Is Growth in Services Responsible for Africas Low Structural Transformation?

Abstract

Hopestone Kayiska Chavula

Africa has experienced robust growth since the beginning of the 21st century, with the service sector continuously playing a key role by being the largest contributor to GDP and employing the highest proportion of the population on the continent. However, Africa’s productivity growth remains relatively low with limited structural transformation, as resources have been shifting from agriculture and manufacturing to low-value services and the informal sectors. Despite this narrative, empirical work on services contribution to growth seems to lag behind research studies done on other sectors’ contribution to growth in Africa such as agriculture and manufacturing. This paper aims to assess the extent to which the services sector has contributed to Africa’s structural transformation through its impact on productivity and aggregate growth. The results show that resources have been shifting from higher and increasing productivity sectors into lower productivity sectors over the period of the study. However, despite this re-allocation having a positive and significant impact on productivity growth, the service sector’s contribution and its productivity growth remain relatively low to effectively enhance Africa’s structural transformation.

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