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THE ROLE OF INSTITUTIONS AND RESOURCE MOBILISATION IN STRUCTURAL TRANSFORMATION

THE ROLE OF INSTITUTIONS AND RESOURCE MOBILISATION IN STRUCTURAL TRANSFORMATION. By Louis Kasekende (PhD). What is structural transformation?. Shift of labour resources from low and stagnant productivity into activities characterized by higher and rising productivity

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THE ROLE OF INSTITUTIONS AND RESOURCE MOBILISATION IN STRUCTURAL TRANSFORMATION

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  1. THE ROLE OF INSTITUTIONS AND RESOURCE MOBILISATION IN STRUCTURAL TRANSFORMATION By Louis Kasekende (PhD)

  2. 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

  3. 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.

  4. Structural transformation (1) • 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. Source: World Bank

  5. Structural transformation (2) 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.

  6. 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

  7. 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

  8. Institutions and governance Source: World Bank • Ratings are low for Kenya and Uganda in respect of public administration and transparence compared to Ghana and India

  9. Resource mobilization (1) • 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 Source: World bank

  10. 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

  11. 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

  12. 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

  13. 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

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