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Greening the AfCFTA: It is not too late

16. September 2021 - 21:17

By Colette van der Ven, Landry Signé

Abstract

Environmental sustainability is a key component of Africa’s Agenda 2063: The Africa We Want. Yet, the recently launched African Continental Free Trade Area (AfCFTA) contains only minimal references to the environment.

This policy brief highlights various ways in which State Parties can strengthen the linkages between the AfCFTA and the environment, with a focus on concrete approaches and strategies. With respect to the AfCFTA protocols that have already been negotiated—including the Annexes on Technical Barriers to Trade, Sanitary and Phytosanitary Measures, and various Annexes on trade facilitation—strategic implementation can enhance the link between the AfCFTA and the environment. With respect to ongoing negotiations, including on tariff schedules and services concessions, as well as future negotiations on the Protocols of Intellectual Property, Investment, Competition and E-commerce, State Parties have the option of more clearly emphasizing the link between the AfCFTA and the environment.

The policy brief also encourages the AfCFTA Secretariat to explore the possibility of adding a Protocol on the Environment and Sustainable Development.

Download the full policy brief

 

      
Kategorien: english

COVID-19: How can the G-20 address debt distress in sub-Saharan Africa?

16. September 2021 - 20:37

By Aloysius Uche Ordu

      
Kategorien: english

Liberia improves in economic opportunity but still tax mobilization, infrastructure, and business environment struggle to see gains

16. September 2021 - 19:38

By Tamara White

Good governance—according to the Mo Ibrahim Foundation, the provision of political, social and economic public goods and services that every citizen has the right to expect from their government—has been more crucial than ever before due to the COVID-19 pandemic. Indeed, good governance has been vital in ensuring that citizens are protected from any devastating impacts. It includes aspects of citizens’ participation, rights and inclusion, security and rule of law, human development, and economic opportunity.

To more deeply delve into these issues, on August 26, Brookings Africa Growth Initiative Senior Fellow and Director Aloysius Uche Ordu joined Jeanine Cooper, Liberia’s minister of agriculture; Bioma S. Kamara,  former minister of finance; Mawine G. Diggs, Liberia’s minister of commerce and industry, and Monie R. Captan, chairman of the board of directors at the Liberia Electricity Corporation for a conversation on trends in Liberia’s governance record utilizing the Mo Ibrahim Foundation’s Ibrahim Index of African Governance (IIAG). The discussion, one of many panels, was co-hosted by the Mo Ibrahim Foundation and the Ellen Johnson Sirleaf Presidential Center for Women and Development.

While the event featured many panels, including on human development and security and rule of law, Ordu moderated the panel on “Foundations for Economic Opportunity”—Liberia’s most-improved category in this year’s IIAG. Despite this progress, as the panelists discussed, Liberia ranks second-lowest in the IIAG “trade environment” and has room for improvement in several other related indicators. As such, Ordu led the expert panel in a discussion of Liberia’s improvements in its rankings as well as barriers to success for the country in enhancing economic opportunity. The main points of the discussion included:

Public administration. According to the United Nations, good governance, supported by strong public administration, is the heart of sustainable development. This year, Liberia made substantial strides in the “public administration” category of the IIAG, most notably in civil registration, Liberia was able to improve its civil registration score by 37.5 points from 2010 to 2019, owing largely to an increase in birth registrations. Birth registration is important because it gives children a legal identity, which enables their access to their fundamental rights as citizens.

Liberia still has a long way to go in other areas of public administration, though, as the panelists noted. In fact, tax and domestic revenue mobilization was a central theme of the panel discussion, as the  country’s score in this area declined precipitously between 2010 and 2019. Importantly, the World Bank recommends that, to effectively deliver sustainable and equitable growth, all countries should raise tax revenue equivalent or higher than 30 percent their GDP. In 2013, Liberia was reported at about 13 percent—showing urgent need for improvement. Panelists recommended a number of interventions including, making commitments to infrastructure, increasing public sector projects, and finding ways to collect taxes more efficiently.

Business environment. Overall, Liberia’s performance also dropped in the category of “business environment.” More specifically, according to the IIAG, the country received high marks in regional integration but still suffers from onerous business regulations. For example, according to the World Bank’s Doing Business Report, bureaucratic compliance for trading across borders in Liberia takes an average of 193 hours to complete. Improving efficiency in compliance at its border is an important step in improving the ease of doing business in the country. Panelists agreed that border compliance is an issue and stated that Liberia needs to move into a digital space to fix this issue. With the processes at the border still being done manually, delays are inevitable, and compliance will continue to be a barrier for the country.

Infrastructure. Like in many sub-Saharan African countries, poor infrastructure in Liberia inhibits economic growth. Given the importance of technology for modern economic growth, the panel extensively discussed electricity access, reliability, and cost. Notably, Liberia has one of the lowest rates of electricity access in the world as well as some of the highest electricity tariffs, at $0.54 per kWh. Liberia also struggles with power theft rates of 55 percent, which are also the highest in the region. Power theft, defined by the Power Theft Act, is the tampering with meters, transmission and distribution lines, and general theft of meters, light poles, wires, and transformers. Indeed, a press conference in August of this year revealed that the Liberia Electricity Corporation (LEC) had lost $220 million to technical losses, commercial losses, and unpaid bills from this issue. Panelists were optimistic regarding the country’s ability to improve access and cost, though, arguing that the new Electricity Law of Liberia can better enable the country to build and regulate the electricity sector more efficiently.

Rural sector. Importantly, while Liberia’s performance in the rural sector (e.g., rural market access and rural sector support) improved since the last report, the panelists were keen to note how closely infrastructure and the rural sector are intertwined. With customary land ownership denied in some rural areas until the implementation of the 2018 Land Rights Act—which empowered rural communities by strengthening of rights of local, customary landowners—these communities suffered tremendously. According to one panelist, because 80 percent of the country’s citizens participate in agriculture in some way, this act has been a “game changer” for the rural sector. Panelists also noted that there have been uptakes in rural sector support as part of wider efforts to boost the rural economy through commercialization.

Gender equality. Another important aspect of the conversation was the role and rights of women, especially in rural areas. Indeed, one panelist noted that women do not have the same access to land as men in the country, despite about 70 percent of rural work being done by women. To truly strengthen the rural sector, the panel agreed, gender equality must be at the forefront of conversation, and women must be able to have autonomy over their own land.

Madame Ellen Johnson Sirleaf, former president of Liberia and founder of the Ellen Johnson Sirleaf Presidential Center for Women and Development, closed the full event by emphasizing the importance of good governance in bolstering economic development and inclusive growth as well as improving the livelihoods of all.

      
Kategorien: english

How to kick-start the decoupling of emissions from economic growth in MENA

15. September 2021 - 20:36

By Martin Philipp Heger, Lukas Vashold

The burning of organic materials (such as fossil fuels, wood, and waste) for heating/cooling, electricity, mobility, cooking, disposal, and the production of materials and goods (such as cement, metals, plastics, and food) leads to emissions. This affects local air quality and the climate. In a recent blog, we showed that the Middle East and North Africa region (MENA) lags behind all other regions in decoupling air pollutant emissions from economic growth.

Particulate matter with a diameter of less than 2.5 micrometers (PM2.5) is the air pollutant associated with the largest health effects. MENA’s cities are the second-most air-polluted following South Asia; virtually all of its population is exposed to levels deemed unsafe. In 2019, exposure to excessive PM2.5 levels was associated with almost 300,000 deaths in MENA and it caused the average resident to be sick for more than 70 days in his or her lifetime. It also carries large economic costs for the region, totaling more than $140 billion in 2013, around 2 percent of the region’s GDP.

A good understanding of the emission sources leading to air pollution is necessary to planning for how to best reduce them. Figure 1 shows that waste burning, road vehicles, and industrial processes accounted for around two-thirds of PM2.5 concentrations. Electricity production is also a significant contributor, most of which is used by manufacturing and households.

5 priority barriers and opportunities for policy reforms to kick-start decoupling

A forthcoming report titled “Blue Skies, Blue Seas” discusses these measures, alongside many others, in more detail.

1. Knowledge about air pollution and its sources is limited, with sparse ground monitoring stations. Detailed source apportionment studies have only been carried out for a few cities within the region, with results often not easily accessible for the public.

Extensive monitoring networks and regular studies on local sources of air and climate pollutants are foundational, as is making results easily accessible to the public (e.g., in form of a traffic light system as is done in Abu Dhabi). This will empower sensitive groups to take avoidance decisions, but also nurture the demand for abatement policies.

2. MENA’s prices for fossil fuels and energy (predominantly from burning fossil fuels), are the lowest in a global comparison. For example, pump prices in MENA for diesel ($0.69 per liter) and gasoline ($0.74 per liter) were about half the EU prices and less than two-thirds of the global average in 2018.

MENA’s heavy subsidization of fossil fuels, whether that is at the point of consumption or at the point of intermediary inputs in power generation and manufacturing, makes price reforms essential. Aside from incorporating negative externalities better, lifting subsidies also reduces pressure on fiscal budgets, with freed-up fiscal space being available to cushion the impact for low-income households. There have been encouraging steps by some countries such as Egypt, which reduced the fossil fuel subsidies gradually over the last couple of years, leading to significant increases in fuel prices, which in turn had positive effects on air quality.

3. Underdevelopment of public transport, low fuel quality, and low emissions standards drive high levels of emissions from the transport sector. In MENA, the modal share is often heavily skewed toward the use of private cars; when public transportation is available, it has a low utilization rate in international comparison.

To support a shift in the modal share toward cleaner mobility, it is imperative to invest in public transport systems, while making them cleaner and supporting nonmotorized options such as walking and biking. Cairo’s continued expansion of its metro system has been effective in reducing PM pollution and other MENA cities have also invested heavily in their public transport infrastructure, moving the needle on improving air quality. Furthermore, it is also important to raise environmental standards, both for fuel quality and car technology, together with regular mandatory inspections.

4. Lenient industrial emissions rules and their weak enforcement. The industrial sector is characterized by low energy efficiency standards, also due to the low, subsidized prices for energy mentioned above. MENA is currently the only region, where not a single country has introduced or is actively planning to introduce either a carbon tax or an emission trading scheme.

Mandating stricter emissions caps, or technology requirements, together with proper enforcement and monitoring is crucial. Incentivizing firms to adopt more resource-efficient, end-of-pipe cleaning, and fuel-switching technologies are additional crucial means to reduce air pollution stemming from the industrial sector. A trading system for emissions could either target CO2 emissions, or air pollutants, such as the PM cap-and-trade system recently introduced in Gujarat, India. Such a system should target both the manufacturing industry as well as the power sector.

5. Weak solid waste management (SWM) is a major issue in MENA. Although the collection of municipal waste has room for improvement in many countries, it is mainly the disposal stage of SWM where the leakage occurs. Too often waste ends up in open dumps or informal landfills, where it ignites. Furthermore, processing capabilities are often limited, and equipment outdated, at least for the lower- and middle-income countries of the region.

Hence, enhancing the efficiency of disposal sites is critical to reducing leakage and the risk of self-ignition. To start, replacing or upgrading open dumps and uncontrolled landfills with engineered or sanitary landfills is a viable option. Going forward, recycling capabilities should be improved and the circularity of resources enhanced. For agricultural waste, the establishment of markets for crop residues and comprehensive information campaigns in Egypt showed that such measures can supplement the introduction of stricter waste-burning bans.

Kick-starting decoupling and banking on green investments hold the promise for MENA not only to improve environmental quality and health locally, and to mitigate climate change globally, but also to reap higher economic returns (including jobs). Moreover, decoupling now will prepare MENA economies better for a future in which much of the world will have decarbonized its economies, including its trade networks.

      
Kategorien: english

International financing of the Sustainable Development Goals

14. September 2021 - 20:05

By Homi Kharas, Meagan Dooley

      
Kategorien: english

Strengthening the global financial safety net by broadening systematic access to temporary foreign liquidity

14. September 2021 - 19:56

By Brahima Coulibaly, Eswar Prasad

      
Kategorien: english

Greening the African Continental Free Trade Area

13. September 2021 - 19:01

Trading under the African Continental Free Trade Area (AfCFTA) began earlier this year, with massive potential to boost inclusive economic growth and reduce inequality and poverty in Africa. Indeed, the World Bank predicts that 30 million Africans could be lifted out of extreme poverty, while incomes could rise by $450 billion by 2035. Exports could increase by $560 billion, while wages may increase by 10.3 percent and 9.8 percent for unskilled and skilled workers, respectively. The AfCFTA is not a panacea, though, and new complex challenges (e.g., COVID-19 and climate change) have exposed the vulnerability of social and economic systems across the world, highlighting their interconnectedness and emphasizing the need for collaboration around radical and sustainable solutions.

Thus, many experts believe that the AfCFTA can be an important tool as Africa looks to navigate these complex challenges. Indeed, in terms of addressing climate change-related challenges, the final negotiations over and implementation of the landmark trade agreement are creating opportunities to install and enforce new climate-friendly policies. For example, the AfCFTA can promote environmentally friendly protocols and e-commerce or advance the development of green value chains for minerals. Moreover, the momentum behind a climate-friendly AfCFTA can further bolster green industrialization and encourage investment in green infrastructure that will integrate climate risks and act as a buffer against current polluting infrastructure.

On September 20, the Brookings Africa Growth Initiative will co-host an event with the United Nations University Institute for Natural Resources in Africa in which panelists will explore the themes relevant to a “green” AfCFTA and debate whether the AfCFTA can be used as a tool to promote green strategies.

After the program, the panelists will take audience questions.

Viewers can submit questions for panelists by emailing events@brookings.edu or via Twitter @BrookingsGlobal by using #GreenAfCFTA.

      
Kategorien: english

How will the rise of the global middle class affect trade and consumption?

13. September 2021 - 11:47

By Homi Kharas, David Dollar

Around the world, the middle class is expanding at a rate we have never seen before in history. Homi Kharas, a senior fellow in the Center for Sustainable Development at Brookings, joins David Dollar in this episode to discuss how that global middle class is defined and where growth is concentrated. Kharas explains how preferences among the global middle class will affect production, trade, regional value chains, and efforts to address climate change for years to come.

DAVID DOLLAR: Hi, I’m David Dollar, host of the Brookings trade podcast, Dollar and Sense. Today, my guest is Homi Kharas, a senior fellow in the Center for Sustainable Development at Brookings. Homi’s recent research focuses on the rise of a global middle class. Our topic is how this global middle class affects consumption, production, and trade. So welcome to the show, Homi.

HOMI KHARAS: Thanks so much, David.

DOLLAR: So let’s start with how you define the middle class. What does it mean not just in terms of income, but in terms of lifestyle and consumption?

KHARAS: Let me start by saying that how I define the middle class and how I measure the middle class are two quite distinct concepts. So I’d like to talk about defining the middle class in terms of a group of people who basically make choices about their lives and about the economics of their lives.

If you think about people, if you are poor, you don’t really have the ability to make choices. You just don’t have the discretionary income to go around. You are struggling just to make ends meet. If you are rich, you don’t have to make choices because you can afford pretty much anything that you want. And if you are in between, then you are making choices. That’s how I think about the middle class, and it’s consistent with this idea that the middle class feels a responsibility for themselves. It’s a very individualistic kind of concept. They take responsibility for their own well-being and for their families. They invest in themselves. So it’s really a group of people that are making those choices.

So how do we measure it, which is a slightly different thing? I try to choose people who are living in households that are spending between $11 and $110 per day per capita in 2011 purchasing power parity terms. That’s a huge mouthful; let me just give a very quick explanation. Purchasing power parity allows us to compare the middle class size across different countries both spatially and over time, so it essentially adjusts for price differences. The levels of the thresholds are levels at which we start to see, at the bottom level, for example, people not worrying about falling into poverty. The probability of falling into poverty if you are in a household spending more than $11 a day is less than five percent over three years. So you are actually actively thinking about how do I choose to spend my money. At the top end, it’s a fairly rough estimate about when is it that people literally don’t have to worry too much about a budget constraint; they can basically choose whatever they want. Then last, I would just say the reason why I talk about these things in terms of per person per day is because of the very long literature on defining poverty in terms of an amount that you spend per day.

Finally, let me say I think about the middle class in terms of expenditures rather than incomes because all of us know that you might be a student with a very low level of income today, but if you are in college you have a high future expected income. So your spending might be much higher because you can afford to take out student loans, maybe your family is helping you, all kinds of other things. You are living a lifestyle which is significantly different from the lifestyle of somebody who is really poor.

DOLLAR: Homi, in your research you argue that there are going to be big shifts in the global middle class over the next 10 years. Traditionally it’s been a mostly rich country phenomenon, but now we are going to see big shifts. So, can you characterize those shifts?

KHARAS: It’s really interesting to me that there are two very distinct narratives about what’s happening to the middle class right now. In advanced economies, which is where the bulk of the middle class used to be constituted—and certainly the first billion people in the middle class were almost entirely in Europe, North America, and Japan—the narrative is about how the middle class is getting hollowed out. What people are not really focusing on is that there is an emerging middle class, largely in Asia, which is expanding at a rate that we have never seen before in history.

Read the full transcript

      
Kategorien: english

Responding to risks of COVID debt distress

10. September 2021 - 4:40

By Homi Kharas

      
Kategorien: english

On space barons and global poverty

9. September 2021 - 20:29

By Harun Onder

On July 21, 2021, billionaire Jeff Bezos rocketed about 65 miles above the Earth’s crust. Another billionaire, Sir Richard Branson, did the same nine days before, but his vehicle could only climb to 53 miles—some do not consider that a space flight, really.

Clearly, this was not the first time man ventured into space. However, in all earlier cases, explorers pursued a publicly defined mission and were paid from the public purse. Whereas Bezos and Branson were motived by private interest. Although Bezos thanked his company’s workers and customers for “paying for his trip,” it was, nonetheless, a privately financed venture. These two aspects, private interest and private financing, make these billionaires the world’s first space barons.

The public reception of the emerging elite space travelers club is mixed. Space enthusiasts celebrate the renewed interest in space travel, which could spark future technologies that, one day, help bring life to other planets. Critics suggest that the money used would be better spent for fighting global hunger and poverty.

There is more to both sides of this argument than meets the eye, and further inquiry is warranted. For starters, I shall rule out an otherwise interesting, but notoriously complex, dimension that gave economists a headache for decades. That is the problem of interpersonal comparison of utility. In this case, can we really compare the utility gained by Bezos from his $5.5 billion trip with that of 37 million people had the money been used to end their hunger? The question may seem rhetorical, but it is not.

The problem remains an interesting one even after Bezos, and thus the need to compare his well-being with that of others, is taken out of the picture. Let us look exclusively from the viewpoint of potential beneficiaries in the developing world. Would a transfer of cash to them be better than using the money on space tourism? Surprisingly, the answer is not necessarily affirmative.

Conspicuous consumption or an incubator for innovation?

Nobel laureate economist Angus Deaton suggests that technological innovations like  antibiotics, pest control, and vaccines have been the primary drivers of humanity’s escape from destitution, including in developing countries, far surpassing development aid in impact. By this logic, space tourism could muster moral support, in addition to cash, if it also facilitates significant technological advances (in addition to conspicuous consumption).

So far, blasting billionaires off to the edge of space has not exactly been earth-shattering, technically. Mankind had previously stepped onto the moon on six separate occasions; astronauts and cosmonauts have visited space routinely, often without such commotion; and Mars is already inhabited by robots. The NASA Voyager, built half a century ago, has become the first man-made object to exit our solar system—currently drifting at 14.2 billion miles away from us—that is about 21 hours of light-travel time from Earth (solar light reaches us in about eight minutes).

Previous research on space technology has undoubtedly improved life on earth. Modern water filtration systems, solar cells, firefighting equipment, insulin pumps, and artificial limbs are all reported to have been initiated by space research. It is too soon to see such impact from the new billionaire-driven space race. However, Bezos’ company Blue Origin is reported to hold at least 19 patents, whereas Elon Musk’s SpaceX has followed a different path: The company has not submitted any patent applications to avoid technological disclosure. Yet, there are some obvious advances including reusable rockets, which have reduced the cost of space flight dramatically.

Nonetheless, even in the presence of such innovations, there may remain significant doubts. Would for-profit innovations diffuse for public benefit as much as the publicly funded ones? The reluctance to lift intellectual property protections for COVID-19 vaccines has been a sobering test just recently.

The Samaritan’s Curse or trickle-down economics for the space age?

In some highly specialized settings, when a group tries to help those outside the group, their joint action can actually hurt the outsiders instead of helping them. This is called the “Samaritan’s Curse” and was recently discussed by Kaushik Basu, a Brookings nonresident senior fellow. In the case of foreign aid, a similar argument is considered when donors respond to deteriorating conditions in a country by providing more aid while the recipient country government acts strategically by leaving needs unfulfilled to qualify for further aid.

In space tourism, a Samaritan’s Curse argument can hold even without such mischievous behavior by potential recipients. Suppose the poor could benefit significantly from future innovations driven by selfish (for-profit) motives of space travelers. Then, using the space tourism money for simple cash transfers instead could be the worse option for the poor themselves. For example, in Africa, cellphone technology may have improved life more than a hypothetical transfer of equivalent size.

For such prominent technology effects, it is not enough if private space ventures muster a whole lot of innovations. The effects on the global poor will also depend on how easily those innovations can be utilized for practical purposes in daily life and how quickly those applications can diffuse to developing countries. This is an area where public policy can go a long way: Capping intellectual property protections at a reasonable level, especially when public funds are used, could help broadly. Similarly, a technology-focused assistance scheme for developing countries can complement other international aid programs. Without such discretionary actions, the benefits of space tourism could take a long time to trickle down.

The bottom line is that space tourism can hold its moral ground if it achieves life-changing technological advances. However, a public nudge is most likely needed to distribute such benefits beyond the elite space travelers club. Otherwise, humanity may jump out of the Samaritan’s Curse into the trickle-down economics for the space age.

      
Kategorien: english

Cash and the city: Digital COVID-19 social response in Kinshasa

8. September 2021 - 22:59

By Paul Bance, Laura Bermeo, François Kabemba

As COVID-19 spread across the world, governments responded with an unprecedented increase in social assistance measures. Policymakers had to shift their focus to urban areas, particularly slums, whose residents were hit the hardest by the pandemic and its economic impact. Social safety nets, traditionally targeting chronic poverty in rural areas, had to be reinvented overnight: The new objective was to prevent informal workers affected by lockdowns from falling back into poverty. Exciting innovations in the design and delivery of social transfers followed, with emerging lessons informing us, as the world continues battling the pandemic.

COVID-19 in Kinshasa: A mission impossible scenario

Kinshasa, the capital of the Democratic Republic of the Congo (DRC), is a case in point. The social and economic effects of the crisis have been devastating in this megacity of 15 million people, two-thirds of whom were poor pre-pandemic. Job losses, price increases, and a drop in remittances quickly increased the financial vulnerability of most households. The situation called for a large-scale emergency cash transfer program, even if none of the prerequisites were in place: no program administration to build on, no social registry or fiscal records to target beneficiaries, and a weak financial ecosystem to make payments. In short, the program had to be built from scratch, remotely, and fast.

The DRC Social Fund took up the challenge with the Solidarité par Transferts Economiques contre la Pauvreté à Kinshasa (STEP-KIN) program. What was the plan?

10 steps to set up a cash transfer program from scratch

A. Identification of the eligible population

  1. Select poor neighborhoods based on all available data, from satellite imagery to flood-prone cartography. Everybody living in selected areas was deemed eligible for the program. Inclusion error was small—few rich people live in poor neighborhoods.
  2. Sign nondisclosure agreements with telecom operators to obtain an anonymized list of mobile phone subscribers living in the targeted areas (cell tower mapping). This whitelist of phone numbers—granting eligibility to the program, as opposed to a blacklist—substitutes for the social registry.
  3. Screen this whitelist with simple filters to further limit inclusion errors, e.g., no smartphones. Research shows that mobile phone data (also known as call detail records) are a reliable proxy for poverty status. In fact, their analysis can be an alternative to standard welfare surveys.

B. Self-registration of beneficiaries

  1. Set up a system for self-registration that allows eligible people to express their interest in participating and remotely provide their information. To work at scale, the system has to be automated, leveraging simple technologies for interactive mobile data collection.
  2. Launch the self-registration process by sharing information with eligible people. Bulk written (SMS) or audio (IVR) messages are sent to all the whitelist numbers. A radio campaign—or another traditional communication channel—complements this outreach for trust-building.
  3. Finalize the program’s beneficiary registry. All the subscribers from the whitelist who have consented to participate and shared their data are now the program’s beneficiaries. Information collected must be minimal to maximize the response rate and protect respondents’ privacy.

C. Digital payment of transfers

  1. Request telecom operators to open a mobile money account for all the beneficiaries. This is straightforward as program beneficiaries are already phone subscribers. Depending on the country’s financial regulation, this step may require a simplified Know-Your-Customer framework.
  2. Instruct the operators to initiate the social transfers to the beneficiaries through digital payments. Note: This step and the following two are standard in any digital cash transfer program.
  3. Ensure all the beneficiaries can cash out the transfers, i.e., large network of cash-out points in targeted neighborhoods and dedicated customer services. This also requires putting in place a grievance redress mechanism system like a 24/7 hotline.
  4. Implement post-distribution monitoring surveys to collect information on the use of the transfers, confirm targeting effectiveness ex post, identify compliance issues early, and strengthen accountability.

In an independent effort, Togo has used a similar methodology for its successful Novissi cash transfer program. Other examples of tech-savvy innovations for each of these 10 steps abound.

Source: DRC Social Fund.

Does it work? 100,000 beneficiaries and counting

In three months, STEP-KIN identified, registered, and paid more than 100,000 individuals in 50 poor neighborhoods, becoming the largest cash-based operation in Kinshasa. The program is now expanding to 250,000 recipients for a total of $37.5 million to be transferred in monthly payments of $25. The first 6,500 randomized post-distribution surveys show that the targeting worked, i.e. beneficiaries are poor and vulnerable, with 40 percent unemployed and the remaining 60 percent earning less than $100 per month on average. They also document that the program’s objective is achieved: Recipients cash out for (i) meeting food needs, (ii) spending on health and education, (iii) reinvesting in their livelihoods, and (iv) paying rent.

Lessons and the challenges ahead

STEP-KIN was designed out of necessity and deployed with a learning-by-doing approach. This “quick and dirty” digital targeting approach works when the goal is to quickly reach a large population. Speed (and cost-efficiency) trump accuracy here. Other targeting methods would perform better where inclusion errors matter more, e.g. assistance for the ultra poor. Leveraging telecom data requires a very high mobile penetration rate (92 percent in Kinshasa). In many countries, it would work in urban settings only. Further, we should be careful of unintended consequences: the use of technologies may increase de facto exclusion of the most vulnerable, such as a lower registration and cash-out rate of women (38 percent of beneficiaries). Alternatives to technologies, such as on-site registration, must always be offered. Lastly, protecting beneficiaries’ privacy is a priority in processing personal data. The program must adhere to recognized industry standards by using data for legitimate purposes only and fairly and transparently.

Using telecom data and mobile technologies is not the panacea for social safety nets. However, given the new focus on crisis response in urban areas, why not continue to explore this promising solution?

      
Kategorien: english

Our last, best chance on climate

8. September 2021 - 16:13

By Amar Bhattacharya, Nicholas Stern

The COVID-19 pandemic showed us that human existence is fragile and perilous. However, if we do not take action now against climate change, the damage could be even greater and more lasting than the effects of the pandemic. Decisions made now are crucial in shaping the future of people and the planet. We must not go back to the old normal; it’s imperative to build back better through sustainable, inclusive, and resilient growth.

The 2018 Intergovernmental Panel on Climate Change (IPCC) special report Global Warming of 1.5°C highlighted the grave risks of global warming beyond 1.5 degrees Celsius, the already evident impact of climate change, and the limited time to arrest it. Projections show that more rapid and severe climate change will inflict greater harm on the environment, lives, and livelihoods. For example, warming of 2 degrees Celsius instead of 1.5 degrees Celsius would essentially wipe out all coral reefs on the planet, instead of 70 to 90 percent, and expose 37 percent of the population, instead of 14 percent, to extreme heat at least once every five years. Warming that exceeds 2 degrees Celsius significantly increases the risk of larger, likely irreversible environmental changes. The IPCC’s 2021 report documents the rapid acceleration of climate change, dramatically narrowing the window for limiting global warming from 2 degrees Celsius to 1.5 degrees Celsius and underscoring the imperative to reach net zero emissions by 2050.

If we do not take action now against climate change, the damage could be even greater and more lasting than the effects of the pandemic.

There is a growing realization that the risks and economic costs of climate change have been underestimated. If unchecked, climate change could displace hundreds of millions of people, mostly in the developing world, increasing the potential for conflict. Likewise, carbon-intensive economies depend on jobs that may be eliminated in the future to reduce pollution and avert catastrophic climate change. Jobs and incomes will be lost, driving many into poverty, and the longer decarbonization is delayed, the more disorderly future shocks will be.

Thanks to technological advances, the cost of renewable energy is declining, making it increasingly competitive with fossil fuels. Moreover, there is mounting evidence that decarbonization does not hamper growth, development, and jobs but instead offers a path to more inclusive, resilient, and sustainable growth; indeed it can “unlock the inclusive growth story of the 21st century.”

Investment and innovation

Increased spending on sustainable infrastructure has strong multiplier effects. In the short term, it can help the world economy recover from the effects of the COVID-19 pandemic by creating jobs and investment opportunities. In the medium term, it can spur innovation, create new sources of growth, and reduce poverty and inequality while delivering cleaner air and water. Over the long term, stabilizing climate change is the only path to a viable future.

To enable the shift away from carbon, governments must work with stakeholders to encourage clean energy and transportation systems, smart development, sustainable land use, wise water management, and a circular industrial economy. Major investment is needed to replace aging and polluting infrastructure, address infrastructure deficits and structural change in emerging market and developing economies, and protect and restore natural capital. In a report prepared for the Group of Seven (G-7), we asserted that the world must increase annual investment by 2 percent of pre-pandemic gross domestic product for this decade and beyond.

An even greater boost is needed for emerging market and developing economies (other than China) given their recent sharp declines in investment and need for financing to support growth, development goals, and structural change, including rapid urbanization. The coming two decades will be a crucial period of transition for emerging market and developing economies, requiring greater investment in all forms of capital—physical, human, natural, and social.

In developed and developing economies, investment offers significant potential to accelerate the transition to net zero through lower- and zero-carbon solutions, from sustainable aviation fuels to electric vehicles. The 2020 “Paris Effect” report finds that by 2030, low-carbon solutions could be competitive in sectors accounting for 70 percent of emissions, up from 25 percent today and none five years ago.

Greater support by governments and stronger international cooperation can help accelerate the pace of innovation, further drive down costs, and ensure the widespread availability of low-carbon technologies, including in developing economies. Developed and developing economies need greater investment and fiscal stimulus now to counter the effects of the pandemic while responsibly managing debt and deficits over the medium term. Fiscal policy, on both the revenue and expenditure sides, can promote the transition to low-carbon, inclusive growth, including through green budgeting.

Policies to accelerate change

Policymakers must set expectations and provide a clear sense of direction on how to achieve the net zero emissions target. To that end, the International Monetary Fund (IMF), the World Bank, and a growing number of academic, public, and private sector voices have called for elimination of fossil fuel subsidies and putting a price on carbon. A credible carbon price would send a critical signal to direct investment and innovation toward clean technologies and encourage energy efficiency. The IMF managing director said that “without it we simply cannot reach the goals of the Paris Agreement” and that “this price signal needs to get predictably stronger—by 2030, we need an average global price of $75 per ton of CO2, way up from today’s $3 per ton,” to be effective.

A credible carbon price would send a critical signal to direct investment and innovation toward clean technologies and encourage energy efficiency.

Along with carbon pricing, the transition to climate-resilient growth will require many different and mutually supportive policies given major market failures, the availability of other powerful and effective policy instruments, and political economy impediments. As outlined in a recent paper, governments and the private sector must:

  • Reinforce carbon pricing with sector-specific policies—regulations, energy efficiency standards, feebates—and phase out coal.
  • Boost public investment in sustainable and resilient infrastructure, including nature-based solutions—restoration of degraded lands and conservation of existing ecosystems—while mitigating the impact on the poor.
  • Promote sustainable use of natural resources with policy measures such as payments for ecosystem services, regulations, reform of agricultural and water subsidies, and incentives for a circular economy to decouple economic growth from use of material resources.
  • Deploy industrial and other policies to spur climate-friendly innovation, including in digitalization, new materials, life sciences, and production processes, with a focus on the coordination of policy areas and on long-term policies and policy planning.
  • Provide information and promote public discussion on social norms and behavior to reduce energy demand and carbon intensity of consumption and business activity; educate the public about climate change risks and on early warning systems and evacuation plans in case of natural disasters.
  • Align finance with climate objectives—manage financial stability risks posed by climate change; align social and private returns with green investment; mobilize resources for investment, including a major boost to international climate finance; and make monetary and supervisory policies consistent with net-zero-emissions objectives.
  • Develop insurance instruments and social safety nets to mitigate the immediate impact of climate shocks.
  • Foster a just transition with investment in and support for the shift to a low-carbon economy for affected workers, businesses, and regions—rapid change will involve dislocation in both production and consumption.
  • Integrate sustainability considerations into public financial management and corporate governance; use better models and look beyond gross domestic product when deciding policy priorities and measuring well-being and sustainability.

By acting together on climate change, countries will benefit from stronger demand expansion and investment recovery, economies of scale, and lower costs for new technologies. The returns to collaboration and innovation are uniquely powerful at present given the high unemployment following the pandemic; the need for global access to COVID-19 vaccines; and the mounting threat of climate change, biodiversity loss, and environmental degradation. Failure to act on any of these threatens human health, economic prosperity, and the very future of the planet.

Mobilizing climate finance

Progress on global climate action will require commensurate ambition on climate finance. There are abundant pools of long-term savings, and interest rates are exceptionally low worldwide, but many emerging markets and most developing economies find it difficult to access long-term financing on the necessary scale, and the cost of capital is a major impediment to sustainable investment.

Developed economies’ commitment to provide $100 billion in climate finance by 2020 is not just symbolic but foundational to climate action. Credible progress on the $100 billion commitment is a make-or-break issue for the success of the coming conference and for climate action in the developing world.

Rich countries need to build on the G-7’s commitment by boosting climate finance in 2021-22 and doubling it to $60 billion by 2025. There is an urgent need to improve the quality of climate finance, by boosting grants from their present low level, immediately doubling finance for adaptation, and ensuring that at least half of concessional climate finance supports adaptation and resilience objectives.

Because of their mandates, instruments, and financial structure, multilateral development banks are the most effective source of support for climate action in developing economies and for the mobilization and leveraging of climate finance. These institutions must use all their powers and instruments at this moment of crisis, agreeing to triple financing by 2025 from 2018 levels. This will require an accelerated replenishment this year of IDA (the World Bank’s fund for assistance to the poorest countries), more effective use of development banks’ balance sheets, enhanced private sector finance mobilization, accelerated alignment with the Paris Agreement, and proactive capital increases.

Establishing the Resilience and Sustainability Trust within the IMF could also help bolster efforts, and proposals from the United Nations Economic Commission for Africa and the Bezos Earth Fund offer other ways to leverage concessional climate finance. The use of country platforms, which the Group of Twenty (G-20) has promoted but has yet to effectively apply, is another option to increase coordination.

Efforts to align the financial system with climate risk and opportunities are underway through the COP26 private finance agenda and in conjunction with initiatives such as the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures, the Network for Greening the Financial System, the Coalition of Finance Ministers for Climate Action, the European Union sustainable finance expert group, and, most recently, the Group of Twenty working group on sustainable finance.

COP26 goals

 

For nearly three decades the United Nations has been assembling almost every country on earth for global climate summits. Under the U.K. presidency, this year’s summit will take place in Glasgow. The 26th Conference of the Parties on Climate Change (COP26), postponed for a year because of the COVID-19 pandemic, will bring together world leaders, scientists, businesses, public and private finance officials, climate activists, journalists, and other observers.

 

These are the key objectives for the Glasgow conference:

 

– Broad-based targets and a roadmap to secure net zero by mid-century and keep 1.5 degrees Celsius within reach, with ambitious action on carbon pricing, sector policies, phaseout of coal, and support for innovation.

 

– Support for adaptation and resilience, especially in poor and vulnerable countries, and for protection and rebuilding of natural capital.

 

– Mobilization of private businesses and climate finance to support these objectives and channeling of finance to emerging market and developing economies.

 

– Collective action to deliver these goals by finalizing the Paris Rulebook and accelerating collaboration.

From pledges to action

U.S. Special Presidential Envoy for Climate John Kerry has described the coming conference, scheduled to begin in Glasgow on October 31, as the “last, best opportunity to get real” on the threat of climate change. The U.K. COP26 presidency, under the leadership of Alok Sharma, has set out priorities for the Glasgow conference: commitment to the net-zero-emissions target, stepping up action on adaptation and resilience, delivering on the $100 billion climate finance commitment, bolstering and transforming private finance, and increasing collaboration on all these objectives.

There has been encouraging progress already. At its June Carbis Bay meeting, the G-7 committed to net zero emissions by 2050, halving collective emissions over 2010-30, increasing and improving climate finance by 2025, and conservation or protection of at least 30 percent of the land and oceans by 2030. And, for the first time, the G-20 has signaled the need for action on carbon pricing. In the private sector, a growing number of businesses across all sectors have committed to net zero targets, and major financial institutions have set deadlines to take portfolios to net zero.

This decade will be decisive. What happens at national and international levels will determine whether the post-COVID recovery is strong and inclusive and whether we will embark on a new path of sustainable growth. If we get it right, we can usher in a new era of sustainable development with expanded opportunities for people across the world. Get it wrong and we will not only have a lost decade for development, but the people of the planet will be in great danger in the coming decades. We need to choose now, and we must choose wisely.

      
Kategorien: english

Debt service risks, Special Drawing Rights allocations, and development prospects

8. September 2021 - 4:40

By Homi Kharas, Meagan Dooley

Introduction

On August 23, 2021, the International Monetary Fund (IMF) issued $650 billion equivalent in new Special Drawing Rights (SDRs) to its members. The SDRs do not change any country’s net wealth—each country has a liability that exactly equals the new assets it has been issued—but they do represent a sizable injection of liquidity because the SDRs can be voluntarily exchanged on demand for hard cash—U.S. dollars, euros, yen, renminbi, or other tradable currency. If SDRs are converted and the cash is used to pay down debt, then SDRs can be a mechanism to replace more expensive debt with cheaper debt, improving country creditworthiness. Alternatively, cashed-out SDRs can be used to supplement public revenues to increase spending for countries whose development prospects have been particularly hard hit by the pandemic.

This brief looks at SDR allocations from two perspectives:

  • To what extent can SDRs ease the debt service burden falling due in the next five years in developing countries?
  • To what extent can SDRs ease a recovery in development prospects?

The focus of the brief is on developing countries only. We exclude those economies classified as high income by the World Bank. We start by discussing the impact of the current, statutory allocation of the new issuance of SDRs, and then speculate on the impact of any voluntary reallocation that may occur if countries with surplus SDRs choose to on-lend a portion of this surplus to other countries. A range of “what-if” scenarios are presented to identify the impact of a hypothetical $100 billion reallocation of SDRs.

Download the full policy brief here.       
Kategorien: english

Can national statistical offices shape the data revolution?

3. September 2021 - 21:04

By Juan Daniel, Katharina Fenz, François Fonteneau, Simon Riedl

In recent years, breakthrough technologies in artificial intelligence (AI) and the use of satellite imagery made it possible to disrupt the way we collect, process, and analyze data. Facilitated by the intersection of new statistical techniques and the availability of (big) data, it is now possible to create hypergranular estimates.

National statistical offices (NSOs) could be at the forefront of this change. Conventional tasks of statistical offices, such as the coordination of household surveys and censuses, will remain at the core of their work. However, just like AI can enhance the capabilities of doctors, it also has the potential to make statistical offices better, faster, and eventually cheaper.

Still, many countries struggle to make this happen. In a COVID-19 world marked by constrained financial and statistical capacities, making innovation work for statistical offices is of prime importance to create better lives for all. PARIS21 and World Data Lab have joined forces to support innovation in statistical offices and make them fit for this purpose, including Colombia’s national statistical office. If we enrich existing surveys and censuses with geospatial data, it will be possible to generate very granular and more up-to-date demographic and poverty estimates.

In the case of Colombia, this novel method facilitated a scale-up from existing poverty estimates that contained 1,123 data points to 78,000 data points, which represents a 70-fold increase. This results in much more granular estimates highlighting Colombia’s heterogeneity between and within municipalities (see Figure 1).

Figure 1. Poverty shares (%) Colombia, in 2018

The averages for each municipality still contain big variances as poverty depends on many more factors than geography.

Traditional methods don´t allow for cost-efficient hypergranular estimations but serve as a reference point, due to their ground-truthing capacity. Hence, we have combined existing data with novel AI techniques, to go down to granular estimates of up to 4×4 kilometers. In particular, we have trained an algorithm to connect daytime and nighttime satellite images. In a next step, we have used this algorithm to predict poverty rates based on daytime satellite imagery. Since these remotely sensed data are available on a very granular level, this has allowed us to significantly increase the granularity of the data on poverty. Finally, we have combined these predictions with information from the latest census to ensure their reliability. This combination of traditional and novel techniques has allowed us to capture the variance in poverty rates across and within communities all over the country. Applying these techniques to poverty shares sheds light on the differences in poverty rates in Colombia, even within municipalities. Take the department of Antioquia with its capital Medellín, the second largest city in Colombia. In Figure 2, the detected variance, which is as high as 48 percent, becomes visible by comparing the existing data with the hypergranular estimates.

This reveals the capabilities of combining conventional poverty analysis methods with novel AI techniques and the potential to get more granular in the future.

Figure 2. Poverty shares (%) in Antioquia, in 2018

We further used satellite imagery to predict population density on the city-block level, by using a machine-learning technique called Random Forest. This approach builds on a large number of individual classifications or regression trees, each of them aimed at providing the best possible prediction. Averaging over the predictions of all individual trees eventually leads to the final prediction of the Random Forest. This technique has allowed us to distribute input data on the municipality level to a granularity of a 100×100 meter area. Breaking down each municipality into even smaller fractions reveals immense deviations from the average. Let us take the district of Bogotá D.C. as an example. The census data suggest an average population density of 46 persons living in a range of 100×100 meters. However, our methods reveal a more heterogeneous distribution, notably between rural and urban regions, ranging from one to 999 people per 100×100 meters. This instance shows how we can drastically improve the granularity of existing data by integrating state-of-the-art methods and novel data types into our analysis.

Figure 3. Population density in Cundinamarca in 2018

Previous examples show how valuable this kind of engagement is in a country like Colombia, where 42.5 percent of the population lives in monetary poverty, with great disparities between and even within municipalities (as shown in Figure 2). The granularity obtained from the use of novel machine-learning methods, as developed in this exercise, allows public entities to formulate and implement policies that focus on the most vulnerable and strive to leave no one behind—even more as these policies can be addressed to the most suitable areas, with the highest impact. The outcomes of this collaboration have proven to be essential for the decisionmaking processes associated with the recovery agendas to overcome the difficulties caused by the COVID-19 pandemic.

In conclusion, innovation in statistical methods and AI technology could be a facilitator for NSOs to become the main provider for data-based decisionmaking. The opportunity to create hypergranular and quality data depends on the investment of resources in AI techniques and novel scientific approaches. The future demand for, and the technical improvement of, real-time data and forecasts can resolve the prevalent perfectionism fallacy in NSOs. Consequently, contributing to technical innovation and partnering up with providers of cutting-edge enterprises will accelerate the transformation process. If this opportunity window is used properly, we can pave the way for statistical offices to enter the 21st century.

      
Kategorien: english

Which will be the top 30 consumer markets of this decade? 5 Asian markets below the radar

31. August 2021 - 21:03

By Homi Kharas, Wolfgang Fengler

Despite COVID-19, the global consumer class—those who are middle class or rich—is rising fast. In an earlier post, we showed that we are experiencing a truly secular shift in the size of this global consumer class. COVID-19 is a transitory setback of one or two years in this long-term shift. Since 2000, the global consumer class grew by more than 4 percent each year, reaching a new milestone of 4 billion people—for the first time—in 2020 or 2021. At the beginning of this century, the middle class was mostly a Western phenomenon. Consumer companies were selling their goods in OECD countries, especially the USA and Europe. Today, the consumer class is global and increasingly Asian. Spending by the Asian middle class exceeds that in Europe and North America combined.

We define the global consumer class as anyone living in a household spending at least $11 per day per person, of which the global middle class ($11-$110 per day) represents the lion’s share with 3.75 billion people. It is very important to define the global consumer class correctly and allow for comparability across countries and over time. Incorrect definitions could cost companies billions, as Nestle experienced painfully in Africa. The company based its decision to expand on announcements of a rapid rise of Africa’s middle class. While Africa’s middle class has indeed been rising rapidly, the threshold of $3 per day in consumer spending was too low to gain traction with products that are enjoyed by American or European consumers. Cornel Krummenacher, then chief executive for Nestle’s equatorial Africa region, noted that we thought this would be the next Asia, but we have realized the middle class here in the region is extremely small.” Even today, Africa’s consumer class is only 283 million people strong according to projections by World Data Lab, growing at 4.1 percent per year. However, there is an untapped potential in Africa below the middle-class threshold. If companies want to benefit from Africa’s growth in this decade, a focus closer to the bottom of the pyramid would yield more success.

Under current projections, Asia will represent half of the world’s consumer spending by 2032.

By contrast, Asia’s consumer class is advancing strongly. Since 2016, half of the global consumer class has been Asian. Today, out of the 4 billion global middle-class consumers, 2.2 billion live in Asia. However, while Asia has more than half of the world’s consumers, they only represent approximately 41 percent of consumer spending ($26 trillion out of $63 trillion in 2011 purchasing power parity, see Table 1). Under current projections, Asia will represent half of the world’s consumer spending by 2032.

Table 1. Asia’s consumer class power   Asia Rest of the world TOTAL Asia’s share Consumer class (billion) 2.2 1.8 4.0 55% Spending of the consumer class (trillion $) 26 37 63 41%

Source: World Data Lab’s MarketPro; 2021 projections.

Today, there are 13 Asian economies in the top 30. The composition of these top 30 countries will not change until 2030. However, there are big shifts within the top 30: Only 7 countries are expected to keep their position; 14 countries will lose position while 9 countries gain positions (see Figure 1). To assess which countries will move up in the consumer class tally, we used our unique modeling capacity to project the change of the consumer class between 2020 and 2030.

Figure 1. The top 30 consumer markets of this decade
Daily spending of more than $11 (2011 PPP)

Source: World Data Lab’s MarketPro.

Everyone is familiar with consumer class growth in China and India. In Europe and North America, the numbers in the consumer class will stagnate and growth will come about only because households will become richer.

But there are other countries, too, growing under the radar, which are forecast to have very large increases, in the tens of millions, in the numbers in the consumer class in 2030.

Here is an overview of the five top movers:

  1. Bangladesh (+17 positions), from place 28 to 11; future consumer class: 85 million (+50 million)
    Global share of consumer class: 0.8 percent (2020), 1.6 percent (2030). Bangladesh’s consumer class is projected to more than double by 2030: Today, 35 million people in Bangladesh spend more than $11 a day. By 2030, it will be 85 million!
  2. Pakistan (+8 positions), from place 15 to 7; future consumer class: 121 million (+56 million)
    Global share of consumer class: 6 percent (2020), 2.3 percent (2030). Pakistan will add 56 million new consumers by 2030, for a total of 121 million. This means that in 2030, for the first time, every other Pakistani will be able to spend more than $11 per day.
  3. Vietnam (+7 positions), from place 26 to 19; future consumer class: 56 million (+21 million)
    Global share of consumer class: 9 percent (2020), 1.1 percent (2030). Vietnam’s consumer class will grow from 35 million to 56 million within this decade, which is a success story particularly of the middle-aged generation: Consumers between 45 and 65 years of age will contribute nearly 25 percent of Vietnam’s spending, as opposed to 20 percent today.
  4. Philippines (+6 positions), from place 20 to 14; future consumer class: 79 million (+38 million)
    Global share of consumer class: 1 percent (2020), 1.5 percent (2030). The Filipino consumer class is projected to grow steadily, from 41 million today to 79 million in 2030. By then, more than two-thirds of the Filipino population will spend more than $11 per day.
  5. Indonesia (+2 positions), from place 6 to 4; future consumer class: 199 million (+76 million)
    Global share of consumer class: 2 percent (2020), 3.8 percent (2030). While Indonesia is only moving up two places, it is experiencing a large gain of consumer class growth. Starting from an already large base of 123 million, Indonesia will have almost 200 million consumers in 2030, making it the fourth-largest consumer market in the world.

The big message of this analysis is that the consumer class is spreading across the world, and that many emerging markets will have large consumer markets where supply-chain-scale economies, digital platforms, and local preferences will need to be better understood and developed.

      
Kategorien: english

The role of fiscal decentralization in promoting effective domestic resource mobilization in Africa

30. August 2021 - 14:00

By Leo Holtz, Aloysius Uche Ordu

The lingering economic impact of the COVID-19 pandemic is disrupting sub-Saharan Africa’s traditional financial inflows, revealing the heightened need to strengthen domestic resource mobilization and improve tax administration in the region. This unprecedented shock to the world economy has revealed the volatility of financial inflows that African nations are dependent on: Indeed, foreign direct investment (FDI)—an increasingly important source of development financing traditionally rooted in oil, gas, and infrastructure projects—has declined approximately 12 percent and 25 percent in sub-Saharan and North Africa, respectively, between 2019 and 2020. Remittance inflows, which millions of African households rely on to support their families, declined by 12.5 percent throughout sub-Saharan Africa over the same period. In addition, discontent with globalization, inconsistent political environments, and competing humanitarian issues are transforming official development assistance (ODA) into an increasingly uncertain source of development financing.

The fragility of Africa’s external financial inflows to shocks in the global economy suggests African nations should focus on securing more consistent domestic revenue streams. Indeed, ensuring more effective domestic resource mobilization and tax administration systems—sources of revenue that governments have direct control over—via fiscal decentralization reforms can offer an avenue to simultaneously bolster government coffers, improve the impact of government spending, capture uncollected tax revenue spillage, and augment taxation’s prominent role as a source of development financing.

Achieving better governance is easier said than done: Indeed, the experience from relatively well-executed fiscal decentralization in Brazil and Indonesia provides evidence that fiscal decentralization has the potential to improve the collection and spending of domestic tax and nontax sources of government revenue and, in addition, improve government accountability.

How can fiscal decentralization boost domestic resource mobilization?

For fiscal decentralization to be effective, countries must meet several key institutional preconditions. Meeting these institutional preconditions ensures regional/state and local/municipal governments have the capacity to institute effective decentralized expenditure allocation and revenue collection. Otherwise, fiscal decentralization has the potential to worsen public service delivery. Such preconditions include:

  • Stable political environments.
  • Effective autonomous subnational governments.
  • Institutional capacity at regional/state and local levels of government.
  • Government accountability.
  • Effective democratic election infrastructure at all levels of government.
  • Capacity to raise adequate levels of revenue locally.

Importantly, the potential for fiscal decentralization to benefit domestic resource mobilization stems from improvements in public service delivery, particularly in terms of allocative efficiency, preference matching, and stronger government accountability.

Local governments benefit from an informational advantage, whereby their proximity allows them to better understand the needs and preference of their local constituents. Relative to the central government, this informational advantage enables local governments to more effectively allocate public resources and serve needs of the people.

Local governments’ geographic proximity to their constituents—the direct beneficiaries of public services—also pressures local authorities to efficiently allocate fiscal resources. This productive efficiency of local public service delivery promotes government accountability through the direct election of local officials by the local populace, which also empowers voters with control over their public authorities and institutions. The subsequent performance of neighboring localities also provides local voters with a model to compare the competencies and effectiveness of their local politicians, as well as encourages competition among local governments to produce effective public services.

Drawbacks of fiscal decentralization

While fiscal decentralization provides an alternative fiscal structure to improve the collection and spending of government revenue, drawbacks exist. Hierarchical fragmentation of government services can impose the loss of economies of scale and, therefore, cause decreased efficiency and higher costs in the production, implementation, and distribution of public goods and services. Fiscal decentralization, which reduces federal government revenue, may also weaken the central government and hinder its full capability to redistribute national resources from regions/states with surpluses to localities in need of funding. Furthermore, without the infrastructure to support legitimate democratic local elections, fiscal decentralization will not improve government accountability and may introduce incentives for rent-seeking political behavior and the misallocation of local resources to nonproductive expenditures. In what follows, we compare the experiences of Brazil, Indonesia, and Nigeria—three economic powerhouses in their respective regions.

Evidence from Indonesia

Following economic and financial crises, Indonesia transitioned to a decentralized governmental system in 1999. Regional governments became empowered to manage governmental and public services, with notable exceptions in the regulation of religion, defense, national security, and monetary policy. Indonesia’s fiscal structure enables provinces and municipalities to collect local taxes and set local tax rates according to their budgetary needs, while maintaining a fiscal network between the subnational and federal government to ensure an equitable budgetary balance across provinces. These transfer payments alleviate horizontal, cross-state fiscal imbalances and promote equitable distribution of state revenue.

Since the implementation of fiscal decentralization in Indonesia, social welfare, public service delivery, and a myriad of development indicators have improved significantly.

Evidence from Brazil

Brazil’s model of fiscal decentralization offers an insight into the importance of intergovernmental tax transfers to prevent revenue imbalances among states. The redistributive structure of the Brazilian federal fiscal system allows poorer states to access a greater share of revenue from federal transfers than wealthier states, which enjoy a more substantive tax base. In turn, these wealthier states also benefit from greater budgetary autonomy. As a result of the integration of intergovernmental transfers mediated by the federal government, Brazil’s equitable revenue transfer system allows it to maintain low levels of vertical imbalances—the differences between budgetary mandates and revenue assignments throughout all levels of government—relative to the international average and select wealthy countries such as United Kingdom, Spain, and Australia.

Evidence from Nigeria

Nigeria’s model of fiscal decentralization has persisted since 1946, but its decentralized system of revenue allocation and collection has not manifested in notable improvements to the country’s nominal tax revenue or tax-to-GDP ratio over the years. While some of Nigeria’s revenue collection inefficiencies may be tied to its relatively high rate of tax evasion and avoidance, the bureaucratic, administrative, and institutional requirements at the local level of government may be limiting the proper implementation and delivery of decentralized public services. Studies, however, have uncovered positive relationships between fiscal decentralization and social and health outcomes in Nigeria, such as higher literacy rates and lower infant mortality rates.

Can effective fiscal decentralization improve domestic resource mobilization?

The successful implementation and outcomes of fiscal decentralization in Brazil and Indonesia offer insight into decentralization’s ability to improve public service delivery, increase government accountability, and promote social, economic, and human development goals. Yet, the institutional preconditions throughout all levels of government that are necessary for successful implementation of fiscal decentralization suggest the reform is not always fully successful, as seen in Nigeria. Nonetheless, the potential for fiscal decentralization to improve public service delivery, efficiency, and accountability remains an attractive alternative governmental system, as Kenya became the most recent African nation to successfully institute a decentralized fiscal system following the approval of its new constitution in 2010.

Lessons for Africa

Shoring up and capturing the full potential of domestic taxation is one of the most important sources of development financing and therefore needs to be a policy priority for African governments. The ability of domestic resource mobilization to provide a hedge against fluctuations in the global economy and volatile commodity prices is especially important for resource-rich countries whose fiscal systems are heavily commodity dependent.

Because 46 African countries and 89 percent of sub-Saharan Africa are commodity-dependent economies (as categorized by the U.N.), African fiscal systems maintain significant exposure to international commodity markets and the global economy. The COVID-19 pandemic exposed this vulnerability, as large commodity-dependent economies with a hefty fiscal reliance on commodity exports, such as Angola, Nigeria, and the Democratic Republic of the Congo, experienced precipitous declines in government revenues in 2020. As a result, these countries were forced to respond with spending cuts, debt issuance, and support from international financial institutions, alongside heightened budgetary requirements, to tackle the pandemic and its economic fallout.

Considering the deleterious impact of the pandemic on African finances, restructuring fiscal dependence away from financial inflows and toward domestic tax resources will provide a route to greater fiscal self-reliance and economic stability. In turn, bolstering internal revenue streams and downstream fiscal stability will make African economies more attractive to international investors—who simultaneously see the continent’s enormous growth potential but remain apprehensive about its economic and political risks.

      
Kategorien: english

Why did state-building efforts in Afghanistan fail?

30. August 2021 - 13:10

By David Dollar, Jennifer Brick Murtazashvili

Afghanistan has received enormous amounts of foreign aid over the years, but despite the investment of funds and various efforts to build state capacity, the government quickly fell to the Taliban after the withdrawal of U.S. forces. To discuss what capacity-building efforts accomplished and why they ultimately fell short, David Dollar is joined by Jennifer Brick Murtazashvili, director of the Center for Governance and Markets at the University of Pittsburgh. Murtazashvili explains why the government’s unwillingness to reform led to the rapid unravelling witnessed earlier this month. She also describes how Taliban rule may impact women in Afghanistan, the opium trade, and the delivery of international aid.

Related content:

Northern Afghanistan once kept out the Taliban. Why has it fallen so quickly this time?

Land, the State, and War: Property Institutions and Political Order in Afghanistan (Cambridge University Press, 2021)

      
Kategorien: english

Figure of the week: A case study comparison of industries without smokestacks in South Africa and Uganda

27. August 2021 - 15:33

By Mary Blankenship, Christina Golubski

Unlike developing countries in Asia, African countries are not relying on export-led manufacturing to drive structural transformation but instead pivoting to service-oriented sectors. While many services are less productive and absorb less low-skilled labor than manufacturing, certain subsectors, according to recent Brookings Africa Growth Initiative research, can be the catalyst for economic growth and job creation in the changing global marketplace. Termed “industries without smokestacks” (IWOSS), these sectors share characteristics with manufacturing, including being tradable, having high value added per worker relative to average economy-wide productivity, exhibiting capacity for technological change and productivity growth, showing some evidence of scale or agglomeration economies, and being amenable to absorbing large numbers of low-skilled workers. These sectors include, among others, agro-processing and horticulture, tourism, information and communication technologies (ICT), transit trade, and financial and business services.

To examine the potential and constraints of IWOSS to spur inclusive growth, economic transformation, and job creation for workers with different skill levels, AGI and its partner think tanks have been conducting a number of case studies, including in South Africa and Uganda.

Major trends in South Africa

South Africa’s youth are particularly afflicted by a lack of jobs: The country has a youth unemployment rate of 56 percent, far higher than comparable countries in sub-Saharan Africa.

According to the Development Policy Research Unit’s South Africa case study, IWOSS accounted for 66.7 percent (8.8 million) formal private sector jobs in South Africa in 2018. Like many of the other country case studies in the project, South Africa’s economy has been shifting toward IWOSS, but, unlike in the other case studies, that shift has not been taking place in IWOSS subsectors particularly poised to absorb low-skilled labor. Indeed, the authors find that finance and community, social, and personal (CSP) services—sectors that require labor that is slightly more skilled—have seen the most growth. More specifically, the finance sector comprised 13.4 percent of the country’s GDP in 1980, increasing to 22.4 percent by 2018. In contrast, the contribution of non-IWOSS sectors fell: For example, mining’s contribution to GDP dropped from 19.5 percent to 8.1 percent between 1980 to 2018 (Figure 1). Thus, DPRU’s findings are nuanced, as the team finds that the IWOSS overall has the potential to absorb labor, but tourism and horticulture specifically are more likely to absorb low-skilled labor and are poised to experience tremendous growth if certain constraints are addressed. (See the full case study for more details.)

Figure 1. Contribution to GDP by industry, South Africa, 1980 and 2018 (percent)

Source: Allen, C., Asmal, Z., Bhorat, H., Hill, R., Monnakgotla, J., Oosthuizen, M., and Rooney, C. Employment creation potential labor skills requirements, and skills gaps for young people: A South Africa case study. (Washington, DC: Brookings Institution, 2021).

Major trends in Uganda

In Uganda, the growth rate of the population remains higher than job growth, creating unemployment or underemployment, including for the 600,000 youth entering the labor market each year. Underemployment is particularly a problem since much of the youth engage in unofficial services like food vending and are not able to secure higher-value jobs in formal sectors.

The Economic Policy Research Centre (EPRC) in Uganda found similar broad trends as DPRU in South Africa, but also noted that different subsectors in the East African country are contributing to its growth. In other words, like in South Africa, the prominence of IWOSS has grown in recent years, especially compared to manufacturing, but the fastest-growing subsectors have been agro-processing and tourism (Figure 2). Tourism in particular has been a major contributor to Uganda’s economic growth, comprising 7.7 percent of the country’s GDP as of 2019.

Figure 2. Uganda’s tourism performance: 2000-2017

Source: Guloba, M., Kakuru, M., Ssewanyana, S., and Rauschendorfer, J. Employment creation potential labor skills requirements, and skills gaps for young people: A Uganda case study. (Washington, DC: Brookings Institution, 2021).

Recommendations for unleashing the potential of IWOSS in South Africa and Uganda

Notably, such growth in either country is not yet robust enough to produce the volume and types of jobs demanded there: For example, as noted above, most IWOSS growth in South Africa has been in financial and community services, which require more high-skilled workers and leave low-skilled workers unemployed.  Some of the recommendations from the authors include: increased investment in infrastructure, especially in engineering and town-planning fields, and greater support for postsecondary education and mentorship programs from employers to develop the necessary sector-specific skills.

Like in South Africa, in Uganda, horticulture, agro-processing, and tourism have the potential to create much-needed jobs, and the case study authors find that irregular and erratic business policies hinder the growth of those sectors. EPRC also finds the need for improved curricula aimed at developing digital and problem-solving skills, as well as more investments in road network infrastructure in order to improve transport and communications. To better support horticulture and agro-processing, the authors recommend that the government create policies that would encourage the uptake and adoption of technologies that shorten the wait for clearance at customs and licensing applications.

For more on the South Africa case study, please see the full report, COVID update, and summary blog. For Uganda, please see the full report, COVID update, and summary blog.

      
Kategorien: english

Climbing a High Ladder – Development in the Global Economy

24. August 2021 - 16:46

By Otaviano Canuto

Economic development analysis must inevitably rely on a double methodological standpoint. On the one hand, it needs to search for common features, those general attributes that might be present in all national experiences of wealth accumulation, poverty reduction, and moving up the income ladder. On the other, in order to be meaningful, it must reckon with time and space. It must consider that those universal development traits will play out in specific historical and geographical circumstances that will condition their unfolding. In this book, we try to follow that dual approach. Although each chapter is written in a way that makes it readable as a standalone piece, there is a tentative common thread: We attempt to understand what has meant to climb the income ladder in the context of the global economy prior to and after the 2007-08 global financial crisis. The overall message of our dual analytical-and-historic approach is single: Historic and geographical conditions matter, but ultimately the adoption of appropriate country-specific policies and reforms is what makes the difference.

Preview or buy the book.

      
Kategorien: english

To rule the waves

23. August 2021 - 20:32

      
Kategorien: english

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