# **1. Introduction**

Despite wide-ranging external and domestic headwinds, Benin, Burkina Faso, and, more recently, Côte d’Ivoire have registered respectable economic growth. Specifically, Benin’s real GDP growth averaged 4 percent per annum during 2005-2016, which recently became more robust and more resilient to shocks. Similarly, Burkina Faso has posted sustained higher and more stable growth since the CFA franc devaluation in 1994, which held steady at about 6 percent. By contrast, Côte d’Ivoire fared much worse due to a protracted civil conflict that lasted from 2002 to 2011, with growth hitting rock bottom at about 0.4 percent per annum (-1.9 percent in per capita terms). However, economic growth rebounded sharply with the return of political stability and the ensuing policies that bolstered economic recovery, averaging 9 percent in 2012-2016, although the economy has yet to recover ground lost during the crisis.<sup>2</sup> However, the three West African economies face substantial development challenges. Poverty is deeply entrenched and much remains to be done to accelerate growth and put a significant dent in poverty. The ($1.25 per person per day) poverty rate in Benin, Burkina, and Côte d’Ivoire (hereafter jointly referred to as BBC), albeit receding, remains stubborn at about 51 percent, 44 percent, and 35 percent,<sup>3</sup> respectively. This partly reflects that marginally productive activities have propelled much of the economic growth in BBC. Over 80 percent of the labor force in Burkina Faso and Côte d’Ivoire, and over 90 percent of that in Benin remain stranded in the informal sector, which is characterized by the conspicuous absence of productive and ‘decent’ wage employment.<sup>4</sup> There is thus a pressing need to create millions of productive and better-paying jobs for the youth as well as for the surplus labor from agriculture. However, this would be difficult, if not impossible, without a structural change that lifts workers out of low-productivity agriculture and informal activities to high-productivity industries in the modern, non-agricultural parts of the economy (McMillan _et al_ ., 2014).

In addition, despite agriculture’s lingering dominance, burgeoning informal services constitute the hallmark of these economies. Benin has experienced phenomenal change in its structure of employment, while Burkina Faso and Côte d’Ivoire witnessed a relatively smaller shift. Agriculture’s share of total employment plunged by 18 percent in Benin (between 2006 and 2015), by 9 percent in Burkina Faso (1998 to 2014), and by 10 percent in Côte d’Ivoire (2002 to 2014). The majority of the labor force shed by agriculture, however, ended up in low-productivity and largely informal trade and distribution services rather than formal manufacturing and modern service industries. In fact, the employment share of manufacturing has barely changed for decades, while its output share declined. This may not bode well for the sustainability of growth as manufacturing has the potential to absorb the bulk of an economy’s low-skilled workforce at a large productivity premium (Rodrik, 2013a, 2014).<sup>5</sup> In addition, manufacturing is a powerful source of learning by doing (Agénor and Dinh, 2013) and remains the centerpiece of catch-up development (Jones and Olken, 2008).

Large inter-sectoral productivity gaps, however, indicate the presence of enormous potential for growth via structural change. Agriculture typically has the lowest labor productivity. In Burkina Faso, for instance, productivity in manufacturing is about 10 times higher than productivity in agriculture, and productivity in construction is almost 14 times as large. Growth happens due to either productivity improvements within-sectors or resource reallocation from low- to high-productivity activities or both. While the first necessitates a steady accumulation of fundamentals (physical capital, skills, and institutional capabilities) across the entire gamut of economic activities, the second requires speedy

> 2Note, however, that the extraordinary _post_ -conflict growth resurgence partly reflects the protracted economic decline that preceded the political stability.

> 3The poverty rates for Benin and Burkina Faso correspond to the year 2011 while the poverty figure for Côte d’Ivoire is for 2008. The data are admittedly a bit old, but these are the latest information available on poverty rates in these countries.

> 4The information on informal employment for Burkina Faso comes from the World Bank’s _International Income Distribution Dataset_ (I2D2), for Côte d’Ivoire from the 2014 labor force survey (ENSETE 2014), and for Benin from World Bank (2016).

> 5Labor-intensive manufacturing generally requires skills not too different from those required by agriculture and represents an important source of more productive employment opportunity for the huge pool of workers in agriculture (Dinh _et al_ ., 2012).

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