nep-afr New Economics Papers
on Africa
Issue of 2010‒07‒31
eighteen papers chosen by
Quentin Wodon
World Bank

  1. Should African Monetary Unions Be Expanded? An Empirical Investigation of the Scope for Monetary Integration in Sub-Saharan Africa By Xavier Debrun; Paul R. Masson; Catherine A. Pattillo
  2. Can Common Stocks Provide A Hedge Against Inflation? Evidence from African Countries By Paul Alagidede; Theodore Panagiotidis
  3. Rural banking in Africa By van Empel, Gerard
  4. What is the irrigation potential for Africa? By You, Liangzhi; Ringler, Claudia; Nelson, Gerald; Wood-Sichra, Ulrike; Robertson, Richard; Wood, Stanley; Guo, Zhe; Zhu, Tingju; Sun, Yan
  5. Global Financial Crisis, Protectionism and Current Account Deficit: South Africa on the Brink? By Andreas Freytag; Sebastian Voll; Peter Draper
  6. A review of collective action in rural Ghana By Salifu, Adam; Francesconi, Gian Nicola; Kolavalli, Shashidhara
  7. Do Comprehensive Africa Agriculture Development Program (CAADP) Processes Make a Difference to Country Commitments to Develop Agriculture? By Kolavalli, Shashidhara; Flaherty, Kathleen; Al-Hassan, Ramatu; Baah, Kwaku Owusu
  8. Bundling development services with agricultural finance By Campaigne, Jonathan; Rausch, Tom
  9. Exchange Rate Assessment for Sub-Saharan Economies By Burcu Aydin
  10. Understanding gender differences in agricultural productivity in Uganda and Nigeria By Peterman, Amber; Quisumbing, Agnes; Behrman, Julia; Nkonya, Ephraim
  11. Sales location and supply response among semisubsistence farmers in Benin By Takeshima, Hiroyuki; Winter-Nelson, Alex
  12. Old problems in the new solutions? By Banful, Afua Branoah
  13. Bubbles in South African House Prices and their Impact on Consumption By Sonali Das; Rangan Gupta; Patrick T Kanda
  14. Microinsurance innovations in rural finance By Wiedmaier-Pfister, Martina; Klein, Brigitte
  15. Rural banking By Nair, Ajai; Fissha, Azeb
  16. Mapping the policy process in Nigeria By Aberman, Noora-Lisa; Schiffer, Eva; Johnson, Michael; Oboh, Victor
  17. M-PESA: Finding new ways to serve the unbanked in Kenya By Lonie, Susie
  18. Migratory responses to agricultural risk in Northern Nigeria By Dillon, Andrew; Mueller, Valerie; Salau, Sheu

  1. By: Xavier Debrun; Paul R. Masson; Catherine A. Pattillo
    Abstract: This paper develops a full-fledged cost-benefit analysis of monetary integration, and applies it to the currency unions actively pursued in Africa. The benefits of monetary union come from a more credible monetary policy, while the costs derive from real shock asymmetries and fiscal disparities. The model is calibrated using African data. Simulations indicate that the proposed EAC, ECOWAS, and SADC monetary unions bring about net benefits to some potential members, but modest net gains and sometimes net losses for others. Strengthening domestic macroeconomic frameworks is shown to provide some of the same improvements as monetary integration, reducing the latter’s relative attractiveness.
    Date: 2010–07–09
  2. By: Paul Alagidede (University of Stirling); Theodore Panagiotidis (University Of Macedonia)
    Abstract: The extent to which the stock market provides a hedge to investors against inflation is examined for African stock markets. By employing parametric and nonparametric cointegration procedures, we show that the point estimates of the elasticities of stock prices with respect to consumer prices range from 0.015 for Tunisia to 2.264 for South Africa, evidence of a positive long-run relationship. Further, the time path of the response of stock prices to innovations in consumer prices exhibits a transitory negative response for Egypt and South Africa, which becomes positive over longer horizons: important indication that the stock market tends to provide a hedge against rising consumer prices in African markets.
    Keywords: Stock Prices, Inflation, Fisher Effect, African Stock Markets, Cointegration
    JEL: G10 G15 C32
    Date: 2010–07
  3. By: van Empel, Gerard
    Abstract: Many people in the vast rural areas of Africa lack access to financial services, and most commercial banks are not interested in moving into these areas due to their low income levels, lack of scale economies, and poor infrastructure. Also, few banks actually understand the most common economic activity in rural areas: agriculture. Consequently, the absence of financial institutions in rural Africa has often enticed governments to step in, particularly with state-dominated banks focused on agriculture. Many of these initiatives have failed, however, because they were too bureaucratic, too policy oriented, too concentrated on risk to only one segment of the population, or too weak in customer focus. In addition, clients considered these government-sponsored institutions to be instruments that provided grants; hence, the banks suffered from poor loan-recovery rates. While microfinance institutions have made some inroads into rural Africa with the financial backing of international nongovernmental organizations and other sponsors, their sustainability is questionable. They tend to lack banking licenses and therefore have a very limited product range, and they cannot afford modern technology-based distribution systems.
    Keywords: Agricultural development -- Africa, agriculture finance, Farmers, Rabobank, rural banking, supply chain,
    Date: 2010
  4. By: You, Liangzhi; Ringler, Claudia; Nelson, Gerald; Wood-Sichra, Ulrike; Robertson, Richard; Wood, Stanley; Guo, Zhe; Zhu, Tingju; Sun, Yan
    Abstract: Although irrigation in Africa has the potential to boost agricultural productivities by at least 50 percent, food production on the continent is almost entirely rainfed. The area equipped for irrigation, currently slightly more than 13 million hectares, makes up just 6 percent of the total cultivated area. Eighty-five percent of Africa’s poor live in rural areas and mostly depend on agriculture for their livelihoods. As a result, agricultural development is key to ending poverty on the continent. Many development organizations have recently proposed to significantly increase investments in irrigation in the region. However, the potential for irrigation investments in Africa is highly dependent upon geographic, hydrologic, agronomic, and economic factors that need to be taken into account when assessing the long-term viability and sustainability of planned projects. This paper analyzes large, dam-based and small-scale irrigation investment needs in Africa based on agronomic, hydrologic, and economic factors. This type of analysis can guide country- and local-level assessment of irrigation potential, which will be important to agricultural and economic development in Africa.
    Keywords: internal rate of return, Investment, irrigation potential, large-scale irrigation, small-scale irrigation,
    Date: 2010
  5. By: Andreas Freytag (School of Economics and Business Administration, Friedrich-Schiller-University Jena); Sebastian Voll; Peter Draper
    Abstract: -
    Keywords: -
    JEL: F32 F41 H54
    Date: 2010–06–14
  6. By: Salifu, Adam; Francesconi, Gian Nicola; Kolavalli, Shashidhara
    Abstract: With the beginning of the new millennium and the increasing concerns with regard to wild privatization reforms, African governments, international donors and development scholars have been showing renewed interest in collective action. As a result, farmer-based organization (FBOs) and agricultural cooperatives (agri–coops) are back on the policy agenda for Africa as a preferential means to achieve a more equitable, inclusive and community-driven development of rural areas. The objective of this paper is to provide a snapshot of the patterns and determinants in the development of FBOs and agri–coops in Ghana. With the intention to fill knowledge gaps, harmonize perceptions, update and broaden public understanding of FBOs and agri–coops in Ghana, this review compiles and compares as much secondary evidence as possible and fills in missing evidence through focus group discussions and key informant interviews. The paper concludes with some implications for policy-making and for further and more empirical research.
    Keywords: agricultural cooperatives, Collective action, farmer-based organizations, reviews,
    Date: 2010
  7. By: Kolavalli, Shashidhara; Flaherty, Kathleen; Al-Hassan, Ramatu; Baah, Kwaku Owusu
    Abstract: The CAADP is a commitment of African countries to pursue economic growth through agriculture-led development to reduce poverty and hunger on the continent. It stems from the failure of previous interventions on the continent largely attributed to their weak ownership. CAADP is expected to serve as a framework that adds value to national and regional strategies for the development of agriculture. Some of its key principles that are expected to add value are the building of partnerships, dialogue, peer review, and mutual accountability at all levels as well as exploitation of regional complementarities. CAADP countries are expected to achieve 6 percent growth in the agricultural sector and allocate at least 10 percent of the national budget to agriculture. The objective of this paper is primarily to understand how continental initiatives such as CAADP can and do influence country commitment to seek agriculture-led development. This paper employs Ghana as a case study to examine whether CAADP processes leading up to and including the country roundtable process enhance the visibility of the role of agriculture as a means of reducing poverty. The study explores whether countries take the leadership in adopting the CAADP framework. First, the paper provides perspective on the agricultural sector in Ghana and the role of agriculture in development strategies. Further, it reviews how the processes for implementation of CAADP have evolved and how they have influenced implementation in Ghana. It evaluates what impact CAADP may have on the content of agricultural policies in Ghana. Finally, the paper makes some suggestions for improving CAADP implementation.
    Keywords: Agriculture, CAADP, Development strategies, NEPAD, Participation, values,
    Date: 2010
  8. By: Campaigne, Jonathan; Rausch, Tom
    Abstract: Agriculture is the largest economic sector in most African countries and remains the best opportunity for economic growth and poverty alleviation on the continent. Yet, sadly, the sector has been in decline over the past 40 years, and poor farmers have largely remained poor. This failure is due to many factors, including collapsed agricultural development banks, corruption, inadequate infrastructure, and poor soils and seeds. It has also occurred because smallholder farmers lack access to critical information, market facilitation, and financial intermediation services. This brief reviews the DrumNet Project and its approach to improving farmers’ access to finance in Kenya. The project has found that financing small-scale farmers is challenging given the cost and risk associated with serving rural, relatively isolated clients. Lending becomes increasingly feasible, however, in a supply-chain approach in which farmers are connected to a formal network of buyers, retailers, and financiers.
    Keywords: agriculture finance, DrumNet, economic growth, Poverty reduction, Small-scale farmers, Supply chain management,
    Date: 2010
  9. By: Burcu Aydin
    Abstract: This paper provides an exchange rate assessment for sub-Saharan African economies by using methodologies similar to those developed by the International Monetary Fund’s Consultative Group on Exchange Rate Issues. As in the World Economic Outlook (IMF, 2009a), the unbalanced panel dataset covers 182 countries from 1973 to 2014. We apply four methodologies to assess the fundamental exchange rate: macroeconomic balance, equilibrium real exchange rate, external sustainability, and purchasing power parity. Results show that the impact of macroeconomic fundamentals on the equilibrium real exchange rate is different for sub-Saharan African economies than for advanced and less advanced economies.
    Date: 2010–07–13
  10. By: Peterman, Amber; Quisumbing, Agnes; Behrman, Julia; Nkonya, Ephraim
    Abstract: We investigate gender differences in agricultural productivity using data collected in 2005 from Nigeria and in 2003 from Uganda. Results indicate that lower productivity is persistent from female-owned plots and female-headed households, accounting for a range of socioeconomic variables, agricultural inputs, and crop choices using multivariate Tobit models. These results are robust to the inclusion of household-level unobservables. However, productivity differences depend on the type of gender indicator used, crop-specific samples, agroecological region, and inclusion of biophysical characteristics. More nuanced gender data collection and analysis in agricultural research spanning diverse regions are encouraged to identify interventions that will increase productivity and program effectiveness for male and female farmers.
    Keywords: Agricultural productivity, Gender,
    Date: 2010
  11. By: Takeshima, Hiroyuki; Winter-Nelson, Alex
    Abstract: In much of rural Africa, high transaction costs limit farmers’ market participation and thus their potential for income growth. Transaction costs can affect not only whether a farmer sells product but also whether sales occur at the farm gate on at a market. If production behavior is related to a chosen sales location, then analysis of interventions can be improved by explicit consideration of the decision of where to sell. This paper develops a double-selection model that explains consumption and production decisions by semi-subsistence farmers who first decide whether to be a seller and then whether to sell at the farm gate or at an off-farm location before deciding on production and consumption. The study tests the validity of this dual-criteria model against a single criterion model in which a grower first decides to be a seller and then decides production, consumption and sales location simultaneously. Dual-criteria and single-criterion models are compared while correcting inconsistency in estimations due to violation of homoskedasticity and normality assumptions in selection equations. The results suggest that the dual-criteria model provides more information than the single-criterion model using a sample of cassava producer in Benin.
    Keywords: agricultural supply response, Development strategies, dual-criteria, sales location, Transaction costs,
    Date: 2010
  12. By: Banful, Afua Branoah
    Abstract: Despite their disappointing performance in the recent past, fertilizer subsidies have re-emerged as a tool in the agricultural strategies of many countries in Sub-Saharan Africa. The new paradigm for fertilizer subsidies calls for use of such mechanisms as vouchers to target benefits to poor smallholders and public–private partnerships to develop private markets. There is some belief that with these innovations, fertilizer subsidy programs will circumvent the deleterious consequences of the programs of the past. However, there has been a glaring lack of innovation in how to prevent politics from dominating the allocation of subsidy program benefits and exacerbating inefficiencies as was the experience in earlier programs. This paper studies how vouchers, which could be used towards the purchase of fertilizer, were distributed amongst districts in Ghana’s 2008 fertilizer subsidy program. We find that politics played a significant role in the allocation of vouchers. Higher numbers of vouchers were targeted to districts that the ruling party had lost in the previous presidential elections and more so in districts that had been lost by a higher margin. A district received 2 percent more vouchers for each percentage point by which the ruling party had lost the previous presidential election - this amount is both statistically and numerically significant. The analysis also shows that district poverty levels, which should have been an important consideration in an economic efficiency motivated distribution, were not a statistically significant determinant of districts’ voucher allocation. The evidence that vouchers were targeted to areas in which the opposition party received strong support is suggestive of the vouchers being used for vote-buying. This finding raises the caution that despite innovations in implementing fertilizer subsidies, politically motivated allocation of subsidy benefits remains a major potential source of inefficiency.
    Keywords: Fertilizer, politics, Subsidies,
    Date: 2010
  13. By: Sonali Das (LQM, CSIR, Pretoria); Rangan Gupta (Department of Economics, University of Pretoria); Patrick T Kanda (Department of Economics, University of Pretoria)
    Abstract: This paper tests for house price bubbles in the South African housing market, using quarterly data from 1969:Q2 to 2009:Q3, based on the unit root test developed by Phillips et al. (2010). This test allows us to detect whether a bubble exists or not, as well as the date of emergence and collapse of the same. Our findings show evidence of house price bubbles in the large, medium and small-middle segments, as well as, the aggregate middle-segment of the South African housing market. There is however, no evidence of bubbles in the luxury and affordable segments of the market. Next we estimate an Error Correction Model (ECM) to investigate the existence of spillover effects from the housing sector onto consumption. Results indicate significant spillovers, though there is no evidence of the effect being higher during the bubble period. Finally, we disentangle the effects of the house price acceleration and deceleration on consumption in an effort to investigate whether or not consumption reacts asymmetrically to movements in house prices. We find that consumption responds significantly to the house price acceleration but not to deceleration, with this effect also not showing any evidence of being higher during the identified bubble period. The asymmetric model is found to perform better both in terms of in-sample and out-of-sample performances, relative to the symmetric model. The fact that we do not observe consumption to be more responsive to house price acceleration (deceleration) during the bubble period is most likely due two reasons: First, the National Credit Act number 34 implemented in 2005, which enforced responsible granting and use of credit and prohibited reckless awarding of credits (NCA, 2006) and second, the findings of recent studies depicting evidence of pronounced discretionary changes by the South African Reserve Bank to counter the recent adverse movements in the financial markets.
    Keywords: House price, bubble, consumption
    JEL: C22 E21 G1
    Date: 2010–07
  14. By: Wiedmaier-Pfister, Martina; Klein, Brigitte
    Abstract: Poor people in developing countries are vulnerable to a broad range of shocks that affect their livelihoods, including illness, accidents, and death as well as loss of assets such as animals, crops, and machinery. The poor are still predominantly rural, and their vulnerability is even higher than that of their urban peers. Health facilities are less available and less well equipped in rural areas; water, sanitation, roads, and telecommunication are less developed; and people are less educated and not as aware of risk-mitigation mechanisms. Given the rural character of poverty in many countries, poverty reduction remains strongly connected to agricultural development, and sustainable agricultural development depends on well-organized risk mitigation. One important tool for mitigating risk is microinsurance. The International Association of Insurance Supervisors (IAIS) defines microinsurance as “insurance that is accessed by the low-income population, provided by a variety of different providers but run in accordance with generally accepted insurance practices (including the IAIS Insurance Core Principles).” It differs from traditional insurance in that it is adapted to the circumstances of the poor: premiums are low, products have simple designs, it is offered through well-trusted and innovative channels, premium payments are flexible, and claims are settled promptly. Microinsurance has the potential to enable the rural poor to mitigate the effects of shocks that threaten their lives, productivity, and assets. It can help prevent emergencies from depleting poor people’s savings and other assets. Furthermore, it allows households to invest in high-risk, high-return activities by securing the lending risk for agricultural and other investments. Financial sector reforms in many countries have begun to include insurance as an important pro-poor financial service along with other microfinance services such as savings, lending, and cashless payments. According to a study by the International Labour Organization, microinsurance in Africa almost doubled from 2006 to 2009. The survey shows that half of the schemes were growing faster than 30 percent a year between 2007 and 2008. Data on growth in rural areas, however, are not available.
    Keywords: agricultural development, microinsurance, rural areas, rural development policies, Rural finance, Rural poor,
    Date: 2010
  15. By: Nair, Ajai; Fissha, Azeb
    Abstract: Before the late 1970s, rural dwellers in Ghana had almost no access to institutional credit for farm and nonfarm activities, and in many rural communities, secure, safe, and convenient savings and payment facilities hardly existed. In response to this situation, the Government of Ghana took several measures to increase access to credit in rural areas, including facilitating the establishment of rural and community banks (RCBs). This brief discusses the history of RCBs, their business model, their services, and their financial performance. It then draws some lessons relevant for others involved in or planning similar initiatives. As a network, RCBs are the largest providers of formal financial services in Ghana’s rural areas. By the end of 2008, Ghana had 127 RCBs with a total 584 service outlets, representing about half of the total banking outlets in the country. The RCB network reaches about 2.8 million depositors and 680,000 borrowers. Although the service delivery performance of the RCB network has been strong, its financial performance has been mixed. The profitability and net worth of the network have grown, but the financial performance of some members has been poor, and a small number are insolvent.
    Keywords: credit, Financial institutions, rural and community banks (RCBs), rural areas, rural banking, savings,
    Date: 2010
  16. By: Aberman, Noora-Lisa; Schiffer, Eva; Johnson, Michael; Oboh, Victor
    Abstract: How research contributes to the policy process in developing countries in general, and in Nigeria more specifically, is not well understood. Yet such understanding is a critical part of doing effective policy research. This has become especially critical for the International Food Policy Research Institute (IFPRI), which has set up a country office for policy research in Nigeria. A key challenge for IFPRI, and other research organizations in the country, is how to better integrate research results into policy and communicate research results to Nigerian policymakers. To gain some useful insights into how research does, or does not, influence policy in Nigeria, we examined a case involving the process leading up to the adoption in 2006 of Nigeria’s National Fertilizer Policy. Rather than focusing on how research influences policy in general, examining a particular policy allowed us to trace the actual policy process that took place, the actors involved, and the types of links and interactions between them. A diverse group of stakeholders (government, donors, the research community, farmer organizations, and the private sector) undoubtedly debated the content of the fertilizer policy. Thus, its successful formulation and adoption offered a useful opportunity to examine how it came about in spite of competing vested interests (both for and against it) and what role, if any, research-based information played in developing it. The policy covered some highly contentious political issues, most prominently the issue of privatization of the fertilizer sector in place of the large-scale and long-standing subsidy program. How the actors engaged and appeased people with vested interests who would normally oppose the policy, and the degree to which research-based information played a role in policy development, is of interest to IFPRI and others engaged in policy research. To study the policy process that led to the formulation and adoption of the National Fertilizer Policy, we used a network-mapping tool, Net-Map. Drawing on social network approaches, the tool is particularly suitable since it can help highlight the actors and formal and informal interactions involved in the policy process, as well as examine the flows of information from researchers to help determine the pathways of research-based information. In support of the Net-Map method, we also undertook a content analysis of published and grey literature on fertilizer policies in Nigeria in the years prior to the passing of the fertilizer bill. This provided a context for the knowledge-based and policy discussions, who was involved in them, and who funded or drove them.
    Keywords: Development strategies, Fertilizer, Net-Map, policy processes, Social network analysis,
    Date: 2010
  17. By: Lonie, Susie
    Abstract: Over the past three years, payment strategies for emerging markets have been revolutionized by the advent of a simple cell-phone-based payment service in Kenya called M-PESA (“M” for “mobile” and “pesa” for “money”). From a small-scale pilot program in 2006, M-PESA has become an outstanding success in Kenya; customer response has been unprecedented. Currently, more than 9 million Kenyans use M-PESA to perform tens of millions of transactions every month throughout the country. Although this success has led to new opportunities, it has also brought about many unforeseen challenges.
    Keywords: M-PESA, Mobile Phone, rural areas, rural banking, safe money transfers, small-scale pilot programs,
    Date: 2010
  18. By: Dillon, Andrew; Mueller, Valerie; Salau, Sheu
    Abstract: We investigate the extent in which northern Nigerian households engage in internal migration to insure against ex ante and ex post agricultural risk due to weather-related variability and shocks. We use data on the migration patterns of individuals over a 20-year period and temperature degree-days to identify agricultural risk. Controlling for ex ante and ex post risk, we find that households with higher ex ante risk are more likely to send migrants. Households facing hot shocks before the migrant’s move tend to keep their male migrants in closer proximity. These findings suggest that households use migration as a risk management strategy in response to both ex ante and ex post risk, but that migration responses are gender-specific. These findings have implications not only for understanding the insurance motives of households, but also potential policy responses tied to climatic warming.
    Keywords: Migration, Risk, temperature degree days,
    Date: 2010

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