Small Middle-Income Countries in Sub-Saharan Africa:
Taking Development to the Next Level
Min Zhu
IMF Deputy Managing Director
Grand Palm Hotel, Gaborone, Botswana
January 29, 2016
Outline
I. The external environment
II. Successes and Challenges
III. Rethinking growth strategies and policies
2
Outline
I. The external environment
II. Successes and Challenges
III. Rethinking growth strategies and policies
3
The Legacy of the Crisis: Output Compared to Pre-crisis Expectations
(percent, 2007=100)
4
Investment
(Share of GDP)
50,0
45,0
40,0
35,0
30,0
25,0
20,0
15,0
10,0
5,0
0,0
United States Euro Area
Japan
United
Kingdom
Germany
2007
Brazil
China
India
Russian
Federation
2013
5
World FDI
(in percent of World GDP)
2000
2007
2013
5
4
3
2
1
0
FDI liabilities/GDP
FDI assets/GDP
6
GDP vs. Trade
8
(average annual growth in percent)
7
6
5
4
3
2
1
0
1980 - 89
1990 - 99
GDP
2000 - 07
2008 - 13
Trade
7
Evolution of Potential Output Growth
(percent)
8
EM Potential Growth
9
Commodity Prices Fall
10
Commodity Prices Fall
Selected Commodity Prices, 2012–Nov 2015
Percent change from 2012 average
0
-10
-20
-30
-40
-50
-60
2016 projections
-70
Source: IMF, Commodity Price System and Global Assumptions.
Diamonds
Gold
Copper
Coal
Natural gas
Crude oil
Iron ore
-80
Source: IMF, World Economic Outlook database.
11
External financing conditions are tightening
Sovereign Bond Spreads
(EMBIG spreads, basis point change since October 2014)
Zambia
Tanzania
Gabon
Ghana
Kenya
Nigeria
Senegal
Côte d'Ivoire
South Africa
Emerging markets
0
100
200
300
400
500
600
Source: Bloomberg. Note: Data as of January 4, 2016. “Emerging markets” average includes Argentina, Brazil, Bulgaria, Chile,
Colombia, Hungary, Malaysia, Mexico, Peru, Philippines, Poland, Russia, South Africa, Turkey, and Ukraine.
12
Magnified for BLNS from spillovers from S. Africa
Exposure from exports to SA
And lower SACU revenues
BLNS Countries: Customs Revenues
Payments.
Exports to South Africa from Neighboring
Countries, 2014
(Percent of GDP)
45
Botswana
Namibia
40
Tanzania
35
Comoros
Angola
Less than 1%
1% to 2%
Zambia
Namibia
2% to 5%
5% to 20%
Greater than 20%
Mozambique
Zimbabwe
Madagascar
Botswana
South
Africa
Mauritius
Lesotho
Source: IMF, Direction of Trade Statistics.
Swaziland
Percent of GDP
Malawi
Lesotho
Swaziland
30
25
20
15
10
5
0
2006
2010
Source: Country authorities.
2014
2018
13
Three specific megatrends to impact on SMICs
• Climate change
• Technology
• Demographics
14
Megatrend (1): Climate change emphasizes the need
to enhance resilience, particularly for island states
Source: Christenson et al. (2014), Climate-Related Hazards: A Method for Global Assessment of Urban and Rural
Population Exposure to Cyclones, Droughts, and Floods, Int. J. Environ. Res. Public Health 2014, 11(2)
15
Megatrend (1): Climate: Poor most vulnerable
16
Megatrend (2): Technology will change conventional
business practices
17
Megatrend (3): Properly harnessed, SSA’s
demographic potential can be transformative
Change in Global Working-Age Population
350
Millions of persons, ages 15-64
300
Sub-Saharan Africa
250
Rest of world
200
150
100
50
0
-50
2100
2085
2070
2055
2040
2025
2010
1995
1980
1965
1950
-100
Source: IMF (2015), Harnessing the demographic dividend in sub-Saharan Africa, Regional Economic Outlook, Spring 2015.
18
Outline
I. The external environment
II. Successes and challenges
III. Rethinking growth strategies and policies
19
Sustained growth
Sub-Saharan African Small Middle Income Countries: Real GDP Growth
6
Last 20 years (1996–2015)
Last 10 years (2006–15)
Last 5 years (2011–15)
5
Percent
4
3
2
1
0
Botswana Cabo Verde
Lesotho
Mauritius
Namibia
Seychelles
Swaziland
Source: IMF, World Economic Outlook database.
20
Sustained increase in GDP per capita
Sub-Saharan African SMICs: GDP per capita (US$, PPP)
But growth moderation has stalled convergence
25
Botswana
25 000
Cabo Verde
Lesotho
20 000
15 000
Mauritius
Namibia
Seychelles
10 000
Swaziland
5 000
0
OECD average GDP per capita as multiple of SMICs
30 000
Botswana
Mauritius
Swaziland
Cabo Verde
Namibia
Lesotho
Seychelles
20
15
10
5
0
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Source: IMF, World Economic Outlook database.
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
21
Domestic challenge:
Foster economic diversification
High share of services, reflecting
government expansion in most cases
Low export diversification
Export Diversification Index
Composition of GDP, 2014
(Lower number = Greater diversification)
1
0,9
Industry
Agricuture
80
Percent of total
0,8
0,7
0,6
0,5
Services
100
BWA
MUS
CPV
NAM
LSO
SYC
0,4
2000 2002 2004 2006 2008 2010 2012 2014
60
40
20
0
BWA
CPV
LSO
MUS
NAM
SYC
SWZ
Source: UNCTADstat, World Economic Outlook database.
22
Domestic challenge:
Job creation
Unemployment Rate, Average 1995–2013
35
Percent of labor force
30
25
20
15
10
5
Seychelles
OECD
Cabo Verde
Mauritius
Botswana
Namibia
Swaziland
Lesotho
0
Source: World Bank, World Development Indicators.
23
Domestic challenge:
Manage public employment and wage bill
Share of Public Employment, Average
1995–2012
Wage Bill, 2014
25
35
20
30
20
Percent of GDP
15
10
5
0
15
10
5
Source: ILOPE. Note: Cabo Verde data is for 2014 only.
OECD
Mauritius
Seychelles
Cabo Verde
Botswana
Swaziland
Namibia
0
Lesotho
Percent of total
25
Source: IMF, World Economic Outlook database.
24
Domestic challenge:
Addressing infrastructure gap
Government capital stocks
stagnant in most countries
following investment slowdown
Change in quality of infrastructure score (1-7)
Big increases in public investment
not necessarily translating in
improved infrastructure quality
1,0
300
0,8
250
0,6
Government Capital Stock
(percent of GDP)
200
0,4
MUS
NMB
0,0
SWZ
2000-2005
2006-2010
2011-2014
150
LSO
0,2
1996-2000
100
BWA
CPV
SYC
50
-0,2
0
-0,4
0
5
10
15
Average public investment (percent of GDP)
Source: IMF, World Economic Forum. Note: Each point corresponds to
the average of four time periods (1996-00; 01-05; 06-10; and 11-13).
20
Source: IMF Investment and Capital Stock Dataset, 2015.
25
Domestic challenge:
Improve Human Development
Life Expectancy (2014) still low in some cases
100
80
90
70
80
Percent ages 25 and older
90
Years
60
50
40
30
70
60
50
40
30
20
20
10
10
0
Secondary Education (Latest Available) can
be furthered
OECD
Cabo
Verde
Seychelles Mauritius Namibia Botswana Swaziland Lesotho
0
OECD
Botswana Seychelles Mauritius Namibia Swaziland Lesotho
Source: United Nations Development Programme, Human Development Report, 2015.
26
Domestic challenge:
Inclusive growth
Poverty and Income Inequality, Latest Available
70
60
Gini coefficient
Poverty headcount ratio at $1.25 a day (PPP)
(percent of population)
50
40
30
20
10
0
OECD
Mauritius Cabo Verde Swaziland
Lesotho
Botswana
Namibia
Seychelles
Source: World Bank, World Development Indicators.
27
Outline
I. Successes and Challenges
II. The changing external environment
III. Rethinking growth strategies and policies
28
Three key challenges to graduate to
advanced economy status
Overcoming
domestic
challenges
Adapting to
global
trends
Dealing
with
external
headwinds
29
Experiences (1): Countries that graduated to AE status
had more effective governments
Government effectiveness varies
significantly
And not necessarily correlated to size of
government spending
Government Expenditure, 2014
Government Effectiveness Index, 2014
Botswana
Botswana
Cabo Verde
Cabo Verde
Lesotho
Lesotho
Mauritius
Mauritius
Namibia
Namibia
Seychelles
Seychelles
Swaziland
Swaziland
OECD
OECD
-1,0
-0,5
0,0
0,5
1,0
Index, (-2.5 weak ‒ 2.5 strong)
Source: World Bank, Worldwide Government Indicators.
1,5
0
10
20
30
40
50
Percent of GDP
Source: IMF, World Economic Outlook database.
60
70
30
Experiences (2): Countries that graduated to AE status
created a more enabling environment for the private sector
As well as more credit to
the private sector
Stronger investor protection in
advanced economies
Credit to the Private Sector, 2014
Strength of Investor Protection Index, 2014
Botswana
Botswana
Cape Verde
Cabo Verde
Lesotho
Lesotho
Mauritius
Mauritius
Namibia
Namibia
Seychelles
Seychelles
Swaziland
Swaziland
OECD
OECD
0
2
4
6
Index, (1 weak –10 strong)
Source: World Bank, Doing Business Indicators.
8
0
50
100
150
Percent of GDP
Source: World Bank, World Development Indicators.
200
31
Experiences (3): Countries that graduated to AE status
had more inclusive growth
Poverty Headcount at $1.25 a Day (PPP),
Latest Available
Unemployment Rate, 2013
Botswana
Botswana
Cabo Verde
Cabo Verde
Lesotho
Lesotho
Mauritius
Mauritius
Namibia
Namibia
Seychelles
Seychelles
Swaziland
Swaziland
OECD
OECD
Chile
Chile
Korea, Rep.
Korea, Rep.
Singapore
Singapore
0
10
20
30
40
Percent of population
50
60
0
5
Source: World Bank, World Development Indicators.
10
15
20
Percent of total labor force
25
30
32
Rethinking growth strategies and
reversing the decline in TFP
Sub-Saharan African Small Middle-Income Countries: Total Factor Productivity,
Contribution to Growth
Simple average, percent
2,00
1,50
1,00
0,50
0,00
-0,50
1981-85
1986-90
1991-95
1996-00
2001-05
2006-10
Sources: Penn World Tables; and IMF staff calculations.
33
Tailoring reforms to stage of economic development
Structural Reforms with Highest Productivity Payoffs within Each Country Group
Technology & Innovation
Industry Regulations
Business Regulations
Labor Market
Reform Types
Infrastructure
Fiscal Structural Reforms
Banking System
Capital Market Development
Legal System & Property Rights
Trade Liberalization
Agriculture
LIDCs
EMs
MICs
AMs
Income Level
Highest priority reforms
Other priority reforms
Note: Comparisons across reforms within each country group. Darker shades imply larger gains from reforms.
Source: IMF (2015), Structural Reforms and Macroeconomic Performance - Initial Considerations for the Fund, Policy Paper, Washington DC.
34
Main reform priorities
Fiscal
Strengthening
consolidation
PFM
Botswana
Lesotho
Namibia
Swaziland
Cabo Verde
Mauritius
Seychelles
1
1
1
1
1
1
Count
6
SOE reform
1
1
1
Furthering
inclusive
growth/ Jobs
Improving
Private sector
Financial
external
development/
sector reforms
sustainability Competitiveness
1
1
1
1
1
1
1
1
1
1
1
5
1
1
5
2
1
1
1
1
6
1
1
Source: Survey of IMF SMICs Mission Chiefs, December 2015.
35
Targeting reforms with highest pay-offs?
Productivity Gains from Different Types of Structural Reform
REFORMS
AM
MICs
EM
LIDC
Financial Sector Reform
Banking system reform
Interest controls
Credit controls
Privatization
Supervision
Capital market development
Trade Liberalization
Tariff
Institutional Reform
Legal system and property rights
Infrastructure
Public capital stock
Market Deregulation
Agriculture
Policy environment for foreign investment
Promotion of competition
Hiring and firing regulations
Collective bargaining
Energy/Transport/Communications
Innovation
R&D Spending
Source: IMF (2015), Structural Reforms
and Macroeconomic Performance Initial Considerations for the Fund,
Policy Paper, Washington DC.
Note: Comparisons across reforms within each country group. Darker shades imply
larger gains from reforms.
36
Furthering private sector development
Doing Business Indicators Rankings, 2014
Economy
Mauritius
Botswana
Seychelles
Namibia
Swaziland
Lesotho
Cabo Verde
Global Ranking
Ease of Doing
Business Rank ▲
32
72
95
101
105
114
126
Starting a Business
200
Dealing with
Construction Permits
Resolving Insolvency
150
100
Enforcing Contracts
Getting Electricity
50
0
Trading Across Borders
Registering Property
Paying Taxes
Getting Credit
Protecting Minority
Investors
Source: World Bank, Doing Business Indicators.
Mauritius
Botswana
Seychelles
Namibia
Swaziland
Lesotho
Cabo Verde
95th
37
An example in economic diversification
Percent distribution of GDP by industry
group (2012)
Mauritius as a model of
economic transformation
Agriculture,
forestry and
fishing, 3.5%
Others, 20.0%
Manufacturing,
16.9%
Emerging sectors:
ICT
Real Estate – IRS/ERS
Seafood hub
Knowledge hub
Health hub
Human health
and social
work, 3.8%
Diversification of
markets:
Finance and
insurance,
10.2%
Reducing our dependence on euro
markets
Regional integration
Source: Country authorities.
Construction,
6.3%
Education,
4.4%
Real estate,
5.6%
Wholesale &
retail trade,
12.0%
Information Accommodatio
Transportation
n and food
and
and storage , communication service, 6.9%
5.8%
, 4.6%
38
Issues for discussion
•
•
•
•
•
What is the “right” growth model?
How do SMICs adapt to the megatrends?
What is the role of the state?
How to support private sector development?
How to prioritize reforms and build coalitions
supporting change?
• How to make growth more inclusive?
39
Thank You
40