Thoughts on IMF’s Regional Economic Outlook for October 2012

Post date: Fri, Oct 26, 2012
Category: General
By: IEA Kenya,

Earlier this week, I was asked to be a discussant during the launch in Nairobi of the IMF’s regional Economic Outlook for October, 2012. This is a publication that discusses prospects for growth for the world and the regional version was concerned with Sub-Saharan Africa . The full report is available on this link and is recommended to those with an interest in the prospects for the region generally and individual countries over the medium term.

My specific purpose was to provide a 15-minute response to the third chapter which examined the extent to which structural transformation of SSA nations has occurred over the last 15 years. Bearing in mind that the region has led the world in absolute growth rates, this is a pertinent question because it has bearing on whether the average growth rates of 5.3% in GDP growth will be maintained. The Governor of the Central bank of Kenya commented on the first part of the publication which addressed the growth prospects and its constraints for Kenya and the region in general.

Addressing myself to chapter 3 on structural transformation that starts on page 51 of the document, I made four primary points. The first is that the definition that was adopted for structural transformation is very tight and admittedly fails to consider the degree of urbanization and demographic transition. The latter two are areas in which the SSA region has not done well as populations are primarily rural-based and fertility decline rates have stalled. Still, the fact that the chapter address transformation in the extent to which employment and resources are moved from low labour productivity activities such as agriculture to higher productivity activities such as services or manufacturing is instructive.

Secondly, the publication notes that structural transformation has indeed occurred though it has been slow. It is also clear that the transformation has not occurred through the classical process of transfer of labour into manufacturing from agriculture but through several routes. Instead the structural transformation has occurred through improved productivity in agriculture itself, development of manufacturing and services too. In other words, the SSA experience seems to suggest that there will be heterogeneity in the path to higher growth and labour productivity. The path is not pre-determined and these paths are not mutually exclusive.

That the SSA region has had comparatively higher rates of GDP growth in the period under discussion is noted. It is surprising that the productivity growth has not matched this pace and this suggests that growth alone will not deliver higher productivity and in future, further growth will depend on whether transformation occurs.

Finally, in terms of the policy choices, it is worth bearing in mind that the traditional avenue for structural change that many Asian nations adopted is no longer available. Opportunities for SSA countries will be expanded greatly by correcting the major constraint of poor infrastructure. Kenya’s path is therefore unlikely to be determined by an approach that emphasizes a single sector’s development.

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