This will be my last post on Africa Can. Having recently started a new adventure as Chief Economist of the World Bank’s Middle East and North Africa (MENA) region, I will be blogging on that region’s issues in the MENA blog as well as starting a more general blog (tentatively titled “Economics to end poverty”) with some of my fellow bloggers. It has been a privilege to moderate Africa Can, and I want to thank our readers for the stimulating, lively and frank discussions, as well as for having made this the most popular blog at the Bank.
Information and Communication Technologies
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.
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.
The mobile phone is a truly novel device. It comes in just as handy and as easily when we need to communicate about the serious things as to chat about the simpler things in life. Mobiles are not only being used as radios and flashlights but they are also delivering banking and financial services to those who urgently need them.
Increasingly, people around the world, especially in Africa, are paying their school fees, healthcare and utility bills using mobile phones today. Businesses use mobile money phones to pay their staff and suppliers. Poor people who have never entered a bank are using mobile services to send or receive remittances and to save their money.
“So how are you enjoying living in paradise?” Michael Geerts, the former German ambassador to Kenya asked me the other day. He was posted in Nairobi during the difficult years in the end of the 1990s, and continues to stay in touch with a country he loves dearly. Many colleagues, who once worked in Kenya have bought houses in Nairobi, and plan to retire in the “city under the sun”. But not everybody shares their passion and faith in the country’s future. There are many pessimists who feel that the country is moving in the wrong direction. Kenya, they say, will never rid itself from grand corruption, and crime such as drug trafficking will continue to flourish.
Are they seeing the same country? Maybe both perspectives are right, because Kenya is a country of extremes.
Do you think Fortune 500 CEOs care about Africa? In the past, frankly, with the exception of oil and gas giants, they didn’t. But this is changing… and fast.
This week, IBM is opening its Africa innovation hub in Nairobi. To demonstrate the significance of the occasion, IBM has brought along all its senior team, led by CEO Ginni Rometty (named #1 most powerful woman in business by Forbes in 2012). Like other ICT companies, IBM wants to ride the wave of Africa’s ICT revolution. In this area, Africa has not only been catching up with the West, but is in fact overtaking it in areas such as mobile money.
Most of the literature about Africa’s growth, “Africa Rising”, “Lions on the Move”, etc., refer to the present or the future. An oft-quoted World Bank report said, “Africa could be on the brink of an economic takeoff, much like China was 30 years ago and India 20 years ago.”
Meanwhile, Alwyn Young has recently published a paper that claims that per-capita consumption on the continent has been growing at 3.4-3.7 percent a year for the last two decades—about three to four times the growth rates documented in other studies. Instead of using national accounts data (which, as we know, suffer from several deficiencies), Alwyn adopts the Demographic and Health Surveys (DHS), which calculate the households’ ownership of assets and other indicators of well-being (ownership of a car or bicycle; material of the house floor; birth, death or illness of a child, etc.).
How is the digital tide taking care of the digital divide? Do you remember the digital divide? At the start of the new millennium, there was global concern that poor countries, especially in Africa, would be twice left out: economically and also technologically. Fortunately, the digital divide never became a global challenge. In fact, it is closing faster than anyone had imagined. In some parts of the developing world there are even budding signs of possible digital overtaking.
Kenya is one of few African countries driving in the fast lane. Over the past decade, it has experienced a sweeping “digital tide”. Today, Kenya will cross the 30 million threshold of active cell phone numbers, up 29,000 from 12 years ago! Almost everyone can now afford to buy a phone, which sell for as little as Ksh 500 (or US$5) on the flourishing second hand market.
Let's think together: Every week the World Bank team in Tanzania wants to stimulate your thinking by sharing data from recent official surveys in Tanzania and ask you a couple of questions. This post is also published in the Tanzanian Newspaper The Citizen every Sunday.
Sub-Saharan Africa has experienced a boom in mobile phone users over the past decade. The total number of cell phone subscriptions on the continent increased from just over 11 million in 2000 to 463 million in 2011 and is expected to grow even further. This technology not only affects day-to-day life and communication, but has the potential to boost economic development directly and indirectly.
In creating jobs, for instance, mobile phone technology has contributed towards the reduction of poverty. But more important are its indirect effects on the economy such as the increased connectivity of firms and micro-enterprises which increases their access to information and facilitates the movement of money through mobile transfers.
My colleague Jim Kim has launched a social media campaign on what it will take to end global poverty (please send your solutions via twitter to #ittakes.) I was reminded of a blog post I did about four years ago entitled “Ending poverty in Africa and elsewhere”.
My answer then and now is: Overcome government failure. By “government failure,” I don’t mean that governments are evil or even that they are incompetent or ill-intentioned. Analogous to “market failure,” government failure refers to a situation where the particular incentives in government lead to a situation that is worse than what was intended with the intervention.
For instance, governments finance and provide primary education so that poor children can have access to learning. But if teachers are paid regardless of whether they show up for work, and politicians rely on teachers to run their political campaigns, the result is absentee teachers and poor children who don’t know how to read or write—precisely the opposite of what was intended. We see similar government failures in health care, water supply, sanitation, electricity, transport, labor markets and trade policy.
What if anyone owning a cell-phone, whether rich or poor, also had access to financial services with the ability to save and send money safely, no matter where they are located? This is not science fiction; in fact it is already happening in Kenya, which has become the world’s market leader in mobile money.
Today, Kenya has more cell-phone subscriptions than adult citizens and more than 80 percent of those with a cell phone also use “mobile money” (or “M-PESA” which is very different from “mobile banking” as Michael Joseph–the former Safaricom CEO, and the man behind that revolution—can explain passionately!).
Internet access is also increasing rapidly, even though many are complaining about poor service by some operators. Within the next two years, Kenya could become one of the most connected, and modern economies in the developing world, and a unique case among the world’s poorer countries, that have an average annual income of below US$ 1000 per capita (see figure).