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2251. Do No Harm: Aid, Weak Institutions, and the Missing Middle in Africa

Author:
Nancy Birdsall
Publication Date:
03-2007
Content Type:
Working Paper
Institution:
Center for Global Development
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.
Topic:
Corruption, Development, Government, and Humanitarian Aid
Political Geography:
Africa

2252. Why Doesn't Africa Get More Equity Investment? Frontier Stock Markets, Firm Size and Asset Allocations of Global Emerging Market Funds

Author:
Vijaya Ramachandran, Scott Standley, and Todd Moss
Publication Date:
02-2007
Content Type:
Working Paper
Institution:
Center for Global Development
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.
Topic:
Government, International Trade and Finance, and Markets
Political Geography:
Africa and South Africa

2253. Credit Elasticities in Less-Developed Economies: Implications for Microcredit

Author:
Dean Karlan and Jonathan Zinman
Publication Date:
01-2007
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
Policymakers often prescribe that microfinance institutions increase interest rates to eliminate reliance on subsidies. This strategy makes sense if the poor are rate insensitive: then microlenders increase profitability (or achieve sustainability) without reducing the poor's access to credit. We test the assumption of price inelastic demand using randomized trials conducted by a consumer lender in South Africa. The demand curves are downward-sloping, and steep for price increases relative to the lender's standard rates. We also find that loan size is far more responsive to changes in loan maturity than to changes in interest rates, which is consistent with binding liquidity constraints.
Topic:
Development, Economics, and Markets
Political Geography:
Africa and South Africa

2254. Expanding Credit Access: Using Randomized Supply Decisions to Estimate the Impacts

Author:
Dean Karlan and Jonathan Zinman
Publication Date:
01-2007
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
Expanding credit access is a key ingredient of development strategies worldwide. Microfinance practitioners, policymakers, and donors have ambitious goals for expanding access, and seek efficient methods for implementing and evaluating expansion. There is less consensus on the role of consumer credit in expansion initiatives. Some microfinance institutions are moving beyond entrepreneurial credit and offering consumer loans. But many practitioners and policymakers are skeptical about “unproductive” lending. These concerns are fueled by academic work highlighting behavioral biases that may induce consumers to overborrow. We estimate the impacts of a consumer credit supply expansion using a field experiment and follow-up data collection. A South African lender relaxed its risk assessment criteria by encouraging its loan officers to approve randomly selected marginal rejected applications. We estimate the resulting impacts using new survey data on borrower behavior and well-being, and administrative data on loan repayment. We find that the marginal loans increased credit access and produced measurable benefits in the form of increased employment, reduced hunger, and reduced poverty. The marginal loans also appear to have been profitable for the lender. The results must be interpreted with caution but suggest that consumer credit expansions can be welfare-improving.
Topic:
Development, Markets, and Poverty
Political Geography:
Africa and South Africa

2255. AIDS Treatment and Intrahousehold Resource Allocations: Children's Nutrition and Schooling in Kenya

Author:
Markus Goldstein, Joshua Graff Zivin, and Harsha Thirumurthy
Publication Date:
01-2007
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
The provision of life-saving antiretroviral (ARV) treatment has emerged as a key component of the global response to HIV/AIDS, but very little is known about the impact of this intervention on the welfare of children in the households of treated persons. We estimate the impact of ARV treatment on children's schooling and nutrition outcomes using longitudinal household survey data collected in collaboration with a treatment program in western Kenya. We find that children's weekly hours of school attendance increase by over 20 percent within six months after treatment is initiated for the adult household member. For boys in treatment households, these increases closely follow their reduced market labor supply. Similarly, young children's short-term nutritional status—as measured by their weight-for-height Z-score—also improves dramatically. We also present evidence that the impact of treatment is considerably larger when compared to the counterfactual scenario of no ARV treatment. The results illustrate how intrahousehold allocations of time and resources are altered in response to significant health improvements. Since the improvements in children's schooling and nutrition at these critical early ages will affect their socio-economic outcomes and wellbeing in adulthood, the widespread provision of ARV treatment is likely to generate significant long-run welfare benefits.
Topic:
Health and Human Welfare
Political Geography:
Kenya and Africa

2256. Why Are There So Few Black-Owned Firms in Africa? Preliminary Results from Enterprise Survey Data

Author:
Vijaya Ramachandran and Manju Kedia Shah
Publication Date:
01-2007
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
Much of the growth in Sub-Saharan Africa in the past decade has come from extractive industries, rather than from private, entrepreneurial activity. Furthermore, non-extractive activity in the private sector is often dominated by firms owned by ethnic minorities. This paper analyzes the characteristics of the formal private sector in five countries in sub-Saharan Africa, with a particular emphasis on Black African-owned (indigenous) firms. We find that indigenous firms start smaller and grow more slowly; however their rate of growth is positively influenced by whether the owner-entrepreneur has a university degree. We do not find overwhelming evidence that credit is the binding constraint but we do find that indigenous firms get less access to trade credit than firms owned by minority entrepreneurs. Finally, we discuss policy solutions that might enable a larger number of indigenous entrepreneurs to enter and survive in a vibrant, multi-ethnic private sector.
Topic:
International Relations, Development, Economics, and Humanitarian Aid
Political Geography:
Africa

2257. Nigeria: Ending Unrest in the Niger Delta

Publication Date:
12-2007
Content Type:
Working Paper
Institution:
International Crisis Group
Abstract:
The Niger Delta is again at risk of sliding into chaos. The 29 May 2007 inauguration of new federal and state governments offered an opportunity to resolve longstanding conflicts afflicting the oil-rich, deeply impoverished region. Six months later, the opportunity is unravelling amid new violence and criminality. Decisive action is necessary to stop militant violence and criminal hostage-taking, initiate quick-impact development projects that can build public confidence in President Umaru Yar'Adua's administration and tackle constitutional and legal issues that have fuelled unrest in the region.
Topic:
Conflict Resolution, International Relations, and Development
Political Geography:
Africa and Nigeria

2258. Darfur's New Security Reality

Publication Date:
11-2007
Content Type:
Working Paper
Institution:
International Crisis Group
Abstract:
The Darfur conflict has changed radically in the past year and not for the better. While there are many fewer deaths than during the high period of fighting in 2003-2004, it has mutated, the parties have splintered, and the confrontations have multiplied. Violence is again increasing, access for humanitarian agencies is decreasing, international peacekeeping is not yet effective and a political settlement remains far off. The strategy the African Union (AU)/UN mediation has been following cannot cope with this new reality and needs to be revised. After a highly publicised opening ceremony in Sirte, Libya, on 27 October 2007, the new peace talks have been put on hold. The mediation should use this opportunity to reformulate the process, broadening participation and addressing all the conflict's root causes.
Topic:
Security, Genocide, and Human Rights
Political Geography:
Africa and Libya

2259. Zimbabwe: A Regional Solution?

Publication Date:
09-2007
Content Type:
Working Paper
Institution:
International Crisis Group
Abstract:
Six months before scheduled elections, Zimbabwe is closer than ever to complete collapse. Inflation is between 7,600 per cent (government figures) and 13,000 per cent (independent estimates). Four out of five of the country's twelve million people live below the poverty line and a quarter have fled, mainly to neighbouring countries. A military-led campaign to slash prices has produced acute food and fuel shortages, and conducting any business is becoming almost impossible. An initiative launched by the regional intergovernmental organisation, the Southern African Development Community (SADC), to facilitate a negotiated political solution offers the only realistic chance to escape a crisis that increasingly threatens to destabilise the region. But SADC must resolve internal differences about how hard to press into retirement Robert Mugabe, Zimbabwe's 83-year-old president and liberation hero, and the wider international community needs to give it full support.
Topic:
Conflict Resolution and Security
Political Geography:
Africa and Zimbabwe

2260. Burundi: Finalising Peace with the FNL

Publication Date:
08-2007
Content Type:
Working Paper
Institution:
International Crisis Group
Abstract:
En quelques années à peine, le Burundi a accompli des progrès substantiels en matière d'apaisement des relations interethniques et de démocratisation de son espace politique. Ces avancées ont été rendues possibles grâce à la volonté des Burundais eux-mêmes, qui ont su agir dans un esprit d'unité et de compromis mais aussi grâce à un fort investissement de la communauté internationale dans le processus d'Arusha. L'intégration au sein des nouvelles forces nationales de défense et de sécurité des troupes de l'ancien gouvernement et des anciens rebelles du Conseil national pour la défense de la démocratie- Forces pour la défense de la démocratie (CNDD-FDD) a contribué, de manière significative, à consolider la paix. Toutefois, le processus de paix reste fragile. Pour tourner la page des années de guerre civile, renforcer les institutions démocratiques et poser les bases d'un véritable État de droit, il est nécessaire de conclure un véritable accord de paix avec le dernier mouvement rebelle encore actif sur le territoire, le Parti pour la libération du peuple hutu – Forces nationales de libération (PALIPEHUTU-FNL) d'Agathon Rwasa. Ce mouvement n'est plus en mesure de relancer une guerre dans le pays mais il reste une source d'insécurité dans plusieurs provinces de l'Ouest où il est fortement implanté.
Topic:
Conflict Resolution, Security, and Diplomacy
Political Geography:
Africa and Burundi