Africa has
made tremendous progress over the last 13 years, going from “hopeless” to “aspiring”, in the words of The
Economist. Certainly, Africa’s pace of growth has been impressive,
averaging 5.1% of GDP per year – much faster than most OECD countries. Some
have dismissed this simply as reflecting only the recent boom in natural
resource prices. They point to the fact that prices of most commodities –
agricultural, mineral and energy – doubled or even tripled over the same
period, and warn that Africa’s growth will come to an end once resource prices
taper off, as it is happening now.
This
viewpoint misses the real story on two counts. First, natural resources and
their improved terms of trade contributed only a third of Africa’s growth.
That’s quite a lot, but not enough to make Africa’s growth exclusively a
resources story. Instead, much of Africa’s success is actually a productivity
story. Applying new methods of measurement, the African Economic
Outlook 2013 finds that Africa’s labour productivity increased by
close to 3% during the 2000s, with almost half this attributable to workers
moving to new activities with higher productivity. By contrast, Latin America’s
productivity growth was less than 1%.
Second,
rather than being the exclusive drivers of growth, Africa’s natural resources
are contributing less than they could do. Agricultural commodities are a
striking example: 24% of the world’s agricultural land is in Africa, but only
9% of agricultural production. With regards to mining, spending on exploration
in Africa has remained below $5 per square kilometre; in Canada, Australia and
Latin America the average is $65 per square kilometre.
So the
story of Africa’s growth and natural resources is a mixed bag: On the upside,
Africa’s growth rests on a much more diversified base than is often assumed. On
the downside, Africa failed to make the most of its natural resource wealth
during the recent boom. Had it done better, overall growth and the type
of structural transformation that can provide more and better jobs would have
been higher.
“Hang on,”
you might say now. “Isn’t it conventional wisdom that for development to take
off a country must leave commodities behind and focus on building factories?
Shouldn’t it then be a good thing to leave most resources in the ground?” Not
quite. If managed well, natural resources can play a crucial role in
transforming economies. This can happen through three channels:
diversification, capabilities and revenues.
Diversification,
which essentially means the range and variety of products a country exports, is
an important driver of growth in developing countries. Given
the right conditions, natural resources can be an important source of
diversification. Chile, for example, used proceeds from copper to invest in new
agricultural commodities, such as salmon, that it previously did not export.
Malaysia invested its oil revenues in forestry and palm oil, building very
successful industries. Indonesia used oil revenues to supply fertilizer to
farmers and develop new crops, building the basis for the country’s green
revolution.
Capabilities
are the cornerstone of structural transformation. In simple terms, these
represent the things a country “can do” – its technological know-how and
skills, for example, or the quality of its public services in areas like
infrastructure, education and health, and much, much more. Countries with
strong and diversified natural resource production have more opportunities to
develop their capabilities. Take South Africa, which went from supplying simple
tools to its miners to become an internationally competitive supplier to the
world’s mining industry. Chile successfully developed local know-how on
adapting mining technology to local conditions, while Nigeria has started to
build up a supplier industry for its resource sectors.
Capabilities
make the link between the production of basic commodities and diversification
at large. On average, the more unprocessed commodities a country exports
competitively, the more manufactured products it exports competitively. For
example, South Africa exported 46 raw commodities competitively in 2005 and 197
manufactured final products in 2010. Angola only exported one commodity (oil)
competitively in 2005 and 24 manufactured final products in 2010.
Finally,
the third channel – revenues – offers arguably the greatest benefit from
extractive industries in the short to medium term. Invested wisely, the
proceeds from mining and petroleum production can be used to fund many of the
crucial inputs for structural transformation such as education and health, as
well as infrastructure and strong public services.
So, instead
of putting natural resources aside, African countries should look to them for
their strengths and the opportunities they offer to create a diversified
economy.
This blog was originally posted on the OECD Insights blog, here.
Jan Rielaender
OECD Development Centre
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