Of the seven fundamental drivers of transformation that we have identified, our current research focuses on four: foreign direct investment, export promotion policies and strategies, education and skills development, and infrastructure. In 2012 we plan to extend our analysis in these four areas and implement programs to cover the other three: private sector and business environment, labor and employment policies and institutions, and state capacity for economic development.
FDI inflows in Africa: Trends, Sources, and Sector Distribution
In addition to providing additional resources for much-needed investments, FDI may also increase Africa’s exports by providing access to foreign markets, and by facilitating Africa’s integration into global value chains. FDI may also contribute to technology and management skills transfer to Africa. To better understand the nature, challenges and prospects for FDI in Africa, ACET is conducting a study to examine the trends, sources and sector distribution of FDI inflows in Africa as a whole to be followed by specific country experiences. Apart from providing an overview of the trends of FDI flows in the continent, the Africa-wide component of this study also compares Africa’s performance with other developing regions and the rest of the world and provides insights on the potential for increased FDI into Africa and what challenges must be addressed for this to happen. A draft of this paper has been completed.
The second component of this study analyzes Ghana’s experience with FDI. This is a pilot case study to be followed by other African countries targeted by ACET. The study on Ghana attempts to explain the country’s FDI performance over the past decades. More specifically, the following issues are examined: (1) Trends of FDI inflows in Ghana and identification of factors that could be improved to attract more FDI to Ghana. (2) Sector and regional distributions of FDI. (3) Sources of FDI to Ghana. The objective is to identify the main players in Ghana’s FDI market, and sectors targeted by each of the main investor countries. For this study, we are using FDI aggregate data from UNCTAD and disaggregate data from the Ghana Investment Promotion Center (GIPC) as well as interviews with key bodies in Ghana.
Export Promotion Policies and Strategies in Africa
Our first study on export promotion policies and strategies for Africa reviews the export led growth model of successful East Asian countries and explores how to adapt it to the African context. The research discusses the reorientation of trade flows from the USA and EU towards BRICs and other developing countries and the challenges and limitations of this ongoing process. The paper proposes a set of policies and strategies to promote African exports. A first draft of this paper has been completed.
Our second study focuses on Special Economic Zones (SEZs), or Export Processing Zones (EPZs) and Industrial Parks. SEZs have been associated with economic development, increasing exports, export diversification and attracting greater foreign direct investment especially in countries in East Asia, Central America and the Caribbean. Some zones, for example in Lesotho and Mauritius, have become an important link in integrating countries into global production systems within sectors such as textiles, clothing and footwear. There are more than ninety zones across Africa, according to the ILO database on EPZs. This study seeks to provide an overview of the experience of some African countries’ economic zones since their establishment, to present a cross section of what is happening on the continent with the aim of drawing lessons and recommendations for other African countries. A number of key issues facing policy-makers are explored: how have SEZ programs contributed to the rise in exports? What are the multiplier effects of EPZs on the local economy – impact on development of local private sector, domestic employment, transfer of technology and skills given that there is a large initial investment as well as subsequent maintenance costs involved in establishing these zones. The study also explores the potential impact of the new wave of Chinese sponsored SEZs in Africa.
Education and Skills Development
A major objective of ACET’s research work is to highlight the lessons that Africa can learn from the experiences of other emerging countries particularly those in Asia. In our first study on education and skills development we seek to identify the range of policies adopted by the high performing Asian economies in stimulating economic growth through skills development. The paper highlight how each of these countries, in their own way, faced a fairly radical shift in the demand for skills as their industrial policies helped move their economies in the direction of higher value-added production, generating a demand for technological capabilities. We explore how these countries created institutional mechanisms that functioned to ensure a match between the shifts in the demand for higher level skills with an increase in their supply. The study also focuses on lessons that African countries can learn from the experiences highlighted above given that there is no “magic bullet” and the form of policy intervention and type of coordination mechanism used will depend on the specific institutional context of the society in question.
Our second study, a pilot, explores the commitments of African countries in designing and implementing education systems that would provide the workforce with the needed skills to drive competitiveness and economic transformation. We propose a three-pronged approach to assess the strength of an education system, its linkages to the economy, and the state of training that takes place outside the formal educational system. For each of these three dimensions, we assess a country’s performance on a series of indicators. On the first dimension on assessing the effectiveness of a country’s education system, we explore both the quantity and quality of education including enrolment and graduation rates and the orientation of the educational system to economic development; in particular, the percentage of students studying in scientific and technical fields. On the linkages between the economy and education system, we examine the extent to which the education in technical institutes and universities are in line with the needs of businesses and whether the private sector has an input into the design of the curriculum, particularly for technical and vocational institutes. We also seek the views of employers on the quality of skills they get from employing graduates of the education system and the views of the past graduates about the usefulness of their education in helping them find jobs or self-employment in their fields of study. Finally, the study analyzes the extent to which there are public-private collaboration in promoting training and skills development outside the formal educational system. The study is currently being undertaken on Ghana and Ethiopia. We expect to use the experience from these two pilots to refine the approach and to extend the study to other African countries.
Infrastructure
In collaboration with the African Development Bank (AfDB), ACET has prepared a number of studies to underpin the development of a Regional Integration Strategy Paper (RISP) to guide AfDB’s support to regional integration in the 15 ECOWAS countries of West Africa. In view of the fact that a major challenge to regional integration and development in West Africa is inadequate modern infrastructure, the studies focused on the transport corridors to facilitate interregional trade, energy and information and communication technology (ICT) sectors. For each of these sectors, the studies provides an in-depth assessment of the current state of existing facilities in ECOWAS countries and the level of interconnectivity among the countries, a comparison of the capacity, technical quality and operational costs of the sector among ECOWAS countries and to international standards, and an analysis of the major factors that constrain the development of the sector. The studies also identified specific investments that could be or are being undertaken to increase capacities in the sectors. Policy and regulatory reforms that governments in the region could undertake to encourage greater private sector investments or public-private partnerships are also explored.
ACET has also produced an occasional paper studying sources of innovative financing for infrastructure projects in Low Income Countries. The G20 Seoul Summit in November 2010 established a High-Level Panel for Infrastructure Investment. The tasks of the panel include reviewing policies of multilateral development banks and recommending measures to scale up financing and diversify sources of affordable finance for infrastructure, propose innovative ways to mitigate and intermediate risks to attract finance, and review the action plans of multilateral development banks. The aim of this occasional paper was to propose some ways of responding to the G20’s initiative. One such response could comprise mobilizing innovative financing that uses the large and growing savings surpluses of some countries, often held in sovereign wealth funds (SWFs); providing those resources to LICs on appropriately concessional terms; using those resources to encourage private investments; and beginning to use the monies quickly while measures to scale up their use are taken.
