Refining the African Transformation Index

Since the mid-1990s many Sub-Saharan countries have seen solid economic growth buoyed by reforms in macroeconomic management, stronger incentives for business, high commodity prices, and expanding exports of extractives.

But this growth has not been accompanied by significant changes in the structures of African economies. Invariably, the economies of these countries continue to be based largely on the production and exports of agricultural commodities, minerals, crude oil and natural gas. To make growth sustainable and inclusive, it has to be accompanied by economic transformation. One way to spur policy action on this front is to provide a tool for measuring economic transformation, comparing countries on it, and tracking countries’ progress over time in order to generate broader interest and discussion. This is the goal of the African Transformation Index (ATI).

Indicators of transformation (DEPTH)

We define economic transformation using five key features that characterize a transforming economy: Diversification, Export competitiveness, Productivity increases, Technology upgrading, and Human economic well-being improvement–DEPTH. We develop an index for each of the five DEPTH indicators of economic transformation and combine them to form a single index, the Africa Transformation Index (ATI).

ATI versus Other Indicators

Unlike many indexes that measure economic performance, the ATI focuses only on outcome measures of the economy, not on policy inputs or institutional forms that are believed to affect outcomes. We start from a definite view of the important features one expects to observe in a transformed economy or in an economy undergoing economic transformation—the DEPTH indicators specified here. Although the indicators do not cover every important economic feature, most policymakers in Africa would consider them essential in their thinking about economic transformation. They are the outcomes policymakers care about; policies and institutional reforms are means to achieving them.

Whether a country’s policies and institutional reforms are appropriate depends on the country’s progress toward achieving its desired economic outcomes. Trying to get policymakers to pursue particular standard policies or institutional reforms, which is the implied rationale of the input indexes, may not always be helpful.

The approach here is to use our sub-indicators, main indicators, and the overall index to generate information for policymakers on the outcomes they profess to care about. The expectation is that for policymakers keen on promoting economic transformation, poor performance on the desired outcomes would prompt them to ask questions and begin to look for answers.

The questions asked and the answers generated would depend on a country’s circumstance—its current economic and institutional structures, and the priorities on its economic development agenda. For any given period, the package of policy and institutional reforms as well as the sequencing of reforms required may vary from one country to another. In most cases, policymakers may not know the right package from the beginning. But so long as they are focused on the outcomes, aided by indexes such as ours, and are willing to seek improvements and make corrections as they learn, they are likely to make progress.

The ATI, as a purely economic and outcome-oriented index, is in some ways similar and in others different from some of the well-known indexes, such as: a GDP per capita index (purely economic and purely outcome oriented), the UNDP’s Human Development Index (partly economic and purely outcome), and the Africa Competitiveness Index (purely economic, with a mixture of inputs and outcomes).

On the whole, the correlation between the ranking on ATI and on the rankings on the other indexes is positive. But there are differences. Some countries that do well on both the GDP index and the HDI, do poorly on the ATI, and vice versa. The main reason, despite overlaps, is that the indexes are not trying to measure the same things. The ATI is focused exclusively on economic transformation, as defined and specified in this annex.

African Transformation Index

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