What can be learned from economic transformation and agricultural transition experiences in MENA?

Presenter: Alejandro Nin PrattBased on joint research with Clemens Breisinger, Hoda El Enbaby, Jose Luis Figueroa, Hagar El Didi (all IFPRI)

FAO, CairoDecember 13, 2016

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Definitions and stylized facts• ET is the reallocation of economic activity across sectors (agriculture,

manufacturing, and services) plus economic growth (Herrendorf, Rogerson and Valentinyi 2013)

• Agriculture value added and labor shares decline.• Manufacture’s employment and value added shares often increase for lower

levels and decrease for higher levels of development.• Employment in services increases

• Result Overall productivity rises and incomes expand.

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What is special about MENA and ET? • Economies with revealed comparative advantage in primary products

are at a disadvantage. • The larger the share of natural resources in exports, the smaller the scope of

productivity-enhancing structural change.

• Countries with competitive (or undervalued) currencies tend to experience more growth-enhancing structural change than those countries with overvalued exchange rates. • Countries with more flexible labor markets tend to experience greater

growth-enhancing structural change.

• The speed with which this structural transformation takes

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Key questions• How do the structural characteristics of the MENA

countries affect the economic transformation process (Part 1)•What are the characteristics and lessons learned from

agricultural development in MENA? (Part 2)•What are elements of a new and sustainable development

strategy in MENA countries? (Part 3)

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The MENA region: oil rich and diverse in terms of incomes

Source: Elaborated by authors based on World Bank (2016)

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Share of agriculture in GDP and employment in MENA falls as expected and is higher in mineral resource poor countries

Source: Elaborated by authors based on World Bank (2016), ILO (2016) and UNSD (2016).

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But manufacturing as share of GDP in MENA is low and even lower in mineral resource rich countries

Source: Elaborated by authors based on World Bank (2016), ILO (2016) and UNSD (2016).

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Labor productivity in ag: share in GDP declines but employment stays constant in MENA

Source: Elaborated by authors based on World Bank (2016), ILO (2016).

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Labor productivity in industry: share in GDP declines but employment increases in MENA

Source: Elaborated by authors based on World Bank (2016), ILO (2016).

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What does MENA’s structural characteristics mean for productivity?

Source: Elaborated by authors based on World Bank (2016), ILO (2016).

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Summary of part 1• Agriculture declines but then there seems to be a difficulty to

move labor and other resources from agriculture into more productive activities• This is likely related to: • Limited capacity of the economy to generate productive

employment; • Low competitiveness of non-mineral sectors caused by Dutch

disease effects in mineral rich countries and non-conducive policies in mineral resource poor countries

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Agriculture in MENA (Part 2)

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Water and land are the key factors constraining production in most MENA countries

Source: Arab Spatial

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All MENA countries are net cereal importers

Figure 1 - Cereal import dependency in MENA (2010)

Source: Arab Spatial: Cereal import dependency, http://bit.ly/2ck5n8J. It show much of the available domestic food supply of cereals has been imported and how much comes from the country's own production. It is computed as (cereal imports - cereal exports)/(cereal production + cereal imports - cereal exports) * 100 Given this formula the indicator assumes only values <= 100. Negative values indicate that the country is a net exporter of cereals. Data inputted from Food and Agriculture Organization of the United Nations, Statistics Division database.

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Agricultural growth increasingly driven by land productivity

Source: Elaborated by authors based on FAO (2016), World Bank (2016)

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Ag growth mainly driven by growth in few countries: Egypt, Iran, Sudan (1981-2013)

Source: Elaborated by author based on FAO (2016)

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… and by few crops

Source: Authors’ calculations based on FAO (2016)

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Some initial implications for policy (Part 3)

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Do countries need to think of a new agriculture strategy?• The strategy followed so far of high intensification and increased land

productivity is challenged by increasing pressure on natural resources and water scarcity. • How efficiently is the region using available water resources?• Is the research system supplying new technologies that can sustain and increase

TFP growth and competitiveness in the coming years? Priorities?• Should the region be moving to more production in higher value crops like

vegetables and fruits?• First, higher value per hectare of this crop could result in a more efficient use of water • Second, higher labor demand of these crops and the higher multiplicative effects of

related services and processing can contribute to higher labor productivity and better jobs.

• More research is needed

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A new industrial strategy?• Industrial strategies led by the state have failed in the past.• The role of the state is to make sure that markets work rather than

“picking winners”. • Fine, but where are the comparative advantages?• Two philosophies? • Centralized approach, managing the economy• Decentralization, local governments promoting industrialization

• FDI has often played a crucial role for industrialization to take off (capital and knowledge transfer), potentially using free trade zones.

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Thank you