tag:theconversation.com,2011:/global/topics/diversification-9275/articlesDiversification – The Conversation2022-05-26T10:47:48Ztag:theconversation.com,2011:article/1838322022-05-26T10:47:48Z2022-05-26T10:47:48ZIndia and Pakistan’s heatwave is a sign of worse to come – podcast<p>India and Pakistan have been sweltering under an unprecedented heatwave, the severity of which <a href="https://www.worldweatherattribution.org/climate-change-made-devastating-early-heat-in-india-and-pakistan-30-times-more-likely/">scientists attribute</a> to climate change. In this episode of <a href="https://theconversation.com/uk/topics/the-conversation-weekly-98901">The Conversation Weekly</a> podcast, we explore how much worse heatwaves in the region could get and how farmers can prepare.</p>
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<p>Since March, people in India and Pakistan have faced near continuous heat well above 40°C. Nearly <a href="https://www.business-standard.com/article/current-affairs/90-people-died-in-2022-due-to-heatwave-spells-in-india-pakistan-study-122052400052_1.html">a hundred people</a> are estimated to have died from the extreme heat, which is also affecting harvests, causing <a href="https://phys.org/news/2022-04-power-forest-south-asia-heatwave.html">forest fires</a> and <a href="https://apnews.com/article/science-business-environment-india-heat-waves-c55052c758ef86e1a51b709426594abe">power blackouts</a>. Delhi recorded a record <a href="https://www.india.com/news/delhi/delhi-braces-for-severe-heatwave-as-maximum-temperature-breaches-49-degrees-in-two-places-5394023/">high temperature of 49.2°C</a> in mid May, and the mercury <a href="https://www.france24.com/en/live-news/20220516-extreme-temperatures-compound-poverty-in-pakistan-s-hottest-city">reached 51°C </a> in Jacobabad, a city in southeastern Pakistan. </p>
<p>What’s also made this heatwave so remarkable is when it started and how long it’s lasted. Heatwaves in May are common as the region approaches the monsoon season, but this one started in March and has persisted for three months with few breaks. “These heatwaves are hotter than they usually are in this region at this time of year,” explains Andrew King, a senior lecturer in climate science at the University of Melbourne in Australia. </p>
<p>“In general in this region, we’re seeing temperatures rising, but if we look at the most extreme heatwave temperatures, we haven’t seen an increase up until now. It’s more that the heat waves have become a bit more frequent,” says King. However, he says climate models project heatwaves in the region will become both hotter, and more frequent.</p>
<p>But how do you measure how extreme a heatwave actually is for a particular region? Alan Kennedy Asser, a research associate in climate science at the University of Bristol in the UK and his colleagues have found a way to do just that. They recently <a href="https://www.science.org/doi/10.1126/sciadv.abm6860">published a study analysing the most extreme heatwaves</a> in the world over the past 60 years. Crucially, they did this by calculating how much each heatwave varied from the recent average for that region. </p>
<p>When they <a href="https://theconversation.com/india-heatwave-why-the-region-should-prepare-for-even-more-extreme-heat-in-the-near-future-182452">looked at the data for India and Pakistan</a>, Kennedy Asser says they found that previous heatwaves in India and Pakistan were not “anywhere near as extreme as some of the other heatwaves around the world”. Given what extremes have happened elsewhere, he says “there could be some seriously big heat waves down the line” for places like India and Pakistan. </p>
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Read more:
<a href="https://theconversation.com/india-heatwave-why-the-region-should-prepare-for-even-more-extreme-heat-in-the-near-future-182452">India heatwave: why the region should prepare for even more extreme heat in the near future</a>
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<p>As the heatwave affected the wheat harvest, India banned export of wheat in mid May. In the state of Punjab in northwestern India, many farmers grow wheat in the winter months that is harvested in April, and then switch to growing rice during the summer monsoon season. Shruti Bhogal, who’s just finished working as a research associate for a project run by the University of Cambridge in the UK on agricultural sustainability in Punjab, says the intensity of the heat, so early in the wheat-growing season, led to a reduction in yields for farmers. </p>
<p>Now there are concerns the rice paddies could be affected too. “Of course, there’s the heat stress, but there’s going to be water stress as well,” explains Bhogal, adding that the coming rains are expected to be erratic. Bhogal explains how farmers are being encouraged to diversify the types of crops they grow to reduce their vulnerability to the changing climate. </p>
<p>Listen to the full episode on The Conversation Weekly podcast to find out what’s in store for the region. </p>
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Read more:
<a href="https://theconversation.com/young-indian-farmers-are-turning-to-an-ancient-crop-to-fight-water-stress-and-climate-change-179248">Young Indian farmers are turning to an ancient crop to fight water stress and climate change</a>
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<p>This episode was produced by Mend Mariwany, with sound design by Eloise Stevens. Our theme music is by Neeta Sarl. You can find us on Twitter <a href="https://twitter.com/TC_Audio">@TC_Audio</a>, on Instagram at <a href="https://www.instagram.com/theconversationdotcom/?hl=en">theconversationdotcom</a> or <a href="mailto:podcast@theconversation.com">via email</a>. You can also sign up to The Conversation’s <a href="https://theconversation.com/newsletter?utm_campaign=PodcastTCWeekly&utm_content=newsletter&utm_source=podcast">free daily email here</a>.</p>
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<p class="fine-print"><em><span>Alan Thomas Kennedy-Asser receives funding from the Natural Environment Research Council. Andrew King receives funding from the National Environmental Science Program. </span></em></p><p class="fine-print"><em><span>Shruti Bhogal, who's just finished working as a post-doctoral research associate for the TIGR2ESS project run by the University of Cambridge, was also interviewed for this episode. </span></em></p>And after India banned wheat exports in May due to the high temperatures, we find out how vulnerable crops are to extreme heat. Listen to The Conversation Weekly podcast.Daniel Merino, Assistant Science Editor & Co-Host of The Conversation Weekly Podcast, The ConversationGemma Ware, Editor and Co-Host, The Conversation Weekly Podcast, The ConversationLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1468722020-10-22T14:19:53Z2020-10-22T14:19:53ZNot every football club is going under – here’s how some are improving financial results<p>COVID-19 has proven itself a devastating opponent for professional sport around the world. Major events have been cancelled or postponed, and the financial security of many athletes and teams remains bleak.</p>
<p>In football, for example, there are fears that even the top flight clubs in Europe could <a href="https://uk.reuters.com/article/uk-soccer-europe-clubs/europes-top-flight-clubs-face-4-billion-euros-in-lost-revenue-due-to-covid-19-idUKKBN2482JD">lose €4 billion</a> over the next two years. Meanwhile, lower league clubs are said to be <a href="https://www.skysports.com/football/news/11095/12083809/coronavirus-football-clubs-at-risk-of-going-bust-without-government-aid-open-letter-warns">facing an existential threat</a>.</p>
<p>The outlook remains worryingly uncertain. When will paying spectators return to the terraces and fill the stadiums again? To what extent will the vital investment of media companies and corporate sponsors – themselves facing pandemic related losses – be reduced? </p>
<p>To begin with, clubs will be concerned with managing short-term financial worries, perhaps by aiming to reduce spending on player transfers and wages. But there is also an urgent need to think about the longer-term implications for economic survival. Our <a href="https://www.researchgate.net/publication/340889378_Financial_performance_and_corporate_diversification_strategies_in_professional_football_-_evidence_from_the_English_Premier_League">research</a> indicates that one strategy football clubs should consider is diversification.</p>
<p>The idea behind diversification is simple. Instead of putting all of your financial eggs in one basket, you spread your risk among different economic sectors. </p>
<p>Currently, the fate of most football clubs depends almost entirely on their <a href="https://www.researchgate.net/publication/303752242_Europe's_Elite_Football_Financial_Growth_Sporting_Success_Transfer_Investment_and_Private_Majority_Investors">sporting performance</a>. If the team mostly wins, the financial situation improves, and if it mostly loses, the situation gets worse. Individual games can be economically devastating if they mean missing out on qualification for a lucrative tournament or relegation to a lower division. </p>
<p>Risk diversification can at least mitigate these sometimes dramatic effects by expanding either into new products – beyond replica kits and merchandise – or geographic regions.</p>
<p>Some clubs have already begun to explore this strategy. <a href="https://arsenalinnovationlab.com/">Arsenal</a> in the UK, and <a href="https://barcainnovationhub.com/">Barcelona</a> in Spain have set up “innovation hubs”, which collaborate with technology startups, for example, to explore new <a href="https://arsenalinnovationlab.com/startups-unveil-new-fan-experiences-at-arsenal-innovation-lab-demo-day/">digital fan experiences</a> using artificial intelligence and augmented reality. </p>
<p>Others have diversified by building a portfolio across different sports. The <a href="http://www.fenwaysportsmanagement.com/portfolio/">Fenway Sports Group</a> for instance, owners of Liverpool FC and the Boston Red Sox baseball team, is also involved in golf, motor sports and hurling. Recent rumours suggest that Fenway may increase its diversification activities <a href="https://www.liverpoolecho.co.uk/sport/football/football-news/billy-beane-fsg-liverpool-investment-19093943">even further</a>.</p>
<p>There has also been <a href="https://www.espn.com/esports/story/_/id/17637299/76ers-acquire-esports-teams-dignitas-apex">widespread investment</a> in eSports teams – professional video-game players – which is expected to turn into a <a href="https://newzoo.com/insights/articles/esports-market-revenues-2020-2021-impact-of-covid-19-media-rights-sponsorships-tickets/">US$1.5 billion market by 2023</a>. On a more traditional front, some clubs, including <a href="https://www.boltonwhiteshotel.co.uk/">Bolton Wanderers</a> and <a href="https://www.millenniumhotels.com/en/london/millennium-and-copthorne-hotels-at-chelsea-football-club/">Chelsea</a>, have invested in physical assets such as hotel ownership.</p>
<h2>The international game</h2>
<p>Geographic diversification has been popular too, with an increasingly international outlook in a variety of sports, which has seen the NFL hosting <a href="https://www.nfl.com/news/nfl-unveils-dates-times-for-2019-international-games-0ap3000001026723">games in Europe</a> and the Spanish Football Federation planning to stage the <a href="https://en.as.com/en/2019/11/11/football/1573484765_968013.html">Supercup in Saudi Arabia</a>. Many larger clubs have also established office locations overseas, with Juventus <a href="https://www.juventus.com/en/club/hong-kong-branch">setting up in Hong Kong</a> and European champions <a href="https://fcbayern.com/us/news/2016/08/fc-bayern-moves-into-new-madison-avenue-office">Bayern Munich</a> opting for New York. The underlying idea is to reach a broader international fan base, especially in markets where football has not exploited its growth potential yet. </p>
<p>One company, the <a href="https://www.cityfootballgroup.com/our-teams/">City Football Group</a> has taken this international approach even further by building a global portfolio of football clubs, including Manchester City, New York City and Melbourne City. This also opens up new opportunities to transfer players among clubs of the same owners.</p>
<h2>Getting results</h2>
<p>So how do all those diversification activities contribute to the financial performance of a club? To find out, we analysed a 15-year dataset of the <a href="https://www.researchgate.net/publication/340889378_Financial_performance_and_corporate_diversification_strategies_in_professional_football_-_evidence_from_the_English_Premier_League">English Premier League</a> and found that moving into related business areas improves revenues and profitability. </p>
<p>A prime example is Manchester United. From 2007 to 2013, the club was at its sporting peak, winning five out of seven possible Premier League championships and one UEFA Champions League title. With success on the pitch came an increase in revenue of around <a href="https://www.statista.com/statistics/271665/revenue-of-manchester-united/">€110 million</a> over the same period. </p>
<p>After Alex Ferguson stepped down as manager in 2013, the team’s performance <a href="https://sportsgazette.co.uk/manchester-uniteds-decline-since-2013-what-do-the-stats-say/">deteriorated significantly</a>. Yet revenues continued to increase and are almost <a href="https://www.statista.com/statistics/271665/revenue-of-manchester-united/">70% higher</a> today than when Ferguson left. Interest in the club and its products – including a museum, stadium tours, business conferences, a TV channel and an eSports unit – has not declined despite disappointing results on the pitch.</p>
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<img alt="A football balanced on a pile of coins against a financial report backdrop." src="https://images.theconversation.com/files/364737/original/file-20201021-23-16aa23n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/364737/original/file-20201021-23-16aa23n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=397&fit=crop&dpr=1 600w, https://images.theconversation.com/files/364737/original/file-20201021-23-16aa23n.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=397&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/364737/original/file-20201021-23-16aa23n.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=397&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/364737/original/file-20201021-23-16aa23n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=499&fit=crop&dpr=1 754w, https://images.theconversation.com/files/364737/original/file-20201021-23-16aa23n.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=499&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/364737/original/file-20201021-23-16aa23n.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=499&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Moneyball?</span>
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<p>It is important to stress though, that diversification into new business areas works best when it is related to the core business of football. In simple terms, sports clubs are more likely to see success in operating eSports teams than they are in manufacturing, say, high-spec industrial products. The greater the <a href="https://www.researchgate.net/publication/341959325_Dynamic_managerial_capabilities_firm_resources_and_related_business_diversification_-_Evidence_from_the_English_Premier_League">relatedness of an investment to the core business</a>, the easier it is for sports clubs to fully exploit new income streams.</p>
<p>When it comes to international diversification, the effects are less pronounced. While a moderate degree of internationalisation increases financial performance, extremely high levels of geographical diversification can be detrimental. The Italian club AS Roma, for instance, has been reporting <a href="https://www.reuters.com/companies/ASR.MI/financials">negative net incomes</a> over the past years despite heavily investing abroad. This may be because of the large costs of coordinating international business activities in a range of diverse cultures and economic situations.</p>
<p>Since our data set ends before the outbreak of COVID-19, we should note that the pandemic may have changed the effects of diversification. A club investing in travel services may have suffered, while one investing in eSports may have done well.</p>
<p>Overall, though, our evidence shows that well-planned and well-executed diversification can be an effective insurance mechanism, and could help to ensure the survival of clubs in future economic crises. Unfortunately, there is no golden rule that will work for every team. But sports executives would be well advised to develop a suitable diversification strategy – it’s a tactic that could help ensure the financial survival of their club.</p><img src="https://counter.theconversation.com/content/146872/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Diversification into related businesses can provide a firmer financial footing.Sascha L. Schmidt, Professor and Director, Center for Sports and Management, WHU – Otto Beisheim School of ManagementFlorian Holzmayer, Researcher, WHU – Otto Beisheim School of ManagementJohannes Fühner, PhD Candidate, WHU – Otto Beisheim School of ManagementLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1041662018-10-08T12:38:11Z2018-10-08T12:38:11ZAfrica can get more from its minerals by building industries to service mines<figure><img src="https://images.theconversation.com/files/239478/original/file-20181005-72113-1fypkga.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">EPA/Aaron Ufumeli</span></span></figcaption></figure><p>Multinational firms from Europe, North America and more recently China still <a href="https://www.fin24.com/Companies/Mining/africa-needs-to-extract-more-value-from-mining-20180330">dominate the extraction</a> and refining of most of minerals mined in Africa with minimal roles for African firms. From these minerals, foreign manufacturing firms produce consumer and industrial goods for sale in global markets at much higher prices than what’s paid for the raw materials. This is a source of lots of <a href="https://theconversation.com/all-bets-are-off-as-magufulis-resource-nationalism-moves-up-a-gear-in-tanzania-81632">angst</a> among policymakers and economists who are calling for increased local participation in the mining industry.</p>
<p>African governments are routinely advised to add value to their own natural resources to drive economic development. This is presented as a way of getting a slice of the huge returns enjoyed by others at the expense of countries in which the minerals are mined. This seemingly obvious reasoning is the basis of a growing policy focus on mineral beneficiation which involves improving the economic value of a mineral by turning it into a final or intermediate product. </p>
<p>The argument sounds logical. But accessing the rewards of this approach isn’t that simple. Those in favour of beneficiation tend to ignore the complexity of industry and markets of beneficiated products and the rules and regulations of supply chains. Most products, components and operations of the beneficiation industry and markets are currently alien to many African economies. </p>
<p>This means that, for the moment, beneficiation remains out of reach. </p>
<p>Take the case of steel. To use steel to manufacture washing machines for global markets, a country would need to either establish its own brands and outcompete established ones, such as Samsung, Defy and Hisense, or, alternatively, supply these popular producers with components. In Africa, this is unlikely to happen immediately because of
small markets and brand loyalty among other challenges.</p>
<p>This is not to say that adding value to mineral resources shouldn’t be part of the agenda for African countries. But the focus should be elsewhere – the production of input goods like machinery, spares and services that support processes that precede beneficiation – exploration, mine construction and extraction itself. These are known as <a href="https://theconversation.com/what-africa-can-learn-from-chinas-special-economic-zones-51517">backward linkage</a> industries and are ready for picking. This <a href="http://ccsi.columbia.edu/files/2016/07/Linkages-to-the-resource-sector-GIZ-CCSI-2016.pdf.pdf">approach</a> served countries such as the US and Norway where they gave rise to globally competitive manufacturing and services industries serving the mining and oil industries. </p>
<h2>What’s missing in Africa</h2>
<p>A critical hurdle to Africa developing a strong industrial base – a prerequisite for any beneficiation – is the <a href="https://www.fin24.com/Companies/Mining/africa-needs-to-extract-more-value-from-mining-20180330">dominance</a> of China and other Asian countries in the labour intensive manufacturing sector. </p>
<p>So why can’t African countries simply emulate China? </p>
<p>A number of factors aided China in its industrialisation drive. Firstly, China is one country with a huge unified market that can produce and consume its own manufacturing output in addition to exporting the same goods. </p>
<p>Africa, for its part, is a continent made up of many countries. This market is fragmented which limits inter and intra country production.</p>
<p>Secondly, China has invested heavily in human capital and well as hard infrastructure such as bridges and roads. All these factors are critical for any major industrialisation drive – and beneficiation – but are lacking in the majority of African countries. </p>
<h2>Refocusing</h2>
<p>A greater focus on the production of input goods could yield better results. This is because it offers an easier development path that’s within technical grasp of many African countries. </p>
<p>The scale of Africa’s mining industry means that it has a ready made market for input goods and services. This includes the supply of heavy mining spares and consumables, contract mining as well as security and catering services.</p>
<p>It makes business sense to have the input goods and services of these activities close to where they are needed. Close proximity gives African companies an advantage over multinational mining firms. Even more critical, proximity reduces the need for the mining industry to hold huge inventories of imported spares and consumables – a nightmare for cash flow. </p>
<p>Industries developed to support mines isn’t alien to the continent. For example the supply of ball-mills that crush the ore-bearing rock in the ore processing plants is established in some Africa countries i.e. South Africa, Zambia and Zimbabwe. This small start could be expanded, in both scope and magnitude relatively easily.</p>
<p>Recommending that African countries focus on the processes that precede mineral beneficiation isn’t hypothetical. The historical experiences of the US and Norway, for example, confirm the positive stimulus that these processes had for the overall industrialisation journeys of these countries. The two countries <a href="http://ccsi.columbia.edu/files/2016/07/Linkages-to-the-resource-sector-GIZ-CCSI-2016.pdf.pdf">transformed</a> within 30 years to be leading suppliers of mining inputs that include mine dump trucks and drill rigs. </p>
<p>African states can follow the same strategy, with the necessary adjustments, and harvest the low hanging fruits of resource endowment, leap-frogging to achieve the same over a shorter period.</p><img src="https://counter.theconversation.com/content/104166/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Vuyo Mjimba has done World Bank sponsored research for the Oxford Policy Management from the United Kingdom. I have also researched under the Exxaro Chair at the University of South Africa</span></em></p>African economies could benefit more from backward linkages to the mining industry than from beneficiation.Vuyo Mjimba, Chief Research Specialist, Human Sciences Research CouncilLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/993042018-09-10T15:12:35Z2018-09-10T15:12:35ZWhy Nigeria urgently needs to grow non-oil exports<figure><img src="https://images.theconversation.com/files/234235/original/file-20180830-195304-1abwopm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The economy of Nigeria has had to navigate a major crisis that started with the collapse of oil prices in 2014 and was worsened by the <strong>_recurring youth restiveness</strong>_<a href="https://www.forbes.com/sites/uhenergy/2018/03/20/amnesty-and-new-violence-in-the-niger-delta/#7bfdae30263f">ongoing restiveness</a> in the oil rich Niger-Delta region. </p>
<p>The crisis of the past four years <strong>reaffirms</strong> the vulnerability of the Nigerian economy to oil <strong>related shocks</strong>. It underscores the need for Nigeria to look outward, diversifying its export base away from the volatile commodity if the country is to win its battles against poverty and inequality.</p>
<p>Oil accounts for 90% or more of <a href="http://www.worldstopexports.com/nigerias-top-10-exports/">Nigerian merchandise exports</a>. This heavy dependence of the Nigerian economy on oil as the dominant source of foreign exchange is widely <strong>acknowledged</strong>. But the mechanisms through which oil price changes affect the economy and the measures (or lack of them) available to the Nigerian authorities to counter oil price declines are less commonly understood. </p>
<p>We traced the impact of the recent price declines and considered what policy options were available to the Nigerian authorities to come up with counter measures. </p>
<p>The vulnerability of the economy to oil price shocks has been <a href="https://mpra.ub.uni-muenchen.de/16319/1/MPRA_paper_16319.pdf">known for years</a>, and the case for diversification has been made many times. But, as <a href="https://www.ifpri.org/publication/nigerias-macroeconomic-crisis-explained">our paper</a> points out, development of a <strong>robust</strong> non-oil export base is, in all likelihood, no longer a policy choice, it is a growth imperative. To grow and develop over the long term, Nigeria needs very rapid growth in non-oil exports.</p>
<h2>The good times (1998 - 2014)</h2>
<p>From 1998 to 2014, <a href="https://www.imf.org/external/np/res/commod/index.aspx">an oil price boom</a> unfolded that saw the price of Nigeria’s dominant export increase in nominal dollar terms by a factor of about ten – from about USD$10 per barrel to more than USD$100. While the boom period was characterised by some volatility, most notably in 2008, on average, the oil price rose persistently for more than 15 years.</p>
<p>In other words, in 1998, Nigeria got about USD$10 worth of imports for each barrel of oil exported. In 2014, Nigeria obtained about USD$100 worth of imports for each barrel of oil exported. </p>
<p>This strong upward trend in oil prices dulled incentives to diversify. Exports provide the foreign exchange for purchasing imports. Nigerians were able to significantly expand imports over time for the same volume of oil exports.</p>
<h2>The adjustment period (2015 - present)</h2>
<p>By the end of 2015, oil prices had collapsed. At that time, Nigeria got only about USD$40 worth of imports for each barrel of oil exported. By August 2018, prices had rebounded to about USD$65 per barrel or about USD$65 worth of imports for each barrel exported. This is still well below the levels of 2014.</p>
<p>Faced with persistently lower oil prices, Nigerian policymakers had, in principle, two options: increase exports or reduce imports. In practice, because increasing exports is effectively impossible in the short term, there was only one viable option: reduce import volumes to levels consistent with Nigeria’s reduced purchasing power. </p>
<p>This is exactly what happened. Between 2014 and 2016, import volumes declined by about 44%, an enormous reduction. Reduced imports meant fewer goods available in the economy, which in turn meant less consumption by households, less investment by business, and less government service. </p>
<p>This has been painful. We estimate that total real spending on consumption, investment, and government declined by about 12% per person between 2014 and 2016, a large macroeconomic shock. </p>
<h2>Changing course</h2>
<p>Looking forward, in the absence of a long term rebound in oil production or world oil prices, foreign exchange earnings from the sale of oil will remain relatively constant. In this (likely) situation, the economy must export more, of something other than oil, in order to import more. </p>
<p>It’s hard to see how the Nigerian economy can grow consistently without more imports. Businesses in a growing economy require more capital goods and more intermediate inputs. Without progressively more exports, there cannot be progressively more imports of efficient machines, tools, and other technologies that are critical for growth. </p>
<p>The only way Nigeria can avoid this stagnant state of affairs is if it does something dramatic about increasing non-oil exports. Nigerian businesses need to develop products of export quality at globally competitive prices. They must also develop the networks to market those products abroad. </p>
<p>This is difficult, and it will take time. But there are some clear initial options. </p>
<p>Agricultural products are potentially a part of the solution. This is particularly true in the relatively near term as global agricultural markets are relatively easy to enter if quality and cost are competitive. </p>
<p>Another potential area for development is providing regional services – for example, developing Lagos as an airline hub and shipping centre. </p>
<p>Given its large domestic market and its large labour force, Nigeria should also be looking at some longer term strategies to attract foreign direct investment into manufacturing sectors as the first step to learning to compete on global markets.</p>
<p>For more than a generation, Nigerian business, outside of oil, has focused almost exclusively on the domestic market. Looking forward, a significant segment of Nigerian business must look outward to the international market. Initiating, nurturing and growing this outward looking perspective is today’s key economic challenge for business, policymakers, and civil society.</p><img src="https://counter.theconversation.com/content/99304/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The collapse of the oil price in 2014 highlighted the need for Nigeria to dilute its exposure on the commodity.Channing Arndt, Division Director, Environment and Production Technology, IFPRI,, CGIAR System OrganizationAdedeji Adeniran, Senior Research Fellow at the Center for the Studies of Economies of Africa in Nigeria. , University of the WitwatersrandChuku Chuku, Lecturer at the Department of Economics, University of UyoDr. George Mavrotas, Senior Research Fellow, IFPRI and Head of IFPRI's Country Program and Office in Nigeria, CGIAR System OrganizationMorakinyo Adetutu, Lecturer in Economics, Nottingham Trent UniversityVictor Ajayi, Research Associate, University of CambridgeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/997432018-07-25T09:36:00Z2018-07-25T09:36:00ZSaudi Arabia’s ‘liberal’ Crown Prince is a year into his tenure – how is he doing?<figure><img src="https://images.theconversation.com/files/229067/original/file-20180724-194149-balabn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">h</span> </figcaption></figure><p>When Mohammad bin Salman, first announced his ambitious, nationwide reform programme – bearing the rather theatrical title, <a href="http://vision2030.gov.sa/en">Vision 2030</a> – targets included diversifying the economy, improving public services such as health and education, and, front and centre, drastically reducing dependence on oil. Two years on – and now Crown Prince – bin Salman’s reforms continue apace.</p>
<p>It may seem surprising that such an oil-rich state – <a href="https://www.bp.com/content/dam/bp/en/corporate/pdf/energy-economics/statistical-review-2017/bp-statistical-review-of-world-energy-2017-full-report.pdf">16% of global oil reserves</a>; <a href="https://www.bp.com/content/dam/bp/en/corporate/pdf/energy-economics/statistical-review-2017/bp-statistical-review-of-world-energy-2017-full-report.pdf">13% of global oil supply</a> – should be trying to turn its back on the commodity that took it from poor desert kingdom to wealthy world player. But with <a href="https://www.forbes.com/places/saudi-arabia/">87% of state revenue</a> coming from oil, reform has been in the pipeline for some time. In fact, in some ways Saudi Arabia is retreading very old ground. Five-year plans for diversifying the economy have been regularly trotted out <a href="https://calhoun.nps.edu/bitstream/handle/10945/40574/RelJSAMES_4.pdf;sequence=3">since the 1970s</a> – they just haven’t worked particularly well. </p>
<p>There have been improvements to economic infrastructure, and some development of a previously poor transport system – but no major movement on the kingdom’s oil addiction. Most members of the country’s ruling elite have been noncommittal on reform, and have refused to address structural problems in both the economy and the government.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/227866/original/file-20180716-44073-1apmx8b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/227866/original/file-20180716-44073-1apmx8b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/227866/original/file-20180716-44073-1apmx8b.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/227866/original/file-20180716-44073-1apmx8b.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/227866/original/file-20180716-44073-1apmx8b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/227866/original/file-20180716-44073-1apmx8b.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/227866/original/file-20180716-44073-1apmx8b.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A five-year plan decades in the making.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/oil-pump-on-background-flag-saudi-288678785?src=hwango3Y_kChqDr_6Qs8pg-1-2">Shutterstock</a></span>
</figcaption>
</figure>
<h2>A prince of progress</h2>
<p>So, when the young bin Salman – popularly known as “MbS”, and already strongly associated with reform – ascended from deputy to Crown Prince in June 2017, there was an expectation of real change. Vision 2030 contains a <a href="http://vision2030.gov.sa/en/goals">list of ambitious aims</a>: entering the top 15 largest world economies; increasing the private sector share of GDP from 40% to 65%; manufacturing 50% of military equipment domestically; raising the export element of non-oil GDP from 16% to 50%; increasing non-oil state revenues five-fold; and many others. These ambitions seem far loftier than those of previous reform efforts, and are arguably more critical to the kingdom’s long-term prosperity than they have ever been before.</p>
<p>In order to meet these goals, bin Salman quickly introduced a liberalising agenda for both the economy and society. Perhaps his grandest project is <a href="http://www.neom.com/">NEOM</a>, a planned megacity expected to cost <a href="https://www.bloomberg.com/news/articles/2017-10-24/saudi-arabia-to-build-new-mega-city-on-country-s-north-coast">US$500 billion dollars</a>, take between 30 and 50 years to complete, and, it is hoped, attract <a href="https://www.cnbc.com/2018/05/10/saudis-500-billion-mega-city-neom-is-attracting-overwhelming-interest-from-investors.html">vast sums of foreign investment</a>. Located in Tabuk, a northern border region near Egypt, Jordan and Israel, the idea is to construct an ultra-modern, futuristic hub of international business, commerce, and digital tech. The government expects to fund the enterprise by privatising parts of state-run industrial programmes – including 5% of the world’s largest oil company, <a href="https://www.ft.com/content/853a650e-04d9-11e8-9650-9c0ad2d7c5b5">Saudi Aramco</a>.</p>
<p>At the same time, bin Salman has made efforts to cut back the bureaucracy and restrictive legislation that has strangled the Saudi private sector. He has curtailed the power of the religious police, <a href="https://theconversation.com/the-real-reason-saudi-arabia-lifted-its-ban-on-women-driving-economic-necessity-97267">allowed women to drive</a> and <a href="https://www.telegraph.co.uk/news/2018/02/18/saudi-reform-continues-women-given-freedom-open-businesses/">open their own businesses</a> without the permission of a male guardian.</p>
<h2>Timing and sustainability</h2>
<p>But why now? Why after so many half-hearted attempts, is diversifying the oil economy quite so important? It is partly because of the industry landscape. The last few years have seen a soaring renewable energy sector, while the <a href="https://www.ft.com/content/2ded7416-e930-11e4-a71a-00144feab7de">shale oil revolution in the US</a> has helped saturate an already contracting market. At one stage oil prices plummeted from US$140 to <a href="https://www.wsj.com/articles/oil-prices-fall-below-30-a-barrel-1452853918">less than US$30 a barrel</a>, leading to rising unemployment, an increasing budget deficit, and dwindling financial reserves. An <a href="http://www.imf.org/external/pubs/ft/reo/2015/mcd/eng/pdf/menap1015.pdf">IMF report</a> on the kingdom’s finances even floated the possibility of bankruptcy, should Saudi Arabia fail to urgently restructure its economy.</p>
<p>There is also a political angle. When bin Salman became Crown Prince he did so at the expense of <a href="http://theweek.com/speedreads/709074/last-week-mohammed-bin-nayef-saudi-arabias-crown-prince-now-reportedly-cant-leave-palace">incumbent Mohammad bin Nayef</a>, his cousin, who was summarily stripped of all his official duties, angering sections of the public and the Saudi ruling elite. Bin Salman’s strident reforms are intended to help consolidate his position, build legitimacy, and send a message to those who would oppose him.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/227865/original/file-20180716-44079-1ri4y9f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/227865/original/file-20180716-44079-1ri4y9f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/227865/original/file-20180716-44079-1ri4y9f.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/227865/original/file-20180716-44079-1ri4y9f.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/227865/original/file-20180716-44079-1ri4y9f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/227865/original/file-20180716-44079-1ri4y9f.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/227865/original/file-20180716-44079-1ri4y9f.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Is the sun finally setting on the Saudi oil juggernaut?</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/oil-gas-industry-refinery-factory-petrochemical-377725657?src=hwango3Y_kChqDr_6Qs8pg-1-3">SHUTTERSTOCK</a></span>
</figcaption>
</figure>
<h2>Rumblings of discontent</h2>
<p>Bin Salman’s unyielding style of governance, however, mixed with Saudi Arabia’s unique political culture, may make for a rocky road ahead. First, tensions are rising with the conservative elements in the kingdom’s powerful religious and tribal establishments. It remains to be seen how obstructive they might be to the implementation of reforms. </p>
<p>Second, bin Salman’s <a href="https://www.theatlantic.com/international/archive/2018/04/mohammed-bin-salman-iran-israel/557036/">aggressive, provocative stance</a> towards Iran raises the possibility of war between the two states. Besides the obvious human cost, this would distract from reform and drain the Saudi coffers, abruptly halting costly projects such as NEOM. </p>
<p>Third, bin Salman has ordered a series of arrests, which include corruption charges against businessmen, government ministers and <a href="http://time.com/5012396/saudi-arabia-prince-alwaleed-bin-talal-arrested/">members of his own royal family</a>. He was also <a href="https://www.nytimes.com/2018/03/01/world/middleeast/hariri-lebanon-saudi.html">alleged to be behind the detention</a> of the Lebanese prime minister, Saad Hariri, in late 2017, who was reportedly forced to offer his resignation on Lebanese television – though four months later Hariri and Saudi King Salman were seemingly on good terms. These developments and claims not only make bin Salman very unpopular in parts of his own government, they also discredit his liberalisation programmes, and leave the country looking unstable to foreign investors and the private sector.</p>
<p>There is no doubt that the current reform programme is a giant step forward for the kingdom’s future welfare, and will surely facilitate further integration with the West. But how these reforms are implemented is more important than the garish manner with which they have been announced. Given how provocative and aggressive bin Salman has been in his foreign and domestic policies, this “progressive” prince may soon face a whole new set of challenges.</p><img src="https://counter.theconversation.com/content/99743/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sukru Cildir receives funding from Turkish Ministry of National Education. </span></em></p>Muhammad bin Salman is set on transforming the oil-rich kingdom into a modern, economically diverse superpower. It won’t be easy.Sukru Cildir, PhD Candidate, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/706652016-12-21T19:52:14Z2016-12-21T19:52:14ZDevelopment in Africa is on a firm footing – here’s how to take it to the next level<figure><img src="https://images.theconversation.com/files/151010/original/image-20161220-26738-ddaqj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">2016 was a year of mixed fortunes in the development course of Africa</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The end of 2016 provides an opportunity to take stock of Africa’s recent economic performance and future prospects. It’s been a tumultuous year for some African countries largely due to a commodities crisis and a global economic slowdown.</p>
<p>Yet there were still pockets of good growth which displayed the huge potential of the African continent. And 2017 looks to be the year the countries hardest hit by the crisis seek to recover from the economic reversals of the past few years.</p>
<p>Since the start of the new millennium average economic growth across Africa has been stronger than the global growth rate. Growth across the continent <a href="https://openknowledge.worldbank.org/handle/10986/22014">averaged 5%</a>. This fuelled the “<a href="http://www.economist.com/news/special-report/21572377">Africa Rising</a>” narrative that permeated public discourse. </p>
<p>Among the <a href="http://africanbusinessmagazine.com/sectors/development/big-read-africas-boom/">growth drivers</a> were a commodity supercycle that powered the economies of resource-rich countries. And political and economic reforms paved the way for a growth in foreign investment. </p>
<p>Urbanisation and a burgeoning middle class expanded consumerism while growing mobile phone and internet penetration spurred the services sector. Increased innovation influenced investment and private consumption.</p>
<p>The <a href="http://www.africaneconomicoutlook.org/en/theme/sustainable-cities-and-structural-transformation">economic optimism</a> of the past two decades has, however, been tempered by a combination of factors. These include a worldwide decline in commodity prices; the slowdown and rebalancing of <a href="http://www3.weforum.org/docs/Media/WEF_Inclusive_Growth.pdf">China’s economy</a>; widespread drought, especially in the east and the south; and rising insecurity and instability in the <a href="https://www.weforum.org/agenda/2016/07/african-economic-situation-the-fundamentals-still-remain-strong/">Horn of Africa</a>. </p>
<p>As they chart the way ahead in 2017 and beyond, African countries have to contend with what has been termed the reality of a “<a href="https://openknowledge.worldbank.org/handle/10986/22014">double challenge</a>”. There are five that stand out.</p>
<ul>
<li><p>The first is that African economies must increase productivity while creating and driving employment. </p></li>
<li><p>The second is that they must ensure they are both producers and consumers. </p></li>
<li><p>The third is to reduce extraction while simultaneously growing local industrialisation. </p></li>
<li><p>Fourth, African governments must build infrastructure for intra-Africa integration while controlling state-budget spending. </p></li>
<li><p>And finally, countries must grow African consumer spending while encouraging household savings.</p></li>
</ul>
<h2>Quality of growth</h2>
<p>Resource-dependent countries – such as Ghana and Zambia – have <a href="https://www.ft.com/content/08df6fce-fcaa-11e5-b5f5-070dca6d0a0d">regressed</a> since the onset of the commodity crisis. In particular, oil exporters such as Nigeria have been the hardest hit. Oil exports account for <a href="https://insights.abnamro.nl/en/2016/09/nigeria-watch-nigeria-slips-into-recession/">close to 90%</a> of Nigeria’s government revenues and export earnings. </p>
<p>Even so, Africa still has some of the <a href="https://www.weforum.org/agenda/2016/07/african-economic-situation-the-fundamentals-still-remain-strong/">fastest-growing economies</a> in the world, including Ethiopia, the Democratic Republic of Congo, Tanzania, Côte d’Ivoire, Rwanda and Kenya.</p>
<p>This shows the commodity prices crash has not affected all countries equally. On the contrary, fuel importers such as Kenya <a href="http://blogs.worldbank.org/developmenttalk/impact-low-oil-prices-sub-saharan-africa">have benefited</a> from the commodity slump because of lower fuel prices which have helped to drive their economies.</p>
<p>But has this growth stemmed poverty and inequality? </p>
<p>It is clear that African countries have not done enough to reduce inequality and turn growth into <a href="http://www3.weforum.org/docs/Africa_Competitiveness_2016.pdf">economic development</a>.</p>
<p>Life expectancy and literacy rates have improved and infant malnutrition is being tackled, but poverty and inequality have continued to blight the African political economy. About <a href="https://www.imf.org/external/pubs/ft/reo/2015/afr/eng/pdf/sreo0415.pdf">43% of Africans</a> still live on less than US$1.25 a day. </p>
<p>Corrupt and exploitative deals, authoritarian regimes that suppress democratic expression, and atrocious working conditions for many workers continue to <a href="http://www.economist.com/news/leaders/21696933-continents-future-depends-people-not-commodities-making-africa-work">stifle economic development</a> and economic change.</p>
<h2>Industrialisation is key</h2>
<p>The primary sector, including agriculture and extractive industries will remain vital for most African countries. But shoring up Africa’s industrial base is vital to economic transformation and job creation. </p>
<p>Achieving this will require, among other things, <a href="http://bookshop.europa.eu/is-bin/INTERSHOP.enfinity/WFS/EU-Bookshop-Site/en_GB/-/EUR/ViewPublication-Start?PublicationKey=QA0415659">modernising</a> agricultural production. </p>
<p>And to become sustainable, extractive industries must contribute to local industrial processing.</p>
<p>A key lesson of Africa’s recent growth story is that African countries must wean themselves off their reliance on resources. They must prioritise export production and diversification. </p>
<p>Although many countries experienced growth over the past decades, this growth took place in the context of limited economic diversification and structural change. Africa’s share of <a href="https://openknowledge.worldbank.org/handle/10986/22014">global manufacturing</a> fell from 3% in 1970 to less than 2% in 2013. Manufacturing, at 10% of total African economic output, is lower than that of other developing regions.</p>
<p>Diversification of African economies is necessary to drive growth, build market resilience and withstand shocks in the face of challenging global economic conditions. </p>
<p>Infrastructure development is critical. There is a significant demand in Africa for adequate roads, ports, pipelines, railways and information, communication and technology infrastructure. Poor infrastructure – such as unreliable electricity supply – hinders productivity and drives up cost. According to the World Bank, poor infrastructure <a href="https://openknowledge.worldbank.org/handle/10986/22014">reduces productivity</a> by 40%.</p>
<h2>Managing the money</h2>
<p>Improving the macroeconomic environment is central to sustaining regional growth. This requires that African countries manage debt adequately.</p>
<p>Several countries benefited from the 2005 multilateral <a href="http://www.withoutprejudice.co.za/publication/2013/May/articles">debt relief</a> initiative, which reduced $100 billion worth of debt in 30 African countries. This contributed to countries being able to manage their debt levels better. In addition, many countries, such as Botswana, were careful not to raise <a href="http://www.africaresearchinstitute.org/newsite/publications/africa-debt-rising-2/">debt levels</a> to unmanageable levels.</p>
<p>As a result of this better macroeconomic climate, some of them successfully issued bonds on international financial markets, signalling growing internal and external confidence.</p>
<p>The case of Ghana, however, underlines the need for good debt management and fiscal discipline. When Ghana’s main exports declined – following a fall in the prices of cocoa, gold and oil – the <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2622160">country’s public debt</a> grew to 70% of gross domestic product and the currency <a href="http://doi.org/10.2861/443750">lost 31%</a> of its value in 2014. </p>
<p>This was due to the government borrowing heavily on private markets to finance energy subsidies and public sector salaries at the expense of investing in development.</p>
<h2>Road ahead</h2>
<p>The African continent faces numerous challenges, but it has a lot of <a>opportunities to sustain</a> growth and development. Its advantages include a growing labour force, urbanisation and technological advances. </p>
<p>Africa’s progress has been uneven and has been marked by achievements, regressions and setbacks. It is clear, nonetheless, that a firm foundation for sustained growth and development exists. </p>
<p>Building on this foundation is vital to ensuring that the continent fulfils its vast untapped potential.</p><img src="https://counter.theconversation.com/content/70665/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mills Soko does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The ‘Africa Rising’ narrative was disturbed in 2016 by a combination of factors. But the continent is still on firm economic development footing.Mills Soko, Associate Professor, Graduate School of Business, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/590892016-05-10T11:40:15Z2016-05-10T11:40:15ZTime for Africa to transition from extractive to learning economies<figure><img src="https://images.theconversation.com/files/121718/original/image-20160509-20605-1d7afo2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">There is very little evidence that commodity producing countries diversify their economies by adding value to their raw materials</span> <span class="attribution"><span class="source">Reuters/Siegfried Modola</span></span></figcaption></figure><p>The current slump in world commodity prices is forcing Africa to rethink its traditional dependence on raw material exports. This is why the time for African nations to lay the foundations for transitioning from extractive to learning economies is now.</p>
<p>The jolts are real. The International Monetary Fund has <a href="http://www.imf.org/external/pubs/ft/survey/so/2016/CAR050316A.htm">projected</a> that the continent will grow by 3% in 2016. This is well below the 6% average growth over the past decade and the lowest rate in the past 15 years.</p>
<p>Some argue that Africa has already <a href="http://www.reuters.com/article/africa-economy-idUSL5N1103RD20150825">squandered</a> the commodity boom and wasted the opportunity to increase its manufactured exports. Others point to the fact that <a href="http://www.theguardian.com/global-development/2012/oct/25/africa-diversify-resource-curse-thinktank">extractive industries</a> crowd out manufacturing, making diversification more difficult.</p>
<p>International policy discourse on the issue is still dominated by the need to bring more transparency to extractive industries. The assumption here is that this will help control the operations of multinational corporations, which in turn will improve the use of revenue from exports. Noble as they are, the suggestions are still framed in the context of commodities and will add little to economic diversification.</p>
<h2>Why learning economies make better sense</h2>
<p>Extraction is not just an economic activity in Africa. It is a pervasive worldview that defines behaviour from business interactions to relations between the state and its citizens. This phenomenon is vividly captured in Tom Burgis’s <a href="http://www.nytimes.com/2015/03/22/books/review/the-looting-machine-by-tom-burgis.html?_r=0">book</a>, “The Looting Machine: Warlords, Oligarchs, Corporations, Smugglers, and the Theft of Africa’s Wealth”.</p>
<p>Lamentation is not enough. Neither is the magical thinking that the downturn in the commodity boom and consumer-driven growth will automatically lead to diversification. This can only be achieved through practical efforts to focus on creating learning economies driven by <a href="http://belfercenter.ksg.harvard.edu/publication/2098/innovation.html">technological innovation</a>.</p>
<p>The good news is that African policymakers are aware of what needs to be done. For example, in 2014 the African Union (AU) adopted a ten-year Science, Technology and Innovation Strategy to help reposition the continent as a collection of technology-driven economies. This strategy contributes to Africa’s 50-year <a href="http://agenda2063.au.int/en//vision">Agenda 2063</a>.</p>
<p>The challenge is how to do it. One example can be found in the decision by the AU and the New Partnership for Africa’s Development Agency to collaborate in building executive capacity among African ministers through the Technology, Innovation and Entrepreneurship <a href="http://belfercenter.ksg.harvard.edu/publication/25761/gift_from_the_schooner_foundation_will_support_executive_education_leaders_from_african_nations.html?">Programme</a>. This is funded by the <a href="https://www.ihrfg.org/funder-directory/schooner-foundation">Schooner Foundation</a>.</p>
<h2>Diversification isn’t a simple process</h2>
<p>Rhetorical statements about value-addition are not enough. For example, in 2015 Africa exported nearly US$2.5 billion worth of coffee. Germany’s re-export of coffee, on the other hand, was about $3.9 billion.</p>
<p>There is little evidence to support the view that commodity exporting countries diversify their economies by adding value to their raw materials. So, adding value to coffee in Africa is hardly the best response. To the contrary, nations add value to imported raw materials when they already possess the minimum technological competence. In effect, they do so because they are learning rather than extractive economies.</p>
<figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/121723/original/image-20160509-20616-1tf463y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/121723/original/image-20160509-20616-1tf463y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=384&fit=crop&dpr=1 600w, https://images.theconversation.com/files/121723/original/image-20160509-20616-1tf463y.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=384&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/121723/original/image-20160509-20616-1tf463y.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=384&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/121723/original/image-20160509-20616-1tf463y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=483&fit=crop&dpr=1 754w, https://images.theconversation.com/files/121723/original/image-20160509-20616-1tf463y.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=483&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/121723/original/image-20160509-20616-1tf463y.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=483&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Nigeria’s former President Olusegun Obasanjo sees agriculture as more than the ‘new oil’.</span>
<span class="attribution"><span class="source">Reuters/Tiksa Negeri</span></span>
</figcaption>
</figure>
<p>So how do nations shift from extractive to learning economies? First, they do not do so by simply shifting to another sector and hoping that diversification will occur automatically. An example of this is the description of Nigeria’s emphasis on agriculture as the country’s “new oil.” As noted by former President Olusegun Obasanjo, <a href="http://www.forbes.com/sites/realspin/2014/05/14/in-nigeria-agriculture-is-the-new-oil/#4a998e0e4517">agriculture</a> can be more than the “new oil”:</p>
<blockquote>
<p>One day the oil will run out – but sub-Saharan Africa will always have its fertile land, its rivers, its youthful workforce and its huge domestic market. Investing now can turn that potential into prosperity.</p>
</blockquote>
<p>Agriculture is an important entry point for economic diversification not because of abundant land, but because it offers a foundation for building learning economies through <a href="http://belfercenter.ksg.harvard.edu/publication/25699/new_harvest.html">technological innovation</a>. Agriculture can serve as an effective source of technological lessons for the wider economy.</p>
<p>Shifting from extractive to learning economies therefore requires refocusing attention on continuous improvement, adaptation and diversification. The key starting point for Africa is not to retreat into the false safety of “African solutions for African problems.” It is to learn from other economies – not just copy them – and adapt the lesson to local needs.</p>
<h2>The benefit of being latecomers</h2>
<p>African nations have the benefit of being latecomers. The world is full of inspirational <a href="http://newafricanmagazine.com/diamonds-are-not-forever-knowledge-is-power/">examples</a> they can learn from. In fact, many of the countries that have recently transitioned to being learning economies started off with a lot less resources (finance and research facilities) than the majority of African countries have today.</p>
<p>Take the case of Taiwan. In the early 1960s, the country’s main export was mushrooms, of which it was a world leader. The prospects of industrial learning were quite limited when dealing with a high-volume, low-value and perishable export commodity. It transitioned to becoming a semiconductor powerhouse by redefining itself as a learning economy.</p>
<p>Taiwan’s premier <a href="http://www.inderscienceonline.com/doi/abs/10.1504/IJTG.2008.020332?journalCode=ijtg&">research centre</a>, the Industrial Technology Research Institute that spawned many of its leading semiconductor firms, was created by consolidating four dilapidated research centres left behind by Japanese occupiers. The institute was not created to add value to mushrooms but was part of the country’s policy reinvention as a learning economy.</p>
<p>The case of Taiwan illustrates the fact that economic diversification results from the initial use of existing technologies that can be readily combined to generate increasingly diverse products. Some technological capabilities generate more combinations that others. Semiconductor and chemical industries are examples of such a platform of generic technologies.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/121720/original/image-20160509-20584-11n2dhi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/121720/original/image-20160509-20584-11n2dhi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=402&fit=crop&dpr=1 600w, https://images.theconversation.com/files/121720/original/image-20160509-20584-11n2dhi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=402&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/121720/original/image-20160509-20584-11n2dhi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=402&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/121720/original/image-20160509-20584-11n2dhi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=506&fit=crop&dpr=1 754w, https://images.theconversation.com/files/121720/original/image-20160509-20584-11n2dhi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=506&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/121720/original/image-20160509-20584-11n2dhi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=506&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Industrial growth proceeds like a game of Scrabble. Some letters have higher values, but they do not combine readily to form words.</span>
<span class="attribution"><span class="source">Reuters/Srdjan Zivulovic</span></span>
</figcaption>
</figure>
<p>As my colleague Professor Ricardo Hausmann <a href="https://www.youtube.com/watch?v=2FeugaLv5Bo">explains</a>, industrial growth proceeds like a game of Scrabble. Nations start off with minimum technological capabilities that they recombine to create more technologies in the same way letters are used to create new words in a Scrabble game. Not all letters are created equal. Some have higher values, but they do not combine readily to form words.</p>
<p>Raw materials, for example, are like the letters J, Q, X and Z, which appear to have high value but are hard to use in creating words. Players often have to substitute them with more versatile letters. This is like using revenue from raw materials to acquire technological capabilities that have higher recombinant value. As in Scrabble, industrial development involves considerable learning, not just about letters but also about vocabulary and strategies for thinking about creating new words.</p>
<p>Africa’s economic downturn is not itself a fatal development. Countries need not recoil into despair and leave their future to the fate of commodity price fluctuations. It is an opportunity to start building new futures that focus on enhancing human capabilities as the foundation of durable economic development.</p>
<p>Unlike its predecessors, Africa has access to a much <a href="http://belfercenter.ksg.harvard.edu/publication/26476/how_can_africa_master_the_digital_revolution.html">wider range of technologies</a> that can serve as platforms for industrial learning. They cover diverse fields such as digital technologies, genetics, synthetic biology and new materials. Harnessing them requires building among the youth a <a href="http://belfercenter.hks.harvard.edu/publication/3227/new_culture_of_innovation.html">culture of innovation </a>that is driven by learning and not extraction. </p>
<p><em>This article was originally published by <a href="http://www.technologyandpolicy.org/about/#.VzAvZPl97IU">Technology and Policy, Innovation at Work</a> and is based on the author’s draft book, “How Economies Succeed: Technology, Innovation and Entrepreneurship”.</em></p><img src="https://counter.theconversation.com/content/59089/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Calestous Juma receives funding from the Bill and Melinda Gates Foundation</span></em></p>The downturn in the commodity boom will not automatically lead to diversification of Africa’s economies. This can only be achieved through a focus on creating learning economies driven by innovation.Calestous Juma, Professor of the Practice of International Development, Harvard Kennedy SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/239202014-03-05T02:56:01Z2014-03-05T02:56:01ZWhat does diversification really mean for our auto sector?<p>The recent decisions by Ford, Holden and Toyota to cease manufacturing in Australia have raised serious concerns for the thousands of Australian businesses who work in the automotive supply chain. Manufacturers are asking themselves, how will I respond? How will I transform?</p>
<p>Some suppliers service other markets, so their businesses may continue, albeit with a smaller customer base. However many suppliers are vulnerable and highly dependent on the volume from the auto industry for their survival.</p>
<p>These business owners must choose whether to wind up, or to diversify their business so that they can fill the hole.</p>
<p>At CSIRO we are investigating the concept of diversification for the small and medium businesses in Australia’s automotive supply chain. CSIRO has the largest manufacturing innovation program in Australia, partnering with manufacturers to help solve technical challenges, improve products and processes and develop new technologies.</p>
<p>Our close relationship with industry has allowed us to build a broad picture of the challenges Australian manufacturers are facing. It also gives us the opportunity to play a pivotal role in helping manufacturers innovate, diversify and transition to new markets.</p>
<p>The biggest misconception about diversification is that there is only one way to do it. In fact, diversification can take many forms – diversifying into different supply chains and global markets, or even diversifying products, processes and business models.</p>
<h2>Mitigating risks</h2>
<p>Manufacturers that branch out into other industries mitigate the risks that come with limiting themselves to one supply chain.</p>
<p>One company that has continually done this well is Marand Precision Engineering. A key supplier to Australia’s auto sector, Marand is now branching out into aerospace, defence, rail and mining, with automotive business now representing less than 10% of its turnover.</p>
<p>The key question this firm asked itself was: do the components we manufacture always have to go into a car? The simple answer was no. Marand’s specialisation isn’t in automotive supply; rather it is precision engineering – skills that can be applied elsewhere to different markets.</p>
<p>Diversification doesn’t have to be mean moving into new industries. Melbourne-based firm MtM was founded as Melbourne Tooling Co half way through last century, growing to manufacture and design components for Ford, Holden, Toyota, Nissan and Mitsubishi. It even exported parts to Cadillac in North America.</p>
<p>Since 2013, MtM has been selling entire cars - online. The company recently launched the Tomcar, a tough off-roader that is all about customisation – focusing on niche market segments like agriculture, tourism and mining - which can be paid for via the cyber-currency Bitcoin.</p>
<h2>Thinking global</h2>
<p>Some of the challenges facing our automotive industry – including a high Australian dollar – are unique to Australia. That’s why it’s important for companies to remember that manufacturing is a global business.</p>
<p>Based in Port Melbourne, Futuris Automotive now has established manufacturing plants in Australia, China, North America, South Africa and Thailand. The company has taken advantage of the global marketplace, supplying seats, trims and upholstery to car manufacturers around the world.</p>
<p>Just as companies shouldn’t limit themselves to one supply chain or region, sometimes it’s the product offering that needs to be varied.</p>
<p>Air International Thermal Systems has traditionally provided air conditioning and climate control systems to auto manufacturers. However, the company’s underlying expertise in thermodynamics has allowed it to move into battery pack designs for electric vehicles.</p>
<p>Businesses that understand what they are truly capable of will be more resilient and adaptable to changing market needs.</p>
<h2>Being flexible</h2>
<p>AW Bell is a family owned and operated business that has been servicing Australian manufacturers with metal parts for over 50 years. Collaborating with CSIRO through the <a href="http://www.csiro.au/Portals/Partner/SME-Engagement/02-About-Researchers-in-Business.aspx">Researchers in Business</a> program, AW Bell developed a new process that allowed it to fabricate complex, lightweight aluminium parts faster and cheaper than conventional techniques.</p>
<p>This step change in capability has allowed the company to become a supplier to the global defence and aerospace industries. It has even supplied components to the Joint Strike Fighter program.</p>
<h2>Where to next?</h2>
<p>While it is widely agreed that diversification may offer solutions for our auto suppliers, there remains the small matter of timing.</p>
<p>The typical timeframe for a business to successfully translate an opportunity into reality is five to ten years. With only three years until the closure of the Ford, Holden and Toyota manufacturing plants, this process of translation must be accelerated dramatically. This is where a collaborative networks and harnessing expertise are most needed. </p>
<p>In these times of uncertainty, it is important for our manufacturers to remember there are still exciting opportunities to innovate in our manufacturing sector. The companies that tackle this challenge head on will be the ones that successfully make the transition.</p>
<p><em>On March 5 CSIRO is hosting a workshop that will bring together automotive suppliers from across Australia to explore opportunities for diversification in the manufacturing sector.</em></p><img src="https://counter.theconversation.com/content/23920/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>CSIRO has conducted research for the companies mentioned in this article. </span></em></p>The recent decisions by Ford, Holden and Toyota to cease manufacturing in Australia have raised serious concerns for the thousands of Australian businesses who work in the automotive supply chain. Manufacturers…Barrie Finnin, Theme Leader, Manufacturing Technologies for Transport and Mining, CSIROLicensed as Creative Commons – attribution, no derivatives.