The impact of COVID-19 on Africa

Paul Collier explains how four shocks (drop in commodity prices, remittances, tourism, and international capital) due to the overarching COVID-19 shock are threatening Africa's progress.

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Two in three jobs in sub-Saharan Africa are in the informal sector. There are no economies of scale or specialisation. Small is not beautiful, it is unproductive. Africa needs more companies capable of organising a workforce into specialised, collaborative teams, disciplined by competition. Yet even the firms that Africa has are bleeding from the economic impact of coronavirus.

This shock is not predominantly a result of Africa’s health crisis. The causes are the sharp downturns in advanced economies. Commodity prices have dropped and Africa is a major net exporter.

Senegal and Ethiopia are major recipients of remittances from citizens working abroad. Normally, these rise during a domestic crisis, but in this global emergency Africa’s diaspora are losing their jobs. This also hits the most desperate places such as Yemen.

Finally, the retreat of international capital to safety is hitting hardest the countries that were most promising for investors. Ghana was attracting US pension fund money and major companies such as Volkswagen and Bosch. All four shocks are eroding Africa’s scarce organisational capital and are likely to persist for the medium term.

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Credit constraints faced by youths and structural transformation

Blattman et al. worked with the Ugandan government and World Bank to randomize large, relatively unconditional cash transfer program in Uganda (Youth Opportunities Program of the Northern Uganda Social Action Fund), and followed nearly 2500 people two and four years afterwards. They found that credit constraints are holding back youths. Excerpts from Blattman’s blog and paper below: 

• Most start new skilled trades like metalworking or tailoring.
• Labor supply (employment hours) increases 17%. Those new hours are spent in high-return activities, and so earnings rise nearly 50%, especially women’s.
• Earnings rise nearly 50%, especially women’s.
• The people who do the best are those who had the least capital and credit to begin with.
• Credit constraints seem to be less binding on men, since men in the control group start to catch up over time. Female controls do not, partly because they have worse access to starting capital. With the grant they take off, further even than men. Without it, they stagnate, even more so than men.
• Despite huge economic effects, there is little impact on cohesion, aggression, and collective action (peaceful or violent). So, public spending on the grounds of social stability cannot be fully justified. But the impacts on poverty and structural change alone probably justify big public investment.
  
  

Links of Interest (2013-04-05)

Links of interest series is back again. Below are links (and excerpts) to some of the interesting papers and articles.

Does gender inequality hinder development and economic growth?

[The evidence is not conclusive, i.e. a definitive causal link between inequality and growth is not established yet. But, this doesn’t mean “imply that inequality-reducing policies are ineffective.”]

Economics versus Politics: Pitfalls of Policy Advice

[Acemoglu and Robinson argue that “sound economic policy should be based on a careful analysis of political economy and should factor in its influence on future political equilibria.”]

Cash transfers and child schooling : evidence from a randomized evaluation of the role of conditionality

[Akresh, de Walque and Kazianga: “The results indicate that unconditional and conditional cash transfer programs have a similar impact increasing the enrollment of children who are traditionally favored by parents for school participation, including boys, older children, and higher ability children. However, the conditional transfers are significantly more effective than the unconditional transfers in improving the enrollment of "marginal children" who are initially less likely to go to school, such as girls, younger children, and lower ability children. Thus, conditionality plays a critical role in benefiting children who are less likely to receive investments from their parents.”]

Trends in developing country trade 1980-2010

[Michalopoulos and Ng: “This paper reviews trends and patterns in developing countries' trade from 1980 to 2010. During the 30-year span, world trade expanded rapidly, especially in developing countries in the last decade. A similar picture emerges in trade in services. These overall trends, however, mask different trade patterns during some of the time periods and among different developing countries and groups. For example, except for Asia, the 1980s were pretty much a "lost" decade for many developing countries and groups. But that changed in the 1990s and 2000s, with trade by all major developing countries growing faster than developed countries. From 1980 to 2000, trade by Least Developed Countries grew much more slowly than that of developing countries as a whole. But those countries saw the fastest growth in trade in the following decade. This strong overall trade performance -- with some exceptions (for example Sub-Sahara Africa in the manufacturing trade) -- raises questions about sustainability, trade policy and the architecture of the trading system.”]

Does access to finance matter in microenterprise growth ? evidence from Bangladesh

[Khandker, Samad and Ali: “The findings suggest that households engaged in microenterprise activities, in addition to farm and other nonfarm activities, are much better off (in terms of income, expenditure and poverty) than those not engaged in such activities. Fewer than 10 percent of the enterprises have access to institutional finance (formal banks or microcredit), although the rate of return on microenterprise investments is more than sufficient (36 percent per year) to repay institutional loans. The research suggests that credit constraints may reduce the enterprises' profit margin by as much as 13.6 percent per year. As the returns to microenterprise investment are found to be high, microfinance institutions can play a larger role in supporting microenterprise growth in Bangladesh.”]

A brighter future for renewable energy with private sector involvement in Nepal

[ Friis Bach and Pokharel write: “The National Rural and Renewable Energy is innovative as it seeks to realize the great scope of credit financing of renewable energy. The private sector and public-private partnerships are keys to the success of the program. The public sources and development assistance is simply not enough, if we want to ensure universal access to sustainable energy. At the same time, there should be a sound profit to earn for private sector, if they engage in new models for financing investments in renewable energy. The Government of Nepal and development partners have therefore agreed to establish a new Central Renewable Energy Fund (CREF) mechanism–the CREF to be handled by a bank–with an estimated budget of US $ 115 million for the next five years. We are not creating a new institution, but buying into existing commercial and development banks, which is more efficient and sustainable. Through subsidies and credits, the CREF will facilitate bankable renewable energy solutions to rural Nepal on an even larger scale. Once established and proven as an effective financing mechanism for the sector, it is expected that further funds will be committed to CREF, from public, development and private sources.”]

Why do public service delivery fail?

Shanta Devarajan argues:

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Teachers in Tanzania are absent 23 percent of the time; doctors in Senegal spend an average of 39 minutes a day seeing patients; in Chad, 99 percent of non-wage public spending in health disappears before reaching the clinics.

These and other service delivery failures have been widely documented since the 2004 World Development Report, Making Services Work for Poor People.

But why do these failures persist?  Because they represent a political equilibrium where politicians and service providers (teachers, doctors, bureaucrats) benefit from the status quo and will therefore resist attempts at improving services.  For instance, teachers are often the campaign managers for local politicians.  They work to get the politician elected, in return for which they get a job from which they can be absent. Powerful medical unions ensure that their members can work in the private sector and neglect their salaried government jobs.  The losers are the poor, whose children don't learn to read and write, or get sick and die because the public clinic is empty.

[…] How can we disrupt this equilibrium to improve services for poor people? One possibility is to provide them with information.  We saw that community monitoring (poor people obtaining the information directly) had an effect on teacher performance.  But more broadly, poor people do vote.  If, with information, they vote along service delivery lines--rather than for politicians from their own ethnic or religious group, or who promise them private goods such as a job building roads--then it would be more difficult for politicians to ignore service delivery failures. 

[…] Information may not be the only solution.  The underlying problem is that politicians are behaving "clientelistically"--more interested in handing out private goods to their "clients" rather than public goods that benefit society, especially the poor--and getting away with it (they get elected).  And if most politicians behave this way, it's in every politician's interest to follow suit.  How can we move from clientelism being the norm to one where it is the exception?

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This reasoning also perfectly fits the state of service delivery in Nepal. Eventually, there is continued supremacy of extractive political and economic institutions over inclusive ones.

Elite capture of fuel subsidies

There is a long running debate over elite capture of blanket, across-the-board subsidies in developing countries. Subsidies are primarily meant for people who cannot afford basic necessities or are targeted to those who are below the poverty line. However, there is a danger of elite capture as is seen in fuel subsidies, relief program for rural households, payment for employment schemes, etc. Almost all developing countries subsidize fuel costs to stabilize prices and to help poor households cope with fuel price volatility. However, fuel subsidy is not targeted and widespread leakage is common. Even though the targeted group get subsidized fuel in the market, a large proportion of it is consumed by the elite (because their consumption demand is higher—so will be subsidy). It puts strain on fiscal deficit and trade deficit.

A recent study in seven African countries shows that on average the richest 20% receive over six times more in subsidy benefits than the poorest 20%.

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Expenditure data for seven African countries show that the distribution of these subsidies is disproportionately concentrated in the hands of the rich.  Richer households spend a larger amount on fuel products, and, consequently, benefit more than poorer households from any universal subsidy on these products. On average the richest 20% receive over six times more in subsidy benefits than the poorest 20%.

 

More here.

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The high share of income spent by poor households on fuel relative to well off households means that if fuel subsidies are taken off, then it would hurt poor the most. The poor’s demand for fuel is more price inelastic than rich’s demand for fuel.

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Results of simulating the short-term (assuming no substitution away from fuel) direct impact of a 20 percent increase in energy prices (using SHIP data) show that both rich and poor households would see a substantial negative impact on consumption: a decline of nearly 1 percent for the top quintile and of 0.5 percent for the bottom quintile. Other studies estimate that the total impact—direct and indirect—of higher fuel prices as a percent of consumption is about the same across income quintiles

For nine African countries the average short term direct and indirect welfare impact of a $0.25 per liter increase in fuel price is estimated to be 2 percent and 3.8 percent of per capita consumption respectively. Unlike the rich, the poor have very limited capacity to offset the effects of the price shock on overall consumption by borrowing or drawing on savings.

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The figure below shows size of fuel price subsidy (% of GDP) in select SSA countries.

What is the solution to this? Well, there is no easy fix:

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Removing subsidies and raising prices needs to be well managed. For one thing, social assistance programs need to be strengthened so as to help poor and vulnerable households weather the price shock. Another is to increase public understanding and support for subsidy reform by having a transparent and evidence-based discussion and scrutiny of subsidies: the full cost of the subsidy, the distribution of the subsidy and who is benefiting from the subsidy, and the implications for public spending on priority areas.

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Trade and growth in Sub-Saharan Africa

Bruckner and Lederman argue that within-country variations in trade openness cause economic growth. Specifically, a 1 percentage point increase in the ratio of trade over GDP is associated with a short-run increase in growth of approximately 0.5 percent per year; the long-run effect is larger, reaching about 0.8 percent after ten years.

But, there are not only gains from open trade. While some gain, others lose. In 2010, a joint report (Benefits of Trade for Employment and Growth) by the OECD, the ILO, the WTO and the WB, stated that while open trade is always good, it must be complemented by properly designed domestic policies, including employment and social protection policies to ensure that benefits from trade are widely shared. While the crisis has limited growth in many countries, this should not be a reason to go for trade protectionist policies. Instead, trade should be kept open and it should be backed up by social security policies.

Meanwhile, there is also a growing body of literature that focuses on the level of sophistication of export products and its (positive) impact on per capita income. Anand, Mishra and Spatafora argue that “an educated workforce, external liberalization, and good information flows are important prerequisites for developing sophisticated goods and services”. Sophistication comes from either increasing the quality of currently produced goods or from a move into new and more sophisticated products. It induces structural transformation. The study finds that a one standard deviation increase in the sophistication of goods or services is associated with a, respectively, 0.6 or 0.4 percentage points increase in the average annual growth rate. See this blog post for more on the paper.

Links of Interest (2012-02-18)

Industrial policy works for smaller firms (If governments must provide investment subsidies to domestic firms, there is a much larger bang for their buck if they target small businesses rather than larger ones.)

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Demand composition and the trade collapse of 2008–09 (The Great Trade Collapse was mainly caused by the crash in global demand.)

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Non-tariff measures and supply chain (NTBs may add many trade costs along the supply chain and, in a world where production is fragmented across countries, they are associated with development traps.)

The figure below shows traded goods prices along the supply chain. Different policies apply to each part of the supply chain. Market distortions in international shipping specifically affect the difference between the free-on-board and cost-insurance-and-freight prices; import customs procedures then affect the landed duty-paid price; and restrictions on the size or hours of retail operations affect the difference between the wholesale and retail price.

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The impact of natural disasters on developing countries' trade flows (Due to natural disasters such as earthquakes, floods, and volcanic eruptions exports of disaster-hit small developing countries decline by 22 percent and the observed impact tends to last for about three years. Exports of larger developing countries, on the other hand, are not significantly affected.)

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What explains high unemployment? The aggregate demand channel (The decline in aggregate demand driven by household balance sheet shocks accounts for almost 4 million of the lost jobs from 2007 to 2009, or 65% of the lost jobs.)

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Preferential trade agreements and the world trade system

• Despite the proliferation of PTAs in recent years, the actual amount of liberalization that has been achieved through PTAs is actually quite limited.
• At least a few studies point to significant trade diversion in the context of particular PTAs and thus serve as a cautionary note against casual dismissals of trade diversion as a merely theoretical concern. Equally, adverse effects on the terms-of-trade of non-member countries have also been found in the literature.
• While the literature has found mixed results on the question of whether tariff preferences help or hurt multilateral liberalization, the picture is different with the more elastic tools of trade policy, such as antidumping duties (ADs); the use of ADs against non-members appears to have dramatically increased while the use of ADs against partner countries within PTAs has fallen.
• Despite the rapid expansion of preferences in trade, intra-PTA trade shares are relatively small for most PTAs; multilateral remain relevant to most member countries of the WTO.

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Conditional versus unconditional cash transfers in Burkina Faso

Compared with control group households, conditional cash transfers significantly increased the number of preventative health care visits during the previous year, while unconditional cash transfers did not have such an impact. For the conditional cash transfers, money given to mothers or fathers showed beneficial impacts of similar magnitude in increasing routine visits.

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China's Growing Role in Africa: Myths and Facts

China’s emergence as a major player in Africa’s trade, investment, and aid has led many to question the nature of its involvement. Critics say that China is only interested in resources, its exports to Africa threaten local industries, and it is displacing Africa’s traditional partners, like the United States. True, China is a large user of commodities and has a vital interest in developing Africa’s natural resources, but it is not just on a resource hunt. Moreover, the adverse impacts on Africa of China’s increased exports, both in internal and external markets, appear to be limited to specific industries such as garments. And despite their differences in priorities and approaches, China and the United States can complement each other in some areas. Africa has much to gain if it uses its leverage wisely.

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Beyond Keynesianism : Global infrastructure investments in times of crisis

As the world recovers only slowly from the 2008 financial crisis and Europe is facing a looming debt crisis, concerns have increased that the "new normal" -- a period of high unemployment, low returns on investment, high risks, and low growth -- may become protracted in advanced economies. If growth remains weak, unemployment rates and debt levels will be slow to recede. Consequently, the global recovery may continue to be fragile for years to come. What the world needs now is a growth-lifting strategy. This strategy could take the form of a global infrastructure initiative. Since debt levels are high, governments in the United States and Europe could increase demand and support growth through investments in bottleneck-releasing infrastructure projects that are self-financing. An infrastructure initiative should, however, go beyond the borders of advanced countries and include developing countries. Economic and social returns to infrastructure investments tend to be high in developing countries, which have become increasingly important drivers of global growth. At the same time, infrastructure investments require capital goods, most of which are produced in high-income countries. Scaling up infrastructure investment in developing countries could therefore help generate a virtuous cycle in support of a global recovery.

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Landlocked countries’ comparative advantage and services trade

In a new policy working paper, Borchert et al. argue that protection of services sector (telecommunications and air transport) by landlocked countries is not a smart policy because it is the one of the few sectors in which they have comparative advantage.

They find that even moderate liberalization in these sectors could lead to an increase of cellular subscriptions by 7 percentage points and a 20 percent increase in the number of flights. Specifically, liberalizing policies from the level of the median country (STRI = 50) to the level of first quartile (STRI = 25) would on average result in an increase of cellular subscriptions by 7 percentage points and an increase in mainlines by 4 percentage points. And, in the air transport sector, a reform of aviation policies with similar impact, such that the STRI score would fall from 50 to 25, is estimated to be associated with a 20 percent increase in the number of flights. Countries with highly restrictive aviation policies have on average 39 percent fewer flights per airline than liberal countries.

They argue that poor policies lead to more concentrated market structures and more limited access to services than landlocked countries would otherwise have. They suggest increasing the maximum foreign capital participation limit from a minority to a majority stake.

Two suggestions:

• First, international assistance for transport and telecommunications infrastructure needs to be complemented by policy reform.
• Second, in transport services, there is a strong case for multilateral negotiations because there are limits to what unilateral reform can achieve. We address each aspect in turn.

Here is the abstract of the paper:

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A new cross-country database on services policy reveals a perverse pattern: many landlocked countries restrict trade in the very services that connect them with the rest of the world. On average, telecommunications and air-transport policies are significantly more restrictive in landlocked countries than elsewhere. The phenomenon is most starkly visible in Sub-Saharan Africa and is associated with lower levels of political accountability. This paper finds evidence that these policies lead to more concentrated market structures and more limited access to services than these countries would otherwise have, even after taking into account the influence of geography and incomes, and the possibility that policy is endogenous. Even moderate liberalization in these sectors could lead to an increase of cellular subscriptions by 7 percentage points and a 20 percent increase in the number of flights. Policies in other countries, industrial and developing alike, also limit competition in international transport services. Hence, "trade-facilitating" investments under various "aid-for-trade" initiatives are likely to earn a low return unless they are accompanied by meaningful reform in these services sectors.

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They provide examples of Laos, Nepal and Zambia. In their analysis they control for the adverse influences of geography and low incomes, the two most likely determinants of poor performance. Also, they take policy to be endogenously determined because policies are influenced by lobbying for protection by interest groups or industries.

They argue that “aid for trade” to landlocked countries to improve their ports, airports and customs might not  yield expected results in the absence of the liberalization of air transport services (or limited competition among service providers) that would greatly enhance the impact of AfT.

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About Nepal, the report has the following info:

• Nepal Airlines, plagued by poor management and political interference, has seen its financial situation weakened and its fleet shrunk to two Boeing 757s and four twin otters. By virtue of being the designated airline, it occupies crucial space in BASAs, which it is incapable of exploiting. One of the key hubs is Delhi, where the number of seats is limited to 6000 per week for each side, but Nepal Airlines uses only 1,300 seats of the Nepali quota. Japan has refused to grant fifth freedom rights on the Kathmandu-Shanghai-Osaka route, and China may be restricting flights on the Kathmandu-Lhasa route.
• Nepal granted exclusive licenses in the fixed line segment until 2009 to United Telecommunications Limited (with majority Indian Government ownership) and in mobile to Spice Telecom (with majority Kazakh ownership), effectively creating duopolies in each segment between these firms and the state-owned firm. [Update is needed in the paper: Spice Telecom is Ncell now and there are other three telecom operators, which means it is not a duopoly. It is at best monopolistic competition.]

Does interest rate channel work? Evidence from Ghana

In short, it won’t work as expected. Why? Because of information asymmetries and imperfect markets. Here is the abstract from a recent paper by Arto Kovanen.

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This paper analyzes interest rate pass-through in Ghana. Time series and bank-specific data are utilized to highlight linkages between policy, wholesale market, and retail market interest rates. Our analysis shows that responses to changes in the policy interest rate are gradual in the wholesale market. Prolonged deviation in the interbank interest rate from the prime rate illustrate the challenges the Bank of Ghana faces when targeting a short-term money market interest rate. Asymmetries in the wholesale market adjustment possibly relate to monetary policy signaling, weak policy credibility, and liquidity management. In the retail market, pass-through to deposit and lending interest rates is protracted and incomplete.

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Public works plus unconditional transfer program in Ethiopia: A review of PSNP

Lieuw-Kie-Song reviews Ethiopia’s Productive Safety Net Programme (PSNP)-- which includes employment through public works as well as transfer component-- and argues that the integration of the two commonly used social protection strategies creates synergies and much better outcome than implementation of the two programs independently.

For instance, it covers labor-constrained households by the safety net (transfer) program, which public works program that uses labor from each household cannot cover. But, it also employs non labor-constrained households in public works that focuses on natural resource rehabilitation and maintaining rural infrastructure, which transfer programs cannot do. Labor-constrained households (due to sickness, maternity, household size, disability, old-age, or death) can switch partially or fully to the direct unconditional transfer component of the program. This switch can be either permanent or temporary depending on the nature of the constraint faced by households.

The combination of these two components-- public works and direct transfers-- in the same program has resulted in a more “coherent framework of enhancing productivity and providing social protection”, argues Lieuw-Kie-Song . The author argues that PSNP is providing regular and predictable income and employment, fostering decent work environment; introducing a formal set of rights for participating households, including an appeals process to address grievances; allowing flexible working hours for women; and integrating a high degree of local and participative decision making.

PSNP targets chronically food insecure households in famine-prone areas in rural Ethiopia. It has around 8 million beneficiaries from around 1.5 million households. So far, the cost of the program is 1.2 percent of Ethiopia’s GDP. It provides transfers (15 kilos of cereal per household member per month for six months a year) to food insecure households. For households that are required to work, which is guaranteed, to get this transfer must work for five days to receive the transfer for one person.

The objective of the program is to provide households with enough income (cash/food) to meet their food gap and to build community assets to contribute to addressing the root causes of food insecurity. A review of the program by Anna McCord found that the program faces significant problems in identifying, designing, and implementing the scale of infrastructure projects required to absorb the levels of workers anticipated.

USAID’s intervention and Rwandan coffee exports

Easterly and Reshef (2010) argue that foreign aid can boost exports but only if projects are implemented carefully in consultation and working with producers and exporters in the country. For instance, after the 1994 genocide in Rwanda, USAID funded two projects to educate local business people in agribusiness. Local officials convinced the agency to figure out which efforts could improve local incomes, and it hit upon specialty coffee. The aid projects helped to form grower coops, taught coffee-washing techniques, contacted potential buyers, and provided the initial capital to build coffee-washing stations. The result is that Rwanda has become a source for high-quality specialty coffee that is sold in the United States.

They also argue African exports are not as dismal as has been portrayed in the media and by researchers. In the 15-year period from 1994 to 2008, sub-Saharan Africa saw its per capita exports of goods rise an average of 13 percent per year. That average is less than China's export growth rate of 19 percent, but on a par with India, and far above Germany's 8 percent and the 4 percent rate for the United States. Given the well known difficulties in exporting from Africa (let alone running business there), 13 percent annual growth rates of exports per capita are no small feat, they argue.

A summary of the paper in July 2011 edition of NEBR digest:

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The exports of sub-Saharan African nations include some "big hits" -- that is, exports that dominate national trade. These exports change over time in a way that can't be easily explained by commodity prices or other global factors. And, although the sub-Saharan nations use conventional measures to boost their export revenues, such as moving up the quality ladder, concentrating on comparative strengths, and liberalizing trade rules, part of their success is idiosyncratic: entrepreneurial persistence, luck, and cost shocks can lead to big hits, even where the anticipated probability of success was low.

Sub-Saharan Africa has a relatively low share of manufacturing exports and a much higher share of agriculture, food, fuel, ores, and metals. There is considerable variation within categories, however, with some nations able to export high-value food exclusively to Europe or to the United States. Export successes are rare, but when nations do get a big hit, sales of that good tend to skyrocket. For example, the average share of the top export from 37 African nations is 47.6 percent of all of that nation's exports. The second largest export, by comparison, accounts for only 13.7 percent of exports on average. This pattern is somewhat more extreme than that of non-African nations. The top export share among 130 non-African nations averages 27.5 percent, and the second strongest export averages 11.6 percent.

The big hits also vary widely over time. In Ghana, for example, coconuts, Brazil nuts, and cashew nuts were No. 67 on the list of top exports in 1996 but had climbed to No. 4 by 2008. Meanwhile, unwrought aluminum fell from No. 6 to No. 132 in that same 12-year period. In Ethiopia, fresh vegetable exports rose from No. 182 to No. 5, while buckwheat and other cereals fell from No. 6 to No. 229. These rises and falls are primarily attributable to changes in the quantity exported. Price changes only account for 10 percent of the changes in shares for the median country.

Persistent entrepreneurs, timing, and happenstance also play a role in export success. Gahaya Links, founded in 2003 by two sisters, now sells Rwandan woven baskets to Macy's and other U.S. retailers, despite the problems that typically plague handicrafts ventures in the developing world. A Canadian-trained chemical engineer in Tanzania entered the prawn business after a London-based acquaintance requested the product. The big breakthrough came, however, when he moved into catching white fish in Lake Victoria to supply a European market hungry for his product.

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M-Pesa versus Western Union: Mobile banking increases competition and consumer benefits in Kenya

There economic impacts of M-Pesa, a mobile phone based money transfer system in Kenya that commenced operation in 2007.

1. M-Pesa lowers the propensity of people to use informal savings mechanisms such as ROSCAS, but raises the probability of their being banked.
2. M-Pesa causes decreases in the prices of competing money transfer services such as Western Union.
3. M-Pesa improves individual outcomes by promoting banking and increasing transfers.

Here is the full paper Isaac Mbiti and David N. Weil (2011).

16 Things You Didn't Know About Africa

1. The largest population in Sub-Saharan Africa (SSA) is 151.3 million in NIGERIA. The smallest is 0.1 million (100,000) in Seychelles.
2. Total trade as a percentage of gross domestic product (GDP) is the highest in Seychelles: 283.4 percent and lowest in Central Africa Republic: 37.5 percent.
3. In two thirds of SSA countries, only one or two products are responsible for 75 percent or more of the country’s total exports.
4. Cape Verde receives the highest net official development assistance (ODA ) per capita: $438.20. Nigeria receives the lowest: $9.50.
5. The percentage of parliamentary seats held by women is highest in Rwanda with 56.3 percent, and lowest in São Tomé and Príncipe with 1.8 percent.
6. Only 5.7 percent of births in Ethiopia are attended by skilled personnel compared to 98.4 percent in Mauritius.
7. Youth literacy (ages 15-24) is highest in Gabon at 97 percent and lowest inBurkina Faso at 39.3 percent.
8. The highest connection charge for a business phone is $366.60 in Benin. The lowest is in Ghana at $0.70.
9. In South Africa there are 924 mobile phones per 1000 people. In Eritrea there are 22 per 1000 people.
10. In Côte d’Ivoire it takes 16.6 days on average to clear customs on direct exports, compared with 3.8 days in Gabon. Imports, on the other hand, take 31.4 days to clear customs in the Republic of Congo, compared to 4.4 days in Lesotho.
11. The percentage of firms that identify corruption as a major constraint to doing business was highest in Côte d’Ivoire at 75.0 percent, while the lowest is in Ghana with 9.9 percent.
12. In Chad, 37 percent of children who start first grade make it to the fifth grade, versus 99 percent in Mauritius.
13. In Sierra Leone 272 out of every 1,000 children die before the age of five. In Seychelles, the number is 13 per 1,000.
14. In Somalia, 29 percent of the population has access to a safe source of water. In Mauritius, access is 100 percent.
15. In Sierra Leone, 3 persons per 1,000 are Internet users. In Seychelles, where there were 212 computers per 1,000 people for the period 2005-2007, 371 in every 1,000 people are Internet users.
16. South Africa has the highest carbon dioxide emissions: 414,649 metric tons, while Comoros has the lowest: 88 metric tons.

Adapted from Development Outreach

Signs of progress in Zimbabwe

Praveen Kumar over at the Africa Can…End Poverty blog writes:

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In the two years since the Government of National Unity (GNU) was formed and Zimbabwe dollarized fully, there have been encouraging developments on the economic front.

The economy grew at nine percent in 2010, following on six percent in 2009. Government revenues climbed to 29 percent GDP in 2010; they were just three percent of GDP in 2008. And the banking sector which had dis intermediated almost fully during the hyperinflation grew its dollar deposits briskly to around 30 percent of GDP at the end of 2010. But election talk has suddenly mushroomed in 2011, setting off political competition that could slow down Zimbabwe’s return to normalcy.

This good performance starts from a low base; the economy had contracted by more than 45 percent from 1999-2008. Furthermore, world prices of commodities, such as platinum, tobacco and gold, which are Zimbabwe’s main exports, have been on the rise. Weather has been good in the past two years. But the point is that Zimbabwe was able to make good use of these conditions. There was a supply response to high prices in agriculture and mining, and manufacturing showed signs of life. And importantly, some key economic institutions such as the revenue agency performed. These are the good economic genes.

The revival of agriculture goes against commonly held wisdom. Redistribution of erstwhile large commercial farms to indigenous Zimbabweans has been largely achieved. There is a widespread concern about disputed titles and insecure tenure. Yet smallholder agriculture appears to be moving.

The number of smallholder farmers in tobacco has increased sharply. Output of tobacco, maize, and cotton is recovering. The yields are nowhere near their previous levels. But then Zimbabwean agriculture has undergone a huge structural change and some yield losses, particularly those due to the reduction in average farm size, could be permanent. The ability of farmers to respond to price incentives is a strong signal that policy distortions in the sector are minimal and markets are functioning well. In the long run structural constraints could bind however.

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How agriculture supports structural transformation?

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“After 20 years of neglect by international donors, agriculture is now again in the headlines because higher food prices are increasing food insecurity and poverty. In the coming years it will be essential to increase food productivity and production in developing countries, especially in Sub-Saharan Africa and with smallholders. This however requires finding viable solutions to a number of complex technical, institutional and policy issues including land markets, research on seeds and inputs; agricultural extension; credit; rural infrastructure; storage; connection to markets; rural nonfarm employment and food price stabilization. This paper reviews what the economic literature has to say on these topics. It discusses in turn the role played by agriculture in the development process and the interactions between agriculture and other economic sectors; the determinants of the Green Revolution and discuss the foundations of agricultural growth; issues of income diversification by farmers; approaches to rural development; and finally issues of international trade policy and food security which are at the root of the crisis in agricultural commodity volatility in the past few years.”

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Read the full paper by Dethier and Effenberger (2011). Structural transformation is usually thought of as moving labor and production from agriculture to industrial sector. Development of agriculture sector would facilitate structural transformation. But, development of agriculture itself plays a vital role in bringing about structural transformation. They key is to raise productivity by using a range of factors, such as new technologies, farm size and access to land. The most difficult are institutional challenges related to market failures, missing markets and property rights. They argue that because agriculture links to small cities and rural areas, it can also be an engine of growth and provide employment opportunities for the rural non-farm economy.

Food price inflation fueling a sense of injustice

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But for all the noisy media coverage and declarations by senior policymakers, few people have remarked on the actual motives of those who, in 2008, destroyed property in Argentina, Egypt, India, Indonesia, and Peru and brought down Haiti's government and are currently causing havoc in Tunisia and across the Middle East. After all, food riots have occurred throughout history but have not usually correlated with hunger or food prices. For the most part, the planet's 700 million-900 million hungry people have suffered in silence. And price volatility does not necessarily lead to screaming crowds, either. There are many more examples of people accepting volatile prices than rioting over them. So there is more to the protests than the logic of the pocketbook. A key psychological element -- a sense of injustice that arises between seeing food prices rise and pouring a Molotov cocktail -- is missing.

It is not yet clear how big a role food riots played in the toppling of the Tunisian government. But if history is any guide, Tunisians' feelings of being cheated were more important than actual food prices. Take Cameroon's experience in 2008, for example. That year, this West African nation suffered one of the most serious and protracted food riots in the world, and scores were left dead after the crowds eventually dispersed. Remembering the crisis, Alexander Legwegoh, a Cameroonian academic and an expert on urban poverty and food security, and Bernard Motuba, an accountant who left Cameroon for Canada, said that it was not just bills that caused the violence: expensive fuel drove taxi drivers to strike and then, anger over merchants' profiteering on staple products broadened the protest. "The government knew a group of merchants was taking advantage of everyone and that this would grow to a political crisis." Yet, according to Legwegoh and Motuba, as the protesters' numbers swelled, the size of loaves of bread for sale in the markets shrank while their price tags remained the same.

The real culprits, then, were retailers who stockpiled grain in hopes that prices would continue to go up. This speculation spun Cameroon's food system further out of control and bred hatred. Motuba describes the food merchants as "cutthroat business guys who don't give a damn about people." When the government sent inspectors to grocery stores and warehouses to auction off any illicit surpluses, the public cheered. Prices had not returned to their earlier levels, but a seeming restoration of justice helped calm the rioters' tempers, whose fury, according to Motuba and Legwegoh, had been rooted more in a feeling of exploitation than a fear of starvation.

[…]Policymakers today must be mindful of the psychological causes of food riots when they discuss the correct mix of trade and protectionism that will safeguard our food security. If they simply embrace the efficiency of the market, public feelings of injustice may cause more trouble than the volatile price of food itself.

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More by Evan Fraser and Andrew Rimas in Foreign Affairs magazine here.

Chinua Achebe on Africa’s hope

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AFRICA has endured a tortured history of political instability and religious, racial and ethnic strife. In order to understand this bewildering, beautiful continent — and to grasp the complexity that is my home country, Nigeria, Africa’s most populous nation — I think it is absolutely important that we examine the story of African people.

In my mind, there are two parts to the story of the African peoples ... the rain beating us obviously goes back at least half a millennium. And what is happening in Africa today is a result of what has been going on for 400 or 500 years, from the “discovery” of Africa by Europe, through the period of darkness that engulfed the continent during the trans-Atlantic slave trade and through the Berlin Conference of 1885. That controversial gathering of the leading European powers, which precipitated the “scramble for Africa,” we all know took place without African consultation or representation. It created new boundaries in ancient kingdoms, and nation-states resulting in disjointed, inexplicable, tension-prone countries today.

During the colonial period, struggles were fought, exhaustingly, on so many fronts — for equality, for justice, for freedom — by politicians, intellectuals and common folk alike. At the end of the day, when the liberty was won, we found that we had not sufficiently reckoned with one incredibly important fact: If you take someone who has not really been in charge of himself for 300 years and tell him, “O.K., you are now free,” he will not know where to begin.

This is how I see the chaos in Africa today and the absence of logic in what we’re doing. Africa’s postcolonial disposition is the result of a people who have lost the habit of ruling themselves, forgotten their traditional way of thinking, embracing and engaging the world without sufficient preparation. We have also had difficulty running the systems foisted upon us at the dawn of independence by our colonial masters. We are like the man in the Igbo proverb who does not know where the rain began to beat him and so cannot say where he dried his body.

People don’t like this particular analysis, because it looks as if we want to place the blame on someone else. Let me be clear, because I have inadvertently developed a reputation (some of my friends say one I relish) as a provocateur: because the West has had a long but uneven engagement with Africa, it is imperative that it also play an important role in forging solutions to Africa’s myriad problems. This will require good will and concerted effort on the part of all those who share the weight of Africa’s historical albatross.

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More by Chinua Achebe here. He is the author of an awesome book Things Fall Apart.

How developed countries can boost LDCs’ exports

Adapted from Katriin Elborgh-Woytek and Robert Gergory’s piece in the latest edition of IMF’s Finance & Development magazine.

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There are steps the poorest economies themselves could take to boost exports—such as reducing the often prevailing antitrade bias in their trade, tax, customs, and exchange rate regimes; issuing more transparent trade and customs regulations; and taking steps to improve such key service sectors as communications and transportation (see World Bank, 2010).

But the poorest exporting economies would benefit considerably if emerging as well as advanced economies gave them better opportunities for trade, which would improve their growth and productivity prospects (see Elborgh-Woytek, Gregory, and McDonald, 2010). There are a number of steps better-off countries could take to boost poor economies’ export potential. Some of them are well known to policymakers—in particular, concluding the current World Trade Organization (WTO) trade-negotiation talks, known as the Doha Round. Wide-ranging multilateral trade liberalization could spur growth and foster secure and open global trading. Poorer countries would gain from successful Doha Round conclusion through better access to advanced and emerging export markets.

Although broad-based multilateral trade liberalization is the ultimate policy target, there are less-obvious intermediate avenues—such as the extension and improvement of duty-free and quota-free (DFQF) trade preferences both by advanced and emerging economies—that could add nearly $10 billion a year to the coffers of poorer economies. These preference systems are designed to offset for the poorest countries some of the high trade barriers in sectors such as light manufacturing and agriculture—areas in which LDCs are likely to export.

There are three main avenues for the more advanced and emerging economies to help integrate LDCs into the global economy:

• Remove all tariffs and quotas on products from LDCs.
• Make the rules that determine whether a product is deemed to originate from an LDC more flexible and consistent—including relaxing so-called cumulation rules, which govern the extent to which inputs from other countries affect compliance with rule-of-origin requirements for LDC exporters.
• Tilt preference benefits more specifically toward poorer economies.

If all exports from developing countries were exempt from tariffs and quotas, LDC exports to both advanced and emerging markets would grow significantly—on the order of $10 billion a year, or about 2 percent of their combined GDP (Laborde, 2008; and Bouët and others, 2010). Broadening the coverage of preferences by major advanced markets could generate increased exports from LDCs of about $2.2 billion a year, or about 6 percent of net official development assistance from industrial countries to LDCs. The potential increase is even larger for exports to emerging markets—about $7 billion a year in additional exports (Bouët and others, 2010). Although the positive impact on LDCs would be sizable, the negative effect on advanced and emerging economies would be tiny because of the low level of LDC exports.

Second, if better-off economies were to make rules of origin more flexible, LDCs would benefit too. Rules of origin determine whether a good “originates” in a country that benefits from a preference system. The rules specify the minimum amount of economic activity that must be undertaken in the country benefiting from the preference and whether inputs from other countries count toward this minimum. Rules of origin differ widely across countries’ preference programs. They are frequently based on the amount of value added in the preference-eligible country or on the transformation a good undergoes in that country (measured by a change in tariff classification). These rules strongly influence where an LDC buys its inputs, which affects the overall economic consequences of a preference program.

To qualify for a preference program, LDC exporters must often limit input sourcing to suppliers in their own country or those from the country granting the preference—even if it would be cheaper to buy inputs elsewhere. This can be difficult for less-diversified LDCs, which depend on intermediate goods, processes, or patents from other countries. Rules of origin can also be a source of distortion, if exporters turn to less-efficient, more costly input sources to qualify for preferences. Moreover, the administrative burden of meeting complex rules of origin can be substantial, costing as much as 3 percent of export value (Hoekman and Özden, 2005). As a result, perhaps a quarter to a third of eligible imports do not gain preference, and some trade that might have benefited from better-designed preferences is likely never undertaken.

More liberal rules of origin allow producers to source inputs flexibly. Such rules implicitly acknowledge LDCs’ low capital intensity and lack of horizontal or vertical integration. Under China’s preference program, for example, origin (and thus preference benefits) can be conferred on a product based either on a minimum local value-added threshold or a change in tariff classification—implicit acknowledgment that the product is different and the LDC has added value. India’s low 30 percent value-added threshold gives potential LDC exporters flexibility in sourcing their inputs.

Moreover, better-off countries could make it even easier to stimulate trade among LDCs if their rules of origin specifically allowed preference-eligible countries to buy inputs from other preference-eligible countries. If these so-called cumulation provisions allowed inputs from two or more countries to be counted together, it would make it easier for the preference-eligible country to meet the minimum requirements under the rules of origin. In contrast, narrow or restrictive cumulation provisions rules do not allow the use of inputs from other countries, often fragmenting established cross-border production relationships. Cumulation provisions therefore determine how easily preference beneficiaries can trade among themselves, using intermediate goods or processes that originate in other countries.

Permitting wider cumulation would assuredly mean that LDCs could meet the rules of origin more easily and at lower cost and would also encourage south-south trade. Allowing the poorest countries to source inputs from all LDCs and other developing countries while remaining eligible for preferences would provide the added flexibility needed for effective use of preference programs.

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African Exports Successes

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We establish the following stylized facts: (1) Exports are characterized by Big Hits, (2) the Big Hits change from one period to the next, and (3) these changes are not explained by global factors like global commodity prices. These conclusions are robust to excluding extractable products (oil and minerals) and other commodities. Moreover, African Big Hits exhibit similar patterns as Big Hits in non-African countries. We also discuss some concerns about data quality. These stylized facts are inconsistent with the traditional view that sees African exports as a passive commodity endowment, where changes are driven mostly by global commodity prices. In order to better understand the determinants of export success in Africa we interviewed several exporting entrepreneurs, government officials and NGOs. Some of the determinants that we document are conventional: moving up the quality ladder, utilizing strong comparative advantage, trade liberalization, investment in technological upgrades, foreign ownership, ethnic networks, and personal foreign experience of the entrepreneur. Other successes are triggered by idiosyncratic factors like entrepreneurial persistence, luck, and cost shocks, and some of the successes occur in areas that usually fail.

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Full paper by Easterly and Reshef here.

AGOA, exports and value-addition

Lawrence Edward and Robert Z Lawrence argue that while AGOA helped Africa LDCs cope with the shock of the end of MFA and compete with strong performers like China, it also discouraged additional value-addition in assembly and stimulated the use of expensive fabrics that were unlikely to be produced locally. Meanwhile, China moved up the value chain and produced competitive goods.

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Lesotho and other least developed African countries responded impressively to the preferences they were granted under the African Growth and Opportunities Act with a rapid increase in their clothing exports to the US. But this performance has not been accompanied by some of the more dynamic growth benefits that might have been hoped for. In this study we develop the theory and present empirical evidence to demonstrate that these outcomes are the predictable consequences of the manner in which the specific preferences might be expected to work.

The MFA (Multi-fiber Arrangement) quotas on US imports of textiles created a favorable environment for low value-added, fabric-intensive clothing production in countries with unused quotas by inducing constrained countries to move into higher quality products. By allowing the least developed African countries to use third country fabrics in their clothing exports to the US, AGOA provided additional implicit effective subsidies to clothing that were multiples of the US tariffs on clothing imports. Taken together, these policies help account for the program’s success and demonstrate the importance of other rules of origin in preventing poor countries from taking advantage of other preference programs.

But the disappointments can also be attributed to the preferences because they discouraged additional value-addition in assembly and stimulated the use of expensive fabrics that were unlikely to be produced locally. When the MFA was removed, constrained countries such as China moved strongly into precisely the markets in which AGOA countries had specialized. Although AGOA helped the least developed countries withstand this shock, they were nonetheless adversely affected. Preference erosion due to MFN reductions in US clothing tariffs could similarly have particularly severe adverse effects on these countries.

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