AfricaCan End Poverty

From mineral resources to cash

It's a place of darkness. People are poor and hail from tribes and clans. They live in basic shelters in remote villages, with no running water or electricity, and no access to clinics. Subsisting on seasonal work, hunting and fishing to stock up food for the lean months, they worship nature's beauty. They consider themselves hardy, descendants of those who suffered war, famine, and religious persecution. They resent that their part of the earth gets attention only through the prism of movies or when natural or manmade disasters strike. Then oil is found and they are blessed.

Nope, this isn't one of the many countries we all associate with poverty. It is not a "fragile state" the term often used for the richest in oil and gas and other mineral resources countries in Africa with the poorest citizens affected by the curse of resources: foreign meddling, conflict, war, corruption and autocratic dictators. This is Prudhoe Bay, Alaska, in the 1970s.

In 1975 the Alaska legislature asked itself: Was it morally acceptable or ethical for the generation whose presence in Alaska coincided with the oil boom to get all the benefits, leaving the following generations to deal with the decline and fall? No said the majority who thought the Alaskans of the future should have a nest egg and be allowed to share in a temporary windfall from the finite oil resource.

Alaska set up the Alaska Permanent Fund Corporation (APF). In 1987, the APF was worth US$11 billion, and by 1997 it was US$24 billion, exceeding total state oil and gas revenues. As of March 2013 it was US$45.5 billion. The lesson is that managed professionally, a national asset can grow into the future beyond the finite resource. You can read the whole case study by Steve Cowper, a former Alaska Governor (no, not that one), in a book edited by the World Bank's Jennifer Johnson Calari. In neighboring Alberta in Canada the Alberta Heritage Fund had been set up a year earlier.

Iran's Citizen Income Scheme, along the lines of the APF, is the largest in the world providing cash transfers to all its citizens, universally from its oil revenues. Per capita $500 is transferred to over 75.3 million citizens costing about $45 billion a year and will amount to 15 percent of national income, while Alaska's average is 3-4 percent .

It is now widely understood that achieving a sustained acceleration of GDP growth over the long term is a prerequisite for eradicating mass poverty. In most developing countries, fiscal policies, including expenditure and tax policies, provide some of the most feasible tools available to governments for achieving their development objectives. Hence the role of fiscal policies as instruments for promoting long term sustainable economic growth is of great importance, an issue that was discussed at the “Fiscal Policy, Equity and Long Term Growth” conference which took place at the IMF on April 21-22, 2013. What matters in this context is how fiscal policies are designed and implemented such that they affect the long term growth of the supply side of the economy, rather than as a tool of short run demand management. The quality of fiscal policy is of critical importance in this regard.

There is a large volume of academic research, both theoretical and empirical, on the effects of different aspects of fiscal policy on economic growth (Easterly and Rebelo, 1993; Gemmel, 2001; Moreno-Dodson, 2012; World Bank, 2007, etc to cite just a few). This research has yielded broad fiscal policy advice for developing countries. For example, governments should avoid excessive fiscal deficits and public debt, allocate budgets towards human capital development and public investment in infrastructure which provides “public goods and services” and levy taxes on as broad a base as possible without distorting incentives to save and invest.

Imagine that you are in an elevator. It stops to pick up the next passenger going up. It turns out to be H.E. Jayaka Mrisho Kikwete, yes, the President of Tanzania himself, accompanied by a group of high anking officials. The President turns and asks you what you think is the most important thing that he could do for his country. You have less than three minutes to convince him. What would you tell him?

I know what I would say, loud and clear: “Your Excellency, that would have to be improving the performance of the port of Dar es Salaam.”

No doubt there are plenty of issues that matter for Tanzania’s prosperity: rural development, education, energy, water, food security, roads, you name it. They are all competing for urgent attention and effort; yet it is also true that each of them involves complex solutions that would take time to produce impact on the ground, and it is hard to know where to begin and to focus priority attention.

This is not the case for the Dar es Salaam port, as most experts know what to do.

So why the port of Dar es Salaam?

The port represents a wonderful opportunity for his country. The port handles about 90% of Tanzania’s international trade and is the potential gateway of six landlocked countries. I would tell him that almost all citizen and firms operating in Tanzania are currently affected, directly and indirectly, by the performance of this port.

Let's think together: Every Sunday the World Bank in Tanzania in collaboration with The Citizen wants to stimulate your thinking by sharing data from recent official surveys in Tanzania and ask you a few questions.
Easy access to markets, public services, and jobs is indispensable for citizens to take advantage of economic opportunities and achieve progress. In Tanzania, as in most other countries in the region, roads are the predominant mode of transport for people and goods. However, insufficient transportation facilities and limited mobility are an everyday reality:
- In 2010, only 1.8 per cent of Tanzanian households owned a car; significantly less than in Kenya (5.6 per cent in 2008/09) or Uganda (3.2 per cent in 2011).
- Motorbike ownership is also not common – only 2.9 per cent of households on Mainland claimed ownership of this vehicle in 2010. The situation in Zanzibar though was different with one in ten households owning a motorcycle or scooter.
- Affordable public transport remains elusive for many Tanzanians: In 2010, more than 40 per cent of women who recently gave birth at home cited distance and lack of transport as the factors that prevented them from delivering at a health facility.

Let's think together: Every Sunday the World Bank in Tanzania in collaboration with The Citizen wants to stimulate your thinking by sharing data from recent official surveys in Tanzania and ask you a few questions.
In industrial countries, small and medium firms are the vectors of economic innovation and job creation. In the USA, small-businesses account for almost two-thirds of all net new job creation. They also contribute disproportionately to innovation, generating 13 times as many patents, per employee, as large companies do. Small business owners are also in general more educated and wealthier than the rest of the active population.
The reality is different in Tanzania. The vast majority of firms are very small and predominantly confined to self-employment. They are also highly concentrated in agriculture and trading activities:

- In 2010/11, there were approximately 11 million family-owned businesses operating in Tanzania, including farms. This is equivalent to a rate of entrepreneurship of 40 percent, which is about the rate reported in Uganda and Ghana, but three and 10 times higher, respectively, than in the United States and France.
- Half of the firms operating in Tanzania have only one employee, typically the owner; while an additional 40 percent report less than five employees. Firms with more than 10 workers represent only 0.6 per cent of the firms’ universe (still almost 70,000).

How do countries and individuals become rich? Human history provides a clue. One of our most defining moments as a species took place some 10,000 years ago, when a group of humans started to switch from hunting and gathering food to growing it. This allowed them to settle down (in an area called Mesopotamia). If they produced more than they consumed, they could save for the future. With proper storage facilities, they no longer needed to eat and drink everything they had; instead they could put some aside literally for "rainy days", and, even more importantly, invest some of the agricultural output to produce even more.

Now zoom forward several thousand years: saving has become central to individual and collective prosperity. As a rule of thumb those who save more become wealthier because foregoing consumption today allows one to invest in the future (e.g. you can save to buy a bicycle, a car, or a house). Businesses can invest in new equipment and governments in new roads, schools and health facilities. All of these investments are associated with better economic futures.

People and companies tend to save and invest if they can trust the institutions that manage their money and the economy at large. In the past, it was not always safe to keep deposits at banks in many African countries. It is different today. In fact some may feel more secure entrusting their savings to African banks than those in Europe (as depositors in Cyprus’ banks recently realized). But you need more than robust and credible banks for increasing savings and investments. Investors will only enter and stay in large numbers if they can trust that the state won’t change the rules of the game in mid-course.

Co-author: Seyed Reza Yousefi

What does the “fiscal austerity” debate now blaring across the news mean for our clients? A recent academic spat turned media controversy centers on the role of national debt in holding back economic growth. We decided to take a closer look; it turns out to be instructive.

First, a quick recap… In 2010, Carmen Reinhardt and Kenneth Rogoff (RR) put together some historical economic averages to claim that high debt levels tended to accompany lower growth. They grouped countries in given years into four categories according to the debt-to-GDP ratio (0-30, 30-60, 60-90, 90+), finding:
“…our main result is that whereas the link between growth and debt seems relatively weak at ‘normal’ debt levels, median growth rates for countries with public debt over roughly 90 percent of GDP are about one percent lower than otherwise; average (mean) growth rates are several percent lower.”

Let's think together: Every Sunday the World Bank in Tanzania in collaboration with The Citizen wants to stimulate your thinking by sharing data from recent official surveys in Tanzania and ask you a few questions.
Banks play a critical role in economic development, as success stories are difficult to find without a big increase in commercial lending over time. Countries like Korea, Malaysia and China saw their credit to GDP ratio surge by 40 percentage points during the 1990s. On the African continent, similar stories are emerging in Cape Verde, Senegal and Nigeria, though arguably at a lower rate than in Asia.

Tanzania’s financial sector has been growing rapidly over the past few years, almost doubling size between 2006 and 2012. As a result of the good performance of the national economy and the gradual liberalization of the financial sector, there are today 45 commercial banks, local- and foreign-owned, competing for costumers. This growth has translated into higher lending activities as reflected in the following statistics:

- Total banking credit surged from 11.3 per cent of GDP in 2006 to over 24 per cent in 2011. This last ratio is still below the regional average of approximately 45 per cent of GDP and far from the level achieved by Kenya (52 per cent).
- The recent increase in lending activities is partly the result of higher borrowing by the Government, which grew by 5.5 percent of GDP between 2006 and 2011, and now accounts for almost 20 percent of total credit in the economy.
- Private credit expanded from 12.9 per cent of GDP in 2006 to 20.3 per cent in 2011.

Sleeping under protective net With an estimated 10 million malaria cases in 2010, the World Health Organization considers Tanzania to be one of the four countries with the highest malaria prevalence in Africa, along with Nigeria, DRC and Uganda. And yet there are signs that efforts to fight the disease are bearing fruit:

- Data from Rapid Diagnostic Tests shows that malaria prevalence in children aged 6 months to 5 years fell by half from 18 per cent in 2007/08 to 9 per cent in 2011/12.
- Reported malaria deaths declined from around 20,000 per year in 2004-06 to below 12,000 in 2011. While there is a possibility that the malaria deaths are underreported, the trend signals substantial improvement.

Co-authored with Luc Christiaensen and Aly Sanoh

For a decade and a half now, Africa has been growing robustly, and the region’s economic prospects remain good. In per capita terms, GDP has expanded at 2.4 percent per year, good for an average increase in GDP per capita of 50 percent since 1996.

But the averages also hide a substantial degree of variation. For example, GDP per capita in resource-rich countries grew 2.2 times faster during 1996-2011 than in resource-poor countries (Figure 1). Though not the only factor explaining improved performance—fast growth has also been recorded in a number of resource-poor countries such as Rwanda, Ethiopia and Mozambique (before its resource discoveries)—buoyant commodity prices and the expansion of mineral resource exploitation have undoubtedly played an important role in spurring growth in several of Africa’s countries. Even more, with only an expected 4 or 5 countries on the African continent without mineral exploitation by 2020, they will continue to do so in the future. Yet, despite the better growth performance, poverty declined substantially less in resource-rich countries.

From mineral resources to cash

Africa needs more knowledge not just more money and projects

If I had three minutes with President Jakaya Kikwete…

(Not) On the Move: Road Transport in Tanzania

Across the universe of firms in Tanzania

Saving is the key to future growth for Kenya

Flogging a debt horse - Another take on a high profile debate

The power of commercial lending: Myth or reality?

Bed Nets, Drugs and a Finger Prick of Blood – Tanzania's Fight Against Malaria.

Making the most of Africa’s growth momentum

Pages

Pages

You are here

RESOURCES FOR