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African Economic Development: Evidence, Theory, Policy
Abstract
This book challenges conventional wisdoms both about economic performance and about policies for economic development in African countries. Its starting point is the striking variation in economic performance: unevenness and inequalities form a central fact. The authors highlight not only differences between African countries but also variations within countries, differences often organized around distinctions of gender, class, and ethnic identity. For example, school dropout and neonatal mortality have been reduced, particularly for some classes of women in some areas. Horticultural and agribusiness exports have grown far more rapidly in some countries than others. These variations (and many others) point to opportunities for changing performance, reducing inequalities, learning from other African policy experiences, and escaping the ties of structure and legacies of a colonial past. The book rejects teleological illusions and Eurocentric prejudice, but does pay close attention to the results of policy in more industrialized parts of the world. Seeing the contradictions of capitalism for what they are—fundamental and enduring—may help policy officials protect themselves against the misleading idea that development is likely to be a smooth, linear process, or that it would be were certain impediments removed. The authors criticize a wide range of orthodox and heterodox economists, especially for their cavalier attitude to statistical sources. Drawing on decades of research and policy experience, they combine careful use of available evidence from a range of African countries with heterodox political economy insights (mainly derived from Kalecki, Kaldor, and Hirschman) to make the policy case for specific types of public sector investment.
... This makes Endogenous Growth Theory particularly relevant for emerging economies where investments in education and infrastructure are critical to long-term development (Rangelova, 2021). However, critics argue that it may overlook external influences, such as global markets, in driving growth and may overestimate the potential for continuous growth without encountering diminishing returns (Cramer et al., 2020). ...
This study investigates the direct and moderating effects of financial development (FD) and human capital development (HCD) on foreign direct investment (FDI) and identifies the human capital development threshold that triggers a significant impact on FDI in sixteen emerging economies from 2010 to 2023. Panel threshold and panel-corrected standard error regression methods are employed to explore these factors’ direct and conditional effects on FDI. The findings indicate that, initially, FD and HCD negatively affect FDI. This can be attributed to short-term costs associated with structural adjustments and economic instability periods for the selected emerging economies. However, when these variables were interacted, their impact on FDI became positive with a total effect of 1.404, revealing the complementary effect of FD and HCD on FDI. Furthermore, a critical threshold was identified for HCD (0.7919), beyond which its impact on FDI becomes positive, facilitating long-term economic gains. Similarly, FD shifts from a negative to a positive effect as financial systems achieve greater stability and efficiency. The study emphasizes the importance of strategic investment in human capital and efforts to enhance financial sector stability to attract and sustain FDI in emerging markets. It reveals that this approach increases FDI inflows and ensures sustainable economic development over time. The study offers critical insights for policymakers to prioritize structural reforms in education, workforce skills, and financial governance to create an enabling environment for FDI. Furthermore, it highlights the relevance of understanding threshold dynamics to design targeted policies that maximize economic returns from foreign investment in emerging economies.
... More general arguments around the importance of small firms' participation in industrial development include the maintenance of competitive rivalry in industrial development and improvements in pre-distributive equity in contexts of high inequality (Altenburg and Lütkenhorst 2015;Arthur-Lewis 1976;Vilakazi, Goga, and Roberts 2020). Such expectations should be balanced against concerns about the generally lower quality of employment in small firms, low firm survival rates and generally more limited R&D capacity (Cramer, Sender, and Oqubay 2020;Nelson et al. 2018;Page and Söderbom 2015). ...
We analyse processes of supermarketisation in South Africa and its implications for inclusion, exclusion and industrial concentration in the mid‐sections of agri‐food value chains. Empirical material from maize processing shows differentiated impacts accompanying major retailers’ growing power and extended reach into the food system's township and rural peripheries. Large firms’ co‐evolutionary adaptations and constitutive power counteract supermarket buyer power. Smaller firms struggle with adverse incorporation in supermarket supply chains, relying instead on strategies targeting independent wholesale and the informal retail economy. However, this carries major risks, requires complex capabilities and is increasingly threatened by market delocalisation accompanying supermarketisation. Contrary to expectations of retail modernisation enabling inclusive agri‐food value chain development by connecting marginalised rural producers to larger urban markets, we highlight the potential for inverse processes whereby ‘peripheral supermarketisation’ extends the reach of large firms in rural markets and shrinks the ‘interstices’ incubating small agri‐food producers.
A widely held view is that state-owned enterprises (SOEs) are disastrous for economic development on conceptual and empirical grounds. And indeed, there are prominent examples that confirm how bad they are. However, this chapter attempts to turn some of this on its head and argues that, despite obvious evidence that many SOEs are awful, there are good reasons and sound evidence to support a very different argument. With a focus on the challenges and lessons of the governance of SOEs in Africa, the chapter argues, first and foremost, that ownership per se does not tie up firmly with corporate performance as much as universally supposed. But more than this, SOEs are at the heart of transformation and economic catch-up, as they have been in many places—a perspective underpinned by the developmental role of the state in accelerating capitalist development. SOEs are playing increasingly prominent roles worldwide in the early twenty-first century. Second, developing productive and high-performance SOEs requires a more disciplined state that promotes the constructive political condition for the productive role of SOEs, restrains harmful political interventions, and articulates the public policy purpose of the SOEs. Third, a vibrant SOE sector necessitates enhancing the governance system—both the supervision and the administration of SOEs—and developing corporate governance within each SOE that constantly evolves with the best international experiences. Fourth, firms’ performance requires a complex and painstaking effort to build capabilities and strategies specific to the industry in an increasingly intense international competitive force. However, this undertaking is more complex than often thought, and SOE governance and a disciplined state are necessary but inadequate. This chapter presents empirical evidence, draws lessons from across the continent, and combines these with learning from international experience. It builds on a qualitative and comparative research approach, utilising a mix of document reviews and selected qualitative interviews, focusing on policy lessons. SOEs are dominant players in South African and Ethiopian economies and are suitable cases for extracting policy lessons.
This chapter reviews the theory and practice of industrial policy, focusing on three key themes. First, it presents industrial policy as a vehicle by which manufacturing (and other dynamic and high-productivity services and agricultural activities that share technological and linkage spillovers) drives structural change. It also underlines the strategic role of exports, especially as a source of international learning and relaxing balance-of-payment constraints. Second, it examines industrial policy as a conduit of technological catch-up and emphasises the centrality of technological learning and the development of technological and innovation capabilities for economic catch-up and sustained economic growth. Finally, it reviews the origins, dynamic, and adaptive nature of industrial policies and the unevenness and variations in policy design and outcomes. The chapter draws primarily from structural development economics and evolutionary economics and includes a broader literature scan. It provides the groundwork for subsequent chapters examining theoretical perspectives, connections, and experiences from advanced, emerging, and developing countries.
By the end of the century, more than 85 per cent of the global population is projected to reside in cities. The process of urbanisation and the transformation of cities are pivotal to the global changes witnessed in the twenty-first century. Cities drive economic growth and foster technological innovation, creating spillover effects through agglomeration economies and significantly influencing climate change. The 2030 Agenda for Sustainable Development and Sustainable Development Goals (SDGs) and the Paris Climate Agreement on meeting net-zero emissions underscore the urgent and immediate need for sustainable urban development and the central role of cities. This chapter aims to achieve three primary objectives: firstly, to offer a comprehensive review of urban transformation; secondly, to examine the imperative and notion of productive cities and urban sustainability; and, thirdly, to support with real experiences and cases of productive and sustainable cities and to draw essential lessons to enhance cities’ contributions and conclude with a synthesis. Drawing from development economics and urban development studies and leveraging the author’s policy experience as a former mayor, minister of urban development, and policy leader, the chapter is structured into four sections, complemented by an introduction and conclusion. Under Brazil’s chair, the 2024 Rio G20 Summit 2024 will contribute to elevating the urban transformation agenda.
This chapter examines Africa’s challenges and prospects of green industrial policy and industrialisation. Green growth and carbon-neutral industrialisation are vital for African economic transformation, and a sustainable industrial policy is central to achieving these goals. Yet African countries have to accelerate economic transformation and pursue a green transformation path with limited resources and a low base of technological capability. Furthermore, the design and practice of green industrial policy and decarbonisation pathways are more complex than often thought. The chapter first sets out conceptual perspectives on green industrial policy. It examines the evidence for and lived experience of progress and challenges in greening African economic development through selected comparative case studies of industrial policy practices. Second, the chapter focuses on three strategic complementary priorities for green industrialisation: (a) developing low-carbon industrial hubs to accelerate decarbonisation and the building of green manufacturing; (b) prioritising the expansion of diverse forms of renewable energy, including hydropower, which has strong spillovers and is a significant African endowment; and (c) investing in research and innovation capability from the early stage of development. Third, it argues that carbon-neutral industrialisation is a protracted and the only prospective path to achieving the dual goals of accelerating structural change and achieving its ambition of net-zero emissions. Nonetheless, green growth has a broader scope and necessitates more decisive developmental roles of the state in an increasingly complex and competitive landscape. Policy learning from the continent’s experiences and from those emerging economies that pursue green growth could provide valuable lessons to accelerate the process.
The chapter provides a comprehensive theoretical and conceptual framework and the empirical perspectives essential to studying industrialisation and workforce development in Africa, underpinned by four perspectives. First, the historical development of industrial capitalism shows that countries that underwent industrialisation faced similar complex challenges in building an industrial workforce, providing the historical context and essential concepts. Second, a perspective on industrialisation, industrial policy, and cluster ecosystems provides the perspective needed to understand the process of industrial development involving government policies, sectoral ecosystems, and firm behaviours. Third, the conceptual framework of the rise of global value chains and the shifting nature of foreign direct investment are critical to understanding firm performance and how they respond to workforce development. Fourth, the labour control regime approaches that focus on labour relation regimes, workforce development challenges, and human resource management practices provide a critical dimension on firms and labour. In addition, the chapter presents a literature review related to the global trends and national context of the Ethiopian apparel and textile sector, providing empirical perspectives. This chapter highlights the importance of building an industrial workforce for late industrialisers, particularly those transitioning from an agrarian economy like Ethiopia. It highlights that diverse experiences show how industrial policies could direct and manage foreign direct investment (FDI) to play a critical role in workforce development. Experiences have suggested that having an abundant and cheap labour force is not enough for late industrialisation; a highly skilled and productive workforce is the key to successful industrialisation.
The final chapter presents a concluding summary, policy and research implications, and directions for future research. The book underscores that building an industrial workforce requires recognising its central role in the productive transformation and industrial development strategy. However, it should be anchored in empirical evidence and in-depth analyses, and policy learning can provide an opportunity to catch up. Building an industrial workforce necessitates effective government policies and multidimensional intervention, constructing productive dialogue and collective learning between government and firms. Industrial hubs can reinforce inter-firm learning and provide the ecosystem, highlighting the potential and necessity of these strategies. Unlike mainstream views advocating minimal government intervention, generic prescriptions, and labour market flexibility, this case shows that government policies played a productive role. However, political constraints—political instability and domestic conflicts during 2020—2022 slowed workforce development in the industrialisation process. Amsden underlines that labour relations and workforce development have attracted little focus, as illustrated in South Korea’s late industrialisation experiences and industrial policy. Despite some progress in the field, there is a significant gap and a scarcity of empirical evidence on low-income economies, as can be observed in most African countries. The book also underscores the urgent need for additional studies, highlighting its relevance for policymaking and broader application across sectors and divergent national contexts.
The chapter explores how firms collectively and separately coped with the retention constraints and continuous adaptation to the challenges and the dynamic effects of the industrial ecosystem, which had an essential effect on firms’ and government policy responses. It reviews how the challenges of retention and building an industrial workforce were overcome through a nuanced combination of factors and market and non-market labour solutions, focusing on industrial parks as a case study of the Ethiopian apparel and textile sector. The chapter focused on investigating how firms sought to address the binding constraint. Moreover, it explored how government policies responded to labour retention and, in broader terms, the development of the industrial workforce. This chapter provides empirical evidence and a review of the firm-level and industrial ecosystem of the work environment and living situation, including the major causes of the labour retention problem, how firm managers sought to cope with the retention challenge, and how government policies approached the issue. It also reviews workers’ evolving attitudes and perspectives concerning living and working conditions and their response to productivity-improvement schemes. The chapter also reviews the variation among firms’ human resource and production management practices and offers some insights on issues common to all firms. Work and living environments directly and indirectly affect the retention and building of the industrial workforce. These insights have significant implications for African industrialisation and industrial development strategies.
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