This Selected Issues paper examines growth, structural transformation, and diversification in Mali. At present, the majority of Mali's population is employed in low-productivity agriculture, and the secondary sector is underdeveloped. Further structural transformation and diversification of output and exports could thus yield significant growth dividends, but will be challenging in the context of a rapid projected increase in the workforce over coming decades, much of which would need to be absorbed by the agricultural sector. Policies could focus on easing the constraints to structural transformation in key areas such as education and the business climate, as well as devising a clear strategy for tackling the challenges posed by rapid population growth.

Abstract

This Selected Issues paper examines growth, structural transformation, and diversification in Mali. At present, the majority of Mali's population is employed in low-productivity agriculture, and the secondary sector is underdeveloped. Further structural transformation and diversification of output and exports could thus yield significant growth dividends, but will be challenging in the context of a rapid projected increase in the workforce over coming decades, much of which would need to be absorbed by the agricultural sector. Policies could focus on easing the constraints to structural transformation in key areas such as education and the business climate, as well as devising a clear strategy for tackling the challenges posed by rapid population growth.

Growth, Structural Transformation, and Diversification In Mali1

Growth in Mali in the past has been disappointing and highly volatile compared to growth in a group of benchmark countries. This note examines slow structural transformation and diversification as candidate explanations for this relative underperformance. At present, the majority of Mali’s population is employed in low-productivity agriculture and the secondary sector is underdeveloped. Further structural transformation and diversification of output and exports could thus yield significant growth dividends, but will be challenging in the context of a rapid projected increase in the workforce over coming decades, much of which would need to be absorbed by the agricultural sector. Policies could focus on easing the constraints to structural transformation in key areas such as education and the business climate, as well as devising a clear strategy for tackling the challenges posed by rapid population growth.

A. Growth, Volatility, and Productivity

1. Growth in Mali in the past has been comparatively weak and highly volatile (Figure 1). Despite a lower starting level of income per capita, Mali has grown more slowly on average over the past two decades relative to the rest of Sub-Saharan Africa. With real per capita growth averaging only 1.4 percent over the past 25 years, Mali’s growth performance has been weak relative to a set of peer countries in both SSA and Asia who had a similar level of per capita income to Mali in 1990, but who are now over two times richer in PPP terms.2 This underperformance in growth relative to other countries has been most pronounced since the turn of the century, when growth took off in many low income economies, but saw only a slight acceleration in Mali. The security crisis in 2011–13 also exacted a heavy toll on living standards, with per capital income at the end of 2014 around 10 percent lower than is pre-crisis trend. Growth also remains relatively more volatile than in peer countries, despite having declined in recent years, since Mali’s economy remains highly exposed to exogenous shocks, such as droughts.

Figure 1.
Figure 1.

Growth and Volatility

Citation: IMF Staff Country Reports 2015, 340; 10.5089/9781513591971.002.A001

2. Comparatively low human capital accumulation and total factor productivity appear to have driven slow growth (Figure 2). A growth decomposition exercise suggests that half of Mali’s growth over the past two decades can be attributed to labor accumulation, while capital accumulation accounts for around a third. In contrast, human capital and productivity appear to have been the main drivers of the low growth performance, and are the factors in which Mali lags most relative to other countries, together with labor force participation. Rates of both basic education and female labor force participation in Mali are significantly lower compared to SSA and Asian benchmark countries, and more unequally distributed across the population, while a challenging business environment impedes productive private sector activity (see also the External Stability Assessment, annexed to the Staff Report). These factor ‘gaps’ suggest that policies should target access and quality of education, public financial management (PFM) reforms to improve the efficiency of public investment, and key areas of the business environment, such as removing barriers to starting a business and external trade while ensuring efficient electricity provision.

Figure 2.
Figure 2.

Productivity

Citation: IMF Staff Country Reports 2015, 340; 10.5089/9781513591971.002.A001

B. Recent Trends in the Structure of Output and Exports

Output

3. There has been some modest structural change in Mali over time (Figure 3). In 2013, the agricultural and service sectors (including public services) each accounted for around 40 percent of economic activity, with the mining and manufacturing and construction sectors accounting for 8, 7, and 4 percent, respectively. The main changes in Mali’s output structure since 1970 (for when data are first available) have been the emergence of the gold mining and telecommunications sectors and the modest declines in the shares of the agricultural and manufacturing sectors (which accounted for 47 and 11 percent of output in 1970 respectively). The construction sector has also doubled its share of output over this period. The level of overall output diversification—based on a Theil Index measure (Box 1)––is also low and has increased more slowly than in faster growing benchmark countries.

Figure 3.
Figure 3.

Output Diversification

Citation: IMF Staff Country Reports 2015, 340; 10.5089/9781513591971.002.A001

4. Mali has experienced de-industrialization, contrasting with a sharp industrial expansion among some benchmark countries. Over the past two decades, Mali’s manufacturing sector has steadily contracted as a share of output (from 12 percent in 1995 to 7 percent in 2013). In contrast, manufacturing increased from 10 percent to 16 percent of output in the Asian peer group and remained broadly flat in the SSA peer group over the same period. Conversely, the share of the agricultural sector has declined across other low-income countries over time but has remained elevated in Mali.

Exports

5. Export diversification has improved recently, although export quality has been stagnant on average (Figure 4). Diversification of export products has increased over the past decade and the level has approached that of benchmark countries. In contrast, diversification of export partners has remained stable although Mali appears more diversified than its peers. Relative commodity export quality has decreased steadily since 1990 and is below that of benchmark countries. While not far from benchmark country levels, manufacturing export quality has been stagnant on average.

Figure 4.
Figure 4.

Export Product and Partner Diversification

Citation: IMF Staff Country Reports 2015, 340; 10.5089/9781513591971.002.A001

Source: IMF (2014a).

Export Diversification and Quality

(IMF 2014a and Henn et al, 2013)

Export product diversification is captured by the Theil index which can be decomposed into a “between” and a “within” sub-index:

TheilIndex=1NΣiNExportValueiAverageExp.Value.lnExportValueiAverageExp.Value=Theilbetween+Theilwithin,

in which i is the product index and N the total number of products. The “between” Theil index captures the extensive margin of diversification, i.e. the number of products, while the “within” Theil index captures the intensive margin (product shares).

Export partner diversification. The Theil index is also available across export partners. In this case, i and N in the above relationship represent the export partner index and number of export partners, respectively.

Export quality is measured by the export’s unit value adjusted for differences in production costs, relative distance to the trade partner, and the development of a country through the following relationship:

TradePricemxt=α0+α1lnunobservablequalitymxt+α2lnp.c.incomemxt+α3lnDistancemxt+Errormxt,

in which the sub-scripts m, x, and t denote importer, exporter and time period respectively.

C. Fostering Growth through Structural Transformation and Diversification

6. Structural transformation and diversification of output has the potential to boost growth and reduce volatility in Mali. Through the reallocation of resources from low productivity sectors, such as agriculture, to higher productivity sectors such as manufacturing, ‘between-sector’ structural transformation can boost overall productivity. Structural transformation can also occur ‘within sectors’ creating productivity gains through, for example, implementing quality improvements to existing products and services, focusing production on relatively high value-added activities, or diversifying into new high value-added products. Output diversification can not only yield growth benefits but also reduce the volatility of growth, since new products and services are likely to be subject to different demand and supply shocks than existing ones.

7. Estimates suggest these benefits could be substantial (Figure 5). A 1 percentage point reallocation of labor from agriculture to manufacturing (keeping sectoral productivity levels constant) could raise output by 2.8 percent; such is the gulf in labor productivity levels between the two sectors (average productivity in manufacturing is around 6 times higher than in agriculture).3 Similarly, a 1 percent increase in agricultural productivity (keeping resource allocation constant) could raise aggregate output by 0.3 percent, given the concentration of labor in this sector. Increasing output diversification to the level of benchmark countries could increase average growth by 0.1 to 1.3 percent. According to IMF (2014a), similar results hold for more export diversification. Here, a 1 standard deviation increase in LIC’s export diversification raises the growth rate by about 0.8 percentage points which translates into potential ½ percentage point growth gains if export diversification was raised to levels observed in Asian or SSA benchmark countries. Output growth volatility could be significantly reduced as well.

Figure 5.
Figure 5.

Gains from Structural Transformation and Diversification

Citation: IMF Staff Country Reports 2015, 340; 10.5089/9781513591971.002.A001

Sources: IMF (2014a) and staff calculations

8. Policies to promote structural transformation and diversification should focus on addressing weaknesses that hinder entry into new lines of economic activity (IMF, 2014a). Weaknesses abound in Mali in terms of the provision of infrastructure, the accumulation of human capital, the provision of finance, the establishment of trade networks and functioning of factor markets, the regulatory and institutional environment and the creation and management of ideas. Evidence from cross-country comparisons and individual case studies suggests that policies targeting these areas can be successful in fostering structural transformation and diversification, while the evidence is more mixed concerning the success of industry-focused and narrowly targeted measures (Box 2). That said, in Mali, the agricultural sector does warrant special attention, given its large scope for productivity and quality improvements and its high share of employment (see Box 3).

Reforms which Foster Structural Transformation

(based on IMF 2014a)

  • While there is no silver bullet of reform to foster structural transformation, the following general policies have emerged from successful country case studies and cross-country evidence (IMF 2014a, IMF 2013). Several of these policies may be addressed at both the national and regional levels.

  • Macroeconomic stability. In Vietnam, Rwanda, Malaysia and Tanzania successful diversification has coincided with stronger macroeconomic policies and a greater degree of stability.

  • Market entry. Reduced entry barriers can motivate entrepreneurs to expand their activities. In Vietnam collectivization was reversed which led to the emergence of a more diverse agricultural sector. In Rwanda a large divestment of state enterprises stimulated private sector activity, and in Tanzania, the dismantling of the state distribution system has positively affected the private sectors as well. The liberalization of the electricity market has been associated with higher degrees of structural transformation as well.

  • Education. Education has been associated with higher levels diversification and export quality. In Vietnam, years of education increased by about 50 percent in just two decades. In Rwanda, education has been expanded through ninth grade for all students.

  • Institutions and the business environment. Henn et al. (2013) report that a one standard deviation increase in institutional quality is associated with a 0.3 increase in quality upgrading. In Bangladesh, the removal of red tape has been associated with large investments in export processing zones.

  • Industrial policies. The support of specific industries has shown mixed results. In Malaysia and Bangladesh, the targeting of specific industries has been successful, but the targeted sectors have become dominant, decreasing export diversification. In natural resource dominated economies, however, such targeting may help the economy to diversify.

The Role of Agriculture in Structural Transformation

The agricultural sector accounts for a significant share of output, employment and external trade in Mali and is likely to continue to do so in the medium term, even if there is an expansion of the manufacturing and service sectors. Structural transformation within agriculture, through productivity improvements to existing activities and boosting the sector’s external performance should thus be key focuses of growth-enhancing policies.

Agriculture has the highest share of employment in Mali and so inclusive growth depends on its prospects. Agriculture currently employs around two thirds of the workforce in Mali and is likely to remain the largest employer in the medium term. Applying the methodology in Fox and Thomas (2014), the number of workers in agriculture could double over the next two decades, with the share in total employment declining only to around 60 percent.

Policies targeting productivity improvements within agriculture may have the most traction in the medium term. The expected continued buoyant supply of agricultural labor suggests that large-scale ‘between-sector’ structural change (through a large shift in the share of workers in agriculture to the manufacturing sector) may be unlikely to materialize in the medium term. Instead, productivity improvements within the agricultural sector may provide a more fruitful focus for policies. The data suggest that agricultural productivity is relatively low in Mali, indicating substantial scope for progress. For example, cereal yields remain below those in benchmark countries, while the relative quality of agricultural exports has been on a declining trend.

Another set of policies could focus on the external competitiveness of the agricultural sector. Increasing the volume and diversification of agricultural exports could boost growth and reinforce external stability (see the External Stability Assessment, annexed to the Staff Report). Mali’s agricultural trade performance could be improved by increasing exports of products which are produced domestically and in which Mali has a comparative advantage (such as rice and other cereals), while at the same time reducing imports of these same products. Mali would appear to have scope to increase the quantity of agricultural exports: as well as abundant agricultural labor, the share of uncultivated arable land is relatively high and several neighboring countries are large importers of agricultural products.

Mali’s technical partners have proposed several avenues for increasing agricultural productivity. For example, the World Bank’s 2015 Systematic Country Diagnostic for Mali suggests the following priorities: liberalization of the cotton sector, increasing support for agricultural R&D, increasing land cultivation of semi-arid agriculture in southern Mali, increasing production of export competitive fruits (mango, papaya) and vegetables (shallot/onion, potato), improving management practices of land and water, addressing governance issues at the Office du Niger, reforming fertilizer subsidies, and improving infrastructure for pastoralists.

A01ufig1

Sectoral employment projections

(Millions, left figure and percent of total, right figure)

Citation: IMF Staff Country Reports 2015, 340; 10.5089/9781513591971.002.A001

A01ufig2

Agricultural indicators, 2011

Citation: IMF Staff Country Reports 2015, 340; 10.5089/9781513591971.002.A001

Source: FAO

D. Demographic Trends and Employment

9. Structural transformation and improvements in diversification will take several years and would have to take place against the backdrop of challenging population dynamics (Figure 6). Fertility rates in Mali remain among the highest in the world, despite rapid declines in child mortality. As a result, Mali’s population structure is young; in 2010 almost two thirds of the population was below the age of 25. Over the next two decades, the population could double, from around 15 to 30 million, with a net annual increase in the labor force of around 200 thousand workers.

Figure 6.
Figure 6.

Demographics

Citation: IMF Staff Country Reports 2015, 340; 10.5089/9781513591971.002.A001

10. A young population presents the opportunity for Mali to benefit from a potentially large ‘growth’ dividend (IMF, 2015). According to UN population projections, Mali will undergo a demographic transition over the next few decades, characterized by declines in infant mortality and fertility rates, with a resulting increase in the share of the working-age population relative to the overall population (Box 4). If fertility rates in Mali decline from their current level of 6.8 children per woman to 5.0 (the UN’s most optimistic scenario), the share of working age population is projected to increase from 50 percent in 2010 to 55 percent by 2035. This demographic transition would be characterized by a higher share of the population that is potentially economically productive and can create income, boost fiscal revenues and ease the burden of fiscal expenditure on services such as healthcare and education. The potential impact on growth from these effects could be important. A recent paper (Drummond et al, 2014) estimated that a 1 percentage point increase in the working age population increases real GDP growth per capita by 0.5 percentage points.

11. But the demographic ‘growth dividend’ could remain elusive or negligible if fertility rates continue to decline only modestly or if the labor market is unable to absorb the new workers in productive activities. If fertility rates in Mali do not decline from their current elevated levels, the share of working-age population will also stay constant and the demographic transition and associated growth dividend will remain elusive in the medium term. Moreover, this scenario would not be innocuous for growth: the rapid increase in population would still pose enormous pressure on public services and infrastructure which are inadequate even at current population levels (Guengant and May, 2013). Even if fertility rates do decline, the increase in the share of working-age population may not yield growth benefits. Recent evidence (Fox and Thomas, 2013) suggests that there are speed limits with which the manufacturing and service sectors can absorb new workers, with any excess labor forced to seek informal employment in low productivity (often subsistence) agriculture (see Box 3), or enter unemployment. Both of these outcomes would pose risks to overall productivity growth, poverty levels and social cohesion.

The Demographic Dividend

There are two main channels of demographic growth dividends (Mason and Lee, 2006 and IMF, 2015). The first is the result of a rapid growth of the working age population followed by a decline of fertility rates. As a consequence, the economy’s dependency ratios decline. The second one arises later when parents have fewer children and accumulate savings in anticipation of aging. With a large number of young people projected to enter the labor market in Mali in the next decades, Mali could benefit from the first dividend if fertility rates were declining.

The demographic dividend has been substantial in several countries. For the case of India, Aiyar and Mody (2011) estimate that 40 to 50 percent of per capita growth has been attributable to the demographic dividend since the 1970s. In East Asia, the demographic transition has likely contributed one fourth to two fifth to a GDP per capita growth rate of around 6 percent between 1965 and 1990 (Bloom et al., 2003). However, even with an increasing ratio of working-age population to population, the growth effects of the demographic dividend are not automatic. The shift in the demographics needs to be complemented by investments in education to ensure the entrance of a productive workforce into the labor market at higher wages.

A01ufig3

Dependency Ratio, 1961-2013

(People younger than 15 or older than 64 in Percent of working-age population,)

Citation: IMF Staff Country Reports 2015, 340; 10.5089/9781513591971.002.A001

Sources: WDI, UNI World Population Prospects
A01ufig4

Dependency Ratio, 1961-2013

(People younger than 15 or older than 64 in Percent of working-age population,)

Citation: IMF Staff Country Reports 2015, 340; 10.5089/9781513591971.002.A001

Sources: WDI, UNI World Population Prospects

12. Policymakers aiming to promote structural transformation must take these demographic challenges into account. A large number of new workers could be a boon for structural transformation and diversification as young workers are likely to be more flexible than existing ones to enter into new economic activities. Policies should thus focus on ensuring the demographic transition takes place, through managing fertility rates (for example, though promoting increased use of contraception) and harnessing the growth benefits of any transition by providing the necessary education to ensure new entrants to the labor force have the skills to be fully employed in high value-added activities.

Gender Inequality and Growth

Mali has one of the highest levels of gender inequality in the world. The World Economic Forum ranks Mali 138 out of 142 countries for gender equality and its score has worsened over the past decade. The UN ranks Mali 151 out of 155 countries on its gender equality index, while the OECD ranks Mali 105 out of 108 countries on its measure of discrimination against women in social institutions. And on all three measures, Mali scores significantly worse than the average for Muslim-majority countries, Sub-Saharan Africa and all low-income countries.

The major macroeconomic gender-related issue in Mali is underrepresentation in the labor market. In 2015, female labor force participation was only 35 percent, almost half that in sub-Saharan Africa as a whole. And the gap with men is also over twice that in the rest of Africa. Alarmingly, this gap has actually increased over the past decade as rates of labor force participation have increased for men but stagnated for women. Moreover, once in employment, women are more likely to be employed on a temporary basis or as apprentices and less likely to be firm owners or managers.

Low participation of women in the labor force is labor is holding back economic growth in Mali. A growing body of literature finds evidence of a positive link between female labor force participation rates and economic growth (see IMF (2013) for a summary). Leaving such a large number of potentially productive workers under-utilized is a huge waste of resources and one that is particularly unfortunate for an economy as poor as Mali.

Two of the most binding constraints in terms of greater female labor market access relate to education and demography. Enrollment rates in education are low for women (only 64 percent receive primary schooling) and significantly lower than for men (for example, twice as many men go to university than women), while those women that do enroll are less likely to complete. Literacy rates are also extremely low and significantly lower for females than males (25 percent versus 43 percent). Mali’s fertility rate is among the highest in the world, at 6.7 births per woman. High fertility rates and gender imbalances are mutually reinforcing drivers of Mali’s poverty dynamics. High fertility rates affect women’s health and productive capacity but also the time they can devote to seeking and undertaking a job.

Policymakers aiming to improve women’s access to the labor market should privilege measures that are also likely to have the biggest macroeconomic impact. Policies should be chosen that not only help to alleviate gender imbalances but also to tackle the challenges posed by rapid population growth and low economic diversification in particular. For example, a key priority should be managing the fertility rate, through, for example, improved access to contraception and legal reforms that empower women within the household. Similarly, policies targeting an increase in female access to education should take into account the type of skills likely to be in short supply in a Malian economy with an expanded secondary and tertiary sector. In terms of geography, a key focus should be rural areas, where economic diversification is lowest and where fertility and gender inequality is highest.

Figure 7.
Figure 7.

Gender Inequality and Growth

Citation: IMF Staff Country Reports 2015, 340; 10.5089/9781513591971.002.A001

References

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  • Bloom, E., D. Canning, and J. Sevilla, (2003), “The Demographic Dividend: A New Perspective on the Economic Consequences of Population Change”, RAND, MR–1274.

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  • Dabla-Norris, E, Ho, G., Kochhar, K., Kyobe, A., and Tchaidze, R., (2013), “Anchoring Growth: The Importance of Productivity-Enhancing Reforms in Emerging Market and Developing Economies”, IMF SDN/13/08.

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1

Prepared by John Hooley.

2

Mali had a per capita income in PPP terms of US$502 in 1990 and US$829 in 2013. An SSA peer group consisting of Ethiopia, Rwanda, and Uganda had an average per capita income of US$551 in 1990 and US$1759 in 2013. And an Asian peer group of Nepal, Bangladesh, and Cambodia had an average per capita income of US$649 in 1990 and US$2055 in 2013.

3

Average labor productivity levels are used as a proxy for marginal productivity levels in this thought experiment. In the case of manufacturing, McMillan and Harttgen, (2014) argue this is a reasonable assumption for SSA, where labor share in manufacturing and agriculture are likely to be similar.

Mali: Selected Issues
Author: International Monetary Fund. African Dept.