From The Index

Interactive African Transformation Index

Click on one of the letters of D-E-P-T-H below to see how countries scored on each of the five subindexes.

Comparing African Countries on Transformation

To compare African countries among themselves, we developed a subindex for each of the five main aspects of economic transformation and combined them to form an index, the African Transformation Index. Countries are compared for three-year periods centered on 2000 and 2010 (1999–2001 and 2009–11). The comparison is for Sub-Saharan Africa, but due to the lack of data, only 21 countries are represented. We plan in time to extend the index to all of Africa.

Indicators of transformation (DEPTH)

The five subindexes of economic outcomes that are considered to be key features that characterize a transformed economy and that are tracked by the African Transformation Index:

Diversification of production and exports
Export competitiveness
Productivity increases
Technology upgrading
Human economic well-being

For fuller explanations of each, click above. The reasons behind the choice of these indicators are discussed in Chapter 1 of the report.

2014 African Transformation Index

Click here for an interactive graph of the African Transformation Index.

ATR figure 1.4a

The score is the average for 2009–11. The numbers after each country name show the change and direction in ranks between 2000 and 2010. See annex 1 of the full report for details on the construction of the African Transformation Index.
Source: ACET research.

Comparing African Countries on Transformation

To compare African countries among themselves, we developed a subindex for each of the five main aspects of economic transformation and combined them to form an index, the African Transformation Index. Countries are compared for three-year periods centered on 2000 and 2010 (1999–2001 and 2009–11). The comparison is for Sub-Saharan Africa, but due to the lack of data, only 21 countries are represented. We plan in time to extend the index to all of Africa.

Indicators of transformation (DEPTH)

The five subindexes of economic outcomes that are considered to be key features that characterize a transformed economy and that are tracked by the ATI:

For fuller explanations of each, click above. The reasons behind the choice of these indicators are discussed in Chapter 1 of the report.

The Top Rankers

Putting together all of the elements of DEPTH, the African Transformation Index shows Mauritius, South Africa, Côte d’Ivoire, Senegal, Uganda, Kenya, and Gabon as the top seven countries on economic transformation in 2010 (see above). The middle seven are Cameroon, Madagascar, Botswana, Mozambique, Tanzania, Zambia, and Malawi. The least transformed are Benin, Ghana, Ethiopia, Rwanda, Nigeria, Burundi, and Burkina Faso. (click here to see individual country profiles)

The main surprises are Botswana, Ghana, and Nigeria. Botswana had a stellar record on GDP growth over 1970 to 2010, raising its per capita GDP to the second highest in Sub-Saharan Africa (after Gabon). But its economy is based primarily on the production and exports of raw diamonds—extractives—which we do not include in the measures of diversification and export competitiveness. The country has made efforts in recent years to diversify away from raw diamonds by moving into cutting and polishing, but the results have yet to register in the data. Meanwhile, the economy remains very weak in some of the key indicators of transformation. For example, the share of manufacturing in GDP is around 4 percent and cereal yield is about 375 kg per hectare, compared to over 11 percent and 900 kg per hectare respectively in Burkina Faso, the country at the bottom of the transformation rankings. Ghana’s poor showing in 2010 results mainly from a steady decline in manufacturing production, export diversification, and export competitiveness over the decade. It also relies significantly on unprocessed mineral exports (gold and bauxite). Nigeria’s poor showing also reflects its extreme dependence on producing and exporting extractives.

Uganda, Mozambique, and Rwanda made the most progress on transformation; each country improved its rankings by three places or more. Kenya, Madagascar, Malawi, Côte d’Ivoire, Tanzania, and Ethiopia improved their rankings by one or two positions. The worst deterioration occurred in Ghana and Botswana. Ghana fell seven places, and Botswana five places, between 2000 and 2010 due to the factors mentioned above. Burkina Faso, Cameroon, Senegal, and Zambia also dropped in rankings.

Diversification

ATR figure 1.4b

The score is the average for 2009–11. The numbers after each country name show the change and direction in ranks between 2000 and 2010. See annex 1 of the full report for details on the construction of the African Transformation Index.
Source: ACET research.

Diversified production. Two essentials in economic development are acquiring the capability to produce a widening array of goods and services and choosing which ones to specialize in based on international relative prices. Today’s developed countries have gone through a phase of diversifying production before specializing to take better advantage of market opportunities. In this sense, specialization is a market-based choice to focus on a subset of goods and services that a country is capable of producing, not a choice forced on a country because it lacks the capabilities to produce anything else. The only effective way to acquire capabilities for new economic activities is through learning-by-doing. African countries thus need to purposively learn how to produce new goods and services. Only by learning can they expand their economies from ones based mainly on traditional agriculture and primary commodities to ones that also increasingly include modern agricultural production, manufactures, and high-value services.

One indicator of progress toward a more diversified production structure is the share of manufacturing value added in GDP. Sub-Saharan Africa’s average share was 9% in 2010, much the same as in the 1970s (see chart here). For the ACET 15 the share has actually fallen—from around 12% in the 1970s and 1980s to roughly 10% in 2010. For the comparators, the share rose from 15% in 1970 to almost 25% in 2010. Indeed, it appears that Sub-Saharan countries are directly replacing agriculture with services as the largest economic sector without passing through the intermediate phase of industrialization and an expanding manufacturing sector, the experience of almost all successful economies. Moreover, a large part of the services sector in many Sub-Saharan countries consists of low-technology and low-value activities. These trends are of great concern, since manufacturing has historically been the main source of technological learning. This is true even in the current knowledge economy, since a large part of the value of computer software, for example, is its impact on manufacturing technology and processes.

Diversified exports. The importance of diversified production applies equally to exports. A diversified export base can minimize volatility in foreign exchange earnings, which for small, open developing economies allows access to capital, technology, and critical intermediate inputs. For many African countries exports are concentrated in a narrow range of primary products that has remained much the same over the past 40 years. The top five export commodities account for about 70% of merchandise exports in Sub-Saharan countries, much more than the 44% in the comparator countries (see chart here).

Apart from broadening the range of export products, a further challenge is to broaden the sectoral origin of exports to include more manufactures and high-value services. Sub-Saharan Africa’s share of manufactures and services in total exports is below that of the comparators, but it saw a bump in the mid-1990s (see chart here). For both Sub-Saharan Africa and the ACET 15, more than half the rise has come from services; the gap with the comparators in manufactures has remained wide (see chart here).

Ranking African Countries on Diversification

Mauritius, South Africa, Madagascar, Cameroon, Senegal, Kenya, and Côte d’Ivoire occupy the top tier of the diversification ranking. Ethiopia, Zambia, Ghana, Burkina Faso, Gabon, Botswana, and Nigeria are in the bottom third. Rwanda and Benin improved dramatically (5 and 4 places respectively). A big part of the change in Rwanda was the expansion of nontraditional exports, particularly vegetables and beverages. Uganda, Burundi, and Ethiopia also made good progress on diversification, with Ethiopia adding horticultural and leather exports. Regional integration agreements, such as the Southern African Development Community and the East African Community, have benefited Kenya, Uganda, and Tanzania. The removal of requirements for export registration, licensing, and surrender of proceeds— and the elimination of most commodity export taxes—facilitated their export diversification.

Three of the bottom five countries on diversification are from the Economic Community of West African States—Ghana, Burkina Faso, and Nigeria. Ghana had the worst decline on diversification, reflecting the dramatic decline in the shares of manufactures and services in exports, from 49% in 2000 to 23% in 2010. Revenues from the new crude oil exports could dampen the urgency to diversify production and exports as the growth of agriculture and industry threaten declines.

Export competitiveness

ATR figure 1.4c

The score is the average for 2009–11. The numbers after each country name show the change and direction in ranks between 2000 and 2010. See annex 1 of the full report for details on the construction of the African Transformation Index.
Source: ACET research.

Exporting provides the opportunity to expand production, boost employment, reduce unit costs, and increase incomes. It also enables a country to better exploit its comparative advantage to generate higher incomes, which can pay for the investments in skills, capital, and technology to enhance competitiveness over time. And the knowledge gained from exposure to export competition helps in raising productivity and innovating with new products. Indeed, exporting was a key to success for the East Asian countries. And although the global economic environment has changed, exporting can still be a viable and important part of Africa’s economic transformation (chapter 3).

A good indicator of a country’s export competitiveness is its share in world exports of goods and services and how that share moves over time. However, a small economy could be very competitive in exports and still have a small world share (Mauritius and Singapore). A way to overcome this is to divide world export shares by world GDP shares. This ratio is equivalent to the exports-to-GDP ratio of a country divided by the exports-to-GDP ratio of the world. If this measure is greater than 1, the country is exporting a greater share of its GDP than the world average, so it is in a sense more competitive in exporting. And a rising trend in the ratio indicates rising export competitiveness.

In Africa a large increase in the exports of extractives by a country may not indicate that the country’s economy is transforming, so extractives are removed from both exports and GDP in calculating the measure. Trends in this measure of export competitiveness show a large gap between the African countries and the comparators (see chart here). The share of nonextractive exports in nonextractive GDP rose between 1980 and 1985. It has since been on a downward trend, revealing that the region’s recent GDP growth has not been matched by corresponding growth in exports outside extractives.

Ranking African Countries on Export Competitiveness

When it comes to export competitiveness (the share of exports of goods and services in a country’s GDP relative to the corresponding share for the world),20 Mauritius, Côte d’Ivoire, Malawi, Kenya, Mozambique, Tanzania, and Ghana are in the top third, while Cameroon, Benin, Botswana, Nigeria, Rwanda, Burkina Faso, and Burundi are in the bottom third. Mozambique, Tanzania, Uganda, and Kenya improved their competitiveness rank the most between 2000 and 2010. Kenya made great strides in tea, coffee, horticulture, hides and skins, cement, tobacco, textiles, and fish. Medicinal and pharmaceutical products are also emerging as important opportunities for expanding export volumes and upgrading quality and value. Ghana, though still in the top third in competitiveness, experienced a steep fall in competitiveness between 2000 and 2010. Part of this fall reflects the 60% revaluation of the country’s GDP in 2006. With exports not similarly revalued upward, the share of exports in GDP fell steeply. Botswana’s steep fall reflects its struggle to develop exports outside diamonds, since extractives are excluded from the export competitiveness measure.

Productivity gains

ATR figure 1.4d

The score is the average for 2009–11. The numbers after each country name show the change and direction in ranks between 2000 and 2010. See annex 1 of the full report for details on the construction of the African Transformation Index.
Source: ACET research.

Productivity gains enable more goods and services to be produced from existing resources and technology. Manufacturing value added per manufacturing worker is one indicator of labor productivity in manufacturing. Dividing this indicator by total wages in manufacturing gives labor productivity in manufacturing per dollar paid in wages.

Manufacturing value added per worker in Sub-Saharan Africa and the ACET 15 is lower than in the comparators, especially before 2008 (see chart here), but the gap is narrower when wages are taken into account (see chart here). In fact, adjusted for wages, Sub-Saharan countries have been slightly above the comparator countries since the mid-1990s. This suggests that Africa could compete on wage costs in manufacturing if it could control and gradually reduce its other considerable disadvantages, such as infrastructure deficits, regulatory and governance constraints, and the tendency in resource-rich countries toward overvalued exchange rates. In many Sub-Saharan countries the majority of the population lives in rural areas, mostly dependent on agriculture. Increasing agricultural productivity would thus be a powerful way to raise incomes and make inroads into poverty reduction. It would also facilitate overall industrialization and economic transformation. Indeed, in most industrialization experiences, a rise in agricultural productivity allowed agriculture to release labor to industry, produce more food to moderate rises in urban food prices and thus industrial wage demands, produce raw materials for processing in industries, increase exports, and enhance the domestic market for industrial products. Boosting agriculture’s productivity thus has to be a key part of the economic transformation agenda.

Ranking African Countries on Productivity Gains

At the top in productivity are Uganda, Mauritius, Gabon, South Africa, Benin, Côte d’Ivoire, and Senegal. The ranks for Uganda, Gabon, and Benin are influenced by large values for manufacturing value added per manufacturing worker, values likely for a small number of large establishments that are not representative of manufacturing in the countries. At the bottom are Malawi, Rwanda, Madagascar, Kenya, Nigeria, Ethiopia, and Botswana. Zambia, Mozambique, and Malawi made good progress on productivity over 2000–10.

Technological upgrading

ATR figure 1.4e

The score is the average for 2009–11. The numbers after each country name show the change and direction in ranks between 2000 and 2010. See annex 1 of the full report for details on the construction of the African Transformation Index.
Source: ACET research.

As a country’s manufacturing advances from low to medium and high technology, it can produce goods that command higher prices on international markets. Also, a rising capability to introduce new and improved technologies enables a country to sustain productivity growth over time. In both production and exports the shares of medium- and high-technology manufactures in Sub-Saharan Africa are much lower than in the comparators (see charts here). More important, while the level of manufacturing technology has been African Transformation Report 2014 | Tracking economic transformation 29 rising in the comparator countries, the opposite has been true in Africa. Another way of looking at the evolution of the technology of exports is to focus on the top 10 exports of individual countries. In the comparator countries the general trend has been for the top 10 to be transformed from primary, resource-based, and low technology— to medium and high technology exports. In Sub-Saharan countries this transformation has yet to occur.

Ranking African Countries on Technological Upgrading

South Africa, a clear leader on technology, is followed at quite a distance by Senegal, Uganda, Nigeria, Botswana, Zambia, and Kenya. For Senegal the share of medium- and high-technology products in manufacturing value added slipped from 38% in 2000 to 36% in 2010. And for Uganda the share of medium- and high-technology products in exports slipped from 11% in 2000 to 10% in 2010. Starting from a low base, the share of medium and high technology exports has been rising—from 2% to 11% between the 1990s and 2000s. That Mauritius is not on this list is a surprise. This could reflect the focus of its manufacturing sector and exports on textiles, which are classified as low technology. Again, Ghana’s poor performance is a puzzle, reflecting its steady decline in manufacturing. The biggest improvements were by Uganda, Madagascar, and Rwanda.

Human economic well-being

ATR figure 1.4f

The score is the average for 2009–11. The numbers after each country name show the change and direction in ranks between 2000 and 2010. See annex 1 of the full report for details on the construction of the African Transformation Index.
Source: ACET research.

Interest in economic transformation ultimately stems from its potential to improve people’s lives. Human well-being is a broad and complex topic involving many factors, including per capita incomes; employment; poverty; inequality in income and wealth; access to affordable health care, education, and other social services; equal economic opportunities for all; gender equality; justice; peace; security; the environment; and so on. If GDP per capita is rising, and remunerative employment opportunities are expanding, economic transformation will result in shared prosperity, and income inequality will be reduced or at least controlled. The United Nations Development Programme’s Human Development Index tracks human well-being using a broad range of variables. Here, we confine ourselves to variables closely related to economic transformation.

GDP per capita and the share of formal employment in the labor force are summary indicators of human economic well-being associated with economic transformation. High rates of economic growth (given the rate of population growth) lead to higher levels of GDP per capita. A high GDP per capita indicates that the economy could in principle support each citizen at a high income.11 Whether the income is widely shared, however, depends on the nature of economic growth and factor payments, the underlying distribution of assets and political power, and the social policies of the country. But a high rate of well remunerated employment is the most effective way for a high GDP per capita to translate into improvement in people’s lives. If opportunities for well remunerated employment (in jobs or self-employment) are expanding with rising GDP per capita, economic growth will be inclusive, prosperity will be widely shared, and poverty and inequality will be reduced.

Ranking African Countries on Human Economic Well-Being

The human well-being index comprises GDP per capita and the share of formal employment in the labor force. Mauritius, Botswana, South Africa, and Gabon stand out mainly because of their high GDP per capita. Although Gabon has the highest per capita GDP, it is number 4 on the index due to its low share of formal employment in the labor force. Although Botswana’s GDP per capita is higher than Mauritius’s, it is second to Mauritius on human well-being, again because of its low share of formal employment. The biggest improvements were for Uganda and Tanzania. Although Ghana revalued its GDP upward by 60% in 2006, it moved up only one place on the index between 2000 and 2010 partly because of its large informal sector, which by one estimate contributes nearly 86% of total employment in 2010. The steepest falls were for Madagascar, Gabon, Mozambique, and Ethiopia.

Construction of the Index

Overall transformation index

We construct an overall African transformation index, the ATI, by combining subindexes constructed for the five indicators discussed above. Our measure of economic transformation therefore goes beyond GDP growth. Yes, we want high GDP growth to raise the level of GDP per capita. But we want more than that: we want growth with DEPTH— Diversification of production and exports, Export competitiveness, Productivity increases, Technology upgrading, and improvements in Human economic well-being.

Each of the DEPTH indicators is constructed as a subindex, in most cases by aggregating indexes of subindicators. The five resulting subindexes are combined to form the ATI.

Indicators and associated subindicators

  • D: Diversification of production and exports
    • Production diversification: share of manufacturing value added in GDP. (D1)
    • Export commodity diversification: 100 minus the share of top five exports. (D2)
    • Export sector diversification: share of manufacturing and service exports in total exports. Manufacturing exports include processed agricultural products. (D3)
  • E: Export competitiveness
    • Country’s share of world nonextractive exports of goods and services divided by country’s share of world nonextractive GDP (equivalent to the exports-to-GDP ratio of the country divided by the world’s exports-to-GDP ratio, with extractives taken out of exports and GDP for both the country and the world).
  • P: Productivity
    • Manufacturing: manufacturing value added per manufacturing worker (2005 US$). (P1)
    • Agriculture: cereal yield (kilograms per hectare). (P2)
  • T: Technology
    • Production: share of mediumand high-technology products in manufacturing value added. (The Lall approach is used for the technology decomposition of manufacturing value added.) (T1)11
    • Exports: Share of mediumand high-technology products in merchandise exports. (The Lall approach to technology decomposition of commodity exports is used; resource-based and agricultural exports are separate; low-, medium-, and high-technology refer only to manufactured exports.) (T2)
  • H: Human economic well-being
    • The level of GDP per capita (2005 US$ PPP). (H1)
    • The ratio of formal sector employment to the labor force. (H2)

Normalization of subindicators

Each subindicator for each country is normalized to produce an index ranging from 0 to 100 according to the procedure below:

NCS = [RCS – Min (RCS)]/
[Max (RCS) – Min (RCS)] * 100   (1)

where NCS is the normalized country score (on subindicator), RCS is the raw country score (that is, the raw data on the subindicator for the country), Min (RCS) is the minimum raw country score among the group of countries (on subindicator), Max (RCS) is the maximum raw country score among the group of countries (on subindicator) and where

NCS = 0 when RCS = Min (RCS)

NCS = 100 when RCS = Max (RCS)

Specification of DEPTH subindexes

Subindexes for the five DEPTH indicators are constructed from the subindicator indexes as follows:

  • Diversification of production and exports, D = 0.5D1 + (0.25D2 + 0.25D3)
  • Export competitiveness, E = 1.0E
  • Productivity, P = 0.5P1 + 0.5P2
  • Technology, T = 0.5T1 + 0.5T2
  • Human economic well‑being, H = 0.5H1 + 0.5H2

Since each subindicator index ranges from 0 to 100, the five DEPTH subindexes constructed using the above weighting scheme also lie in the same range. The DEPTH subindexes score each country on each of the five main economic transformation indicators, with a higher score indicating better performance. Countries can be thus compared on each transformation indicator.

Specification of the aggregate African Transformation Index

The ATI is constructed from the five DEPTH subindexes using equal weights.

ATI = 0.2D + 0.2E + 0.2P + 0.2T + 0.2H     (2)

Since the ATI is a weighted sum of indices, it also is an index ranging from 0 to 100. Each country has an ATI score, and countries can be compared according to their ATI scores. The higher the score, the better the performance.

Weights

The five DEPTH subindexes are given equal weights in the aggregate index for the simple reason that we have no strong reasons to think one is more important than the other in a country’s transformation. For constructing each DEPTH subindex, we have again followed this principle of equal weights. For the first subindex, we have weighted production diversification (D1) and export diversification (D2 + D3) equally. The second subindex, export competitiveness, involves no subindicators. Equal weights are also given to productivity in manufacturing and in agriculture in the third subindex. For the fourth subindex, technology in production and technology in exports have been weighed equally. The fifth subindex, which comprises GDP per capita and the share of formal employment in the labor force, are again weighted equally. We use GDP per capita instead of GNP per capita because we want to focus on production.

Time periods

We show country rankings on the ATI and on the DEPTH subindexes for the two three-year periods centered on 2000 and 2010 (the average for 1999–2001 and the average for 2009–11). We take averages because, given the volatility of the commodity-dependent economies of Africa, the values of the relevant variables for any given year could give misleading results. Averaging helps diminish this possibility.

Scores and rankings

For any given period, the scores on the ATI (and on the associated DEPTH subindexes) provide a ranking of the countries. In addition, for that particular period the difference in the scores of any two countries indicates how far apart the countries are on an index. When we compare performance across two periods, we focus only on the changes in country rankings over the periods. We use a country’s change in rank over two periods on the ATI (and the associated subindexes) to measure whether it is improving (lowering its rank) relative to other countries or deteriorating (lifting its rank).