2011

Filtres de recherche
Working Paper 143 - Does Good Governance Create Value for International Acquirers in Africa: Evidence from us Acquisitions
15/12/2011 13:45
Working Paper 143 - Does Good Governance Create Value for International Acquirers in Africa: Evidence from us Acquisitions
Mergers and acquisitions (M&A) remain a highly popular form of corporate reorganization and growth, globally and in Africa. Over the last two decades, there has been a dramatic rise in the number of acquisitions of African businesses by foreign companies. For instance, during the period 2003-2008, the number of completed M&A transactions targeting African firms and involving non-African acquirers more than doubled while the value of those transactions increased seven fold. According to Thomson-One, the most active non regional acquirers in Africa over the period 1982-2010 came from the United Kingdom, the United States and Canada, both in terms of transaction value and number of deals. The objective of this paper is to study the long term stock performance of M&A targeting African firms and the determinants of the observed returns. To the best of our knowledge, we provide the first study of the effect of internal governance (at the firm level) and external governance (at the country level) characteristics on the performance of acquirers who targeted African firms. To do so, we focus on US acquisitions in Africa for two main reasons: a) US acquirers are the second most active in Africa both in terms of transactions number and value, and b) Detailed data on the governance and ownership structure of US publicly traded companies is available in the proxy statements published annually by those companies. This makes the study of the governance structure at acquirers’ level possible. Overall, the paper answers the following questions: (1) What are the important trends in the M&A market between the US and Africa? (2) Are shareholders of US acquirers benefiting from their acquisitions in Africa in the long run, and what affects reported returns? (3) What areas should governance reforms focus on in order to enhance Africa’s attractiveness for international investors? Studying the effect of governance on the performance of international acquisitions in Africa is of particular interest for regulatory purposes. Indeed, empirical evidence that links weak governance to higher returns for acquirers will support the argument that international acquirers are able to extract high returns thanks to the weak governance that some African countries are suffering from. This will highlight the need to protect more local businesses while not hindering FDI. Alternatively, a positive relation between governance and returns will illustrate the need to strengthen foreign investors’ protection in order to attract more FDI. Despite several reforms aimed at promoting sound corporate governance on the continent such as the “King report on Corporate Governance in South Africa”, Africa still has a reputation of maintaining poor economic and political governance structures. This may have undermined its attractiveness as a destination for direct acquisitions. High levels of corruption reported in several African countries exacerbate this reputation problem. The paper uses data on completed M&A done by US acquires in Africa from Thomson-One and on stock prices from Datastream. Governance and capital structure variables for acquiring companies were hand collected from proxy statements. Measures of the target institutional environment are from Political Risk Services' International Country Risk Guide (ICRG). We use the returns on the Fama French factors, size, industry and book to market portfolios available on the website of Kenneth French to implement our calendar time approach. Our results suggest that US acquirers do not benefit from their African acquisitions and report negative returns following these transactions. This finding supports the accepted idea in the literature that M&A are not value creating for acquirers, and shows that Africa is not an exception. The empirical findings drawn from the multivariate analysis suggest that acquisitions of South African targets or in countries with strong and impartial legal systems lead to higher performance while those observed in countries with high economic instability generate lower returns. Surprisingly, the level of corruption does not affect observed returns. Additionally, acquirers with previous experience in Africa and those with small board size are more likely to outperform. These results suggest that African countries should target enhanced macroeconomic stability and strengthen foreign investor’s protection in order to attract more FDI. While our results should be interpreted with caution given the small size of our sample, we believe they still provide new interesting insights about the level and determinants of M&A performance in Africa. Overall, our findings highlight the need for African countries to implement reforms aimed at fostering economic stability and strong foreign investors’ protection. Yet, these conclusions should be interpreted with a pint of salt given the small size of our sample. Future research should seek to include other acquiring countries in the analysis.Lire la suite
Working Paper 142 - Africa’s Quest for Development: Can Sovereign Wealth Funds Help?
09/12/2011 14:14
Working Paper 142 - Africa’s Quest for Development: Can Sovereign Wealth Funds Help?
Sovereign Wealth Funds (SWFs) have emerged as potential solutions to actively manage foreign reserves accumulated from commodity sales or strong exports. They correspond to government-owned investment vehicles managed by a state-controlled entity or external managers, on behalf of a nation, to serve primarily medium to long term economic and financial objectives. Their existence could be traced back to the 1950’s when Kuwait established in 1953 a SWF to manage its foreign reserves. Impressive growth in the size of SWFs assets and the recent eye-popping cash infusions they made into high profile Western financial institutions like Morgan Stanley, Citigroup, UBS and the Blackstone group, to mitigate the negative effects of the financial crisis, helped spur the phenomenal increase in their popularity. Latest statistics published by Preqin show that SWFs managed USD 4 trillion in assets as of December 2010, 11% more than in 2009, reflecting the start of a global economic recovery. OECD expects assets under SWFs management to reach USD 10 trillion by 2015. Significant revenues from commodities over the last decades had led to the inception of a number of SWFs in Africa, notably in oil exporting countries (e.g., Libya, Nigeria, and Chad). Botswana (Pula Fund) and Ghana (Minerals Development Fund) pioneered the establishment of African SWFs in 1993. The objective of this paper is to improve understanding of SWFs activities in Africa and to discuss the potential role that SWFs could play in African economies, both as recipient countries and home countries. The paper makes several contributions to the debate on the role that institutional investors are poised to play in global capital markets. First, it analyzes how African economies can benefit from SWFs and use them as a channel to tap into international financial markets. Second, the paper documents the size of assets managed by SWFs and describes how and to what extent they can contribute into broadening and deepening African financial systems.  This includes discussions on their capacity to mobilize sizeable amount of long-term financing and to diversify African financial systems out of the banking sector, through investments in a various set of non-bank financial assets (equity, fixed income securities, real estate, etc.) and institutions (insurance, leasing companies and private equity funds). Last but not least, the paper examines the very important role that SWFs could play to stabilize the global financial system, through large injections of funds into the global economy. This is documented with reference to investments made by the Libyan Investment Authority (LIA) in some European (e.g. Italy, United Kingdom, Netherland-Belgium and Spain) financial institutions to prevent some of the deleterious effects of the recent global financial crisis.   The continent has at least 15 SWFs with the notable exceptions of the Libyan Investment Authority (LIA) and the Algerian Fonds de Regularisation des Recettes (FRR), which rank among the largest 15 SWFs worldwide. In terms of size African funds are dwarfed by their peers from other regions of the world (mainly Asia and the Middle East). Among the five (5) largest African SWFs, four (4) are sourced from oil and gas revenues, the last being sourced from diamonds, minerals and other natural resources. These funds were established on a voluntary basis, except Chad’s Future generation fund that establishes a petroleum revenue management law in Chad. The fund was established under the guidance of the World Bank as a condition to disburse a loan aimed at funding the Duba oil fields and the Chad-Cameroon pipeline.   It comes out fairly clearly from our analysis that African SWFs are predominantly driven by stabilization motives and to a lesser extent by the need to generate higher returns on domestic resources in order to accumulate wealth for future generations. Notably, Africa-based SWFs have a market share that presumably does not exceed 2%. As of December 2009, African SWFs had USD 114.27 billion in assets under management, much less than their peers from the Middle East, which held assets amounting to USD 1.41trillion.Lire la suite
Working Paper 141 - Always Late: Measures and Determinants of Disbursement Delays at the AfDB
01/12/2011 00:00
Working Paper 141 - Always Late: Measures and Determinants of Disbursement Delays at the AfDB
At the African Development Bank, a number of analyses have pointed to long delays at project start-up as one of the main impediments to the performance of development operations in Africa (lengthy delays in signing loan agreements, loan effectiveness and first disbursement). The importance of time delays in project performance points to the need for a systematic effort to understand why some projects delay so much while others do not. What project characteristics raise the probability of start-up delays? Responding to these questions is crucial if one wants to set up effective strategies to mitigate the long delays encountered throughout the project cycle. This paper uses a sample of more than 500 projects implemented by the Bank in the agricultural sector between 1990 and 2007, statistical and econometric tools are used to identify the determinants of delays in project start-ups. The analysis shows that: (i) on average the total time elapsed between approval and first disbursement is twenty months. This is a long time given project documents normally allow for a maximum of 180 (6 months) days for loan agreements to become effective; there are service charges for clients associated with such delays. (ii) Delays have significantly reduced for newly approved operations. (iii) Close to 50% of the delays to the first disbursement are due to the delays between commitment and loan effectiveness. (iv) Multinational projects are more efficient in term of delays at start-up. (v) The smaller the cost of the operation, the greater will be the probability to experience long start-up delays. (vi) The longer the planned implementation period of a project, the longer the start-up delay will be. (vii) Projects with multiple components have a lower probability of experiencing delays at start up. (viii) After a project has entered into force, the time elapsed to first disbursement is longer for middle income countries. A key implication of these findings is that time delays at project start-up are a weak  link in the project cycle. It is important for the Bank to address this problem. This will improve the economic rate of return for projects funded by the Bank. The study identifies issues that the Bank needs to: (a) – More effective direct and early involvement of the Bank in upstream work, including Economic and Sector Work, in order to improve project design and minimize later need for modifications. (b) – Approval of projects at a later stage of the procurement process could help reduce delays and changes in project scope and composition, and result in more realistic estimates of costs. (c) - Delays at start-up can be minimized if the Bank undertakes adequate capacity assessment at project inception and ensures appropriate and timely training on procedures to relevant country officials. (d) - Disbursement forecasts should be more realistic and related to historic experience. Disbursement profiles for various countries could be prepared and used as a first approximation of a realistic disbursement plan.Lire la suite
Working Paper 140 - Development Aid and Access to Water and Sanitation in Sub-Saharan Africa
28/11/2011 15:35
Working Paper 140 - Development Aid and Access to Water and Sanitation in Sub-Saharan Africa
The principal objective of this study is to compare countries’ performance in the water and sanitation sector and to analyse how effectively they used the associated development aid. Specifically, the paper addresses the following questions in the WSS sector in SSA: What is the current magnitude of WSS ODA, and how did it evolve over the past two decades? How effective were the countries in utilising the disbursed WSS ODA? How did the SSA countries perform in safe drinking water and sanitation service provision to their citizens? What are the factors that explain the performance differences in WSS sector among SSA countries? In this context, an innovative standardised measurement framework known as the Watsan Index of Development Effectiveness (WIDE) was used to compares drivers of progress with results achieved, and ranks African countries by the level of outcome obtained per unit of available input. In particular, it determines how effectively they used the development aid received for the water and sanitation sector. The WIDE is made up of two composite information layers: Resources and Progress Outcomes. The first one refers to input drivers, such as the aid received, GDP, water resources, and governance level, while the latter relates to access to water, access to sanitation, and progress in the two. Each of these is calculated as a composite index, based on a number of pre-defined factors influencing progress in the water and sanitation sector. These analyses are further validated by presentation of the WSS sector situation of four case study countries, namely, Kenya, Madagascar, Burkina Faso and Uganda. In spite of its importance, the share of development aid allocated to water and sanitation has been low. Between 2001 and 2006, the region received 24 percent of global aid to the water and sanitation sector. When the figures are deflated by population, the trend is, however, less impressive. Per-capita ODA to the sector grew from USD07 1.28 a year in 1995 to USD07 1.75 in 2008. Furthermore, in spite of increasing international support, aid provided for WSS projects as a percentage of overall ODA only reached 4.1 percent in 2008, rising from just 2.8 percent of total ODA in 2002. Overall, this indicates that while the level of aid available to the water and sanitation sector has been increasing in real terms, it is still the case that the allocation to that sector is just a small fraction of the total, which may not be sufficient to meet the targets of the MDGs. Progress towards target 7c of the Millennium Development Goal of halving by 2015 the proportion of people without sustainable access to safe drinking water and improved sanitation facilities, remains slow. The rate of access to improved water sources increased from 49 percent in 1990 to 60 percent in 2008 – a marginal increase of less than one percent a year. Over the same period, growth in access to improved sanitation facilities was even more disappointing. It rose from 27 percent to 31 percent. Rural areas face the most serious problems in sanitation coverage. Rural access in the region increased only by three percent between 1990 and 2008, and over three quarters of SSA rural populations still lacked access in 2008. Yet, some relatively good performers can be identified. For example, rural access to sanitation grew by 33 percent in Rwanda, 23 percent in Central African Republic, and 21 percent in Cape Verde. Based on the WIDE assessment, the six best performers, all with WIDE values of 20 or above, include Angola (25), Rwanda (23), Zimbabwe (23), Central African Republic (23), Malawi and Comoros (both with 20). Angola’s performance, for example, is commendable. In spite of ranking 30th in resource availability, it achieved the 5th highest outcomes. This suggests that the scarce inputs were used relatively more effectively than in other SSA countries. Angola’s exceptional performance can be explained by the government’s aggressive capital investment programme in the sector and institutional reforms after decades of persistent civil conflict. At the other end of the distribution, Sierra Leone (-18), Tanzania (-21), Congo Rep (-23), Gabon (-24), Madagascar (-30) and Equatorial Guinea (-35) recorded the worst results, displaying low WIDE scores. For these countries, the input drivers are stronger than the progress outcome, hence poor WIDE scores. This suggests that available resources, including ODA, are not being used effectively in these countries in generating the desired results. The country case studies on Madagascar, Burkina Faso, Uganda, and Kenya involved discussions with relevant stakeholders in each country, to generate further insights into the performance of WSS. Overall, in all the studied SSA countries, inadequate finance and capacities to implement the various national strategies are the major constraints to meeting the MDG targets in WSS. Progress in WSS are slowed down because the relevant departments are understaffed, not just in absolute numbers, but also in terms of the required technical qualification. Operation and Maintenance is a key factor for infrastructure sustainability and development aid effectiveness. However, inadequate operation and maintenance programmes to support projects that have been donor financed are a major reason why development aid effectiveness is lower than it should be. Given the fact that many facilities are not optimally operating after completion of projects, involvement of the Bank and other development partners beyond project term is worth considering. The design of innovative solution to resolve the issue of operation and maintenance is critical to increase results sustainability. A capital sum should be included right from the project proposal stage, to create a revolving fund that could then be used as the ‘cash float’ to support the operational maintenance of schemes. The weak technical and administrative capacities call for more donors’ investment in capacity building for the sector’s operators in both public and private sectors. Donor’s support is also required to ensure budgetary discipline, increased transparency, fiscal decentralisation, and streamlining of the procurement process. Increased investment in sanitation facilities, particularly in rural areas, is highly recommended. Greater attention should, however, be given to adequate public awareness and sensitisation, especially hygiene education, for the correct use of latrines and cleaning of hands after defecation. For the WSS sector to achieve greater performance and increase the effectiveness of development, the Bank and development partners have a role in the implementation of effective monitoring and evaluation systems. These would reduce or eliminate the divergence of information from different data sources in the WSS.Lire la suite
Working Paper 139 - The Macroeconomic Impact of Higher Capital Ratios on African Economies
28/11/2011 14:57
Working Paper 139 - The Macroeconomic Impact of Higher Capital Ratios on African Economies
Africa escaped the recent global financial crisis relatively unscathed. While the region could not avoid the spill-over effects of the ensuing global economic downturn, its banking sector proved generally resilient. This was mainly due to the structural reforms implemented over the past decade, including strengthening the relevant regulatory and supervisory systems within a sounder and more flexible macroeconomic management framework. In particular, Basel III offers a set of regulatory standards based on higher and better quality capital, mostly common equity, with improved absorption features, complemented by newly introduced liquidity requirements. This paper provides the first analysis into the macroeconomic impact of the new international regulatory standards on developing countries, particularly on African economies. The paper tries to answer the following set of questions: what is the impact of tighter capital ratios on long-term economic performance in Africa?  Is there still room to raise capital holdings from current levels while achieving net aggregate economic gains? In particular, this paper presents an assessment of the long-term economic benefits and costs of higher capital ratios in terms of their impact on output. Additionally, the paper provides an estimate of the optimal level of regulatory capital requirements for African banking systems. Consistently with other studies, the focus is on the macroeconomic impact of representative changes in bank capital adequacy ratios based on definitions and historical data that do not correspond directly to those introduced by Basel III. The paper focuses exclusively on the long run, assessing the shift from one steady state to another, and does not consider the shorter-term costs associated with the transition. The paper estimates the long-term macroeconomic impact of higher capital holdings on output in African economies by following a three-step approach. First, the long-term benefits are estimated by quantifying the gains in African GDP resulting from a reduced probability of future banking crises. This involves calculating the expected yearly output gains associated with a reduction in the frequency of banking crises in the continent. The mapping of tighter capital ratios into reductions in the probability of banking crises is done based on a multivariate logit model for a panel of 19 countries for which data are available over the period 1980-2008.  Second, the long-run economic costs of higher capital ratios on output are evaluated by estimating the impact on the cost of bank credit. The higher cost of credit lowers investment and consumption, which in turn affects the steady-state level of output. Two panel data for 22 countries over the period 2001-2008 are used to quantify this. Finally, the study combines the results to quantify the net effect of higher capital ratios on aggregate output of African economies. The paper shows that tighter capital ratios have net positive effects on the level of long-run steady-state output for a relatively wide range of capital levels. There are increasing net benefits for capital ratios up to four percentage points higher than the current level. Thereafter, net benefits start decreasing and, for increases in the current capital ratio of more than nine percentage points, the marginal net benefits of higher capitalization turn negative. Given that African banking systems hold on average capital buffers in excess of minimum requirements, African regulators should ensure that banks keep current levels of capitalization at a minimum. One option to influence bank behaviour would be to raise capital requirements so as to provide a regulatory floor under current capital ratios. In this context, Basel III offers an important opportunity to strengthen the resilience of African banking systems.Lire la suite
Working Paper 138 - Economic Policy and Institutional Factors in the Development of Domestic Bond Markets in the CFA Zone
28/11/2011 14:57
Working Paper 138 - Economic Policy and Institutional Factors in the Development of Domestic Bond Markets in the CFA Zone
In this study, we are particularly interested in domestic bond market development as a source of financing for States. Relatively recent economic literature provides little analysis and empirical work on determinants of domestic bond market development, especially for CFA zone countries. This study aims at filling this gap. The main objective is to explore the challenge of economic policy and institutional factors in the development of local currency bond issue in the CFA Franc zone. Financial sector development in many African countries has been hampered by the lack of long-term liquid domestic financial instruments to meet significant infrastructure needs, in particular. The financial crisis and consequent deterioration of budget flexibility in African countries, as well as lack of access to private sector financing, have heightened the urgency to develop credible local capital markets. The need to mobilize domestic resources is also sustained by the improved macro-economic environment and public finance management over the past ten years (implementation of the HIPC Initiative for several countries and, for others, development of a sound public debt performance management framework).  Comparison of bond markets in Africa: A comparison has been made between local bond markets in the CFA zone and those of Morocco and the six most developed sub-Saharan African markets (excluding South Africa), namely Nigeria, Kenya, Uganda, Ghana, Botswana and Tanzania. The CFA zone is marked by a non-dynamic money market (non-existent in CEMAC zone), as well as the lack of a benchmark for the money market, a secondary market and derivatives, and a benchmark curve for securities in both regions. Although WAEMU region has made more progress than CEMAC sub-region, the investor base is mainly dominated by the banking sector. The bond market seems to be an extension of the interbank market with the two regions having a fixed exchange rate regime. Despite the efforts made by CFA zone countries, progress is slow regarding domestic bond markets development. Institutional indicators suggest that the performance of CFA zone countries is generally lower than that of Morocco and the aforementioned group of six countries in terms of access to capital for entrepreneurs, the perception of corruption, good governance, economic freedom, government budgetary practices, ease of doing business, as well as institutional strength and policy quality. Empirical Analysis: There is no single model for analysing the determinants of bond market development. Our goal is to consider the importance of all the above-mentioned factors, using the Generalized Method of Moments (GMM) in a dynamic panel on WAEMU countries due to lack of data on CEMAC zone. It emerges that CFA zone countries do not fulfil most of the macro-economic and micro-economic prerequisites for domestic bond market development. It is unrealistic to consider policies for developing the domestic bond market without these prerequisites. Based on the results obtained, we can make the following recommendations to facilitate bond market development in the CFA zone: strong commitment by policy-makers, strengthening of fiscal discipline, capacity building for the various stakeholders (issuers, investors and intermediaries), and improvement of institutions.Lire la suite
Working Paper 137 - Does Aid Unpredictability Weaken Governance? New Evidence from Developing Countries
20/09/2011 15:33
Working Paper 137 - Does Aid Unpredictability Weaken Governance? New Evidence from Developing Countries
The objective of this paper is to revisitate the effects of aid on governance from a different perspective. It explicitly introduces the potential increase in corruption in recipient countries resulting from aid unpredictability manifested through increased incentives by political leaders to engage in rent-seeking activities. There is evidence in the literature that the lack of aid predictability makes fiscal planning and implementation of a recipient country’s development agenda extremely difficult. Ownership of development programs by recipient countries is also made difficult by the increased likelihood of fiscal and monetary instability resulting from the unpredictability of aid. This paper switches the attention from the macroeconomic effects of aid unpredictability to a more "political economy" approach by linking aid flows’ uncertainty to rent-seeking behaviors in recipient countries. The paper uses a similar theoretical framework to Ventelou (2001) who investigates the effect of political survival on rent capture and concludes that the shorter is the probability of the political survival, the greater are the incentives of leaders (“kleptocrats”) to engage in rent capture. It then explains that the greater the uncertainty of future aid flows, the greater is the incentive of “kleptocratic” leaders to engage in rent-seeking in countries where institutions are weak. The paper provides an empirical evaluation of these theoretical arguments, using a sample of 67 developing countries over the period 1984-2002. Sensitivity analyses are conducted to test the robustness of the main findings to the use of different types of aid. The data sources include the World Bank statistics, the International Country Risk Guide (ICRG), the Development Committee Assistance (DAC) statistics and the Global Development Network Growth Database. The main empirical findings of the paper are threefold: (1) there is a robust statistical relationship between aid unpredictability and corruption in aid recipients countries; (2) there is a strong causal relationship between higher levels of aid and a lower corruption, especially when endogeneity is corrected for; and (3) the effect of aid unpredictability on corruption varies from project aid to program aid, the latter effect being more severe. The main policy implications of the research suggest that donors must keep on improving the management and the delivery of aid flows, since on top of complicating the fiscal planning and the implementation of the development agenda in aid-dependent countries, aid unpredictability has a detrimental effect on institutions through increased corruption. However these implications must be phrased delicately. Aid predictability need to be improved not with the primary intention to reduce corruption, but with the aim to lower the negative macroeconomic consequences in aid dependent countries. Indeed, aid unpredictability is associated with higher corruption not because it directly causes it, but because of the weak quality of the political institutions. Increased rent-seeking activities resulting from uncertainty in aid flows should rather be interpreted as a symptom of weak institutions and weak checks and balances on the political power.Lire la suite
Working Paper 136 - Determinants of Foreign Direct Investment Inflows to Africa, 1980-2007
19/09/2011 00:00
Working Paper 136 - Determinants of Foreign Direct Investment Inflows to Africa, 1980-2007
This paper examines the factors that determine FDI flows to African countries. FDI plays an important role in Africa’s development efforts, including: supplementing domestic savings, employment generation and growth, integration into the global economy, transfer of modern technologies, enhancement of efficiency, and raising skills of local manpower. In the context of falling foreign aid due to the recent financial and economic crisis, as well as the current Euro-debt crisis, a detailed analysis of the aid-FDI nexus in the development cooperation relationship is indeed an enriching and useful exercise. Africa has never been a major recipient of FDI flows and lags behind other regions of the world. After almost ten years of growth, FDI inflows to Africa fell from a peak of US$72 billion in 2008 to $59 billion in 2009 - a 19 percent decline compared to 2008 - due to the financial and economic crisis. By 1990, Africa’s share of global total FDI was a mere 1.37 percent compared to Asia’s 10.9 percent and by 2009 while Africa’s share was just 5.27 percent, Asia received 27 percent. Just as FDI inflows to Africa represent a low percentage of the global total, they also represent a low percentage of its GDP and gross capital formation. A major concern regarding FDI inflows into the Continent is that the overwhelming majority of these go into natural resources exploitation. Between 1998 and 2009, the top ten country recipients are Egypt, South Africa, Nigeria, Sudan, Angola, Congo Republic, Morocco, Tunisia, Algeria, and Chad. Of these top recipient countries, most of the flows into oil, gas and mining projects. Indeed, the primary sector has been the largest recipient of accumulated FDI outflows to Africa. For example, the distribution of FDI by industry shows a concentration in the mining industry in terms of value In the analysis, we perform pooled ordinary least squares (OLS) estimations and feasible generalized least squares (FGLS) for the cross-sectional time-series linear model, using country level data. For robustness check, we take cognizance of the view that FDI decision may be made based on historical data and hence use a one-period lag of independent variables for re-estimation by OLS/FGLS. For further robustness check and to take care of any possible endogeneity in the aid variable, we also estimated the data using the two-step (IV) efficient generalized method of moments (GMM). Our estimation results from cross-country regressions for the period 1996-2008 indicate that: (i) there is a positive relationship between market size and FDI inflows; (ii) openness to trade has a positive impact on FDI flows; (iii) higher financial development has negative effect on FDI inflows; (iv) the prevalence of the rule of law increases FDI inflows; (v) higher FDI goes where foreign aid also goes; (vi) agglomeration has a strong positive impact on FDI inflows; (vi) natural resource endowment and exploitation (such as oil) attracts huge FDI; (vii) East and Southern African sub-regions appear positively disposed to obtain higher levels of inward FDI. The result suggests that African countries that receive high level of foreign aid also receive high levels of FDI flows. A good reason for this is the positive “infrastructure effect” by which aid improves African countries’ economic and social infrastructure and hence raising the marginal product of capital in those countries. The study finds that FDI is negatively correlated with financial development. African countries should improve the quality of domestic financial systems (including integrating them into global financial markets) to make it more attractive to invest there. Moreover, enhanced regional cooperation and integration will increase market size in Africa and help attract investors. This is all the more important given our finding that large market size attracts FDI to Africa. Good governance infrastructure and institutional quality, especially the rule of law, attract FDI to Africa. They also create conditions for the emergence of domestic conglomerates.Lire la suite

Catégories: Crise financière

Working Paper 135 - International Remittances and Income Inequality in Africa
12/08/2011 00:00
Working Paper 135 - International Remittances and Income Inequality in Africa
The purpose of this paper is to examine the impact of international remittances on income inequality in African countries during the economic crisis. As a consequence of the global economic crisis substantial slowdown in the progress towards reducing income inequality in Africa is expected. In the face of the financial and economic crisis, would international remittances prove to be potent in reducing income inequality, leading to a more egalitarian distribution of income that is necessary for the “take-off” of an equitable growth process?   The rise in economic growth in the last decade in Africa has not translated into an improvement in the distribution of income. The share of national consumption going to the poorest quintile of Sub-Saharan African population in 2004 remained unchanged from its 1990 level of 3.4 percent while in North Africa it increased very marginally from 6.2 percent to 6.3 percent. For the 45 countries examined, the Gini index ranges from a low of 32.1 in Egypt to a high of 64.3 in Comoros. The data also show that the Southern African sub-region has the least egalitarian income distribution in Africa. Eight countries from the sub-region – Botswana, Namibia, Angola, South Africa, Lesotho, Swaziland, Zambia, and Zimbabwe – rank in the top ten of the most unequal countries in the Continent. Between 2000 and 2008, remittances to Africa increased by about 263.7 percent, from US$11.2 billion to over US$40.8 billion. In addition, for the first time in many years, remittance inflows to Sub-Saharan Africa dominated those to North Africa. For example, in 2008, flows to North Africa were US$19.7 billion as against US$21.1 billion to Sub-Saharan Africa. The top 10 recipients of international remittances in 2008 (in dollar terms) include Nigeria, Egypt, Morocco, Sudan, Algeria, Tunisia, Kenya, Senegal, South Africa and Uganda. As a share of GDP, however, remittances to many of these countries were much smaller in 2008. In contrast, the top recipients in terms of the share of remittances in GDP included smaller economies such as Lesotho and Togo, where remittances exceeded ten percent of the GDP. To examine the link between international remittances and income inequality (Gini coefficient) in African countries (Sub-Saharan and North Africa) we use panel regressions, estimated by a two-step (IV) efficient generalized method of moments (GMM) estimation method, using five eight-year non-overlapping windows for the period 1960-2006. The results suggest that, first, international migrant remittances have a significant positive impact on income inequality in Africa. After instrumenting for the possible endogeneity of remittances, the paper shows that increases in remittances raise income inequality in Africa. Second, initial per capita GDP strongly increases income inequality. Third, inflation rate appears to be the strongest factor fueling income inequality in the Continent. Fourth, education significantly reduces income inequality. Fifth, the North African dummy and remittances inflows to North Africa largely reduce income inequality in the sub-region while doing the opposite in Sub-Saharan Africa. A key concern from our findings relates to the inequality-reinforcing impact of migrant remittances. We therefore propose that African governments design complementary policies to mitigate the adverse income distribution consequences of remittances. Such mitigation policies may range from setting up or improving safety nets, to better labor-market policies and institutions, and to investing in access roads to improve access by the poor to markets.Lire la suite
Working Paper 134 - Inflation Targeting, Exchange Rate Shocks and Output: Evidence from South Africa
11/08/2011 00:00
Working Paper 134 - Inflation Targeting, Exchange Rate Shocks and Output: Evidence from South Africa
In February 2010, the mandate of the South African Reserve Bank (SARB) was clarified with emphasis on taking a balanced approach, which considers economic growth when monetary policy authorities set interest rates. In the inflation targeting era, the SARB had left the exchange rate to be determined by market forces and this was accompanied by high levels of volatility. In this context, the study examines the differences in the responses of the real interest rate to the exchange rate shocks and inflationary shocks. At the same time, we examine how these shocks impact on output growth performance. Using a Bayesian sign restriction approach, the investigation assumes that the SARB has the desire to increase its foreign currency reserves in an unexpectedly high oil price environment. Our findings show that the real interest rate reacts negatively to inflation surprises and is not significantly different from zero in longer horizons, suggesting that the Fisher effect holds in the long-run. The paper shows that a strict inflation targeting approach is not compatible with a significant real output growth path. However, we found that under a flexible inflation-targeting framework, significant real output growth could be facilitated through attaching a larger role to the real effective exchange rate. The study, concludes that it is a measure of competitiveness relative to trading partners rather than smoothing the nominal exchange rate volatility levels which results in significant positive real output growth in the environment of accumulating reserves and uncertain high oil prices. The finding that the Fisher effect holds in the long-run indicates both the nominal interest rate and inflation rate have increased by nearly the same magnitudes confirming the effectiveness of monetary policy in the long run to mitigate inflation levels. Thus, a strict inflation targeting approach is not compatible with significant real output growth. However, in a flexible inflation targeting framework, the real effective exchange rate results in significant real output growth relative to Nominal Effective Exchange Rate (NEER) and bilateral exchange rate i.e. the Rand/US dollar. In policy terms, this implies focusing more on the exchange rate which deals with competitiveness relative to trading partners in an environment of reserves accumulation and uncertain high oil prices. Even under such circumstances monetary policy manages to control the inflationary pressures associated with such a shock.Lire la suite
Working Paper 133 - Monetary Policy Transmission, House Prices and Consumer Spending in South Africa: An SVAR Approach
25/06/2011 00:00
Working Paper 133 - Monetary Policy Transmission, House Prices and Consumer Spending in South Africa: An SVAR Approach
The study used a structural vector autoregressive approach to estimate and quantify the percentage decline in consumption expenditure, which can be attributed to changes in housing wealth, after monetary policy tightening. The effects are separated using a disaggregated Absa house price data, namely all-size, large-size and medium-size and small-size house prices. The results suggest that at the peak of the interest rate effects on consumption the combined effect of housing wealth and credit extension changes, following a monetary policy tightening, was a decline of 9.8 per cent in all-size, 3.7 per cent in small-size, 4.7 per cent in medium-size and 5.3 per cent in large-size houses. The findings indicate heterogeneity in the transmission of interest rate effects operating through housing wealth and the credit channel. Moreover, we reached the same conclusion after modifying the baseline model by adding the restrictions that house price also respond to both aggregate demand and aggregate supply variables. Lastly, the differences between the counterfactual consumption and the baseline consumption responses, provided little support for the assumption that the housing wealth channel is the dominant source of monetary policy transmission to consumption. This paper thus provided an understanding of the indirect channels through which monetary policy influences real variables by focusing on monetary policy transmission to consumption via house prices. We showed interest rate effects, working through both housing wealth and the credit channel, influence real spending. Thus, interest rate effects operating through housing wealth and the credit channel are felt differently by the four house categories. Moreover, the differences between the consumption impulse responses from the counterfactual and baseline scenarios provide little support that combined house wealth and credit effect channels are the dominant sources of monetary policy transmission to consumption. These findings suggest that the direct effects of high interest rates on consumption appear to be more important in transmitting monetary policy to the economy than through the indirect effects. Hence, monetary policy tightening can only marginally weaken inflationary pressures arising from excessive consumption operating through housing wealth and the credit channel.Lire la suite
Working Paper 132 - Manganese Industry Analysis: Implications for Project Finance
24/06/2011 00:00
Working Paper 132 - Manganese Industry Analysis: Implications for Project Finance
This paper analyzes the global manganese value chain, with the objective of understanding types and sources of project finance, and the role of development finance institutions (DFIs). This industry is of interest given the growing global demand for manganese products, and the sector’s high potential for the African continent which holds a lion’s share of the world’s manganese reserves. The globalized nature of commodity markets, and a dearth of transactions on the African continent, necessitates a global review of transactions. Manganese possesses chemical properties that make it an ideal input into the making of alloys.  It is commonly obtained through manganese ore in the form of manganese oxide (also known as
pyrolusite), or through iron ores. Manganese production is thus often subsumed under iron mining. Besides their ores being regularly obtained from the same mines, manganese and iron are further linked due to their complementarity in steel production. Before they become usable in steel production, both manganese and iron ores must undergo numerous levels of processing. For instance, manganese ore needs to be processed into alloys with high manganese content (which also includes iron). The most important of these alloys are high carbon ferromanganese (HC FeMn), refined ferromanganese (RF FeMn) and silica manganese (SiMn) alloys. And iron ore needs to go through smelting, into a usable metallic iron form, which is then used to make various kinds of steel. In terms of reserves, about 80% of the world’s manganese is found in South Africa. Other countries with substantial reserves are Australia, China, Gabon and Ukraine. In terms of actual production, China and South Africa lead, followed by Australia, Brazil and Gabon. Manganese demand is driven by demand for steel. Specifically, at least 90% to 94% of the manganese produced worldwide is used in steel production. Furthermore, there is currently no reliable substitute for manganese in steel production. Third, the presence of vertical integration in the manganese value chain means that the leading steel firms are directly involved in manganese production. And the demand for steel is currently driven by 2 countries: India and China. We find that DFIs’ participation in transactions involving the iron group of metals, which encompasses manganese, was low for transactions completed between 2005 and 2010 as well as upcoming transactions between 2010 and 2015. Nonetheless, financing from local and multilateral development banks was countercyclical in nature; and in the very few transactions where multilateral development partners were involved, their participation was in the form of A-B or syndicated loans, drawing-in additional financing from commercial banks. Applied to the manganese mining sector specifically, these findings suggest limited need for DFIs financing. However, some features of the manganese market are assessed to have a tempering effect on private finance, in particular, the substantial and largely unmitigated market risk which improves the case for longer term DFIs financing.Lire la suite
Working Paper 131 - Linking Research to Policy: The AfDB as Knowledge Broker
23/06/2011 08:23
Working Paper 131 - Linking Research to Policy: The AfDB as Knowledge Broker
The main objectives of the paper are to discuss the Bank’s catalytic role as a “Knowledge Broker” that can actively translate, disseminate and share information to key stakeholders to provide timely and relevant advice to clients to complement its traditional lending activities; and the Bank’s comparative advantage as a “Knowledge Broker” as it mainstreams knowledge management strategy to institutionalize knowledge and a learning culture within the institution. Partnering and supporting country level think tanks or policy research institutions results in country ownership of the policy processes and can substantially enhance the Bank’s knowledge work at the country level. This is particularly important for the Bank’s decentralization roadmap, which acknowledges the limited capacity of Field Offices to conduct analytical work for policy dialogue and Bank operations. National and Regional level think tanks have a good  understanding of the underlying political economy shaping their respective country policies. Partnering with them could greatly improve results based CSPs, private sector analytical work and also underpin policy based lending. Policy Discussion
  1. Invest in building stronger in-house analytical capacity. Having analytical staff in-house helps transmit knowledge within the organization, ensures that the analytical capacity can be drawn at short notice and provides potential opportunities to engage recipient government policy makers.
  2. Public policies work best when they are designed and implemented by local actors. Strengthen partnerships with local institutions that can undertake the research and analysis needed by policymakers (policy research institutes, think tanks).  Therefore, provide increased financial resources to country level think tanks and policy research institutions and regional research networks with emphasis on supporting and leveraging knowledge at the country level.
  3. The Bank should institutionalize a competitive visiting researchers program (for young scholars) as well as a visiting senior researchers fellows program for (senior experienced academics) to support research on African development.
  4. Making use of ICT, E-Learning and Video Conferencing to convene policymakers and experts to discuss topical and relevant policy issues.
  5. Draw on all the rich knowledge that the Bank generates to optimize operation.
  6. Encourage more south-south exchanges and global learning of best practices.
Lire la suite

Catégories: Crise financière

Working Paper 130 - Growth and Macroeconomic Convergence in Southern Africa
23/06/2011 08:22
Working Paper 130 - Growth and Macroeconomic Convergence in Southern Africa
The objective of this study is to assess whether the formation of the Southern African Development Community (SADC) in 1992 has led to (i) convergence in real income or “catch- up” growth across the countries within the region or higher growth in the region as compared to advanced economies over the past two decades; and (ii) convergence in indicators of macroeconomic stability and/or the harmonization of macroeconomic policies within the region.   The paper investigates convergence in real per capita GDP and macroeconomic policy and stability indicators within the SADC, using primarily the concepts of beta and sigma convergence and common stochastic trends. Empirical tests for the period 1992-2009 showed no evidence of absolute beta and sigma convergence in real per capita GDP among the SADC economies. Although, absence of convergence does not necessarily imply lack of economic growth, further empirical assessment of possible conditional beta convergence did not reveal any tendency of convergence to own steady states. On an individual level, however, ADF unit root test indicated that Botswana and South Africa’s real per capita GDP converged to a common stochastic trend while the rest were characterized by a boundless drift. With regard to the SADC macroeconomic convergence goals set for 2012, the findings indicate that most of the economies of the member states have shown a tendency of macroeconomic divergence in 2009 in monetary policy, fiscal policy, and foreign exchange reserve ratios. Since member countries are at varied levels of economic development, the goals themselves must be conditional on the level of convergence in economic structure and hence macroeconomic convergence may not be attainable. Furthermore, achieving the targets may be neither necessary nor sufficient to achieve good macroeconomic outcomes. We made further attempt to identify possible club convergence within SADC free trade area using Common Monetary Area criterion, including South Africa, Lesotho, Namibia and Swaziland. The result indicates that the real per capita GDP level of the CMA economies did not converge to the South African real GDP per capita level during the 18 years under consideration.   The crucial implications of the above results are that the establishment of regional trading block did not enhance economic performance in the poorer member states in SADC during the 18 years under consideration. Poor member states failed to catch up with the more developed countries within the region. The same countries that were richer 18 years ago are richer today and the poorer countries remained largely poorer. This is not to suggest that regional trade agreements and economic blocks do not promote economic performance and help poor countries to catch up. It is rather the way member countries implement the regional integration agreements that matter most.  Duplication of membership among the several Regional Economic Communities, low savings and investment, shortages of high level skills, high level of unemployment, inadequate and substandard infrastructure, and insignificant production and manufacturing capability all contributed to slow economic growth and lack of convergence in real per capita GDP. Regional economies need to urgently address these challenges in order to achieve deeper economic integration and catch up with the more developed economies in the sub region and the rest of the world. Macroeconomic policy strategies should also be designed conditional on the actual degree of convergence in the economic structure.Lire la suite
Working Paper 127 - Chinese Infrastructure Investments and African Integration
23/06/2011 08:21
Working Paper 127 - Chinese Infrastructure Investments and African Integration
This paper goes beyond the standard approach of only focusing on Chinese infrastructure investment and its impact on African integration. It discusses how African countries could work together adopt common policy issues towards that country. For African countries to reap benefits from economies of scale and to strengthen their position in international negotiations, regional integration in Africa is important in a globalized world, Yet, this process has been hampered by overlapping mandates and memberships of various regional organizations. At the same time, the rise of China as a global economic power has created additional opportunities and challenges for African integration. On the one hand, Chinese investment in infrastructure is alleviating major supply side bottlenecks for further integration. On the other hand, the bilateral approach of China to individual African countries, limits the possibility of addressing regional issues. This paper argues for the establishment of a core group of African countries within the China-Africa Cooperation Forum (FOCAC) to promote regional integration. In the short term, this core group of African countries would pursue initiatives which are relatively easy to achieve, i.e “low hanging fruits” such as improving access to the Chinese market and advancing regional infrastructure projects. In the long term, this group could focus on more challenging tasks such as establishing a coordinated approach to debt relief and untying of development assistance. The core group of Africa countries would thus strengthen FOCAC implementation, thereby deepening China-Africa relationships and creating win-win situations for all stakeholders.Lire la suite
Working Paper 125 - China and Africa: An Emerging Partnership for Development? - An Overview of Issues
23/06/2011 08:20
Working Paper 125 - China and Africa: An Emerging Partnership for Development? - An Overview of Issues
China’s phenomenal growth offers an opportunity to boost Africa’s development.  China’s loans and concessional assistance have financed a wide range of development projects on the continent. China also is reaping significant benefits from this relationship, through access to raw materials, expanded markets for exports of manufactures, and the establishment of investment relationships. But leadership from African governments, particularly to strengthen domestic policies and governance and to harmonize regional policies so as to improve the continent’s bargaining position with China, is required to ensure that the China-Africa relationship contributes to sustainable growth and poverty reduction.  The twin goals of this paper are to summarize the analysis on the economic exchange between China and Africa, and to outline policy recommendations to improve the benefits to both parties. China is a valuable trading partner, a source of investment financing, and an important complement to traditional development partners. China is investing massively in infrastructure, which helps alleviate supply bottlenecks and improves competitiveness. For China, Africa is not only a source of critical capital inputs necessary to expand its domestic economy, but also a future investment destination for labor intensive manufacturing, especially given that wages are rising much faster in China than in African. The following recommendations for African countries, China and the African Development Bank Group are intended to improve the mutual gains from African-Chinese cooperation. African Countries should:
  • Improve coordination between aid and investments from China and from traditional development partners.
  • Enhance technology transfer and maximize the positive spillover effects from foreign investment through local labor and content requirements, as is already done in several African countries.
  • Achieve greater export diversification by identifying niche markets for African manufacturing products in China, and by expanding preferential trade access to Chinese markets.
  • Build backward and forward linkages between the domestic economy and the Special Economic Zones supported by Chinese investment.
China should:
  • Prioritize the development challenges of Africa within the established FOCAC framework, including addressing issues such as food insecurity, climate change and adaptation technology and infrastructure.
  • Support additional investment in Africa in labor intensive manufacturing industries. Currently, as wages are rising in China, labor intensive manufacturing is “relocating” to other Asian countries such as Cambodia and Vietnam.
The African Development Bank Group should:
  • Leverage the Bank Group’s expertise and operational experience in key areas identified in the FOCAC, namely, food security, climate change and adaptation technology, African integration and infrastructure.
Lire la suite

Catégories: Chine, Partenariats

Working Paper 124 - Post-Crisis Prospects for China-Africa Relations
23/06/2011 08:20
Working Paper 124 - Post-Crisis Prospects for China-Africa Relations
This paper discusses how China’s relationship with Africa is contributing to its overall development and emphasizes the central role of the Forum on China-Africa Cooperation (FOCAC). The principal conclusion is that while China is likely to remain engaged with Africa in the medium term, to reap the full benefits, African countries need to transform this engagement into additional development opportunities.    China’s rapid growth has transformed its relationship with Africa.  Industrialization has boosted China’s demand for oil and minerals (e.g. iron ore, bauxite, nickel, copper), which Africa can satisfy. China is now Africa’s third largest trading partner and the Chinese government’s going global strategy has encouraged Chinese companies to become multinationals. The China-Africa relationship could be described as “commodities-for-infrastructure”, although a shift to broader cooperation on development is now evident. As a Chinese scholar puts it, “Relations with Africa are still the most important and reliable part of China’s foreign relations with developing countries” (Zhang, 2007). If there was anxiety in Africa that the global financial crisis might reduce China’s interest in the continent, Chinese President Hu Jintao provided some political reassurance during his visit in February 2009, as he committed to ‘fully and punctually implement measures agreed at the Beijing Summit of the Forum on China-Africa Cooperation, seek China-Africa pragmatic relations and promote the further development of our new strategic partnership’ (Ministry of Foreign Affairs, 2009). At the FOCAC meeting in November 2009, China reaffirmed its commitment to maintain the level of ODA and investment flows to Africa in the wake of the financial crisis, and pledged $10 billion in concessional loans to Africa, as well as a loan of $1 billion for small-and medium-sized African businesses. As noted above, China is also providing substantial debt relief to 33 African countries.  China’s commitment to maintaining development assistance is particularly welcome, as there is a risk that ODA flows might be reduced by traditional development partners due to the deterioration of their national budgets.
Also, in what it called "a major step for Sino-African co-operation", the China-Africa Development Fund (CADFund) opened its first representative office in Africa on 16th March 2010. According to the CEO of the fund, "The fund will boost economic development in Africa by encouraging investment by Chinese enterprises." Finally, the growing importance of China should not mask the continuing importance of Africa’s traditional development partners among the industrial countries, who still provide the lion’s share of ODA and investment. Moreover, traditional development partners provide some forms of aid, such as general budget support, which are highly effective and efficient and are not provided by China or other emerging developing country donors, underlining the complementarily of traditional development partners with emerging development partners, such as China.Lire la suite

Catégories: Chine, Crise financière

Working Paper 126 - China’s Trade and FDI in Africa
23/06/2011 00:00
Working Paper 126 - China’s Trade and FDI in Africa
This paper analyzes the different impacts of China on Africa, quantifies the advantages and disadvantages, and policy suggestions necessary to maximize the development impact of China. One overriding consideration is that reaping the full benefits from Chinese trade and investment will require substantial improvements in governance in African economies.   China’s growth and its capacity to transform in thirty years from under-development and extreme poverty to an emerging global power and one of the largest exporters of manufactured goods has attracted the attention of many developing countries.  China has served as a development model for Africa and an alternative source of trade and finance from Africa’s traditional development partners. The impact of China on African economies has been diverse, depending on the sectoral composition of each country’s production.  Overall, China’s increased engagement with Africa could generate important gains for African economies. Despite various definitions, there is a consensus that governance encompasses institutions with the capacity to ensure the rule of law, respect for individual freedoms and a democratic political regime. In recent years, international organisations and bilateral aid agencies from traditional donors have made their assistance conditional on good governance. China, on the contrary, makes a clear distinction between economics and politics in its interventions in Africa. Trade and FDI in the natural resource sector tend to impair governance and efficiency, have harmed the environment, and often failed to lead to a reduction of poverty. Moreover, the oil sector’s demand for resources has often reduced manufacturing production (due to Dutch Disease effects) and has been associated with imprudent macroeconomic policies resulting in high levels of volatility.
  1. The sharp increase in revenues resulting from Chinese demand must be managed by increasing savings in times of economic boom and making provisions for social assistance, particularly for the unemployed, during downturns.
  2. African countries need to increase the value-added of their production and exports, irrespective of their partner countries. This implies developing specialisations that may justify limited protectionist measures.
  3. Trade growth can be associated with increasing inequality. There is evidence that trade with China contributes to an improvement in the terms of trade for resource-rich countries and deterioration for resource-poor countries. The same distributional effects can be seen within a country, where workers and firms in the oil and mineral sectors see increasing incomes while agriculture and manufactures sectors see reductions.  
  4. African countries may be able to reap significant benefits from furthering regional integration in respect to the rules governing Chinese investment. For example, collaboration among African governments could be useful in stipulating minimum levels of local employment in Chinese-owned firms.
Economic policy suggestions can only be envisaged by taking into consideration the specific nature of individual countries. The influx of financial and human resources from China generate short-term mutual benefits and can enhance complementarities between China and Africa.Lire la suite
Working Paper 128 - China’s Manufacturing and Industrialization in Africa
23/06/2011 00:00
Working Paper 128 - China’s Manufacturing and Industrialization in Africa
The objective of this paper is to examine the state of industrialization in Africa and to discuss the interactions between China’s growth and African development. African nations are linked to China through that country’s importance in determining the prices of raw materials, China’s demand for Africa’s raw materials exports, substantial investments in Africa, and exports of low-cost investment and consumer goods. China and other Asian economies have achieved spectacular growth rates through opening up markets to facilitate sensible price signals, and operating trade and exchange rate policies that favour exports over imports in at least the initial stages. They have sought sound incentives framework for investment, and developing large-scale physical infrastructure. These policies have fostered dynamic gains from increased production and export of manufactures. In Africa, by contrast, the acceleration of growth from 2001 until the global recession was based on higher primary commodity prices, while diversification into manufactures production has been limited. Why has Africa failed to emulate the rapid growth of Asian economies, supported by spectacular increases in manufactured exports?  One problem is that Africa’s economic policies, governance, and institutions have been far weaker than in many of the successful Asian economies.  Moreover, Africa’s abundance of natural resources has starved manufacturing sectors of resources, while resource-rich economies (not only in Africa) have generally failed to achieve rapid growth, in part because of weak linkages between the natural resource sector and abundant unskilled labour, and in part because government control of natural resources has encouraged rent-seeking activities rather than productive investment.  Africa’s limited diversification poses grave threats to development, owing to the volatility of primary commodity prices and the failure to reap the potential gains from economies of scale and productivity advances available in manufactures. Africa needs to strengthen ‘the policy umbrella’ through more stable macroeconomic policies, more dependable provision of government services, and expanded infrastructure investments, including support for regional trade (e.g. improved roads and border post management).  Regional and multilateral negotiations should address ‘tariff escalation’, whereby imports of processed goods incur higher tariffs than imports of primary commodities, and should improve the value of tariff preferences by eliminating onerous and unworkable rules of origin.  Dedicated geographic zones with less restrictive rules facing investment could support manufactured exports, although the extent to which such zones will further African development is uncertain. Finally, linkages need to be established between tariff and trade policies on the one side, and industrial policies on the other.  In some cases (South Africa is the outstanding example), a combination of earlier unilateral liberalization and bilateral, regional and multilateral agreements have limited the policy space to nurture industrial development.Lire la suite
Working Paper 129 - China’s Engagement and Aid Effectiveness in Africa
23/06/2011 00:00
Working Paper 129 - China’s Engagement and Aid Effectiveness in Africa
This paper has considers the impact of China’s engagement in Africa for African economic development. Due to a lack of good information, we have attempted to analyze this engagement using indirect methods. Chinese aid, finance, trade and investment flows to Africa are growing fast. We consider the consequences of these trends using a quantified framework. Very often, adequate data are simply non-available, but we find that existing data provide useful insights on what is going on. Our findings suggest that the core of the Chinese financial engagement in Africa is either in countries with which it has good political relations, notably its “all weather friends” such as Egypt, Ethiopia, Mali and Tanzania, or in countries that represent strategic interests for the Chinese economy due to their oil and mineral resources, such as Algeria, Angola, Congo, the Democratic Republic of Congo, Nigeria, Sudan and Zambia. Thus China, like other bilateral donors, does pursue its own economic interests in its engagement with Africa. However, in recent years China’s engagement with Africa has expanded to cover most countries on the continent and beyond natural resources to light manufacturing and services. Clear examples are China’s projects in Mauritius and Botswana. China is also significantly involved in some countries that are “aid darlings” of the international donor community, such as Ghana. Moreover, China’s development assistance policy has had, from its very beginning, an orientation towards poverty reduction, with significant cooperation and technical assistance in the health sector and agriculture. In recent years, we observe also, insofar as data permit, some influence of poverty on Chinese geographical aid allocation. Recently, China’s financial engagement in Africa has supported sectors that are under-financed by the international donor community, notably infrastructure. This is an area in which there is room for cooperation between China and multilateral financial institutions such as the World Bank and the African Development Bank, although so far such cooperation has been limited.
This engagement can be helpful in assisting African economies through the current global financial crisis. Since the end of 2008, Chinese leaders have repeated that the crisis will not affect their assistance to Africa. Keeping this commitment would help Africa mitigate the adverse consequences of the global financial crisis, and will be a good test of China’s desire to maintain its support for African development. Engagement with Africa can also help support China’s growth through the current economic environment. As China’s financial sector is insulated from international financial markets, the main impact of the financial crisis on China has come through reduced demand for its exports  (for example, China’s exports fell by 25.7% in February 2009 below the February 2008 level). While Africa receives only a small share of China’s exports, nevertheless continued growth in Africa will contribute to the recovery of China’s exports.  And lending to resource-rich African countries in RMB may not turn out to be a poor investment, particularly if the RMB continues its appreciation against the dollar.Lire la suite
You are currently offline. Some pages or content may fail to load.