Macroeconomic Policy Framework for Structural Transformation of African Economies
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Policy Dialogue
Africa and Latin America at a Crossroads:
Addressing Structural Transformation
In the New Global Landscape
At UNECA, Addis Ababa, 10 December 2015
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Structural transformation (ST) - not just change in terms of shifts in
sectorial composition among primary, secondary and tertiary activities.
Moving to higher productive activities within each sector as well as inter-
sectoral reallocation of resources ( structural-change) ,
Growth- and Productivity- Enhancing
structural changes require
reallocation of resources from low-productivity activities to high-
productivity ones
across
and
within
sectors
In both Africa and LA,
productivity-reducing
structural change
took place
in 1990-2005, in contrast to productivity-enhancing change in East Asia
Labour moving to services with fragile activities of less growth in MPL,
resulting in dynamic losses and prevalence of informal activities
Integration into the global economy per se does not guarantee growth
dynamics and productivity-enhancing ST
Both regions remained largely resource based economies with high
vulnerabilities to external shocks
Nissanke OECD-UNECA December2015
2
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Structural Transformation (ST) as purposeful, concerted
societal
efforts
towards creating
a
well-
articulated
economic structure, where economic
activities are closely linked to each other in a dynamic, coordinated
manner.
Diversification into higher productive activities with large positive
externalities
and dense dynamic
spill-overs
spatially
and
overtime
ST should entail creating
inclusive growth
ex-ante
: inclusive
growth
through which opportunities are created, and benefits are widely shard
ex-ante
Achieving
twin objectives
of economic and social
transformation
Creation of articulated economies through regional Integration (RI) to
overcome small market sizes and economies
Forward-looking position to take advantage of
demographic dividends
as important productive assets and expanding purchasing
power/aggregate demand
Focus on enhancing markets in the region/continent by
in
e
ffective
demand
on the basis of growing per-capita income and consumption
Nissanke OECD-UNECA December2015
3
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Comparative advantages and competitiveness should not be built on
the basis of impoverished wage labour and their under-consumption
ST should entail active “
learning-by-doing
” at production units and
society level, leading to
shifting
dynamic comparative advantages
in
integration into the global economy
ST involves exploiting
dynamic
economies of scale and agglomeration
effects for enhancing positive externalities through
cross-border
production clustering
,
dense production/supply networks
and
consumption spill-overs
Cumulative causation effects of integrated markets could set in a
virtuous circle in the
investment-growth n
exus
by
attracting both vertical
and horizontal FDI for large integrated markets – ‘
market seeking’ FDI
Attract FDI for
technology
and
knowledge acquisition
to enhance skill
base, knowledge assets, productive human capital
–(in place of
resource seeking or foot loose FDI on exploitation of cheap labour)
Nissanke OECD-UNECA December2015
4
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Active and strategic participation in technology-driven globalisation, and
leap-frogging to clean
green
and
mobile
technology with smaller sunk
costs
investing in agriculture for
agrarian transformation
with linkage
developments and increased non-farm employment and food security
Spatial spread/diversification with new clean technology- to prevent
negative externalities (congestion, asset price escalation, pollution, crimes
etc.) from developing in over crowded cities
Building Blocks
Investing in human resources for capability development
Investing in economic and social Infrastructures
Institutional transformation
:
Creating
institutional configuration
for productive
private-public
coalition
Domestic stakeholders -
SMEs
and
small holders
as main drivers/
developing agents with their capability development
Nissanke OECD-UNECA December2015
5
Fig.1. Structural Transformation as Development
Processes in the 21
st
Century
Nissanke OECD-UNECA December2015
6
Fig. 2. Historical Evolution: Policy Framework,
Institutional Configuration and Outcome
Nissanke OECD-UNECA December2015
7
Fig.3 Macroeconomic Policy Framework embedded in
Development Planning for Structural Transformation
Nissanke OECD-UNECA December2015
8
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Macroeconomic Policies (MPs) for ST:
Pro-investment
and
pro-
development
with a view to ensuring a positive feedback loop in the
investment-growth nexus and engendering an inclusive development
path
MPs should be embedded in national/regional strategic planning for
building strong nation states in regional/continental coordination
Coordination
and
coherence
with other policies in a dynamic setting
in
a
system of
endogenously evolved
institutions
There are multi-layer feedback loops in the
institutions-policies-
development
nexus- MPs could facilitate building an
institutional
configuration
for a developmental nation-state
MPs could be instrumental in laying an
institutional
foundation
for
structural transformation by fostering
productive private-public interface
Twin Objectives
(
stabilisation
and
developmental
) should be pursued by
navigating between the two in presence of long-run complementarity
but short-run trade-off with an anchor in development plans on a rolling
basis
Nissanke OECD-UNECA December2015
9
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a surge in
public investment
in all productive assets (physical, social
and human assets) economy-, region- and continent-wide in order to
entice
private investments
in a self-sustained basis.
Physical and soft (social) infrastructures are
public goods
scaling up- be made in light of
fiscal sustainability
and an
economy
’
s growing
absorptive capacity
by reaping returns from
productive investments
over time
2
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public investment –be made selectively, sequenced purposely
towards achieving the highest
social
and
societal returns
through
maximising positive externality
Coordination with trade, investment and technology policies,
financial sector policies, oversight regulatory and competition
policies, social policy, education and health policies, and sector-
specific policies such as industrial or agricultural policies.
Nissanke OECD-UNECA December2015
10
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Private agents are strategic actors and partners in ST
Unstable macroeconomic conditions generate high uncertainty and risks,
and prevent private agents from making forward-looking productive
investments.
harsh fiscal retrenchment and overly restrictive monetary policy, aimed at
attaining the stabilisation objective only, is not capable to the transformation
agenda forward
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develop financial institutions (banking and non-banking) and deepen financial
markets and widening financial services
Seek innovative financing sources- diaspora bonds, remittances, private equity,
impact financing etc..
Be aware of volatile natures of cross-border portfolio flows
Address banks “
excess liquidity holding
” in low-risk assets coupled with credit
rationing to
SMEs
and
small holders
Seek appropriate
financial mechanisms
for
enhancing technology capability
and
productivity of SMEs and small holders
Overcome “
aid-dependence” syndrome
over time by
tackling
illicit financial
flows
and building
a
robust tax system
.
Nissanke OECD-UNECA December2015
11
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Securing fiscal sustainability takes primacy in attaining both developmental
and stabilisation objectives.
developing the capacity of
prudent
and
efficient public finance
management
A
n institutional configuration for building
a strong
coalition
between the
government and domestic stakeholders/actors- esp. SMEs and small
holders
Establishing
fiscal legitimacy
on the basis of
strategic public- private
interplays
through creating a virtuous circle in
the taxation - public goods
provision nexus
Scaling up of public investments and public goods provision requires
a consolidation of tax revenues on a stable basis
Government should be accountable to stakeholders and serve their
collective interests
institutional transformatio
n
towards building a developmental nation-
state
Nissanke OECD-UNECA December2015
12
Fiscal, Monetary and Financial Policies for Structural
Transformation
Fiscal Policies
Institutional perspective of fiscal sustainability
Broadening revenue bases with high quality public goods provision
Enhancing Tax Revenues through Improved Governance over Cross-
Border Financial Flows and Public Resource Management
Changing Africa’s Revealed Comparative Advantages by Turning Natural
Resource Wealth into Productive Assets through Pro-Poor Fiscal
Expenditures
Sustainable management of public finance and sovereign debt
Monetary and Financial Polices
Reappraisal of Contemporary Discussions on Monetary Policy Regime
Positioning in a Space of Macroeconomic Policy Trilemma: an
Integrated Approach to monetary policy, exchange rate policy and
capital flow management
Mobilising Resources for Structural Transformation through Financial
Sector Development
Nissanke OECD-UNECA December2015
13
Structural transformation is essential for the development of African economies, involving shifts towards higher productive activities and inclusive growth. The process requires purposeful efforts to create articulated economies with coordinated economic activities and positive externalities. Emphasis is placed on diversification, regional integration, enhancing markets, and attracting investments for sustainable development.
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Presentation Transcript
Macroeconomic Policy Framework for Structural Transformation of African Economies Machiko Nissanke Policy Dialogue Africa and Latin America at a Crossroads: Addressing Structural Transformation In the New Global Landscape At UNECA, Addis Ababa, 10 December 2015
Structural Transformation as Development Processes: Track Records Structural transformation (ST) - not just change in terms of shifts in sectorial composition among primary, secondary and tertiary activities. Moving to higher productive activities within each sector as well as inter- sectoral reallocation of resources ( structural-change) , Growth- and Productivity- Enhancing structural changes require reallocation of resources from low-productivity activities to high- productivity ones across and within sectors In both Africa and LA, productivity-reducing structural change took place in 1990-2005, in contrast to productivity-enhancing change in East Asia Labour moving to services with fragile activities of less growth in MPL, resulting in dynamic losses and prevalence of informal activities Integration into the global economy per se does not guarantee growth dynamics and productivity-enhancing ST Both regions remained largely resource based economies with high vulnerabilities to external shocks 2 Nissanke OECD-UNECA December2015
Structural Transformation as development processes of creating articulated economies Structural Transformation (ST) as purposeful, concerted societal efforts towards creating a well-articulated economic structure, where economic activities are closely linked to each other in a dynamic, coordinated manner. Diversification into higher productive activities with large positive externalities and dense dynamic spill-overs spatially and overtime ST should entail creating inclusive growth ex-ante: inclusive growth through which opportunities are created, and benefits are widely shard ex-ante Achieving twin objectives of economic and social transformation Creation of articulated economies through regional Integration (RI) to overcome small market sizes and economies Forward-looking position to take advantage of demographic dividends as important productive assets and expanding purchasing power/aggregate demand Focus on enhancing markets in the region/continent by in effective demand on the basis of growing per-capita income and consumption 3 Nissanke OECD-UNECA December2015
Structural Transformation as processes of creating articulated economies Comparative advantages and competitiveness should not be built on the basis of impoverished wage labour and their under-consumption ST should entail active learning-by-doing at production units and society level, leading to shifting dynamic comparative advantages in integration into the global economy ST involves exploiting dynamic economies of scale and agglomeration effects for enhancing positive externalities through cross-border production clustering, dense production/supply networks and consumption spill-overs Cumulative causation effects of integrated markets could set in a virtuous circle in the investment-growth nexus by attracting both vertical and horizontal FDI for large integrated markets market seeking FDI Attract FDI for technology and knowledge acquisition to enhance skill base, knowledge assets, productive human capital (in place of resource seeking or foot loose FDI on exploitation of cheap labour) 4 Nissanke OECD-UNECA December2015
Structural Transformation as developing processes of creating articulated economies Active and strategic participation in technology-driven globalisation, and leap-frogging to clean green and mobile technology with smaller sunk costs investing in agriculture for agrarian transformation with linkage developments and increased non-farm employment and food security Spatial spread/diversification with new clean technology- to prevent negative externalities (congestion, asset price escalation, pollution, crimes etc.) from developing in over crowded cities Building Blocks Investing in human resources for capability development Investing in economic and social Infrastructures Institutional transformation: Creating institutional configuration for productive private-public coalition Domestic stakeholders - SMEs and small holders as main drivers/ developing agents with their capability development 5 Nissanke OECD-UNECA December2015
Fig.1. Structural Transformation as Development Processes in the 21st Century 6 Nissanke OECD-UNECA December2015
Fig. 2. Historical Evolution: Policy Framework, Institutional Configuration and Outcome 7 Nissanke OECD-UNECA December2015
Fig.3 Macroeconomic Policy Framework embedded in Development Planning for Structural Transformation 8 Nissanke OECD-UNECA December2015
Macro Economic Policy framework: Achieving Twin Objectives in a dynamic setting Macroeconomic Policies (MPs) for ST: Pro-investment and pro- development with a view to ensuring a positive feedback loop in the investment-growth nexus and engendering an inclusive development path MPs should be embedded in national/regional strategic planning for building strong nation states in regional/continental coordination Coordination and coherence with other policies in a dynamic setting in a system of endogenously evolved institutions There are multi-layer feedback loops in the institutions-policies- development nexus- MPs could facilitate building an institutional configuration for a developmental nation-state MPs could be instrumental in laying an institutional foundation for structural transformation by fostering productive private-public interface Twin Objectives (stabilisation and developmental) should be pursued by navigating between the two in presence of long-run complementarity but short-run trade-off with an anchor in development plans on a rolling basis 9 Nissanke OECD-UNECA December2015
Overarching Agenda in Macroeconomic Framework 1. Scaling up Public Investment and Public Goods Provision a surge in public investment in all productive assets (physical, social and human assets) economy-, region- and continent-wide in order to entice private investments in a self-sustained basis. Physical and soft (social) infrastructures are public goods scaling up- be made in light of fiscal sustainability and an economy s growing absorptive capacity by reaping returns from productive investments over time 2. Coordinating investment with other policies public investment be made selectively, sequenced purposely towards achieving the highest social and societal returns through maximising positive externality Coordination with trade, investment and technology policies, financial sector policies, oversight regulatory and competition policies, social policy, education and health policies, and sector- specific policies such as industrial or agricultural policies. 10 Nissanke OECD-UNECA December2015
Overarching Agenda in Macroeconomic Framework 3. Maintaining Macro stability for enticing and sustaining private investment Private agents are strategic actors and partners in ST Unstable macroeconomic conditions generate high uncertainty and risks, and prevent private agents from making forward-looking productive investments. harsh fiscal retrenchment and overly restrictive monetary policy, aimed at attaining the stabilisation objective only, is not capable to the transformation agenda forward tread carefully the short-run trade-off between growth and stabilisation objectives by a coordinated applications of policy instruments 4. Mobilising resources and reducing aid dependence develop financial institutions (banking and non-banking) and deepen financial markets and widening financial services Seek innovative financing sources- diaspora bonds, remittances, private equity, impact financing etc.. Be aware of volatile natures of cross-border portfolio flows Address banks excess liquidity holding in low-risk assets coupled with credit rationing to SMEs and small holders Seek appropriate financial mechanisms for enhancing technology capability and productivity of SMEs and small holders Overcome aid-dependence syndrome over time by tackling illicit financial flows and building a robust tax system. 11 Nissanke OECD-UNECA December2015
Overarching Agenda in Macroeconomic Framework (Cont d) 5. Securing fiscal sustainability by establishing fiscal legitimacy through institutional transformation Securing fiscal sustainability takes primacy in attaining both developmental and stabilisation objectives. developing the capacity of prudent and efficient public finance management An institutional configuration for building a strong coalition between the government and domestic stakeholders/actors- esp. SMEs and small holders Establishing fiscal legitimacy on the basis of strategic public- private interplays through creating a virtuous circle in the taxation - public goods provision nexus Scaling up of public investments and public goods provision requires a consolidation of tax revenues on a stable basis Government should be accountable to stakeholders and serve their collective interests institutional transformation towards building a developmental nation- state 12 Nissanke OECD-UNECA December2015
Fiscal, Monetary and Financial Policies for Structural Transformation Fiscal Policies Institutional perspective of fiscal sustainability Broadening revenue bases with high quality public goods provision Enhancing Tax Revenues through Improved Governance over Cross- Border Financial Flows and Public Resource Management Changing Africa s Revealed Comparative Advantages by Turning Natural Resource Wealth into Productive Assets through Pro-Poor Fiscal Expenditures Sustainable management of public finance and sovereign debt Monetary and Financial Polices Reappraisal of Contemporary Discussions on Monetary Policy Regime Positioning in a Space of Macroeconomic Policy Trilemma: an Integrated Approach to monetary policy, exchange rate policy and capital flow management Mobilising Resources for Structural Transformation through Financial Sector Development 13 Nissanke OECD-UNECA December2015
