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Become complex or stay poor.

Gazing into crystal balls and predicting the economic future of countries has become one of the fastest-growing industries in academia. Institutions like the World Bank, the World Economic Forum and countless experts are all at it--crunching numbers and graphs to peer into the future. Now Harvard University has come up with a controversial system that predicts growth patterns on how complex a society or an industry is--and some of the results they have arrived at are startling. Richard Walker reveals all.

Stop worrying about how rich you are. Stop thinking about annual income as the main measure of your economic status and future prospects. Stop focusing on the industries you already have today. Instead, start thinking about how complex your economy is, and particularly on how much knowledge it needs to run. That is the message to African economists and policy makers from an influential economic research database sponsored by Harvard University, called the Atlas of Economic Complexity.

The Harvard Atlas is all about predicting which countries will see growing productive economies in the coming years. The Harvard economists claim that the Atlas, which ranks countries according to their growth potential, can predict growth patterns better than other rankings. The Atlas has already been shown to be more effective at predicting growth than the World Bank indicators on governance, the World Economic Forum's competitiveness indicators, or other rankings based on education or on the availability of finance.

The Harvard project is led by the renowned Venezuelan development economist Professor Ricardo Hausmann. In a recent interview Hausmann summarised the conclusions: "We take two measures. How much a country knows, and how easy would it be for it to know more. Together those variables can predict how fast it will grow. Not just the country as a whole--we can predict how fast an industry can grow in a given location. We can predict the complete appearances and disappearances of industries, and the results are five to 10 times more accurate than random guesses.'

The most important insight of the Atlas is that it is not just human or infrastructural resources that determine future growth, but complexity. And when you look at economies through the lens of complexity, it turns out that some of the countries that are commonly thought of as excellent investment bets turn out not to have such a bright future after all--while others commonly thought of as basket cases could be the strongest performers of the future.

Take two Southern African countries that happen to be neighbours, that both have a heritage of British colonial rule, and that also have some culture and languages in common.


Botswana is a favourite of investors and pundits; it has a history of stability unparalleled in sub-Saharan Africa, a strong economy, high levels of educational achievement, and very robust institutions Botswana is rated by Transparency International as the least corrupt country in Africa.

Then there is Zimbabwe. President Robert Mugabe of Zimbabwe has his supporters, but his record as an economic manager is abysmal. Once one of sub-Saharan Africa's most favoured investment destinations and most productive economies, Zimbabwe has crashed spectacularly in latter years under Mugabe, as agricultural land has been forcibly confiscated and redistributed by the state, leading to a collapse in all but subsistence farming, hyperinflation, and a world record level of unemployment. It is an extremely adventurous investor who is willing to risk investing capital in Zimbabwe today.



Botswana is strong, stable and safe. Zimbabwe is corrupt, chaotic and extremely risky. This is the consensus of economists and entrepreneurs from Africa and beyond. But it is this type of consensus that the Atlas of Complexity seeks to challenge. According to the complexity analysis, Botswana is very unlikely to grow rapidly in the foreseeable future. Zimbabwe on the other hand, is capable of rapid growth, as soon as political forces realign.

Just one look at the pattern of exports from both countries will help to explain why that is. Botswana has a very simple economy, one that is reflected in its exports. The Atlas uses 'tree-maps' of the export make-up of individual economies that show at a glance how diversified the economy is--assuming that the products that a country exports correlate roughly with what the economy produces. The Botswana tree-map tells its own story.

In the 2013 updated edition of the Atlas, the rankings of economic complexity are based on trade figures that go up to 2008--according to Harvard, this is the latest date at which figures are reasonably reliable. The tree-map shows how dependent the Botswana economy is on one product, which is raw uncut diamonds accounting for two thirds of exports. Other unprocessed or part-processed metals account for another 20% of exports.

When it comes to Zimbabwe, the picture is very different--literally. Despite its deep economic difficulties, Zimbabwe remains a complex economy as demonstrated by its exports. And the Zimbabwe tree-map looks very different to that of its neighbour.

In the case of Zimbabwe one metal product--nickel--also accounts for the largest share of exports, but here the share is only 18%. A range of agricultural products account for around 25% of exports, but the product groups are quite widely diversified, including raw and processed products, foodstuffs and textiles. In addition to these, Zimbabwe also exports a surprising mix of rather complex products, including chemicals, instrumentation, electrical transformers and printed products. The illustration alone suggests that this is a much more diversified economy than that of Botswana.

Deeper analysis

However, the export tree-maps are only the beginning of the analysis. The Atlas is not intended to chart merely the level of diversification of an economy, but rather how complex its economic activities are. An economy could easily be very diversified, but all its activities could be relatively simple ones that do not draw on complex skills.

The reason for this stress on complexity is that economies with complex industries that require lots of different sorts of knowledge working together tend to grow much faster than others, and tend to be much richer.

The complexity analysis is based on the idea that where there are products that are complex to make, it is likely that the range of skills required to make those products is so great that they can probably be put to work making other complex products as well.

As the Harvard researchers say, what a society knows is very different from what an individual knows. Running an economy based on complex products is not about having a population rich in geniuses who know just about everything, but by having a lot of knowledge in many individuals who are able to work in teams to connect up the different sorts of knowledge.

Once there are enough connected individuals to make something like advanced machinery, they will probably find it relatively easy also to use at least some of the same skills to make chemicals or electronics as well.

On the other hand, there are some industries that do not connect well with others in terms of skills employed. Oil is one: the extraction of oil requires skills that are not much use for anything else. So a country may well have vast oil wealth and a huge oil industry, but that does not mean that it will be able to put that wealth to work in developing more complex industries.

In fact, to correct for this, the Harvard Atlas has the effects of natural resource wealth removed from the overall rankings, although the researchers say that even when resource wealth is included in the rankings of countries, it is still true that more complexity leads to higher growth and greater wealth.

But why is complexity important? The Atlas approach argues that it is not just a question of how diverse an economy is as reflected in its exports, but also how difficult it is to make the products it exports.

This level of difficulty is calculated very simply by looking at how many other countries can make and export the same thing. So for example the Atlas contrasts the cases of Egypt and Switzerland, the point of the comparison being that these two countries, although very different in terms of per capita GDP, happen to have about the same total GDP at purchasing power parity, and they export roughly the same number of different products, about 180 product categories in each case. But while Egypt exports goods that are also exported by an average of 28 other countries, Switzerland exports goods that are also exported by an average of 19 other countries--in other words, it is more difficult to make the things that Switzerland makes.

Add to this the fact that Egypt's export competitors tend to be poorly diversified countries, while Switzerland's competitors are very diversified, and the simple conclusion is that Switzerland exports more complex products. As it happens, Switzerland is eight times richer than Egypt in per capita terms.

African rankings

All this has important conclusions for African economies, which have long sought to diversify their economies, partly to make them less susceptible to the cycles of commodity prices, but also to make them richer. The lesson that the Atlas is trying to teach here is that diversification is not enough: to get consistently richer, economies also need to develop industries that are more complex, that can make things that fewer other countries can make, and because of this, command higher prices and create bigger profits.

If that argument is correct, the biggest question for policy makers is 'How do we get from here to there?'. Unsurprisingly, it turns out that moving from a simple economy to a complex one is not easy. The worst-case scenario is an economy where there is high dependence on one very simple industry that has very few connections with other industries. Nigeria is a case in point. Sudan is another. Both have significant oil revenues; neither has anything else in the economy that can match oil in terms of attracting investment and developing complexity. The oil revenues themselves provide a disincentive for diversifying up the complexity scale.


For Africa, the bad news is that an alarming number of countries are at the bottom of the complexity scale. The Atlas does not include all countries--it is limited to countries for which there are adequate trade data, where there is a population above 1.2m, where exports are at least $1bn a year between 2006 and 2010, and where data is reasonably reliable.

That leaves 128 countries, including most of Africa. Of those 128 countries, no African economy makes it into the top 50. According to the rankings of complexity in the Atlas, the most complex sub-Saharan African economy is--no big surprise--South Africa at number 55 (and in the whole of the continent, only Tunisia is ahead at number 47).

Then comes a group of economies that are still relatively complex in African terms--Namibia, Kenya and Senegal, ranked at numbers 72 to 74, followed closely by Mauritius (77), Zimbabwe (80) and Uganda (87).

The really bad news is that in the bottom 10 countries in terms of economic complexity, there are eight sub-Saharan countries, plus Libya. Mauritania is ranked as the least-complex economy in the entire world ranking, with Sudan at second-last place and Angola third last. Also in the bottom eight countries are Congo, Guinea, Cameroon, Nigeria and Gabon (DRC was excluded from the Atlas due to shortage of data).

Significantly, all of this last group are largely dependent on oil (with the exception of Mauritania which exports some oil, but is mainly dependent on unprocessed metal ore exports). Thanks to oil, most of these countries are not poor in GDP per capita terms, but according to the Atlas they are very poor in terms of ability to grow in any way other than growing by growing oil revenues--and of course, oil eventually runs out.

The biggest question all this leaves for policy makers is this: if complexity is important for long-term growth, how do you get from a simple economy to a complex one? This is the problem that all developing economies must wrestle with--the fact that industries tend to develop and grow into similar industries.

According to Professor Hausmann, the problem looks like this: if you have a hospital with no operating theatre, no surgeons and no anaesthetists, and you have limited finance so you can't just go out and buy all three, you face the challenge of complexity. There is no point in having an operating theatre without anyone to operate in it. There is no point in recruiting an anaesthetist if there is no surgeon and no operating theatre. In short, it is very difficult to engender complexity.

Economies have to develop by moving into areas of activity that have some similarity to what they are already doing. If you have industries that show a lot of connectedness to other industries, your growth outlook is relatively good. And the more complex those new industries are, the better able you will be to manufacture the more profitable goods that others find it difficult to make. If your industries are the kind of outliers that don't connect well with other industries in terms of the skill sets required, then you face a big problem. You are stuck where you are.


The Atlas ranks industries in just these terms: how connected they are. It does this rather simply--instead of looking into every industry and calculating what skills and technologies it requires, it simply calculates the likelihood based on the export data of a country exporting all possible pairs of products.

If it is more likely that a country exports shirts and tablecloths than shirts and jet engines, then shirts and tablecloths are closely connected and shirts and jet engines are not. Using this calculation, the Atlas gives a view of the future, called the Complexity Outlook Index. The Outlook tells us how likely it is for new, connected industries to develop.

Interestingly, when it comes to the ranking of the complexity of products rather than their connectedness, it turns out that industries that produce very hi-tech products such as computer chips are not the most complex in terms of the skills required to manufacture them. Of the top five most complex products, two are machinery designed for metal fabrication, and the other three are chemicals and healthcare products--chemical analysis devices, X-ray machinery and photographic chemicals. The five least-complex products are all unprocessed or part-processed agricultural produce: raw cotton, tin ore, natural latex, sesame seeds and cocoa beans.

From simple to complex

Just how difficult it is to get from the least complex to the most complex can be shown in a simple visual presentation (opposite), where groups of industries are shown by coloured dots. If industries are connected and complex, they group together densely in the middle. If they are simple and unconnected, they remain scattered around the edges of the graphic.

In 1975 Ghana had largely industries that were low in complexity and not connected to other industries. By 2010 this had developed somewhat, but not much. There is more connection and a little more complexity, but the overall pattern is still largely the same.

Yet when you compare the case of Turkey over the same years, the difference is very striking. Starting with a little more complexity and a little more connectedness, by 2010 the Turkish economy had become a lot more complex, with industries bunching together in the middle of the product space where industries are most complex and most connected--and most profitable.

In short, if you start with something with some complexity, you can get more complex. Just as the rich get richer, the complex get more complex. If you start well you can get better--for the rest, there is an awful lot of work to do. But there is one other unusual conclusion from this research: the best-placed countries for future growth are not the most complex. The countries with the most complex economies such as Japan and the US face the problem of having nowhere to go--they have fully occupied the complex space, and there are no new industries for their existing industries to connect to and grow. The only way they can grow is by inventing entirely new complex industries--possible but difficult.

Much better placed are economies in the middle, with some level of complexity and lots of opportunities to become more complex by extending into new but similar industries.

The worst off are those with very simple export industries that are not connected to anything else. So according to this analysis, countries like oil-rich Nigeria and Angola are the worst-placed for balanced growth. They will be wealthy so long as the oil flows and the world is willing to pay for it, but to get away from that dependence will be very difficult.

Countries that are poorer but with considerably more complex economies like Kenya and Zimbabwe are very much more likely to grow whatever happens to the natural resource economy. So, surprisingly, Zimbabwe appears as a much lower-risk economy than Nigeria. It is not a complete picture. The Atlas does not include trade in services, an increasing part of the sub-Saharan economy, that may become its most significant part. It is corrected for natural resources wealth, and that is real even if it is volatile. But as a picture of the long-term prospects of many African economies, beyond the day when the oil runs out and the commodity price cycle turns down again, it is very revealing. The message is, get complex or stay poor.
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Title Annotation:THINKER'S CORNER
Author:Walker, Richard
Publication:African Business
Geographic Code:6ZIMB
Date:Apr 1, 2014
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