NS4053 Quality of Recent

Sub-Saharan Growth

Winter Term, 2014

Overview

• IMF, “The Quality of Recent High-Growth Episode in Sub-Saharan Africa,” February 2013

• Explores the quality of recent high growth episode in sub-Saharan Africa by asking:

• What has been the nature and pattern of SSA growth over the past 15 years and how does it compare with previous episodes?

• Has this growth had an impact on socially desirable outcomes – improvements in health, education and poverty indicators?

• To do this paper examines

• Various aspects of the fundamentals of growth in SSA – levels, volatility, sources, according to various country and analytical groupings

• Explores the extent to which the growth has been accompanied by improvements in social indicators.

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Country Classifications

• Oil exporting countries:

• Angola, Cameroon, Chad, Republic of Congo, Gabon and Nigeria

• Middle income countries:

• Botswana, Cape Verde, Lesotho, Mauritius, Namibia, Seychelles, South Africa and Swaziland

• Low income countries:

• Benin, Burkina Faso, Ethiopia, Ghana, Kenya, Madagascar, Malawi, Mali, Mozambique, Niger Rwanda Senegal, Tanzania, Uganda and Zambia

• Fragile countries:

• Burundi, CAR, Comoros, DRC, Ivory Coast, Eritrea, Gambia, Guinea, Guinea-Bissau, Liberia Sao tome, Sierra Leone, Togo, Zimbabwe

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Strength of Growth I• On average SSA countries have increased their average real GDP

and real GDP per capita growth since 1995• Pattern different depending on country and analytical groupings• Middle income countries’ average growth, although still strong,

declined somewhat during the period 1995-2008• Low-income countries registered a lackluster real GDP growth rate

from 1980 through 1994 with an average no higher than 2% per year

• Since 1995 growth has improved tremendously to nearly 6 percent per year on average

• This acceleration was also observed at per capita income levels

• Income per capita from 1980 through 1994 actually declined with a growth rate of about -1.0%.

• From 1995 through 2008 it increased to a more promising 2.7% per year

• Although fragile countries exhibit promising positive real GDP Growth rate since 1995, until 2004 their GDP per capita growth was negative.

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Strength of Growth II

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Volatility of Growth I

• There has been a general decline in volatility of growth during the high growth episode

• Volatility measured as the standard deviation of the real GDP growth rate over a 5-year period has been declining since 1995

• However still fairly high for fragile countries until 2004

• Middle income countries record a consistent reduction in volatility even before 1995

• Low income countries also exhibit a negative trend since 1990-94

• On average volatility remained unchanged until 1999

• However on average volatility in oil exporting countries declined approximately 50 percent in 2005-08 compared to the previous period.

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Volatility of Growth II

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Volatility of Growth III

Reasons for the decline in volatility

•Most of the fast growers have achieved

• Overall macroeconomic stability

• Stable and low inflation and debt sustainability

• Pursued sound economic policies and

• Promoted institutional reforms

•Aided by a favorable external environment these countries also built up their external reserves

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Total Factor Productivity I

• There has been a sharp turnaround in total factor productivity since the mid-1990s.

• Since 1995 all country groups have recorded TFP improvements, unlike the previous period

• The turn around in fragile countries is particularly remarkable given that they had negative TFP growth before 1995

• From 1980 through 1994 the average annual change in TFP was -0.5 percent

• However since 1995 there has been positive changes in TFP of about 1.3 percent yearly

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Total Factor Productivity II

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Total Factor Productivity III

• Reasons given for the improvement in TFP

• Reduction of the distortion of the foreign exchange market (black market premium)

• Structural changes (movement from agricultural to non-agricultural activity)

• Increasing exports

• Other reasons given – policies that involve

• Reducing population growth rate and debt

• Facilitating greater openness

• Sound macroeconomic fundamentals

• Achieving price stability and

• Creating financial deepening and greater private participation

• All linked to higher total factor productivity in SSA11

Sectoral Composition of Output I

• On average, in SSA the sectoral composition of growth since 1995 has become more broad-based

• Still significant heterogeneity across different country groups

• The IMF focuses on agriculture, industry and services share of total real GDP growth

• From the period 1980-84 agricultural sector was the main driver of growth on average for all countries in Africa

• Contributed about half of 2.2 percent of real GDP growth

• Relative importance of industry and services has grown since 1995

• On average from the total of the 5.1% real growth in real GDP in 2005-08 services and industry explain around 4.3%

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Sectoral Composition of Output II

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Sectoral Composition of Output III

Generalizations:

•The importance of agriculture to the growth of middle income counters has steadily declined over time

•The contribution of services is increasing for the low income countries

•Fragile countries were entirely dependent on agriculture for the period 2000-04, but since then have had a more balanced growth pattern

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Composition of Output: Demand I

Generalizations

•Since 1995 the relative importance of net exports has broadly increased

•Although oil exporting countries boomed around 1995 they did not exhibit export led growth until the next period 2000-04

• since the peak was mainly driven by gross investment (which has been declining since)

•The role of net exports has been particularly important in low income and fragile countries

•In fact low income countries’ growth in 1995-1999 driven almost exclusively by net exports

•Growth in middle income countries seems to be less export oriented than the other groups of countries. 15

Composition of Output: Demand II

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Composition of Output: Demand III

• Observations

• Outward oriented growth has

• Been accompanied by a decrease in the volatility for almost all groups of countries and

• A positive evolution of TFP

• The emergence of dynamic BRICs, notably China has had a favorable impact on export growth and FDI in SSA

• These patterns are consistent with the empirical literature that demonstrates outward orientation, especially if accompanied by a diversification of the export base reduces volatility and induces improvement in productivity

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Socially Desirable Outcomes I

• Has the improvement in growth been accompanied by improvement of social indicators?

• In principle, improvement of per capita growth should increase the resources for social spending and increase the incomes of the population.

• In practice, this may not happen for several reasons

• 1. While social spending may increase, the effectiveness may not be there due to institutional weakness

• 2. A number of social indicators such as life expectancy and infant mortality are “slow-moving” and are mainly driven by exogenous factors such as medical advances and external aid

• 3. Increases in per capita income may not necessarily translate into poverty reduction – may depend on income inequality and the source of the GDP growth

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Socially Desirable Outcomes II

Overview of main findings

•1. Improvements in real per capita income are associated with

• the reduction in infant mortality and

• school enrollment at the secondary level

• however the link between the increase in the average per capita income and primary school enrollment and life expectancy is more tenuous

•2. The evolution of social indicators in low income and fragile countries is more correlated with changes in real GDP per capita.

•3. The biggest improvements are the result of post-conflict recoveries and/or relatively strong political will and institutional reforms. 19

Socially Desirable Outcomes III

• Problems doing research on social outcomes

• The impact of growth on social indicators (except perhaps poverty) is likely to be considerably lagged

• improving educational attainment requires additional infrastructure and training of teachers

• need to investigate a longer horizon of time

• IMF averages the social indicators and growth rates over periods of 15 years (1980-94 and 1995-2008)

• Then analyze the relationship between the change in social indicators and the improved GDP per-capita over time

• Finally, they identify the high performers which are countries with increasing change of GDP per capita and improving social indicators. 20

Primary School Enrollment I

• Consistently, over time, indicators of school enrollment have positively improved in low-income and fragile countries

• Oil exporting and middle income countries have the highest level of school enrollment in the region

• However low income and fragile countries catching up very rapidly -- but from a very low level

• The first big improvement occurred during the period 1991-95 with an increase of the enrollment ratio of

• Over 110 percent for the low income countries

• 45% for fragile countries

• The second big expansion took place in the period 2001-05

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Primary School Enrollment II

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Secondary School Enrollment I

• Since 1980 secondary school enrollment has increased from about 16 percent to 40 percent on average for all SSA countries

• Still there are large inequalities

• Middle income countries have recorded the most significant increases

• Oil exporters have recorded almost no increases

• Progress has been more steady for low-income and fragile countries

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Secondary School Enrollment II

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Life Expectancy I• Life expectancy at birth in SSA has barely improved over

the past 50 years

• Largely due to HIV/AIDS especially in middle-income countries and prevalence of other diseases such as malaria and tuberculosis

• For some countries, life expectancy has even declined from 1980 until the end of the 1990s

• During the period from 1990-94 life expectancy in low income countries fell almost 5% in comparison to the previous period

• Middle income countries also recorded a 3% reduction during 1995-99 and even worse in 2000-04 when a drop of almost 6% was observed

• There has been a turnaround during 2000-04. During 2005-08 the average live expectancy in SSA increased about 3% with respect to the previous period, especially in the low income countries

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Life Expectancy II

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Infant Mortality Rates I

• Main Patterns

• Infant mortality has been decreasing on average since 1980 in all SSA countries

• The decline has been particularly remarkable in middle income countries

• Even low and fragile countries have shown improvement

• The improvement seems to have somewhat accelerated since 1995

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Infant Mortality Rates Ii

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Poverty Reduction I

• Readily available poverty indicators – people living on a dollar a day or less – generally have shown modest improvements over the past 15 years

• There seems to have been significant improvements in oil-exporting and middle income countries

• Progress seems apparently slow in low income and fragile countries

• Problem – official statistics often grossly underestimate the reduction in poverty

• Poor, infrequent, and inconsistent measurements

• With some advanced statistical methods picture is that

• Poverty falling much faster than commonly believed

• Inequality and welfare may also be improving much more rapidly than official estimates

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Poverty Reduction II

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Links: Growth and Social Indicators I

• Finally the IMF looks more formally at the extent to which growth dynamics in SSA have been correlated with improvement in social indicators

• To do this they compare correlations between changes in the level of a particular social indicator and GDP per capita growth

• Results show that for the most part little correlation between growth and social indicators

• Over the longer run the only indicator that shows as significant correlation for the entire sample is secondary school enrollment

• At the analytical group level

• Fairly strong and statistically significant correlation between life expectancy and growth

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Links: Growth and Social Indicators II

• At the analytical group level

• Fairly strong and statistically significant correlation between life expectancy and growth in fragile states

• In the earlier period (1984-89) there were some significant correlations between growth and some social indicators, especially school enrollment

• Number of plausible reasons why results disappointing:

• Poor data – always a factor

• As noted earlier social indicators especially life expectancy and mortality tend to move slowly while epidemic like AIDS can quickly set back progress

• Growth is but an ingredient in the dynamics – while in principle growth should increase the amount of available resources for social improvement, success hinges critically on a complex interaction of many institutional and policy factors

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Links: Growth and Social Indicators III

• While health outcomes show a low correlation with income

• Link is far from uniform across analytical grouping.

• Several of the low-income and fragile African countries exhibit better health outcomes compared to countries with much higher income levels

• Does not seem that health expenditure, either as a percentage of GDP or per capita, is a particularly good predictor of health outcomes

• Life expectancy outcomes more related to

• Food availability per capita

• Literacy rate and

• A decrease in alcohol consumption in SSA

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Links: Growth and Social Indicators IV

• Health expenditures have shown strong negative relationship with life expectancy probably arising from:

• Inefficient health services provision systems as well as

• The HIV/AIDS epidemic

• Infant mortality indicators likely to be more correlated with

• Mother’s schooling

• Mother’s age at child’s birth

• The mother’s vaccination and

• Access to infrastructure

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Summing Up

• Appears that the most successful countries in achieving improved social outcomes have:

• Consistent leadership committed over an extended time period backed by strong implementation and human capacity; and

• Long-term institutional reforms, especially those making the public sector more accountable to citizens

• Listing of countries with the best performance in terms of improvement in social indicators --

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Best Performers I

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Best Performers II

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