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1. Growth Through Inclusion in South Africa

Author:
Ricardo Hausmann, Tim O'Brien, Andrés Fortunato, Alexia Lochmann, and Kishan Shah
Publication Date:
11-2023
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
It is painfully clear that South Africa is performing poorly, exacerbating problems such as inequality and exclusion. The economy’s ability to create jobs is slowing, worsening South Africa’s extreme levels of unemployment and inequality. South Africans are deeply disappointed with social progress and dislike the direction where the country seems to be heading. Despite its enviable productive capabilities, the national economy is losing international competitiveness. As the economy staggers, South Africa faces deteriorating social indicators and declining levels of public satisfaction with the status quo. After 15 years, attempts to stimulate the economy through fiscal policy and to address exclusion through social grants have failed to achieve their goals. Instead, they have sacrificed the country's investment grade, increasing the cost of capital to the whole economy, with little social progress to show for it. The underlying capabilities to achieve sustained growth by leveraging the full capability of its people, companies, assets, and knowhow remain underutilized. Three decades after the end of apartheid, the economy is defined by stagnation and exclusion, and current strategies are not achieving inclusion and empowerment in practice. This report asks the question of why. Why is the economy growing far slower than any reasonable comparator countries? Why is exclusion so extraordinarily high, even after decades of various policies that have aimed to support socio-economic transformation? What would it take for South Africa to include more of its people, capabilities, assets, and ideas in the functioning of the economy, and why aren’t such actions being undertaken already? The Growth Lab has completed a deep diagnostic of potential causes of South Africa’s prolonged underperformance over a two-year research project. Building on the findings of nine papers and widespread collaboration with government, academics, business and NGOs, this report documents the project’s central findings. Bluntly speaking, the report finds that South Africa is not accomplishing its goals of inclusion, empowerment and transformation, and new strategies and instruments will be needed to do so. We found two broad classes of problems that undermine inclusive growth in the Rainbow Nation: collapsing state capacity and spatial exclusion.
Topic:
Inequality, Economic Growth, Unemployment, and Inclusion
Political Geography:
Africa and South Africa

2. The Economic Complexity of Namibia: A Roadmap for Productive Diversification

Author:
Ricardo Hausmann, Miguel Angel Santos, Douglas Barrios, Nikita Taniparti, Jorge Tudela Pye, and Jessie Lu
Publication Date:
03-2022
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
After a large growth acceleration within the context of the commodity super cycle (2000- 2015), Namibia has been grappling with three interrelated challenges: economic growth, fiscal sustainability, and inclusion. Accelerating technological progress and enhancing Namibia’s knowhow agglomeration is crucial to the process of fostering new engines of growth that will deliver progress across the three targets. Using net exports data at the four-digit level, we estimate the economic complexity of Namibia – a measure of knowhow agglomeration – vis-à-vis its peers. Our results suggest that Namibia’s economy is relatively less complex and attractive opportunities to diversify tend to be more distant. Based on economic complexity metrics, we define a place-specific path for productive diversification, identifying industries with high potential and providing inputs – related to their feasibility and attractiveness in Namibia – for further prioritization. Namibia’s path to structural transformation will likely be steeper than for most peers, calling for a more active policy stance geared towards progressive accumulation of productive capacities, well-targeted “long jumps”, and strengthening state capacity to sort out market failures associated with the process of self-discovery.
Topic:
Development, Economy, Economic Complexity, and Industry
Political Geography:
Africa and Namibia

3. Getting Real about Unknowns in Complex Policy Work

Author:
Matt Andrews
Publication Date:
02-2022
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
As with all public policy work, education policies are demanding. Policy workers need to ‘know’ a lot—about the problems they are addressing, the people who need to be engaged, the promises they can make in response, the context they are working in, and the processes they will follow to implement. Most policy workers answer questions about such issues within the structures of plan and control processes used to devise budgets and projects. These structures limit their knowledge gathering, organization and sense-making activities to up-front planning activities, and even though sophisticated tools like Theories of Change suggest planners ‘know’ all that is needed for policy success, they often do not. Policies are often fraught with ‘unknowns’ that cannot be captured in passive planning processes and thus repeatedly undermine even the best laid plans. Through a novel strategy that asks how much one knows about the answers to 25 essential policy questions, and an application to recent education policy interventions in Mozambique, this paper shows that it is possible to get real about unknowns in policy work. Just recognizing these unknowns exist—and understanding why they do and what kind of challenge they pose to policy workers—can help promote a more modest and realistic approach to doing complex policy work.
Topic:
Education, Government, and Public Policy
Political Geography:
Africa and Mozambique

4. A Growth Diagnostic of Namibia

Author:
Ricardo Hausmann, Miguel Angel Santos, Douglas Barrios, Nikita Taniparti, Jorge Tudela Pye, Jose Francisco Muci, and Jessie Lu
Publication Date:
02-2022
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
In the thirty years that have passed since independence, Namibia has been characterized by its over-reliance on its mineral resource wealth, procyclicality of macroeconomic policy, and large income disparities. After an initial decade marked by nation building and slow growth (1990-2000), the Namibian economy embarked on a rapid growth acceleration that lasted 15 years, within the context of the global commodity super cycle. Favorable terms of trade translated into an investment and export boom in the mining sector, which was amplified to the non-tradable sector of the economy through a significant public expenditure spree from 2008 onwards. Between 2000 and 2015 income and consumption per capita expanded at an average annual rate of 3.1%, poverty rates halved, and access to essential public goods expanded rapidly. As the commodity super cycle came to an end and the fiscal space was exhausted, Namibia experienced a significant reversal. Investment and exports plummeted, bringing GDP per capita to contract by 2.1% between 2015-2019. With debt-to-GDP ratios 3.5 times higher than those in 2008, the country embarked on a fiscal consolidation effort which brought the primary fiscal deficit from 6.8% of GDP in 2016 to 0.6% by March 2020. Along all these years, inequality has been endemic and is reflected across demographic characteristics and employment status. At present, a large majority of Namibians are unable to access well-paying formal sector jobs, as these tend to be particularly scarce outside of the public sector. Looking forward, the road to sustained inclusive growth and broad prosperity entails expanding the formal private labor market by diversifying the Namibian economy, while at the same time removing the barriers preventing Namibians from accessing these opportunities inherited from the apartheid.
Topic:
Development, Economy, Economic Growth, Inclusion, and Skills
Political Geography:
Africa and Namibia

5. Can Africa Compete in World Soccer?

Author:
Matt Andrews
Publication Date:
01-2022
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
In March 2021, the Confederation of African Football’s President, Patrice Motsepe, insisted that “An African team must win the World Cup in the near future.” This visionary statement is infused with hope—not just for an African World Cup victory but for a fuller future in which African men’s soccer competes with world soccer’s elite. This paper asks if there is any chance of this happening. It suggests a simple method to assess how a country competes as both a ‘participant’ and a ‘rival’ and uses this method to examine how Africa’s top countries compete in world soccer. This analysis points to a gap between such countries and the world’s best, which has grown in recent decades— even though some African countries do compete more over time. The paper concludes by suggesting that Africa’s hope of winning the World Cup is not impossible but demands more active work, focused particularly on ensuring top African countries compete with more high-quality competition more often. The conclusion also suggests that the research approach might be relevant beyond a study of African soccer. It could particularly help shed light on how well African countries compete (as participants and rivals) in the world economy.
Topic:
Sports, Economy, Soccer, and Competition
Political Geography:
Africa

6. A Survey of Importers: Results of a Survey Conducted in Collaboration with the Ethiopian Economics Association

Author:
Ricardo Hausmann, Tim O'Brien, Tim Cheston, Nikita Taniparti, and Ibrahim Worku Hassen
Publication Date:
11-2022
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Ethiopia suffers from a chronic shortage of foreign exchange (forex).[1] The resulting lack of access to imports prevents firms from accessing imported inputs required for production. This creates a vicious cycle as exporters are constrained by this same problem, which further reduces overall supply of foreign exchange in the Ethiopian economy. The inability to reliably access foreign exchange for imports affects firm decisions on sourcing, capacity, and output. While the cost of this constraint is known to be high on the Ethiopian economy and firms are known to use a range of measures to attempt to bypass this constraint, quantitative assessments of the problem and response actions by firms are limited. It is in this context that an importer survey was conducted with the goal of informing policy decisions. A total of 202 firms with an active importing license were interviewed in March-April 2022. These firms were randomly sampled from firms registered with an importer license. All firms interviewed reported that they were operating below capacity, often well below capacity. Foreign exchange shortages were the main reason respondent firms cited for not operating at full capacity (63% of firms reporting this as their biggest constraint). Forex shortages far surpass the second and third reasons cited for not operating at full capacity — constraints due to the conflict (13%) and COVID-19 restrictions (11%). Firms operating below capacity cited forex shortages as the main constraint, regardless of whether they imported or not in the previous year. This was the most pressing constraint reported by firms of all sizes and sectors surveyed. It was the most pressing constraint faced by exporters and by foreign-owned firms as well as non-exporters and domestic firms. Amongst the total sample of firms with a renewed importer license, more than one-third of respondent firms (37%) had not imported in FY2020-21. Overall, 74% of firms reported experiencing challenges in accessing forex. Access to forex was reported as most challenging for manufacturing firms and smaller firms but impacted all sectors and firm sizes. The losses attributed to forex scarcity at the firm level were largest for agricultural firms, for micro-firms, and for firms that did not import at all in the previous year. In general, the larger the firm sales, the higher the likelihood that they were able import. The survey found different types of imports for different sectors. Manufacturing firms imported a large share semi-finished goods as imports as compared to agricultural firms that primarily imported finished goods. The survey results find that foreign exchange shortages and an inability to import are most severe for the manufacturing and agriculture sectors, small and micro-sized firms, and all non-exporters. However, the constraint is also the top problem facing all firm types in the survey, including exporters and foreign-owned firms. The primary means of accessing foreign exchange where it did occur was through specialized forex accounts or ‘diaspora’ accounts. The second most common means of accessing foreign exchange was through retention accounts available to exporters. The black market featured in many responses, but questions across the survey suggest that self-reported use of the black market by survey participants is underreported versus actual usage. The ability to source foreign exchange differed significantly by firm size. Exporting firms primarily used retention account earnings, as compared to non-exporters, which relied more on forex accounts. For faster access to forex, most firms reported that they approach banks, followed by turning to the black market. Friends and family abroad also served as a source of forex for one-quarter of firm respondents, and that foreign exchange was often used immediately. Foreign exchange access from banks is nevertheless a major pain point for firms. Most firms (55%) requested forex from a bank in the past year. On average, fulfilled forex requests took three months to be processed when they were fulfilled, but many firms reported that they have an unfulfilled request that has been in the system for more than a year. These firms are especially likely to report foreign exchange access as their top challenge. The survey finds that individual firms do not tend to use both official and black-market foreign exchange sources but rather tend to access all their forex at the (lower) official rate or all at the (higher) black-market. Large firms import most of their products at the official rate. By contrast, most small and micro firms import through other means. Manufacturing firms are also more likely to import all their production through other means and outside of the banking system. Non-exporting firms tended to import through other means than the official rate and outside of the banking system at a higher prevalence than exporting firms. The survey gleaned new insights on the implicit exchange rate that firms face as they navigate official and black-market channels of foreign exchange access. The survey does not allow for a precise estimate of the transaction-weighted exchange rate facing the economy but finds firm-level estimates align with previous macro-level estimates. The implicit exchange rate was higher for non-exporting firms, which show a greater willingness to pay a higher exchange rate to access imports. This signals the importance of the retention account for exporters to guarantee an import price closer to the official exchange rate. When asked about the maximum rate firms would pay to guarantee access to forex, some groups of firms were willing to pay higher amounts, including all non-exporters, firms that imported in the past year, and those that declared forex access a challenge. When compared to the implied rate they paid in the past year, many firms are willing to pay more than the implied rate to guarantee access to forex. Firm perspectives on policy changes to the exchange rate underscored challenges faced by policymakers. Current policy has been one of a crawling peg, with changes within the last several years to increase the rate of devaluation. The survey asked respondents about their support for faster devaluation, for a one-off movement to unify the official rate with the black-market rate, or about alternative exchange rate systems such as a floating exchange rate. Most respondents (71%) opposed maintaining the current regime, yet no option received majority support. Most firms appear to want both a stronger exchange rate and easier access to foreign exchange despite a tradeoff between these two priorities. The largest share of support for policy change was to adjust the exchange rate such that the official rate matches the black-market rate.
Topic:
Development, Economics, Imports, and Collaboration
Political Geography:
Africa and Ethiopia

7. Development in a Complex World: The Case of Ethiopia: A Compendium of Project Research on Advancing Economic Diversification in Ethiopia

Author:
Ricardo Hausmann, Tim O'Brien, Tim Cheston, Ibrahim Worku Hassen, and Can Soylu
Publication Date:
11-2022
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
This research compendium provides an explanation of Ethiopia’s fundamental economic challenge of slowing economic growth after an exceptional growth acceleration — a challenge that has been compounded by COVID-19, conflict, and climate change impacts. Ethiopia has experienced exceptional growth since the early 2000s but began to see a slowdown in the capacity of the economy to grow, export, and produce jobs since roughly 2015. This intensified a set of macroeconomic challenges, including high, volatile, and escalating inflation. This compendium identifies a path forward for more sustainable and inclusive growth that builds on the government’s Homegrown Economic Reform strategy. It includes growth diagnostics and economic complexity research as well as applications to unpack interacting macroeconomic distortions and inform diversification strategies. Drawing on lessons from past success in Ethiopia and new constraints, this compendium offers insights into what the Government of Ethiopia and the international community must do to unlock resilient, post-conflict economic recovery across Ethiopia. The research across the chapters of this compendium was developed during the Growth Lab’s research project in Ethiopia from 2019 to 2022, supported through a grant by the United States Agency of International Development (USAID). This research effort, which was at times conducted in close collaboration with government and non-government researchers in Ethiopia, pushed the boundaries of Growth Lab research. The project team worked to understand to intensive shocks faced by the country and enable local capability building in the context of limited government resources in a very low-income country. Given the value of this learning, this compendium not only discusses challenges and opportunities in Ethiopia in significant detail but also describes how various tools of diagnostic work and economic strategy-building were used in practice. As such, it aims to serve as a teaching resource for how economic tools can be applied to unique development contexts. The compendium reveals lessons for Ethiopian policymakers regarding the country’s development path as well as numerous lessons that the development community and development practitioners can learn from Ethiopia.
Topic:
Development, Economic Growth, Diversification, and Structural Transformation
Political Geography:
Africa and Ethiopia

8. Contemporary Turkey Edition (Harvard Journal of Middle Eastern Politics and Policy, Fall 2021)

Author:
Reilly Barry and Ghazi Ghazi
Publication Date:
09-2021
Content Type:
Journal Article
Journal:
Harvard Journal of Middle Eastern Politics and Policy
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
In this edition of the Journal of Middle Eastern Politics and Policy, authors examine various aspects of Turkish foreign policy and domestic politics that impact the country’s future in a complex world, and provide guidelines for dealing with this fascinating state and society.
Topic:
Foreign Policy, Religion, Public Opinion, Minorities, History, Islamism, Recep Tayyip Erdoğan, Domestic Policy, and Ottoman Empire
Political Geography:
Africa, Turkey, Middle East, and Mediterranean