Poorer Sub-Saharan African (SSA) countries are far less effective than wealthier countries in allocating factors of production such as labor and natural resources, contributing to overall low productivity and slowing economic recovery.

Boosting Productivity in Sub-Saharan Africa: Policies and Institutions to Promote Efficiency notes that low labor productivity is of particular significance in the agricultural sector, which employs most of the population. That the majority of the region works in an area of such low economic activity provides insight into why the region lags behind others in structural transformation.

This volume, the third in a series addressing productivity challenges and opportunities in SSA, focuses on resource misallocation and its impact on productivity levels and growth as compared to other regions. In assessing the implication of production decisions across agricultural farms and manufacturing firms, the evidence shows that they are particularly plagued by severe resource misallocation; in agriculture, low productivity is overwhelmingly explained by inefficiencies in resource allocation more so than the amount of rainfall or soil quality. In manufacturing, the report points to total factor productivity revenue dispersion across firms—the amount of goods and services produced compared to the amount of inputs used to produce those goods and services—as the measure of low productivity.

History and Context
Historically, economic growth in the SSA region has been besieged by a series of shocks, among them wars and natural disasters, political instability and epidemics. Both physical and human factors of production have been significantly impacted by these shocks, and the report notes they have also been exacerbated by structural characteristics such as the lack of diverse economic activity and weak governance. Some of these are the outcome of policies and institutions that distort the allocation of resources from their most efficient use.

Uncertainty increased significantly at the start of the COVID-19 (coronavirus) pandemic, causing firms to temporarily suspend hiring and investment. This health shock has also significantly hurt output and productivity across countries, firms and sectors, causing a reduction in aggregate demand larger than the original reduction in labor supply.

Policy response currently focuses on emergency relief to save lives and protect livelihoods, but the report recommends that policies also consider measures to protect the future of the region.

The Future of Sub-Saharan Africa
Along with previously published volumes, this report aims to provide support for productivity analysis, and identify areas of focus for the design of a productivity policy agenda for the region. The report also highlights several avenues where additional research can provide more insight into the dynamics of productivity, as well as several opportunities for policies that can help increase productivity, such as;

• Impacts of productivity shocks versus demand shocks: Future work needs to differentiate between productivity shocks and demand shocks in measuring revenue productivity in SSA production establishments.
• Policy impact at the firm level: Further analysis should be undertaken on the impact of policies within, rather than between, components of aggregate productivity growth, using longitudinal data.
• Drivers of productivity improvements from managerial practices: There is greater need to deepen research in the region on the internal drivers of productivity at the establishment level in SSA.

The report also recommends other internal drivers could be considered, such as greater input quality, product innovation and research development.

Please read the full report here.