Structural transformation to break away from rural poverty

Structural transformation is a process by which the relative contribution of nonagricultural sectors to the overall economy rises as agriculture’s share declines in relative terms. In absolute terms, however, agriculture continues to grow and contribute to overall economic growth. Agricultural productivity growth and increased farm incomes are prerequisites for structural transformation. Increased farm incomes lead to derived demand for nonfarm products, which in turn leads to the growth of small and medium-size enterprises in rural villages, small towns and larger urban areas. To increase the productivity of the agricultural and other sectors of the economy, improved financial and human capital development is crucial in order to ensure overall factor productivity, including labour productivity. Human capital development in turn depends on Africa’s capacity to achieve a much needed demographic transition, characterized by low mortality and fertility rates.