Emerging evidence on the relative importance of sectoral sources of growth in Sub-Saharan Africa
Eric Kehinde Ogunleye
Sub-Saharan Africa (SSA) is one of the most widely investigated regions of the world with respect to determinants and constraints of economic growth and development. These interests are sparked by the fact that, despite different policy prescriptions and implementation, sustained economic growth and development remains slow in the region, falling almost consistently behind other developing regions until recently. This plethora of studies sometimes yields varied, diverse and inconsistent results. While some believe that Africa’s colonial history is responsible for its slow growth, others heap the blame on physical geography and climate. Yet others conclude that tribal divisions, poor quality of governance and institutions, and conflicts resulting from resource abundance are the important factors. Thus, these findings yield several policy prescriptions that are as diverse, contradictory and inconsistent as the findings. Implementing them has led to mixed results, generating several myths and realities on economic growth and development in the region.
Within the diverse theoretical and empirical literature on economic growth and development in SSA, there are also diverse views on the relative importance of sectoral drivers of growth. While some believe that agriculture is the most important driver, others advocate industrialization, especially manufacturing, with the emerging view giving prominence to the role of services. The Industrial Revolution that laid the foundation for sustainable economic growth and development in Europe naturally induced the policy thinking that industrialization was the most important driver of growth. Thus, beginning from the 1950s, SSA countries were encouraged to pursue industrialization, originally aimed at satisfying the markets of the advanced economies. Most of these countries vigorously pursued the import substitution industrialization (ISI) strategy and later the Export Promotion strategy. Inappropriate policies and economic realities in SSA countries vis-a-vis the industrialized countries being copied, led to structural economic problems that resulted in stagnation and even retrogression. Adjustment was imperative and came at the heels of the Bretton Woods institutions that recommended agriculture as the important driver of growth. Again, appropriate, effective and successful policies aimed at improving productivity in this sector remain the daunting challenge. Discussions on the role of services as a potential driver of growth are relatively new. However, the new, robust and consistent reality emanating from our findings reveals that this sector was the most important driver of growth in SSA between 1980 and 2007.
Understanding the relative importance of sectoral drivers of growth in SSA countries has serious policy implications. Without this understanding, policies will be misdirected. The goal of this study is to determine the relative importance of agriculture, manufacturing and services as drivers of economic growth in selected SSA countries. This study contributes to the growth literature in SSA by providing a deeper understanding of the relative importance of sectoral drivers of growth in the region. Attempts are also made to identify the channels through which these effects occur for services, the most important sectoral driver of growth identified in this study. In order of importance, services, agriculture and manufacturing are the sources of growth in SSA countries, while openness and the labour force are the greatest constraints on services in influencing economic growth. Anecdotal evidence suggests that employment is the possible channel through which services impact on growth.
The chapter is organized as follows. The next section on myths and realities on economic growth in Africa emphasizes the determinants of growth and the shifting focus on sectoral drivers of growth. The nature and structure of economic growth in SSA countries is the focus in the following section. The next section discusses theoretical and empirical methodology and data issues and is followed by a presentation and discussion of the empirical findings. The penultimate section presents a set of policy issues and recommendations, then the final section is the conclusion.