Structural Transformation and Natural Resources in Africa （Second Part）

Presented by Xia Li (Sherry)

Poor performance of its primary sector : Exploration for mineral resources below its potential; Lack of agricultural transformation Improvements:Recent boom in commodity prices brings the expected growth effects;Exports of processed products gains significantly on the back of the trade boom in natural resources ;Massive inflows of foreign investment helps job creation.

The Primary Sector in Africa Past and Present

Exploration of Mineral Resources Below Its Potentials: Previous attempts to diversify came at the

expense of commodity production, particularly agriculture, and resulted in slow growth.

Exploration for geological deposits of resources has remained below its potential.

Much potential has been left untapped, reflecting difficult conditions, especially agricultural resources.

Poor Performance

Lack of Agricultural Transformation: Many countries did not overcome dependence

and continue to suffer from the “resource curse”. Instead of managing volatility, many

governments exacerbated its effects through spending. The lack of financial access added to the problem.

Combinations of rent-seeking and insufficient transparency led to waste and continued dependence.

Environmental impacts often went unchecked.

Poor Performance

Improving terms of trade and the reversal of past policies have led to the recent revival of the primary sector, contributing to growth and structural change Africa is getting better at avoiding the resource curse. High global demand led to an expansion of natural

resource production. Africa’s exports boomed and showed that growth in

manufacturing exports can go side by side with a strong natural resource economy.

The expansion of natural-resource production has created a large number of jobs.

The expansion of proven reserves and resource production in Africa is set to accelerate.

Improvements

First Layer: providing the fundamentals such as high-quality public services, a favourable institutional and regulatory environment, capable government and access to finance and markets

Second Layer: the environment specific to the natural resource sectors

Third Layer: managing the special opportunities and challenges of natural resources

Fourth/Top Layer: the realm of active government policies pushing for structural transformation

Four-layer Policy Approach

Policy Challenge: Infrastructure is a particular challenge for

land-abundant Africa: Energy provision remains the most important infrastructure obstacle; Transport costs remain a particularly severe bottleneck.

The first two layers: Putting in place the right conditions for structural

transformation based on natural resources

Skill & Education: The supply of skilled labour has been a crucial

element of resource-based structural transformation;

The right skill mix for their resource endowments requires anticipating skill needs and making the most of foreign investment;

Applied research in natural resources has so far been Africa’s Achilles heel.

Making the most of Africa’s abundance of natural resources requires countries to benefit from the full talent pool available – men and women.

The First Two Layers: Policy Challenges

Government Regulations: Property rights and land management

systems; Competitive politics and broad-based

tax systems; Regional integration as well as better

access to the markets of large partners;

Increasing effective market size.

The First Two Layers: Policy Challenges

Questions of Revenue Optimisation and Management:

The experience with state ownership in resource sectors is mixed and does not demonstrate that it is necessarily superior to private operations;

The objective of exerting more control through nationalisation has not generally been achieved;

The objective of retaining a larger share of the rents from resource sectors has only partly been fulfilled.

The third layer: Managing natural resources

Actions for Governments: Improve tax collection in the extractive sector without

harming investment; A sustainable approach to revenue management that

balances necessary investment with savings is more appropriate for developing countries than the conventional advice;

Initial revenue should be “invested in investing”; transparency and accountability are crucial in

constraining profligate government expenditures and ensuring truly counter-cyclical revenue management;

Direct distribution of resource revenues to citizens is another possible option.

The third layer: Managing natural resources

Specific Actions for Governments: boosting the productivity of agriculture requires tailored interventions Link large, formal firms to smallholders; Commercialize agriculture; Increase value-addition to agricultural commodities

through processing; Co-operate with the private sector to facilitate a

commercialisation of agriculture; Use divestment strategy where the public sector does

not have a comparable advantage; Help co-ordinate activities and attract FDI

Layer 4: Promoting structural transformation

Specific Actions for Governments: promoting linkages Opportunities for developing backward linkages can

be supported by active co-operation between government and the private sector;

Government plays a major role in shaping framework conditions for upstream linkages by eliminating common market failures;

Local content provisions can be an effective policy tool to foster backward linkages;

Infrastructure development integrating the needs of lead firms and suppliers could particularly promote cross-linkages between mining and agriculture

Layer 4: Promoting structural transformation

1. Government interventions 2. Co-operations among nations 3. Education & Technology

Policy Lessons: