Africa's arsenal for economic progress

By 2050, Africa will be home to an additional 1.2 billion people. More than 47 million young people will enter the labor market every year looking for jobs and regional development strategies are set to play a major role in helping the continent overcome structural challenges and take advantage of the demographic boom.

So what is atop Africa’s development agenda in the years beyond 2015, particularly in light of the newly ratified Sustainable Development Goals, the debates around financing for development, policy responses to climate change, the impact of the continent’s future demographic development and its ongoing economic transformation?

Clearly there is a place for more robust strategies including job creation, improvement to education, measures aimed at bolstering fiscal capacities and developing cities as poles of regional growth. But what about the role of rural development?

In global development, much emphasis is often placed on the rapid urbanization of Africa, but this neglects the large youth population in rural areas; and, at the same time, the significant opportunities for entrepreneurship and employment there. With the introduction of carefully tailored strategies — and the greater empowerment of local authorities — many observers believe that rural development can be a major catalyst in driving progress for Africa's economy.

Several leading politicians and nongovernmental organizations gathered in Berlin, Germany, last month for the 15th International Economic Forum on Africa to discuss these pressing issues. On the sidelines of the forum, Mario Pezzini — director of the Development Center at the Organization for Economic Cooperation and Development — sat down with Devex to give his take on the prospects for development in Africa.

Here are some highlights from that conversation:

There is an argument that governments are not good at innovation when it comes to rural development. How do you think that can change?

Africa, like many other places in the 1960s and 1970s, was designing policies for rural development — and for regional development in general. What happened is that these policies have been progressively abandoned. What we see today is that there are some remaining instruments of these policies: over here, there is a free zone, over there, there is an economic corridor, elsewhere some new cities have been created. But the sum of these instruments does not constitute a real strategy for rural or regional development.

At a certain point, we international organizations and the media created the idea that this was not the thing to be done; that what was to be done was effective, traditional, as-small-as-possible sectoral policy and not these integrated, complicated programs. So things can change, but at the same time we have to ensure that we show how — in the past — we have exaggerated in denying the importance of these tools.

I spoke earlier to Jean-Claude Brou, Ivory Coast’s minister for industry and mining about tax incentives for private companies to invest in rural areas. What other such successful examples are out there?

In general, I am relatively skeptical about incentives. The traditional intervention in rural areas is based on the idea that these areas are handicapped and therefore we have to provide for them in order to reduce this handicap. Very often incentives or direct subsidies serve to compensate for this handicap, temporarily, with the thinking being that if you re-establish a certain balance [then] investment will be distributed equally to every part. This was tried in many countries — Brazil, Japan, my own country Italy — but it didn’t work. The incentives were given to sectors — agriculture, industry, culture — and were managed by the central government, which provided criteria for incentives. Why didn’t it work? Because very often the rural areas get this money and they don’t know what to do with it. And firms who use tax incentives to go [to rural areas] exploit the opportunity for a while and then they move elsewhere.

Today we see many countries making an effort to go in a different direction, which is to say: “Let’s not just compensate, but let’s identify some economic comparative advantages or opportunities that are in certain rural areas.” Second, they’re saying “Let’s invest in providing the basic public goods that are required in order to [reach rural areas]” — roads, technology, and so on. And third, they’re saying “It cannot only be done by the central government.” They require other actors around the table: sometimes the private sector, sometimes the unions, sometimes also the local authorities. 

So it’s a more complicated approach, but I think it’s more interesting — and effective — than the other one, which clearly didn’t work.

How confident are you that infrastructure is being treated with sufficient focus in the SDGs?

I think infrastructure is not only important, it is crucial. Often we talk about how weak regional integration is in Africa, and this is a fact. Regional integration could be stronger. So what to do? We immediately start a discussion about tariff barriers — and this is obviously a very important subject — but tariff barriers represent one-eighth of the cost of logistics in the price of goods in Africa. So, if we really want to facilitate regional integration, the first thing to put in place is infrastructure. And when I say infrastructure, I am not only talking about roads, airports, ports; I am also talking about regulations for transport, because sometimes the problem is a regulatory problem.

Looking ahead, the most important issue is to see how the SDGs will be implemented. As you know, they identify a lot of goals, even more targets, and even more indicators. So, in themselves, they describe a series of options. Everything will depend on how the different governments will [navigate] over these complex maps to attain the goals decided upon.

In a recent opinion piece, you wrote about the careful use of natural resources to galvanize the economy. You mentioned Botswana as an example, using its leverage as a diamond power. Are there any other ways you can see countries using natural resources to boost local manufacturing capacity?

Natural resources are an opportunity. We have seen that many countries have developed by increasing the production of natural resources. The United States started producing natural resources and continues to increase the production of natural resources, and this didn’t prevent it from developing. Norway and Australia have done the same.

The problem with natural resources is when you are dependent upon natural resources. So the real issue here is one of diversification. How can diversification take place? One way is to use the royalties that come from natural resources and invest them in other activities. Colombia is doing that, having decided that the royalties go 50 percent to a fund to deal with anti-cyclical intervention — that’s for macroeconomic policy — 40 percent goes to regional infrastructure, and 10 percent goes to funds for innovation. This is the way in which you use the royalties.

Paradoxically, Africa is not producing as many resources as it could. Why? If you look at exploration by kilometers, Australia spends $60-$65 per kilometer on exploration, while Africa spends only $5. So there is much more that could be done.

You also mentioned earlier that Africa has a very small share of the world’s market in intermediary goods.

Yes, 2.2 percent.

And what can be done to boost that share?

The real issue is to push up the capacity for manufacturing as much as possible. We need industrial policy to do that. And we also need to address not only big factories that are attracted from other countries, but also to involve small and medium-sized firms in this type of production, whether as subcontractors or in other roles. The global value chain represents a good opportunity here, because you don’t need a lot of investment; the barriers to entry are reduced, and you can specialize in a small part of the process of production.

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