Africa is growing fast but transforming slowly. This is the message of the 2014 African Transformation Report, launched last week by the African Center for Economic Transformation (ACET). The report addresses a worry on the minds of many: in spite of impressive growth, the structure of most sub-Saharan African economies has evolved little in the past 40 years, with a poorly diversified export base, limited industrialization and technological progress, and a large informal economy whose economic potential remains mostly overlooked. In many African economies, manufacturing—the sector that has led rapid development in East Asia—is declining as a share of GDP. The worry is that without a major transformation Africa’s recent growth may soon run out of steam. The report argues that for growth to continue, Africa needs to invest in “DEPTH”–diversification, export competitiveness, productivity, and technological upgrading, all for the purposes of human well-being.
Labor and Social Protection
What are the jobs of the future? How can I steer my daughter to a career which offers the best potential for secure employment? If I am honest with her, no one really knows. A decade ago, who had heard of an App Developer or a Chief Listening Officer? These jobs, like so many others, simply didn’t exist.
Many people have the misconception that my field -- global development -- is just about do-gooders and charities helping the poor. To be sure, many charitable groups are doing generous, laudable work. But global development extends far beyond charity and has a greater impact on the global economy than most people think.
Strong economic growth in developing countries became an engine for the global economy after the 2008-09 financial crisis, accounting for roughly 50 percent of all global growth. In addition, fully half of the United States’ exports now go to emerging markets and developing economies.
Global economic development can be good for your bottom line. Our focus is on helping more than a billion poor people lift themselves out of extreme poverty and on boosting the incomes of the poorest 40 percent in developing countries. To do that, we need to find economic growth strategies that help all segments of society in emerging markets -- reaching even fragile states striving to put years of conflict behind them and to create good jobs for their people.
The question I ask my team all the time is, what’s our plan? Increasingly scarce public funding isn’t enough to get the job done. We need to attract private sector investment that creates jobs. Ninety percent of all jobs in the developing world are created by the private sector. If we have high aspirations for the poor and vulnerable, there is no argument: We need the private sector to flourish, even in the poorest countries.
A couple of weeks ago, just after International Women’s Day, we had a coffee hour in the World Bank’s Ankara office to watch short videos of five women that have recently started up their own business and transformed their lives and that of their families (stay tuned for the release of these films, currently being edited). Their stories were uplifting, but the discussion quickly turned to the dismal field of statistics. Commentators stressed that female labor force participation in Turkey remains at only half of the OECD level, that Turkey loses around 25 percent of its potential GDP because of this, and lamented that social norms and mixed political messages on the role of women in society were preventing greater progress towards gender equality.
This week I’ve been participating in the World Bank’s South-South Learning Forum in Rio de Janeiro, Brazil, where policymakers from 70 countries are sharing their experiences and discussing practical solutions for successful social protection programs.
The Western Balkans Case
The Western Balkans have a lot going for them: ideal location next to the world’s largest economic bloc, a well-educated workforce, relatively low wages and decent infrastructure. FDI and investors should be rushing in … but are they?
Southeast Europe is the next frontier of EU expansion and includes six countries: Albania, Bosnia & Herzegovina, Kosovo, Macedonia, Montenegro and Serbia. These countries have a lot in common and an equal amount of differences. They are all relatively small open economies, with a growth strategy premised on deeper international integration. Some, especially Macedonia, are more advanced in attracting international investors but as a whole, the region seems to be stuck in a classical Middle Income Trap: they are too rich to compete on low-cost manufacturing but are too poor to be global innovators. After a strong recovery following war and conflicts in the 1990s, the growth momentum has stalled over the last five years and the region has been particularly vulnerable to external shocks.
Europe faces a significant job challenge. At an average of 11 percent, unemployment remains stubbornly high while labor force participation, at 58 percent of the working age population, lags behind most other regions of the world. This means, that only every second person in working age currently has a paying job across the region. Addressing the job challenge requires multifaceted labor market policies. We argue however that reducing the tax burden on labor, which remains high across the region, holds the promise of improving labor market outcomes. Such tax cuts could especially target low-wage workers, which often face the highest marginal tax rates and very elastic labor demand and are therefore most likely to be priced out of the formal labor market.