New research: African industry not helped by World Bank's Doing Business myth

Added 05 Jun 2014
I’ve just read a really interesting paper from John Page, showing how in depth research – much conducted by the World Bank itself – busts the ‘myth’ that Doing Business style deregulation is needed for African industry to grow.

Eurodad has long been a critic of the World Bank’s Doing Business report for adopting a misguided cookie cutter approach to development based on the idea that less regulation is always better. Last year’s independent panel - chaired by former South African finance minister Trevor Manuel - agreed with many of our criticisms, calling for the rankings of countries in the report to be abandoned and suggesting it “include a “health warning” about its limitations at the beginning of the report”.

Back to Page’s paper, which summarises the findings of joint research undertaken by the United Nations University, Brooking Institute and African Development Bank on industry in Africa. The backdrop is depressing:

“In 2010, Africa’s average share of manufacturing value added in GDP was 10 percent, unchanged from the 1970s. The share of medium and high technology goods in manufacturing production is low and has been falling since the mid-1990s. Per capita, manufactured exports are less than 10 percent of the developing country average. Primary commodities and natural resources still account for the bulk of the region’s exports as they have sinceindependence. Africa’s industrial transformation has yet to take place.”

The paper discusses the competitiveness of African firms (“Africa can compete on the shop floor”) and the relative role of small firms in creating jobs, before taking aim at the ‘myth’ that deregulation is the “magic bullet” for Africa. It’s worth a lengthy quote as it strikes a killer blow against the Doing Business report:

“But, if African firms are productive enough to exploit the region’s low-wage advantage, why hasn’t labor intensive manufacturing moved to Africa? The easy answer—excessive regulation holds industry back—is a second myth  As this myth, largely driven by the World Bank’s Doing Business publicity machine, goes, if only stroke-of-the-pen reforms such as reducing the time and cost of opening a business were pursued with vigour, Africa’s economies would be transformed. Also not true. More careful research highlights problems with power and trade logistics as accounting for much of the difference in competitiveness between Africa and other parts of the developing world. Moreover, the new industrializers in Southeast Asia and Central America score as badly on the Doing Business surveys as many African economies.”

So far, most of the independent panel’s recommendations have been ignored, which begs the question of how long the Bank can continue to ignore the advice of experts and the growing evidence that the Doing Business rankings rest on rotten foundations and should be abandoned.