AERC and Diaspora
Lemma Senbet*
University of Maryland
*Keynote address at the 25 anniversary celebration of African Finance
and Economic Association, ASSA Conference, San Diego,
January 5, 2013
BACKGROUND
Background
Africa is Rising
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In late 50s into early 60s most African
countries were regarded at par or ahead of
most developing countries in Asia and Latin
America in terms of economic
development.
Yet, Africa’s growth performance has long
been disappointing, referred to as a tragedy
by some commentators.
But changing: Africa growth renaissance
Africa rising!
Africa: Selected Macroeconomic Indicators
2003-2007 (Pre-crisis)
Selected Indicators
2003
2004
2005
2006
2007
Real GDP Growth Rate
4.9
5.6
5.7
5.9
5.7
Per Capita Income ($)
783
909
1,042
1,161
1,291
Domestic Investment Ratio (%)
20.4
21.4
21.1
21.8
23.1
Fiscal Balance (% of GDP)
-2.0
-0.1
2.8
4.2
2.8
18.7
18.0
29.6
35.5
N/A
Export Growth, volume (%)
8.2
7.8
5.9
2.8
7.5
Terms of Trade (%)
2.8
6.1
14.8
8.6
-1.7
Trade Balance ($ billion)
2.7
4.0
7.0
7.8
6.3
Net Total ODA flows ($B)
25.1
27.5
33.7
41.3
N/A
Total External Debt (% of GDP)
50.9
45.1
34.9
26.2
22.7
Debt Service (% of Exports)
13.0
11.2
10.3
9.9
6.3
Foreign Direct Investment flows ($B)
Source: African Development Bank statistics
Africa On the Move
Pre-Crisis Period
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In the aggregate, Africa began rising in the wake of the
21st century and had, in fact, experienced, what amounts to
growth renaissance
That was before it got caught up in the global crisis.
GDP growth of 5.2% for the three year period (20022007) prior to the crisis, outpacing population growth
Inflation was brought under control
Improvement in fiscal discipline
Declining debt burden/increasing capacity for debt service
Increasing foreign investment and remittance flows
Performance not Accidental
Payoffs to Reforms
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Impressive performance outcomes are payoffs to
economic and financial sector reforms – not
accidental
Extensive economic and financial sector reforms
over the last two decades, including large scale
privatization programs as well as measures to
empower private initiative, measures for capital
market development
Emergence of stock markets in Sub-Saharan
Africa as a particularly interesting feature,
including a regional market
Challenges and Role for Diaspora
African Financial Development Gap
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Banking depth: The liquid liabilities of financial
sectors averaged about 30 percent of GDP for
Sub-Saharan Africa
The indicator averaged 50% or more for Latin
America, East Asia, South Asia, the Middle East
and North Africa
Banking intermediation: Things even worse on
this score: the pre-crisis 2007 average private date
credit provision scaled by GDP was half the size
for other developing countries
Summary statistics
Variable
Liquid liabilities / GDP
Private credit / GDP
Stock Market Capitalization / GDP
Stock Market Value Traded / GDP
Ln(Population)
Ln(Population density)
Natural resources
Offshore center
Ln(Per capita income)
Population * GDP per capita
Real GDP growth rate
Inflation rate
Current Account balance / GDP
KKM index
Bank concentration
Foreign ownership share
State ownership share
Manufacturing / GDP
Secondary/Primary school enrollment
Roads / Area
Railroads / Area
Urban population
Geographic branch penetration
Demographic branch penetration
World (minus Africa)
Mean
Standard
Deviation
64.2%
47.4%
57.7%
45.3%
52.1%
60.0%
34.1%
50.9%
2.44
1.59
0.44
1.94
0.5
2.41
4.4%
20.7%
2.25
1.04
0.48
1.35
4.1%
2.5%
5.2%
5.2%
0.2%
8.1%
0.33
0.9
0.65
0.19
27.1%
25.9%
15.9%
19.7%
16.8%
6.1%
0.81
0.24
1.07
1.65
0.03
0.03
63.6%
20.7%
29.76
80.07
16.51
17.28
Africa
Mean
27.5%
17.6%
25.6%
6.5%
2.24
0.09
0.15
0.0%
0.38
0.03
4.8%
9.3%
-3.8%
-0.54
0.81
44.4%
13.3%
11.0%
0.33
0.21
0
36.2%
7.97
2.86
Standard
Deviation
17.7%
22.7%
43.8%
20.0%
1.33
0.12
0.77
0.0%
0.94
0.07
2.7%
15.0%
6.7%
0.58
0.14
24.4%
16.6%
7.3%
0.18
0.22
0
17.2%
22.49
3.64
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Measuring African Financial
Development Gap
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Measuring the African financial development gap:
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Obtain predicted levels of financial development for SSA countries,
based on regression analyses of other low- and middle-income countries
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For the majority of SSA countries, the actual levels of banking sector
development are below predicted levels
Analyzing determinants of financial development:
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Population density seems to matter more for Africa;
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Natural resources ‘curse’: Similar in Africa and elsewhere;
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Macroeconomic conditions and institutional environment: Not as
important
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Private credit/GDP: Actual vs. predicted values
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Explaining the African Financial Development Gap
Liquid liabilities / GDP
All
Ln(Population)
Ln(Population
Density)
Natural Resources
Offshore Center
Ln(Per Capita Income)
Population * GDP Per
Capita
(1)
-0.035
(0.026)
0.074***
Private credit / GDP
Without South Africa
(2)
-0.004
(0.026)
0.080***
(3)
-0.029
(0.031)
0.075***
(4)
-0.011
(0.030)
0.077***
All
(5)
-0.058**
(0.024)
0.0314*
Without South Africa
(6)
-0.021
(0.023)
0.049**
(7)
-0.007
(0.022)
0.043***
(8)
0.013
(0.021)
0.061***
(0.019)
-0.033
(0.036)
-
(0.022)
-0.013
(0.047)
-
(0.020)
-0.032
(0.037)
-
(0.024)
-0.010
(0.049)
-
(0.018)
-0.030
(0.033)
-
(0.020)
-0.001
(0.041)
-
(0.014)
-0.024
(0.027)
-
(0.016)
-0.015
(0.034)
-
0.038
(0.035)
0.441
0.022
(0.078)
0.043
(0.037)
0.057
0.018
(0.080)
0.009
(0.032)
2.941***
0.054
(0.068)
0.048*
(0.027)
-0.141
0.073
(0.056)
(0.520)
(0.508)
(1.12)
(1.197)
(0.816)
(0.834)
-0.281
0.221
(0.477)
2.396***
(0.442)
-0.163
Real GDP Growth
Rate
-0.447
-0.499
-0.607
-0.343
Inflation Rate
(1.031)
0.060
(0.192)
(1.057)
0.058
(0.196)
(0.898)
-0.076
(0.167)
(0.736)
-0.066
(0.136)
Current Account
Balance / GDP
-0.082
-0.207
-0.879*
-0.241
(0.587)
0.116*
(0.062)
-0.376
(0.455)
(0.656)
0.119*
(0.063)
-0.341
(0.470)
(0.511)
0.073
(0.054)
-0.085
(0.396)
(0.457)
0.058
(0.044)
-0.265
(0.327)
0.372
0.379
0.179
0.144
KKM Index
Manufacturing / GDP
Secondary/Primary
Enrollment
Constant
Adjusted R2
Observations/Countries
0.548***
(0.078)
0.36
38
(0.247)
0.528***
(0.2613)
0.53
33
0.545***
(0.079)
0.34
37
(0.252)
0.518***
(0.3044)
0.52
32
0.297***
(0.071)
0.64
38
(0.215)
0.260*
(0.130)
0.78
33
0.275***
(0.058)
0.24
37
(0.175)
0.309***
(0.243)
0.45
32
11
Good News out of Africa
Post-Crisis
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Stock market phenomenon
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Stock exchanges have proliferated in Africa
Two decades ago, just 5 in SSA and 3 in North Africa; now
about 25 stock exchanges in Africa
The phenomenal growth was registered particularly in SubSaharan Africa, excluding the older markets in South
Africa and Egypt
Despite the challenges faced in terms of low capitalization
and liquidity, recent performance of African stock markets
has been remarkable, both in absolute and risk-adjusted
basis
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Mobile Banking and the Rise of Equity Bank
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Toward resolution of financial development gap – also
promotion of integration of informal/formal
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Resilience and Diversity of African
Economic Performance
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Overall, African economies have been resilient to the global crisis
The effect of the crisis was, nonetheless, significant
The growth dropped to 2.5% from a three-year pre-crisis average of
6% [Channel for crisis transmission]
However, no bailouts, no large bank failures, no large company
failures
Growth has resumed, even accelerating
For years, oil and other commodities have been drivers of growth, but
currently non-oil producing countries are growing at a similar rate
Now seven African countries are among the fastest growing in the
world
SSA is growing faster than Asia, except China and India
Seizing the Momentum
Call for Greater Diaspora Engagement
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Urgency for Africa stakeholders to seize the
momentum
„ Africans
„ Diaspora
„ US trading partners
„ Development partners
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The stakeholders should have a voice in the development
of policies regarding business, investment and trade – and
research and training to inform economic policies in Africa
African Economic Research
Consortium (AERC)
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Established in 1988
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A not-for-profit organization incorporated in
the US (Delaware Corporation)
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Registered in Kenya as an international, notfor-profit organization and operates under a
host country agreement with the Government of
Kenya
AERC
Core Agenda
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Capacity building for advancement of economic policy
research and training:
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Locally-based economic researchers
Academics
Policy practioners
Promote retention of such capacity
Research Arm
Training Arm: Masters and doctoral programs
Policy Arm: Forums for direct interface with policy
makers
Network
AERC
Research
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Develop a credible local capacity for
policy-oriented research
Thematic Programs
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Poverty, Income Distribution and Food Security
Macroeconomic policies
Trade and Regional Integration
Political Economy
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Finance and Resource Mobilization
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AERC
Research Monitoring and Support
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Biannual research workshops
Biannual plenary conferences
Peer review: a network of African researchers
External review: a network of resource people
drawn from around the globe
Technical workshops and individual technical
sessions
Financial support for various stages of research
development: New proposals, WIP, Final Report
AERC
Collaboration and Policy Dialogue
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Collaborative research program
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Large-scale projects to team up African researchers and
their counterparts elsewhere
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To sustain interest in African economic research by those
outside the region
To generate policy-relevant literature for African academic and
policy communities
Senior Policy Seminar
Senior scholars research program: new initiative to
sustain the interest of senior African researchers
AERC
Training Arm
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Graduate training programs in economics to
support individual studies and enhance capacity of
economics departments, including agricultural
economics, in SSA public universities
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Goal: deliver economic programs that meet
international standards but relevant to Africa.
Joint efforts of participating universities
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Common curriculum and its development by
participating universities
Joint development of teaching materials
Joint facility for teaching elective courses
Joint enforcement of standards through annual
evaluation, including external examiners
AERC
Collaborative Training Programs
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Collaborative Masters Program (CMAP)
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Collaborative Ph.D Program (CPP)
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Participants: Cape Town, Dar, Ibadan, Nairobi, Benin,
Wits, Younde II, Cocody
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Joint facility for electives
Thesis workshops at AERC biannuals
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20 participating universities (9A and 11B)
A send their students to B
Ag Econ and Applied Econ (CMAE)
Academic boards and Role of AERC
AERC Network
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Researchers
Resource persons
Students
Universities
Governance bodies
Other stakeholders in the Consortium
AERC Governance
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Board of Directors
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Executive Director reports to the board and an ex-officio
member of the board
Program Committee
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Institutional Members
At large members
Leading scholars, policy makers, international resource persons,
ED
Academic boards (mostly heads of participating
universities)
AERC Secretariat
AERC
Global Resource Partners
Donor governments
„ International organizations
„ African organizations
„ Private foundations
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AERC is an African Success Story
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Over 2500 researchers supported
Over 600 thematic research projects
Many who have gone through AERC programs
are now at high places in leading African policy
institutions, universities, and other institutions
(e.g., numerous governors of central banks,
successive chief economists of the African
Development Bank)
AERC poised for the next level of excellence
My Vision
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The AERC will be globally recognized as a premier
capacity building institution in the advancement of
research and training that inform economic policies in
Africa, particularly SSA.
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This vision globalizes my understanding of the vision of
the AERC founders for sustainable development of SSA
based on policies guided by rigorous research and training.
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Global integration of the AERC at the center of agenda
With increasing global interconnectedness, need to keep abreast of
advances globally and promote best practices in whatever we do.
Strategies
Global integration
„ Resource sustainability
„ Branding and enhancing profile
„ Identifying and building
comparative advantage for AERC
„ Fostering culture of excellence
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Global Integration of AERC
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AERC should strive for best global practices in its research
and training programs.
Researchers should target high quality international
conferences and outlets for presentations and publications.
Expanding network to have productive partnerships with
African and non-African institutions to foster frontier
research and training.
Global integration strategies are consistent with the
AERC’s mission of building and retaining local capacity.
„ Beyond local capacity building, AERC should also
encompass a strategy for brain gain.
„ Brain gain and retention of local capacity can be
mutually reinforcing.
Resource Sustainability
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Mobilizing Africa-based resources
„ Formulating value proposition for policy institutions in Africa
„ Effective communication of what the AERC has achieved in the policy
arena, senior policy seminars, collaborative research programs, and even
highlighting the AERC impact on regulatory human capital
Mobilizing private-sector resources
„ Devising a strategy for the value proposition for the private sector
„ Targeting both Africa-based and external private firms, including the
Diaspora
„ Expanding the AERC agenda to embrace the private sector issues both in
research and policy
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Transparency and governance, risk management capacity, access to capital, financial
regulation, and capital market institutions
Gradually building endowment
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Possible seeding: channeling a small fraction of current contributions
Enhancing AERC Profile
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Effective communication strategy that reaches out to all
the stakeholders, including policy makers and donors, so
that AERC’s programs and outreach are widely
appreciated.
Providing clarity for what the AERC stands for, what it has
accomplished over the years, and what it wishes to achieve
moving forward.
Leveraging global integration strategy to enhance profile
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Utilizing the growing network of alumni, researchers, resource
persons, and visiting faculty and partner institutions as vehicles
Adherence to best practices in research generation by
targeting first-tier publication outlets and exposure of
AERC research at first-tier forums around the world.
Leveraging AERC’s Comparative
Advantage
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What really sets AERC apart?
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The more obvious differentiators include the extensive network and
credible efforts for the AERC research to reach policy circles, the CPP,
and national research institutes, etc.
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Adapting to changing landscape in policymaking in Africa and beyond
Remaining vibrant and relevant as an institution
Need to solidify and scale up
But also visualize a new frontier that leverages what has already been
accomplished. For instance, is there sufficient integration between
research and training? The CPP can be a vehicle for that purpose.
AERC’s comparative advantage can also be enhanced by its global
strategies (see above), as well as building research databases and
minimization of diversity gap: under represented countries and women
Strategies for Diaspora Engagement
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Institutional linkages
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Resources
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University Centers (e.g., CFP-Maryland)
Think Tanks (e.g, NBER)
Human and financial
Diversity: both ideas and resources
Collaborative Research Programs
Collaborative training programs
Mentoring program
Advisory board