Download Investing in Africa`s Growth, What Role for The Diaspora? by John

INVESTING IN AFRICA’S GROWTH
What Role for The Diaspora?
Cape Town, February 2008
John Page
Chief Economist, Africa Region
World Bank
1
Growing with the rest of the world
Something new on the horizon:
Africa is growing in tandem with the rest of the world
8
6
4
2
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
-2
1991
0
1990
Annual change in real GDP per
capita (%)
Per capita income
-4
Developing countries
Developing countries, excluding China and India
Sub-Saharan Africa
High-income countries
2
Growth with the rest of the world
Growing with the rest of the world
A group of diversified sustained growers has emerged,
but economic performance varied substantially
GDP growth (%) - 1996-2005
Slow-growth economies:
GDP growth less than 4 percent a
(36.7 percent of population)
Zambia
3.8
Guinea
3.7
Niger
3.5
Malawi
3.3
Mauritania
3.3
Togo
3.3
Madagascar
3.2
Lesotho
3
Kenya
2.9
Eritrea
2.41
Seychelles
2.3
Comoros
2.13
Central African Republic
0.85
Guinea-Bissau
0.47
Burundi
0.43
Congo, Dem. Rep.
0.08
Zimbabwe
–2.20
Diversified, sustained-growth
GDP growth 4 percent a a year or
(35.6 percent of population)
Mozambique
8.3
Rwanda
7.6
São Tomé and Principe
7.1
Botswana
6.7
Uganda
6.1
Cape Verde
5.8
Mali
5.8
Tanzania
5.3
Ethiopia
5.2
Sierra Leone
5.2
Burkina Faso
5
Mauritius
4.8
Ghana
4.7
Benin
4.6
Senegal
4.5
Cameroon
4.2
Gambia, The
4.2
Namibia
4
Oil exporters
(27.7 percent of population)
Equatorial Guinea
30.8
Chad
9
Angola
8.5
Sudan
6.3
Nigeria
4.3
Congo, Rep.
3.4
Gabon
1.1
3
Growth with the rest of the world
A long term perspective
Growth has been low…
PPP GDP per capita growth (percent)
8
6
4
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
-2
1982
Trend
1980
0
1978
Actual
1976
2
-4
-6
4
Growth with the rest of the world
A long term perspective
…volatility is far higher than
in any other region
GDP per capita growth - means, standard deviation and coefficient
of variation by region (weighted data)
8
6
4
2
0
-2
-4
Mean
Sub-Saharan East Asia &
Africa
Pacific
Latin
America &
Caribbean
Low & middle South Asia
income
Middle East
& North
Africa
SD
CV
-6
-8
-10
-12
5
Growth with the rest of the world
Good times and bad
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
6
Growth with the rest of the world
Good times and bad
South Africa
South Africa GDP per capita growth (percent)
5
4
Growth acceleration
(1999-2005)
3
2
1
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
-1
1975
0
-2
-3
-4
-5
Growth deceleration
(1982-87)
Growth deceleration
(1989-94)
7
Growth with the rest of the world
Good times and bad
The frequency of good and bad times shifted over time
GDP
Period
1975-2005
1975-1984
1985-1994
1995-2005
GDP
growth
0.70
0.13
-0.23
1.88
Growth acceleration Growth deceleration
Frequency
Frequency
(country- Growth (country- Growth
years)
rate
years)
rate
0.25
3.64
0.22
-2.74
0.04
4.61
0.18
-3.06
0.21
3.21
0.36
-3.18
0.42
3.76
0.12
-1.29
8
Growth with the rest of the world
Good times and bad
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 ($)
3,600
3,400
3,200
3,000
2,800
2,600
2,400
2,200
20
05
20
03
20
01
19
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
19
79
19
77
19
75
2,000
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)
9
Growth with the rest of the world
Spreading and sustaining growth
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
10
Growth with the rest of the world
SUSTAINING GOOD TIMES: CREATING
COMPETITIVE FIRMS
Four common themes to achieve a better
investment climate and higher productivity:
Global Competitiveness Rank & Productivity
- Good Policies
- Reliable Infrastructure
- Good Institutions
Share productive firms, size 11-150
- Access to Finance
100%
ZAF
80%
NAM
MUS
60%
CMR
MDG
BWA
MAR
KEN
DZA
40%
TZA
ZMB
MRT
MWI
BEN
UGA
20%
AGO
BDI
EGY
ETH
GMB
0%
40
50
60
70
80
90
100
110
120
130
Global Competitiveness Index Rank
11
Growth with the rest of the world
Spreading and sustaining growth
Average ease of doing business rank
Region
East Asia & Pacific
Europe & Central Asia
Latin America & the Caribbean
Middle East & North Africa
South Asia
Sub-Saharan Africa
2006
76
77
87
96
107
136
12
Growth with the rest of the world
Infrastructure Is A Major Bottleneck
Many firms complain
about reliability of
electricity
Unreliable infrastructure
services affects all
firms…
Percentage of firms
identifying Electricity as a
major constraint
Perception of electricity by
size of firms
30%
20%
10%
0%
Ovrall
Low income
Upper middle
15%
10%
5%
0%
Very Large
40%
Large
50%
20%
Medium
60%
25%
Small
Relative to micro firms, % reporting
constraint as major
70%
13
Growth with the rest of the world
Infrastructure Is A Major Bottleneck
(cont’d)
Losses due to unreliable
infrastructure services
could be substantial
Better infrastructure is associated
with an increase in productivity
and employment
Percentage of sales lost due
to weak infrastructure
Impact of better infrastructure
on productivity and
employment
9%
8%
8%
7%
7%
6%
6%
5%
4%
5%
3%
4%
2%
3%
1%
2%
0%
1%
Pow er outages
Transportation
delays
0%
TFP
Em ploym ent
Landlocked countries are most affected by weak infrastructure, which
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further lowers productivity by 10%
Growth with the rest of the world
Geology
Geography
Regulatory
Environment
Free
Not Free
Good
Poor
Coastal access
Land-locked
Weaker
Resource-rich
Stronger
Resource-poor
Investment Climate Composite Measure
Good policies are more important to
achieve a better Investment Climate than
Geography or Geology.
Economic
Freedom
15
Growth with the rest of the world
Access to Finance Remains
a Critical Constraint in Africa
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
Access to finance as a constraint
Relative to micro-firms, share of firms that
report constraint as major
60%
50%
40%
30%
20%
10%
Small
Medium
Large
Very Large
0%
-20%
-40%
-60%
0%
Ovrall
Low income
Upper middle
16
Growth with the rest of the world
Corruption and
regulations have
an impact on
productivity
Impact on employment growth of 10%
improvement in objective measures of
constraint
African Institutions Need to be Business
Friendly to Foster Competitiveness
Impact of corruption and
regulations on productivity
2%
0%
Corruption regulations
17
Growth with the rest of the world
Spreading and sustaining growth
Indirect costs are much higher, and net productivity is
much lower than factory floor productivity due to high
costs of doing business
Total factor productivity (China=1)
Mozambique
Eritrea
Kenya
Tanzania
Zambia
Uganda
Bolivia
Nigeria
Ethiopia
China
Nicaragua
Morocco
India
Senegal
Bangladesh
1.20
1.00
0.80
0.60
0.40
0.20
10
20
30
40
50
60
70
Share of total costs (%)
80
90
100
Zi
0
mb
ia
M Eritr
oz
am ea
biq
ue
Et
hio
pia
Ni
ge
r ia
Bo
liv
i
Ug a
an
da
Ke
ny
a
Ta
nz
an
ia
Ni
ca
r
Ba agu
a
ng
l ad
es
h
Se
ne
ga
l
M
oro
cc
o
In
dia
Ch
ina
0.00
Gross
Materials
Labor
Capital
Net
Indirect
18
Growth with the rest of the world
Growing with the rest of the world
Exports are important, but are growing slowly…
Average annual growth in exports (%)
50
45
40
1983-85
1993-95
2003-05
35
30
25
20
15
10
5
0
East Asia and Eastern Europe Latin America
Pacific
and Formal
& Caribbean
Soviet Union
M iddle East
and North
Africa
South Asia
Sub-Saharan
Africa
Average annual growth in exports (percent)
Nonoil exports as share of GDP (percent)
Nonoil exports as share of GDP (%)
Africa average
Africa top performers
Asia top performers
China
30
25
20
15
10
5
0
1960s
1970s
1980s
1990s
2000-05
19
Growth with the rest of the world
Growing with the rest of the world
…and export diversification is very low
90
180
80
160
70
140
60
120
50
100
40
80
30
60
20
40
10
20
0
0
Europe and Central East Asia- Pacific
Asia
Export Concentration Index (0-100)
left axis
South Asia
Latin America and
Caribbean
Share of Top 5 Products in Total Exports (%)
left axis
Middle East and Sub Saharian Africa
North Africa
No. of Exported Product Categories
right axis
20
Growth with the rest of the world
Spreading and sustaining growth
Exports have declined in importance for Africa's top
performers
70
Exports as a share of GDP (%)
Africa average
Africa top performers
Asia top performers
China
60
50
40
30
20
10
0
1960s
1970s
1980s
1990s
2000-05
21
Growth 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
22
Growth with the rest of the world
Substantial funds held offshore
 Africa has the highest share of offshore deposits
Regional Distributions
1. High Income
2. East Asia & Pacific
3. Europe & Central Asia
4. Latin America & Caribbean
5. Middle East & North Africa
6. South Asia
7. Sub-Saharan Africa
0.00
0.50
1.00
Offshore Deposits / Bank Deposits
1.50
Sample size: 90 countries
Time period: 2005
Source: Financial Structure Database, 2006; BIS, 2006
23
Growth 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)
Remittance flows to Africa, 2006 (in US$ bln)
16
14.9
14
12
9.6
10
8
6
5.1
4
2.8
1.7
2
0
North Africa
Sub-Saharan
Africa
West Africa
East Africa
Southern Africa
24
Growth with the rest of the world
How do we get the money where it
should go?
 International remittance transfers are costly, often more
then 15%: Increased transparency & competition will
reduce costs (= more funds available)
 In-country transfers are often inefficient
Local Money Transfer in Kenya
Sent with family/friend
2%
3%
Through bus or matatu
8%
Using money transfer services
42%
18%
Post Office money order
Directly into bank account
By cheque
7%
20%
Finscope Kenya Survey, 2007
Paid into someone else's account,
who then passed it on
25
Growth 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
26
Growth 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 reinvested
• Increasing presence of mainstream investment funds /
direct investments by Diaspora (Nigerian banks, Ghana
Eurobond, Kenyan KenGen IPO) are more efficient
vehicles
27
Growth 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
28
Growth with the rest of the world