Walking (Stumbling?) On Two Legs?

Raphael Kaplinsky

Development Policy and Practice,

The Open University

IEA Conference, Pretoria, July 20120

Summary

• Framing conditions for Industrialisation in SSA

• Forces of disruption:

– Innovation

– The Commodities Boom

• Policy Implications

• The Political Economy of Policy Design and Implementation

Framing Condition 1:

Changing economic centre of gravity

?

VU

“Is this a V recovery or a W?

I think it’s the latter…

(CEO HSBC Bank, Financial Times, 5th Oct 09)

`

Perhaps its an

L

OR, MAYBE

Back to Centre Stage

Framing Condition 2:

Distributional outcomes of rapid growth in SSA

Global growth and global poverty

GDP Growth p.a (%)

Living below $1.25 pd (MDG1) (m)

1990-2000

2000-2008

1988-1990

2007-2008

World 2.9 3.1 1,668 1,329

China 9.9 10.4 724 208

India 5.5 7 414 456

SSA 2.2 4.9 224 355

Framing Condition 3:

Commodity super-cycle and changing terms of trade

United Nations Conference on Trade and Development (UNCTAD) monthly average price index, 2000=100 (1960 to October 2011)

The commodities-manufactures terms of trade (1949-2008)

Disruption in the innovation trajectory

Inducements to Innovation

• Demand

• Factor prices and character of infrastructure

• Path dependency and firm trajectories

• Regulatory environment

Forces of disruption to the innovation trajectory

1. The character of low income markets

Number of Chinese households, by disposable income, 2004 and 2009

Compiled from http://www.portal.euromonitor.com

020,00040,00060,000

80,000100,000120,000140,000

<1,000 1,000 -2,500

2,500 -5,000

5,000 -10,000

10,000 -55,000

>55,000

Annual Household Income (US $ Constant)

Hou

seho

lds

in '0

00

2004 2009

Number of Indian households, by disposable income, 2004 and 2009

Compiled from http://www.portal.euromonitor.com

010,00020,00030,00040,00050,00060,00070,00080,00090,000

<1,000 1,000 -2,500

2,500 -5,000

5,000 -10,000

10,000 -55,000

>55,000

Annual Household Income (US $ Constant)

Hou

seho

lds

('000

)

2004 2009

Forces of disruption to the innovation trajectory

1. The character of low income markets

2. The global diffusion of innovative capabilities

The global diffusion of innovative capabilities

• Learning in global value chains

• Global shares of R&D

–(2%-1970, <10%-1990, 24%-2007)

• Education and training

• Growth of large emerging country firms

Forces of disruption to the innovation trajectory

1. The character of low income markets

2. The global spread of innovative capabilities

3. Radical new technologies allow for distributed production– Renewable energy, nanotechnology

Forces of disruption to the innovation trajectory

1. The character of low income markets

2. The global spread of innovative capabilities

3. Radical new technologies allow for distributed production– Renewable energy, nanotechnology

4. New innovators– Dynamic SMEs in rural areas– PPP

Capital and scale intensive

Labour intensive, small scale

High wages, low cost of capital

Large market

vibrant entrepreneurship

Low wages, high cost of capital,

Small market

Weak entrepreneurship

Inefficient Efficient

A poverty-reducing growth path?

Capital and scale intensive

Labour intensive, small scale

High wages, low cost of capital

Large market

vibrant entrepreneurship

Low wages, high cost of capital,

Small market

Weak entrepreneurship

Low wages, high cost of capital,

Large market

vibrant entrepreneurship

Inefficient Efficient

A poverty-reducing growth path?

A perspective on linkages - Hirschman

• Financial linkages

• Consumption linkages

• Production linkages

–Forward

–Backward

–Horizontal

Production linkages in the commodities sector

Time

OutsideMiningCompanycorecompetences - win-win

Value added

Inside coreCompetences - win-lose

Policy Impact: Speeding and Deepening Linkages in commodities sector

Time

OutsideMiningCompanycorecompetences - win-win

Value added

Inside coreCompetences - win-lose

Speeding up

Deepening

Shallowing

Slowing down

Determinants of linkages

• Intrinsic

• Contextual

–Ownership

–Infrastructure

–Capabilities – skills and the National System of Innovation

–Policy

Turning to Policy

The substance of effective policy design and implementation

• Strategy

• Policies

• Sanctions backing policy

• Policies which don’t contradict each other

• Policy capabilities

• Policy will

• Policy legitimacy

• Alignment of key stakeholders

The political economy of policy design and implementation

• Pro-poor “inclusive” innovation

–TNCs – Fortune at the Bottom of the Pyramid?

–Large indigenous firms

–“Greedy” indigenous SMEs

• Making the Most of commodities

–May have high entry barriers

–But lost of opportunities for SMEs

So…

• Walking?

• Stumbling?

• Falling?

• Jogging?

• Sprinting?