Shanta Devarajan, World Bankhttp://blogs.worldbank.org/africacan

Africa’s new era:Balancing market and government failures

Growth performance•Thanks to continued, prudent economic policies, rapid rebound from the crisis

Equatorial GuineaAngolaChadSudanNigeriaCameroonCongo RepGabon

LiberiaMozambiqueSierra LeoneRwandaSao Tome and Princ.EthiopiaTanzaniaCape VerdeMaliBurkina FasoBotswanaGhanaGambia, TheMauritiusNamibiaSenegalNigerBeninZambiaMadagascar

KenyaMalawiSouth AfricaGuineaLesothoSwazilandSeychellesBurundiCongo, Dem. Rep.ComorosCARTogoCote d’IvoireEritreaGuinea-BissauZimbabwe

0.0-5.0 5.0 10.0 15.0 20.0 25.0

Per

cent

age

of to

tal A

frica

n po

pula

tion

30%

40%

30%

Oil countries

Growth 4% or higher

Growth less than 4%

Average GDP growth rate 1998-2008

Progress in human development in Africa

Primary school enrollment ratesPopulation living under $1.25/day

Child mortality rates Maternal mortality ratio

Dynamic and transformative private sector

World Dev. Countries Africa

Per 1

00 in

habi

tant

s

Source: ITU World Telecommunication/ICT Indicators database

Private Capital Inflows(Billions of US Dollars)

Rwanda is top reformer of business regulations

Source: Doing Business 2010

Mobile cellular penetration

ICT Growth in Africa and the world, 2003-2008 CAGR (%)

Fixed Phone lines

Mobile cellular subscriptions

Internet users

Africa 2.4 47.0 30.6

World 2.5 23.0 17.0

1724

29 31 33 31 33 30 3227 28 31 33

13 137 6 6 7 6 5 4 2 3 2 2

0

20

40

60

80

100

120

140

Aver

age

Infla

tion

Rat

e %

0

5

10

15

20

25

30

35

40

45

Num

ber o

f Cou

ntrie

s Inflation>20%

10%<inflation<=20%

Inflation<=10%

Median inflation rate

Macroeconomic policies have improvedInflation in Africa

Average oil Average non- oil All countries

Economic policy improvements

Pr

However, private investment in Sub-Saharan Africa is lagging

0.0

5.0

10.0

15.0

20.0

25.0

30.0

South Asia LatinAmerica &Caribbean

Europe &Central Asia

Middle East& NorthAfrica

Sub-Saharan

Africa

Priv

ate

inve

stm

ent a

s %

of G

DP

1995-2004 2005 2006 2007

Private Investment as % of GDP

Source: World Bank WDI Database

Normalized units

Sub Saharan Africa-Low Income Countries

Other Low Income Countries

Paved Road Density 31 134 Total road density 137 211 Main line density 10 78 Mobile density 55 76 Internet density 2 3 Generation Density 37 326 Electricity Coverage 16 41 Improved water 60 72 Improved sanitation 34 51

InfrastructureAfrica’s Infrastructure Gap

• Infrastructure• Education• Health

Government failures

PrInfrastructure

Transport in Africa

Selected corridors of the study

11

23.5 4

5 5 57

8

11

02468

101214

Pakis

tan

Braz

il

USA

China

Wes

tern

Euro

pe –

long

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Afric

a-Du

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-Lu

saka

Afric

a- Lo

mé -

Ouag

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Afric

a –Mo

mbas

aKa

mpala

Afric

a-Do

uala-

Ndjam

éna

Avera

ge tr

ansp

ort pr

ices

(in U

S ce

nts pe

r tkm

)

Central Africa

East Africa

West Africa

Southern Africa

France

Variable costs (USD per veh-km) 1.31 0.98 1.67 1.54 0.72

Fixed costs (USD per veh-km) 0.57 0.35 0.62 0.34 0.87

Total transport costs (USD per veh-km) 1.88 1.33 2.29 1.88 1.59

Average Transport Prices(in US cents per tkm)

Corridor Gateway - Destination Price(USD/ veh-km)

Variable cost

(USD/veh- km)

Fixed cost(USD/veh- km)

Average yearly

mileage (‘000)

Profit margin

(%)

West Africa

Tema/Accra - Ouagadougou 3.53 1.54 0.66 30-40 80%

Tema/Accra - Bamako 3.93 1.67 0.62 40-50 80%

Central Africa

Douala - N’Djaména 3.19 1.31 0.57 60-70 73%

Douala - Bangui 3.78 1.21 1.08 50-60 83%

Ngaoundéré - N’Djaména 5.37 1.83 0.73 20-30 118%

Ngaoundéré - Moundou 9.71 2.49 1.55 10-20 163%

East Africa

Mombasa - Kampala 2.22 0.98 0.35 130-140 86%

Mombasa - Nairobi 2.26 0.83 0.53 90-100 66%

Southern Africa

Lusaka - Johannesburg 2.32 1.54 0.34 160-170 18%

Lusaka - Dar-es-Salaam 2.55 1.34 0.44 160-170 62%

An interesting observation: On Central Africa corridor, trucks with lower average yearly mileage

have the higher profit margins

Profit margins

Average transport prices (constant and current) from Mombasa to Kigali

0

50

100

150

200

250

300

35019

89

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Years

US$

/Ton

0

100

200

300

400

500

600

700

800

900

US$/Ton

Current transport tariffs (left) Real transport tariffs - GDP deflator (right)

After liberalizationBefore liberalization

Example of the impact of market deregulation:The case of Rwanda

• Infrastructure• Education• Health

Government failures

Pr

InfrastructureTransport in Africa

Education

• Read in Kiswahili at 2nd grade level: 20%• Do a 2nd grade multiplication problem: 30%• Read English: 50%

Percentage of 7th grade students in Tanzania who CANNOT

Absence rate among teachers

Country Rate (percent)

Bangladesh 15

Ecuador 14

India 25

Indonesia 19

Papua New Guinea

15

Peru 11

Zambia 17

Uganda 27

17

In class, teaching, 18.2%

Out of class, break, 17.6%

Out of class, in school, 34.2%

Can't find teacher, 19.2%

Administrative work, 8.1%

With surveyor, 0.2%

In class, not teacher, 2.4%

Uganda: What enumerators found

• Infrastructure• Education• Health

Government failures

Pr

InfrastructureTransport in Africa

EducationHealth

Country (year) % of cash/in-kindresources leaked

Resource Category

Kenya (2004) 38 Non-salary budget

Tanzania (1991) 41 Non-salary budget

Uganda (2000) 70 Drugs and supplies

Ghana (2000) 80 Non-salary budget

Chad (2004) 99 Non-salary budget

Source: Gauthier (2006)

Leakage of resources in health

• Infrastructure• Education• Health

What can be done?

PrResponse to global

economic crisis

Policy Response

LEGEND

Fiscal Tightening - ET, GH, RW

Full adjustment - GN

Partial Adjustment – MZ, SD, UG

No Adjustment – SN, BF

Stimulus – KE, NG, TZ, ZM

Based on comparing 2009 fiscal stance projected in July 2008 with projection of July 2009

Revenue, Expenditure and Deficit (relative to earlier projections)

Source: Krumm, Dhar and Choi, “Fiscal Response to the Global Crisis inLow Income African Countries”, August 2009

Fiscal Stance County

Debt Distress Risk

Fiscal Projection ChangesCountry

Debt Distress Risk

Fiscal Projection Changes

Revenue Expenditure Balance(Ex. Grant)

Balance(In. Grant) Revenue Expenditure Balance

(Ex. Grant)Balance

(In. Grant)

Fiscal Tightening

Ethiopia Moderate Ghana Moderate

Rwanda Moderate

Partial Adjustment

Mozambi-que Low Uganda Low

No Adjustment Senegal Low Burkina

Faso High

Stimulus

Zambia Low Kenya Low

Tanzania Low

-0.5

-4.1

3.6

2.3

-10

0

10

0.31.1

-0.8

1.3

-1.0

0.5

-1.3

1.9 2.0

-3.0

2.0

-0.5

-0.1

-0.5

-0.3-0.5

-2.8 -3.1 0.2

-0.2

-4.0

-2.0

0.0

2.0

-1.5

0.4

-2 -1.9

-4.5

0.5

-0.8

0.0

-1.0

0.4

-2.0

0.0

2.0

-1.00.8

-1.7-0.9

-4.0

1.0

0.11.8

-1.6 -1.6

-5.0

0.0

5.0

-0.20.9

-1.1 -1.4

-1.5

Domestic financing dominated

-5

-3

-1

1

3

5

7

Ghana Ethiopia Uganda Sudan Mozambique Senegal Tanzania Zambia Kenya Nigeria

Domestic Financing

Foreign Financing

Total

Fiscal TighteningPartial Adjustment No Adjustment

Stumulus16.6

Source: Krumm, Dhar and Choi, “Fiscal Response to the Global Crisis in Low Income African Countries”, August 2009

• Infrastructure• Education• Health

What can be done?

PrIncentives for service

providers

Indicators DHS-2005 DHS-2008

Contraception (modern) 10% 27%

Delivery in Health Centers 39% 52%

Infant Mortality rate 86 per 1000 62 per 1000

Under-Five Mortality rate 152 per 1000 103 per 1000

Anemia Prevalence : Children 56% 48%

Vaccination : All 75% 80.4%

Vaccination : Measles 86% 90%

Use of Insecticide treated nets among children less than 5

4% 67%

Fertility 6.1 children 5.5 children

Rwanda 2005-2008

36.3

49.7

34.9

55.6

30.0

40.0

50.0

60.0

Baseline (2006) Follow up (2008)

Prop

ortio

n of

of i

nstit

utio

nal

deliv

erie

s

Control facilities Treatment (PBF facilities)

7.3 % increasedue to PBF

Source: Basinga Paulin, Paul Gertler, Claude Sekabaraga, Louis Rusa, Jennifer Sturdy, Christel Vermeersch, Agnes Binagwaho, Agnes SoucattImpact Evaluation of Performance Based Financing in Rwanda. World Bank, 2009

26

Performance Based Financing leads to more assisted birth deliveries

Proportion of Institutional Deliveries

-0.10

0

-0.13

0.15

-0.15

-0.10

-0.05

0.00

0.05

0.10

0.15

0.20

Baseline (2006) Follow up (2008)

Stan

dar

diz

ed

Pre

nat

al e

ffo

rt s

core

Control facilities Treatment (PBF facilities)

15 % Standard deviation increase due to PBF

23Source: Basinga Paulin, Paul Gertler, Claude Sekabaraga, Louis Rusa, Jennifer Sturdy, Christel Vermeersch, Agnes Binagwaho, Agnes Soucat. Impact Evaluation of Performance Based Financing in Rwanda. World Bank, 2009 27

Performance Based Financing Improves quality (2006-2008)

Standardized Prenatal Effort Score

• Infrastructure• Education• Health

What can be done?

Pr

Incentives for service providers

Information

Primary Education in Uganda(PETS)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

1990 1991 1993 1994 1995

US$ per

Student

Intended Grant Amount Received by School (mean)

1999

Grants for primary education in Uganda

In 1995, survey of 250 primary schools in 19 of 39 districts;Survey repeated in 1998 and 2000.

Yes, Africa Can

Gorilla tourism in Rwanda

Mali’s mango exports

U.S. Imports of clothing and textiles from AGOA countries ($ million)

Lesotho’s apparel industry

Countries producing NERICA, 2005 Countries producing NERICA, 2006

The new rice for Africa (NERICA)