Resilient Human Capital: A Precondition for Structural

Transformation

Adrian Gauci and Chrystelle Tsafack Temah

EDND, UNECA

African Economic Conference, 28 October 2011

Outline of the presentation

Research StatementResearch Statement

Why do LDCs need a structural Why do LDCs need a structural transformation transformation

MethodologyMethodology

Implications for African LDCsImplications for African LDCs

Areas for future ResearchAreas for future Research

Research statement

African LDCs structural African LDCs structural transformation is dependent transformation is dependent alsoalso on an adequate education supply. on an adequate education supply. Structural transformation requires Structural transformation requires cognitive supply of skills not cognitive supply of skills not currently produced in African currently produced in African LDCs with the survivalist LDCs with the survivalist employment outcomes and employment outcomes and continued vulnerability.continued vulnerability.

Need for structural transformation INeed for structural transformation I

Table 1: Growth rate in selected African LDCs during 1996-2008 Country Annual Income growth

per capita, 1996-2008 Cumulative Increase in Average Real Income,

1996-2008 Benin 1.3 18 Burkina-Faso 2.8 43 Ethiopia 4.1 65 Lesotho 2.3 33 Liberia 3.1 13 Malawi 1.2 15 Mali 2.5 37 Mozambique 5.3 96 Rwanda 3.7 60 Sao Tomé and Principe 5.0 40 Senegal 1.4 20 Sierra Leone 3.7 24 Tanzania 3.0 46 Uganda 3.8 61 Zambia 1.8 25 Source: Radelet, 2010.

Need for structural transformation Need for structural transformation IIII

Table 2: Contribution of the primary and manufacturing sectors to GDP in selected African LDCs, 2009-2010.

Country Share of primary sector in the GDP

Share of the manufacturing sector in the GDP

Angola 55.1 6.5 Benin 36.2 8 Burkina Faso 40.5 9.9 Burundi 44.6 7.1 Central African Republic 56.6 6.8 Chad 58.1 5.8 Comoros 44.7 3.9 Democratic Republic of the Congo

54.5 5

Djibouti 4.1 2.4 Ethiopia 43.6 4.9 Niger 49.8 5.5 Rwanda 36.5 6.7 Sao Tome and Principe 17.7 6.7 Senegal 18.5 13.8 Sierra Leone 53.6 2.5 Sudan 51.3 Tanzania 32.5 9.5 Togo 45.9 7.9 Uganda 25.1 8.2 Zambia 22.2 9.3 Source: African Economic Outlook 2011, country notes (OECD, AfDB, ECA and UNDP)

•

Need for structural transformation Need for structural transformation IIIIII

• Moderate to good economic growth Moderate to good economic growth primarily driven by primary commoditiesprimarily driven by primary commodities

• Type and character of growth did not lead Type and character of growth did not lead to commensurate employment creation to commensurate employment creation

• Informal sector absorbs the vast majority of Informal sector absorbs the vast majority of employmentemployment

• Vulnerability to exogenous shocks persistsVulnerability to exogenous shocks persists

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Need for structural transformation Need for structural transformation IVIV

• Capital intensive primary sector that Capital intensive primary sector that creates little employment opportunitiescreates little employment opportunities

• Supply side provision of educational Supply side provision of educational skills is a precursor of industrial policy skills is a precursor of industrial policy to exit commodity dependenceto exit commodity dependence

• Numeracy and literacy skills are Numeracy and literacy skills are insufficient to an industrialization insufficient to an industrialization processprocess

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Methodology: the Human asset index

HAI: information regarding the level of development of human capital of a country, criterion for identification of LDCs.

Combination of four indicators; two for health and nutrition two for education : the gross secondary school enrolment ratio

and the adult literacy rate.

Secondary education is African LDCs is inadequate Quantity: focus on primary, in 2005-2009, enrolment rate was

33% for males and 25% for females in African LDCs (UNESCO) Quality: mismatch with labor market, lack of specific skills

The Ethiopian case study I

Ethiopia: biggest LDC in Africa, successful design and implementation of the Plan for Accelerated and Sustained Development to End Poverty (2005-2009)

Tremendous progress in economic , human and social development

Sustained GDP growth: over 10% since 2004 Commendable progress on MDG 4: reduce child

mortality Primary enrolment increased from 68.5 to 87.9%

The Ethiopian case study II

However constrained transition towards post-primary education enrolment

Gross secondary enrolment ratio: 39 for male and 28 for female

Lack of skills: those who did not enrol in secondary education are not readily “employable”.

They finally end up in the informal sector, which does not constitute decent employment, hence no reduction in poverty.

Survey undertaken on women in the entrepreneurial informal sector: 33 percent of respondents had primary education and 25 percent

had no education. 63 percent of respondents dropped out of school primarily to look

for a job and/or to support the family.

The East Asian Example I

The NICs have had spectacular annual growth rate of outputs well in excess of 6 percent.

This has been sustained over a 30 year period;Leading to the transformation of these economies

since 1960 from agriculturally based to industrial and post-industrial economies: successful example of structural transformation

Thus increasing their resilience to exogenous shocks.

The East Asian Example II

Three sets of factors were critical Policy incentives; Capabilities; Institutions

In fact, the value of education in dealing with disequilibria or changes in economic conditions is clear in agricultural contexts.

Quick gains in competitiveness, transfer of technology and manufacturing employment opportunities were the criteria for industrial selectivity by the State

What African LDCs can & cannot infer from East Asian experience I

Education in East Asian countries drove not only economic growth but successful structural transformation

Quality of education allowed these countries to move from a stage of economic development to another- from primary to secondary and beyond

Primacy of education was contextualized within policy incentives and institutions that reinforced economic and development gains.

What African LDCs can & cannot infer from East Asian experience II

Investment in education was linked to a demographic dividend of increasing resources per unit produced.

Export-led regimes in East Asian countries led to education being geared to enhance firms’competitiveness and transfer of technology.

The role of the State that ensured educational investment was linked to the overall vision of structural transformation.

What African LDCs can & cannot infer from East Asian experience III

Institutions that linked labour markets and educational policies were crucial in addressing mismatch: Workforce development agency in Singapore Productivity councils in Taiwan and South

Korea

Science and technology were a critical part of educational systems to allow technical catch-up

What we can & cannot infer from East Asian experience IV

Development of technical and vocational education and training (TVET) outside formal educational system, also financed by the private sector and linked to on-the-job training ;

Research and Development institutions were steered by public and private organizations towards product and technology development

Areas for Future Research

Recent African country studies have shown that secondary education have higher rates of return. A more systemic study needs to be tackled of the quality of education and structural transformation

Incremental versus instrumental education needs to be investigated in the African LDCs context

Quality of education forms part of the post-2015 MDG agenda- analysis of resource needs and relationship to development requires more investigation.

Appropriate African institutions that link educational output to labour markets demands more research.

Thank You