Quality of Recent Sub-Saharan Growth

1. NS4053 Quality of Recent Sub-Saharan GrowthWinter Term, 2014

2. Overview • IMF, “The Quality of Recent High-Growth Episode in Sub-Saharan Africa,” February 2013 • Explores the quality of recent high growth episode in sub-Saharan Africa by asking: • What has been the nature and pattern of SSA growth over the past 15 years and how does it compare with previous episodes? • Has this growth had an impact on socially desirable outcomes – improvements in health, education and poverty indicators? • To do this paper examines • Various aspects of the fundamentals of growth in SSA – levels, volatility, sources, according to various country and analytical groupings • Explores the extent to which the growth has been accompanied by improvements in social indicators.

3. Country Classifications • Oil exporting countries: • Angola, Cameroon, Chad, Republic of Congo, Gabon and Nigeria • Middle income countries: • Botswana, Cape Verde, Lesotho, Mauritius, Namibia, Seychelles, South Africa and Swaziland • Low income countries: • Benin, Burkina Faso, Ethiopia, Ghana, Kenya, Madagascar, Malawi, Mali, Mozambique, Niger Rwanda Senegal, Tanzania, Uganda and Zambia • Fragile countries: • Burundi, CAR, Comoros, DRC, Ivory Coast, Eritrea, Gambia, Guinea, Guinea-Bissau, Liberia Sao tome, Sierra Leone, Togo, Zimbabwe

4. Strength of Growth I • On average SSA countries have increased their average real GDP and real GDP per capita growth since 1995 • Pattern different depending on country and analytical groupings • Middle income countries’ average growth, although still strong, declined somewhat during the period 1995-2008 • Low-income countries registered a lackluster real GDP growth rate from 1980 through 1994 with an average no higher than 2% per year • Since 1995 growth has improved tremendously to nearly 6 percent per year on average • This acceleration was also observed at per capita income levels • Income per capita from 1980 through 1994 actually declined with a growth rate of about -1.0%. • From 1995 through 2008 it increased to a more promising 2.7% per year • Although fragile countries exhibit promising positive real GDP Growth rate since 1995, until 2004 their GDP per capita growth was negative.

5. Strength of Growth II

6. Volatility of Growth I • There has been a general decline in volatility of growth during the high growth episode • Volatility measured as the standard deviation of the real GDP growth rate over a 5-year period has been declining since 1995 • However still fairly high for fragile countries until 2004 • Middle income countries record a consistent reduction in volatility even before 1995 • Low income countries also exhibit a negative trend since 1990-94 • On average volatility remained unchanged until 1999 • However on average volatility in oil exporting countries declined approximately 50 percent in 2005-08 compared to the previous period.

7. Volatility of Growth II

8. Volatility of Growth III Reasons for the decline in volatility • Most of the fast growers have achieved • Overall macroeconomic stability • Stable and low inflation and debt sustainability • Pursued sound economic policies and • Promoted institutional reforms • Aided by a favorable external environment these countries also built up their external reserves

9. Total Factor Productivity I • There has been a sharp turnaround in total factor productivity since the mid-1990s. • Since 1995 all country groups have recorded TFP improvements, unlike the previous period • The turn around in fragile countries is particularly remarkable given that they had negative TFP growth before 1995 • From 1980 through 1994 the average annual change in TFP was -0.5 percent • However since 1995 there has been positive changes in TFP of about 1.3 percent yearly

10. Total Factor Productivity II

11. Total Factor Productivity III • Reasons given for the improvement in TFP • Reduction of the distortion of the foreign exchange market (black market premium) • Structural changes (movement from agricultural to non-agricultural activity) • Increasing exports • Other reasons given – policies that involve • Reducing population growth rate and debt • Facilitating greater openness • Sound macroeconomic fundamentals • Achieving price stability and • Creating financial deepening and greater private participation • All linked to higher total factor productivity in SSA

12. Sectoral Composition of Output I • On average, in SSA the sectoral composition of growth since 1995 has become more broad-based • Still significant heterogeneity across different country groups • The IMF focuses on agriculture, industry and services share of total real GDP growth • From the period 1980-84 agricultural sector was the main driver of growth on average for all countries in Africa • Contributed about half of 2.2 percent of real GDP growth • Relative importance of industry and services has grown since 1995 • On average from the total of the 5.1% real growth in real GDP in 2005-08 services and industry explain around 4.3%

13. Sectoral Composition of Output II

14. Sectoral Composition of Output III Generalizations: • The importance of agriculture to the growth of middle income counters has steadily declined over time • The contribution of services is increasing for the low income countries • Fragile countries were entirely dependent on agriculture for the period 2000-04, but since then have had a more balanced growth pattern

15. Composition of Output: Demand I Generalizations • Since 1995 the relative importance of net exports has broadly increased • Although oil exporting countries boomed around 1995 they did not exhibit export led growth until the next period 2000-04 • since the peak was mainly driven by gross investment (which has been declining since) • The role of net exports has been particularly important in low income and fragile countries • In fact low income countries’ growth in 1995-1999 driven almost exclusively by net exports • Growth in middle income countries seems to be less export oriented than the other groups of countries.

16. Composition of Output: Demand II

17. Composition of Output: Demand III • Observations • Outward oriented growth has • Been accompanied by a decrease in the volatility for almost all groups of countries and • A positive evolution of TFP • The emergence of dynamic BRICs, notably China has had a favorable impact on export growth and FDI in SSA • These patterns are consistent with the empirical literature that demonstrates outward orientation, especially if accompanied by a diversification of the export base reduces volatility and induces improvement in productivity

18. Socially Desirable Outcomes I • Has the improvement in growth been accompanied by improvement of social indicators? • In principle, improvement of per capita growth should increase the resources for social spending and increase the incomes of the population. • In practice, this may not happen for several reasons • 1. While social spending may increase, the effectiveness may not be there due to institutional weakness • 2. A number of social indicators such as life expectancy and infant mortality are “slow-moving” and are mainly driven by exogenous factors such as medical advances and external aid • 3. Increases in per capita income may not necessarily translate into poverty reduction – may depend on income inequality and the source of the GDP growth

19. Socially Desirable Outcomes II Overview of main findings • 1. Improvements in real per capita income are associated with • the reduction in infant mortality and • school enrollment at the secondary level • however the link between the increase in the average per capita income and primary school enrollment and life expectancy is more tenuous • 2. The evolution of social indicators in low income and fragile countries is more correlated with changes in real GDP per capita. • 3. The biggest improvements are the result of post-conflict recoveries and/or relatively strong political will and institutional reforms.

20. Socially Desirable Outcomes III • Problems doing research on social outcomes • The impact of growth on social indicators (except perhaps poverty) is likely to be considerably lagged • improving educational attainment requires additional infrastructure and training of teachers • need to investigate a longer horizon of time • IMF averages the social indicators and growth rates over periods of 15 years (1980-94 and 1995-2008) • Then analyze the relationship between the change in social indicators and the improved GDP per-capita over time • Finally, they identify the high performers which are countries with increasing change of GDP per capita and improving social indicators.

21. Primary School Enrollment I • Consistently, over time, indicators of school enrollment have positively improved in low-income and fragile countries • Oil exporting and middle income countries have the highest level of school enrollment in the region • However low income and fragile countries catching up very rapidly -- but from a very low level • The first big improvement occurred during the period 1991-95 with an increase of the enrollment ratio of • Over 110 percent for the low income countries • 45% for fragile countries • The second big expansion took place in the period 2001-05

22. Primary School Enrollment II

23. Secondary School Enrollment I • Since 1980 secondary school enrollment has increased from about 16 percent to 40 percent on average for all SSA countries • Still there are large inequalities • Middle income countries have recorded the most significant increases • Oil exporters have recorded almost no increases • Progress has been more steady for low-income and fragile countries

24. Secondary School Enrollment II

25. Life Expectancy I • Life expectancy at birth in SSA has barely improved over the past 50 years • Largely due to HIV/AIDS especially in middle-income countries and prevalence of other diseases such as malaria and tuberculosis • For some countries, life expectancy has even declined from 1980 until the end of the 1990s • During the period from 1990-94 life expectancy in low income countries fell almost 5% in comparison to the previous period • Middle income countries also recorded a 3% reduction during 1995-99 and even worse in 2000-04 when a drop of almost 6% was observed • There has been a turnaround during 2000-04. During 2005-08 the average live expectancy in SSA increased about 3% with respect to the previous period, especially in the low income countries

26. Life Expectancy II

27. Infant Mortality Rates I • Main Patterns • Infant mortality has been decreasing on average since 1980 in all SSA countries • The decline has been particularly remarkable in middle income countries • Even low and fragile countries have shown improvement • The improvement seems to have somewhat accelerated since 1995

28. Infant Mortality Rates Ii

29. Poverty Reduction I • Readily available poverty indicators – people living on a dollar a day or less – generally have shown modest improvements over the past 15 years • There seems to have been significant improvements in oil-exporting and middle income countries • Progress seems apparently slow in low income and fragile countries • Problem – official statistics often grossly underestimate the reduction in poverty • Poor, infrequent, and inconsistent measurements • With some advanced statistical methods picture is that • Poverty falling much faster than commonly believed • Inequality and welfare may also be improving much more rapidly than official estimates

30. Poverty Reduction II

31. Links: Growth and Social Indicators I • Finally the IMF looks more formally at the extent to which growth dynamics in SSA have been correlated with improvement in social indicators • To do this they compare correlations between changes in the level of a particular social indicator and GDP per capita growth • Results show that for the most part little correlation between growth and social indicators • Over the longer run the only indicator that shows as significant correlation for the entire sample is secondary school enrollment • At the analytical group level • Fairly strong and statistically significant correlation between life expectancy and growth

32. Links: Growth and Social Indicators II • At the analytical group level • Fairly strong and statistically significant correlation between life expectancy and growth in fragile states • In the earlier period (1984-89) there were some significant correlations between growth and some social indicators, especially school enrollment • Number of plausible reasons why results disappointing: • Poor data – always a factor • As noted earlier social indicators especially life expectancy and mortality tend to move slowly while epidemic like AIDS can quickly set back progress • Growth is but an ingredient in the dynamics – while in principle growth should increase the amount of available resources for social improvement, success hinges critically on a complex interaction of many institutional and policy factors

33. Links: Growth and Social Indicators III • While health outcomes show a low correlation with income • Link is far from uniform across analytical grouping. • Several of the low-income and fragile African countries exhibit better health outcomes compared to countries with much higher income levels • Does not seem that health expenditure, either as a percentage of GDP or per capita, is a particularly good predictor of health outcomes • Life expectancy outcomes more related to • Food availability per capita • Literacy rate and • A decrease in alcohol consumption in SSA

34. Links: Growth and Social Indicators IV • Health expenditures have shown strong negative relationship with life expectancy probably arising from: • Inefficient health services provision systems as well as • The HIV/AIDS epidemic • Infant mortality indicators likely to be more correlated with • Mother’s schooling • Mother’s age at child’s birth • The mother’s vaccination and • Access to infrastructure

35. Summing Up • Appears that the most successful countries in achieving improved social outcomes have: • Consistent leadership committed over an extended time period backed by strong implementation and human capacity; and • Long-term institutional reforms, especially those making the public sector more accountable to citizens • Listing of countries with the best performance in terms of improvement in social indicators --

36. Best Performers I

37. Best Performers II