Africa

2023
Hausmann, R., et al., 2023. Growth Through Inclusion in South Africa.Abstract

It is painfully clear that South Africa is performing poorly, exacerbating problems such as inequality and exclusion. The economy’s ability to create jobs is slowing, worsening South Africa’s extreme levels of unemployment and inequality. South Africans are deeply disappointed with social progress and dislike the direction where the country seems to be heading. Despite its enviable productive capabilities, the national economy is losing international competitiveness. As the economy staggers, South Africa faces deteriorating social indicators and declining levels of public satisfaction with the status quo. After 15 years, attempts to stimulate the economy through fiscal policy and to address exclusion through social grants have failed to achieve their goals. Instead, they have sacrificed the country's investment grade, increasing the cost of capital to the whole economy, with little social progress to show for it. The underlying capabilities to achieve sustained growth by leveraging the full capability of its people, companies, assets, and knowhow remain underutilized. Three decades after the end of apartheid, the economy is defined by stagnation and exclusion, and current strategies are not achieving inclusion and empowerment in practice.

This report asks the question of why. Why is the economy growing far slower than any reasonable comparator countries? Why is exclusion so extraordinarily high, even after decades of various policies that have aimed to support socio-economic transformation? What would it take for South Africa to include more of its people, capabilities, assets, and ideas in the functioning of the economy, and why aren’t such actions being undertaken already? The Growth Lab has completed a deep diagnostic of potential causes of South Africa’s prolonged underperformance over a two-year research project. Building on the findings of nine papers and widespread collaboration with government, academics, business and NGOs, this report documents the project’s central findings. Bluntly speaking, the report finds that South Africa is not accomplishing its goals of inclusion, empowerment and transformation, and new strategies and instruments will be needed to do so. We found two broad classes of problems that undermine inclusive growth in the Rainbow Nation: collapsing state capacity and spatial exclusion.

Learn more about the Growth Lab's research engagement, Growth Through Inclusion in South Africa.

2023-11-cid-wp-434-south-africa-growth-through-inclusion.pdf summary_growth_through_inclusion_in_south_africa.pdf
Fortunato, A. & Enciso, S., 2023. Food for Growth: A Diagnostics of Namibia’s Agriculture Sector.Abstract

This growth diagnostic report analyzes the economic constraints that explain the underperformance of the agriculture sector in Namibia. Section 1 starts by showing why Namibia’s agricultural challenge is unique when compared to the rest of the world. We then describe the sector’s key features, recent trajectory, and growth potential across different relevant dimensions in Section 2. In Section 3, we provide an adaptation of the growth diagnostic framework to the case of agriculture in Namibia and a detailed analysis of its economic constraints. Finally, Section 4 presents policy guidelines for addressing the challenges described in this report and prioritizing policy interventions accordingly.

2023-10-cid-fellows-wp-154-namibia-agriculture.pdf
Klinger, B., et al., 2023. Growth Diagnostics and Competitiveness Study of the Manufacturing Sector in Tanzania.Abstract

Tanzania’s manufacturing puzzles (and frustrations) seem to be a natural outcome of their policy choice. The Tanzanian economy experienced a significant acceleration over two decades, growing at a compounded annual growth rate of 6% between 1998 and 2018: Largest rates were recorded and sustained by the super commodity cycle (2005-2014). Within that growth trajectory, manufacturing’s share of gross domestic product (GDP) has lingered for 30 years below 10% – well below the 23% target established for 2025 in Tanzania’s Industrial Development Strategy (2011). As stressed by Diao et al (2021), the bulk of manufacturing value added is created by a few capital-intensive firms, whereas informal manufacturing has increased employment but without significant improvements in productivity/wages. Manufacturing exports surged in 2011 and remained steady since driven by subsector basic metals (gold & unrefined copper). If these are excluded, the curve mirrors the commodity price boom (likely a price boom rather than a volume boom). Looking only at exports conceals the fact that the bulk of the manufacturing output in Tanzania is sold in the domestic market rather than exported: exports are equivalent to less than 2% of GDP; domestic sales are seven times higher. While Food and Beverages make up for the largest share of manufacturing value employment and value-added, basic metals are the ones accounting for the vast majority of Tanzania’s exports.

The most binding constraint to investments in manufacturing in Tanzania is the availability and quality of electricity supply: Access to electricity is the lowest among peers, with large disparities between rural (22%) and urban (70%). Electrical outages are frequent and expensive for the manufacturing sector; firms even plan their production schedules and decide on plant locations based on power reliability. And yet, when we analyze the share of value-added against energy intensity at the sub-sector level, the negative relationship to be expected if electricity is indeed the constraint is there, but too fragile and noisy. Why? The strongest evidence points to the role of trade protection in compensating firms for other constraints, allowing existing manufacturers to capture large shares of domestic value-added while remaining uncompetitive in export markets. Large manufacturing subsectors of moderate to high energy intensity and more capital intensive enjoy higher tariff protection, creating a wedge that allows these industries to thrive in the domestic market. Despite joining numerous free trade agreements, Tanzania remains one of the most restrictive countries from a trade standpoint, eased by filing exceptions that shield individual products and entire domestic industries from competition. We have also found that effective taxation in Tanzania is relatively higher on labor (lower on capital, materialized through massive tax holidays granted within SEZ), skewing returns away from the country’s relative labor abundance. Failure to address the binding constraints creates a rationale for upholding protection, which reinforces biases towards capital and energy-intensive sectors. These policies go a long way in explaining the Tanzanian manufacturing puzzle.

2023-06-cid-fellows-wp-152-tanzania-growth-diagnostic.pdf
Sturzenegger, F., Klinger, B. & Ordonez, I., 2023. What is South Africa’s Crop Production Potential?.Abstract

Combining satellite data with FAO potential yields we provide a new measure of South Africa's current and potential crop farming output. We find that field crop production is twice its census estimate, contributing 1.4% of GDP rather than 0.7%, and that achieving potential could increase its contribution a further 0.5% of GDP. Estimating horticulture potential is more difficult. We find that its 0.7% contribution to GDP is massively unreported, with actual production at 2.5%. Reaching potential could increase this number a further 0.5%. The distance from current to potential output represents over 100 billion 2017 rand of additional gross income and about 350.000 thousand jobs and is unevenly distributed across the country and concentrated in four provinces: Free State, Western Cape, Kwazulu-Natal and Eastern Cape. Our result suggests that there is room to expand agriculture, but because the potential gains are geographically concentrated, the solutions should have a strong location dimension.

Related project: Growth through Inclusion in South Africa

2023-05-cid-fellows-wp-149-south-africa-crop-potential.pdf
Klinger, B., Ordonez, I. & Sturzenegger, F., 2023. Scaling Partnerships to Activate Idle Community Land in South Africa.Abstract

We discuss three cases of corporate-smallholder partnerships in South Africa’s former homelands, which have tried to bridge the problem of low productivity by supplying technology, technical assistance and financing along with established channels for sales and distribution. The cases are indicative of some key difficulties faced by such ventures: building trust, finding a suitable partner, successfully transferring technological to small farms, and reducing risk, particularly climate related. In order for these types of partnerships to help close the gap between South Africa’s two agricultures, solutions to these problems must be provided at greater scale. We explore mechanisms to achieve that scale, drawing lessons from South Africa’s successful franchising sector, as well as newly emerging business models and technologies from abroad.

Related project: Growth through Inclusion in South Africa

2023-05-cid-fellows-wp148-scaling-partnerships-south-africa.pdf
2022
Hausmann, R., et al., 2022. Development in a Complex World: The Case of Ethiopia.Abstract

This research compendium provides an explanation of Ethiopia’s fundamental economic challenge of slowing economic growth after an exceptional growth acceleration — a challenge that has been compounded by COVID-19, conflict, and climate change impacts. Ethiopia has experienced exceptional growth since the early 2000s but began to see a slowdown in the capacity of the economy to grow, export, and produce jobs since roughly 2015. This intensified a set of macroeconomic challenges, including high, volatile, and escalating inflation. This compendium identifies a path forward for more sustainable and inclusive growth that builds on the government’s Homegrown Economic Reform strategy. It includes growth diagnostics and economic complexity research as well as applications to unpack interacting macroeconomic distortions and inform diversification strategies. Drawing on lessons from past success in Ethiopia and new constraints, this compendium offers insights into what the Government of Ethiopia and the international community must do to unlock resilient, post-conflict economic recovery across Ethiopia.

The research across the chapters of this compendium was developed during the Growth Lab’s research project in Ethiopia from 2019 to 2022, supported through a grant by the United States Agency of International Development (USAID). This research effort, which was at times conducted in close collaboration with government and non-government researchers in Ethiopia, pushed the boundaries of Growth Lab research. The project team worked to understand to intensive shocks faced by the country and enable local capability building in the context of limited government resources in a very low-income country. Given the value of this learning, this compendium not only discusses challenges and opportunities in Ethiopia in significant detail but also describes how various tools of diagnostic work and economic strategy-building were used in practice. As such, it aims to serve as a teaching resource for how economic tools can be applied to unique development contexts. The compendium reveals lessons for Ethiopian policymakers regarding the country’s development path as well as numerous lessons that the development community and development practitioners can learn from Ethiopia.

2022-11-cid-wp-423-ethiopia-compendium.pdf
Hausmann, R., et al., 2022. A Survey of Importers: Results of a Survey Conducted in Collaboration with the Ethiopian Economics Association.Abstract

Executive Summary

Ethiopia suffers from a chronic shortage of foreign exchange (forex).[1] The resulting lack of access to imports prevents firms from accessing imported inputs required for production. This creates a vicious cycle as exporters are constrained by this same problem, which further reduces overall supply of foreign exchange in the Ethiopian economy. The inability to reliably access foreign exchange for imports affects firm decisions on sourcing, capacity, and output. While the cost of this constraint is known to be high on the Ethiopian economy and firms are known to use a range of measures to attempt to bypass this constraint, quantitative assessments of the problem and response actions by firms are limited. It is in this context that an importer survey was conducted with the goal of informing policy decisions. A total of 202 firms with an active importing license were interviewed in March-April 2022. These firms were randomly sampled from firms registered with an importer license.

All firms interviewed reported that they were operating below capacity, often well below capacity. Foreign exchange shortages were the main reason respondent firms cited for not operating at full capacity (63% of firms reporting this as their biggest constraint). Forex shortages far surpass the second and third reasons cited for not operating at full capacity — constraints due to the conflict (13%) and COVID-19 restrictions (11%). Firms operating below capacity cited forex shortages as the main constraint, regardless of whether they imported or not in the previous year. This was the most pressing constraint reported by firms of all sizes and sectors surveyed. It was the most pressing constraint faced by exporters and by foreign-owned firms as well as non-exporters and domestic firms. Amongst the total sample of firms with a renewed importer license, more than one-third of respondent firms (37%) had not imported in FY2020-21.

Overall, 74% of firms reported experiencing challenges in accessing forex. Access to forex was reported as most challenging for manufacturing firms and smaller firms but impacted all sectors and firm sizes. The losses attributed to forex scarcity at the firm level were largest for agricultural firms, for micro-firms, and for firms that did not import at all in the previous year. In general, the larger the firm sales, the higher the likelihood that they were able import. The survey found different types of imports for different sectors. Manufacturing firms imported a large share semi-finished goods as imports as compared to agricultural firms that primarily imported finished goods. The survey results find that foreign exchange shortages and an inability to import are most severe for the manufacturing and agriculture sectors, small and micro-sized firms, and all non-exporters. However, the constraint is also the top problem facing all firm types in the survey, including exporters and foreign-owned firms.

The primary means of accessing foreign exchange where it did occur was through specialized forex accounts or ‘diaspora’ accounts. The second most common means of accessing foreign exchange was through retention accounts available to exporters. The black market featured in many responses, but questions across the survey suggest that self-reported use of the black market by survey participants is underreported versus actual usage. The ability to source foreign exchange differed significantly by firm size. Exporting firms primarily used retention account earnings, as compared to non-exporters, which relied more on forex accounts. For faster access to forex, most firms reported that they approach banks, followed by turning to the black market. Friends and family abroad also served as a source of forex for one-quarter of firm respondents, and that foreign exchange was often used immediately. Foreign exchange access from banks is nevertheless a major pain point for firms. Most firms (55%) requested forex from a bank in the past year. On average, fulfilled forex requests took three months to be processed when they were fulfilled, but many firms reported that they have an unfulfilled request that has been in the system for more than a year. These firms are especially likely to report foreign exchange access as their top challenge.

The survey finds that individual firms do not tend to use both official and black-market foreign exchange sources but rather tend to access all their forex at the (lower) official rate or all at the (higher) black-market. Large firms import most of their products at the official rate. By contrast, most small and micro firms import through other means. Manufacturing firms are also more likely to import all their production through other means and outside of the banking system. Non-exporting firms tended to import through other means than the official rate and outside of the banking system at a higher prevalence than exporting firms. The survey gleaned new insights on the implicit exchange rate that firms face as they navigate official and black-market channels of foreign exchange access. The survey does not allow for a precise estimate of the transaction-weighted exchange rate facing the economy but finds firm-level estimates align with previous macro-level estimates. The implicit exchange rate was higher for non-exporting firms, which show a greater willingness to pay a higher exchange rate to access imports. This signals the importance of the retention account for exporters to guarantee an import price closer to the official exchange rate.

When asked about the maximum rate firms would pay to guarantee access to forex, some groups of firms were willing to pay higher amounts, including all non-exporters, firms that imported in the past year, and those that declared forex access a challenge. When compared to the implied rate they paid in the past year, many firms are willing to pay more than the implied rate to guarantee access to forex. Firm perspectives on policy changes to the exchange rate underscored challenges faced by policymakers. Current policy has been one of a crawling peg, with changes within the last several years to increase the rate of devaluation. The survey asked respondents about their support for faster devaluation, for a one-off movement to unify the official rate with the black-market rate, or about alternative exchange rate systems such as a floating exchange rate. Most respondents (71%) opposed maintaining the current regime, yet no option received majority support. Most firms appear to want both a stronger exchange rate and easier access to foreign exchange despite a tradeoff between these two priorities. The largest share of support for policy change was to adjust the exchange rate such that the official rate matches the black-market rate.

[1] See "Development in a Complex World: The Case of Ethiopia” ­– the Growth Lab’s compendium of project research from its Advancing Economic Diversification in Ethiopia project.
2022-11-cid-wp-424-ethiopia-importer-survey.pdf
Shah, K. & Sturzenegger, F., 2022. Search, Transport Costs, and Labor Markets in South Africa.Abstract

South Africa’s labor market exhibits a unique equilibrium with one of the highest unemployment rates in the world and yet a low level of informal employment. The unemployment rate has remained high and persistent over recent decades, in spite of the formal demise of the apartheid regime and subsequent transition to democracy in 1994. This paper uses a matching model of the labor market to argue that spatial considerations combined with low productivity of informal work may be responsible for such an outcome. Spatial dispersion inherited from the apartheid regime thins the labor market, creating exclusion and perpetuating spatial segregation. In most developing countries, the result would be higher employment in informal or own account employment. However, with low productivity in the informal sector, the high rate of exclusion shows itself in higher unemployment rates instead. Transportation costs and housing deregulation may become key factors in improving the working of the labor market in South Africa especially if it is not possible to raise informal productivity.

Related project: Growth Through Inclusion in South Africa

2022-10-cid-fellows-wp-142-south-africa-labor-transport.pdf
Lochmann, A., Rao, N. & Rossi, M.A., 2022. The Long-Run Effects of South Africa’s Forced Resettlements on Employment Outcomes.Abstract

Can South Africa’s segregation policies explain, at least partially, its current poor employment outcomes? To explore this question, we study the long-term impact of the forced resettlement of around 3.5 million black South Africans from their communities to the so-called “homelands” or “Bantustans”, between 1960 and 1991. Our empirical strategy exploits the variability in the magnitude of resettlements between communities. Two main findings. First, the magnitude of outgoing internal migrations was largest for districts close to former homelands. Second, districts close to former homelands have higher rates of non-employed population in 2011. Together the evidence suggests that districts that experienced racial segregation policies most intensely, as measured by outgoing forced resettlements, have worse current employment outcomes.

Related project: Growth Through Inclusion in South Africa

2022-10-cid-fellows-wp-141-south-africa-forced-resettlements.pdf
Lochmann, A., 2022. Diagnosing Drivers of Spatial Exclusion: Places, People, and Policies in South Africa’s Former Homelands.Abstract

This report analyzes the economic legacy of spatial exclusion in South Africa, focusing on the long-term effects of the former Bantustan policy. Through quantitative analysis, the report explores the spatial dimension of economic activity in South Africa and specifically how this particular spatial institution has continued to shape current economic outcomes, despite past and present attempts to reverse the effect. The report also identifies areas for further research and potential intervention to enable more effective economic inclusion of the former homeland areas of the country.

Related project: Accelerating Growth Through Inclusion in South Africa

2022-11-cid-fellows-wp-140-south-africa-spatial-exclusion.pdf
Fortunato, A., 2022. Getting Back on the Curve: South Africa’s Manufacturing Challenge.Abstract

The report aims to inform the government’s strategic approach towards manufacturing by analyzing the potential and limits for job creation within the sector. To meet that goal, we analyze the sector’s main features and recent trajectory through the lens of global deindustrialization and South Africa’s particular industrial dynamics. Secondly, we provide evidence of how, when, and why South Africa has deviated from the global deindustrialization trends. Lastly, we provide a policy framework to address the bottlenecks that are preventing South Africa from getting back on a better track of industrial performance.

Related project: Accelerating Growth Through Inclusion in South Africa

2022-11-cid-fellows-wp-139-south-africa-manufacturing.pdf
Shah, K., 2022. Diagnosing South Africa’s High Unemployment and Low Informality.Abstract

This report analyzes the causes and consequences of South Africa’s high rates of unemployment and the unique nature of labor market exclusion in the country. It leverages a combination of new quantitative analysis using South African datasets and international datasets for benchmarking, together with synthesis of existing literature and case studies. The goal is to: (1) characterize the challenge of labor market exclusion in South Africa, (2) identify ways in which this is similar and different to other countries, (3) understand what drives the unique challenges of the labor market in South Africa, and (4) narrow down what policy areas are most important to address the underlying drivers. This report takes a diagnostic approach to understand the causes of South Africa’s unique pattern of low informality.

Related project: Accelerating Growth Through Inclusion in South Africa

2022-09-cid-fellows-wp-138-south-africa-labor-markets.pdf
Klinger, B., 2022. More (Inclusive) Entrepreneurship in South Africa: The Role of Franchising.Abstract

This paper explores franchising in South Africa, and its potential to help resolve the economy’s challenges of low entrepreneurship and concentrated ownership. South Africa features a large franchising sector, with half a million formal workers and a large number of small businesses owners competing directly with vertically integrated chains. Traditional franchising may not have much space for further growth as a percentage of the economy, but it can be made more inclusive with innovations in franchise finance that broaden the base of potential franchisees, as well as enforcement of consumer protections to ensure franchisee-franchisor relationships are balanced. The expansion of the franchising model to less capital-intensive business concepts and serving lower-income consumers (micro-franchising) is one area with expanding growth potential for the country, while the application of the franchising model to public services and socially driven organizations is less promising. Finally, while the franchising model is only directly applicable to particular sectors, there are features of franchising and the capabilities built up around the franchising that could be applied to other priority areas of the economy, in particular to smallholder agriculture. The success of traditional franchising shows the power of a menu of standardized proposals and contracts in a marketplace with a range of franchisors (in this case, up- and downstream agriculture corporates) offering different opportunities to potential franchisees (in this case, smallholder farming communities), along with training and technology transfer at scale.

Related project: Accelerating Growth Through Inclusion in South Africa

2022-06-cid-fellows-wp-137-south-africa-franchising.pdf
Hausmann, R., et al., 2022. The Economic Complexity of Namibia: A Roadmap for Productive Diversification .Abstract
After a large growth acceleration within the context of the commodity super cycle (2000-2015), Namibia has been grappling with three interrelated challenges: economic growth, fiscal sustainability, and inclusion. Accelerating technological progress and enhancing Namibia’s knowhow agglomeration is crucial to the process of fostering new engines of growth that will deliver progress across the three targets. Using net exports data at the four-digit level, we estimate the economic complexity of Namibia – a measure of knowhow agglomeration – vis-à-vis its peers. Our results suggest that Namibia’s economy is relatively less complex and attractive opportunities to diversify tend to be more distant. Based on economic complexity metrics, we define a place-specific path for productive diversification, identifying industries with high potential and providing inputs – related to their feasibility and attractiveness in Namibia – for further prioritization. Namibia’s path to structural transformation will likely be steeper than for most peers, calling for a more active policy stance geared towards progressive accumulation of productive capacities, well-targeted “long jumps”, and strengthening state capacity to sort out market failures associated with the process of self-discovery.
2022-03-cid-wp-410-namibia-economic-complexity-report.pdf
Hausmann, R., et al., 2022. A Growth Diagnostic of Namibia.Abstract

In the thirty years that have passed since independence, Namibia has been characterized by its over-reliance on its mineral resource wealth, procyclicality of macroeconomic policy, and large income disparities. After an initial decade marked by nation building and slow growth (1990-2000), the Namibian economy embarked on a rapid growth acceleration that lasted 15 years, within the context of the global commodity super cycle. Favorable terms of trade translated into an investment and export boom in the mining sector, which was amplified to the non-tradable sector of the economy through a significant public expenditure spree from 2008 onwards. Between 2000 and 2015 income and consumption per capita expanded at an average annual rate of 3.1%, poverty rates halved, and access to essential public goods expanded rapidly. As the commodity super cycle came to an end and the fiscal space was exhausted, Namibia experienced a significant reversal. Investment and exports plummeted, bringing GDP per capita to contract by 2.1% between 2015-2019. With debt-to-GDP ratios 3.5 times higher than those in 2008, the country embarked on a fiscal consolidation effort which brought the primary fiscal deficit from 6.8% of GDP in 2016 to 0.6% by March 2020. Along all these years, inequality has been endemic and is reflected across demographic characteristics and employment status. At present, a large majority of Namibians are unable to access well-paying formal sector jobs, as these tend to be particularly scarce outside of the public sector. Looking forward, the road to sustained inclusive growth and broad prosperity entails expanding the formal private labor market by diversifying the Namibian economy, while at the same time removing the barriers preventing Namibians from accessing these opportunities inherited from the apartheid.

The Growth Lab at Harvard University has partnered with the Government of Namibia to develop research that results in inputs for a policy strategy aimed at promoting sustainable and inclusive growth. The Growth Diagnostic is a cornerstone of the ongoing research engagement and is meant at providing an overview of the most binding constraints to Namibia’s economic performance and outlining how these relate in a systemic way to the concurrent challenges of growth, fiscal sustainability, and inclusion. 

Inclusive growth in Namibia is currently facing a set of self-reinforcing constraints. The country is missing both the productive capabilities (words) and required skills (letters) to sustain longer periods of growth. The low degree of knowhow agglomeration that can be inferred from its current productive structure – as gathered by the Economic Complexity Index (ECI) – leaves very little opportunities of diversification that can be pursued by redeploying existing skills (low connectedness). Our analysis reveals that Namibia has been able to diversify differentially more that most of its peers given its current set of productive capabilities, but the problem is that the set of adjacent opportunities are neither complex nor plenty. As the marginal cost of acquiring new capabilities tend to be high, the government needs to take a more active role in sorting coordination and information failures associated to the process of productive diversification and self-discovery.

Relatedly, Namibia’s growth prospects are also constrained by a shortage of specialized skills. Three empirical facts derived from econometric analysis of Labor Force Survey statistics point in this direction. First, certain skill-intensive industries and occupations exhibit differentially higher wage premiums. Second, highly educated, and experienced workers face the lowest unemployment rates in the economy, by a wide margin. Third, skill-intensive industries tend to grow less than the rest of the sectors in the economy.

The demand for high skilled foreign workers is high – as proxied by their wage premium. This skill shortage may be constraining not only existing industries but also the development of new engines of growth, limiting access to opportunity for Namibians across all skill levels. Missing skills at the top of the spectrum tends to depress job creation at the bottom. These two constraints – low knowhow agglomeration with poor connectedness and skills shortages – seem to reinforce each other. Using the Scrabble metaphor, Namibia is missing the letters (productive capabilities) and the entire words (more complex products).

Knowhow, by definition, resides in brains of people and it’s embedded in the goods and services a country produces. A broad knowhow-enhancing strategy aimed at targeting efficiency-seeking foreign direct investment (FDI, firms bringing entire new words to Namibia), and migration regulation policies (specific letters needed by more complex industries) is required to ease the binding constraints. Investment promotion efforts shall be targeted to ‘efficiency-seeking’ firms, which tend to take advantage of a competitive factor in the country (efficient labor force, access to international financial markets, infrastructure, etc.) to produce and export to foreign markets. This type of FDI is essentially different from the ‘natural resource-seeking’ investments that have characterized the Namibian economy and pose additional challenges. At the same time, the country would benefit from a more open immigration policy targeted towards high-skill workers. The evidence we have gathered suggests that high-skill foreigners tend to function as complements – rather than substitutes – to Namibian workers: industries with larger shares of high-skill workers tended to pay lower skill workers significantly higher wages. Easing the existing restrictions t labor flows and incentivizing inflows of high-skill foreigners will likely trickle down into the rest of the labor force and enhance the knowhow agglomeration of the Namibian productive ecosystem.

A challenge to productive diversification broadly, and attracting foreign investment and talent more particularly, might be policy uncertainty. Existing levels of policy uncertainty – instability or absence of the adequate regulating environment, worries about potential issues for property rights, inexperience with respect to the efficiency of domestic courts – in Namibia might not be enough to deter investments in resource-based industries, but might be an important hurdle for other type of industries, especially the ones that have a choice regarding their international location. To attract these investments, a simpler and more transparent investment environment, coped a more comprehensive set of international investment treaties, might be necessary.

The report is organized in six sections, including this Executive Summary. Section 2 outlines the Growth Diagnostic methodology. Section 3 provides a summary of the growth trajectory of Namibia and the challenges facing inclusive growth. Section 4 covers the main takeaways of the analysis conducted in each of the branches of the Growth Diagnostics Tree, including those related to access to finance, low social returns, government failures and agglomeration of collective knowhow. Section 5 concludes by highlighting potential binding and providing inputs for a collaborative exploration of why these issues have persisted and become an equilibrium.

2022-02-cid-wp-405-namibia-growth-diagnostic.pdf
Hausmann, R., et al., 2022. Macroeconomic risks after a decade of microeconomic turbulence: South Africa 2007-2020.Abstract
This study analyses the performance of macroeconomic policy in South Africa in 2007–2020 and outlines challenges for policy in the coming decade. After remarkable economic growth in 1997–07, South Africa’s progress slowed dramatically in 2009 with the global financial crisis. Real GDP growth decelerated more than in other emerging markets and mineral exporting peers and never recovered pre-crisis levels. In addition, the budget deficit that provided counter-cyclical support to the economy was never reigned in, leading to a rapidly rising public debt load. The study assesses three accounts of South Africa’s post-GFC growth and fiscal slump: (1) an external story; (2) a macro story; and (3) a microeconomic story. Evidence of strong linkages between micro- and political developments and growth performance is provided.
2022-01-cid-wp-404-macroeconomic-risks-south-africa.pdf
2021
Economics of Covid-19 in three sub‑Saharan African countries: Ethiopia, Namibia and South Africa
Goldstein, P. & Hausmann, R., 2021. Economics of Covid-19 in three sub‑Saharan African countries: Ethiopia, Namibia and South Africa. In R. Arezki, S. Djankov, & U. Panizza, ed. Shaping Africa’s Post-Covid Recovery. The Centre for Economic Policy Research Press, pp. 195-214. Publisher's VersionAbstract
With the exception of some flashpoints in Northern and Southern Africa, the continent has been largely spared from the direct health effect of Covid-19. However, the African economy has been significantly hurt by the economic consequences. This eBook summarises recent research on the economic effect of the Covid-19 pandemic in the continent covering a wide array of topics focusing on the response of firms, households, governments, and international organisations.
africas_post-covid_recovery.pdf
2020
Goldstein, P., 2020. Pathways for Productive Diversification in Ethiopia, Growth Lab at Harvard's Center for International Development.Abstract

Ethiopia will need to increase the diversity of its export basket to guarantee a sustainable growth path. Ethiopia has shown stellar growth performance throughout the last two decades, but, in this period, export growth has been insufficient to finance the country’s balance of payments needs. As argued in our Growth Diagnostic report,1 Ethiopia’s growth decelerated as a result of the increasing external imbalances which have resulted in a foreign exchange constraint. This macroeconomic imbalance is now slowing the rate of economic growth, job creation and poverty alleviation across the country. Although export growth will not be rapid enough to address the foreign exchange constraint on its own in the short-term, the only way for the country to achieve macroeconomic balance as it grows in the longer term is to increase its exports per capita. With only limited opportunities to expand its exports on the intensive margin, the Government of Ethiopia (GoE) will have to strategically support the diversification of its economy to expand its exports base.

This report applies the theory of Economic Complexity in order to describe the base of productive knowhow and assess the opportunities and constraints to diversification in Ethiopia’s economy. The theory of Economic Complexity offers tools to capture and quantitatively estimate the diversity and sophistication of productive knowhow in an economy and to analyze the potential to develop comparative advantage in new industries. These tools provide valuable inputs for informing diversification strategies and the use of state resources by providing rigorous information on the risks and potential returns of government industrial policies in support of different sectors.

2020-ethiopia-pathways-report-updated_feb_2021.pdf
2016
Barrios, D., Russell, S. & Andrews, M., 2016. Bringing Home the Gold? A Review of the Economic Impact of Hosting Mega-Events.Abstract

There is perhaps no larger sports policy decision than the decision to host or bid to host a mega-event like the FIFA World Cup or the Summer Olympics. Hosts and bidders usually justify their decisions by touting their potential impact. Many organizers and promoters either fund or widely disseminate ex-ante studies that tend to highlight the positive effects of the event. For instance, the consultancy firm Ernst & Young produced a 2010 report prior to the 2014 World Cup in Brazil that painted an optimistic picture of the event’s potential legacy. It estimated that an additional R$ 142.39 billion (4.91% of 2010 GDP) would flow through the Brazilian economy over the 2010-2014 period, generating 3.63 million jobs per year, R$ 63.48 billion (2.17% of 2010 GDP) of income for the population and additional tax collection of R$ 18.13 billion (0.62% of 2010 GDP) for the local, state and federal governments. Ernst & Young estimated that during the same period 2.98 million additional visitors would travel to Brazil, increasing the international tourist inflow up to 79%.

Such results, if true, would clearly attractive for governments considering a bid, but these expected impacts don’t always materialize. Moreover, hosting mega-events requires significant investments - and the cost of these investments is rising. Zimbalist notes emerging economies like China, Brazil, and South Africa have increasingly perceived "mega-events as a sort of coming-out party signaling that [they are] now a modernized economy, ready to make [their] presence felt in world trade and politics" (Zimbalist 2015). Their intentions may be noble, but the intention of using mega-events as a "coming-out party" means developing countries hoping to host them need to make massive investments. They are confronted by significant obstacles in that they lack sufficient stadiums, accommodations, transportation systems, and other sports-related infrastructure. As a result, each of the mega-events hosted by emerging economies has been exorbitantly expensive. The 2014 World Cup cost Brazil between USD 15 billion and USD 20 billion, while Beijing reportedly spent USD 40 billion prior to the 2008 Summer Olympic (Zimbalist 2015). Additionally, as the debt-ridden 1976 Summer Olympics in Montreal demonstrates, expensive mega-events are not limited to emerging economies alone. Flyvbjerg and Stewart have even shown that every Olympics since 1960 has gone over budget (Flyvbjerg and Stewart 2012).

Such incredible figures, in terms of both costs and benefits, beget the question: are mega-events worth it? Which type of reports should governments focus their attention on? What economic consequences should a government reasonably expect? With such high stakes, policymakers need to choose wisely. We attempt to answer these questions and aid the decisions of policymakers by providing a concise review of the rich academic literature on mega-events. For the purposes of this paper, we mainly focus on the Summer Olympic Games and the FIFA World Cup as mega-events. However, we also leverage information regarding events like the Winter Olympic Games, the UEFA football championships, and the Commonwealth Games. These events are organized on a smaller scale than the previous two, but they might provide some insights on how to best understand mega-events. We focus on claims surrounding the direct or indirect mechanisms that facilitate the impact that ex-ante studies predict. We provide a review of these claims and their validity according to the existing literature.

Section 1 focuses on the argument that mega-events lead to increased economic activity in the host economy. Specifically, we evaluate whether or not mega-events leads to access to previously inaccessible funds and increased investments. These investments could theoretically come from supranational organizations, private stakeholders, or public stakeholders. We also consider whether or not these new expenditures and investments have the multiplicative effect that many ex-ante studies assume they have. We finally investigate if the economic activity surrounding mega-events leads to increased revenues and tax collection for host governments. Overall, the existing academic literature suggests that any increased economic activity resulting from the event is routinely dwarfed by additional public budgetary commitments. Moreover, the arguments regarding multiplicative effects and increased revenues also tend to be exaggerated.

Section 2 shifts the focus to the potential impact of mega-events on a specific industry: tourism. We explore the effect of mega-events on the number of tourists visiting the host region and their spending habits. We explore this channel both for analyses specific to a single mega-event and for cross-country evaluations incorporating many events. Next, we consider the impact of a mega-event on a region’s brand and image in the international community with the idea of testing if hosting the competition will impact future tourism. Finally, we consider if mega-events lead to increases in the capacity of a city or country to welcome future tourists as a result of improved airport infrastructure, accommodations, and/or transportation systems. As was true in Section 1, the academic literature suggests that the claims of many ex-ante studies are misleading. Our review finds that there is some evidence for increases in tourist arrivals to certain events, but those increases are far smaller than what is generally predicted beforehand. These effects are also usually dependent on factors, such as the timing of the competition, that are specific to the host region and the event itself.

Section 3 briefly discusses other potential qualitative and social impacts of mega-events such as international business relations, crime reduction, and the "feel-good effect." In the penultimate section, Section 4, we discuss how these conclusions should impact the decision-making of policymakers. Finally, in a short conclusion, we summarize the findings of our review.

cid_wp320_megaevents.pdf
2015
Hausmann, R. & Chauvin, J., 2015. Moving to the Adjacent Possible: Discovering Paths for Export Diversification in Rwanda.Abstract

How can Rwanda, which currently has one of the lowest levels of income and exports per capita in the world, grow and diversify its economy in presence of significant constraints? We analyze Rwanda's historical growth and trade performance and find that Rwanda's high transportation costs and limited productive knowledge have held back greater export development and have resulted in excessive rural density. Three basic commodities – coffee, tea, and tin – made up more than 80 percent of the country's exports through its history and still drive the bulk of export growth today. Given Rwanda’s high population density and associated land scarcity, these traditional exports cannot create enough jobs for its growing population, or sustainably drive future growth. Rwanda needs new, scalable activities in urban areas. In this report, we identify a strategy for greater diversification of exports in Rwanda that circumvents the key constraints and is separately tailored for regional and global export destinations. Our results identify more than 100 tradable products that lie at Rwanda's knowledge frontier, are not intensive in Rwanda's scarce resources, and economize on transportation costs. Our analysis produces a vision of a more diversified Rwanda, which can be used as a guide for investment promotion decisions. We illustrate an approach that can be applied to other settings in order to identify opportunities for export diversification that take seriously local constraints and external market opportunities.

hausmann_chauvin_rwanda_294.pdf

Pages