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Leveraging IWOSS and soft skills to address slow structural transformation and youth unemployment in Uganda

3. August 2021 - 18:36

By Madina M. Guloba, Medard Kakuru

In recent years, Uganda’s economic growth has been among sub-Saharan Africa’s strongest, averaging 5.4 percent between 2010 and 2019 (World Bank, 2020). However, the rate of growth has failed to match the rate at which employment opportunities are created to both absorb the burgeoning labor force and improve livelihoods. The high population growth rate (recorded at 3.1 percent per year) has resulted in a high labor-force growth rate that has outpaced the rate of job creation, resulting in increasing unemployment and pervasive underemployment rates.

Moreover, in this tough labor market, young and female workers remain disadvantaged, and overall employment numbers often mask other problems in the labor market. For example, as we find in our recent working paper, while the number of unemployed actually declined between 2012/13 and 2016/17 for both young female Ugandans (23.1 percent vs. 18.5 percent) and young male Ugandans (18.5 percent vs. 9.6 percent), the annualized growth rate of discouraged workers—potential workers who would like to work but are unable to secure a job and so have given up on the process—is extremely high and more acute among Uganda’s youth.

A solution?

Like in many other African countries, the slow growth of Uganda’s manufacturing sector—a sector that historically has led to the absorption of low-skilled workers and structural transformation in much of the developing world—has constrained labor outcomes in the country. To address this issue, recent research points to other sectors—termed “industries without smokestacks” (IWOSS)—that share much in common with manufacturing, especially their tradability and tendency to absorb large numbers of low-skilled workers. Examples of IWOSS include agro-industry, horticulture, tourism, business services, transit trade, and some information and communication technology (ICT)-based services. To better assess the potential of these sectors to drive structural transformation, we recently published a case study examining the constraints to growth of select IWOSS sectors (horticulture, agro-processing, and tourism) and skills requirements for those sectors.

IWOSS sectors’ growth contributing to employment growth

IWOSS are well-positioned to help Uganda achieve its growth objectives: Indeed, while the contribution of IWOSS to GDP in recent years has been less than non-IWOSS sectors, it has been higher than manufacturing (Table 1). Moreover, growth in IWOSS sectors (22.9 percent) has been higher than either manufacturing (17.2 percent) or non-IWOSS (18.4), implying that the contribution of IWOSS to GDP is increasing.

In terms of employment, IWOSS sectors show higher elasticities than non-IWOSS and manufacturing: A 1 percentage point increase in GDP in an average IWOSS sector is associated with a 0.96 percent increase in employment. For manufacturing, the employment elasticity is negative and sizable, which could suggest that automation in the sector is replacing workers, having the opposite historic effect of industry. Despite agriculture being the biggest employer, it has a very low employment elasticity.

Table 1. Change in GDP and employment from 2012/13 to 2016/17 by sector

Source: Authors own calculations’ using UBOS Statistical Abstracts and Survey data sets.
Note: This is Table 5 in the case study.

What sectors are driving structural transformation?

As seen in Figure 1, which combines GDP/output and employment growth to get a full picture of industry changes over time, by and large, little structural transformation has taken place over the time period under consideration. While growth in IWOSS overall has contributed to employment growth, the subsector “finance, business, and professional services” seems to have significantly driven the structural growth agenda in the country—much like in South Africa. While tourism, horticulture and export crops and agro-processing—the three IWOSS sectors we explore in this paper due to their significant contributions to revenue, potential for absorbing many Ugandan laborers, and strong backward and forward linkages–do provide great contributions to GDP and employment, they also have had mixed impacts on the economy’s structural growth. For example, while agro-processing seems to have spurred transformation, this change seems to have been driven by its contribution to GDP, not necessarily as an employment avenue.

Figure 1. Correlation between sectoral productivity and change in employment in Uganda, 2016/17

Notes: Uses methodology in McMillan and Rodrik (2011); yellow indicates IWOSS sectors; purple indicates manufacturing; and light blue indicates other non-IWOSS sectors.
Source: Authors’ own illustration using 2016/17 UNHS dataset.

What does the future hold for growth and employment in IWOSS sectors?

The outlook for the Ugandan economy over the next 10 years suggests its makeup will shift, leading to a concentration of employment in tourism, finance and business services, ICT, and agro-processing. In our recent paper, we use a 7 percent GDP growth scenario (Table 2) to examine the prospects for job creation in the country. We find that IWOSS sectors will expand somewhat faster (8 percent) than non-IWOSS (6 percent) and twice as fast as manufacturing (4 percent) by 2029/30. In the same vein, employment is expected to grow at about 4.5 percent, largely driven by employment growth in the IWOSS sectors (6.3 percent).

Table 2. Sectoral distribution of GDP and employment in 2029/30—an illustrative 7%-growth scenario

Source: Extracted from Table 20  in the case study.

But are young people ready for these jobs?

While in other countries, IWOSS looks to readily absorb low-skilled workers, our research finds the trend in Uganda to be more nuanced. In fact, in line with the projected strong growth in IWOSS sectors, we find that the skill profile of workers in IWOSS will shift distinctively toward skilled and high-skilled workers, which could be problematic since we predict that, by 2029/30, 54 percent of Ugandan workers in IWOSS will need to be skilled or high-skilled. For a detailed discussion at the sector-specific level, see Table 21 in the full case study).

Figure 2. Uganda’s 7%-growth scenario—Projected employment by skill level

Note: MFG = manufacturing; non-IWOSS excludes manufacturing.
Source: Derived from Table 21 in the Uganda case study.

Requisite skills needed for new jobs in horticulture, agro-processing, and tourism

 To better advise Uganda on how it can prepare its young people to enter a labor market in which IWOSS are expanding, we need to assess which skills are both available in and needed for the market. To do so, we conducted firm surveys and found, among other trends, that gaps in problem-solving skills among employees inhibit firms from meeting their full potential. More specifically we found that tourism firms place a heavy emphasis on problem-solving and basic skills; horticulture, on problem-solving and social skills; and agro-processing on basic skills, At the same time, the surveys revealed that while the youth were overskilled for the jobs they were holding, the majority had skills gaps in problem-solving in all three IWOSS sectors of focus. Figure 3 illustrates this trend for the tourism sector (see details in full case study).

Figure 3. Skills gap by occupation type in the tourism sector—hotels

Source: Authors’ own calculations based on field survey data (2020).

Importantly, beyond these needs, we also find that digital skills will be paramount for future occupations likely to hire the youth. Indeed, future digital-skills needs were identified as a must by the interviewed firms in the tourism sector. In horticulture, digital skills will be needed for the use of computerized mechanisms in the production of fresh fruits and vegetables while in agro-processing, as automation progresses, digital skills will be needed for the production of primary raw materials.

Constraints to aspired growth

In addition, as our paper points out, to leverage IWOSS sectors and soft skills as avenues for addressing Uganda’s current slow structural transformation and youth unemployment challenges, several constraints to the growth of these sectors must be addressed. Outstanding among these obstacles are: limited access to finance; poor and costly infrastructure (roads, electricity, water, internet, and phone coverage); inherent nontariff barriers; government bureaucracy; and skill gaps (noted briefly above).

Unfortunately, the emergence of COVID-19 has only exacerbated challenges facing IWOSS sectors and the economy in general (see our paper updating our original case study as Uganda now faces the COVID-19 pandemic). Indeed, the three IWOSS subsectors on which we focused experienced significant losses due to reduction of earnings as business operations declined owing to the pandemic-induced lockdown across both the country and the globe. Indeed, many firms responded by laying off some workers, both temporarily and permanently.

Recommendations

In the original case study, we offered a number of high-level policy recommendations that, despite the COVID-19 pandemic, remain extremely relevant for Uganda’s growth and job-creation potential. If anything, the pandemic has made our recommendations all the more urgent. These include, among others:

  • Develop avenues to improve the soft and digital skills of workers and reduce the cost of trading through investing in physical and digital infrastructure. Such a push could eradicate the skills mismatch reported by employers as one of the obstacles to their operations. We continue to see the importance of this recommendation now: When facing COVID-19, sectors and firms that adopted ICT/digital technologies continued to survive within the measures that the government took to control the spread of COVID-19.
  • Ensure increased access to affordable financing. Already, a step has been taken in this direction by recapitalizing the Uganda Development Bank (UDB), the Uganda Development Corporation (UDC), and the Micro Finance Support Centre (MFSC) in order to offer affordable credit and facilitate the COVID-19 economic recovery. Such a program is an opportunity for agro-processing firms to acquire long-awaited financing, which historically has been one of their most difficult operating constraints.

For a deeper dive into our research as well as sector-specific recommendations, see our working paper, “Industries without smokestacks in Africa: A Uganda case study.”

      
Kategorien: english

The impact of COVID-19 on industries without smokestacks in Uganda

3. August 2021 - 18:31

By Madina M. Guloba, Medard Kakuru, Sarah N. Ssewanyana

Abstract

In Uganda, the spread of COVID-19 and its economic impacts gained momentum in March 2020 when the country’s first case was reported. By March 30, the government of Uganda had declared a nationwide lockdown in addition to other critical measures to minimize its spread.

The impacts of the virus itself together with government initiatives to control its spread have been felt in the political, social, and economic spheres of life of the country. Simply put, there have been losers and winners as the pandemic took its toll on the economy.

This brief examines the potential economic impact of COVID-19 on Uganda’s industries without smokestacks as a follow-up on the previous work undertaken in the same sectors prior to the pandemic. The aim is to ascertain whether the recommendations made prior to the pandemic are still relevant.

Download the working paper

 

      
Kategorien: english

Employment creation potential, labor skills requirements, and skill gaps for young people: A Uganda case study

3. August 2021 - 18:01

By Madina M. Guloba, Medard Kakuru, Sarah N. Ssewanyana, Jakob Rauschendorfer

Introduction

Over the course of the last decade, Uganda’s economic growth has ranked among sub-Saharan Africa’s strongest; indeed, the country’s annualized average growth rate was 5.4 percent between 2010 and 2019 (World Bank, 2020). Despite this impressive growth, there has been limited creation of productive and decent jobs1 to both absorb the burgeoning labor force and improve livelihoods. The population growth rate (recorded at 3.1 percent per year) has consistently remained higher than the jobs creation rate necessary for absorbing persons joining the labor market, resulting in increasing unemployment and pervasive underemployment rates. Moreover, where jobs have been created, few young Ugandans (especially young women) have benefited from such opportunities. Indeed, a study conducted by the EPRC (2018) finds that, while the economy grew by 4.5 percent in 2016/17, this growth was largely driven by the services sector,2 but services, in turn, contribute a mere 15 percent to total employment. In addition, due to severe skill gaps, Ugandan youth are largely engaged in low-value services (e.g., petty trade, food vending, etc.), and only few are able to secure employment in high value-added economic activities like agro-processing, horticulture, or tourism.

Uganda’s economy-wide unemployment rate declined to 9.2 percent in 2016/17 from 11.1 percent in 2012/13. Among youth3 (who represent 21.6 percent of Uganda’s population), unemployment declined to 16.8 percent in 2016/17 from 20.3 percent in 2012/13, however, with less progress recorded for female youth. Underemployment, a critical development challenge faced by the youth, is widespread in Uganda and can partly be explained by low skills among job seekers (at 1 percent), time (at 43.6 percent) as well as wage-related aspects (at 30.2 percent) (UBOS 2018). At the same time, inequality of opportunity is also growing. Even among the employed youth, 21 percent are classified as poor due to the precarious jobs in which they are engaged, especially if they work in the informal sector.

In this regard, informality, underemployment, and unemployment persist in the country’s labor market; as a result, many Ugandans are engaged in “vulnerable employment.”4 Vulnerable employment is often characterized by inadequate earnings, low productivity, and difficult conditions of work that undermine workers’ fundamental rights. According to the Uganda Bureau of Statistics (2018), 61 percent of employed persons in the country were classified as engaged in vulnerable employment with the share being higher for female Ugandans (71 percent). Similarly, 68 percent of employed persons living in Uganda’s rural areas are more likely to engage in vulnerable employment compared to 48 percent living in the country’s urban areas.

While agriculture employs nearly 77 percent of the rural population, recorded growth in the sector was low at 2.8 percent in 2016/17 (UBOS 2018). However, sectors providing more productive and better-paying jobs, like agro-processing and high value-added agro-industry have clear linkages to agriculture sector’s overall performance in the country. Weak economic growth in agriculture, therefore, affects agro-industrialization, which, in turn, has implications for the employment viability in the dominant agro-industry. Sector-level performance is also deterred by irregularities and erratic decisions in the business and policy environment. Consequently, the vast majority of Uganda’s labor force remains employed in labor intensive and less productive sectors. Even within agriculture, only a very small proportion of agricultural workers are engaged in the cultivation of high-value, commercialized crops.

The above narrative is also exacerbated by the small and not expanding number of formal jobs, especially in Uganda’s public sector. This lack of available “white collar jobs” is met by a significant number of youth graduating annually either with a certificate, diploma, or degree who aspire to find such employment. While the private sector is coming in to fill the gap in creating jobs for this segment of the population, current efforts are not sufficient, and more opportunities for jobs to be created for this segment of the labor force need to be identified and supported.

In order to create jobs, especially for the youth, there is need to raise private investment in labor-intensive industries. Besides providing jobs, labor-intensive industries—historically manufacturing— can pave the way for continuous upgrading to higher value-added economic activities. However, the average share of manufacturing in Uganda’s GDP keeps declining, from 11 percent between 2000 and 2010 to 9 percent between 2011 and 2018. Therefore, manufacturing will not be able to absorb the 600,000 young Ugandans entering the jobs market each year (AfDB, 2019).

In light of the slow growth of the manufacturing sector, Uganda needs to find alternatives for the creation of productive jobs if the country is to achieve its Vision 2040. Service-oriented industries that share key firm characteristics with manufacturing firms have the potential to enhance growth and create decent employment opportunities. Such industries are called “industries without smokestacks” (IWOSS). Newfarmer et al. (2018) classify these as agro-industry, horticulture, tourism, business services, transit trade, and some information and communication technology (ICT) based services. This study contributes to the evidence base around this topic by analyzing the role of IWOSS in generating large-scale employment opportunities for (young) workers in Uganda, especially in the formal parts of the economy. The paper pays particular attention to three sectors: agro-processing, horticulture, and tourism, as the earlier literature indicates that these sectors have considerable potential to create large-scale formal employment opportunities for young people.5

Specifically, this study:

  1. Assesses the current employment creation potential along the value chains of IWOSS industries under their respective current sectoral growth trajectories;
  2. Aims to identify the key constraints to growth in IWOSS sectors;
  3. Estimates future labor demand in IWOSS sectors when identified constraints are removed;
  4. Analyzes the occupation and labor skills requirements and gaps in IWOSS sectors; and
  5. Pays particular attention to the need for soft and digital skills among youth (employed and unemployed) to ensure that suggested policy interventions can bridge them.

The remainder of the paper is organized as follows: Section 2 presents the approaches adopted as well as data sources and their limitations. Section 3 presents the country context and background with emphasis on the performance of selected IWOSS sectors in Uganda. The section further delves into employment patterns and other salient features of employment in the country. Section 4 analyzes growth patterns in terms of output, productivity, and exports with emphasis on the role of IWOSS in structural transformation. Section 5 analyzes the specific characteristics regarding sectoral employment and comparisons are made between IWOSS and non-IWOSS sectors as well as manufacturing. Section 6 presents the growth constraints that IWOSS sectors face. Section 7 provides projections for the size of labor force by 2029/30 according to skill groups, projections that inform discussion on the skills gaps that need to be filled to solve current employment gaps. Section 8 presents firm-level surveys that provide insights into future employment requirements and the need for digital skills along the IWOSS value chains selected for this study (horticulture, agro-industry, and tourism). Section 9 concludes with policy recommendations to leverage IWOSS sectors for employment generation, especially for youth.

Download the full working paper

      
Kategorien: english

Solidifying the DFC-USAID relationship

30. Juli 2021 - 20:55

By Eric Postel, Anthony F. Pipa

Transforming the Overseas Private Investment Corporation (OPIC) by expanding its resources and authorities while merging it with other financing mechanisms—including the U.S. Agency for International Development’s (USAID) Development Credit Authority (DCA)—to create the U.S. International Development Finance Corporation (DFC) understandably required a major sales effort. While the foreign policy elites saw the DFC as a counter to China’s massive Belt and Road Initiative, advocates for international development viewed the DFC as an expansion of U.S. development leadership. And while fiscal conservatives were sold on prospective cost savings through the elimination of duplication, OPIC management told affected staff at USAID (the DCA team that was transferred to the DFC) that all of them would be offered jobs at the new DFC. Meeting all the expectations was always going to prove difficult—but one of the trickiest topics is how to best solidify the DFC-USAID relationship in order to maximize development results.

The DFC and USAID have a long history. In 1971, when OPIC was created, it assumed investment guarantee and promotion functions formerly conducted by USAID. The USAID administrator has always been a member of the OPIC board of directors since its creation, and served as the initial chairman of the board. Over the years, coordination between the two agencies has ebbed and flowed. In 2018, when Congress merged OPIC with several other federal programs and expanded its capital and authorities to create the DFC through the Better Utilization of Investments Leading to Development (BUILD) Act, a cornerstone philosophy of the legislation was that a vibrant collaboration between USAID and the DFC would be crucial to achieving major development impact.

Eight challenges for collaboration
  1. Mismatch of development sectors. The sectors (or subsectors) on which USAID is focusing at any given time, either as a result of Congressional and executive branch priorities or country-level strategies, may not always be sectors in which the DFC has deep investment expertise and/or in which there is large private sector interest (as expressed via applications submitted to the DFC).
  2. Different approaches and metrics for success. Historically, OPIC has been a demand-driven organization that promptly responded to deals presenting themselves to its Washington-based staff. OPIC measured its success largely on its earnings and the amount of investment it facilitated. USAID, on the other hand, undertakes long-term development projects usually designed by staff in the field, in collaboration with host governments and other local stakeholders and subject to detailed Congressional oversight—resulting in long planning and budgetary timelines. Success of USAID projects has been measured by development outcomes and advancement of U.S. foreign policy goals.
  3. Tension between positive earnings and development effectiveness. The priority placed by the DFC on returning funds to the U.S. Treasury ensures that the DFC often ignores smaller or riskier deals that may only break even, but which can yield significant development results. USAID uses 100 percent of its program funding for grants and contracts that are never repaid, so there is a natural disincentive for DFC staff to work on USAID-sponsored transactions that may only break even or earn negative returns, even though such deals would still be more cost-effective for American taxpayers than a grant or contract.This also means that the DFC “risk analysis models” are much more risk averse than those previously used by the USAID DCA, despite the fact that DCA had a perfectly decent credit history. As a result, DFC deals are more expensive. A DCA $15 million guarantee for a deal in Colombia could be funded with $250,000 (the so-called “subsidy” paid to cover the risks), but now a similar $8 million guarantee for a DFC deal in Columbia requires $340,000.
  4. Misplaced focus on large deals. Some DFC staff currently mistakenly believe that the BUILD Act’s provision stating that the “Maximum contingent liability of the [DFC] outstanding at any one time shall not exceed in the aggregate $60,000,000,000” means that the DFC must reach that ceiling within the seven-year life of the BUILD Act or risk this ceiling being reduced. This is then cited as a reason why the DFC needs to focus on big deals regardless of the scale of development impact.
  5. Different definitions of development success. USAID and DFC view the definition of “major development outcomes” differently. DFC Impact Quotients (IQ) scores can be quite high for projects that USAID might not see as having major development impacts in a sector or country.
  6. Limited political incentives. While heads of U.S. government agencies care deeply about their organizations’ mission, some are also very focused on their agency’s reputation, as well as their personal legacy and reputation. As such, it is a rare DFC CEO or USAID administrator who has the time to spend on helping their colleague get a big “win” if the credit is not shared equally or if the project ranks very low on their own list of priorities.
  7. Limited staff incentives. Currently, DFC-USAID collaboration is not prioritized in the performance evaluations of the staff of either agency. While the performance review systems at USAID vary by hiring type, for those involved in designing and running programs, reviews primarily focus on management and development success of programs. At the DFC, annual performance reviews largely focus on the number and size of deals closed and the performance of deals already on the books. There is little at either agency that would reward staff for collaborating and jointly advancing results, especially factors prioritized by the other agency.
  8. Lack of cross-agency understanding. Significant numbers of staff in both organizations have significant gaps in their understanding of the other organization’s processes, incentives, and strategic orientation, making it difficult for them to understand how the two organizations might best work together and the benefits that can arise from such a collaboration.

Overcoming these challenges requires a sophisticated set of responses. Some can be legislated; others will depend on the commitment of USAID and DFC leadership to facilitate strong collaboration that persists across electoral cycles and changes in administration.

Recommendations

Joint strategy for collaboration. Once every four years (in the year following the presidential election), USAID and DFC should be required to prepare or update a joint strategy for collaboration.1 As part of the strategy, the two organizations should agree on at least three to five sectors of joint interest based on each of their overall sectoral priorities (and funding).2 Similarly, the two organizations should agree on at least five countries of joint interest based on each of their overall country priorities (and funding). The National Security Advisor can facilitate final decisions.

Once the sectors and countries of joint interest are identified, the DFC CEO should ensure sufficient staff expertise within nine months to process any proposed deals in the agreed-upon sectors and coordinate with relevant USAID staff. The USAID administrator should issue an Agency Notice requiring any and all programs in the sectors and countries to identify ways in which working with the DFC could enable achievement of some or all of the programs’ goals prior to using other programming tools. When these modalities of collaboration are identified, USAID should prioritize budget and efforts to support these approaches, and DFC investment papers should reflect that there has been early consultation with USAID and the CDO on each transaction.

Primacy of development. Congress needs to make clear that its number one priority for the DFC is achieving substantial development results. Financial losses on the overall portfolio are to be avoided, but earning a return for American taxpayers has never been mandated in either the OPIC or DFC statutes and should be seen as a nice bonus rather than essential. Positive returns within the portfolio should be used to create a potential fund that DFC could use to take on more risk for greater development impact than OPIC was willing to take on in the past, particularly in low-income countries. Similarly, Congress should clarify that reaching the contingent liability cap within seven years should not be used as a reason to focus on large transactions.

Joint credit. The two organizations shall be told that on any projects involving joint collaboration, announcements shall be joint and issued by both organizations at the same time. Any public signings of deal agreements, Hill meetings, or public events announcing the collaborative deals shall be designed, undertaken by, and convenient to representatives of both organizations (including, when appropriate, the relevant overseas offices).

Board roles. The BUILD Act’s provision concerning the chairperson of the DFC Board of Directors should be amended to state that in the event of the secretary of state’s absence, the vice chairperson (the USAID administrator), shall chair meetings of the DFC Board. In the event the chairperson and vice chairperson are both absent from a Board meeting, then it shall be chaired by the secretary of state’s designee.

Regular joint engagement. The DFC CEO and USAID administrator should convene a joint meeting of all their senior leaderships annually to brief one another on their organizations’ current priorities, challenges, and collaboration impediments. Furthermore, the current quarterly meetings among DFC and USAID regional leaders should be expanded so that USAID regional and pillar bureaus formally meet with their DFC counterparts and vice presidents once a quarter to review and provide information on current pipelines and programs.

DFC chief development officer (CDO) evaluation. Consistent with the BUILD Act’s requirement that the selection of the CDO shall be acceptable to both DFC CEO and USAID administrator, the CDO’s annual performance evaluation should include inputs received from the administrator, as well as “360° feedback” from personnel in both organizations.

Revised performance factors. For applicable job functions, both organizations should make any modifications to annual performance methods, factors, and metrics needed to recognize and incentivize employees for their efforts to ensure effective collaboration.

Joint training. Personnel within DFC and USAID have been working to create training programs relevant to USAID-DFC collaboration. Training for USAID foreign service officers, program officers, deputy mission directors, mission directors, and any other staff with relevant responsibilities, as well as all DFC investment, origination, credit, and legal personnel, shall include substantive training about the other organization, its tools, and methods of collaboration. Training materials shall be jointly prepared by the two organizations. Finally, the two agencies should broaden and formalize the current minimal two-way exchange of staff for multiyear assignments.

In-country staffing. Either the DFC is going to have to be allowed to have career staff located overseas to conduct proactive business development and work with USAID field staff to integrate DFC’s tools with USAID programs, or USAID is going to have to increase, dedicate, and train overseas staff for that purpose (similar to the “field investment officers” USAID created to maximize the DCA office’s effectiveness).

Beneficiary-level monitoring and evaluation (M&E). USAID and the DFC should jointly fund third parties to independently calculate the number of beneficiaries benefitting from a DFC-USAID collaboration so that those numbers can be aggregated with confidence and credibility.

Paperwork reduction. Congress can help reduce some of the time and staff investment required to enact “subsidy” transfers from USAID to DFC so that deals over $10 million don’t require two congressional notifications for the single transaction.

As the DFC evolves and scales its operations within the mandates set by Congress, policymakers are seeking to work out the kinks and make sure it operates efficiently and effectively. Solutions to fix the budget scoring of equity investments, for example, have been ably proposed by former OPIC CEO Rob Mosbacher and colleagues. Other policymakers are thinking through issues concerning how much to focus on low- versus middle-income countries. We offer these recommendations as another contribution to help the new institution leverage USAID’s development experience and in-country expertise to maximize the development effectiveness of its investments.

      
Kategorien: english

Unlocking constraints to industries without smokestacks to catalyze job creation for youth in Kenya

30. Juli 2021 - 0:21

By Adan Shibia, Eldah Onsomu, Boaz Munga

Unlike in much of the developed world, the promise of manufacturing to spur economic growth and jobs in Africa has remained elusive, with most of the continent’s economies facing deindustrialization. This trend is characterized by declining share of manufacturing in gross domestic product (GDP) and wage employment. All is, however, not lost considering emerging structural shifts, with services and other non-manufacturing industries promising economic transformations. These promising nonmanufacturing industries, termed “industries without smokestacks” (IWOSS), demonstrate key features of manufacturing such as high productivity, agglomeration, and job opportunities. The IWOSS sectors are diverse, cutting across financial services, horticulture, information and communication technology (ICT), tourism, transit trade, and wholesale trade. As part of a broader research project, the Brookings Institution’s Africa Growth Initiative partnered with the Kenya Institute for Public Policy Research and Analysis (KIPPRA) to assess which of these IWOSS might be best poised to unlock jobs in Kenya.

Right now, the country faces significant labor-market challenges in the form of unemployment, time-related underemployment, and inactivity—all of which are more severe for the youth and women. Between 2009 and 2019, the country’s population grew by an average of 2.2 percent annually, but the labor force expanded by an even higher rate of 3.1 percent per annum over the same period, rising from 15.8 million people to 20.7 million people. Unemployment is high: In 2016, the overall unemployment rate of the working-age group (15 to 64 years) was estimated at 7.4 percent, that of women was 9.6 percent, and that of the youth (15 to 24 years) was 17.7 percent. Time-related underemployment was estimated at 20.4 percent for the working-age population, and 26 percent and 35.9 percent for the women and youth, respectively. In addition, despite Kenya’s long prioritization of industrialization as an avenue for mass employment creation and economic growth, the manufacturing sector contribution to GDP has declined from 11.3 percent in 2010 to 7.5 percent in 2019. The formal sector wage employment contribution of manufacturing has also remained stagnant, averaging 13.0 percent over the last two decades.

Can support to horticulture, ICT, and tourism help address Kenya’s youth unemployment problem?

To examine the potential of IWOSS more closely, the KIPPRA team chose three IWOSS with strong sectoral growth performance, contribution to GDP, and strong export performance—horticulture, ICT, and tourism—and found that all three sectors demonstrate above-average output growth and projected that they can be significant sources of wage employment for youth up to the year 2030. At the aggregate level across all IWOSS, labor-output productivity is twice that of manufacturing and 1.7 times that of other non-IWOSS. Except for construction, the industrial sectors performed below average with respect to output growth over the two decades up to 2018.

Within IWOSS, we also found that ICT, tourism, and trade have the highest potential for wage-employment growth resulting from respective GDP growth of these sectors (Table 1). However, horticulture is characterized by nonwage employment in the form of family labor.

Table 1. Changes in formal employment and its share in IWOSS and non-IWOSS, 2001-2018

Note: Manufacturing excludes agro-processing.
Source: Authors’ calculations based on data from KNBS (Various), Statistical Abstract.

The projections to the year 2030 reveal that there will be wider sex disparities in wage employment if the prevailing growth trends persist and no policy interventions are put in place. Male youth (15 to 24 years) will dominate manufacturing, construction, and trade, with their respective numbers projected to be 1.5, 13.8, and 1.2 times higher than females. In ICT, there will be 3 times more males than females if present growth trends persist. The projections also reveal that there will be more females in horticulture (1.3 times more) and tourism (1.1 times more) relative to males.

Constraints to growth for horticulture, ICT, and tourism

Importantly, for these sectors to meet—or even surpass—their job-creation potential, a number of constraints must be addressed. The study identified both crosscutting and sector-specific constraints affecting the output and employment growth of the three IWOSS sectors. The crosscutting constraints relate to investment climate, which encompasses infrastructure, the business and regulatory environment, and skills gaps.

Infrastructure

The high cost of electricity and the lack of a reliable power supply to firms pose challenges not only across firms in the IWOSS sectors but also across the entire economy as these obstacles hurt firm-level competitiveness and deter investment. The cost of road and railway transport in Kenya is generally higher than in its comparator set of countries. Not only that, but many firms are grappling with poor infrastructure of feeder roads, which leads to large post-harvest losses in the horticultural sector estimated at 42 percent. While Kenya’s ICT infrastructure is among the best in Africa, the relatively high cost of mobile broadband services and the large digital divide between urban and rural areas still hinder the sector’s expansion. These constraints are related to weak competition in Kenya’s ICT sector. Importantly, there is limited (but increasing) interoperability between mobile-payment operators, which affects the ability of smaller players to grow, thus potentially creating an inefficient market with one or a few large players.

Business and regulatory environment

While Kenya was ranked third in Africa in the 2020 World Bank Doing Business Report on account of ease of getting credit and to some extent getting connected to electricity, the regulatory business environment remains complex, especially with regard to starting a business, cross-border trade, and getting construction permits. These constraints hamper the country’s ability to improve its competitiveness, attract investments, and create more jobs and improvements, and will require deeper and broader reforms.

Persistent skills gaps

Skills gaps and mismatches resulting from low educational attainment levels relative to a typical middle-income country also persist in Kenya. About 43 percent of the working-age population have only a primary education (of eight years) as their highest education level, yet the IWOSS sectors heavily depend on post-primary level skills. Further, education quality is characterized by inadequate skills and gaps in required skills even among tertiary graduates.

Skills gap analyses across the three IWOSS sectors reveal that horticulture has skills deficits for occupations requiring post-primary education and skills surpluses for occupations that require at least some secondary education. Tourism has skills deficits for all skill levels, particularly those related to external communications, product quality, value packaging, and quality management.

While over the last decade IWOSS sectors such as horticulture had relatively strong export performance relative to aggregate exports, there are still significant cross-border constraints related to inadequate skills among customs officials, lack of an integrated quality system, limited coordination among exporters, insufficient systems to handle food-safety compliance, and inadequate capacity to trace horticultural commodities. Further, ICT faces additional challenges related to a weak framework to identify and nurture innovations.

Policy recommendations

The relatively high productivity across IWOSS sectors presents a case for policy support to enhance growth and employment opportunities. However, IWOSS are not currently meeting their potential, and a number of policy changes are necessary to help them grow and absorb labor. Thus, the government and other stakeholders should:

  • Enhance investments in infrastructure including trunk roads as well as feeder roads and a host of supportive facilities such as cold rooms for horticulture produce.
  • Address regulatory bottlenecks through a continuous process of monitoring and evaluation as well as by conducting regulatory impact assessments. For example, an improved policy and regulatory framework on net-metering and wheeling systems would enhance entrants into alternative sources of energy and off-grid systems. Better regulations would also open up markets for more players and hence enhance the role of ICT as an enabler.
  • Expand the creation of wage jobs rather than informal jobs in the growing sectors. Reducing barriers to formalization linked to complex regulations, high taxes, and other aspects of cumbersome investment climate is essential.
  • Focus education and training systems to produce skills demanded by the market compared to academic credentials. This can be achieved by strengthening partnerships for skills development and enhancing programs that combine on-the-job and in-class training.
  • Monitor and forecast skills needs to ensure the youth are equipped for available jobs, and then develop skills of the youth to meet the increasing demand for more educational qualifications. Skills development should take into account basic skills and social skills needed in specific sectors.

For horticulture, the following are the priority interventions:

  • Ameliorate the possible effects of the dynamic nontariff trade barriers (NTTBs) by supporting continuous skills transfer and extension services support to local producers, including small-scale farmers.
  • Enhance further investments in supportive infrastructure—the feeder roads and cold chain infrastructure such as “cold” collection centers and pack houses.
  • Open up more options for transport—especially maritime transport of exports—by investing in a dedicated maritime line to key export destinations.
  • Mold the preference of youth toward agricultural training to attract more youth to higher productivity jobs within the sector.

For ICT, a key intervention would be to put in place a policy framework that enhances competitive markets to improve affordability/access to services by the last-mile users. Fast-tracking an all-encompassing policy for e-commerce will open up further investments in the sector. On skills and capacity development, there is a need to promote private-sector-led, skills-development initiatives in high-level ICT skills such as programming. In ICT, best-practice models can be adopted by Kenya to enhance the benefits of ICT services. These include:

  • Encourage sharing of communication infrastructure (e.g., masts) by encouraging cross-sector consultations for infrastructure developments.
  • Create planning databases containing detailed information of infrastructure available for sharing.
  • Enhance interoperability through moral suasion.

For tourism, policies for supporting growth in the sector include:

  • Enhance access to reliable electricity and transport infrastructure to reduce operational costs and enhance competitiveness.
  • Reform the regulatory and tax regime, with a focus on eliminating multiple taxation and clarifying the unclear tax regime.
  • Promote the development of specialized training institutions for crucial high-level and diverse skills. Examples of these skills are film production, decisionmaking and problem-solving, food technology, information technology, and leadership.
      
Kategorien: english

Washington Consensus reforms and lessons for economic performance in sub-Saharan Africa

29. Juli 2021 - 17:51

By Belinda Archibong, Brahima Coulibaly, Ngozi Okonjo-Iweala

      
Kategorien: english

How government donors engage with the Sustainable Development Goals

29. Juli 2021 - 17:35

By George Ingram

In 2015, 193 nations signed on to Agenda 2030 setting forth the Sustainable Development Goals (SDGs). The predecessor Millennium Development Goals (MDGs) were a narrower set of eight objectives targeted specifically at enhancing economic and social progress in lower- and middle-income countries—with first-order implications for focusing donor development assistance. In contrast, the 17 SDGs are universal—they cover a broader scope of economic, social, environmental, and political elements of development. They are designed for all countries of the world—in recognition that “sustainable development” is an ongoing process in all countries, no matter their level of economic development.

In a new report, I review how 20 of the largest donor countries encompass the SDGs in their international development cooperation policies and programs. They have all committed to the SDGs. All, except for the United States, have in various ways built them into policies guiding their own development and their international development programs. Referencing publications and web pages, the report captures how each country proposes or reports incorporating the SDGs at three levels—strategy/policy, programs, and reporting on outputs and results for their investments in international development. All countries surveyed, except the U.S., have produced at least one Voluntary National Review (VNR), the formal mechanism for countries to share their progress. Although principally aimed at reporting on national progress on the SDGs, some VNRs also cover international development cooperation.

‘Sustainable development’ is an ongoing process in all countries, no matter their level of economic development.

This stocktaking is based on how each country presents its engagement with the SDGs and does not assess the extent to which those policies and plans are translated into practice. There is no single common way donors incorporate the SDGs in their international development policies and programs. Efforts range from expression of support at a very general level to embedding the global goals in policies and strategies or building strategies around the goals. Some countries address commitments to the SDGs in a comprehensive manner with a single strategy covering both domestic activities and development cooperation, although distinguishing separate priorities for each. At the program level, a few donors tie each program, and even budget levels, to the relevant goals but many use the SDGs only as a general reference point. A few donors report against the SDGs. In actuality, country action can range from grand policy pronouncements that are little more than “SDG-washing” to pragmatically designing programs around specific SDGs, reporting results against SDGs, and independently auditing implementation.

Some incorporate reporting on their international work in their VNRs, others restrict the VNR just to their national SDG program. Some use Agenda 2030 as the principal frame for their international development work, others embed the SDGs, or particular goals, in their international policies and programs.

Some approaches are unique to one or a few countries. Canada incorporates the SDGs in its Feminist International Assistance Policy. Denmark sorts countries into one of three categories and links each category to specific SDGs. Several donors have websites that report programs and results for each SDG, and several connect their development finance to the SDGs. Finland connects theories of change to specific SDGs. Some countries engage in public consultations in setting their SDG commitments. Several countries have outreach programs to educate their populace on development cooperation and the SDGs. Japan has posted videos that explain its international engagement on the SDGs. Spain has a policy of undertaking an SDG analysis of the global impact of proposed legislative initiatives.

Some countries, including Germany, Finland, New Zealand, Sweden, and Australia, evidence high-level political ownership of the SDGs in establishing a central government mechanism for policy coherence on Agenda 2030. Several countries follow the SDG principle of “leave no one behind” and employ some or all of the “five Ps”—People, Planet, Prosperity, Peace, and Partnership.

As Agenda 2030 is the international development currency of this decade, incorporating the SDGs in U.S. development cooperation policy would be an important step in the Biden-Harris administration commitment to reengage the U.S. with the world community.

For the most part, the MDGs lived in the realm of internationalists, specifically with practitioners of international development, international organizations, and international NGOs. The SDGs, in contrast, are truly universal, not just in scope but also in application. Their use extends from the international, to the national, to the local. By 2020, 168 countries had written VNRs, with another 43 VNRs expected in 2021.
While the U.S. government has not issued a national VNR, New York pioneered the Voluntary Local Review (VLR), an innovation based on the VNR where local governments assess their progress on the SDGs. Several other American cities have also completed VLRs, including Los Angeles and Pittsburgh; and Hawaii completed the first-ever statewide VLR. New York has since signed up more than 300 cities worldwide to do the same, and universities have adopted a unique SDG framework  to assess their contribution to economic, social, and environmental progress. As of 2018, 78 percent of S&P 500 companies had issued recent sustainability reports, many of which make reference to specific SDGs.

The SDGs have become so ubiquitous that they serve as a common language.  Reference SDG 5, and many people know you are talking about gender equality. For an individual looking to make a responsible investment or a government looking to attract responsible corporate actors, if a corporation has a commitment—better yet a specific target—on SDG 8 on decent work and growth or SDG 7 on affordable and clean energy, it might well be worth a look.

The catalyst for this report is the opportunity for the Biden administration to incorporate the SDGs in its development strategies and programs. While the U.S. was an active partner in the development and initial commitment to the SDGs, over the past four years U.S. development policies have referenced the SDGs but not embraced them. Candidate Biden committed to the SDGs, and the administration reportedly is deliberating on how it might incorporate the SDGs in its development cooperation.

As Agenda 2030 is the international development currency of this decade, incorporating the SDGs in U.S. development cooperation policy would be an important step in the Biden-Harris administration commitment to reengage the U.S. with the world community. More specifically, it would align U.S. development policies and agencies—in particular, the United States Agency for International Development (USAID), Millennium Challenge Corporation (MCC), Development Finance Corporation (DFC), U.S. Trade and Development Agency (USTDA), and U.S. Department of Agriculture (USDA)—with their donor counterparts and partner-country national strategies. It would facilitate U.S. development agencies in setting common goals and targets with other development actors, and it would provide benchmarks for tracking and measuring the results of U.S. development cooperation.

Knowing how other donors have done so should be a useful guide for how the U.S. might best do likewise.

      
Kategorien: english

Donor engagement with Agenda 2030: How government agencies encompass the Sustainable Development Goals

29. Juli 2021 - 17:29

By George Ingram, Helena Hlavaty

Overview

In 2015, all members of the United Nations adopted an ambitious agenda known as the Sustainable Development Goals (SDGs), also known as the Global Goals. The agenda consists of 17 development goals to be achieved by 2030. This report examines how government donor agencies encompass SDGs in international development cooperation, covering 20 of the 30 members of the Development Assistance Committee (DAC). It reviews how they propose to incorporate the SDGs at the level of strategy and policy, programs, and reporting of outputs and results. Eighteen of the 20 members (excepting the United States and the European Union) have produced at least one Voluntary National Review (VNR). Although principally aimed at reporting on national progress on the SDGs, some VNRs cover international development cooperation and so are specifically noted. This review is based on how each country presents its engagement with the SDGs and does not assess the extent to which those policies and plans are translated into practice.

All the government donors surveyed here have to varying degrees endorsed the SDGs at the level of policy and strategy, ranging from expression of support at a very general level to embedding the Global Goals in policies and strategies or building strategies around the goals. Some countries address commitments to the SDGs in a comprehensive manner with a single strategy covering both domestic activities and development cooperation, even as a unitary commitment, although distinguishing separate priorities for each. A number of countries follow the SDG pledge to “leave no one behind” and employ some or all of the “5 Ps”—People, Planet, Prosperity, Peace, and Partnership—that show the integrated nature of the goals.

At the program level, a few donors tie each program, and even budget levels, to the relevant goals but most use the SDGs only as a general reference point. Only a few donors actually report against the SDGs.

At least five countries have established a central government mechanism for policy coherence on Agenda 2030. In Germany, the Federal Chancellery has the lead on SDG implementation, with responsibility extending across the government and coherence provided through ministry secretaries serving on the State Secretaries’ Committee for Sustainable Development. In Finland, the prime minister’s office coordinates SDG implementation, and the Ministry of Foreign Affairs is represented on the coordination secretariat. In New Zealand, the Treasury develops a Wellbeing Budget. The Swedish Government has a National Coordinator for the 2030 Agenda,1 and multiple Swedish governmental agencies, including the Swedish International Development Cooperation Agency (SIDA), form the DG Forum to work jointly on the global goals. In Australia, a senior officials group co-chaired by the Department of the Prime Minister and Cabinet (PM&C) and the Department of Foreign Affairs and Trade provides coordination on the 2030 agenda, both domestically and internationally.

Briefly, the SDG engagement of the 20 DAC members include:

Australia embraces an SDG strategy in its domestic and development cooperation policies that is integrated across government departments. It aligns its foreign assistance budget directly with each of the SDGs. In 2018 it issued a Voluntary National Review (VNR) covering both domestic and development cooperation activities.

Belgium uses Agenda 2030 as an overall framework for its development cooperation. It incorporates the SDGs into certain programmatic areas and maintains a website that allows the user to sort projects by various categories, including the SDGs. Its 2017 VNR includes reporting on its development cooperation activities and provides links not just to SDGs but also to SDG targets.

Canada is noted for having incorporated the SDGs in its Feminist International Assistance Policy. In early 2021 it commenced an exercise in Global Affairs Canada to integrate the SDGs across all of its business functions. Canada used the 2018 VNR to report on both domestic and international activities.

Denmark builds its development cooperation program on the SDGs and links each activity to the relevant SDGs. It sorts partner countries into one of three categories by level of development, each linked to specific SDGs. Denmark requires that the appropriation note for each activity identify the relevant SDGs. Denmark has established an SDG investment fund.

The European Union embraces the SDGs in its development cooperation at the levels of strategy/policy, program, and reporting. It maintains an interactive website that tracks EU work toward achieving each SDG and a website that provides data on EU assistance, including by SDG.

Finland presents its domestic and development cooperation approach to Agenda 2030 in a common strategy. It creates a comprehensive approach in its international development cooperation programs through linking objectives, theory of change, and results reporting to the relevant SDGs.

France has integrated the SDGs in its development strategy and links them to its two principal objectives, 100 percent compliance with the Paris agreement on climate change and to its social link2 interventions. It has issued SDG bonds to finance development activities.

Germany issued a strategy, with several subsequent updates, that explains its approach to each SDG in both domestic and development cooperation policies. For development cooperation, it links priorities and program areas to the relevant SDGs.

Ireland incorporates the SDGs in its domestic and international development cooperation policies and reporting. It has an extensive program for educating the Irish people about development cooperation.

Italy embraces the SDGs in both its domestic and development cooperation policies and reports on both together. It structures its priorities on specific SDGs under the fifth P of Partnership.

Japan comprehensively incorporates the SDGs in its development cooperation strategies/policies, programs, and reporting. The Japan International Cooperation Agency (JICA) has a video on its website that explains its approach to the SDGs. It has issued social bonds linked to the SDGs.

South Korea places achievement of the SDGs as one of four strategic goals for the Korea International Cooperation Agency (KOICA). The mission of KOICA is “Leave no one behind with People-centered Peace and Prosperity.”

The Netherlands integrates the SDGs in its development cooperation strategies/policies, programs, and reporting. Its country development strategies use the SDGs as the narrative. Several websites present the goals, programs, and reporting on its development activities structured on the SDGs.

New Zealand utilizes Agenda 2030 as the overall frame for its development program. It uses the SDGs as the measure of progress for its partner countries in the Pacific, which is the principal focus of its development cooperation program. It explains that it tracks its contribution to the SDGs but that aligning official development assistance (ODA) with SDG outcomes is conceptually and empirically challenging.

Norway sets Agenda 2030 as the overarching frame of its development cooperation program and integrates the SDGs in strategies/policies, programs, and reporting. Its strategy includes communicating with the Norwegian people about the global goals.

Spain uses Agenda 2030 for the frame for its development cooperation. Its 2018 VNR calls for an SDG impact analysis on legislative initiatives to assess their external and global impact on the SDGs.

Sweden sets Agenda 2030 as the overarching frame for its development cooperation program. It publishes strategies on specific development programs and how they incorporate the SDGs, both for geographic regions (e.g., the Middle East and North Africa) and specific program areas (e.g., capacity building). SIDA works with investors and the private sector to advance the SDGs.

Switzerland incorporates the SDGs in its development cooperation strategy. A draft 10-year strategy has completed the phase of public consultation. Switzerland publishes factsheets for priority countries that connect its development activities to the SDGs. Results linked to the SDGs are reported on a website.

The U.K. uses the SDGs as the overall frame for its development cooperation program and incorporates them into partner country profiles. The 2019 VNR reports on progress on each global goal.

The United States has supported Agenda 2030 but has not brought the SDGs into its domestic or international development policies and programs.

 

Download the full report

 

      
Kategorien: english

Slums, sprawl, and skyscrapers

28. Juli 2021 - 19:41

By Somik V. Lall, Mathilde Lebrand, Hogeun Park

These three words are probably the most used in popular and policy discussions of city development. The squalor of slums, unsustainability of sprawl and sterility of skyscrapers are the proverbial Achilles heel of community leaders and urban planners. They call for livable neighborhoods with a vibrant mix of homes, shops, offices, and local amenities.

In a recent report, “Pancakes to Pyramids: City Form to Promote Sustainable Growth,” we examine how cities across the world have grown over the past quarter century and explain why some are stuck with slums, while others have expanded and some have built impressive skylines. Our priors have been shaped by our experiences living in cities, and we set out to examine if empirical regularities were consistent with these priors.

3 priors, 1 question

One of us recalls riding Mumbai’s crowded suburban rails during the early 1990s, passing the large slums of Dharavi where people lived cheek by jowl with little access to taps and toilets at home. While India’s economy was opening up to new investment, authorities responsible for Mumbai were slow to lay in the infrastructure and streamline the regulations that made it easier for newcomers to live and set up businesses. To be sure, Mumbai’s skyline has peaked over the past three decades, with redevelopment comprising a quarter of all real estate development over the last 10 years. Redevelopment of the city responded to economic demand. However, there is a long path ahead, to ensure that the slums of Dharavi transform into livable neighborhoods.

Around the same time, another one of us was growing up in Anyang, 15 kilometers from Seoul, and recalls catching frogs in rice fields with his friends. He recalls that “going to Seoul was a big deal—an annual event.” However, very soon, Seoul expanded into Anyang to accommodate its growing economy and population, building outward and upward. Rice fields gave way to skyscrapers, keeping in step in Korea’s rapid economic growth (See Figure 1).

Figure 1. Building outward and upward in Anyang, South Korea

The third among us grew up in a single-family home in a dormitory village of about 1,000 people around the city of Caen, one of the rainiest parts of France. She moved to Paris as a young adult, a city that she had always dreamt of living in. Her dreams were shattered as she realized that, as a student, she could not afford the cozy apartment under the roofs of the left bank district. She ended up living in the “Red Belt” suburbs of Paris with its Lenin stadiums and high towers and concentrated poverty that share some of the most expensive land in Europe with expensive single family homes. However, the metro system allowed her to enjoy the human density and amenities of Paris.

Our experiences living in cities highlighted that the way a city grew reflected broader processes of economic development. If a country was poor and its economy stagnant, cities were crowded and squalid. As a country’s economy expanded, cities became home to more people and businesses who demanded better homes, offices, infrastructure, and open spaces. Cities accommodated changes in demand by redeveloping their existing structures, by expanding into the periphery, and by building taller. However, regulations could stymie the supply of structures and push poorer people into farther locations. But decent transport systems could keep them connected to opportunities. A growing economy interacting with urban regulations and transport systems shaped how a city grew. The question is: Was our experience shared across cities?

Floor space—the final product of urbanization

To answer this question, we carried out an empirical exercise to examine how floor space has evolved across cities and what factors contribute to floor area growth. We focused on floor space available in the city rather than its land area as floor space makes the difference between a city being livable or being crowded. As noted urbanist Alain Bertaud puts it, the final product of urbanization is floor space.

We answered this question in two parts. First, we estimated how the built-up area of a city has changed over the past 25 years, from 1990-2015. Second, we identified how city building heights look across the world. To get a handle on built-up area growth, we examine data from 9,500 cities from the Global Human Settlement Urban Center Database. Details on measurement are provided in the report and our working paper.

We find that livable floor space hinges on city growth along three margins:

  • Horizontal spread—extending beyond the city’s previously built-up area.
  • Infill development—closing gaps between existing structures.
  • Vertical layering—raising the skyline of the existing built-up area.

As cities grow in productivity and in population, they add floor space by expanding outward, inward, upward, or—more usually—along all three margins to varying degrees. We use the terms pancakes and pyramids as shorthand for two broadly different tendencies in the physical manifestation of city growth:

  • Cities with low productivity and income levels and dysfunctional policy environments generally grow as pancakes—flat and spreading slowly. Low economic demand for land and floor space keeps land prices low and structures close to the ground, especially at the urban edge. Given slow expansion, growth in population density is often accommodated by crowding, starkly visible in the slums of developing country cities.
  • Cities with higher productivity and responsive policies may evolve from pancakes into pyramids—their horizontal expansion persists, yet it is accompanied by infill development and vertical layering. A rising demand for floor space in economically productive cities and a rise in housing investment and consumption, leads developers to fill vacant or underused land at and within the city edge with new structures. The same demand for floor space drives expansion not just horizontally in two dimensions, but also in the third—the vertical. Structures are built taller, on average, and at the urban core, they are built much taller, forming sharply peaked skylines.
The inevitability of sprawl, but with a silver lining

We find that horizontal growth is inevitable for most developing country cities. In low-income and lower-middle-income countries, 90 percent of urban built-up area expansion occurs as horizontal growth (Figure 2). But there is a silver lining: in high-income and upper-middle-income country cities, a larger share of new built-up area is provided through infill development. A city in a high-income country that increases its built-up area by 100 m2 will add about 35 m2 through infill development and 65 m2 through horizontal spread. But a similar city in a low-income country will add 90 m2 through horizontal spread and only 10 m2 from infill.

Figure 2. Horizontal growth is inevitable for most developing country cities

Source: Pancakes to Pyramids: City Form to Promote Sustainable Growth

We also find that economic productivity and rising incomes are indispensable for vertical layering because building high is capital-intensive. A city that grows in population, but not productivity and incomes, will not generate enough economic demand for new floor space for its spatial expansion to keep pace with population growth. For example, if the population increased by 10 percent but incomes stay constant, the city’s total floor space increases by 6 percent. This 6 percent increase is too small to allow a newly added population the same amount of floor space per person as before: Each inhabitant’s residential and work space will shrink, eventually making the city less livable. Our estimations indicate:

  • The elasticity of total floor space to population is 0.60. If a city’s population increases by 10 percent (holding income constant), its total floor space increases by 6 percent because of built-up area increase (3.5 percent) and vertical layering (2.5 percent) (Figure 3).
  • Elasticity of total floor space to income: 0.29. If the city’s income increases by 10 percent (holding population constant), its total floor space increases by 2.9 percent through a combination of built-up area expansion (1 percent) and vertical layering (1.9 percent).
Figure 3. Horizontal growth is inevitable for most developing country cities

Source: Pancakes to Pyramids: City Form to Promote Sustainable Growth

Increasing incomes and economic productivity are together necessary for a rise in floor space per person through vertical layering and pyramidal growth. Our research shows that the growth of cities and the availability of floor space reflect market forces that support productivity and economic growth. The finding echoes the World Bank’s 2009 World Development Report on Economic Geography: “Many policymakers perceive cities as constructs of the state—to be managed and manipulated to serve some social objective. In reality, cities and towns, just like firms and farms, are creatures of the market”.

Slums, sprawl, and skyscrapers reflect market conditions but are generally distorted by poor regulation and inadequate infrastructure. The movement out of slums toward livable cities is critical for developing countries, but this is unlikely to happen without structural transformations and economic growth.

      
Kategorien: english

The impact of COVID-19 on industries without smokestacks in Kenya: The case of horticulture, ICT, and tourism sectors

28. Juli 2021 - 14:15

By Eldah Onsomu, Boaz Munga, Violet Nyabaro

Abstract

COVID-19 has had not only far-reaching implications on the Kenya economy as a whole but also varied short-term and long-term impacts on various sectors. This policy brief provides an early assessment of the effects of the COVID-19 pandemic on the selected industries without smokestacks (IWOSS) that is horticulture, information and communication technologies (ICT), and tourism. Kenya’s economic growth in the pre-COVID-19 period was robust and resilient, expanding by 6.3 percent in 2018 and 5.4 percent in 2019. In the absence of COVID-19, the economy was projected to grow by about 6.2 percent in 2020/21. Following the confirmation of the first case of COVID-19 pandemic in March 2020, the Kenyan economy contracted and the IMF estimated that Kenya grew by -0.1 percent in 2020 relative, to a growth of 5.4 percent in 2019. The service sector was the hardest hit. However, within IWOSS, besides tourism and trade and repairs, all the other IWOSS sectors’ share of employment expanded during the COVID period. ICT sector remained resilient and has demonstrated to be an important enabler for firm operations across sectors—through promoting business continuity amid the pandemic. In Kenya, ICT experienced a one-off shock in the March/April 2020 period and recovered strongly thereafter. Horticulture and agriculture have remained to be relatively resilient even with COVID-19 enabling the Country to remain competitive in the global market.

As part of our recommendations, in horticulture, the country will need to: ameliorate the possible effects of the dynamic non-tariff trade barriers (NTTBs) by supporting continuous skills transfer and extension services to local producers, including small-scale farmers; enhance investments in supportive infrastructure, especially feeder roads and cold chain infrastructure such as “cold” collection centers and pack houses; open up more options for transport—especially maritime transport for exports—by investing in a dedicated maritime line to key export destinations. For the ICT sector, key intervention encompass: fast tracking investment in complementary services such as access to electricity and internet connectivity; supporting development of digital skills partly by scaling up digital innovations in education and skills development sectors; and strengthening the ICT legal and policy framework by fast track an all-encompassing policy for e-commerce. Tourism, which was worst hit in the overall economy, should be revived through enhanced innovations and adoption of emerging technologies along the tourism value chain; quickly adopt and enforce COVID-19 containment protocols; promote and/or incentivize domestic tourism; and put in place social protection programs to cushion employees in the sector.

Download the working paper

      
Kategorien: english

Industries without smokestacks in Africa: A Kenya case study

28. Juli 2021 - 13:11

By Boaz Munga, Eldah Onsomu, Nancy Laibuni, Humphrey Njogu, Adan Shibia, Samantha Luseno

Abstract

This study assesses the scope for industries without smokestacks (IWOSS) to generate large-scale wage employment opportunities in Kenya especially for the youth. IWOSS are non-manufacturing industries that demonstrate high productivity and employment potential similar to manufacturing.

While Kenya has, since independence, prioritized industrialization anchored on manufacturing as an avenue for employment creation and economic growth, the country is facing early deindustrialization characterized by a declining share of manufacturing in employment and gross domestic product (GDP). Recognizing this enormous challenge, recent policy discourse in addressing persistent youth unemployment has widened its focus to include emerging sectors of IWOSS.

This study examined the job creation potential for youth across diverse IWOSS sectors, focusing on horticulture, ICT and tourism, and identified constraints that inhibit growth and job creation. The methods include a review of sectoral performance with respect to growth and wage employment; assessments of current and projected levels of employment and productivity; and application of value-chain approach to examine job creation potential and the key constraints. The main data sources included the Kenya’s Social Accounting Matrix (SAM), the World Bank Jobs Group Database, Occupational Network Data (O-NET), and various survey data sets including the Kenya Integrated Household Budget Survey (KIHBS) 2015/16 and the World Bank Enterprise Survey for Kenya 2018. These approaches were complemented by a survey of key informants in the three sectors, conducted in 2020. The three IWOSS sectors (horticulture, ICT, and tourism) reveal above-average output growth and are projected to continue being significant sources of wage employment for youth up to the year 2030. In contrast, except for construction, the industrial sectors performed below-average with respect to output growth over the two decades up to 2018.

The study identified both cross-cutting and sector-specific constraints affecting competitiveness, investments, output, and employment growth of the three select IWOSS sectors. The cross-cutting constraints relate to the investment climate, which encompasses infrastructure, the regulatory environment, and skills. Horticulture faces constraints related to inaccessibility to cold chain facilities, non-tariff trade barriers, limited coordination among exporters, capacity gaps, and insufficient systems for handling food safety compliance. ICT faces additional challenges of weak competition environment and weak supportive framework to identify, fund, and nurture ICT innovations. Tourism faces additional challenges related to multiple taxation and levies.

Recommendations are suggested to address both cross-cutting and IWOSS sector-specific constraints including: Government and other stakeholders should support continuous skills transfer and support to local producers, promote investments in cold chain infrastructure, ensure policy framework that enhances competitive markets to improve affordability, put in place an all-encompassing policy for e-commerce, support private sector investments in education for high-level ICT skills and soft skills, adoption of emerging technologies, enhance development of access roads and promote competitive air transport and promote new product innovations.

Download the working paper

      
Kategorien: english

The impact of COVID-19 on industries without smokestacks in South Africa

27. Juli 2021 - 23:05

By Zaakhir Asmal, Christopher Rooney

Abstract

The COVID-19 pandemic has hit several sectors of economies, including those in Africa particularly hard. The affected sectors include industries without smokestacks (IWOSS). The purpose of this brief is to conduct an early assessment of the effect of the pandemic on the economy, and specifically, the IWOSS sectors considered in the country case study, both in terms of the pandemic’s current impact, as well as to present a view on the long-term sectoral impact.

Download the working paper

      
Kategorien: english

The impact of COVID-19 on industries without smokestacks in Senegal

27. Juli 2021 - 22:43

By Ahmadou Aly Mbaye, Fatou Gueye, Massaer Mbaye, Abdou Khadir Dia

Abstract

In Senegal, the COVID-19 pandemic has caused significant health and economic damage. More specifically, the country’s promising industries without smokestacks (IWOSS) have adversely been impacted, with a dramatic reduction in turnover, investment, and jobs. In addition, the pandemic has significantly reduced fiscal space by both shrinking the government tax base and reducing sovereign debt solvency, and, hence, its international credit ratings. All of these repercussions have contributed to lowering the state’s capacity to undertake investments and implement reforms to boost the IWOSS sectors, and might further result in delaying needed actions to unleash IWOSS potential in Senegal. This brief updates the spring 2021 working paper (Mbaye et al., 2021) on how support to IWOSS in Senegal can create jobs, taking into account the far-reaching effects of the pandemic.

Download the working paper

      
Kategorien: english

Measuring internet poverty

26. Juli 2021 - 22:15

By Jesús Crespo Cuaresma, Marco Fengler, Katharina Fenz, Homi Kharas, Leo Saenger

For the majority of the world, it is impossible to think of life without the internet. Think about life and work during COVID-19 when internet connectivity and digitalization were among the most necessary aspects of daily life. The internet allows us to stay entertained, informed, and, most importantly, connected. The internet is now a basic necessity like food, clothes, shelter, or electricity.

However, not everyone is connected. Many people either pay too much or don’t receive the bandwidth to use the internet effectively. People who can’t afford a minimum package of connectivity are the poor of the 21st century.

This is why World Data Lab (WDL) has developed a global measurement framework of internet poverty to measure the number of people left behind in the internet revolution. People who can’t afford a basic package of connectivity—set at 1.5 gigabytes (GB) per month at a minimum download speed of 3 megabits per second (Mbps) (equivalent to 6 seconds to load a standard web page)—are internet-poor. This is an analog to the extreme poverty line, currently at $1.90 (2011 PPP), which represents a basket of minimum basic needs (mostly of food, clothes, and shelter).

Globally, internet access is rising. Every second, five to six people join the group of internet users (broadly seven are added and one person dies). Today, an estimated 4.5 billion people are connected compared to only half a billion people 20 years ago. As the price of internet access declined sharply, more people started to use it—similar to the rise of mobile phones 20 years ago.

To reduce internet poverty, incomes need to rise, or internet prices must decline. The price of the internet also declines if the quality and quantity improve. Remember when the last iPhone was presented, the previous version became cheaper even though it was performing just as well.

Internet prices for every country are now available from Cable and the International Telecommunication Union (ITU). The cost of the average mobile internet package is $0.50 per day. However, quality varies across countries. Using our model of how prices vary with quality, we obtained the price of a standardized quality of internet use in each country. Setting a standard of 1.5 GB per month with 3 Mbps would allow an individual to browse web pages, check emails, and conduct some basic online shopping for 40 minutes a day. It is our equivalent of the “basic needs” of accessing the internet—enough to do the minimum, but not enough to watch videos or conduct other tasks such as accessing databases that demand higher bandwidth. How many people can afford such a basic internet package?

We assume affordability if it would represent 10 percent or less of a person’s spending. This is in line with recent World Bank estimates for West Africa where only around 20-25 percent of the population can afford mobile internet.

Figure 1. Internet poverty framework

Source: World Data Lab

Based on this definition, World Data Lab estimates that there are around 1.1 billion people living in internet poverty today. This is a lower-bound estimate as it assumes that everyone in a country actually has access to the internet if they are willing to pay, in the same way that poverty headcounts assume that everyone has access to food if they have the money to pay for it.

Focusing on internet affordability, we find that almost anyone living in a rich country can afford to use the internet—even if the price might be rather high. By contrast, the price plays a crucial role in poor countries. At least in the short term, people in developing regions depend on an affordable pricing scheme for them to be able to access the internet.

In particular, our results show that poor countries with cheap internet (below $15 per month), are able to connect a much larger proportion of the population than poor countries with expensive internet. Only 13 percent of the population in poor countries with cheap internet live in internet poverty. Conversely, poor countries with expensive internet have 67 percent of their population in internet poverty. Of the 4 billion people who live in countries with average per capita spending of below $11 per day, 3.4 billion have access to cheap internet by our definition. Only 7.5 percent, around 588 million people, live in poor countries with expensive internet. This group of people must be the focus for eliminating internet poverty.

While there are large differences in incomes around the world, there are also substantial differences in the price for a minimum package of internet. These price differences are independent of per capita incomes. In the U.S., people pay almost double for the same internet package as in the Philippines. Malawi has about the same per capita income as Mozambique but pays on average three times as much for a basic internet package. Among emerging economies, India stands out as a poor country with low internet prices—thus an internet poverty rate of around 8 percent. By contrast, Malawi, Venezuela, and Madagascar have the highest prices in the world even though they are among the poorest countries in the world, suggesting issues with economic growth and internet supply (see Figure 2).

Figure 2. Internet affordability in 2021

Source: World Data Lab estimates

As we have seen over the last year, internet connectivity should be a staple in everyone’s life. While the COVID-19 shock will make it difficult to end extreme poverty by 2030, it is still possible to end internet poverty. If every country encouraged competition and innovation so that prices would decline to the levels of India, then internet poverty would already today decline by more than half.

      
Kategorien: english

Reconciling economic growth and youth employment creation in Senegal

26. Juli 2021 - 17:49

By Ahmadou Aly Mbaye, Fatou Gueye, Assane Beye, Abdou Khadir Dia, Massaer Mbaye

In recent years, high youth unemployment has become one of the most pressing challenges facing African policymakers. Unlike in industrialized and emerging economies, export-led manufacturing is playing a much smaller role in the structural transformation of Africa’s economies. Senegal is no exception to this trend. While agriculture has lost more than 10 percentage points of its labor share between 2004 and 2019, manufacturing has increased its share by only 1 percentage point, against 7.6 percentage points for trade.

Yet, recent macroeconomic trends do not reveal a stagnant economy lacking opportunity, but one that is growing rapidly and increasingly providing opportunities for its young people. After averaging 3 percent growth per year from 2009-2013, Senegal’s economy grew by 6.6 percent per year from 2014 to 2019. Moreover, youth unemployment dropped from 14 percent to 6 percent between 2007 and 2016. Again, unlike the experience in much of Asia, manufacturing does not appear to be driving these trends.

Instead, a growing body of literature identifies some sectors that are similar to manufacturing in many regards, and that could be nurtured to support economic growth and generate employment. These industries, termed “industries without smokestacks” or IWOSS, are characterized by (i) being tradeable, (ii) generating high value-added per worker, (iii) having a greater potential for technological change and productivity growth, and (iv) showing evidence of scale and/or agglomeration economies. Our recent report analyzes the potential of IWOSS sectors to, if properly leveraged, dramatically boost good-quality job creation in Senegal.

Overall, at 4.5 percent per annum, IWOSS sectors in Senegal experienced a substantially higher growth rate between 2001 and 2017 than did non-IWOSS sectors (2.7 percent) and manufacturing (3.4 percent) over the same period. On the labor market side, the employment elasticity for IWOSS sectors tourism and agro-processing are 0.96 and 0.88, which are higher than manufacturing (0.54). Horticulture’s is even higher, at 0.97. A higher employment elasticity means that as these IWOSS sectors grow, they will tend to create more jobs than manufacturing.

IWOSS in Senegal has shown higher employment growth for women

Importantly, employment elasticities are, in general, much higher for women than for men, for both IWOSS sectors and non-IWOSS sectors alike (Table 1). Indeed, while male employment in IWOSS grew by 3.9 percent per over the 2001-2017 period, women experienced an even higher employment growth rate in IWOSS (5.1 percent) over the same time frame.

Table 1. Employment-output elasticity for Senegal Total Male Female Overall economy 0.55 0.43 0.76 Total IWOSS 0.77 0.65 0.97    Agro-processing 0.88 0.73 1.15    Horticulture 0.97 0.9 1.16    Tourism 0.96 0.81 1.14    ICT 0.19 0.13 0.29    Transport 0.24 0.14 0.41    Financial and business services 0.99 0.9 1.13    Trade: formal 1.17 1.04 1.41    Other IWOSS services 0.46 0.35 0.65 Manufacturing 0.54 0.42 0.78 Other non-IWOSS 0.48 0.35 0.70    Agriculture 0.3 0.16 0.5    Mining 0.10 0.06 0.13    Utilities 0.19 0.14 0.31    Construction 0.56 0.44 0.68    Trade: informal 1.14 1.0 1.37    Government 0.4 0.29 0.6    Other non-IWOSS services 0.52 0.43 0.70

Source: ANSD (2019), Direction de l’horticulture, ilostat (2020), authors’ calculations.

Despite the promise shown by IWOSS for women, the employment growth rate for youth (aged 15-24) remains much more limited than for older people. Both for IWOSS and for non-IWOSS, the youth employment growth rate is lower (2.3 percent for IWOSS and 0.0 percent for non-IWOSS) than that of adults (25+ age bracket), whose employment growth rates are 6.2 percent for IWOSS and 4.6 for non-IWOSS.

Despite this promise, constraints are holding IWOSS sectors back

While certain IWOSS in Senegal certainly have the potential for job creation, a number of obstacles stand in the way of the growth of those sectors. Removing these hurdles to IWOSS growth might considerably change the growth trajectory of Senegal in the near future, by, in our estimates, doubling annual growth rates from their baseline level.

Horticulture

Having access to credit in Senegal is a lengthy process and has several limitations relative to obtaining credit from commercial banks. Interest rates are high, and barriers to access to credit are not homogenous across sexes. More specifically, women have a harder time accessing loans as all the parameters relative to having worthy collateral are, most of the time, linked to the borrower’s employment status. Moreover, the horticulture sector lacks qualified and skilled laborers that would enable its operators to be competitive in the international markets by producing high-quality products in the timeframe imposed by international buyers. Finally, the impact of climate change on livelihoods cannot be ignored: The natural resources required to have good yields are getting scarcer and the technological investments necessary to allow producers to adapt to those climatic changes are not made. As a result, products are not properly conserved nor transformed thus leading to huge yield losses. To counter these issues, it would be important to make infrastructural investments to minimize yield losses and increase opportunities for conservation and transformation, provide capacity-building opportunities, and develop and popularize climate change adaptation measures.

Tourism

The biggest issues in the tourism sector are related to climate change, as Senegal has capitalized on “watercourse tourism” where most tourist activities are centered around water. Therefore, rising sea levels threaten most of those activities. Additionally, most investments around tourism are concentrated in big cities like Dakar. The remote rural areas, which also hold breathtaking tourist attractions, lack adequate infrastructure that would attract private investment. Thus, policymakers should make important infrastructural investments in rural areas as a means to attract private investments, and identify and implement climate change mitigation measures that would enable a sustainable exploitation of resources.

Agro-industry

Policymakers must take steps to reduce the barriers to entry to IWOSS sectors, especially lack of adequate infrastructure. Eight percent of the companies interviewed in the World Bank’s 2014 Senegal Enterprise Survey name electricity as the main constraint to conducting their business activities, and 48.2 percent characterize it as a significant constraint. Furthermore, in an effort to increase profit margins, it is crucial to have access to foreign markets with accessible import and export procedures. In Senegal, exporting a regular container of products requires up to six documents and up to $1,225 in fees. Importing the same container requires five documents and a $1,740 fee. Reforms for entry and export of goods are essential for this sector’s further growth.

      
Kategorien: english

The economic benefits of cities in the developing world

23. Juli 2021 - 22:07

By Arti Grover, Somik V. Lall, Jonathan Timmis

Dulani Chunga moved from a safe, quiet but poor village in Malawi to Blantyre, the prime business city, in the hopes of changing his destiny. He was drawn to the city by stories of streetlights, the opportunity to make money, and the chance to send his children to school. He lives in Ndirande, an immense slum with squalid conditions. While his income is higher than what it used to be in his village, it is barely enough to feed his family of four—food and shelter cost a lot more in Blantyre.

The fortunes of many Dulanis are stuck in a low-development trap of developing-country cities. Yet, evidence increasingly highlights the productivity advantages of living and working in dense cities, particularly in the developing world. While productivity benefits of density, measured as the elasticity of wages with respect to density, are significant for developed country cities—0.043 in the United States and 0.03 in France—some recent estimates for developing countries are multiples higher: 0.19 in China, 0.12 in India, and 0.17 in Africa. What do these estimates tell us? A 10 percent increase in density increases productivity by 1.7 percent in Africa compared to 0.4 percent in the United States. These estimates appear implausible if we take Dulani’s experience into perspective. More broadly, 54 percent of Africa’s urban population lives in slums and 38 percent in South Asia.

How do we reconcile these elasticity estimates with reality? In a recent working paper, we examine more than 1,200 estimates of urban productivity from 70 studies covering 33 countries from 1973 to 2020. In addition, we constructed new estimates to show how urban costs, with respect to crime, congestion, and pollution, changed with density. For this, we collected data from hundreds of cities around the world, including several in developing countries.

A quick look suggests high agglomeration economies in developing countries

A casual glimpse at productivity estimates measured through wage premiums shows that these are on average nearly 5 points higher in developing countries (Figure 1).

Figure 1. People in developing countries appear to benefit more by living in cities

Source: Agglomeration Economies in Developing Countries: A Meta-Analysis.
Note: This figure computes unweighted average wage elasticity estimates for each country using individual worker data for the non-services sector (reflecting either manufacturing or the entire economy). This comprises two-thirds of the developing country estimates.  It reflects 271 raw elasticity estimates (144 in non-high-income countries), aggregated across different studies with different methodologies.

A broader examination tells a different story

A meta-analysis is a technique that helps explain differences in estimates across studies based on their attributes, including methodology, time period of the study, and so on. For example, studies estimating agglomeration benefits using nominal wages or labor productivity have elasticities that are 6.3 and 4.3 percentage points higher than those using total factor productivity (TFP). This suggests that part of the wage premium is driven by higher capital intensity, perhaps a result of thicker capital markets, in urban areas, rather than efficiency or spillovers per se.

Some studies also control for the fact that skilled workers are attracted to dense cities that make them productive. These studies include human capital controls such as an individual’s education, lowering agglomeration gains. Finally, econometric analysis that employs panel fixed effects, thereby controlling for the selection of better workers or firms, lowers estimates by about 1.8 percentage points. Once such study-level idiosyncrasies are accounted for, elasticity estimates for developing countries are only 1 percentage point higher than those for developed countries (Figure 2).

Figure 2. Agglomeration premiums on labor productivity nearly disappear after controlling for urban costs

Source: Agglomeration Economies in Developing Countries: A Meta-Analysis.
Note: The figure uses a rope-ladder representation of a subset of the estimated coefficients from the meta-analysis model. The meta-analysis probes into the factors—methodological, data-related, controls—that influence agglomeration elasticity estimates. The methodology for meta-analysis minimizes the Bayesian Information Criterion. Using the standard errors of the coefficients, it also plots the 90 percent confidence intervals, where standard errors are clustered at the study level. Similar estimated coefficients are obtained by model selection using the Akaike Information Criterion or Bayesian Model Averaging methods.

Agglomeration premia should reflect the higher cost of working in cities (such as higher housing costs or time lost in transport) or compensation for urban disamenities such as pollution and crime. But most empirical work does not factor in these costs. Our meta-analysis shows that studies controlling for urban costs would estimate net agglomeration benefits to be 0.1 percent for high-income countries and 1 percent for non-high-income countries when using labor productivity as the outcome. These results are in line with French and Colombian data, suggesting that the net benefits from city size are close to being flat.

Our estimates on the extent of urban disamenities with respect to pollution, congestion, and crime suggests that urban disamenities are higher in developing countries. For the average city density, in high-income countries 19-30 percent fewer hours are spent in traffic congestion, pollution is 16-28 percent lower, and the homicide rate is around four times lower. In particular, the elasticity of the homicide rate is positive and very high (24 percent) in developing countries and negative (56 percent) in developed countries. This suggests that if urban costs pertaining to crime are accounted for, the magnitude of net agglomeration elasticity in developing countries would be smaller or even negative.

Are cities in developing countries different?

The findings from our systematic meta-analysis and estimates on cost elasticities support Dulani’s view on the ground. People in developing countries are concentrating—but not because they are attaining the productivity benefits of urbanizing. Developing-country cities are generally dense but not productive, and they are crime-ridden and polluted to boot. This evolution is consistent with what has been called “premature urbanization.”

In light of these findings, can we really hope that the migration of people from villages to dysfunctional cities will pull them out of poverty? The experiences of China and South Korea suggest that cities become productive when urbanization is accompanied by industrial dynamism and broader structural transformation of the national economy. Developing countries ought to focus on removing distortions that limit structural transformation that creates the impetus for spatial transformation. It is only then that cities will attain economic density, achieve higher productivity, and live up to the hopes of many more Dulanis to come.

      
Kategorien: english

What India’s COVID-19 crisis means for Africa

23. Juli 2021 - 0:05

By Jamie MacLeod, Vera Songwe, Stephen Karingi, Hopestone Chavula, Jean Paul Boketsu Bofili, Sokunpanha You, Veerawin Su

By May 9, 2021 India accounted for 57 percent of new COVID-19 cases anywhere in the world.

This phenomenon rippled through the interconnected economies of the world, including those in Africa. Indeed, India has risen over the past decade to become Africa’s thirdmost-important trading partner, after the European Union and China. In fact, the African market is precariously dependent on Indian suppliers for certain products, notably pharmaceuticals and rice. This is especially the case of East Africa, in which 35 percent of pharmaceutical imports come from India, and 20 percent of rice.

As India’s second COVID-19 wave raged, a concern for African countries has been the potential for economic and trade-related spillovers channeled through these trade sensitivities. There is a precedent. At the start of the pandemic, in April 2020, Indian rice traders were forced to suspend exports amid disruptions to transport links, and maritime shipping and production bottlenecks caused by lockdown restrictions imposed to suppress the spread of the virus. In a United Nations Economic Commission for Africa (UNECA) survey of African businesses across the continent in July 2020, companies reported switching suppliers as a result of sourcing disruptions, with 56 percent finding equivalent products and favouring national and regional suppliers.

Fortunately, the supply-side disruptions seen in early 2020 have not substantively materialized, but the recent soaring numbers in India have complicated things for the continent. Indeed, India is more than your average country in the face of a health pandemic and is also quite notably the “vaccine factory of the world.” In being forced to redirect COVID-19 vaccine exports domestically to fight its current outbreak, India is estimated to have left COVAX with a shortfall of 190 million doses by just the end of June.

Though countries across the world are also facing the vulnerabilities of having been too dependent on Indian vaccine supplies, it is developing and least-developed countries that are most dependent on COVAX and have already fallen behind in vaccination rates. According to WHO Africa, while the world—as of mid-June—had administered 29 doses per 100 people, African countries had managed just 1.5 doses per 100 people. (Note that this Africa figure excludes Morocco, which is an outlier on the continent as a large economy with an exceptionally high vaccination rate.) A scenario is emerging in which well-vaccinated rich countries like Israel, the United States, and the United Kingdom begin reopening their economies while African and other developing countries face persisting lockdown restrictions and stifled economic recoveries.

The Indian outbreak exacerbates this uneven recovery scenario. Of the vaccine doses received in Africa as of mid-May, by the time Indian supply disruptions had begun, almost one-half were from COVAX, with bilaterally negotiated supplies accounting for most of the remainder and AVATT deliveries expected in significant quantities only in the third quarter of 2021. In turn, in the three rounds of COVAX allocations the vast majority of doses (237 million) have been of the Oxford-AstraZeneca vaccine, almost all of which were made by the Serum Institute India. Only 15.4 million have been Pfizer-BioNTech, produced in a number of other sites outside India. The need to redirect Indian vaccines is estimated to have left COVAX with a shortfall of 190 million doses.

With vaccine exports from India banned until at least October, supply shortages in the COVAX initiative are likely to substantively delay the African vaccine drive and, in turn, any end to the pandemic on the continent.

Fortunately, Africa is not helpless. Over the short-to-medium term it will be important for African countries to consider diversifying vaccine supplies. Strategies might include raising the number of approved vaccines in supply portfolios and diversifying acquisition channels, contracted manufacturers, and the geographical mix of suppliers. The 870 million vaccine doses pledged to COVAX by the G-7 at their meeting in June is a welcome start.

Over the medium to long term, African countries must increasingly look to local manufacturing of vaccines. With momentum shifting behind a World Trade Organization waiver on intellectual property rights protections for vaccines, African countries may have opportunities for expanding and ramping up vaccine production on the continent. Doing so may help African countries to fight the COVID-19 pandemic with additional vaccine supplies, once this capacity comes online, but it could also  prepare capacity for other future and ongoing health challenges beyond COVID-19. In fact, progress is already underway: The Institut Pasteur in Dakar, Senegal, with support from a number of donors, is constructing a facility that aims to produce 25 million doses monthly by the end of 2022.

The collective impact on African economies

The effects of trade spillovers, disrupted vaccine supplies, and the emergence of a new highly transmissible variant have been incorporated into an updated version of the UNECA macroeconomic model to assess the impact of the Indian second wave on the aggregate African economy. The situation is rapidly developing, and such estimates are best considered initial approximations among considerable uncertainty.

Initial UNECA estimates show that the outbreak of the delta COVID-19 variant in India is forecast to reduce Africa’s GDP growth by 0.5 percentage points in 2021 and a further 0.1 percent in 2022. These drops amount to approximately $13.5 billion in lost economic output in 2021 alone. Delayed recovery in labor markets and external demand due to the surging COVID-19 cases (with resulting persistent lockdowns) are the key drivers that will drag down economic activity. The pandemic outbreak will also reduce labor supply and labor participation rates as governments tighten restrictions. Rising unemployment, declining incomes, and growing poverty induced by the new wave further necessitate accelerated vaccination to reduce the impact of the Indian wave on the African continent.

New courses out of crisis?

As the “vaccine factory of the world,” India’s need to refocus vaccines toward its own COVID-19 crisis has greatly exacerbated the challenges of vaccine access in Africa. In the words of  Ngozi Okonjo-Iweala, director-general of the World Trade Organization, “We have now seen that over-centralization of vaccine production capacity is incompatible with equitable access in a crisis situation” and that “regional production hubs, in tandem with open supply chains, offer a more promising path to preparedness for future health crisis.”

This is exactly the course of action African governments must see through to improve vaccination rates across the continent and bring forward an end to the crisis. The Indian second COVID-19 wave has reaffirmed the agreement of the African Union Heads of State at the Africa CDC’s vaccine-manufacturing summit on the need for “establishing a sustainable vaccine development and manufacturing ecosystem in Africa.”

      
Kategorien: english

Decoupling economic growth from emissions in the Middle East and North Africa

22. Juli 2021 - 23:23

By Martin Philipp Heger, Lukas Vashold

Economic growth plays a critical role in raising living standards and enabling human progress. However, economic growth needs to decouple from negative environmental consequences, as these, in turn, degrade the very foundations of human development. One example of a negative environmental consequence is airborne emissions that lead to climate change and air pollution. To meet any emissions reduction target, the minimum requirement is that economic growth decouples from emissions growth. Hence, at best, emissions would be reduced from year to year, at a steady pace, even if the economy grows—a process called absolute decoupling. At second-best, the growth rate of the economy would outpace the growth rate of emissions—a process called relative decoupling.

No decoupling of emissions from economic growth in MENA

The Middle East and Northern Africa (MENA) is the only region in the world where greenhouse gas (GHG) emissions are not decoupling from income growth. The decoupling processes can be visualized as is done in Figure 1 for a world average as well as for Europe and Central Asia (ECA) and MENA. It plots the growth of gross national income (GNI, blue line) and carbon emissions (red line), both in per capita terms, from 1990 to 2018 for an average resident of the world, ECA, and MENA. Globally (left panel of Figure 1), relative decoupling was achieved with average incomes rising faster than per capita carbon emissions, even though emissions were still increasing over this period. In ECA (middle panel of Figure 1), absolute decoupling was achieved, with average carbon emissions per capita decreasing by around 30 percent compared to their 1990 levels. In a forthcoming report,“Blue Skies, Blue Seas in the Middle East and North Africa,” we show that North America also achieved absolute decoupling, while other regions of the world (including East Asia and Pacific, South Asia, sub-Saharan Africa, and Latin America and the Caribbean) managed to decouple income growth from carbon emissions relatively. In stark contrast, MENA (right panel of Figure 1) is the only region, in which growth of CO2 emissions per capita has outpaced the growth of average incomes, making it the only region that hasn’t decoupled in some form.

Figure 1. MENA, unlike other regions, is not decoupling income growth from carbon emissions

Source: World Bank staff based on data from United Nations Development Program and Global Carbon Project.
Note: Figure shows growth rates of gross national income per capita and carbon emissions per capita in percentage points since 1990.

MENA is an assortment of heterogenous countries: Some actually did manage to decouple, while most others did not. When zooming in on the individual country level, it becomes clear that while MENA as a region was not able to decouple income growth from carbon emissions growth, some countries in the region were. Figure 2 shows that while Iran, Oman, Iraq, and Saudi Arabia were not decoupling, other countries such as Tunisia, Lebanon, and Djibouti have achieved relative decoupling. Bahrain and Jordan were even absolutely decoupling (although only slightly).

Figure 2. Some MENA countries have managed to decouple carbon emissions from income growth

Source: World Bank staff based on data from United Nations Development Program and Global Carbon Project.

Air pollution emissions are decoupling in MENA from economic growth, although this is the world region where this decoupling is taking place at the slowest rate in international comparison (see Figure 3). The pattern is similar for air pollutants such as nitrogen oxide (NOx), which stems from road transport and industries but also agriculture, and sulfur dioxide (SO2), which stems mainly from burning fossil fuels by vehicles but also from energy production. Figure 3 plots differential growth rates for incomes and the respective air pollutant and while MENA has been able to relatively decouple NOx and SO2 emissions from income growth, it was the slowest region doing so. There has been an acceleration of this decoupling trend in recent years due to advances in industrial and agricultural processes; for example in Iran, NOx emissions from the agricultural sector have been reduced strongly by less intensive use of fertilizers, while the switch toward gas for energy production away from heavy oils and desulfurization of flue gas has helped reduce SO2 emissions. In Egypt, industrial NOx emissions decreased beginning in 2010, partly due to advances such as the switch from burning heavy fuel oil (so-called mazout) to using compressed natural gas in brick factories, and due to incentivization of resource efficiency and end-of-pipe technologies. Morocco has also seen positive developments regarding its SO2 emissions, which is attributable to the enforcement of strict sulfur limits in gasoline and diesel in the past years. Nonetheless, slow overall decoupling of these air pollutants puts MENA again at the back in a regional comparison.

Figure 3. MENA region is slowest in decoupling NOx and SO2 emissions

Source: World Bank staff based on data from United Nations Development Program, Hoesly et al. (2018) and World Resources Institute.
Note: Figures show differential between growth rates of gross national income per capita and the emission of the respective air pollutant per capita. Growth rates are calculated in comparison to 1990 levels and the differences in growth rates were computed (and expressed in percentage points).

This blog showed that MENA was the only region to not decouple income growth and carbon emissions growth and the least successful in decoupling income growth from air pollutant growth. But what are the reasons for these failures and what can be done about it? Stay tuned for a follow-up blog in which we will discuss why there has not been decoupling in MENA and how to kick-start decoupling, and review some of the main messages coming out of the regional flagship report “Blue Skies, Blue Seas in the Middle East and North Africa.”

      
Kategorien: english

Make Room(s) for change

19. Juli 2021 - 19:43

By John McArthur

      
Kategorien: english

The key to global climate success

19. Juli 2021 - 19:33

By Kemal Derviş, Sebastian Strauss

Recent advances in green technologies have made reaching net-zero greenhouse-gas emissions by 2050 not only technically feasible but also economically worthwhile. Meeting this goal—which has started to anchor expectations now that an increasing number of countries have adopted it—is necessary to keep global warming well below 2 degrees Celsius relative to pre-industrial levels. But countries must start rapidly reducing emissions now.

Climate change affects different parts of the world differently, and not all countries are equally responsible—both now and historically—for carbon dioxide emissions. These disparities have so far prevented the emergence of an international consensus on how to share mitigation costs fairly. But in the run-up to the United Nations climate-change summit (COP26) in Glasgow in November, recognition of the severity of the global warming threat, coupled with a dramatic reduction in the cost of renewables, is making rapid progress easier. In fact, the emphasis in the climate debate has shifted from the costs of mitigation to the opportunities provided by new technologies.

The race to realize a net-zero world by 2050 remains tight, with different groups of countries moving at varying speeds. But it is becoming increasingly clear that the performance of emerging markets and developing economies (EMDEs) other than China is likely to hold the key to success.

The race to realize a net-zero world by 2050 remains tight … . But it is becoming increasingly clear that the performance of emerging markets and developing economies (EMDEs) other than China is likely to hold the key to success.

Among advanced economies, Europe is at the forefront of green transformation efforts. The United States under President Joe Biden now seems determined to raise its climate ambitions, and its technological capacity makes it likely to perform well, despite continued domestic political obstacles. The same can be said for other rich countries such as Japan and Canada, which also have the resources and technology to be in the net-zero vanguard.

The poorest countries already suffer the most from ongoing climate change and are the least able to afford mitigation and adaptation measures. On ethical grounds, they deserve a lot of assistance to help them adapt and leapfrog to green technologies, but their total CO2 emissions will be too small to affect the global aggregate significantly between now and 2050.

This is not the case for EMDEs, whose level of climate ambition and capabilities will be a major determinant of global success. While emissions in most advanced economies are declining, they are still increasing in most EMDEs, which, including China, now account for about two-thirds of global emissions. (China by itself generates about 30 percent of the global total.)

But, because China differs in some important ways from most other EMDEs, lumping it together with these countries is not the best way to assess their prospects for further decarbonization. For starters, China has both the desire and the capacity to be a global export leader in green technologies, and pursuing this ambition will also boost China’s efforts to tout the attractiveness of its sociopolitical system.

Moreover, China has the financial resources to meet the often-large upfront costs of the green transition, and the country’s semi-public firms may be willing to take the long view needed for many of these investments to prove profitable. Finally, China’s sheer size means that it will benefit substantially from its own emission cuts, diminishing the free-rider problem—a point that many overlook.

There are thus good reasons to believe that China will soon scale up its climate policies and embark on a growth path that reduces emissions much more rapidly than now. In contrast, the other EMDEs, while a diverse group, are almost all still on carbon-intensive growth paths.

EMDEs must invest heavily in power, transportation, housing, and related sectors to meet the expectations of their still-growing populations, including hundreds of millions of very poor citizens. Despite the justifiably optimistic emissions-reduction scenarios for the advanced economies and China, therefore, it is the other EMDEs’ trajectories that could be the difference between limiting global warming to well below 2°C and significantly exceeding this threshold.

Compared to developed countries and China, EMDEs have limited ability to mobilize the long-term upfront finance needed to put them on green growth trajectories. They lack domestic fiscal space and do not qualify for concessional resources from advanced economies, which are mostly reserved for low-income countries.

Moreover, some important EMDEs such as India, Indonesia, and South Africa still rely heavily on coal. While these countries’ primary challenge is rapid growth of new green capacity, they face the additional difficulty of decommissioning relatively new capital stocks. China also must confront these issues, but has greater leeway to deal with them.

The only viable solution to this challenge is a lot of long-term international financing for EMDEs, mostly from private sources. Multilateral development banks should facilitate this process by offering to blend in some slightly concessional financing of their own and providing risk-reducing facilities to mobilize private resources. That would require the MDBs to obtain additional shareholder capital as well as permission to use their balance sheets less conservatively. Meanwhile, China, rather than being a net recipient of foreign capital, will be a source of long-term private and public finance for the other EMDEs.

As policymakers prepare for COP26, prospects for achieving a carbon-neutral world by 2050 are improving. But it is unrealistic to expect to keep global warming well below 2 degrees Celsius if middle- and lower-middle-income countries do not participate fully in the green transformation.

      
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