Beauty contests and economic transformation

 “As beauty is only skin-deep, so too is growth”. So Joe Amoako-Kuffour began the Brussels launch of the Africa Transformation Report by ACET (African Centre for Economic Transformation) last week. “Growth may be good, but it must be accompanied by economic transformation”. This is nicely put but relatively uncontroversial.

But where ACET have done rather well, both in providing analysis and extending the metaphor, is in coming up with five measures of economic transformation that translate into DEPTH: Diversification; Export competitiveness; Productivity; Technology; and Human welfare. By providing measures of these five areas for those African countries for which sufficient data is available, they have created the African Transformation Index.

Indices are often criticized for obscuring rather than clarifying – prompting mere beauty contests – but they remain useful tools for gauging how countries are doing. And as the presentation highlighted, this index based on outcomes is very different to indices based on inputs. So while the WEF competitiveness index and the World Bank’s Doing Business indicators focus on the conditions for doing business, the ATI focuses on what kind of growth is actually taking place. And the results are interesting.

How Transformative Are You?

Mauritius is generally a good performer on competitiveness reforms so unsurprisingly also scores highly here. Nigeria finds itself relatively low down the index, but countries such as Rwanda and Ethiopia, often praised for their business environment reforms, also appear low down the ATI. Also surprising is that Uganda appears high up the ATI, attributed by a discussant to the laissez-faire approach of government.

Of course, the ATI ranking depends on performance according to the five DEPTH criteria. So for Uganda, progress made on productivity and technological upgrading outweighs its more mediocre performance on export competitiveness. For Rwanda, its place in the index is dragged down by its low productivity and human well-being scores, even if it is going through a process of technological upgrading and business environment reforms may simply be taking time to have an impact.

Beyond the fun of looking at how countries rank, the ATI may help push the transformation agenda forward in a number of ways – as well as the index, the analysis accompanying the ATI is also interesting. It points to the importance of state capability – not just capacity, but also the ability to overcome coordination constraints within and between ministries and other agencies. It also talks of the need to push the regional integration agenda, design policies to better manage extractive resources, and to promote agribusiness.

The Usefulness of Indices…

Mauritius has been an advocate of using indices such as the Doing Business index to help focus public-private sector dialogue for some time. It has provided an external focus around which both private and public interests can align. The ATI then provides another arrow to the quiver, and by highlighting outcomes may help bring an additional and welcome angle to such dialogues.

The five measures themselves also offer interesting targets for policy-makers. When governments, companies or donors are thinking about the contribution of partnerships to economic transformation, here we have an entry point. To what degree do planned projects offer the potential to improve performance along some or any of these lines whether at a project, sectoral or aggregate level?

…When Used with Caution

Of course, indices can only be indicative, and rely on the indicators they are made of. As the ACET report makes clear, the index is designed not only in terms of capturing the main aspects of economic transformation but also according to where data is readily available across a reasonable number of countries.

Further, the report states the assumption that recommendations that emerge from the index will only come about where i) governments are committed to an economic transformation agenda,; ii) governments are convinced of the role of the private sector, and iii) the country is at peace. So they make clear where they see the limits of their work.

But while that limit is stated, and there is reference to cronyism, corruption and governance in the report, the big challenge relates precisely to the 3 assumptions. What is it that leads governments to commit to the transformation agenda; when, where and why do they support reforms and mechanisms to promote the private sector, and to what degree does a lack of economic transformation interact with stability and peace?

This is not to criticize the index. Quite the opposite. By clearly laying out some measurable indicators that can help guide policy-makers, the above questions can all be asked in relation to DEPTH, and how indeed to make growth more than skin deep.

The views expressed here are those of the author, and may not necessarily represent those of ECDPM.