are encouraging. The most comprehensive information about manufacturing employment in Africa only covers 18 countries, but based on those data, manufacturing employment in Africa’s lowand middle-income countries increased from 6 million to more than 20 million from 2000 to 2018, raising the share of employment in manufacturing from 7.2 percent to 8.4 percent (Kruse et al. 2021). In comparison, the 1990s saw zero growth in Africa’s manufacturing employment. Manufacturing exports from African nations have also grown at an annual average of 9.5 percent per year (Signé 2018). However, while employment and value-added shares of manufacturing in Africa are rising, both remain very low in comparison to the rest of the world …

But when the authors dig into the data, they find that the growth in manufacturing employment in nations of Africa has been primarily happening in small firms with less than 10 employees. Conversely, the growth in productivity in manufacturing in Africa is primarily in large firms, which aren’t adding many jobs. Many of Africa’s large manufacturing firms are in one way or another involves in processing of natural resources, which has been becoming an ever-more automation-intensive process.

Thus, the broad challenge for Africa’s manufacturing sector is for the larger firms to build linkages backward and forward into other African-based manufacturing firms, and for at least some of the small firms to make productivity gains and grow in size, so that they can become an “in-between” sector of manufacturing. One promising change is the African Continental Free Trade Area, started in 2018, which may offer possibilities for African-based manufacturing firms to sell and compete within a larger and more unified market. In addition, there are still some industries like certain kinds of textile manufacturing where low-wage labor can offer a comparative advantage in global production.

One common concern about manufacturing in Africa is also hard to wrap your hands around–the idea that there is a poor “business environment” in many nations. The authors point out that the relevant business environment comparison for many nations in Africa is countries like Bangladesh or Vietnam, and when you look at issues like transportation links or business conditions, a number of African nations do just fine in this comparison.

Much has been made of the poor business environment in Africa and business environment does matter, of course. But as nations across Asia have shown, where there are profits to be made, businesses find a way to work around business environment problems. Similarly, despite the business environment in Africa, formal manufacturing firms have performed well in terms of productivity growth (Diao et al. 2021). Indeed, measuring the business environment by the World Bank Doing Business index, many countries of Africa compare favorably to countries of Asia that have experienced rapid growth. In 2013, for example, Ghana ranked 27 countries ahead of Vietnam in the Doing Business indicators. … A comparison between the rankings of countries in Africa and those of countries in Asia with established bases in manufacturing for the year 2019 offers several similar examples. Rwanda ranks 40 points ahead of Vietnam at 29, Mauritius and Kenya are also ranked ahead of Vietnam at 21 and 61 respectively. Seventeen African countries rank ahead of Cambodia. Bangladesh has five million garment workers (ILO 2020), but out of 48 countries in Africa only eight countries are ranked below Bangladesh and seven of these countries are at war. Nigeria is ranked 30 points ahead of Bangladesh.

Can productivity growth in Africa’s agricultural sector push development forward?

The transition from agriculture to manufacturing involves both push and pull: increased productivity in agriculture freeing up workers to move to manufacturing, along with the pull of higher-paid manufacturing jobs. Tavneet Suri and Christopher Udry take on the topic of “Agricultural Technology in Africa.” As they describe it, agricultural technology in Africa is stagnating.

[A]griculture is almost 20 percent of GDP in Africa, compared with a world average of about 5 percent. Moreover, the share of agriculture in GDP of the African region has remained stable over the last 50 years, whereas the share for other regions that started high in 1970—South East Asia and South Asia—has fallen a lot. … [A]gricultural shares of employment have declined across regions of the world in the last 30 years. Africa now has the highest share of employment in agriculture at about 50 percent, given the declines
in the South Asia region, while the world average of employment in agriculture is closer to 30 percent. … A first step towards structural transformation happens as the agricultural sector evolves from smallholder farmers growing mainly food crops (cereals) for self-consumption to larger scale farmers growing food crops primarily for sale. At present, about 80 percent of African farmers are smallholders with under two hectares of land, who together account for 40 percent of cultivated area …

Standard improvements in agricultural technology include types of irrigation, fertilizer, pesticides, mechanization, improved seeds, and access to markets. In their overview of the literature, there’s no single cause of these issues in Africa. The successful smaller-scale programs seem to involve a mix of training, credit, access to inputs, crop insurance, and market access. Scaling all of these up at once is a real task.

In addition, the authors emphasize that modern agricultural production is very responsive to specific conditions of the land and the terrain. It can make sense for neighboring farmers, or with a single farm, to use very different mixtures of crops and technology mixes. One role of agricultural R&D is to figure out how to get these ideal mixtures. The authors write that in India, “it is common to have 20–40 new varieties of rice released each year since 1970, along with 10–20 new varieties of both maize and wheat each year”–and the number of new varieties is rising over time. Similar patterns are not happening in much of African agriculture.

How will Africa’s women in workforce interact with economic change?

Women entering the (paid) workforce is a common signal of economic development: for example, it alters the incentives female education and for fertility. Taryn Dinkelman and L. Rachel Ngai discuss “Time Use and Gender in Africa in Times of Structural Transformation.” From the Appendix:

We highlight two stylized facts about women’s time use in Africa. First, in North Africa, women spend very few hours in market work and female labor force participation overall is extremely low. Second, although extensive margin participation of women is high in sub-Saharan Africa, women tend to work in the market for only a few hours each week, with the rest of their work hours spent in home production. These two facts suggest two different types of constraints that could slow down the reallocation of female time from home to market as economies grow: social norms related to women’s market work, and a lack of infrastructure (e.g., household infrastructure and childcare facilities) to facilitate marketizing home production.

The authors collect time use survey data to make a number of intriguing comparisons:

African housewives do not work significantly more hours per week in the home than do American housewives. In fact, in some countries, African housewives work fewer hours. In the United States in 2010, housewives spent on average 45.7 hours per week in home production: about the same amount of time spent by Moroccan (45.7 hours), Ghanaian (45.8 hours), and (2010) South African (45.7) housewives. Only Sierra Leonean and South African housewives in 2000 report more hours in home production than American housewives in 2010. …

For most African housewives, the bulk of their time is spent cooking, cleaning, and doing laundry. In South Africa, Ghana, and Morocco, cooking absorbs between one-third to just over one-half of all home production hours. Cleaning takes another 6–27 percent of home production time, while laundry takes 5–13 percent. In contrast, child- and elder-care take at most 21 percent of hours, and higher-skilled household management takes at most 15 percent of home production time. … The composition of home hours among modern US housewives is the exact reverse of South African, Ghanaian, and Moroccan housewives. Over half of home production hours in 2010 are spent in home management and in care work, with only 15 percent of hours spent cooking, 20 percent cleaning, and 8 percent doing the dreaded laundry. … Housewives in South Africa, Ghana, Morocco spend their time much more along the lines of American women in the 1920s and the 1960s.

Can the economies of Africa created the jobs needed for young adult workers?

With populations expanding in many African countries, a key question for economic and social stability is what jobs will be available for young adults. Oriana Bandiera, Ahmed Elsayed, Andrea Smurra and Céline Zipfel discuss this question in “Young Adults and Labor Markets in Africa.” They write: “Today, one of every five people who start looking for their first job is born in Africa. By 2050, it will be one in three …”

The authors emphasize that while labor force participation rates are similar in African nations to other countries at similar levels of development, the real gap is in the number of young adults with employers and steady salaries. They point out that in a comparison group of developing countries, it’s more common for the elderly–who entered the labor force at an earlier time in the development process–to be self-employed and not salaried, but in Africa countries, younger and older adults are about equally likely to be self-employed and not salaried. Thus, existing development in Africa is not leading to more young adults having salaried jobs.

What might be done about this? The authors discuss possibilities for vocational skills training on the labor supply side, and for policies like wage subsidies or providing credit to help firms expand their hiring on the labor demand side. I was especially intrigued by what the authors call “matching policies”–basically, in the context of some African nations, it can be hard for employees to pay application fees, and hard for employers to have confidence in who they are hiring. What seem like relatively small interventions, like having the government pay the application cost for workers, or having a job search agency that provides advice on job applications and interviews, together with some verifiable tests on skills and personality, can make a substantial difference.

Is the political economy of Africa primed for the changes of development?

A standard concern about economic development in the nations of Africa is that the political institutions of these countries were unready to support the necessary policies. Nathan Canen and Leonard Wantchekon point out in “Political Distortions, State Capture, and Economic Development in Africa” that while this issue still applies, progress has been made. They write:

For example, sub-Saharan Africa saw a dramatic rise in democratic institutions of governance during the third wave of democratization in the 1990s, with Zambia, Cape Verde, and Benin as salient examples. This was spurred by the spread of democratic ideas, the end of the Cold War and the fall of the Soviet Union, the creation of robust local democratic communities, and the implementation of economic reforms(Huntington 1991). While only Botswana and Mauritius held regular multipartyelections by 1989, 33 of the region’s countries had held at least two sets of elections by late 2003 (Crawford and Lynch 2012). Figure 1 illustrates this change with data from the widely used Polity V database, produced by the Center for Systemic Peace, which collects components of governing institutions in 167 countries. These components are merged into an overall scale ranging from –10 (think “hereditary monarchy”) to +10 (consolidated democracy). Autocracies are scored from –5 to –10, and as Figure 1 shows, sub-Saharan Africa as a whole was in that category for much of the 1970s and 1980s. Since then, the Polity score for sub-Saharan Africa has risen substantially, approaching average world levels.

Economic outcomes in sub-Saharan Africa have also been converging to world norms. During the past 20 years, average GDP per capita in sub-Saharan Africa has more than doubled: from about $600 to close to $1600 (comparison using current US dollars, World Development Indicators data, as of June 2021). This wave of economic growth across sub-Saharan Africa is admittedly uneven. But while some countries still lag, economic growth rates in Rwanda, Ghana, and Ethiopia over the past 20 years resemble those in China and India, and the regional growth rates for Africa are comparable to those in regions like East Asia and Latin America.

The authors argue that some of the most important reforms for nations in Africa may be to help political institutions function in the broader public interest. They discuss campaign contribution limits, especially from corporations that are involved with government contracts; creating a nonpartisan civil service; having certain industry regulators elected rather than appointed; audits of how local governments spend money; using biometric identification to assure that government payments actually reach the intended person; public town hall meetings and debates; and others.

The nations of Africa have about 1.3 billion people, just a shade behind the populations of India and of China. Africa is also the region of the world where population is projected to grow most quickly in the next few decades. For an up-close look at an array of current research on development in countries of Africa, summaries of dozens of case studies from the annual conference of the Centre for the Study of African Economies is available here.