1 John Page Chief Economist, Africa Region World Bank INVESTING IN AFRICAS GROWTH What Role for The...
Transcript of 1 John Page Chief Economist, Africa Region World Bank INVESTING IN AFRICAS GROWTH What Role for The...
1
John PageChief Economist, Africa RegionWorld Bank
INVESTING IN AFRICA’S GROWTH
What Role for The Diaspora?
Cape Town, February 2008
2Growth with the rest of the world
Something new on the horizon: Africa is growing in tandem with the rest of the world
Per capita income
-4
-2
0
2
4
6
8
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
An
nu
al c
ha
ng
e in
re
al G
DP
pe
r c
ap
ita
(%
)
Developing countries Developing countries, excluding China and India
Sub-Saharan Africa High-income countries
Growing with the rest of the world
3Growth with the rest of the world
A group of diversified sustained growers has emerged, but economic performance varied substantially
Zambia 3.8 Mozambique 8.3 Equatorial Guinea 30.8Guinea 3.7 Rwanda 7.6 Chad 9Niger 3.5 São Tomé and Principe 7.1 Angola 8.5Malawi 3.3 Botswana 6.7 Sudan 6.3Mauritania 3.3 Uganda 6.1 Nigeria 4.3Togo 3.3 Cape Verde 5.8 Congo, Rep. 3.4Madagascar 3.2 Mali 5.8 Gabon 1.1Lesotho 3 Tanzania 5.3Kenya 2.9 Ethiopia 5.2Eritrea 2.41 Sierra Leone 5.2Seychelles 2.3 Burkina Faso 5Comoros 2.13 Mauritius 4.8Central African Republic 0.85 Ghana 4.7Guinea-Bissau 0.47 Benin 4.6Burundi 0.43 Senegal 4.5Congo, Dem. Rep. 0.08 Cameroon 4.2Zimbabwe –2.20 Gambia, The 4.2
Namibia 4
GDP growth (%) - 1996-2005
(27.7 percent of population)Oil exporters
Slow-growth economies:GDP growth less than 4 percent a
(36.7 percent of population)
Diversified, sustained-growth GDP growth 4 percent a a year or
(35.6 percent of population)
Growing with the rest of the world
4Growth with the rest of the world
Growth has been low…
PPP GDP per capita growth (percent)
-6
-4
-2
0
2
4
6
8
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
Actual
Trend
A long term perspective
5Growth with the rest of the world
…volatility is far higher than in any other region
GDP per capita growth - means, standard deviation and coefficient of variation by region (weighted data)
-12
-10
-8
-6
-4
-2
0
2
4
6
8
Sub-SaharanAfrica
East Asia &Pacific
LatinAmerica &Caribbean
Low & middleincome
South Asia Middle East& NorthAfrica
Mean
SD
CV
A long term perspective
6Growth with the rest of the world
A lot happened in the short and medium term
• Several episodes of growth acceleration
• But accelerations were usually followed by growth collapses
• Thus, the very slow long run growth
Good times and bad
7Growth with the rest of the world
South Africa
South Africa GDP per capita growth (percent)
Growth acceleration(1999-2005)
Growth deceleration(1989-94)
Growth deceleration(1982-87)
-5
-4
-3
-2
-1
0
1
2
3
4
5
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
Good times and bad
8Growth with the rest of the world
The frequency of good and bad times shifted over time
GDP
PeriodGDP
growth
Frequency (country-
years)Growth
rate
Frequency (country-
years)Growth
rate1975-2005 0.70 0.25 3.64 0.22 -2.741975-1984 0.13 0.04 4.61 0.18 -3.061985-1994 -0.23 0.21 3.21 0.36 -3.181995-2005 1.88 0.42 3.76 0.12 -1.29
Growth decelerationGrowth acceleration
Good times and bad
9Growth with the rest of the world
Had Africa avoided the bad times, it would have grown at 1.7% instead of 0.7%, and the GDP per capita would be
30% higher in 2005
Actual and simulated GDP per capita ($)
2,000
2,200
2,400
2,600
2,800
3,000
3,200
3,400
3,600
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
Actual GDP per capita
GDP per capita growth at the observed average (0.7 percent a year)
GDP per capita growth in the no-collapse scenario (1.7 percent a year)
Good times and bad
10Growth with the rest of the world
Avoiding bad times
• The good news: many of the factors that have contributed to growth collapses have improved– Better economic management– More competitive exchange rate– Better institutions– Better governance– Fewer conflicts
• But: The region remains vulnerable to outside shocks and changes in commodity prices
Spreading and sustaining growth
11Growth with the rest of the world
SUSTAINING GOOD TIMES: CREATING COMPETITIVE FIRMS
Four common themes to achieve a better investment climate and higher productivity:
- Good PoliciesGood Policies
- Access to FinanceAccess to Finance
- Reliable Reliable InfrastructureInfrastructure
- Good InstitutionsGood Institutions
Global Competitiveness Rank & Productivity
MRT
MDGZMB
TZA AGO
MWIBEN
UGABDI
ETH
KENDZA
CMR
GMB
MAR
BWAMUS
EGY
NAMZAF
0%
20%
40%
60%
80%
100%
40 50 60 70 80 90 100 110 120 130
Global Competitiveness Index Rank
Sha
re p
rodu
ctiv
e fir
ms,
siz
e 11
-150
12Growth with the rest of the world
Average ease of doing business rank
Region 2006East Asia & Pacific 76Europe & Central Asia 77Latin America & the Caribbean 87Middle East & North Africa 96South Asia 107Sub-Saharan Africa 136
Spreading and sustaining growth
13Growth with the rest of the world
Infrastructure Is A Major Bottleneck Many firms complain about
reliability of electricity
Percentage of firms identifying Electricity as a
major constraint
0%
10%
20%
30%
40%
50%
60%
70%
Ovrall Low income Upper middle
Unreliable infrastructure services affects all firms…
Perception of electricity by size of firms
Smal
l
Med
ium
Larg
e
Very
Lar
ge
0%
5%
10%
15%
20%
25%
Rel
ativ
e to
mic
ro f
irm
s, %
rep
ort
ing
co
nst
rain
t as
maj
or
14Growth with the rest of the world
Infrastructure Is A Major Bottleneck (cont’d)
Impact of better infrastructure on productivity and
employment
0%
1%
2%
3%
4%
5%
6%
7%
8%
TFP Employment
Better infrastructure is associated with an
increase in productivity and employment
Landlocked countries are most affected by weak infrastructure, which further lowers productivity by 10%
Losses due to unreliable infrastructure services could be substantial
Percentage of sales lost due to weak infrastructure
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Power outages Transportationdelays
15Growth with the rest of the world
Good policies are more important to achieve a better Investment Climate than Geography or Geology.
Res
ourc
e-po
or
Land
-lock
ed
Poo
r
Not
Fre
e
Res
ourc
e-ric
h
Coa
stal
acc
ess
Goo
d
Fre
e
Geology Geography RegulatoryEnvironment
EconomicFreedomIn
ve
stm
en
t C
lim
ate
Co
mp
os
ite
Me
as
ure
Stronger
Weaker
16Growth with the rest of the world
Access to Finance Remains a Critical Constraint in Africa
Access to finance as a constraint
0%
10%
20%
30%
40%
50%
60%
Ovrall Low income Upper middle
Half of all respondents report access to finance as the leading
constraint.
Access to finance as a constraint increases as firm size
decrease
Perception of Access to Finance as by Size of Firm
-60%
-40%
-20%
0%
Small Medium Large Very Large
Rela
tive to m
icro
-firm
s, share
of fir
ms that
report
constr
ain
t as m
ajo
r
17Growth with the rest of the world
African Institutions Need to be Business Friendly to Foster Competitiveness
Corruption and regulations have an impact on productivity
0%
2%
Corruption regulationsImpa
ct o
n em
ploy
men
t gro
wth
of 1
0%
impr
ovem
ent i
n ob
ject
ive
mea
sure
s of
co
nstra
int
Impact of corruption and regulations on productivity
18Growth with the rest of the world
Indirect costs are much higher, and net productivity is much lower than factory floor productivity due to high
costs of doing business
0 10 20 30 40 50 60 70 80 90 100
BangladeshSenegal
IndiaMorocco
NicaraguaChina
EthiopiaNigeriaBolivia
UgandaZambia
TanzaniaKenyaEritrea
Mozambique
Share of total costs (%)
Materials Labor Capital Indirect
Total factor productivity (China=1)
0.00
0.20
0.40
0.60
0.80
1.00
1.20
Gross Net
Spreading and sustaining growth
19Growth with the rest of the world
Exports are important, but are growing slowly…
Nonoil exports as share of GDP (%)
0
5
10
15
20
25
30
35
40
45
50
East Asia andPacific
Eastern Europeand Formal
Soviet Union
Latin America& Caribbean
Middle Eastand North
Africa
South Asia Sub-SaharanAfrica
Non
oil e
xpor
ts a
s sh
are
of G
DP
(p
erce
nt)
1983-85 1993-95 2003-05
Average annual growth in exports (%)
0
5
10
15
20
25
30
1960s 1970s 1980s 1990s 2000-05Ave
rage
ann
ual g
row
th in
exp
orts
(pe
rcen
t)
Africa average Africa top performers
Asia top performers China
Growing with the rest of the world
20Growth with the rest of the world
…and export diversification is very low
0
10
20
30
40
50
60
70
80
90
Europe and CentralAsia
East Asia- Pacific South Asia Latin America andCaribbean
Middle East andNorth Africa
Sub Saharian Africa
0
20
40
60
80
100
120
140
160
180
Export Concentration Index (0-100)left axis
Share of Top 5 Products in Total Exports (%) left axis
No. of Exported Product Categoriesright axis
Growing with the rest of the world
21Growth with the rest of the world
Exports have declined in importance for Africa's top performers
0
10
20
30
40
50
60
70
1960s 1970s 1980s 1990s 2000-05
Exp
orts
as
a sh
are
of G
DP
(%)
Africa average Africa top performers Asia top performers China
Spreading and sustaining growth
22Growth with the rest of the world
AFRICA’S DISAPORA AND THE INVESTMENT CLIMATE
LOBYING FOR BETTER POLICIES
REMITTANCES AND INVESTMENTS AS A SOURCE OF FINANCE
CREATING A BRAIN BANK
23Growth with the rest of the world
0.00 0.50 1.00 1.50Offshore Deposits / Bank Deposits
7. Sub-Saharan Africa
6. South Asia
5. Middle East & North Africa
4. Latin America & Caribbean
3. Europe & Central Asia
2. East Asia & Pacific
1. High Income
Sample size: 90 countriesTime period: 2005Source: Financial Structure Database, 2006; BIS, 2006
Regional Distributions
Substantial funds held offshore Africa has the highest share of offshore deposits
24Growth with the rest of the world
Remittances to SSA in 2006: US$ 9.6 billion
Already remittance flows to Africa are an important source of finance (but not for private sector investments)
14.9
9.6
5.1
2.8
1.7
0
2
4
6
8
10
12
14
16
North Africa Sub-SaharanAfrica
West Africa East Africa Southern Africa
Remittance flows to Africa, 2006 (in US$ bln)
25Growth with the rest of the world
How do we get the money where it should go?
Local Money Transfer in Kenya
42%
20%
7%
18%
8%
3%
2% Sent with family/friend
Through bus or matatu
Using money transfer services
Post Office money order
Directly into bank account
By cheque
Paid into someone else's account,who then passed it on
International remittance transfers are costly, often more then 15%: Increased transparency & competition will reduce costs (= more funds available)
In-country transfers are often inefficient
Finscope Kenya Survey, 2007
26Growth with the rest of the world
Leveraging Diaspora Funds
Broaden developmental impact of Diaspora remittances:
Move from a purely personal focus to the development concerns of communities in the regions of origin
Leverage funds from national and local governments interested in attracting inward Diaspora investments
Pool funds to achieve economies of scale, e.g. housing construction
Use remittances as an entry point to the financial system
27Growth with the rest of the world
Conventional instruments branded and marketed to the African Diaspora Sovereign Diaspora Bonds have been used
successfully by India and Israel• Very similar to Sovereign Eurobond issues, but can attract
better conditions (hence more development resources) as
Diaspora accepts “Diaspora discount” Private Investment Funds investing in Africa and
marketed to Diaspora• Often problematic as “Diaspora discount” is not re-invested• Increasing presence of mainstream investment funds /
direct investments by Diaspora (Nigerian banks, Ghana Eurobond, Kenyan KenGen IPO) are more efficient vehicles
28Growth with the rest of the world
Emerging ideas for instruments to leverage Diaspora funds
Linkage/Knowledge Transfer Funds• Co-financing and risk mitigation instruments for
greenfield investments by Diaspora members conditioned on operational involvement (facilitate reverse” brain drain)
Remittances Matching Grants• Remittance transfers are matched by an additional
grant if they are used in a developmental way. • For example: An organization offers low cost
housing, including a simple progressive housing loan. If remittance is used for the down-payment for the mortgage it is matched by a matching grant