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6 Insights from Structuralism

Commodity reliance is by no means a curse. For most of today's industrial economies, the starting point had always been one or two natural endowments. So it is not a challenge. Rather it is the reliance on natural commodities beyond the pre-take-off point that is detrimental. Breast milk is nature's most wonderful gift to a new baby. But after 5 years, that same gift can become problematic if the baby is still sustained by it—leading to perpetual underfeeding and possibly stalled growth. Relying on natural commodities at the point of take off sounds alright. However, it is managing a transition away from them at the earliest possible time that is critical. In this direction, the make-or-mar variable has to remain the macroeconomic policy environment and the diverse micro policies that support them as the continent manages the transition away from natural resources while maintaining the sterling growth it has acquired over the last couple of years (Agu and Caliari 2013; Papageorgiou and Spatafora 2013).

We think through the way forward by premising potential for West Africa's

growth to be most possible if some of the insights obtainable from the structuralist tradition can be applied. One such insight is that diversification of the production structure matters for macroeconomic stability. The challenge for many countries is “dualism,”—enclaves of progress coexisting alongside backward areas. This dualism came from the fact that heterogeneous economic actors coexist in the export and subsistence sectors, raising a gap of productivity between them; often in terms of high productivity in the primary export sector coexisting with a relatively

Table 3 Drivers of growth

Variable

W/Africa

UEMOA

Non-UEMOA

Solid minerals and oil exporting

Agric

Aid dependent

1

GDP growth

2

Foreign direct investment

0.303 (2.57)

-0.575 (-1.34)

2.643 (3.18)

3

Reserves/debt ratio

-0.0383 (-0.62)

-0.777 (-3.43)

4

Broad money

-18.064

(-2.22)

5

Inflation rate

6

Lending interest rate

-0.1695

-3.941

-0.224 (-2.85)

-4.797011

(-2.24)

(-2.67)

(-3.90)

7

Interest rate spread

-0.136

(-0.86)

3.504 (2.00)

8

Net ODA

0.072 (1.35)

0.301 (0.70)

0.168 (2.07)

9

Domestic credit

-0.488

-1.109

-0.186 (-1.06)

-1.894

(-2.79)

(-2.22)

(-2.09)

10

Gross fixed K formation

0.167 (1.55)

11

Remittances

1.480 (2.40)

0.263 (1.13)

4.611 (2.28)

12

Electric power trans/dist

0.162 (2.23)

-0.242 (-2.45)

0.135 (1.89)

-0.612 (-2.44)

13

Gross domestic savings

-0.068

(-1.34)

-0.0512 (-0.23)

14

REER (Index, 2000)

0.033 (1.67)

-0.181

-0.0034 (-2.16)

-0.0099 (-1.70)

-0.0033

-0.304 (-2.01)

(-1.93)

(-3.65)

15

Age dependency

0.521 (2.61)

16

Export value index

-0.008 (-2.89)

0.071 (2.90)

17

Import value index

0.024 (5.50)

0.028 (1.93)

0.038 (2.69)

-0.063 (-3.20)

18

Tax revenue

0.196 (1.74)

0.726 (1.62)


Table 3 (continued)

Variable

W/Africa

UEMOA

Non-UEMOA

Solid minerals and oil exporting

Agric

Aid dependent

19

Goods and services

exports

20

Total debt service

0.298 (1.69)

-1.859 (-3.44)

21

Interest on external debt

-1.601742

(-2.18)

Constant

-6.248

(-1.67)

563.870 (2.38)

9.449 (2.99)

16.742 (3.36)

6.409 (3.09)

144.637 (3.81)


inefficient sector producing agricultural and manufactured goods for domestic consumption, and of course a large subsistence masses living outside the market economy (Saad-Filho 2005). The heterogeneity is reinforced by high profits in the highly concentrated high productivity-sectors, often repatriated abroad by exporting firms or wasted through luxury goods imports by the solvent classes.. .or both! Thus, attempts to industrialize via incorporation of imported technical means of production, in a context of heterogeneous economic structure, rather than overcoming the backwardness condition would reinforce it, while generating high productivity enclaves disconnected from the rest of the economy. Even the behaviour of developing country economies post 2008–2009 recession confirms that this holds across board for all dualistic economies. Fall in trade associated with the global financial crisis affected many developing countries because of high and growing dependence on exports. But Asia, the region with the most diversified export basket, weathered the crisis far better, losing 18 % of export revenue, compared to Africa, which lost more than 30 %. the implications for differences in growth were such that while East Asia's growth declined by 1.4 %, Africa went from 5 % growth rate in 2008 to 1.6 % in 2009.

Of particular interest to West African countries should be the question of whether macroeconomic stability supports greater diversification. In light of the emphasis on stability over the years and the resultant myriad of reforms that have run across the continent, is it plausible to assume that Africa's efforts at macroeconomic stability are paying off in the way of increased growth. It is possible to answer this question in the positive. However, it has to be either believed that the stability programmes, if deepened further, can also further deepen and spread the growth. But another argument could be that without such stabilization programmes followed up through policies encouraging innovation, research and development, infrastructure, education of the workforce, institutional mechanisms for privatepublic coordination, among a host of other structural changes, the growth will remain fragile (Hailu and Weeks 2011; Page 2008; Rodrik 2006; Lall 2004). There could even be reasons to question the ability of macroeconomic stability to play any role, even a complementary one, in diversification. And particularly, since macroeconomic stability can be achieved in a number of ways, it becomes important to find out if some of the ways are more conducive to diversification than others. We think so; based on the strength of theory and the weight of evidence. Having raised issues in respect of selective taxation in order to reduce the profitability of certain sectors, it is then helpful to think of macroeconomic diversification, not just in terms of diversification of sectors, but also diversification of instruments, capacity to mix them with long term objective that balances growth between extractive and other industries.

According to Nurske, while up to a point a country can benefit from concentrating along lines of international comparative advantage, it is much more difficult if it can achieve continued growth if external demand conditions do not induce it (Kattel et al. 2009). There just has to be comparative designed as a move away from the original sectors that induced such advantages to sectors that may have been dormant but have the capacity to even accelerate it beyond that which induced it. Anything short of this keeps an economy in a boom-bust cycle—a specialty that many African countries have enjoyed for over four decades of post-independence, and which has the potential to continue if not arrested.

To turn the tide then, first the limitations of neoclassical market management have to be acknowledged and addressed. Most African countries are structuralist in the sense of being inhibited by irregular factors—supply constraints, absorptive capacity, structural imbalances, among a host of others. The old wisdom of mapping instruments to challenges still holds and many African countries have managed to ignore it at great peril, limiting response to only a limited set of instruments. In some cases, it is difficult to blame the policymaker who may not only have inherited the limited instruments but have no means of creating additional ones. For example, for many years, the warning of watching against appreciated exchange rate has sounded clear from the horn speakers of guardians of the classical market economy. But for a developing country, the question goes beyond just depreciation. Understanding for example that the channel of sustained impact of depreciation is through traditional activities likely in manufactures and natural resource based products (Rodrik 2008). So pursuing a broadly undervalued exchange rate provides little comfort; even that has to be properly channeled to desired sectors—sectors that increases in aggregate savings and technological change, learning by doing that support climbing the technological ladder and generating spillovers (Gala 2008; Frenkel 2004).

 
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