Introduction
The present book is entitled âgovernance for structural transformation in Africa.â The concepts of âgovernanceâ and âstructural transformationâ and the links between them is unpacked at the bookâs outset and these will help to illuminate the bookâs objectives and its contribution to the understanding of effective economic governance in Africa.
First, âgovernanceâ can be understood, broadly, as the set of factors that influence how power is exercised. It comprises the complex range of mechanisms, processes, relationships and institutions through which citizens and societal groups articulate their interests, exercise their rights and meet their obligations and mediate differences. As such, governance determines which public policies get adopted and how they are implemented. There is a growing consensus that African countries require a more effective governance architecture for them to be able to pursue better public policies and ultimately to achieve better outcomes, including structural transformation and inclusive development.
Structural transformation is understood to be the reallocation of factors of production (capital, land and labour) within all different segments of the economy to better support inclusive development, increased value addition, increased diversification and increased productivity and industrialisation. Historically, structural transformation has been key to the achievement of sustained, inclusive, job-rich development (see, e.g. Economic Commission for Africa and African Union Commission 2014).
Effective governance and institutions are prerequisites for the attainment of structural transformation and sustainable development (JakĆĄiÄ and JakĆĄiÄ 2018). These allow governments to formulate and execute the industrial policies that are required for their economies to structurally transform; they discourage unproductive rent-seeking and harmful business practices 1. In addition, structural transformation, once unleashed, can also help to improve governance (particularly political governance)âgiving rise, for example, to interest groups that push for accountable leadership and effective institutions. As countries get more transformed, more effective institutions also become more affordable. Over time, economic transformation can advance core governance objectives of accountability, participation and transparency. This means that there is a positive feedback loop from more effective governance to structural transformation and vice versa.
It is in this context that we have prepared the present book on âGovernance for structural transformation in Africa.â The book aims to analyse different governance questions facing African countries and provide recommendations regarding how African countries can most effectively respond to them. This chapter offers an overview of the arguments and conclusions of the various chapters on how African countries can pursue âgovernance for structural transformation.â
This book comprises nine chapters divided into three thematic sections: (i) background on governance and structural transformationâtheoretical and empirical overview; (ii) institutions and structural transformation and (iii) industrial and trade policies for structural transformation. Each of these thematic sections is summarised in turn.
Background on Governance and Structural TransformationâTheoretical and Empirical Overview
This section comprises two chapters: (i) Institutional and Governance Weaknesses and African Transformation by Tafah Edokat and Aloysius Njong and (ii) Sub-Regional Perspectives on Structural Change by Pedro M. G. Martins.
Insights from Economic Theory on the Causal Links Between Governance and Structural Transformation and the State of Governance in Africa
Economic theory offers an interpretation of the empirical evidence on the links between governance and structural transformation. This helps to understand the key challenges facing African countries in this area and how they can be addressed. It also helps to interpret the empirical findings presented later in the book and whether they confirm or contradict various different theories of the links between governance and structural transformation. In Chapter 2, Tafah Edokat and Aloysius Njong present an overview of economic theories explaining the relationship between governance and structural transformation. They outline the importance of effective governance for structural transformation and what such governance looks like. The chapter also includes an overview of the existing empirical literature and stylised facts on the state of governance in Africa, which help to underline the importance of the various policy questions that are addressed in detail later in the book.
Overview of Trends and Patterns in Structural Change Worldwide
Understanding which regions, and which countries, in particular, have had success in achieving structural transformation can help us to understand where to find approaches to governance and policies that can support its achievement. In this context, in Chapter 3 Pedro M. G. Martins provides a comprehensive assessment of structural change patterns in the world economy (structural change is the movement of labour across sectors, and is closely related to structural transformation). It uses a new dataset on sectoral employment produced by the International Labour Organization, which is complemented by national accounts and population data from the United Nations Department of Economic and Social Affairs. The sample includes 169 countries, representing about 99% of the worldâs output and population in 2013.
One of the main contributions of this paper is its focus on the sub-regional level, which has been hitherto absent from the literature. The chapter provides an assessment of 13 sub-regions in Africa, Asia and Latin America in order to offer deeper and richer insights into the recent dynamics of structural change. Overall, the results suggest that within-sector productivity improvements were the key driver of output per capita growth in most sub-regions. Nonetheless, structural change has also played a critical role in enhancing economic performance since 2002âmainly through services. Changes in the demographic structure and employment rates have also contributed to the recent performance, albeit to a much lesser extent. The paper concludes that accelerating the pace of structural changeâby exploiting existing productivity gapsâwill be crucial to sustain current economic growth rates in developing regions.
Institutions and Structural Transformation
This section comprises three chapters: (i) Economic Regulation and Employment Elasticities of Growth In Sub-Saharan Africa by Abidemi C. Adegboye, Monday I. Egharevba and Joel Edafe, (ii) Governance in the Mineral Dependent EconomyâThe Case of Botswana by Ita M. Mannathoko and (iii) Can Export Promotion Agencies Stem the Deindustrialisation in Sub-Saharan Africa? by Isaac Marcelin and Nanivazo Malokele. The following sections provide a synopsis of the findings, rationale and methodology used by each of the authors.
The Impact of Regulations, Legal Systems and Government Participation in the Economy on Structural Transformation
In Chapter 4, Abidemi C. Adegboye, Monday I. Egharevba and Joel Edafe investigate how economic regulation and the effectiveness of Government can impact the job-richness of growth (a variable that is closely related to structural transformation). In particular, the paper uses the employment elasticity of growth for a group of 37 African countries. The paper finds that structural changes and demographic transitions are not enough to ensure that growth is strongly employment-enhancing. Rather, the level of regulation also affects the employment elasticity of growth, though the effect differs according to the type of employment. As a result, for Africa (excluding North Africa), deep duality in both product and labour markets provides that additional policy stance would be required to guarantee adequate changes and integration in the sectors over time as output grows.
In particular, the chapter also shows that there is a strong distinction between active regulation and institutional quality in terms of their effects on employment elasticities. Less economic regulation essentially enhances formal sector activities and employment, while the effects on informal and pro-poor employment is not straight-forward. Although overall regulation tends to improve both formal and informal sector employment, labour market flexibility tends to worsen informal sector employment. In the same vein, legal institutions appear to be pro-poor in terms of employment effects, though legal system quality can depress other types of employment. Government participation in economic activities strongly decreases employment elasticity of output growth in Africa (excluding North Africa). The chapter also finds that intersectoral integration and adjustments play little role in ensuring employment benefits from output growth when regulations are minimal. There is, therefore, a need for careful balancing of regulations to address structural bottlenecks, improve informal sector activities and employment and ensure pro-poor growth in the region.
Impacts of Resource Dependence on Government Effectiveness
In Chapter 5, Ita M. Mannathoko investigates the impacts of Botswanaâs changing degree of mineral dependence on the effectiveness of the countryâs Government. As background, the chapter notes that in general, governments that are dependent on mining receipts for a significant share of their revenue face different performance incentives from those that source their revenues from a broad and diversified tax base. These different incentives can influence how government prioritises its engagement with economic actors and the citizenry; rewarding government performance that gives precedence to what is best for the mining sector rather than what is best for the economy as a whole. This bias then undermines efforts to achieve the type of structural transformation needed for diversification of production and of the fiscal revenue base, both of which are essential to avoid Dutch disease and generate long-term sustainable growth and employment. While the governance challenges associated with mineral dependency are well established in the literature, most recent studies are cross-country analyses and not much country-specific empirical analysis has been done on the relationship between mineral dominance and governance, especially in Africa. The chapter, therefore, uses a country-specific study of Botswana, a mineral-dependent economy. The author employs a time-series cointegration methodology and a dynamic error-correction model. The results establish that mining dominance in Botswana has indeed had a long-term influence on government effectiveness, such that the effectiveness of governance systems has been predicated on strong mining sector receipts. The dynamic error correction model shows that the influence from mineral dependency feeds back into current changes in government effectiveness on an annual basis as the system adjusts towards the long-run level of government effectiveness. In addition, improvements in the control of corruption in the preceding year and in citizen participation (represented by voice and accountability data) in the current year both have a significant and positive impact, generating improvements in government effectiveness.
The Role of Export Promotion Agencies in Supporting Industrialisation
In Chapter 6, Isaac Marcelin and Malokele Nanivazo investigate how export promotion agencies affect the growth of the manufacturing sector outcomes in Africa using the propensity score matching technique. The results indicate that creating an export promotion agency drives up boosts the manufacturing sector significantly. Countries in Africa (excluding North Africa) without an export promotion agency (EPA) might, therefore, have missed out on an opportunity to boost their manufacturing sector. Export promotion agencies have strong effects on manufacturing in as early as three years following their implementation. The results found in the chapter are robust to various matching strategies. Results also suggest that the joint effect of export promotion agencies and export processing zones is beneficial to manufacturing activities. The authors conclude that, since many conditions required for well-functioning financial markets for manufacturing firms to finance their expansion are missing, government intervention through export promotion agencies directed at counteracting some distortions may be growth enhancing.
Industrial and Trade Policies for Structural Transformation
This section comprises three chapters: (i) Incentives and Firmsâ Productivity: Exploring Multidimensional Fiscal Incentives in a Developing Country by Rapuluchukwu Efobi Uchenna, Belmondo Tanankem Voufo and Ibukun Beecroft, (ii) Does trade policy impact food and agriculture global value chain participation of Sub-Saharan African countries? by Jean BaliĂ©, Davide Del Prete, Emiliano Magrini, Pierluigi Montalbano and Silvia Nenci and (iii) The role of Regional Trade Integration and Governance in Structural Transformation: Empirical Evidence from ECOWAS Trade Bloc by Abiodun Surajudeen Bankole and Musibau Adekunle Oladapo. The following sections provide a synopsis of the findings, rationale and methodology used by each of the authors.