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41. Natural Resources and Capital Flight: A Role for Policy?

Author:
Lemma W. Senbet, Gregoire Rota-Graziosi, and Rabah Arezki
Publication Date:
09-2014
Content Type:
Working Paper
Institution:
African Economic Research Consortium (AERC)
Abstract:
This paper investigates the relationship between natural resources and capital flight in the form of tax avoidance from multinational corporations. In particular, it focuses on the spillover effects in terms of tax revenue mobilization and stock market development from the thin capitalization rule, a policy instrument aimed at limiting firm tax avoidance through setting limits on a firm’s foreign indebtedness. We exploit the plausibly exogenous within-country variations of data on oil discoveries for a panel of 117 countries during the period 1970–2012. We find evidence that oil discoveries significantly enhance both tax revenue mobilization and stock market development, but only when a thin capitalization rule is in place. We argue that these findings can be explained through the limiting role of a thin capitalization rule in multinational companies’ use of financial transactions among their affiliates or tax havens to transfer part of the profit. The thin capitalization rule may thus not only help limit the erosion of the domestic tax base but may also entice multinational corporations to resort to using and developing the domestic financial system.
Topic:
Development, Economics, International Trade and Finance, Financial Markets, Economic growth, Capital Flows, and Capital Flight
Political Geography:
Africa

42. Moving to the Adjacent Possible: Discovering Paths for Export Diversification in Rwanda

Author:
Ricardo Hausmann and Jasmina Chauvin
Publication Date:
04-2014
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
How can Rwanda, which currently has one of the lowest levels of income and exports per capita in the world, grow and diversify its economy in presence of significant constraints? We analyze Rwanda's historical growth and trade performance and find that Rwanda's high transportation costs and limited productive knowledge have held back greater export development and have resulted in excessive rural density. Three basic commodities – coffee, tea, and tin – made up more than 80 percent of the country's exports through its history and still drive the bulk of export growth today. Given Rwanda’s high population density and associated land scarcity, these traditional exports cannot create enough jobs for its growing population, or sustainably drive future growth. Rwanda needs new, scalable activities in urban areas. In this report, we identify a strategy for greater diversification of exports in Rwanda that circumvents the key constraints and is separately tailored for regional and global export destinations. Our results identify more than 100 tradable products that lie at Rwanda's knowledge frontier, are not intensive in Rwanda's scarce resources, and economize on transportation costs. Our analysis produces a vision of a more diversified Rwanda, which can be used as a guide for investment promotion decisions. We illustrate an approach that can be applied to other settings in order to identify opportunities for export diversification that take seriously local constraints and external market opportunities.
Topic:
Economic growth, Commodities, Diversification, and Economic Complexity
Political Geography:
Africa and Rwanda

43. How should Uganda grow?

Author:
Ricardo Hausmann, Brad Cunningham, John Matovu, Rosie Osire, and Kelly Wyett
Publication Date:
01-2014
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
ncome per capita in Uganda has doubled in the last 20 years. This remarkable performance has been buoyed by significant aid flows and large external imbalances. Economic growth has been concentrated in non-tradable activities leading to growing external imbalances and a growing gap between rural and urban incomes. Future growth will depend on achieving sufficient export dynamism. In addition, growth faces a number of other challenges: low urbanization rate, rapid rural population growth and high dependency ratios. However, both the dependency ratio and fertility rates have begun to decline recently. Rural areas are also severely overcrowded with low-productivity subsistence agriculture as a pervasive form of production. Commercial agriculture has great possibilities to increase output, but as the sector improves its access to capital, inputs and technology it will shed jobs rather than create them. These challenges combined tell us that future growth in Uganda will require a rapid rate of export growth and economic diversification. The country faces the prospect of an oil boom of uncertain size and timing. It could represent an important stepping stone to achieve external sustainability, expanded income and infrastructure and a greater internal market. However, as with all oil booms, the challenges include avoiding the Dutch disease, managing the inevitable volatility in oil incomes and avoiding inefficient specialization in oil. Policies that set targets for the non-oil deficit could help manage some of these effects, but a conscious strategy to diversify would still be needed. The best strategy is therefore to use the additional oil revenue and accompanying investments to promote a diversification strategy that is sustainable. To determine how to encourage such a transformation, we draw on a new line of research that demonstrates how development seldom implies producing more of the same. Instead, as countries grow, they tend to move into new industries, while they also increase productivity in existing sectors. In this report, we analyze what those new industries might be for Uganda. To do so, we first look to those products which balance the desire to increase the diversification and complexity of production, while not over-stretching existing capabilities. These include mostly agricultural inputs, such as agrochemicals and food processing. In addition, Uganda should concurrently develop more complex industries, such as construction materials, that are reasonably within reach of current capabilities and will be in great demand in the context of an oil boom. Here, the fact that Uganda is landlocked and faces high import costs will provide natural protection to the expanding demand in Uganda and neighboring countries. We conclude with a discussion of the government policies that will support Uganda in developing new tradable industries.
Topic:
Development, Humanitarian Aid, Science and Technology, and Economic growth
Political Geography:
Uganda and Africa

44. Is Poverty a binding constraint on Agricultural Growth in Rural Malawi?

Author:
Mirriam Muhome‐Matita and Ephraim Wadonda Chirwa
Publication Date:
07-2013
Content Type:
Policy Brief
Institution:
African Economic Research Consortium (AERC)
Abstract:
Agriculture remains the most important sector in sub‐Saharan Africa and is a dominant form of livelihood for a majority of the population that resides in the rural areas. In Malawi, agriculture accounts for 35 percent of GDP and generates more than 80 percent of foreign exchange. In addition, agriculture is the most important occupation for 71 percent of the rural population in which crop production accounts for 74 percent of all rural incomes. However, agriculture has failed to get Africa out of poverty, and most countries are experiencing low agricultural growth, rapid population growth, weak foreign exchange earnings and high transaction costs (World Bank, 2008). In Malawi, for a long time, economic growth has been erratic (see figure 1) with huge swings and poverty has remained high. For instance, the annual growth rates in per capita gross domestic product averaged ‐2.1 percent in the 1980‐84 period, ‐2.7 percent in 1990‐94 period, 3.8 percent in 1995‐99 and ‐0.2 percent in the 2000‐05 period.
Topic:
Agriculture, Development, Economics, Political Economy, Poverty, GDP, Inequality, Economic growth, and Macroeconomics
Political Geography:
Africa and Malawi

45. Africa Capacity Indicators 2013: Capacity Development For Natural Resource Management

Publication Date:
01-2013
Content Type:
Special Report
Institution:
The African Capacity Building Foundation (ACBF)
Abstract:
This year's Report, the third in a series, focuses on an issue of great importance to Africa: natural resource management. The Report is holistic, yet focused on what African countries need to do individually and collectively to achieve effective management and good governance of the continent's vast natural resource wealth. The discussion covers both renewable and non-renewable endowments, with specific focus on forests, land, water, solid minerals, and petroleum resources. The Report offers analysis of the critical perspectives and contemporary academic and policy debates on the natural resource value chain, including emerging issues such as climate change and green economy. Pragmatic approaches based on original problem solving in different contexts are also presented in each chapter of the Report. To keep the emphasis relevant to the 2012 Africa Capacity Indicators Report, , this Capacity Development for Agricultural Transformation and Food Security volume gives particular attention to issues of capacity development and policy choices for “green growth.” The Report, in essence, links the natural resource management discussion with the themes of the two previous ACI Reports (ACIR2011, on state fragility, and ACIR2012, on agricultural transformation and food security).
Topic:
Development, Natural Resources, Economic growth, Capacity, and Human Resources
Political Geography:
Africa

46. The Distribution of Household Income and the Middle Class in Zambia

Author:
Zambia Institute for Policy Analysis & Research (ZIPAR)
Publication Date:
12-2013
Content Type:
Working Paper
Institution:
Zambia Institute for Policy Analysis and Research (ZIPAR)
Abstract:
The middle class is increasingly becoming a topical issue in Zambia. However, the lack of a definitive measure of the middle class in the country makes it difficult to have targeted policies on this group of people, perceived worldwide to be the drivers of economic growth. With high and rising income inequality in Zambia, we propose two operational definitions of the middle class by exploring the middle class from a median perspective and from a ‘relative affluence’ perspective. Defining the middle class on the basis of the ‘actual middle’ versus ‘relative affluence’ provides vastly different pictures. The results show that individuals and households that fall in the ‘relative affluence’ group have achieved a modest standard of living and are actually near the top of the country’s income ladder while households in the actual middle of the income distribution in Zambia have a standard of living well below what can be perceived as a ‘middle-class lifestyle’ elsewhere. This requires targeted policy designs when referring to changes in the economic status of the Zambian middle class. We propose a household income distribution framework which combines both the actual middle households and the relatively affluent middle households to create an enabling environment for inclusive growth policies, rather than just pro-poor policies.
Topic:
Education, Economic growth, Class, and Middle Class
Political Geography:
Africa and Zambia

47. Accelerating Export Growth in Zambia

Author:
Zambia Institute for Policy Analysis & Research (ZIPAR), Bernard Banda, and Joseph Simumba
Publication Date:
11-2013
Content Type:
Policy Brief
Institution:
Zambia Institute for Policy Analysis and Research (ZIPAR)
Abstract:
Export-transactions data for the period 1999-2011 in Zambia suggests that much of the growth in the value of exports has been driven by the contribution of new exporters than pre-existing exporters. The catastrophic growth among pre-existing exporters is explained by the high death rate that occurs within the first two years of exporting. Approximately between 50%- 60% of exporters will not survive beyond the year of export commencement. We discuss the potentially important policy implications of these rather surprising results relative to the sizeable evidence that shows it is the deepening of export values among existing exporters that drives much of the year-on-year growth in exports for many advanced and developing countries.
Topic:
Economic growth, Exports, and Trade
Political Geography:
Africa and Zambia

48. Who are the middle class in Zambia?

Author:
Shebo Nalishebo
Publication Date:
12-2013
Content Type:
Policy Brief
Institution:
Zambia Institute for Policy Analysis and Research (ZIPAR)
Abstract:
The middle class is increasingly becoming a topical issue in Zambia. However, the lack of a definitive measure of the middle class in the country makes it difficult to have targeted policies towards this group of people, perceived worldwide to be the drivers of economic growth. With high and rising income inequality in Zambia, we define the middle class based on the median and on a ‘relative affluence’ perspective. Findings show that the ‘middle class’ (as understood in everyday usage) is not in the middle of the income distribution. And those who are in the middle are not ‘middle class’ (in the sense of being above some minimum level of affluence). Defining the middle class on the basis of the ‘actual middle’ versus ‘relative affluence’ provides vastly different pictures. This implies that targeted policy designs are required when referring to changes in the economic status of the Zambian middle class. If the middle class is conceptualised in terms of relative affluence, growing the relative size of the middle class would have economic benefits such as growing the pool of people with skilled occupations and raising consumer demand within the domestic economy, which could lead to higher economic growth. In contrast, if the middle class is defined as the actual middle group, then increasing the relative size of the middle class – many of whom are quite poor – would imply supporting economic policies that favour the poor and non-affluent and thus decrease the income gap. This view of the middle class provides an important tool for understanding the status of the ‘average’ Zambian and provides policy makers with a more balanced assessment of development in the country.
Topic:
Economic growth, Class, Middle Class, and Society
Political Geography:
Africa and Zambia

49. Pro-poor growth and poverty reduction in Nigeria

Author:
John E. Ataguba, Chukwuma Agu, and Hyacinth Ichoku
Publication Date:
11-2012
Content Type:
Policy Brief
Institution:
African Economic Research Consortium (AERC)
Abstract:
The government of Nigeria has placed poverty reduction at the centre of the country’s economic policy and development programs since independence. Though this was not explicitly targeted in earlier development plans (1962 to 1975) of the country, it featured in more pronounced ways in latter programs and projects, many of which specifically targeted elimination of poverty. These targeted programs and projects covered a wide range of sectors of the economy including agriculture, health, education, housing and finance. In fact, they became so commonplace, scattered and ubiquitous that the Obasanjo regime (1999-2007) had to set out to rationalize and merge them in 1999. The various institutions that have arisen from the disparate poverty reduction programs were then consolidated into the National Poverty Eradication Programme (NAPEP). This, headed by the President, was charged with the sole mandate of eradicating poverty. There are different opinions that exist regarding the level of success of these programs and policies. Some people believe that these programs have had positive impact on the poor while others believe that they have made the poor poorer.
Topic:
Poverty, Inequality, Economic growth, and Economic Policy
Political Geography:
Africa and Nigeria

50. Stimulating Sustainable Economic Growth in Sub-Saharan Africa with Legal Systems Enabling Women Entrepreneurs’ Creativity

Author:
Isabelle Deschamps
Publication Date:
01-2012
Content Type:
Policy Brief
Institution:
Institute for the Study of International Development, McGill University
Abstract:
This brief addresses the problem of gendered poverty in Sub-Saharan Africa and argues that multifaceted context-sensitive business law reform is necessary for tackling issues underlying the problem. It takes the reform initiatives led by the Organisation pour l’harmonisation du droit des affaires en Afrique (OHADA) as a case study and draws on interviews carried out by the author with women entrepreneurs, OHADA agents, lawyers and journalists in Benin and Cameroon in 2010, 2011 and 2012. The brief argues that business law modernization in Africa should not be only or predominantly aimed at attracting foreign investors and ensuring a secure legal climate for multinational corporations. Rather, African business law reform should also attend to the informal sector and aim to make states’ legal systems friendlier to micro, small and medium businesses (MSM), in particular ones operated by women. Concomitantly, Canada’s international development assistance policies should aim at promoting, through commercial law reform, entrepreneurial skills and creativity among principals of MSMs. Strategies and recommendations for reaching policy goals should be rooted in local needs and frames of reference. They should target and be accessible to those running MSMs in the region. This brief notes CIDA’s successes in this area, and shows how current programs can be adjusted to prioritize the achievement of policy goals and the development of strategies in cooperation with female-run MSMs, financiers, jurists and organisations like the OHADA operating in sub-Saharan Africa.
Topic:
Development, Women, Entrepreneurship, and Economic growth
Political Geography:
Africa