Services, informality and productivity in Africa

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By Tabea Lakemann, Research Fellow, GIGA Institute of African Affairs and University of Göttingen, and Jann Lay, Acting Director, GIGA Institute of African Affairs, and Head of GIGA Research Programme Growth and Development


Learn more about this timely topic at the upcoming
17th International Economic Forum on Africa


Services, informality and productivity in AfricaEconomic development and a sustained, broad-based increase in living standards on the African1 continent are critically connected to the capacity of African economies to create decent jobs at a rate that keeps up with the rapid growth of the workforce. This, in turn, depends on the ability of African governments to develop innovative, tailor-made strategies towards private sector development taking full advantage of countries’ comparative advantages. Private sector development strategies require governments to recognise the significance of informality and to look beyond industrialisation — to the service sector — for private sector growth and job creation.

The potential of informal firms

On average, the informal economy is estimated to make up almost 40% of GPD in Africa.2 Informal firms are typically much smaller than formal ones, but even when controlling for size, they are on average less productive, less likely to access external finance and have less educated managers.3 At the same time, heterogeneity between informal firms is considerable. Some firms exhibit very high marginal returns to capital, and between 28% and 58% of informal entrepreneurs in West Africa are identified as “constrained gazelles” with low capital stocks, but some unrealised growth potential.4 Many informal firms thus have the likely potential to provide an improved livelihood to their self-employed owners and family members engaged in the business.
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The blurred boundaries of political violence in the Sahel-Sahara

By Olivier Walther, Visiting Associate Professor, Center for African Studies at the University of Florida and Associate Professor, University of Southern Denmark


Explore the OECD West African Papers series for more work on African socio-economic, political and security dynamics.


The Sahel and the Sahara are faced with exceptional political instability involving a combination of rebellions, jihadist insurgencies, coups d’état, protest movements and illegal trafficking. Analysis of the outbreaks of violence reveals that the region is not just the victim of an escalation of wars and conflicts that marked the 20th century. The Sahel-Sahara has also become the setting of a globalised security environment, in which boundaries between what is local and global, domestic and international, military and civilian, politics and identity are blurred.

Local grievances, global reach

A shared characteristic of many conflicts in the Sahel-Sahara is that belligerents often leverage global ideas to pursue local and national claims. Boko Haram, for example, simultaneously exploits the pan-Islamist vision of a unified Muslim world, whose boundaries transcend national borders to embrace all believers, and the historical narrative of the Kanem-Bornu empire that reigned over the Lake Chad region for around 1 000 years. These players also rely on the investment of global resources into struggles that are driven by local and national aspirations. For Al Qaeda in the Islamic Maghreb (AQIM), in particular, the unofficial ransoms paid by foreign governments in exchange for hostages represent amounts estimated at several tens of millions of dollars.
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Building Africa’s entrepreneurial culture

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By Giulia Ajmone Marsan and Jonathan Potter, OECD Centre for Entrepreneurship, SMEs, Local Development and Tourism


Learn more about this timely topic at the upcoming
17th International Economic Forum on Africa
Register to attend


Africa-Idea-[Converted]Over the last decade, Africa has witnessed the emergence of a dynamic start-up scene in some of its countries. The district of Yaba, in Lagos, Nigeria is one example. In Yaba, young educated people are supported by a network of incubators, accelerators and other support facilities. This entrepreneurship cluster has taken advantage of the nearby presence of many Nigerian higher education institutions, such as the Yaba College of Technology, the University of Lagos, or the Federal Science and Technical College for students and facilities.

Another well-known case is the so-called Silicon Savannah in Kenya, a highly entrepreneurial eco-system that has given birth to innovative tech companies like M-Pesa, the worldwide money transfer and financing service operating via mobile phones, and Ushahidi, the well-known crowdsourcing platform. As in Nigeria, some of the universities based in Nairobi, notably the University of Nairobi and Strathmore University, are important actors in this eco-system.
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What is Happening to Robin Hood? The Rise and Future of Progressive Redistribution

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By Peter H. Lindert, Distinguished Professor of Economics, University of California, Davis1


Prof. Lindert will be delivering the 5th Angus Maddison Lecture on 3 October 2017
as part of the OECD Development Centre’s Angus Maddison Lecture Series
during DEV WEEK 2017.
Learn more and register to attend


sharing-money-2A global history of how governments redistribute between rich and middle and poor is unfolding. While such an account can start from new measures of fiscal progressivity in the 21st century, several countries can trace the history of fiscal redistribution in detail back to the 1960s, and then in broad outline back to the start of the 20th century.

What that history shows is a global rise in progressivity over the last 100 years. Earlier regimes took less and gave less. Before 1910, redistribution favoured the poor at the expense of the rich only in Britain and the Netherlands during the French War era of 1792 to 1815, as much as it did in the still-penurious government budgets around 1910. Why had Robin Hood still not arrived as late as the dawn of the 20th century? Three restraints blocked progressivity before the 20th century: pervasive poverty (only small surpluses were available to redistribute), lack of fiscal capacity and the delay in extending voting power to the masses, including women.
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Management and industrialisation in Africa

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By Daniela Scur and Nicolas Lippolis, University of Oxford


Learn more about this timely topic at the upcoming
17th International Economic Forum on Africa
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Africa-IndustrialisaionThe manufacturing sector has traditionally been seen as an engine for development due to its high propensity for productivity gains. Worryingly, recent evidence suggests that this has not been the case in Africa.1 One important determinant of firm productivity is the quality of management practices, and new data sheds light on the state of management in some African countries.

Management around the world

For over 12 years, the World Management Survey (WMS) has been collecting data on management practices using an interview-based methodology. It defines 18 key management practices and scores them from worst practice (1) to best practice (5). The focus is on such practices as monitoring, target-setting and incentives/people management. Research using this data suggests a strong correlation between management and a series of productivity measures – such as firm size, profitability, sales growth, market value and survival. Experimental evidence further confirms a positive correlation.2 Continue reading

Biases in entrepreneurship and industrial policy in Africa

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By Wim Naudé, Professor in Business and Entrepreneurship in Emerging Markets, Maastricht University, Dean of the Maastricht School of Management, The Netherlands, and Research Fellow at the IZA Institute for Labor Economics, Bonn, Germany


Learn more about this timely topic at the upcoming
17th International Economic Forum on Africa
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shutterstock_415121221.jpgAfrica has failed to industrialise. At the same time, millions of young people are seeking jobs. Put one-and-one together and the answer seems to be that if these labour market entrants become entrepreneurs in industry then they can in one stroke create jobs and help Africa industrialise. Yet, optimising the nexus between entrepreneurship and industrialisation requires overcoming some vexing policy biases. These can be categorised as biases of over-estimation and biases of under-estimation.

First, industrialisation’s job-creation potential is often over-estimated. The world is in a Fourth Industrial Revolution (4IR) driven by technologies such as the Internet of Things, automation, additive manufacturing and big data analytics (see Naudé, 2017). These technologies are causing the loss of low-skilled routine jobs, of which Africa has a disproportionate share. It’s estimated that up to 66% of all jobs in developing countries are at risk. Relatively poor African countries such as Ethiopia are at a particular risk of having around 44% of current jobs susceptible to automation. The 4IR is furthermore leading to a ‘re-shoring’ of manufacturing back to advanced economies. This is to the detriment of low-wage labor in African and other developing countries. As Culey (2012) points out: How important is low-cost labor when you don’t actually need labor?
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Excessive informal sector: a drag on productivity



By Aleksander Surdej, Poland’s Ambassador to the OECD

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Photos by Victor Jiang / Shutterstock

The informal economy remains a problem when we discuss the prospects of economic development. It is perceived as a hindrance to economic progress because the informal sector does not pay taxes, does not include its employees in social insurance schemes and does little to offer labour law protections. Increasingly, various researchers (La Porta1, Shleifer2, 2014) and international organisations, like the OECD, converge in seeing the informal economy as an obstacle to economic development due to its imminent low productivity. Indeed, informal businesses are concentrated in low productivity sectors. They are, on average, smaller and hence less productive. They generate lower value added. They pay lower wages to their employees and do not train them. And the owners of informal businesses manage their firms less efficiently than their better educated formal sector counterparts.

The informal sector is hence both a symptom of economic backwardness and a drag on economic development. But, can this apparent vicious circle be broken, or is it an economic policy donquichottean task?

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