1 John Page Chief Economist, Africa Region World Bank INVESTING IN AFRICAS GROWTH What Role for The Diaspora? Cape Town, February 2008.

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


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)



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


…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


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


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


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


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


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


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


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



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


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


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


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


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


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



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



…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



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



AFRICA’S DISAPORA AND THE INVESTMENT CLIMATE

LOBYING FOR BETTER POLICIES

REMITTANCES AND INVESTMENTS AS A SOURCE OF FINANCE

CREATING A BRAIN BANK


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


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)


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


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


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


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

1 John Page Chief Economist, Africa Region World Bank INVESTING IN AFRICAS GROWTH What Role for The Diaspora? Cape Town, February 2008.

Documents

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sustaining growth slide

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growth collapses

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