Trade,aid and national development in Africa

Trade is crucial for economic growth, with exports providing earnings to finance imports. Trade also promotes investments and knowledge transfer. Trading countries exploit their comparative advantages to promote self-sufficiency, which is obviously better than dependence on foreign aid, whether low interest-bearing loans or transfer payments. All aid comes with some kind of conditionality attached, amounting to substantial burdens that often outweigh possible benefits. Donors often replace the administrative machinery of recipient governments, undermining their sovereignty and autonomy. These governments then struggle to extricate themselves from implied commitments to donors and prevent donor governments interfering in their domestic affairs. This paper looks at Africa's poor trade performance, arguing that among the consequences are the continent's continuing dependence on foreign aid and the accompanying burdensome negative sentiments from the rest of the world. It recommends that the new African programme New Partnership for Africa's Development be developed to a full economic integration to expand the regional markets.     

Building Complementarities in Africa between Different Development Cooperation Modalities of Traditional Development Partners and China

Abstract: China's relationship with Africa has grown exponentially over the last decade with US$95 billion in bilateral trade in 2008 and US$5.4 billion of Chinese investment in Africa for the same year. The growth of Sino‐African relations also has an impact on the role of traditional development partners in Africa in particular in the aftermath of the 2008 financial crisis, which has already led some traditional development partners to reduce their aid budgets and subsequently their Official Development Assistance (ODA) flows to Africa. The objective of this paper is to analyse different development cooperation modalities in Africa of traditional development partners and China. This requires identifying trends in aid, debt relief, general budget support, trade, preferential trade access, and investment flows of both traditional development partners and China. The paper advocates that complementarities can be built between these development modalities on a national, regional and global level. This would enhance development effectiveness, increase efficiency and create win‐win situations which would be beneficial to African countries, China and traditional development partners.     

SOUTH AFRICA AND THE NEW PARTNERSHIP FOR AFRICA'S DEVELOPMENT: ECONOMIC SPIN-OFFS AND LINKAGES

The New Partnership for Africa's Development (NEPAD) is a concerted effort by Africa's political leaders to develop a comprehensive and integrated strategic policy framework to raise current levels of socio‐economic development and reduce high levels of poverty across the African continent. The NEPAD framework recognises the need for African countries to pool their resources together in order to enhance regional development and economic integration. To this end, NEPAD emphasises capacity building and also seeks to solicit and disburse funds towards infrastructural development programmes and poverty alleviation projects, among others. South Africa's involvement with the rest of Africa has increased significantly since 1994. Trade exports, foreign direct investment (both market and resource‐seeking in nature) and public‐private partnerships have mushroomed in many parts of the continent. Many South African firms are providing the financial impetus for the infrastructural development and rehabilitation of African economies. This paper discusses salient economic linkages between South Africa and the rest of Africa within the framework of NEPAD. South Africa is the economic hub of sub‐Saharan Africa (and indeed of the African continent), with significant agricultural, manufacturing and services capacity. South African firms have invested in the development of a number of sectors in the rest of Africa, taking advantage of the new investment incentives offered by the NEPAD framework. The target sectors range from mining, the hospitality industry, engineering and construction, finance to telecommunications. These investments and economic involvements are crucial to the development of African countries and the relevant sectors that are important for the realisation of some of the objectives of NEPAD.     

Africa's clientelist budget policies revisited: public expenditure and employment in Kenya,Tanzania and Uganda, 1960–2010

What can be learned about policy prioritization in Africa by examining long‐run trends in public expenditure and employment? Many have contended that Africa's post‐colonial leaders pursued economically unproductive budget policies that prioritized the growth of their patronage networks over socially beneficial spending, resulting in bloated payrolls, persistent deficits, and a large rent‐seeking public service. Using a purpose‐built dataset of annual public expenditure and employment series from Kenya, Tanzania, and Uganda for 1960–2010 against which to test these assumptions, this article questions whether there was anything exceptional about the growth or composition of East Africa's post‐independence expenditure. All three states grew and contracted in roughly the same periods as other regions of the world, although their contraction after 1980 was particularly marked. Industrial policy and capital investments influenced budget priorities in the early independence era, while military expenditure and debt service payments escalated in the late 1970s. The government wage bill, meanwhile, fell as a proportion of total spending over the same period. To finance employment growth while the wage bill contracted, governments allowed real wages to plummet in the 1970s–90s. In light of these external constraints and legacies, this article questions whether a budget unencumbered by patronage would have looked very different.     

Binding constraints to productive investment in Malawi: A modified HRV framework

The paper applies a modified Hausmann, Rodrik, and Velasco (HRV) growth diagnostics framework to analyse Malawi's growth challenges. The study finds five critical binding constraints affecting productive investment and output growth in Malawi. These include land administration, taxation, customs and trade regulations, political governance, and cost‐of‐finance. Land constraints are evidenced by highly urban and rural population growth, an inverse co‐movement between the rural population and investment per capita, and low land administration indices. Tax constraints are evidenced by the negative growth of investment per capita. Customs and trade regulations constraints are evidenced by nontariff measures, such as high costs and the time it takes to export and import. Political governance constraints are evidenced by rising government debt and the low score on transparency, accountability, and corruption based on the World Bank's Public Transparency Scale. Lastly, high cost‐of‐finance constraints are evidenced by monetary policy challenges, such as high real interest rates, inflation rate, uncompetitive exchange rate, and foreign aid ineffectiveness. Therefore, we recommend that the formulation of crucial policy strategies to alleviate these five significant binding constraints be encouraged. The government should base such an approach to sound growth therapeutics that fully account for each challenge's root causes.     

The Global Financial Crisis and Sub‐Saharan Africa: The Effects of Slowing Private Capital Inflows on Growth*

Abstract: This paper uses the bias‐corrected least‐squares dummy variable (LSDV) estimator to examine the relationship between economic growth and four different types of private capital inflows (cross‐border bank lending, foreign direct investment (FDI), bonds flows and portfolio equity flows) on a sample of 15 selected sub‐Saharan African countries over the period 1980–2008. Our results show that FDI and cross‐border bank lending exert a significant and positive impact on sub‐Saharan Africa's growth, whereas portfolio equity flows and bonds flows have no growth impact. Our estimates suggest that a drop by 10 per cent in FDI inflows may lead to a 3 per cent decrease of income per capita growth in sub‐Saharan Africa, and a 10 per cent decrease in cross‐border bank lending may reduce growth by up to 1.5 per cent. Therefore, the global financial crisis is likely to have an important effect on sub‐Saharan Africa's growth through the private capital inflows channel.     

Sudden Stops and Current Account Reversals: Potential Macroeconomic Consequences for South Africa

South Africa is one of the emerging market countries that have received a relatively large amount of foreign capital since the mid‐2000s. In South Africa's case, these inflows were partly used to build the country's foreign exchange reserves, but more particularly to finance continued large current account deficits. During the course of the past two years, however, adverse domestic political developments, combined with the potential negative impacts of the unwinding of quantitative easing policies and the normalising of monetary policy in the United States on emerging markets in general, has raised the spectre of a sharp slowdown in foreign capital flows to South Africa and an associated reversal of the current deficit. This paper explores the potential impact of such a development on macroeconomic conditions in South Africa. The analysis consists of macroeconometric model‐based alternative scenarios backed up by both the international evidence on the impact of such events and South Africa's own history.     

Financing municipal BOOTs in South Africa: The lenders' perspective

South Africa's first build‐own‐operate‐transfer (BOOT) project for municipal services was signed in late December 1998 by the city of Durban and a private project company associated with French conglomerate Vivendi. The project will treat waste water for sale to industrial customers who would otherwise use more expensive potable water in their manufacturing processes. The project structure, with its multiple contracts and supporting agreements, guarantees and complex shareholding relationships, represents a sophisticated analytical challenge for lenders, whose financing will ultimately be at risk in the deal. Development finance institutions, such as the Development Bank of Southern Africa (DBSA), must review such projects in even greater detail because of their mandate to promote sustainable infrastructure development in the region. This article presents the DBSA ‘s analytical perspective on the Durban BOOT project in an effort to capture the complex, innovative and strongly developmental character of what, for South Africa, is a ground‐breaking public‐private partnership project.     

Africa's Debts and Economic Recovery

A substantial reduction of external debt burden of many African countries is needed, for four reasons. First, the present debt burden of Africa is extremely heavy. Africa's debts are equivalent to more than 100% of its GNP, compared to less than 50% in Latin America – another heavily indebted region – and even less elsewhere. The weight of Africa's burden is exacerbated by its lower per capita income than elsewhere in developing regions. Secondly, Africa is experiencing adverse effects of falling commodity prices more than any other region because of its greater dependence on primary products than other regions. Over the last forty years, export commodity prices other than oil have fallen by 50% in real terms, a staggering development with far-reaching adverse effects on many producers. Between May 1989 and January 1991, commodity prices other than oil fell 23% in SDR terms – speed of decline similar to that experienced in the great price fall 1980-82 which marked the beginning of the debt crisis of the 1980s. Cocoa and coffee, two major exports of Sub-Saharan Africa, were particularly badly hurt. Thirdly, while debt in other debt-affected areas has stabilized in recent years, that of Africa has continued to grow as interest is charged on interest and capitalized. Many African countries have been compelled to suspend their debt service payments; according to World Bank calculations, less than one half of Africa's debt service due is now being paid. Even so, debt service which is still being paid absorbs 27% of Africa's shrunken exports – a proportion which severely curtails Africa's capacity to import and to grow. Fourthly, debt settlement is needed to clear the way for resumption of Africa's economic development, now virtually stagnant for a decade in aggregate terms and falling in per capita terms. Africa has the capacity to modernize and grow, and this has been proven in one critical area and against all odds. Between 1980 and 1987, exports of manufactures from Sub-Saharan African countries rose 42% in U.S. dollar terms or 5.7% per year. In 1988, out of 33 countries for which data are available, exports of manufactures rose in 28, and the overall increase for the 33 was 15.8 %. In 1988, eleven Sub-Saharan countries exported manufactures in excess of US $100 million each, compared to seven countries in 1980; and in 1989, there was none. There also have been setbacks, for various reasons. But taking Sub-Saharan as a whole, to achieve a 60% increase in exports of manufactures to US $4 billion on a non-negligible base of US $2.5 billion in 1980, over an eight-year period marked by a commodity collapse, droughts, debt crisis, wars and policy disasters, is a remarkable achievement by any standard. In North Africa, exports of manufactures more than doubled between 1980 and 1987, and then accelerated at 18% per year in 1988-89. North African exports of manufactures are now running at US $5 billion per year. This diversification and growth of African exports must be sustained. For this purpose, African countries must have realistic exchange rates, undistorted product prices across the economy, sufficient supply of industrial inputs and hence adequate growth of agricultural and mineral output, and they must reconstruct the existing capital stock, in many places obsolete, and add new facilities. Their investment, a crucial element for further growth, has fallen sharply in the last decade of the debt crisis in Sub-Saharan Africa: the fall has been so severe that some countries have not even been able to fully replace depreciating capital. At the present level of domestic savings and international commodity prices, most of Africa cannot undertake the reconstruction, modernization and expansion out of domestic ressources to any significant extent. Foreign capital inflow is needed to initiate the recovery and to help sustain it thereafter. But such capital inflow will not take place until the present debt situation is cleared up. This is a necessary condition, even though it is not sufficient: it must be supported by domestic efforts single-mindedly dedicated to economic recovery and social justice. Past efforts at the solution of the debt problem, some of them imaginative and generous, have proven insufficient and uncoordinated. A new deal is needed, attacking the core of the Sub-Saharan problem: debts held by some multilateral financial institutions and debts held by the private sector, in addition to a further shrinking down of service on official bilateral debt or its total cancellation in an imaginative proposal. In North Africa, the acute liquidity squeeze of Algeria – debt service absorbing almost 70% of exports of goods and services per year – needs to be alleviated through debt rescheduling over the long term, thus releasing resources for needed economic recovery. Algeria's debt outstanding is relatively low; it is the service structure which needs radical change. While Africa's commodity problem is not on the agenda of the Abidjan Roundtable, one specific commodity situation can perhaps be handled: the cocoa crisis which affects severely a large part of West Africa and for which remedy seems relatively easily in hand. It is proposed that a consortium of international financial institutions be organized to finance, through loans of, say, 15 years duration, the sale of surplus cocoa stocks to Eastern Europe, thus contributing to cocoa price recovery and hopefully stabilization, and improvement of food supply in Eastern Europe. The operation would be no more risky than other balance-of-payments structural adjustment lending. Cocoa producing countries in parts of Latin America, the Caribbean and Asia would be also beneficiaries. Adjustment and development programmes should be prepared, and seen to be prepared, by national authorities of African countries rather than by foreign advisers and international organizations. Otherwise commitment will be lacking.     

Unlocking Productive Entrepreneurship in Africa's Least Developed Countries*

Abstract: In Africa's least developed countries (LDCs), escape from poverty and convergence to living standards of more advanced economies depends critically on structural transformation and the emergence of productive entrepreneurship that would accelerate growth and job creation. So far, however, subsistence agriculture has been the main source of employment in these countries, while a dynamic private sector in industry or high value‐added services has remained elusive. Utilizing the flow approach to labor markets, this paper complements the empirical literature and numerous surveys on small and medium enterprise (SME) constraints and develops a theoretical framework that examines the main obstacles to entrepreneurship in Africa's LDCs. The paper posits that given the persistent frictions in product and labor markets as well as skill shortages that characterize these economies, development of productive entrepreneurship cannot be left to markets alone. The policy analysis suggests that the state has an important role to play. Well‐targeted government interventions including training of potential entrepreneurs and workers can help to establish more modern and highly productive SME clusters that Africa's LDCs need.     

Hawkers in South Africa's small urban centres: Planning and policy

The development of strategies for the ‘appropriate management’ of urban growth applies with equal force to small and to large urban centres. In this paper one key aspect in the evolution of appropriate management strategies in South Africa's smaller urban centres is addressed, namely the policy attitudes and practices towards hawkers. Against a background review of the international experience of changing attitudes towards street traders, empirical material is presented on local policies and planning regarding hawkers in a cross‐section of South Africa's smaller urban centres. Although the overall picture is dominated by the reluctance of urban authorities to innovate accommoda‐tionist planning, some interesting exceptions are noted.     

SOUTH AFRICA'S INTERGOVERNMENTAL FISCAL RELATIONS: AN EVOLVING SYSTEM

Across Africa, Latin America, Asia and the transition economies of Eastern Europe, the need to enhance the capability and capacity of sub‐national governments (SNGs) in providing public goods and services has become a main theme of development programmes. Central to this theme is the need to design an intergovernmental fiscal relations (IGFR) system that enhances the effectiveness of sub‐national governments in mobilizing revenues and implementing expenditure programmes. For South Africa, the post‐1994 dispensation has involved significant reforms to the structure and administrative capacity of the three spheres of government. Critical to these reforms is the need to formulate an IGFR framework that takes cognisance of South Africa's past, and serves as an effective policy tool in ensuring that public sector service delivery is well structured and managed. This paper provides an analysis of South Africa's evolving IGFR system. It outlines the historical evolution of the current IGFR system, identifies current challenges, and discusses implications that these challenges have for the functioning of the IGFR system. The general conclusion emerging from this study is that in the South African context, the key elements necessary for an effective IGFR system are in place. Ongoing reforms have improved the capacity of provincial and municipal authorities in carrying out their revenue and expenditure responsibilities. However, the evolving nature of South Africa's IGFR system requires that significant attention be devoted towards enhancing coordination between delivery departments and improving the capacity of many SNGs. These should not only aid the effective functioning of the IGFR system but also ensure that the gains of decentralisation are sustainable.     

The External Debt‐Servicing Constraint and Public‐Expenditure Composition in Sub‐Saharan Africa

Abstract: In the light of the current global financial and economic crises, how would governments in sub‐Saharan Africa (SSA) allocate their budgets across sectors in response to a binding debt‐servicing constraint? Within a framework of public‐expenditure choice, the present paper estimates constraint‐consistent debt‐service ratios and employs them in a Seemingly Unrelated Regression involving a five‐year panel for up to 35 African countries over 1975–94, a period preceding the Highly Indebted Poor Countries (HIPC) initiatives. While observed debt service is found to be a poor predictor of expenditure allocation, constraining debt servicing shifts spending away from the social sector, with similar impacts on education and health. The implied partial elasticity of the sector's expenditure share with respect to debt is estimated at 1.5, the highest responsiveness by far among all the explanatory variables considered, including external aid. Thus, if the social sector is to be protected, sufficient debt relief for SSA countries should be pursued.     

Trends in Agricultural Production Efficiency and their Implications for Food Security in Sub‐Saharan African Countries

The main objective of this paper is to estimate the agricultural sector production efficiency using data envelopment analysis based on a cross‐section of 49 African countries over the 1995–2012 period in order to analyze the determinants of annual efficiency scores to assess the impact of agricultural efficiency on food security. We find that agriculture aid, agricultural sector infrastructure, sanitation, and good governance serve the main drivers of agriculture efficiency and its growth. Our findings also suggest that a large portion of Africa's agricultural sector growth can be attributed to technical progress as opposed to efficiency changes.     

NEPAD: The Need and Obstacles

Abstract: Africa performs poorly in the global economy. The continent lacks investments, jobs, real output, and basic social services. Aggravating the poor performance is poor management. This paper argues that the establishment of the New Partnership for Africa's Development (NEPAD) to grapple with Africa's economic problems makes sense but only if necessary policies are properly implemented. It argues that Africa should pursue interest politics through NEPAD as an economic integration. On the issue of financing the budget, which has in the past been a major constraint to OAU‐initiated projects, this paper strongly recommends that it should be made mandatory that all multinational companies operating in all NEPAD member countries pay a certain percentage of their earnings into the NEPAD budget.     

China's Nonfinancial Corporate Debt Dynamics

Since the global financial crisis broke out in 2008, China's nonfinancial corporate debt has been rising steadily and rapidly, posing serious threat to China's financial stability. China's rising corporate debt is mainly attributable to three factors: worsening capital efficiency, worsening corporate profitability and high funding costs. Based on a dynamic recursive model developed in the paper, we simulate the trajectories of China's corporate debt‐to‐GDP ratio, and find that if China fails to reverse the current trends in capital efficiency, corporate profitability and financing costs, China's nonfinancial corporate debt‐to‐GDP ratio will continue to rise without converging to a limit. Against most economists' intuition, given the current trends of changes in parameters, higher economic growth will not help China to escape the corporate debt trap. On the contrary, it will make China's corporate debt problem even worse. To avert a corporate debt crisis, China needs to speed up the structural reform and change the growth paradigm so as to enhance capital efficiency and firms' profitability, while reducing firms' financing costs.     

AN ANALYSIS OF ECONOMIC INFRASTRUCTURE INVESTMENT IN SOUTH AFRICA

This paper analyses long‐term trends in the development of South Africa's economic infrastructure and discusses their relationship with the country's long‐term economic growth. A database covering national accounts data, railways, roads, ports, air travel, phone lines and electricity was established for this purpose, and may facilitate further quantitative research. PSS (Pesaran, Shin and Smith, 1996, 2001) F‐tests are used to identify directions of association between economic infrastructure and economic growth. These indicate long‐run forcing relationships from public‐sector economic infrastructure investment and fixed capital stock to gross domestic product (GDP), from roads to GDP, and from GDP to a range of other types of infrastructure. There is also evidence of potential simultaneity between specific types of infrastructure and GDP. The evidence suggests three main findings. Firstly, the relationship between economic infrastructure and economic growth appears to run in both directions. Inadequate investment in infrastructure could create bottlenecks, and opportunities for promoting economic growth could be missed. Secondly, South Africa's stock of economic infrastructure has developed in phases. Policymakers should focus on choosing or encouraging the right type of infrastructure at the right time. Thirdly, the need for investment in economic infrastructure never goes away. The maintenance and expansion of infrastructure are important dimensions of supporting economic activity in a growing economy, provided that individual projects are chosen on the basis of appropriate cost‐benefit analyses.     

Consumer Credit Risk Management in an Emerging Market： The Case of China

I. Introduction By any measure, China is now the world hottest economy, with an astonishing annual real GDP growth rate of 9 percent from 1991 to 2003 and with the world’s largest population of nearly 1.3 billion people. As one of the world’s largest and fastest growing economies,Consumer Credit Risk Management in China87 ?2006 The Authors Journal compilation ?2006 Institute of World Economics and Politics, Chinese Academy of Social Sciences there are tremendous opportunities for glo…     

Road construction and small enterprise development: The experience of the N4 Maputo corridor

The problems and support needs of small road contracting enterprises and of the prospects for entrepreneurship and enterprise growth in the South African road construction sector is the focus of this investigation. This study examines the building of the N4 toll road which is the anchor project for the Maputo Development Corridor. It draws on a wide range of source material, including existing secondary sources, primary project documentation relating to the N4 anchor project, a set of interviews with key individuals and business associations involved with implementation of the project, and a questionnaire survey that was administered to 30 emerging contractors that had successfully secured contracts for work on the Maputo Development Corridor. Overall, the article investigates the progress and workings of South Africa's targeted procurement approach towards stimulating small contractors in road construction.     

Would a single regional visa encourage tourist arrivals in southern Africa?

Although many studies have been done of factors impeding Africa's development as a tourism destination, few have focused on southern Africa, and to date none have questioned whether the current visa requirements affect the region's tourism industry. This paper investigates the potential impact of the so-called Univisa, a single visa for the Southern African Development Community (SADC) region proposed by SADC and the Regional Tourism Organisation of Southern Africa. It examines the possible effect of visa requirements on a destination's accessibility and visitor numbers. Two surveys revealed that inbound and outbound tour operators were relatively positive about the benefits the proposed Univisa would bring, but were concerned about other factors hindering tourism development in the region. The study revealed the complexities of a regional visa and found that even though a regional visa might alleviate some problems, it cannot be seen as an answer to the slow development of tourism in this region.