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On the structural transformation of rural Africa

On the structural transformation of rural Africa
Photo credit: UN

11 Jan 2017

From 2000 to 2014, per capita gross domestic product in Sub-Saharan Africa increased by almost 35 percent in real terms, doubling in some countries. Such progress happened while agricultural productivity growth remained low in the aggregate, despite some bright spots, and poverty reduction was steady but discouragingly slow.

This paper argues that ending extreme poverty will require structural change in agriculture, and in rural African economies more broadly. Drawing on a range of recent research, the paper outlines broad priority areas for policy actions to accelerate productivity and initiate structural change in the agriculture sector and the rural nonfarm economy.

Introduction

Virtually every one of today’s high income economies enjoyed sustained agricultural productivity growth coupled with transformation of the rural non-farm economy that jointly sparked rapid industrialization and inclusive economic growth. Indeed, the Nobel Laureate W. Arthur Lewis famously wrote: “industrial and agrarian revolutions always go together, and… economies in which agriculture is stagnant do not show industrial development” (Lewis 1954, p. 433). Until most recently, the economies of Sub-Saharan Africa (SSA) have also been enjoying robust economic growth (4.5 percent growth in gross domestic product (GDP) per capita per year during 1995-2013), according to World Bank data,1 and the region shows early signs of agricultural productivity growth and structural transformation.

But much remains to be done. Despite notable progress – the share of people in SSA living on less than $1.90 a day (in 2011 international purchasing power parity PPP) declined from 54 percent in 1990 to 41 percent in 2013) – the number of extreme poor still increased, by more than 100 million (from 276 million to 389 million). Extreme poverty remains high, with the $1.90 a day headcount poverty rates in SSA today twice as high as in South Asia, and more than ten times higher than in East Asia.3 By 2030, most of the world’s extreme poor (four out of five) are predicted to be concentrated in Africa.

This is partly driven by continuing high population growth (2.7 percent per year during 1990-2013). But the challenge of persistent extreme poverty that has plagued Africa for a generation is also closely bound up with continuing low agricultural productivity and the nature of the region’s structural transformation. Most of the region’s poor still find themselves in rural areas – an estimated 82 percent – earning the bulk of their income in agriculture – an estimated 69 percent among rural households in a sample of nine African countries, and even more among the rural poor. The sheer size of these numbers makes what happens in agriculture particularly important for poverty reduction. At one level, real agricultural value added (constant 2010 US$) has been growing annually at 4.1 percent during 1990-2013, but only at 1.4 percent in per capita terms. The areas cultivated with cereals expanded annually by 1.3 percent; cereal yields by 1.6 percent. Not only is this productivity growth less than what has been observed, for example, in Asia during the Green Revolution, it started from a very low base and remains low. Cereal yields in SSA (about 1.5 ton/ha) are today still only about half those in South Asia (3.1 ton/ha in 2014), and about a quarter those in China (6.0 ton/ha).

There has also been structural transformation. Agriculture’s share in GDP declined from 23 percent in 1995 to 17 percent in 2013. The share of agricultural employment likewise fell during the 2000s, by an estimated 10 percentage points.4 Yet Africa’s structural transformation has been towards (non-tradable) services, not tradable manufacturing. This partly links with Africa’s commodity boom during the 2000s, which fueled economic growth in many countries as well as urbanization, in particular the emergence of consumption cities, characterized by higher shares of imports (including of food) and employment in non-tradable services, as opposed to tradable manufacturing or services. While inconsequential regarding the level of urbanization (and also growth and aggregate income in the short run), such resource driven structural transformation, urbanization and growth have historically also been associated with greater slum formation, higher urban poverty, larger rural-urban income gaps, and more inequality than transformations towards tradable manufacturing and services. With much of the growth literature suggesting that convergence is faster in industry than in (non-tradable) services, and commodity prices collapsing since 2012 following the end of the commodity supercycle, this does not bode well for sustaining growth and poverty reduction. After slowing to 3 percent in 2015, Africa’s growth is projected to fall to 1.6 percent in 2016, the lowest level in two decades.

Different schools of thought have emphasized different drivers of successful structural transformation, urbanization, growth and poverty reduction. Rural push theories highlight the critical role of raising labor productivity in agriculture to productively release labor for off-farm activities. Urban pull theories underscore the critical role of industrial technology in urban areas to put the large amounts of underemployed rural labor to productive use. What comes first (rural push or urban pull) remains difficult to disentangle. Development and poverty reduction have often proceeded fastest when agricultural and industrial revolutions go together. Although some SSA countries have recently shown signs of such coupled growth (e.g. Ethiopia, Rwanda), this has not (yet) happened at the scale or across the number of countries needed to make a major dent in Africa’s poverty.

This paper describes the key undercurrents necessary for structural transformation to occur, with a focus on the role of agriculture, the current state of agricultural labor productivity growth in rural SSA, and the structural impediments currently slowing the rate of progress. The aim is to update contemporary African policy makers as they attempt to stimulate agricultural and rural transformation to foster sustained and inclusive economic growth that will accelerate poverty reduction in the region. Section 2 provides stylized facts on the path of structural transformation in agriculture with a brief review of the current state in SSA. Deep-seated factors impeding structural change in Africa’s agriculture and food systems are discussed in section 3, after which section 4 turns to nascent positive developments that merit monitoring. Section 5 outlines key policy priority areas, while the last section concludes.


This paper is a product of the Jobs Cross Cutting Solution Area of the World Bank jointly with Cornell University, African Development Bank and Precision Agriculture for Development. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world.

Source World Bank
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Date 11 Jan 2017
 
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