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January 2009

Angola's economic prospects (revised)

Submitted by Shanta on Thu, 2009-01-29 17:25

In his earlier post on this blog, Ricardo Gazel forecast a 10% decline in Angola’s GDP. This was based on the country’s 2009 budget, which was elaborated before the deepening of the financial crisis and its spillover to the real economy. He now writes:

Since then, OPEC agreed to two production cuts, amounting to a reduction of 244,000 barrels per day or a 13% production cut for Angola. Given the current composition of GDP, if the oil sector shrinks by 13%, the non-oil sector would need to grow at around 22% in order for total GDP to stay flat in 2009. As the non-oil sector depends strongly on public expenditures, and given the dramatic decline in oil revenues expected for 2009, adjustments of the budget are likely to result in a slowdown of the non-oil sector, resulting in a negative growth rate of GDP as a whole in 2009. In nominal terms, with the oil price around $50 a barrel and non-oil sector growing around 10%, GDP would be around 17% lower in 2009 compared to 2008. At $40 a barrel, the decline in nominal GDP comes to 23%.

Responsible aid in a time of crisis

Submitted by Shanta on Thu, 2009-01-29 00:05

My friend, former colleague and one-time co-author Bill Easterly, in his inaugural blog post, takes issue with Bob Zoellick’s Op-Eds in the New York Times and the Financial Times  on the need for more aid to poor countries in the wake of the global financial and economic crisis. Bill’s argument is that Bob is calling for more aid without specifying what results that additional aid will achieve, so that the World Bank is not being held accountable for anything. 

I agree with Bill that, in normal times, aid and, more generally, public spending is insufficiently linked to outcomes. When people are not accountable for outcomes, much of the aid or spending is wasted. We have made this point separately (see here and here) and jointly.

Empowering matatu passengers

Submitted by Shanta on Wed, 2009-01-28 04:38

In low-income countries, road traffic accidents account for 3.7 percent of deaths, twice as high as deaths due to malaria.  Anyone who has traveled in Kenya won’t be surprised to hear that 20 percent of recorded crashes involve matatus, the private buses that careen around the city.  Billy Jack and James Habyarimana have a fascinating impact evaluation where they randomly put posters in matatus encouraging passengers to “heckle and chide” the driver if he is driving too fast or recklessly.  The idea is that the posters solve a collective action problem:  most passengers don’t like being driven dangerously, but individually they’re reluctant to speak up.  Their preliminary results are impressive:  the frequency of road traffic accidents in a 12-month period was one quarter in the treatment group compared with the control group (those without posters).

Commodity price shocks

Submitted by Shanta on Tue, 2009-01-20 22:20

The steep decline in the prices of commodities (oil, minerals, metals) following the global financial crisis is clearly having an effect on African countries. But the effect is asymmetric between importers and exporters of commodities. For instance, oil importers, who suffered in 2008 from the sharp increase in oil prices (reaching $140 a barrel), will benefit from the decline in oil prices, whereas the reverse is true for oil exporters. Using the latest commodity forecasts available, my colleague Cristina Savescu  has calculated the size of the terms of trade shock (expressed as a percentage of 2006 GDP) for African countries in 2008

The human crisis

Submitted by Shanta on Tue, 2009-01-20 22:06

My colleague Justin Lin says that it is important not to let the global financial crisis become “a human crisis.” Nowhere is this truer than in Africa. Although spared the first-round effects of banking failures, Africa is already facing the second-round impacts of declining capital flows, slowing remittances, stagnating foreign aid and falling commodity prices and export revenues. The continent will almost surely experience a deceleration in growth. And if history is a guide, this deceleration will have an impact on human development.

In an exhaustive study of growth accelerations and decelerations, Jorge Arbache and John Page (my colleague and predecessor, respectively) show that the impact on human development is asymmetric. Child mortality, for instance, rises during decelerations, but hardly falls during accelerations. Primary school completion rates are substantially lower in countries experiencing growth decelerations, as is life expectancy. Disturbingly, they also find that official development assistance (either per capita or as a share of GDP) is lower during decelerations, meaning that it is pro-cyclical.

Letter from Zimbabwe

Submitted by Shanta on Fri, 2009-01-09 13:16

I received this missive from a friend:

December 11, 2008
Harare 1.00am

It is just after midnight in Harare. I have just returned from a midnight tour of the ATMs in Harare with a cousin. There are queues of people still waiting to get their weekly cash withdrawal limit of $100,000,000,000 (US$2.50). I saw the queues this morning when I went for my first meeting at 7.45am. I did not know then that I would be seeing them throughout the day. Most of the ATMs had run out of money. Rather than go home, people saved their precious place in the lines by lying down where they stood and taking a nap. Covering themselves with sacks, newspapers and whatever warming clothing they had. Those ATMs that were still paying out cash had queues of policemen and soldiers. I dared not pull out my camera then. When I did pull out my camera, it was of people too tired to care. Needless to say, picture quality from a moving car using a micro camera is not the best. This is not a normal interpretation of 24-hour banking; seven days a week.

La facilitation des échanges comme réponse à la crise et le développement en Afrique

Submitted by John Wilson on Thu, 2009-01-08 08:35

La réponse de l’Afrique à la crise économique actuelle doit se faire sur plusieurs façades. Une reforme des politiques commerciales permettant l’épanouissement du secteur privé devrait être au centre de tout effort tendant à minimiser l’impact sur les économies africaine à  court terme et à long terme des perturbations des marchés. Comme noté par Shanta dans son exposé de novembre à l’Université Columbia de New, la croissance du secteur privé doit être une priorité pour l’Afrique.

Crisis Management Today and Investing for Tomorrow: Why Trade Facilitation Matters to Africa

Submitted by John Wilson on Thu, 2009-01-08 08:16

There are many factors which will impact Africa’s ability to weather the current economic crisis. Finding ways to reform trade policy that enhances private sector growth should be part of any strategy now and in the long-term to counteract the damage today’s economic crisis is having. As Shanta noted in his lecture in November at Columbia, private sector growth is a key priority for Africa. Policy, institutional, and other barriers, including trade restrictions need to be addressed. We recently examined the most important obstacles to trade facilitation in Africa. This included how increased port efficiency, improved customs, and regulatory environments, and upgrading services infrastructure could help that continent.  We found that improvement in ports and services infrastructure promise relatively more expansion in intra-African trade than other measures. These are the types of investments that can have a stimulus effect now and help over the long-term. Regional trade agreements have a positive effect on trade flows. Acting today to address infrastructure gaps and new commitments to reduce barriers through strong regional agreements should be part of any plans considered for reform in Africa.