West Africa’s Economic Growth and Weakening Diversification: Rethinking the Role of Macroeconomic Po

Chukwuma Agu,  University of Nigeria, Enugu Campus




Africa’s recent growth performance presents a number of reasons for cheer – rising per capita income, falling inflation, growing private sector share …and so much more. The mood is captured by the December 2012 edition of the Economist, which blazoned “Africa rising”, showing no less than a dozen African countries posting 6 percent growth consistently for upwards of six years. This growth has been both resilient and buoyant, withstanding the 2008 global economic crisis at a time some of the best performers elsewhere made do with being steered from implosion. But questions abound. First, Africa’s improvements have, so far, been accompanied by a continued decrease in both Africa’s share of global industrial production and share of industrial production in African output. Second, Africa’s growth has seemingly not been followed by increased job creation and/or poverty reduction, has not been broad-based and are considered in some quarters are not sustainable!

Probably more than other regions of Africa, disconnect between growth on the one hand and employment, poverty and inequality reduction numbers on the other in West Africa is alarming. Nigeria, for example, which represents nearly half the population and output of the region, managed to combine an average of more than 6 percent growth for over a decade since 2002 with poverty rising from 54 percent average in 2004 to 70 percent in 2010. With oil in Ghana, the battle to prevent massive distortion of incentives that could negatively affect real sector productivity and job creation is at the brink. In the UEMOA region and for a number of the smaller countries, it is even harder to associate the growth numbers with any form of structural change in production. In part, reforms introduced in the 1980s and onwards tended to rely on the premise that with external stability, all that is required is the removal of public sector distortions to “get prices right” and achieve a reallocation of factors towards high productivity industries. But with the unprecedented macro growth coexisting with weak industrialization and structural transformation, there is reason to worry. Importantly, the concentration of production in West Africa cannot be disregarded as minor, indifferent to the sustainability of external balances. In and of itself, a concentrated production structure represents a threat to macroeconomic stability.

This paper aims to question the coexistence (or even correlation) of improved macroeconomic stability in West Africa with poor diversification. Could the region have been telling a growth story yet to be captured in the literature? Are there factors underlying its improvement that makes growth compatible with rising poverty, unemployment and deindustrialization? Can the shortfall in diversification be blamed on a deficit of structural reforms; have countries in the West African region not reformed ‘enough’? Or is it possible that macroeconomic policies have more roles to play in supporting and sustaining diversification than have been acknowledged by support frameworks that underpin the region’s policymaking? Should macroeconomic policies actually remain neutral and leave the job of diversification to structural reforms?

The methodology of the paper is two-fold. The first is empirical; using an endogenous growth accounting procedure, we generate coefficients of effect of selected macro variables on growth for a panel of the 16 African countries. The sample is divided along the lines of resources dependency (agriculture, aid, oil and solid minerals). The outcome is then compared to a whole West African regional panel. It weighs the relevance of identified indicators for growth and structural transformation policies. The second approach is theoretical. Using insights from structuralism, post-structuralism and Nurksism, the paper argues that macroeconomic policies do have a role to play in diversification, but that this role is played through their impact on relative prices. Specifically, where policies are not able to work on relative prices first, they are ineffective in leading to diversification. We demonstrate this by looking at policy focus and their links to growth, employment and poverty outcomes in a number of countries within the region.

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