Download The role of institutions and resource mobilisation in structural

THE ROLE OF INSTITUTIONS AND
RESOURCE MOBILISATION IN
STRUCTURAL TRANSFORMATION
By
Louis Kasekende (PhD)
1
What is structural transformation?
• Shift of labour resources from low and
stagnant productivity into activities
characterized by higher and rising productivity
• E.g shift from subsistence agriculture to
commercial agriculture
2
Structural Transformation
• Africa Competitiveness Report 2009, classifies
countries as
– factor driven;
– innovative driven; and,
– efficiency driven.
• Structural adjustment is the transition from factor
driven to efficiency driven.
• A majority of countries were classified as factor
driven with exception of Botswana, Libya,
Morocco, Algeria, Mauritius, Namibia, SA and
Tunisia.
3
Structural transformation (1)
Fig 1: Agriculture's share of GDP (%)
80
60
40
20
0
1965
1980
1990
2005
Fig 2: Manufacturing's share of GDP (%)
40
30
20
10
0
1965
1980
1990
2005
2010
Fig 3: Service's share of GDP(%)
80
60
40
20
0
1965
1980
1990
2005
•The share of agriculture to
GDP has fallen since the
1960’s for all countries.
• Trends in the share of
manufacturing in GDP have
also fallen or stagnated except
for Malaysia.
•The services sector has
invariably risen since the
1960’s and dominates GDP
•Excluding Malaysia, the rise
in services is not accompanied
by a rise in manufacturing.
2010
Source: World Bank
4
Structural transformation (2)
Fig 5: Manufactured items export share
of GDP
Fig 4: Primary commodities export
share of GDP
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
1995
2000
2005
2010
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1995
2000
2005
2010
Source: UNTAD
•Exports are dominated by primary commodity goods with the
exception of Malaysia.
•Noticeable fall in primary commodity exports but it is not fully
compensated for by the rise in manufactured exports.
5
What drives Structural
Transformation?
• Investments , especially private investment in
labour intensive industries;
• Improvements in quality of the workforce;
• A business environment which promotes
efficient allocation of resources
• Competitive markets to spur continuous
improvements in efficiency and productivity
6
ROLE OF INSTITUTIONS
• E.g Central Banks, Finance and trade ministries,
Revenue authorities, Courts
• To ensure a conducive environment and efficient
allocation of resources and have clear mandate
• Institutions must provide a transparent , stable
and predictable framework for private
investment; avoid political interference and crony
capitalism and inappropriate incentives for staff
• Should allow exit of uncompetitive firms
7
Institutions and governance
Fig 12: CPIA rating for transparency,
accountability and corruption in the
public sector
Fig 11: CPIA rating for public
administration
UGA
UGA
KEN
2009
2005
IND
GHA
KEN
2009
IND
2005
GHA
2.6
2.8
3
3.2
3.4
3.6
0
1
2
3
4
5
Source: World Bank
•Ratings are low for Kenya and Uganda in respect of public
administration and transparence compared to Ghana and India
8
Resource mobilization (1)
Fig 7:Gross domestic
savings as a share of GDP
(%)
Fig 6: Domestic private
sector credit share of GDP
(%)
150
1965
100
1980
50
1990
0
2005
60
40
20
0
-20
40
30
20
10
0
1990
2005
Fig 8: Tax revenue share of
GDP (%)
1965
1980
1990
2005
2010
Source: World bank
1980
2010
2010
Fig 7: Gross fixed capital
formation as a share of
GDP (%)
1965
25
20
15
10
5
0
2005
2006
2007
2008
2009
•There has been a
significant increase in
domestic credit as a
share of GDP for India,
Kenya and Malaysia
•Increase in domestic
credit in the case of
Malaysia mirrors its
rising share of
manufacturing.
•Investment has
increased substantially
in all countries.
•Tax revenues were
rising until 2007
9
Resource mobilization (2)
• Savings for Ghana and Uganda are quite low relative to gross fixed
capital formation highlighting the importance of foreign direct
investment.
• Tax effort still low – well below 15% of GDP for all countries except
during 2007 – signifying more need for resource mobilization by he
public sector
• Africa’s savings and investment rates compare poorly with
developing Asia undergoing rapid structural transformation.
• Domestic Savings and gross investments for SSA are about 21 per
cent of GDP whereas for developing Asia , both are about or over
40 per cent
10
RESOURCE MOBILISATION
• Nature of resources matter for Structural
adjustment: Foreign savings and savings from
natural resource rents have drawbacks
especially impact on REER; rents are also
associated with weak governance
• Focus should be on increasing non-resource
based savings to support higher levels of
savings in physical and human capital
11
Resource mobilisation
• Priority should be fiscal reform to raise public
savings; broaden the tax base and shift in
public expenditure to investments and efforts
to encourage more private savings
12
Conclusions
• Africa has achieved growth but little structural
transformation
• Structural transformation is key to long term
sustainable growth and development
• Structural transformation requires higher
rates of private investment, efficient resource
allocation and competitive markets
• Strengthen institutions and require higher
domestic savings
13