A comprehensive agenda to boost worker output in Africa is vital for the continent’s post-pandemic recovery and long-term prosperity, as well as protection against the impacts of climate change, says a new World Bank report.
Sluggish growth in productivity, a key driver of growth and development, has left the region lagging behind many developing countries which have powered to prosperity on the back of productivity gains, says the ‘Boosting Productivity in Sub-Saharan Africa’ report.
It calls for efforts to better direct resources to the most productive firms in the sectors that hold the most promise for the continent. These include policies that would boost productivity in the agricultural sector, on which the vast majority of Africa’s poor people depend and create non-farm jobs through improved access to finance and more efficient tax systems.
“Continual and sustained increases in productivity are critical for ending poverty and improving prosperity in Africa. Given the host of global and local challenges confronting Africa, policymakers must ensure that precious resources are optimally allocated to sectors which are important for durable long-term growth that is inclusive, resilient, and sustainable,” said Albert Zeufack, World Bank Chief Economist for Africa.
The report analyzes productivity data in Africa over a nearly 60-year horizon, from 1960-to 2017, comparing it with several other developing countries, including Brazil, China, India, and a group of Asian ‘dragon’ economies (Indonesia, Malaysia, Singapore, South Korea, and Thailand). It finds that productivity, as measured by output per worker, has lagged in Africa even as other developing countries, which have followed different development pathways, have achieved varying but steady gains in productivity and, hence, economic prosperity. In contrast, Africa’s productivity trajectory has hewed closely to commodity price movements, which have not yielded sustained and persistent productivity gains.
The report provides pragmatic policy advice on addressing three types of distortions in resource allocations that adversely affect productivity:
- Statutory provisions include some features of the tax code and regulations, for instance, tax code provisions; tariffs targeting certain groups of goods; employment protection measures; and land regulations.
- Discretionary provisions by governments or banks that favor or penalize specific firms, for instance, subsidies, tax breaks, or low-interest loans granted to specific firms; preferential market access; and unfair bidding practices for government contracts.
- Market imperfections such as monopoly power; market frictions (for example, in credit and land markets); and enforcement of property rights.
“A comprehensive policy agenda that boosts productivity and leads to economic prosperity for the people and countries of Africa is needed. Measures to reduce misallocation of resources can lay a strong foundation for building resilience against other impediments to productivity, including conflict, political instability, natural disasters, epidemics, terms-of-trade deterioration, and sudden stops in capital inflows,” said César Calderón, World Bank Lead Economist in the Office of the Chief Economist of the Africa Region.
Resource misallocation in the agricultural sector is particularly worrisome, the report notes, given that the vast majority of Africa’s poor people rely on subsistence farming for their livelihood and in light of climate change predictions. The report suggests that a more systematic strategy for raising smallholder crop productivity, focusing on sustainably raising the efficiency and quantity, will more effectively achieve the region’s agricultural, food security, and poverty reduction goals.
Reforming the design and implementation of agricultural subsidies while rebalancing government spending in favor of high-return core public goods and policies could deliver high returns for the agriculture sector and foster competitiveness in inland markets.