African Renaissance is it Sustainable Alan Gelb DECVP
African Renaissance: is it Sustainable? Alan Gelb DECVP, World Bank, February 2008 This draws on research in process with a number of collaborators, including Vijaya Ramachandran, Ginger Turner, Benn Eifert, and Bruno Vincent
A turning point for Africa? § A dismal longer-run picture. Falling real incomes. Progress on HDI half that of other low-income regions, even after controlling for policy, HIV/AIDS and conditional convergence. § Since mid 1990 s, a considerable improvement : on average, real incomes no longer falling. Performance projected to remain relatively strong: on average growth about 6% § Factors behind this improvement? § Outstanding questions relating to sustainability?
Which African countries Have grown in last decade, and Why? § § Can consider three main groups of countries: Countries with large oil reserves ( currently 9 countries) Countries sustaining good policies (tracking “G 11”) Other countries, subdivided into – Conflict countries – Others (tracking “control group) § Groups overlap to some degree. § The first two groups have performed far more strongly in terms of growth, FDI. § Methodology: in between regression and case studies. Cross-country regressions miss a lot of the country-specific factors.
Country Groupings: 1994 -2003: The G 11 and Oil Exporters Low Growth Low Aid High Growth Namibia, Congo Rep, Angola, Botswana, Cameroon, DRC, CI, Gabon, Kenya, Eq. Guinea, Lesotho, Nigeria, Seychelles, RSA, Mauritius, Sudan, Togo Swaziland, Zimbabwe High Burundi, CAR, Aid Com, Eritrea, G. Biss, Mad, Malawi, Niger, STP, SL, Gambia, Zambia Chad, Benin, Burkina, Cape. Verde, Ethiopia, Ghana, Mali, Mauritan, Moz, Rwanda, Senegal, Tanzania, Uganda Note: Oil exporter growth rates have accelerated since 2003
Governance indicators: oil exporters and G 11 § With high oil prices impelling exploration “oil growth premium” is about 3%. § Issue is governance over oil rents: exporters in lowest decile, worldwide § G 11 rate relatively well for poor countries Mean Percentile Rank Oil Exporters G 11 Botswana Voice and Accountability Control Government Of Corruption Effectiveness 13 10 13 40 39 39 67 78 74
Oil exporters: approaches towards improved accountability § The “political side” of the “Dutch Disease” precedes the “economic side”? § Lessons from success: work towards informed consensus and transparency § Supplement normal budget processes by rules based on “horizontal accountability”? (Sao Tome oil law; Chad agreement) § Global and regional lock-ins? EITI, AU? § Move towards bottom-up rent distribution? No formula to mesh institutions and arrangements
G 11: Sustainable Growth…. GDP/head growth: Aid/DGP: Policy rating Change in rating Income/head G 11 Control 2. 5%, 17. 5% 3. 42 0. 51 228 0. 2% 12. 8% 3. 14. 0. 07 321 Fast-growing countries have combined good (improving) policies and aid. But some countries in control have also received a lot of aid, and performed poorly. Landlocked countries are poorer, get somewhat more aid and do a little worse
…or generalized Dutch Disease? § Do aid flows or terms of trade gains cause Dutch Disease, as shown by: – Weakening macro: falling savings, investment, taxes? – Weakening competitiveness: appreciating real exchange rates, low export growth and diversification? – Deteriorating governance? – Worsening distribution?
1. Macro indicators Management stronger in G 11, weaker in control group
Savings and investment Slow rise in G 11 from low base, and weaken in control
FDI to G 11 rose substantially Even though the G 11 lack oil or major mining. Issue: response of domestic investment?
Tax/GDP ratios Rose in G 11 even as trade taxes declined with liberalization; fell in control
2. Competitiveness indicators No clear patterns in real exchange rates. May follow terms of trade more than aid volumes
Real exports: grew and diversified § Real export growth averaged 6. 6% for G 11 and 4. 8% for control. § Share of top 3 commodities declined, especially in G 11. In Senegal, Ghana, Uganda, Tanzania and Mali: Non-traditional exports grew at 17%, traditional exports at 4% The share of non-traditional exports rose from 20% to 42%
Export diversification stronger in G 11
But limited structural transformation to manufacturing industry, unlike Asia Growth Elasticity G 11 0. 29 Asian Hi-Growers 0. 25 C/S Norm 0. 48 Agriculture Manufacturing 0. 76 2. 09 1. 36 Construction 3. 15 -1. 27 1. 36 Services 1. 43 0. 91 1. 13 Growth (%) 21. 6 35. 2 Where is Africa’s long-run comparative advantage?
3. Governance Political rights and civil liberties: Sharper gains in G 11. However, accountability weak, political processes fragile. Identity politics often dominant in new democracies
Measures of institutional quality Institutions: Strengthened in G 11 especially relative to SSA average. WGI indices of Institutional quality and corruption show similar relative trends
Considerable gains in public financial management…
…. confirmed by HIPC PFM Indicators Between 2001 and 2004, for those countries covered by the Public Financial Management tracking indicators: – the average number of HIPC PFM Benchmarks met by G 11 increased from 6. 5 to 8. 0, – but scores for the control group deteriorated from 4. 75 to 4. 5 However, quality of public administration may have declined across all groups. This is a matter of concern.
4. Sharing in Growth § Only some countries have 2 comparable surveys to measure poverty trends: 8 in the G 11 and 3 in the Control § For the G 11 countries, poverty headcount decline averaged 1. 2 percentage points per year, higher than SSA MDG target § For the Control poverty headcount increased at 2. 2 percentage points
Poverty Decline in G 11 Growth has been poverty-reducing
Poverty Increase in Control
The Picture is somewhat less Clear on Other MDGs… § Health: G 11 not much better except on immunization rates § Education: G 11 make somewhat faster gains but from a low base
Conclusions, and areas for research § Not one Africa but several. Each with own sustainability issues § Oil exporters: – how to avoid boom-bust cycle, transform rents into productive investments? – political and institutional issues dominate narrowly economic concerns. Arrangements to strengthen checks and balances? § Well-managed fast-growing countries (G 11): – policy matters: many things going better… – geography vs policy: sustainability of growth trajectories and diversification pattern? – indigenous entrepreneurship and investment vs FDI? – strengthening of accountability mechanisms in new democracies?
§END
§ ADDITIONAL SLIDES
Policies and aid effectiveness (project performance and CPIA: ordered logit)
The Picture is Less Clear on Other MDGs § Health: G 11 not much better except on immunization rates
Education: G 11 makes somewhat faster gains but from a low base
- Slides: 30