Achieving Economic Diversification in Low Income Countries

Location: Meeting Halls A&B, HQ1-3-430A&B

Join the conversation via #EconDiversification

Overview

Diversifying into new products and services is a central priority for many low-income countries—to enhance resilience to adverse shocks, mitigate fiscal vulnerability, and provide an expanding production base as the demographic transition produces a surge in younger workers seeking jobs while technological change makes existing tasks obsolete. The seminar will discuss the types of policies needed to encourage investment in new and underdeveloped sectors of the economy, and how successful past experiences with diversification can be tailored to low-income countries.

Seminar Report

Contributor: John Bishop, Secretary's Department

Opening Remarks:
Tao Zhang, Deputy Managing Director, IMF

Moderator:
Yanqing Yang, Deputy Editor-in-Chief, China Business News

Panelists:
Mame Khary Diène, Founder and CEO, Bioessence Laboratories, Senegal

Luis Fernando Mejía, Director General, National Planning Department, Colombia

Arvind Subramanian, Chief Economic Advisor, Government of India

Abraham Tekeste, Minister of Finance and Economic Cooperation, Ethiopia

Min Zhu, Chairman of the National Institute of Financial Research, Tsinghua University, China

Economic diversification is a central concern for many low-income countries (LICs), particularly commodity exporters. However, growing populations and technological advances have made diversification urgent, and the pathways to this goal even more complex. This session sought the views of policymakers and the private sector to explore the challenges and opportunities.

Key Points:

All hands on deck. A broad range of policies are necessary to increase diversification for LICs. Zhu noted that a supportive macroeconomic framework—particularly exchange rate policy—was critical for diversification. Tekeste cited Ethiopia’s industrial parks and the provision of credit to companies in selected sectors as examples of the role of sectoral policies. Mejía noted that policymakers had to consider enterprise-level solutions, such as co-financing technology upgrades, to make companies and sectors more competitive.
Diversification through services. Citing recent IMF research, panelists repeatedly debated the role that the services sector could play in LIC diversification, versus the traditional route through manufacturing. Subramanian noted that services required higher levels of human capital than are available in many LICs. Tekeste downplayed the threat of premature deindustrialization and stressed that manufacturing was necessary to help countries like Ethiopia absorb a growing labor force.
Human capital concerns are acute. Diène highlighted the lack of skilled labor in LICs and recounted that her company initially had to rely on foreigners to provide training, as there was no homegrown expertise. Subramanian noted that as manufacturing grows increasingly automated and reliant on technology, human capital requirements will only increase. Meanwhile, educational systems have not kept pace with the times, and Mejía stated that there was a debate in Colombia over the virtues of the traditional four-year universities versus shorter, skills-oriented training.
Protectionism and new end-markets. Subramanian noted that the backlash against globalization and rising protection in advanced countries added a new element to LICs’ diversification strategies. If India and other LICs were to dramatically ramp up their manufacturing capability, it was not assured that advanced economies would be willing or able to absorb their products. Consequently, countries like China should open their markets more fully and serve as end markets for LICs’ exports.

Quotes:

“Diversification and industrialization are long-term goals, and they require political commitment to ensure that resources and policies are used to support such long-term objectives.” Abraham Tekeste

“One has to be careful about diversification as an outcome and something that countries consciously strive for…The challenge is more about determining what are the inputs required to sustain a long-run growth strategy or choosing to focus on particular sectors.” Arvind Subramanian

“We cannot forget about the importance of tying productivity and economic growth to the environment. Green growth is one of the things we should aim toward, especially in low-income and middle-income economies that have abundant natural resources.” Luis Fernando Mejía

“We have to think about a different model of development, including climate resilience, agriculture, transfer of technology, and regional trade.” Mame Khary Diène

“Technological innovation, particularly artificial intelligence, will change the whole story about diversification and economic development strategies in LICs. But it will also provide wonderful opportunities to leapfrog, so LICs should not miss it.” Min Zhu

Moderator

Yanqing Yang
Deputy Editor-in-Chief, China Business News

Yanqing Yang is Deputy Editor-in-Chief and Anchor of YICAI Media Group, Managing Director of YICAI Research institute,invited senior fellow at NIFD, and CPPCC member of Shanghai. Ms. Yang is a media leader and moderator at various events, including World Economic Forum, CDF, BOAOForum, Lujiazui Forum and IMF conferences. She holds a BA, MA and PhD in Economics from Fudan University. She was a visiting scholar at Johns Hopkins University, USA. YICAI Media Group has been a media partner for the IMF’s Annual and Spring Meetings for six years.

Panelists

Mame Khary Diène
Founder and CEO, Bioessence Laboratories, Senegal

Mame Khary Diène returned from Europe to Senegal in 2005 to start Bioessence Laboratories, a natural cosmetics and food supplements enterprise. Earlier this year, she started Biocondiments, a SME specialized in spices, teas and condiments. Mame, through her consultancy 3-Xpert (established in January 2015), is supporting woman empowerment and agricultural value chain sustainability by helping rural enterprises to scale up. Mame’s success as an entrepreneur and the social impact of her enterprisehas been recognized on multiple occasions. She received the African Economy Builders award in 2016, ‘Excellence in Diaspora Entrepreneurship with Social and Environmental Impact' Award in 2015 from the United Nations International Fund for Agricultural Development (IFAD), and the African Women Led Business Award by the Spanish Government, Femmes Africa Solidarité and Casa Africa in 2010. Mame Diene is the youngest member of the Presidential Council for Investment in Senegal and Vice-president in charge of Communications for the Women Entrepreneurs Union.

Luis Fernando Mejía
Director-General at Colombia’s National Planning Department

Luis Fernando Mejía, has been the Director of the National Planning Office of the Government of Colombia since May 2017. He was Deputy Director of the National Planning Office during 2014-17 and, prior to that, Director of Macroeconomic Policy at the Ministry of Finance. He also worked as a researcher at the central bank of Colombia (specializing in macroeconomics and international economics), at the Inter-American Development Bank and at the Department of Financial Stability at the central bank of Colombia. Mr. Mejía was professor of international macroeconomics and finance at the University of the Andes, Javeriana University, and the University of Chicago. He holds Master’s degrees in economics from the University of the Andes and the University of Chicago.

Arvind Subramanian
Chief Economic Adviser, Government of India

Arvind Subramanian is the Chief Economic Advisor to the government of India and senior fellow (on leave) at the Center for Global Development. He advises the Indian government in different capacities, including as a member of the Finance Minister's Expert Group on the G-20.He was Assistant Director in the Research Department of the IMF, served at the GATT, and taught at Harvard University's Kennedy School of Government and at Johns Hopkins' School for Advanced International Studies. He has published widely in academic journals on growth, trade, development, institutions, aid, oil, India, China, Africa, and the World Trade Organization. He obtained his undergraduate degree from St. Stephens College, Delhi; his MBA from the Indian Institute of Management at Ahmedabad, India; and his M.Phil. and D.Phil. from the University of Oxford, UK.

Abraham Tekeste
Minister of Finance and Economic Cooperation of Ethiopia

Abraham Tekeste is the Minister of Finance and Economic Cooperation of Ethiopia. Before his appointment as the Minister, he was a state Minister in the same Ministry. Prior to that he held various positions in government. He was the founding director of the Policy Research and Program Development of the Ministry of Urban Development and Construction, where he led the drafting of various urban development and governance policies. He was also chief economic advisor to the Mayor of Addis Ababa between 2004 and 2006. Dr. Abraham started his career as a junior economist at the Ministry of Finance and Economic Cooperation. Before that he lectured economics and public policy in various universities in Ethiopia. He holds a PhD in economics.

Min Zhu
Chairman of the National Institute of Financial Research
Tsinghua University, China

Min Zhu is the Chairman of the National Institute of Financial Research at Tsinghua University, China. He is also a board trustee member at the World Economic Forum. Dr. Zhu was a Deputy Managing Director atIMF from July 2011 to July 2016. Before that, Dr. Zhu was a Deputy Governor of the People’s Bank of China, and prior to his service at China’s Central Bank, he servedas a Group Executive Vice Presidentof the Bank of China. Dr. Zhu also worked at the World Bank and taught economics at both Johns Hopkins University and Fudan University.Dr. Zhu received his Ph.D.and M.A. in economics from Johns Hopkins University, an M.P.A. from the Woodrow Wilson School of Public International Affairs at Princeton University, and a B.A. in economics from Fudan University.Dr. Zhu was awarded “China Economic Leader”in 2014, “Global Influential Chinese”in 2015, and“CFV-10 year Global Financial Leader”in 2016.