MPhil in Development Finance
Economic Development Perspectives in Africa
Professor Euan Phimister
MPhil in Development Finance
Introductions
Professor Euan Phimister
Professor in Development Finance, USB since 2020
Formerly Professor of Economics, University of Aberdeen, UK
Resource Economist, focused on Development
Worked and undertaken research, Ethiopia, Ghana, Uganda,
Angola
MPhil in Development Finance
2
Reducing land degradation & carbon loss from Ethiopia's soils
to strengthen livelihoods and resilience (RALENTIR)
Area Exclosures
Gully Formation
Interventions
Experiment
&
Sheep
+landless
Bees + landless Oxen + landless
Demonstrate
gully
female headed
youth
youth
formation measures.
households
Interdisciplinary: Environmental Modelling, Agricultural Science, Soil Science, Hydrology,
Geography, Sociology, Economics
MPhil in Development Finance
Introductions Your Turn!
• Go to Learning Hub or Direct to Padlet
https://padlet.com/euan17/8jesdo1wbg19hwvk
• And introduce yourself in a few words!
MPhil in Development Finance
4
Course
Aims
• Understanding of economic development in Africa
• Identify and analyse challenges in SSA economies
• Show how they affect socio-economic development
Topics
•
•
•
•
•
•
Development Concepts and Measuring Development
Savings, Investment, Growth
Education & Health
Population, Poverty and Inequality
International Trade
Agriculture, Industrialization and Sustainable Development
• Key Context and Starting Point for Understanding Development
Finance Challenges
MPhil in Development Finance
Organizational Issues
Online Sessions
• Review Lecture material, Exercises, Discussion
Preparation & Post Live Class
• Readings (often Chapter in Book) + Supplementary Videos
Discussion Forum.
“Open Sessions” – to be arranged
MPhil in Development Finance
6
Assessment: Individual quizzes 20%
• Five timed individual multiple-choice quizzes on the learning hub. – You have
one go only!
• Best four results count towards the individual assignment mark.
• For each quiz will be a practice quiz (do the practice quiz and review your
answers
• Quiz Schedule.
Quiz
Date Quiz first
available
To be competed by
1
Thu 25 Feb
Wed 3 March
2
Sat 27 Feb
Sat 6 March
3
Tues 2 March
Tues 9 March
4
Tues 9 March
Tues 16 March
5
Tues 16 March
Tues 23 March
MPhil in Development Finance
8
Assessment : Team Assignment 20%
• Team Presentation + Submission of Report
• Presentation Monday 8th March
• Report Submitted by Monday 15th March.
• Group Allocation – in next few days
• Topics in Course Outline. Your group will be allocated a Topic
(To be finalized in next day or two)
• Opportunities to Discuss with me
MPhil in Development Finance
9
Assessment : Individual Written assignment 60%
•
•
•
•
•
•
End towards of March: Date to confirm
RPNow – Exam type conditions
Assessment will be open book
Essay type questions
A mock final assignment will be provided
More information later .
• Any questions
MPhil in Development Finance
10
Download from Learning Hub
Documents & Files for Online Live Session Day 1
• Slides
• Agenda 2063 and SDGs.pdf
MPhil in Development Finance
11
MPhil in Development Finance
Session 1 Africa in the 21st Century
MPhil in Development Finance
Outline
• Background
• Why African development?
• What is development ?
• SDGs?
• Development Measures
• GDP & Growth
• Human Development Index
• African Development Performance and
• Overall
• Individual Country Level
• Explaining differences in performance
MPhil in Development Finance
13
Some Initial “Stylized facts”
• Economic Growth important but Economic Development much more
• Africa Most African countries low income or lower middle income
• Relative Economic performance (pre-Covid) “weak”
•
•
•
•
Historically poor
Recent significantly better
Some evidence slowdown
Big differences cross-country
• Some Challenges
• Vulnerability to External Market Shocks due to Commodity dependence
• Poverty reduction weak relative to Asia
• Specific regions inequality growing issue
MPhil in Development Finance
14
Why African Economic Development?
• African Economic
Growth slow relative to
elsewhere
• Economic
Development lagging
• Different experience of
development
• Traditional focus
• Productivity, markets
• Structural transformation
• Role of trade,
Government Policy.
• Recent extended focus
• Geography, colonial
legacy, ethnic diversity,
institutions & political
economy, culture,
institutions.
Rodrik (2016)
MPhil in Development Finance
Development in the African context
Diversity of Africa
• Map of Africa - giant jig-saw puzzle created during the scramble for Africa.
• Consists of about 54 countries most of which were artificially created.
• 3 times the size of the USA
• Contains about 22% of the world’s total land area
• 2nd largest continent, after Asia
• 12 % of the world’s population
MPhil in Development Finance
Economic Growth Vs. Economic Development
Economic Growth
• a rise in national or per capita income and product. (Gross domestic product (GDP) or Gross
national income (GNI))
• GDP – value all goods & services produced in country, GNI all income received by residents
Economic Development
• in addition to a rise in per capita income, implies fundamental changes in the structure of the
economy
• Not simply an increase in average income – concepts of “Equality”
• Access to opportunity – e.g. education, health
• Access to resources - e.g. water, energy, food
• Distribution of income
• Political development
MPhil in Development Finance
Economic Development ≠ Growth of Income
• Lucas (1988) “By the problem of development I mean simply the
problem of accounting for the observed pattern, across countries and
across time, in levels and rates of growth of per capita income.
• Streeten (1994) “[W]e should never lose sight of the ultimate
purpose of the exercise, to treat men and women as ends, to
improve the human condition, to enlarge people’s choices
Economic Growth
• a rise in national or per capita income and product. (Gross domestic
product (GDP) or Gross national income (GNI))
Economic Development
• in addition to a rise in per capita income, implies fundamental
changes in the structure of the economy
MPhil in Development Finance
18
Inclusive growth
• AfDB (2012): economic growth that results in wider access to sustainable socioeconomic opportunities for a broader number of people while protecting the
vulnerable
• Asian Development Bank (ADB Outlook, 2012): growth process that ensures
equity of opportunities based on three policy pillars:
• sustained growth to create productive jobs for a wide section of the
population;
• social inclusion to equalize access to opportunities and
• social safety net to mitigate vulnerability and risk to prevent extreme poverty.
MPhil in Development Finance
19
Sen’s Entitlements and Capabilities
• Entitlements – set alternative commodity bundles person can
command in society given rights and responsibilities
• Entitlements generate capabilities
• Capabilities – What a person can do/ Freedoms to Control life
• Entitlements – market but also society & political structure etc
• Economic Development removal of ‘unfreedoms’ which leave
people little choice and opportunity
MPhil in Development Finance
20
Key Capabilities
Being
• able to live long
• well-nourished
• healthy
• literate
• well-clothed
• mobile
• able to take part in the life of the community
• happy – as a state of being - may be valued as a functioning
MPhil in Development Finance
21
Sustainable Development
The Bruntland Report (1987)
Not possible separate economic development from environment issues
• Development can erode environmental resources
• Environmental degradation can undermine economic development.
• Poverty major cause and effect of global environmental problems.
Sustainable Development
• “meeting the needs of present generation without compromising the
wellbeing of future generations”
• sustainable development requires meeting the basic needs of all and
extending to all the opportunity to fulfil their aspirations for a better life.”
MPhil in Development Finance
22
Sustainable Development Goals
•.
• http://www.undp.org/content/undp/en/home/sustainable-development-goals.html
MPhil in Development Finance
23
African Union Agenda 2063 .
1A high standard of living, quality of life and well-being for all citizens.
2Well educated citizens and skills revolution underpinned by science, technology and innovation.
3Healthy and well-nourished citizens.
4Transformed economies.
5Modern agriculture for increased productivity and production.
6Blue/ocean economy for accelerated economic growth.
7Environmentally sustainable and climate resilient economies and communities.
8A United Africa (Federal or Confederate).
9Continental financial and monetary institutions established and functional.
10World class infrastructure criss - crosses Africa.
11Democratic values, practices, universal principles of human rights, justice and the rule of law entrenched.
12Capable institutions and transformative leadership in place.
13Peace, security and stability is preserved.
14A stable and peaceful Africa.
15A fully functional and operational APSA
16African cultural renaissance is pre-eminent.
17Full gender equality in all spheres of life.
18Engaged and empowered youth and children.
19Africa as a major partner in global affairs and peaceful co-existence.
20Africa takes full responsibility for financing her development Goals.
MPhil in Development Finance
24
African Union Agenda 2063 .
2063 Goals
A high standard of living, quality of life and well1 being for all citizens.
Well educated citizens and skills revolution
2 underpinned by science, technology & innovation.
3 Healthy and well-nourished citizens.
4 Transformed economies.
Modern agriculture for increased productivity and
5 production.
Environmentally sustainable and climate resilient
7 economies and communities.
Africa takes full responsibility for financing her
20 development Goals.
SDGs
1. No Poverty
4. Quality
education
3. Good health
8. Good Jobs &
Growth
2. No Hunger
6. Clear water &
sanitation
10. Reduce
inequalities
8. Good
Jobs &
2. No Hunger Growth
.
.
.
.
9.Innovation &
infrastructure .
11.Sustainable
Cities
.
.
.
.
7. Clear
Energy
.
.
13. Protect
the Planet 15. Life on Land
.
.
.
https://au.int/agenda2063/sdgs
MPhil in Development Finance
25
SDG 1: End poverty in all its forms everywhere
• Target 1.1 By 2030, eradicate extreme
poverty for all people everywhere,
currently measured as people living on
less than $1.25 a day
• By 2030, reduce at least by half the
proportion of men, women and children
of all ages living in poverty in all its
dimensions according to national
definitions
• Implement nationally appropriate social
protection systems and measures for all,
including floors, and by 2030 achieve
substantial coverage of the poor and the
vulnerable
• https://sdgs.un.org/goals/goal1
MPhil in Development Finance
26
SDG2 : End hunger, achieve food security and
improved nutrition and promote sustainable agriculture
• Target 2.1 By 2030,
• end hunger and ensure access by all people, in
particular the poor and people in vulnerable
situations, including infants, to safe, nutritious and
sufficient food all year round
• end all forms of malnutrition, including achieving, by
2025, the internationally agreed targets on stunting
and wasting in children under 5 years of age, and
address the nutritional needs of adolescent girls,
pregnant and lactating women and older persons
• double the agricultural productivity and incomes of
small-scale food producers, in particular women,
indigenous peoples, family farmers, pastoralists and
fishers, including through secure and equal access
to land, other productive resources and inputs,
knowledge, financial services, markets and
opportunities for value addition and non-farm
employment
MPhil in Development Finance
27
SDG 8 Promote sustained, inclusive and sustainable economic
growth, full and productive employment and decent work for all
Target 8.1
• Sustain per capita economic
growth in accordance with
national circumstances and, in
particular,
• at least 7 per cent gross
domestic product growth per
annum in the least developed
countries
https://sdgs.un.org/goals/goal8
MPhil in Development Finance
28
SDG 3: Ensure healthy lives and promote well-being
for all at all ages
By 2030, reduce the global maternal
mortality ratio to less than 70 per
100,000 live births
• By 2030, end preventable deaths of
newborns and children under 5
years of age, with all countries
aiming to reduce neonatal mortality
to at least as low as 12 per 1,000
live births and under-5 mortality to at
least as low as 25 per 1,000 live
births
• By 2030, end the epidemics of AIDS,
tuberculosis, malaria and neglected
tropical diseases and combat
hepatitis, water-borne diseases and
other communicable diseases
MPhil in Development Finance
29
SDG 4 Ensure inclusive and equitable quality education
and promote lifelong learning opportunities for all
• By 2030, ensure that all girls and
boys complete free, equitable
and quality primary and
secondary education leading to
relevant and effective learning
outcomes;
• By 2030, ensure that all girls and
boys have access to quality
early childhood development,
care and pre-primary education
so that they are ready for
primary education
MPhil in Development Finance
30
SDG 10: Reduce inequality within and among countries
• By 2030, progressively achieve and sustain
income growth of the bottom 40 per cent of the
population at a rate higher than the national
average
• By 2030, empower and promote the social,
economic and political inclusion of all,
irrespective of age, sex, disability, race,
ethnicity, origin, religion or economic or other
status
• Ensure equal opportunity and reduce
inequalities of outcome, including by
eliminating discriminatory laws, policies and
practices and promoting appropriate
legislation, policies and action in this regard;
MPhil in Development Finance
31
SDG13 Take urgent action to combat climate
change and its impacts
• Strengthen resilience and adaptive capacity
to climate-related hazards and natural
disasters in all countries
• Integrate climate change measures into
national policies, strategies and planning
• Implement the commitment undertaken by
developed-country parties to the United
Nations Framework Convention on Climate
Change to a goal of mobilizing jointly $100
billion annually by 2020 from all sources to
address the needs of developing countries in
the context of meaningful mitigation actions
and transparency on implementation and fully
operationalize the Green Climate Fund
through its capitalization as soon as possible
MPhil in Development Finance
32
Breakout Group : SDGs & Agenda 2063 Goals
• Download Agenda 2063 and SDGs.pdf from Learning Hub
• You will be asked to go to a breakout room
• Remember your breakout group number
• In the room with your colleagues - Identify someone who will report back
• Discuss the following questions (questions also in pdf)
• Choose either Agenda 2063 or SDGs
• Identify 2/3 examples of complementarities and/or trade-offs between goals
• Compare with other Goals – is there one set which are more useful? If so why?
• 10-15 minutes
MPhil in Development Finance
33
Feedback Person For Each Group
• Go to the Feedback wall via the Learning Hub or Direct
• https://padlet.com/euan17/cjpdum1qdo2g9v07
• Post Group Number and whether focus Agenda 2063 or SDGs
• 2/3 Bullets of complementarities and/or trade-offs between
goals
• Is Agenda 2063 or SDGs more useful?
MPhil in Development Finance
34
Income Growth Remains Important
Anything that increases long-run rate of economic growth
Can have large effects on living standards in the long run.
Time(years)
y=
t
(1 + g ) y0
t
Income Growth growth rate =4%
8
Annual
Growth rate
per capita
10
25
50
1%
10%
28%
64%
2%
22%
64%
169%
7
6
5
4
3
2.50%
28%
85%
244%
2
1
4%
48%
167%
611%
0
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50
MPhil in Development Finance
35
Development Indicators:
World Bank – Country Classification all economies with populations of more
than 30,000. Based on Gross National Income per capita (GNI per capita)
(Atlas method using Exchange Rates/PPP also calculated)
Source http://data.worldbank.org/news/2015-country-classifications
Comparisons Method
• Exchange Rates (ER) (not simply affected by relative prices)
• Purchasing Power Parity (PPP)–foreign currency required to
purchase identical set of goods
• Use of ER exaggerates scale of developed –developing
differences (many DCs goods & services cheaper)
MPhil in Development Finance
36
Gross National Income per Capita .
• World Bank GNI per capita
Quintiles (PPP) 2011
World Bank eAtlas of Global Development
http://www.app.collinsindicate.com/worldbankatlas-global/en-us
MPhil in Development Finance
37
Measurement: Multi-dimensional measures
Human
Development
Index (HDI)
• Scaled - 0 (low) to 1 (high)
• Geometric mean -Health (H) , Education (E), Income (I) Indices
1
3
1
3
HDI = H E I
1
3
• UNDP(2019) http://hdr.undp.org/sites/default/files/hdr2019_technical_notes.pdf
MPhil in Development Finance
38
. Human Development Index 2017 (HDI)
0-1 (1 is better)
• (HDI) (0-1)
Max Roser (2014) - "Human
Development Index (HDI)".
Online at OurWorldInData.org.
Retrieved from:
https://ourworldindata.org/humandevelopment-index
MPhil in Development Finance
39
HDI Versus GNI per Capita
Ranks
HDI Value
Values
HDI Rank
GNI per capita
Source UNDP Human Development Reports 2015 Statistical tables
http://hdr.undp.org/en/data/tables/table-2
MPhil in Development Finance
GNI per capita Rank
40
Diversity of Africa
• Co-existence of rich and poor countries-see per capita income
• Landlocked Vs. Coastal economies
• Classifications based on
• Regions: East (EAC), Central, North, West (ECOWAS), Southern
(SADC)
• Incomes
• Based on colonial experience-Francophone, Anglophone and
Lusophone Etc
MPhil in Development Finance
World Bank country classifications by GNI
income/capita
July 1, 2020
(new)
July 1, 2019
(old)
< 1,036
< 1,026
Lower-middle
income
1,036 - 4,045
1,026 - 3,995
Upper-middle
income
4,046 - 12,535 3,996 - 12,375
Group
Low income
High income
> 12,535
Majority of
African
countries
low or
lower
middle
income
> 12,375
https://blogs.worldbank.org/opendata/new-world-bank-countryclassifications-income-level-2020-2021
See also Nnadozie (2019) Chapter 2
World Bank (2016) classification https://datatopics.worldbank.org/worlddevelopment-indicators/the-world-by-income-and-region.html
MPhil in Development Finance
42
Classification based on Colonial Legacy
Colonial Map circa 1913 (Current Borders approximately indicated)
Francophone (24)
Anglophone (20)
Lusophone (5)
Nnadozie (2019) Chapter 2
https://commons.wiki
media.org/wiki/File:C
olonial_Africa_1913_
map.svg
MPhil in Development Finance
43
Economic Development: Recent Experience
% Growth/Capita by Region
8
6
4
2
-2
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
0
-4
-6
Sub-Saharan Africa
South Asia
Latin America & Caribbean
East Asia & Pacific
Rodrik (2016)
WDI (2021)
Per Capita GDP Growth
• Early 2000 Significant improvement
• Recent Slowing Growth
MPhil in Development Finance
44
Growth Rates GDP/capita Selected
Countries (1991-2019)
20
Botswana
Cameroon
15
Congo, Dem. Rep.
Congo Rep.
10
Cote d'Ivoire
Eswatini
5
• Significant
Diversity:
Countries &
Time
Ethiopia
Gabon
0
-5
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
Ghana
Guinea
Kenya
• Erratic
Growth ?
Malawi
Mali
-10
Mozambique
Namibia
-15
Nigeria
Senegal
-20
Source WDI(2021)
MPhil in Development Finance
45
Examples Large Fluctuations - Absolute
GDP/capita growth >15% (1991-2019)
50
• Conflict?
40
30
20
10
0
-10
-20
-30
-40
-50
-60
Central African Republic
Chad
Guinea-Bissau
Mauritania
Rwanda
Sierra Leone
MPhil in Development Finance
46
Average %GDP/capita growth 1991-2019 :
Selected SSA Countries
5
4
3
2
1
0
-1
-2
Source WDI(2021)
MPhil in Development Finance
47
Income Growth Remains Important
Anything that increases long-run rate of economic growth
Can have large effects on living standards in the long run.
Time(years)
y=
t
(1 + g ) y0
t
Income Growth growth rate =4%
8
Annual
Growth rate
per capita
10
25
50
1%
10%
28%
64%
2%
22%
64%
169%
7
6
5
4
3
2.50%
28%
85%
244%
2
1
4%
48%
167%
611%
0
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50
MPhil in Development Finance
48
Human Development Index .
Max Roser (2014) - "Human Development
Index (HDI)". Published online at
OurWorldInData.org. Retrieved from:
'https://ourworldindata.org/humandevelopment-index
MPhil in Development Finance
49
Human Development Index .
Max Roser (2014) - "Human Development
Index (HDI)". Published online at
OurWorldInData.org. Retrieved from:
'https://ourworldindata.org/humandevelopment-index
MPhil in Development Finance
50
Human Development Index .
Max Roser (2014) - "Human Development
Index (HDI)". Published online at
OurWorldInData.org. Retrieved from:
'https://ourworldindata.org/humandevelopment-index
MPhil in Development Finance
51
Human Development Index .
Max Roser (2014) - "Human Development
Index (HDI)". Published online at
OurWorldInData.org. Retrieved from:
'https://ourworldindata.org/humandevelopment-index
MPhil in Development Finance
52
Change in HDI by region: 1990-2014 (average annual %).
UNDP(2016) Africa Human Development Report
MPhil in Development Finance
53
Top 20 African countries with highest percentage change
in HDI values, 2000-2014
UNDP(2016) Africa Human Development
Report
MPhil in Development Finance
54
Development Challenges
• Historically,
erratic and
relative low
growth
• Often high
dependence
commodity
exports,
primarily
natural
resources.
• Volatile
International
Commodity
Prices
UNTAD State Of Commodity Dependence (2014) (Commodity
exports as % merchandise exports unctad.org/suc2014d7_en.pdf
MPhil in Development Finance
55
Development Challenges
• Early 2000s more impressive growth,
• Diversity across countries
• Pre-Covid suggestion growth rates falling
• Covid Impact?
MPhil in Development Finance
56
Development Challenges: Predicted Impact of
Covid 19 on Growth in Sub-Saharan Africa
Source: World Bank (2020) Assessing the Economic Impact of Covid-19 And Policy Responses In Sub-Saharan Africa April 2020 | Volume 21 An
Analysis Of Issues Shaping Africa’s Economic Future
MPhil in Development Finance
57
0
SYC
1980
1990
2000
2010
GHA
MDG
MOZ
MWI
NGA
TZA
ZAF
ZMB
.2 .4 .6 .8 1
ETH
.2 .4 .6 .8 1
Poverty Headcount $2/Day
.2
Poverty Headcount $2/Day
.4
.6
.8
ETH
GIN
BDI TZA
BDI MLI
ZAR
MWI
BDILBR
MDG
MD
TZA
NER NER MOZ
CAF
MWI
MOZ
MDG TZA
RWA
MDG
UGA
MDG SWZ MDG
RWA
BFA
RWA
ZMB
NGA
ETH
UGA
UGA
BFA
ZMB NER
ETH
NGA
TCD
NGA
UGA MLI
ZMB MOZ MW
CAF
GIN
SEN
ZMB
GMB
BFA
SWZ
ZMB
GIN
ZMB
NGA SEN
CAF MLI
UGA
GHA
GNB
GHA
GHA
ETH
MLI
NGA
SLE
GNB
UGA NER
BEN COG
ZMB
BFA
SEN
LSO
AGO
GIN
TGO
MRT
AGO
KEN
COM
UGA
MRT
GHA
LSO
NAM
LSO
SW
SEN
KEN LSO
GMB
BWA
STP
KEN
MRT
CMR
NAM GHA
BWA
CIV
CIVMRT
MRT
CIV
CIV
SDN
MRT
CIV
ZAF
KEN
ZAF ZAF
CPV
ZAF
CIV
CMR
CMR ZAF
CIV
CIVCIV
GAB
.2 .4 .6 .8 1
1
Development Challenges: Poverty Headcount:
Sub-Saharan Africa
1990 1995 2000 2005 20101990 1995 2000 2005 20101990 1995 2000 2005 2010
Year
Year
Graphs by ccode
• $2 per day - 2005 PPP values Bluhm et al (2018)
MPhil in Development Finance
58
CHN
CHN
FJI
.2
THA
0
MYS MYS
1980
MYS
THA
THA
THA THA
THA
MYS
MYS THA
MYS
THA THA
MYS MYS
1990
2000
Year
.8
0
.2
.4
.6
THA
MYS
VNM
.6
IDN
LAO
CHN
VNM
CHN
TMP
IDN
LAO
KHM
TMP
CHN
VNM
CHN
IDN KHM
LAO
CHN
IDN
CHN
CHN
CHN
KHM
PNG
VNM
PHL
IDNIDN
PHL
IDN
KHM
IDN
PHL
CHN
KHM
FJI
VNM
PHL VNM IDN
PHL
PHL
PHL
PHL
THA
THA
CHN
.4
THA
VNM
CHN
IDN LAO
IDN
.2
Poverty Headcount $2/Day
.4
.6
.8
CHN
PHL
THA
IDN
Poverty Headcount $2/Day
CHN
IDN
IDN
.8
CHN
CHN
0
1
Poverty Headcount: East Asia & Pacific
1990
1995
2000
2005
20101990
1995
2000
2005
2010
Year
2010
Graphs by ccode
• $2 per day - 2005 PPP values Bluhm et al (2018)
MPhil in Development Finance
59
Development Challenges: Inequality
• Kuznets Income share in Southern Africa + top 10 percent - bottom 40 %
• Elsewhere relatively stable
UNDP (2019) http://hdr.undp.org/sites/default/files/hdr2019.pdf
MPhil in Development Finance
60
Some Initial “Stylized facts”
• Economic Growth important but Economic Development much more
• Africa Most African countries low income or lower middle income
• Relative Economic performance (pre-Covid) “weak”
•
•
•
•
Historically poor
Recent significantly better
Some evidence slowdown
Big differences cross-country
• Some Challenges
• Vulnerability to External Market Shocks due to Commodity dependence
• Poverty reduction weak relative to Asia
• Specific regions inequality growing issue
MPhil in Development Finance
61
Understanding Economic Development in
Africa
• Go to www.menti.com and use the code 69 06 18
• Link also in the chat
• For you what are the key reasons (positive or negative) which
explain Economic development experience in Africa and why it
is so varied?
MPhil in Development Finance
62
Development Challenges: Why Historic Poor
performance? (Collier & Gunning, 1999)
1. Geography and population distribution:
•
•
•
•
Tropical location & disease,
Unpredictable Rainfall
Low ratio coastline: interior - high transport costs, small states
Landlocked Countries
2. Sparseness of population,
• higher infrastructure costs, disseminating information, and integrating production and
markets
• Ethnic diversity
• Colonial legacy
• Conflicts
• Democracy vs Autocracies
MPhil in Development Finance
63
Development Challenges: Why Historic Low
Performance? (Collier & Gunning, 1999)
3. Governance & Political Economy
•
•
•
•
Public employment & Public Service Delivery
Urban Bias
Contractual Enforcement
Resource Rents
4. Vulnerability to External shocks
• Resource Dependence
• Small size of countries & commodity export concentration
5. Aid dependency
• Aid – beneficial or detrimental to growth and development?
6. Policy
• Trade policies-high trade barriers,
• Overvalued exchange rates
MPhil in Development Finance
64
Summary
• Background
• Why African development?
• What is development ?
• SDGs?
• Development Measures
• GDP & Growth
• Human Development Index
• African Development Performance and
• Overall
• Individual Country Level
• Explaining differences in performance
MPhil in Development Finance
65
BREAK
• Back 18.15
MPhil in Development Finance
66
MPhil in Development Finance
Session 2. Savings Investment and Growth
MPhil in Development Finance
Overview
• Aggregate Growth Models
• Accounting for growth – Pathways and Factors
• Factor deepening versus techical progress
• Savings, Investment, Savings Gap in Africa
•
•
•
•
Savings Gap Aggregate v Cross-Country
Determinants of private savings
Public v private investment
Capital Efficiency
• Domestic Resource Mobilization
• Tax revenue
• External Finance
• Structural Adjustment (Introduction)
• Agriculture, Manufacturing, Services
• Future Agenda
MPhil in Development Finance
Growth, Saving & Investment “Stylized facts”
• Aggregate growth models identify growth pathways & key factors
• Concern over Domestic Resource Mobilisation & “Savings Gap”
• Private Saving
• Tax Collection
• Savings and Investment Rates key growth factors (“Factor deepening”)
• Overall Savings & Investment rates low in Sub-Saharan Africa
• Diverse experience across countries
• Savings and investment low due range of factors
• Interest rates, Financial development etc
• Falling Public Investment
• Structural change also important potential source of growth
• Weak industrialization
• AU Agenda 2063
MPhil in Development Finance
3
Economic Development ≠ Growth of
Income
Income Growth Remains Important
Anything that increases long-run rate of economic growth
y=
t
Can have large effects on living standards in the long run.
Annual
Growth rate
per capita
y0
Income Growth growth rate =4%
Time(years)
1%
(1 + g )
t
8
10
25
50
10%
28%
64%
7
6
5
4
2%
22%
64%
169%
2.50%
28%
85%
244%
2
4%
48%
167%
611%
0
3
1
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50
MPhil in Development Finance
4
Average %Growth GDP per capita
Regions
5
1991-2019 : Selected SSA Countries
4
3
2
1
0
-1
Rodrik (2016)
• What Explains Growth?
-2
WDI (2021)
• Africa: Historical Poor performance,
• Early 2000 Significant improvement
• Recent Slowing Growth
MPhil in Development Finance
5
Accounting for Growth: Pathways
Assume can capture GDP- function of capital, labour, technology, and way organizing
production.
• Y= Total Income, K= Capital Stock, L=Labour Force, A= Total Factor Productivity (TFP),
• Production function f(.) how economy transforms technology, capital, labour into output.
Initial Period 0 (Today)
Y0 = f(A0, K0, L0)
Sources of Output Growth
• Factor accumulation/deepening
• Increase in Capital Stock K (Private Investment, Private Investment (Spillovers?), Savings? )
• Increase (Effective) Labour Supply L (Population Growth, Human Capital Investment)
• Total Factor Productivity (TFP) gains
• New Technology (exogenous or endogenous).
• Structural Change (Movement between Sectors – not explicit in framework dealt with later)
MPhil in Development Finance
6
Potential Productivity Gains?
Lower levels
productivity per
worker (Not TFP)
Source World Millennium Goals Reports 2012
http://www.un.org/millenniumgoals/reports.shtml
MPhil in Development Finance
7
Decomposition of Growth Korea & Taiwan
1960-1990
Output
Growth
Capital
Share
Growth in Labour
Capital Share
Growth
Growth
Total Factor
in
Productivity
Labour
(TFP)
South Korea
Share of growth
10.3%
0.30
13.7%
39.9%
0.70
6.4%
43.5%
1.7%
16.6%
Taiwan
Share of growth
8.9%
0.26
12.3%
35.9%
0.74
4.9%
40.7%
2.1%
23.3%
Factor
Deepening
Source Young (1995) Also reported in De Janvry & Sadoulet Table 8.2
“Asian Miracle” for Korea & Taiwan: More Factor Deepening than Technical Change
Recent– China/India different slightly Different – Both Factor Deepening & Technical
Change Important (Bosworth & Collings 2008)
MPhil in Development Finance
8
Factor Deepening & Growth per Capita
• Capital Stock (K) – Positive Effects of Investment
• Population (P) - Ambiguous
• Positive if increases labour force (L) via Y0 = f(A0, K0, L0)
Y0
• Negative Impact via denominator
P0
MPhil in Development Finance
9
Historical Development: Growth Models 1
Harrod-Domar Model
• Production Function. Capital:Output Ratio 𝜃𝜃
• Saving Function Savings = s*National Income (s = savings rate)
• Investment: All Savings to Investment. Capital Depreciation Rate 𝛿𝛿
• Population Growth Rate
•
𝑃𝑃𝑒𝑒𝑒𝑒 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺
𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅
=
𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅
𝜃𝜃
𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺
−
𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅
−
𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷
𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅
• Per Capita Growth ↑ savings rate ↑ Capital Efficiency 𝜃𝜃↓ Population
Growth Rate ↓
MPhil in Development Finance
10
Historical Development: Growth Models 2
Solow Model –Key weakness of HD (No role
for labour)
• Y= Total Income, K= Capital Stock, L=Labour
Force, A= Total Factor Productivity (TFP),
Key Implications
All countries growth rates converge.
Poorer Countries (Lower k) grow faster!
Constant Returns to Scale
Saving Rate has no role!
Production Function Y0 = f(A0, K0, L0)
• Saving Function (s = savings rate)
• Investment: All Savings to Investment. Capital
Depreciation Rate 𝛿𝛿
• Population Growth Rate
MPhil in Development Finance
11
Convergence is the Exception
Average
Growth rate
• No correlation between
Average growth and
starting position
• If Converge poorer
countries should have
higher average growth
rates
Productivity
in 1870
Rodrik, D The Past, Present, and Future of Economic Growth.
2013.
MPhil in Development Finance
12
Historical Development: Growth Models 2
•
•
•
•
Harrod Domar
Plausible – mobilizing saving and investment for growth
No role for labour
Impact of Population growth not captured properly
• Solow
• More plausible assumption about nature of technology
• Growth - “Manna from heaven” exogenous technical change –
International Public Good
• Predictions growth convergence – empirically false
• “All models are wrong some models are useful”
MPhil in Development Finance
13
Historical Development: Growth Models 3
Endogenous Growth Theory
• Model with Investment in Human Capital/Education – improves
productivity of labour
Key Implication
• Endogenous growth function of savings rate, rate of investment physical
& human capital
• Model with TFP positive function of Public Investment (New Road
reduces costs for all firms) (Externalities, Spillovers and Public Goods)
Key Implication
• Government Infrastructure Investment – Increasing returns to scale and
long run growth
MPhil in Development Finance
14
Summary Growth Models
Extends Harrod-Domar Key Implications
• Per Capita Growth – Savings rate, TFP Efficiency, Investment Rates Physical &
Human Capital, Infrastructure Public Good Investment and Spillovers
• Understanding factors and pathways
• Determinants of savings and investment behaviour important – factor deepening
• Open Economy - Savings & Investment not equal
(Savings-Investment) = Trade balance + Government Budget
Government Budget = Expenditure – Taxes
MPhil in Development Finance
15
Go to www.menti.com and use the code 69 06 18
• Code also in Chat
MPhil in Development Finance
16
Savings Gap
Open Economy - Savings & Investment not equal
(Savings-Investment) = Trade balance + Government Budget
Government Budget = Expenditure – Taxes
Savings – Investment Gap
• Extent investment not financed via domestic savings
• Low rate of savings in developing countries gives rise to savings gaps
• Potential capital constraints if not filled by external financial flows (Foreign
Direct Investment, Aid, Remittances etc,
• Case for Domestic Resource Mobilization
MPhil in Development Finance
17
Domestic Resource Mobilization
Main resources available for development :
•
•
•
•
•
Domestic resources – private savings and government resources (Tax revenues).
Private capital flows – including foreign direct investment, portfolio equity, and
private sector borrowing.
ODA, philanthropy and other official flows.
External government borrowing.
Remittances
The Case for Domestic Resource Mobilization (Agenda 2063 Goal 20)
• Domestic finance is less volatile than external finance
• It permits country ownership of development policies and outcomes.
• Reduces reliance on external flows and the risk of the Dutch disease.
• Creates incentives for accountability and transparency public resources use
• Reduces vulnerability to revenue losses from trade reforms
MPhil in Development Finance
18
Investment vs Savings (% of GDP) 1996-2018
40.00
SSA
Depending on Period
29.40
27.27
30.00
21.55
21.32
East Asia
South
Asia
35.00
25.00
Small Savings Gaps
SSA
Latin
America
34.49
33.59
31.34
29.61
28.53
25.59
23.07
21.20
19.75
18.92
20.00
20.63
20.12
15.00
Lower rates of Savings
and Investment
10.00
5.00
0.00
-5.00
3.97
3.16
1.51
-0.12
-0.87
-1.69
1996-2007
2008-2018
MPhil in Development Finance
1.71
0.37
Savings (% of GDP) 2011-2018 Selected
Countries.
Wide Crosscountry differences
• Investment &
Savings Rates
• Savings Gap
50
• Resource Rich
• Growing Strongly
10
Investment
Rate
Saving Rate
40
30
20
0
-10
-20
-30
Saving Gap
(when negative)
MPhil in Development Finance
20
Domestic Resource Mobilization: Determinants of
Private Savings
• Theoretical and empirical literature group factors under four headings
•
•
•
•
income and growth variables
financial variables
demographic variables
uncertainty measures and external variables.
MPhil in Development Finance
21
Determinants of Savings: Income
• Income - higher income per capita levels countries higher aggregate savings rate
• Evidence e.g. SADEC Kapingura et al (2015)
Cons
Income
Income
Theory
• Permanent Income Hypothesis - PIH
• Income variable over lifetime – Households
aim smooth Consumption
• Periods borrowing & saving
Consumption
Time
MPhil in Development Finance
22
Determinants of savings: Real Interest rate
Real interest rate – effect ambiguous
Substitution effect
• Interest rate (opportunity cost) – price consumption today relative to
postponing consumption until tomorrow.
• Increase rate increase Price goes up – increase demand for consumption
tomorrow
Income effect
• Depends on whether individual a saver (net lender) or borrower.
• Net Saver receives net capital income. Higher interest rate increases income.
Better off (Increase savings).
• Net Borrower pays interest on borrowing. Servicing borrowing rises. Interest
rate rise has negative income effect.
MPhil in Development Finance
23
Determinants of savings: Real Interest rate
Real interest rate – Overall effect ambiguous
• Net Saver, income and substitution effect work in different directions.
• Higher interest rates - substitution current for future consumption. If income
effect dominates substitution effect, current consumption is higher than future
consumption –hence savings fall.
• Net borrower, income & substitution move same direction. A negative substitution
effect reinforced by negative income effect both reducing consumption.
• Empirical evidence interest rate changes have small substitution effects. Income
effect dominant. Rise in interest rates increases current consumption of net
lenders (savers) and reduce that of net borrowers.
• Most households net borrowers. Current consumption reacts negatively to
interest rate increases.
MPhil in Development Finance
24
Determinants of savings: Real Interest rate
• Different Pathway when Access to Credit restricted
• No Access to credit - Household consumes what current income
• Limited access to credit. Interest rate rises – Income effects only
MPhil in Development Finance
25
Determinants of savings: Financial development
• Deeper financial markets and strengthened regulation of financial institutions
enhance saving and investment opportunities
• Wider variety of financial instruments to channel savings and also by
providing more security to investors.
• “Financial depth” variables found to have positive effect across empirical
studies
• Financial development also increases availability of credit relaxing domestic
credit constraints.
• Some consumers may reduce savings – increased availability of credit,
reduced risk.
MPhil in Development Finance
26
Determinants of savings: Inflation
Inflation rate π
• Affects real interest rate (r) via nominal interest rate (i) ( r ≈ i- π )
• Proxy for macroeconomic uncertainty, higher uncertainty and pessimism
may induce higher savings for precautionary motives
• Alternatively unanticipated inflation may causes unanticipated cuts in real
income and reduce savings.
• Lahiri (1989), study of dynamics of saving in eight Asian countries, found
inflation adversely affects the propensity to save.
MPhil in Development Finance
27
Determinants of savings: Demographic factors
• Age distribution of population, life expectancy and urbanisation ratio.
• Age dependency ratio is negatively related to domestic saving rates.
• PIH predicts Individuals negative savings when young and have low or no income, positive savings during
productive years and negative savings when old and retired.
• When the share of the working population relative to that of retired persons increases, saving is likely to increase
• Life expectancy at birth negative impact expected
via effect on the ageing of the population and
reduction in working-age population.
• Decline in savings would be expected in response
to an increase in life expectancy. Via ageing of
population and reduction in working-age population
• Increased urbanisation may reduce need for
precautionary saving, which is high in rural societies
with greater volatility in income.
MPhil in Development Finance
28
Investment in Africa
Growth Theory Key Implications
• Per Capita Growth – Savings rate, TFP Efficiency, Investment Rates
Physical & Human Capital, Infrastructure Public Good Investment and
Spillovers
Investment crucial for long-term growth
• Investors inject new capital, technology, competitiveness, new markets,
and trade and jobs
• Private investment (private firms) and public investment (government).
• “To sustain average growth rates Africa requires investment rates of 25 %
of GDP.. UNCTAD(2014)
• Investment fluctuates sharply over the business cycle.
MPhil in Development Finance
29
Investment (% of GDP) 1996-2018
“To sustain average growth rates Africa
requires investment rates of 25 % of
GDP.. UNCTAD(2014)
40.00
SSA
South
Asia
35.00
29.40
27.27
30.00
SSA
25.00
21.55
21.32
East Asia
34.49
33.59
31.34
29.61
28.53
25.59
23.07
21.20
19.75
18.92
20.00
Lower rates Investment
Latin
America
20.63
20.12
15.00
10.00
Investment = Gross Fixed
Capital Formation
5.00
0.00
-5.00
3.97
3.16
1.51
-0.12
-0.87
-1.69
1996-2007
2008-2018
MPhil in Development Finance
1.71
0.37
Investment vs Savings (% of GDP) 2011-2018
Selected Countries.
Wide Crosscountry differences
• Investment
50
Investment
Rate
40
30
• Resource Rich
• Growing Strongly
20
10
0
-10
-20
-30
Saving Gap
(when negative)
MPhil in Development Finance
31
Gross fixed capital formation in Africa
private and public (%GDP)
Private GFCF
Public GFCF
“The general decline in
public investment rates in
Africa relative to the 1980s
should be of concern to
policymakers .. because
recent studies suggest that
public investment rates in
Africa are below optimal
levels” UNCTAD(2014)
UNCTAD(2014) https://unctad.org/system/files/officialGross fixed capital formation = Investment document/aldcafrica2014_en.pdf
MPhil in Development Finance
32
Efficiency of Capital :Incremental capital–output
ratios across developing-country groups
• ICOR (Incremental Capital:
Output Ratio) measures degree
of efficiency (No units of capital
required per unit output )
• Higher ICOR – Lower efficiency
• Productivity Capital in Africa has
increased
• Large diversion across
countries
MPhil in Development Finance
33
Determinants of Investment: Neo-classical Theory
In Neoclassical Model Investment determined by changes in the desired capital stock.
• Desired capital stock where firms earn largest profit. Depends on benefits & costs of extra capital
• Benefit depends on marginal product of capital, MPKf. Marginal productivity capital falls as K ↑
• User cost of capital (UC) opportunity cost of unit of capital/year User cost ≈ real interest cost +
depreciation cost.
• Simple Implications
• If MPKf > UC, Investment positive (K increases), as marginal benefits > the marginal costs.
• If MPKf < UC, Investment negative (K decreases), as marginal benefits < the marginal costs.
Changes in the desired capital stock & Investment/:
• Any factor that changes user cost of capital also changes the desired capital stock:
• e.g. real interest rate, depreciation rate, price of capital.
• Any factor (that affect productivity of capital) shifts MPKf curve also causes change in desired
capital stock: e.g. Technology, or labour force
MPhil in Development Finance
34
Determinants of Investment: Modern Theory
Neo-classical Theory “Ignores”/”assumes away”
• Source of Finance doesn’t matter (“Miller & Modigliani”)
• Access to finance assumed
• Adjustment costs - firms seamlessly adjust
• Expectations are rational
Evidence
• Source of Finance matters (Evidence Increased internal Cash flow increases
investment)
• Access to finance & Type of Finance matters (Credit constrained firms invest less)
• Adjustment costs exist – slows adjustment of firms capital stock
• Expectations not always rational/ “Animal spirits”
MPhil in Development Finance
35
Break Out Groups
• Download Saving & Investment Break Out.pdf
• You will be asked to go to a breakout room
• Remember your breakout group number
• In the room with your colleagues - Identify someone who will report back
• Discuss the following questions (Summary Determinants in pdf)
• For at least one African country you have knowledge of, use the theoretical
determinants and identify what you think are likely to be the most important
factors (and why) in the case you have identified
• You should prepare (2/3 bullet points each (savings and investment) with
reasoning
• 10-15 minutes
MPhil in Development Finance
36
Feedback Person For Each Group • Go to the Feedback wall via the Learning Hub or Direct
• https://padlet.com/euan17/vj1c6l6v9w9zgwaf
• Post Group Number and Country discussed
• 2/3 Bullets of Important Factors for Investment & Savings
MPhil in Development Finance
37
Domestic Resource Mobilization
•
Domestic resources
•
•
private savings
government resources (Tax revenues).
Open Economy
Savings-Investment = Trade balance + Government Budget
Savings-Investment = Trade balance + (Expenditure – Taxes)
What about Government revenues/taxes? (Come back to Later)
MPhil in Development Finance
38
Domestic Resource Mobilisation: Tax
Revenues 2000-2018
• Total
Government
Revenue in
Africa 24.5%
• Lowest in World
UNECA (2019) https://repository.uneca.org/handle/10855/41804
MPhil in Development Finance
39
Total Government Revenue In Africa, 2000-2018
UNECA (2019) https://repository.uneca.org/handle/10855/41804
MPhil in Development Finance
40
Government Revenue Selected Countries 2000-2018
UNECA (2019) https://repository.uneca.org/handle/10855/41804
MPhil in Development Finance
41
Trends In Tax Revenue And It Components In
Africa, 2000-2018
UNECA (2019) https://repository.uneca.org/handle/10855/41804
MPhil in Development Finance
42
Tax Revenue Components: Selected
Countries
• Average tax revenues low in
sub-Saharan Africa
• Heavy reliance on resourcebased taxes in resource-rich
countries
• A small share of direct taxes
(personal income +corporate)
• A high share of trade taxes in
some countries
• Key challenges
• Difficult to tax sectors –
informal & agriculture
• Corruption
• Balancing equity & revenue
• Need to broaden tax base
UNECA (2019) https://repository.uneca.org/handle/10855/41804
MPhil in Development Finance
43
Fiscal Space: Debt Threshold 50% GDP
2016-2018
• “Fiscal Space” –
possible extra
borrowing for
development
• Negative means
Debt/GDP > 50% in
2016-18
• Pre-Covid many
African Government
already heavily
indebted
UNECA (2019) https://repository.uneca.org/handle/10855/41804
MPhil in Development Finance
44
External Finance: Brief Overview
Foreign capital led growth?
• If Saving/investment constraint to economic growth in LDCs & Domestic Resource
Mobilization low
• Foreign capital could ensure high rate of investment.
External Resources
• External government borrowing
• Many African government heavily indebted pre-covid
•
Private capital flows
•
•
•
ODA, philanthropy and other official flows.
•
•
foreign direct investment, (>80% go to primary sector in Africa - mining and quarrying, and
petroleum).
portfolio equity, and private sector borrowing.
Historically Africa largest ODA recipient
Remittances
• been most important source of capital flows after FDI around 7 per cent of African GDP in 2011.
MPhil in Development Finance
45
SSA External Financing ($ Billion, 2015)
60
40
20
0
-20
Change in stock of external debt
Net official development assistance and official aid received
-40
Foreign direct investment, net inflows
-60
Personal remittances, received
MPhil in Development Finance
46
Aggregate Growth Models & Structural Adjustment
Growth Models
• Per Capita Growth – Savings rate, TFP Efficiency, Investment Rates Physical &
Human Capital, Infrastructure Public Good Investment and Spillovers
• Understanding – overall determinants of growth
Ignores –important source of growth
• Structural Adjustment
• Movement resources across sectors
MPhil in Development Finance
47
Sources of growth: Structural Adjustment
• Three sectors Agriculture, Manufacturing, Services
• Consider Total Factor productivity in Economy (TFP)
𝑇𝑇𝑇𝑇𝑇𝑇𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜
%𝐺𝐺𝐺𝐺𝐺𝐺 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆
%𝐺𝐺𝐺𝐺𝐺𝐺 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆
%𝐺𝐺𝐺𝐺𝐺𝐺 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆
∗ 𝑇𝑇𝑇𝑇𝑇𝑇𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 +
∗ 𝑇𝑇𝑇𝑇𝑇𝑇𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚
∗ 𝑇𝑇𝑇𝑇𝑇𝑇𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠 +
=
𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆
𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀
• Assume
𝑇𝑇𝑇𝑇𝑇𝑇𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 < 𝑇𝑇𝑇𝑇𝑇𝑇𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚
𝑇𝑇𝑇𝑇𝑇𝑇𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠 ?
• Growth Occurs if decrease resources (employment, capital) in agriculture and increase
in manufacturing
• Structural transformation characterized by
• a shift from low- to high-productivity activities,
• a decline in the share of agriculture in output and employment, and
• an increase in the share of manufacturing and modern services in output.
MPhil in Development Finance
48
Agric Importance falls During Development
but Path not Uniform
%Share of
Labour in Ag
• World Bank Development Report
(2008)
China
Nigeria
Brazil
• Over period 1990-2005
• African Countries
• Fall in % Share in Agric –
Little per capita growth
• Suggestive little growth via
Structural Change
GDP per capita
MPhil in Development Finance
49
Growth in Manufacturing lagging
• Share of
manufacturing
employment
should increase
as GDP increases
• Africa Lagging
Asia at all levels
of GDP
Rodrik (2016)
MPhil in Development Finance
50
Outline
• Aggregate Growth Models
• Accounting for growth – Pathways and Factors
• Factor deepening versus technical progress
• Savings and Savings Gap
• Aggregate v Individual Country
• Determinants of Savings
• Investment and performance in Africa
•
•
•
•
• Aggregate v Individual Country
• Public v private investment
• Capital Efficiency
Structural adjustment
Agriculture, Manufacturing, Services
Domestic Resource Mobilization
External Finance
MPhil in Development Finance
African Union Agenda 2063
• Industrialization remains Key Goal
• Transformed, Inclusive and Sustainable Economies
• GDP will be growing at 7% and at least a third of the outputs will be
generated by national firms.
• Labour intensive manufacturing, underpinned by value addition to
commodities and doubling of the total agricultural factor productivity will
be attained by 2023
• ICT penetration and contribution to real GDP in absolute terms would
be double of 2013 levels.
• Regional industrialization hubs linked to the global value chains and
commodity exchanges will be in place by 2023.
• https://au.int/agenda2063/outcomes
MPhil in Development Finance
52
UNTAD (2014) Report Messages &
Recomendations
Sustained transformative growth in Africa requires broadening sources of growth
• Demand - Balancing contributions of consumption and investment
• Supply - Shift from low- to high-productivity activities with and across sectors
Boosting the level and rate of investment
• Enhance domestic resource mobilization,
• Broaden the tax base
• Reversal of policy bias against public investment,
• Address credit market imperfections, Reducing risk and uncertainty
Ensuring that investment goes to strategic and priority sectors of the economy
• Role for industrial policy and Central Banks
Improve productivity of investment
• Esp Public investment
UNCTAD
Others
• local and foreign enterprises, Stemming capital flight, Using aid, international trade
MPhil in Development Finance
53
Overview
• Aggregate Growth Models
• Accounting for growth – Pathways and Factors
• Factor deepening versus techical progress
• Savings, Savings Gap & Domestic Resource Mobilization
• Savings Gap Aggregate v Cross-Country
• Determinants of private savings
• Tax revenue
• External Finance
• Investment in Africa
• Aggregate v Cross-Country
• Public v private investment
• Capital Efficiency
• Structural Adjustment
• Agriculture, Manufacturing, Services
• Future Agenda
MPhil in Development Finance
.
MPhil in Development Finance
55