Forget GDP growth and oil wells, Africa's real fortune lies in the knowledge economy--here's proof

Experts argue the most-offered solutions may not be the best bet for sustained takeoff. Try telling that to the "value-addition" brigade.

AFRICA watchers, critics and observers seem to have entered phase two of the “Africa Rising” narrative: Questions are now being raised about whether the continent’s dramatic surge in economic growth is sustainable, given that most African countries export basic commodities such as unprocessed agricultural products, minerals and crude oil.

So far, the impressive numbers have been driven by high commodity prices, macroeconomic reforms and a better business environment, but, as the African Centre for Economic Transformation argues, growth is  not enough—what is needed more is greater diversification, export competitiveness, more productivity from workers, and better use of technology.

In other words, African economies are “too simple” and there is perhaps no starker visualisation of this situation than this set of infographics developed by scholars from Harvard University and Massachusetts Institute of Technology (MIT), who have created The Atlas of Economic Complexity.

The researchers evaluate a country’s major exports against two measures—product complexity and economic complexity. Product complexity is the amount of technological know-how that making a product demands: cars, machinery and space shuttles are highly complex because they require a sophisticated level of productive knowledge and typically emerge from large organisations where many highly skilled individuals interact.

On the other hand, cocoa beans or tea only require basic knowledge and can be done by individuals or at family level. 

Making complex products is an advantage for an economy because the skills gained from making one complex product can easily be translated into making another—if your factory knows how to make a railway tracks, for example, then you can easily diversify into making steel construction beams, engines, motor vehicle parts, borehole pumps or tractors. 

But if you’re digging oil out of the ground, even though it seems like a complicated affair, there’s hardly anywhere else you can apply that knowledge.

This, for example, is a snapshot what Nigeria exported in 2010—the more complex and interconnected products are at the centre:

And this is what Uganda exported in 2010:

Mining and basic agricultural products are “poorly connected” with other products; garments, textiles and food processing are in an intermediate position, while machinery is both highly complex and highly connected to the rest of the “Product Space”.

Electronics and pharmaceuticals are very complex but not as widely connected to other products, implying that although they require a lot of knowledge to make, that skill is not as widely applicable.

When a country is making many complex products then the “collective knowledge” of the society is higher.

“What a society knows does not exactly look like what an individual knows, because what one person can know is limited,”  says Ricardo Hausmann, director of Harvard University’s Centre for International Development.

“So the way a society knows a lot is not by having geniuses but by spreading bits of knowledge into different people’s heads,” in other words, by having many highly skilled workers.  

Against these two measures, Africa comes up stunningly short. Most of what Africa makes is limited in the periphery of the Product Space, weakly connected to other products.

South Africa and Egypt are the continent’s most diversified economies, with the majority of their products located in the core of the Product Space where diversification is easier because it is high—a kind of virtuous cycle.

After this are Kenya, Uganda and Senegal—countries which (until recently) did not have any big natural resources like oil or minerals, and whose GDP growth has been largely middle-of-the-pack over the past decade.

The least diversified in the rankings of 125 global economies are, as expected, are mostly the big, booming oil-exporting economies—Sudan, Guinea, Libya, Angola and Nigeria.

Harvard economist Muhammad Yildirim, who has extensively analysed the Atlas of Economic Complexity  argues that measuring economic complexity gives the best indication of the future fortunes of a country, outperforming other common indicators such as GDP growth today, governance or even education.

A oft-quoted example is that of how countries like Kenya or Ghana had the same GDP as Asian countries like South Korea or Thailand, only for the Asian countries to massively diversify their economies giving them a sustained economic boom, while African countries have largely stuck to exporting more of the same—cocoa, coffee, aluminium or gold.

 So what’s the solution? Intuitively, one might argue (as donors and African governments have argued  herehere and here) that the best way to secure the gains of the current economic boom is to go into “value addition” of the products they already produce—from coffee to instant coffee, from bananas to banana crisps and banana flour, from raw diamonds to cut and polished diamonds.

But the researchers argue that these intuitive leaps can sometimes lead to dead-ends—for example, even if an oil-producing country moves from raw extraction to refining and marketing petroleum products, the sector might still only account for 1% of the job market.

“Strategic bets” are thus needed, argues Yildirim, which would mean investing in a number of new industries that have the greatest potential for knowledge spillovers. It would mean larger, more aggressive leaps into the areas of the Product Space that are denser and more connected to push a country closer to the higher- complexity products.

“Diversification is a risky enterprise that must tolerate failure. The point is not to always pick winners—an impossible goal—but to have the discipline to let losers go,” says the economist.

Until the 1980s, uprooting a coffee tree was a crime in Kenya, which could get you jailed for up to seven years. But perhaps it’s time for Africa to hack away the cocoa trees and tea bushes.

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