nep-afr New Economics Papers
on Africa
Issue of 2007‒04‒21
eighteen papers chosen by
Suzanne McCoskey
Foreign Service Institute, US Department of State

  1. Debating the Provision of Basic Utilities in Sub-Saharan Africa: a Response to Nellis By Kate Bayliss; Ben Fine
  2. Do No Harm: Aid, Weak Institutions, and the Missing Middle in Africa By Nancy Birdsall
  3. What Have IMF Programs With Low-Income Countries Assumed About Aid Flows? By David Goldsbrough and; Ben Elberger
  4. Smallholder Household Maize Production and Marketing Behavior in Zambia and Its Implications for Policy. By Ballard Zulu; T.S. Jayne; Margaret Beaver
  5. Why Doesn't Africa Get More Equity Investment? Frontier Stock Markets, Firm Size and Asset Allocations of Global Emerging Market Funds By Todd Moss; Vijaya Ramachandran; Scott Standley
  6. Ruggedness: The Blessing of Bad Geography in Africa By Nunn, Nathan; Puga, Diego
  7. Urgent Need for Effective Public-Private Coordination in Zambia’s Cotton Sector. Deliberations on the Cotton Act. By David Tschirley; Stephen Kabwe
  8. Current and forthcoming issues in the Sout h African electricity sector By Maurer, Luiz; Bogetic, Zeljko; Kessides, Ioannis N.
  10. Growth, Debt Burdens and Alleviating Effects of Foreign Aid in Least Developed Countries By Bjerg, Christina; Bjørnskov, Christian; Holm, Anne
  11. Programme de lutte contre la pauvreté et stratégie de croissance au Sénégal. Les deux politiques se complètent-elles ? By Sandrine Mesplé-Somps
  12. Credit Elasticities in Less-Developed Economies: Implications for Microcredit By Dean Karlan; Jonathan Zinman
  13. Horizontal inequalities, political environment, and civil conflict : evidence from 55 developing countries, 1986-2003 By Ostby, Gudrun
  14. Oil and the propensity to armed struggle in the Niger Delta region of Nigeria By Oyefusi, Aderoju
  15. The aftermath of civil war By Reynal-Querol, Marta; Loayza, Norman V.; Chen, Siyan
  16. Bribery in Health Care in Peru and Uganda By Jennifer Hunt
  17. Ethnic polarization and the duration of civil wars By Reynal-Querol, Marta; Montalvo, Jose G.
  18. Expanding Credit Access: Using Randomized Supply Decisions to Estimate the Impacts By Dean Karlan; Jonathan Zinman

  1. By: Kate Bayliss (Independent Consultant, Brighton, UK); Ben Fine (Professor of Economics, SOAS, University of London)
    Keywords: Sub-Saharan Africa, Nellis, Poverty
    Date: 2007–04
  2. By: Nancy Birdsall
    Abstract: The implicit assumption of the donor community is that Africa is trapped by its poverty, and that aid is necessary if Africa is to escape the trap. In this note I suggest an alternative assumption: that Africa is caught in an institutional trap, signaled and reinforced by the small share of income of its independent middle-income population. Theory and historical experience elsewhere suggest that a robust middle-income group contributes critically to the creation and sustenance of healthy institutions, particularly healthy institutions of the state. I propose that if external aid is to be helpful for institution-building in Africa’s weak and fragile states, donors need to emphasize not providing more aid but minimizing the risks more aid poses for this group in Africa. Most middle-income households in Africa are actually poor by international standards, or at risk of becoming poor. While maintaining their concern for the “poor” as conventionally defined, donors need also to avoid harm to the fragile “middle”. Of special concern should be the implications of high and unpredictable aid inflows for small entrepreneurial activity and job creation in the private sector. In the more than 20 countries already highly dependent on aid (where aid constitutes 10 percent or more of GNP and as much as 50 percent of total government spending), donors (in collaboration with recipient governments) should be monitoring more closely than has been the case the effects of aid and of planned aid increases on the labor market, particularly for skilled workers; on interest rates and other macroeconomic variables; on domestic investor confidence (given the volatility of past aid); and on incentives for domestic revenue generation.
    Keywords: sub-Saharan African, institution-building, external aid, weak and fragile states, private sector, domestic investor confidence, private investment
    JEL: E0 F33 F34 F35 O43
  3. By: David Goldsbrough and; Ben Elberger
    Abstract: This paper examines the nature of aid projections in IMF programs with low-income countries. On average, IMF projections of net aid increased sharply in the first year of programs but tapered off in subsequent years. Projections were also significantly more optimistic in countries with low initial levels of aid but differed little across regions. Most notably, projections of net aid to countries in Sub-Saharan Africa following the Gleneagles Summit are significantly more pessimistic than the path implied by commitments to double aid to Africa by 2010. This pattern is strong throughout the group with only two Sub-Saharan African countries showing increases in net aid consistent with the Gleneagles commitments. We argue that much greater clarity is needed about the role of the IMF in the aid architecture. In addition to projecting likely aid flows based on detailed discussions with donors, the IMF should utilize sector-level inputs to assess the macroeconomic effects of a significant scaling-up of aid in programs with low-income countries. Such a scenario would help the international community and the country itself judge whether there are any macroeconomic constraints to absorbing more aid. The obvious benchmark to use for aid levels in such a scenario would be what donors have committed to globally--i.e. a doubling of aid in the case of African countries. Finally, we conclude that the IMF should be more transparent about what its collective program projections imply for the expected path of global aid flows.
    Keywords: International Monetary Fund, foreign aid, ODA, projections, Gleneagles Summit,macroeconomic frameworks, macroeconomic programs, Africa
    JEL: F33 F35 F37
  4. By: Ballard Zulu; T.S. Jayne; Margaret Beaver
    Abstract: The ability of agricultural policy makers to promote national development objectives requires an accurate and reasonably current picture of what crops farmers grow, what they eat, the importance of various crops in their incomes, and how they spend their money. In Zambia’s case, there is reasonably accurate information on production levels and trends in a specific set of crops grown by smallholder farmers, but very little knowledge of how important these specific crops are in smallholders’ total crop incomes, the importance of crop production in total smallholder incomes (which include livestock and non-farm activities), and how changes in crop prices affect smallholders’ welfare. This paper presents a comprehensive picture of crop production and marketing patterns in Zambia’s small- and medium-scale farm sector, examines how these patterns vary regionally, and examines differences between poor and non-poor strata of the rural farm sector. The data presented comes from the 1999/00 and 2002/03 production years, corresponding to the 2000/01 and 2003/04 marketing years. Because so much policy attention in Zambia is focused on maize, the study provides a particular emphasis on small farmers’ maize production and marketing behavior, and discusses their implications for policy.
    Keywords: food security, food policy, maize, marketing, production, Zambia, Africa
    JEL: Q18
    Date: 2007
  5. By: Todd Moss; Vijaya Ramachandran; Scott Standley
    Abstract: This paper addresses the question of investment in sub-Saharan African listed securities by examining characteristics of the continent’s 15 equity markets, the rise and fall of African regional funds, and the asset allocation trends for global emerging market (GEM) funds. The data shows that South Africa is now a leading destination of capital, but that few managers invest elsewhere on the continent. However, we find that African markets are not treated differently than other markets and present evidence that small market size and low levels of liquidity are a binding deterrent for foreign institutional investors. Thus, orthodox market variables rather than market failure appear to explain Africa’s low absolute levels of inward equity flows. The paper then turns to new data from firm surveys to explore why African firms remain small. The implications of our findings are threefold: (a) efforts to encourage greater private investment in these markets should concentrate on domestic audiences and specialized regional funds, (b) the depth and success of the Johannesburg Stock Exchange can perhaps be better utilized to benefit other parts of the continent, and (c) any long-term strategy should concentrate on the underlying barriers to firm entry and growth.
    Keywords: sub-Saharan African, equity markets, global emerging market,inward equity flows, private investment, Johannesburg Stock Exchange
    JEL: E22 F21 G15
  6. By: Nunn, Nathan; Puga, Diego
    Abstract: There is controversy about whether geography matters mainly because of its contemporaneous impact on economic outcomes or because of its interaction with historical events. Looking at terrain ruggedness, we are able to estimate the importance of these two channels. Because rugged terrain hinders trade and most productive activities, it has a negative direct effect on income. However, in Africa rugged terrain afforded protection to those being raided by slave traders. Since the slave trade retarded subsequent economic development, in Africa ruggedness also has had a historical indirect positive effect on income. Studying all countries worldwide, we find that both effects are significant statistically and that for Africa the indirect positive effect dominates the direct negative effect. Looking within Africa, we provide evidence that the indirect effect operates through the slave trade. We also show that the slave trade, by encouraging population concentrations in rugged areas, have also amplified the negative direct impact of rugged terrain in Africa.
    Keywords: Africa; economic development; geography; slave trades; terrain ruggedness
    JEL: N40 N50 O11 O13
    Date: 2007–04
  7. By: David Tschirley (Department of Agricultural Economics, Michigan State University); Stephen Kabwe (Department of Agricultural Economics, Michigan State University)
    Abstract: Cotton is an unquestioned success of Zambia’s turn towards a market economy. Yet the entry over the past two years of new players has put the sector under great stress and may have pushed it to a turning point. Now more than ever, effective “rules of the game” are urgently needed to protect Zambia’s remarkable cotton success story. Other countries in southern and eastern Africa have seen dramatic declines in input credit and extension to farmers, and in cotton quality, when competition among ginning firms intensified in the absence of suitable rules of the game. The focus in Zambia must be on establishing broadly accepted rules of the game that ensure honest competition that does not undermine input credit, extension, and cotton quality.
    Keywords: food security, food policy, Zambia, cotton, production, marketing
    JEL: Q20
    Date: 2007
  8. By: Maurer, Luiz; Bogetic, Zeljko; Kessides, Ioannis N.
    Abstract: One of the contentious issues in electricity reform is whether there are significant gains from restructuring systems that are moderately well run. South Africa ' s electricity system is a case in point. The sector ' s state-owned utility, Eskom, has been generating some of the lowest-priced electricity in the world, has largely achieved revenue adequacy, and has financed the bulk of the government ' s ambitious electrification program. Moreover, the key technical performance indicators of Eskom ' s generation plants have reached world-class levels. Yet the sector is confronted today with serious challenges. South Africa ' s electricity system is currently facing a tight demand/supply balance, and the distribution segment of the industry is in serious financial trouble. This paper provides a careful diagnostic assessment of the industry and identifies a range of policy and restructuring options to improve its performance. It suggests removing distribution from municipal control and privatizing it, calls for vertical and horizontal unbundling, and argues that the cost-benefit analysis of different structural options should focus on investment incentives and not just current operating efficiency.
    Keywords: Energy Production and Transportation,Electric Power,Environment and Energy Efficiency,Energy and Environment,Infrastructure Economics
    Date: 2007–04–01
  9. By: Aleksander Aristovnik
    Abstract: The main aim of the paper is to examine the short- and medium-term empirical link between current account balances and a broad set of (economic) variables proposed by theoretical and empirical literature. The paper focuses on the Middle East and North Africa (MENA), an economically diverse region, which has so far mainly been neglected in such empirical analyzes. For this purpose, a (dynamic) panel-regression technique is used to characterize the properties of current account variations across selected MENA economies in the 1971-2005 period. The results, which are generally consistent with theoretical and previous empirical analyses, indicate that higher (domestic and foreign) investment, government expenditure and foreign interest rates have a negative effect on the current account balance. On the other hand, a more open economy, higher oil prices and domestic economic growth generate an improvement in the external balance, whereas the latter implies that the domestic growth rate is associated with a larger increase in domestic savings than investment. Finally, the results show a relatively high persistency of current accounts and reject the validity of the stages of development hypothesis as poorer countries in the region reveal a higher current account surplus (or lower deficit).
    Keywords: MENA countries, current account, determinants, dynamic panel data
    JEL: C23 F32 O53
    Date: 2007–03–01
  10. By: Bjerg, Christina (Department of Economics, Aarhus School of Business); Bjørnskov, Christian (Department of Economics, Aarhus School of Business); Holm, Anne (Department of Economics, Aarhus School of Business)
    Abstract: In this paper, we explore the potential growth effects of foreign aid when in conjunction with severe debt problems. We first argue that aid, when used to finance debt repayments, does not lead to Dutch Disease while still alleviating an economic problem. A set of empirical estimates show that while inflows of foreign aid in general are not associated with growth in a sample of 38 Least Developed Countries, an interaction term with the level of external debt is significant. We take this as suggestive evidence of an alleviating effect of aid in these countries and offer some tentative thoughts on the implications for future aid policies
    Keywords: Economic growth; foreign aid; external debt
    JEL: F34 F35 O40
    Date: 2007–01–01
  11. By: Sandrine Mesplé-Somps (DIAL, IRD, Paris)
    Abstract: Since 2004, the Government of Senegal has adopted an accelerated growth program in the aim of reducing poverty by half before 2015 (Millennium Development Goal). This article criticizes this program by analysing his pro-poor components. It shows that policies are too much oriented towards sectors that generate few jobs and revenues to poor people. Then, this growth strategy is not really in accordance with the Senegalese Poverty Reduction Strategy Paper.________________________________ Les autorités sénégalaises ont adopté un programme de lutte contre la pauvreté avec le soutien des institutions de Bretton Woods depuis 2002. Afin de tenter d’atteindre les objectifs de réduction de la pauvreté qui ont été fixés par les Objectifs du Millénaire pour le Développement (OMD), elles ont lancé en 2004 un programme de relance de la croissance. Cet article discute de cette nouvelle stratégie de croissance et analyse de quelle manière elle est en mesure ou non de répondre aux objectifs de réduction de la pauvreté. On montre que les orientations politiques de ce programme devraient avant tout favoriser les activités formelles peu génératrices d’emploi et de revenus. Cela interroge alors la manière dont les autorités sénégalaises s’impliquent dans la mise en oeuvre des politiques vis à vis des plus défavorisés.
    Keywords: Senegal, growth, poverty, inequality, Sénégal, croissance, pauvreté, inégalité.
    JEL: O4 O55 D31
    Date: 2007–02
  12. By: Dean Karlan; Jonathan Zinman
    Abstract: Policymakers often urge microfinance institutions to increase interest rates to eliminate reliance on subsidies. However, existing research provides little evidence on interest rate sensitivities in MFI target markets as well as little guidance on how to derive rates. MFI policymakers generally presume that the poor are largely insensitive to interest rates and recommend that MFIs increase interest rates without fear of diminishing access. In this working paper, CGD non-resident fellow and his co-author test the elasticity of demand for microcredit using field data from South Africa. A for-profit South African lender worked with the authors to randomize 50,000 individual interest rate direct mail offers and tracked gross revenue and repayment, allowing the authors to access the effects on the targeted access margin that interests policymakers. They also worked with the lender to explore a margin of loan contracting that has been largely ignored by academics, policy makers and practitioners: loan maturity. They found that price sensitivity increased sharply when individuals were offered a rate above their prior loan's rate. They also found that loan size is far more responsive to changes in loan maturity than to changes in interest rates. This paper is one in a series of six CGD working papers by Dean Karlan on various aspects of microfinance (Working Paper Nos. 106 –111).
    Keywords: interest rates, subsidies,credit elasticity,loan maturity, microfinance, credit market
    JEL: G21 M20 E51 E43 H20
  13. By: Ostby, Gudrun
    Abstract: Several studies of civil war have concluded that economic inequality between individuals does not increase the risk of internal armed conflict. This is perhaps not so surprising. Even though an individual may feel frustrated if he is poor compared with other individuals in society, he will not start a rebellion on his own. Civil wars are organized group conflicts, not a matter of individuals randomly committing violence against each other. Hence, we should not neglect the group aspect of human well-being and conflict. Systematic inequalities that coincide with ethnic, religious, or geographical cleavages in a country are often referred to as horizontal inequalities (or inter-group inequalities). Case studies of particular countries as well as some statistical studies have found that such inequalities between identity groups tend to be associated with a higher risk of internal conflict. But the emergence of violent group mobilization in a country with sharp horizontal inequalities may depend on the characteristics of the political regime. For example, in an autocracy, grievances that stem from group inequalities are likely to be large and frequent, but state repression may prevent them from being openly expressed. This paper investigates the relationship between horizontal inequalities, political environment, and civil war in developing countries. Based on national survey data from 55 countries it calculates welfare inequalities between ethnic, religious, and regional groups for each country using indicators such as household assets and educational levels. All the inequality m easures, particularly regional inequality, are positively associated with higher risks of conflict outbreak. And it seems that the conflict potential of regional inequality is stronger for pure democratic and intermediate regimes than for pure autocratic regimes. Institutional arrangements also seem to matter. In fact it seems that the conflict potential of horizontal inequalities increases with more inclusive electoral systems. Finally, the presence of both regional inequalities and political exclusion of minority groups seems to make countries particularly at risk for conflict. The main policy implication of these findings is that the combination of politically and economically inclusive government is required to secure peace in developing countries.
    Keywords: Population Policies,Social Conflict and Violence,Education and Society,Parliamentary Government,Services & Transfers to Poor
    Date: 2007–04–01
  14. By: Oyefusi, Aderoju
    Abstract: This paper attempts to explain the determinants of the propensity to armed struggle and the probability of participation by individuals in t he Niger Delta region of Nigeria using primary (micro) data. While grievance appears to be pervasive among individuals and communities in the region and can be systematically explained, neither the grievance level nor its commonly cited causal factors appear to be strong enough to create a disposition toward armed rebellion. Rather, factors that reduce the opportunity cost and risk of participation or increase the perceived benefits appear to be more important. The study identifies three of these factors that are amenable to the policymaker ' s (government ' s) control as income level, educational attainment, and government presence.
    Keywords: Social Conflict and Violence,Population Policies,Education and Society,Corporate Law,Community Development and Empowerment
    Date: 2007–04–01
  15. By: Reynal-Querol, Marta; Loayza, Norman V.; Chen, Siyan
    Abstract: Using an " event-study " methodology, this paper analyzes the aftermath of civil war in a cross-section of countries. It focuses on those experiences where the end of conflict marks the beginning of a relatively lasting peace. The paper considers 41 countries involved in internal wars in the period 1960-2003. In order to provide a comprehensive evaluation of the aftermath of war, the paper considers a host of social areas represented by basic indicators of economic performance, health and education, political development, demographic trends, and conflict and security issues. For each of these indicators, the paper first compares the post- and pre-war situations and then examines their dynamic trends during the post-conflict period. The paper concludes that, even though war has devastating effects and its aftermath can be immensely difficult, when the end of war marks the beginning of lasting peace, recovery and improvement are indeed achieved.
    Keywords: Population Policies,Peace & Peacekeeping,Post Conflict Reintegration,Services & Transfers to Poor,Social Conflict and Violence
    Date: 2007–04–01
  16. By: Jennifer Hunt
    Abstract: In this paper, I examine the role of household income in determining who bribes and how much they bribe in health care in Peru and Uganda. I find that rich patients are more likely than other patients to bribe in public health care: doubling household consumption increases the bribery probability by 0.2-0.4 percentage points in Peru, compared to a bribery rate of 0.8%; doubling household expenditure in Uganda increases the bribery probability by 1.2 percentage points compared to a bribery rate of 17%. The income elasticity of the bribe amount cannot be precisely estimated in Peru, but is about 0.37 in Uganda. Bribes in the Ugandan public sector appear to be fees-for-service extorted from the richer patients amongst those exempted by government policy from paying the official fees. Bribes in the private sector appear to be flat-rate fees paid by patients who do not pay official fees. I do not find evidence that the public health care sector in either Peru or Uganda is able to price-discriminate less effectively than public institutions with less competition from the private sector.
    JEL: H4 K4 O1
    Date: 2007–04
  17. By: Reynal-Querol, Marta; Montalvo, Jose G.
    Abstract: The authors analyze the relationship between ethnic polarization and the duration of civil wars. Several recent papers have argued that the uncertainty about the relative power of the contenders in a war will tend to increase its duration. In these models, uncertainty is directly related to the relative size of the contenders. The authors argue that the duration of civil wars increases the more polarized a society is. Uncertainty is not necessarily linked to the structure of the population but it could be traced back to the measurement of the size of the different groups in the society. Given a specific level of measurement error or uncertainty, more polarization implies lengthier wars. The empirical results show that ethnically polarized countries have to endure longer civil wars than ethnically less polarized societies.
    Keywords: Social Conflict and Violence,Population Policies,Peace & Peacekeeping,Post Conflict Reintegration,Services & Transfers to Poor
    Date: 2007–04–01
  18. By: Dean Karlan; Jonathan Zinman
    Abstract: Expanding access to credit is a key ingredient of development strategies worldwide, and the microfinance industry is generally credited with success in helping to alleviate poverty and improve the lives of the poor. But there is less consensus on the role of consumer loans in credit expansion initiatives. In fact, many practitioners and policymakers are skeptical about the benefits of consumer lending. This working paper by CGD non-resident fellow Dean Karlan and Jonathan Zinman estimates the impacts of expanding the consumer credit supply using a South African field experiment in which some loan applicants who had been denied credit were randomly selected to be "unrejected" for a loan. They find that compared to those who did not receive credit, borrowers showed increased employment, reduced hunger and reduced poverty. The loans also appear to have been profitable for the lender. This paper is one in a series of six CGD working papers by Dean Karlan on various aspects of microfinance (Working Paper Nos. 106-111).
    Keywords: access to credit, microfinance, consumer loans
    JEL: G21 M20

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