We know that water and sanitation services do not always recover their costs from tariffs. So, if communities or governments are to maintain the infrastructure properly, they depend on the public budget. And those expenditures must be predictable and transparent.To take a closer look at this issue, the World Bank analyzed public expenditure on water supply and sanitation from fifteen countries in Sub-Saharan Africa, assessing how much public money was budgeted for the sector and on what it was spent.
I visited three African countries – Ethiopia, Rwanda, and South Africa– during my first week as Chief Economist at the World Bank in June 2008. Many visits to other African countries followed, but Ethiopia holds for me a special interest. I’ve just visited again, for a fourth time. While I am sure I will go back again after I depart the Bank on June 1 this year, this was my final visit to Africa as Chief Economist.
Over four years, I’ve seen Ethiopia gradually embrace structural transformation and its practical application. Leaders there are acutely aware that, if they are to maintain a robust growth rate (GDP growth has been around 10.5% on average over the past few years), they must move away from agriculture, the dominant sector, toward industrial upgrading and technological innovation, often by imitating economies just a few rungs up the economic ladder. Ethiopia’s agriculture sector is important and should not be neglected, but that alone won’t get the country onto a path toward middle income and finally to high income status.
In response to this intriguing question, raised by Dele Fatunla on the Diaspora Debate blog at African Arguments Online, we believe the Diaspora is a rich source of much-needed human and financial capital that ought to be better leveraged to benefit Africans on the continent.
For many African countries, one important way to create productive jobs is to grow the labor-intensive light manufacturing sector, which would accelerate economic progress and lift workers from low-productivity agriculture and informal sectors into higher productivity activities.
Sub-Saharan Africa’s low wage costs and abundant material base have the potential to allow light manufacturing to jump-start the region’s long-delayed structural transformation and over-reliance on low-productivity agriculture. Moreover, as globalization advances and China evolves away from a comparative advantage in labor-intensive manufactured products toward more advanced industrial production, African economies such as Ethiopia and Tanzania are uniquely positioned to take advantage of this opportunity.
African Head of States and Governments will convene in Addis Ababa, Ethiopia later this month to launch a continent-wide free trade agreement (CFTA). The summit will focus on solutions to the numerous impediments that hinder intra-African trade: inefficient transit regimes and border crossings procedures for goods, services and people; poor implementation of regional integration commitments.
Last year 14 million people around the world applied for the 50,000 green cards available through the U.S. Diversity Visa lottery, commonly known as the Green Card lottery.
I recently had the opportunity to organize and take part in an exchange learning visit to Thailand and Vietnam. The visit was aimed at improving the effectiveness of Ethiopia’s land administration system by enhancing stakeholders’ understanding of the sector’s policies and institutional constraints and how to address them through integrated but multi-faceted reforms and programs.
Over the past decade, Ethiopia has successfully implemented the worlds’ largest rural land registration program. The registration is implemented equitably and with clear positive impacts on conflict, productivity, investment, and rental market participation. However, constraints still exist. There’s a disconnect between urban and rural registration and administration, stagnant policy revisions remain, and there is often weak institutional capacity to act on and implement innovative ideas with the required speed.
When I first entertained the idea of heading to the Far East to learn from the experiences there, I was very skeptical and thought Vietnam and Thailand were just way too far… and I don’t just mean geographically. Once I arrived there, I realized that I was wrong and was pleasantly surprised to discover lots of very useful lessons that can help to initiate, improve, or at least reaffirm the course of Ethiopia’s land administration system.
Despite escalating debt concerns, Q3 Euro Area GDP growth remained positive mostly on account of robust growth in the two largest economies Germany and France. Q3 GDP growth was even stronger in the US, Japan and China (all of which benefitted from the post-Tohoku bounce back), with consumer spending also being an important growth driver. Reflecting weak consumer spending in the Euro Area, retail sales fell in October. Forward looking indicators suggest that growth prospects for the Euro Area remain dim, and with the EU being a major trading partner for many countries this reduces prospects elsewhere. In anticipation of the slowdown, monetary policy tightening has declined significantly in developing countries, although tightening continues where inflation remains above-target.
|Euro Area member states grew modestly and unevenly in Q3, but recession looms ahead. Euro Area GDP was up 0.8% (q/q, saar) in Q3. Much of the increase was driven by Germany (2%, q/q saar) and France (1.6%, q/q saar), while periphery countries registered significant declines. Q3 GDP growth was even stronger in the US (2.5%, q/q saar) and Japan (5.5%, q/q saar). Reflecting uncertainty related to the debt crisis and fiscal austerity across the Euro Area, Q4 growth prospects for the Euro Area are dim. European business surveys in October show production and order books pointing towards recession, while stocks of unsold finished goods remain high. The EC forecasts Euro Area Q4 GDP to contract by 0.4% (q/q, saar) and to stagnate in 2012 Q1. Developing country exports to the EU will be impacted. |
|Strength of consumer spending diverges across regions. Consumer spending in the third quarter provided significant support to GDP growth in Germany, France, and the United States (1.72 percentage point contribution to GDP). October releases of retail sales data show momentum growth on the upside for the United States (supported by a pick-up in consumer sentiment since August and moderate job creation), and moderating in China and Japan (where retail sales growth is stabilising from the post-Tohoku bounce back). However, retail sales in the Euro Area declined in October, with momentum growth dipping towards a deceleration, as consumers faced with job fears related to the ongoing Euro Area debt crisis and fiscal austerity, hold back on spending. |
|The pace of monetary tightening in developing countries slows. As inflationary pressures abate and the global economy slows down, the number of developing countries tightening monetary policy has fallen sharply. In recent months some of the larger developing countries (Brazil, China, Indonesia, Russia, and Turkey) have moved from tightening to a neutral or looser monetary stance. Elsewhere, interest rate hikes continued in developing countries where inflationary expectations remain elevated (Bangladesh, India, Kazakhstan, Ethiopia, Nigeria, Tanzania, Vietnam) and where price pressures continue to be felt (e.g in East Africa). Indeed, interest rates in Kenya and Uganda have been increased by atleast 800bps over the past two months. |
Source: Thomson Datastream and World Bank DEC Prospects Group
Download the Prospects Weekly as PDF here.
Important developments today:
1. Eurozone growth projected to slowdown sharply in 2012
Eurozone growth projected to slowdown sharply in 2012. Battered by the spreading sovereign-debt crisis in member states, waning consumer and business confidence which could impinge on durable and investment goods spending, ongoing fiscal austerity, and a slowdown in global trade, the recently released European Commission Autumn economic forecasts points to a significant slowdown in GDP growth in the EU. Annual GDP growth in 2012 for the 17-bloc Eurozone is projected at 0.5%; and 0.6% for the 27-member EU. Though picking-up in 2013, growth is still expected to remain lack-lustre, rebounding to 1.3% and 1.5% for the Eurozone and EU respectively. The risks to the forecasts are noted to be tilted to the downside with the possibility of further negative dynamics of slower growth affecting sovereign debtors, which could in turn deteriorate bank balance sheets, thereby reducing their ability to support growth and thus leading to a recession.
Among Emerging Markets
In East Asia and the Pacific, Malaysia’s central bank kept the key interest rate unchanged at 3% at the latest monetary policy meeting. Despite pressures on domestic consumer prices from food shortages after recent floods, the bank announced plans to maintain the current interest rate in view of external economic slowdowns.
In Central and Eastern Europe, Turkey’s industrial production grew 6.9% in September, gaining 12% on the year, beating all market forecasts as broad based expansion in manufacturing (12.8%), utilities (9.9%) and mining (2.2%) boosted the headline figure. The pace of growth in industrial output is the highest since February, underscoring the fast momentum of growth in the economy.
In South Asia, India’s industrial output growth slowed sharply to 1.9% in September, a two-year low, as the central bank’s string of interest rate hikes took effect on the economy. While manufacturing production grew modestly by 2.1%, output of key capital equipment and consumer goods shrank, raising concerns that the overall pace of growth may slow. The Reserve Bank has raised interest rates 13 times since March 2010 to control inflation, which remained high at 9.72% in the last reading, and signaled that it may pause interest rate tightening after last month’s 25 basis point increase.
In Sub-Saharan Africa, Ethiopia’s annual inflation was recorded at 39.8% in October, easing slightly from 40.1% recorded in September. Month-on-month inflation has been slowing in the country, at 1.9% in October from 2.6% in September, however a poor agricultural year and surging food costs are likely to keep inflationary pressures a concern this year.
I am standing in a camp near Dollo Ado, in southern Ethiopia near the border with Somalia. The camp is an open site on hard rocky land: the only vegetation is grey, thorny scrub. An endless wind is swirling around me, picking up the light soil under foot and coating everyone and everything with a thin film of orange. Dust devils spin lazily in the relentless hot sun, making it hard to see the plastic sheeting that is the only covering for the ‘huts’ in which 10,000 people are living. Welcome to Haloweyn, the newest refugee camp for the drought-triggered exodus from Somalia. Today is Eid-ul-Fitr, but nobody is celebrating here.
We have stopped to talk to people and understand the challenges they face, but it is hard work. Many of them have scarves wrapped around their faces to protect themselves from the wind, very few of us speak any Somali, and when we do communicate they look uncertain and dazed, as well they may. This camp is only three weeks old—less than a month ago all these people were wandering through this extraordinarily arid landscape, trying to pick their way past the lines of conflict, almost all malnourished and often sick too. That those we meet seemed to have recovered their physical health already is fairly miraculous. Their reluctance to relive their experiences seems wholly understandable.
The proceeds of the bond will be used to fund the construction of the Grand Renaissance Dam. This dam will be the largest hydroelectric power plant in Africa when completed (5,250 Mega Watts). The first one was called the Millennium Corporate bond, and was for raising funds for the Ethiopian Electric Power Corporation (EEPCO) . The first diaspora bond issuance did not meet the expectations. Sales were slow during the first months of offering despite the efforts of the Commercial Bank of Ethiopia and the embassies and consulates to sell them. Some risks that the diaspora faced were: i) risk perceptions on the payment ability of EEPCO on its future earnings from the operations of the hydroelectric power; ii) lack of trust in the government as a guarantor; and iii) political risks.
Earlier this month, I participated in a four-day mission to Mandera, a county in northeastern Kenya, some 640 km from Nairobi on the Somali border. The European Commission’s Humanitarian Agency (ECHO) arranged the mission to assess progress of various community-managed drought risk reduction initiatives.
We visited several projects being implemented across Mandera’s central, northern and eastern districts, an area which is home to more than a million people, according to the last census in 2009. The area is classified as arid and receives on average 250 mm of rainfall in a good year. But for the last several months, not a single drop of rain has fallen and all water reserves have been depleted. Famine could be imminent in Mandera and its neighboring counties if policies are not put in place to prevent it.
Being my first visit to Mandera the mission was eye-opening but also disquieting, coming as it did in the midst of what is now accepted as “the most severe drought in the Horn of Africa in the last 60 years”.
Social networks have been a hot topic in the past year, not least because of the buzz around the Oscar-winning film about the founding of Facebook. Even in countries with relatively low internet connectivity, use of social networking sites is on the rise – just ask Timor-Leste’s President José Ramos Horta and his 378 Facebook friends. But even before the internet empowered us to connect and communicate at the speed of a whim, we have all lived fully immersed in social networks. Social networks are the links between family and friends, classmates and teammates, coworkers and colleagues, enemies and ‘frenemies’. They are the relationships – around 150 meaningful ones, according to Dunbar’s number – that feed and bound our choices and actions, provide us with emotional sustenance and sounding boards, and provide structure to our lives. But beyond their intrinsic value, what do these connections mean – for individuals, for communities, and for development?
Semi-constructed skyscrapers dotting the horizon, shoppers, commuters and students flooding the sidewalks and a sea of trucks, cars and buses - all fighting for their own space along Bole road, Addis’ main thoroughfare. The signs of a decade of 10% annual economic growth for Ethiopia were evident in the cab ride to the hotel. The energetic vibe of Addis also reminded me that despite rapid advancements, it was still a country with one of the highest poverty rates in the world, large rural populations without energy access, significant bio-diversity and environmental risks and a nascent private sector to deal with it all.
To engage the private sector was the reason I was in Ethiopia. I was preparing for the business plan development of an Ethiopian Climate Innovation Center (CIC) similar to the Kenyan CIC launching later this year. The $15 million program will invest in and support early-stage companies wanting to become more involved in the booming local and international cleantech markets while becoming profitable and competitive.
However the suite of services developed for each CIC look different in each market and is therefore designed via a rigorous gaps, opportunities and needs analysis with local stakeholders. While in Ethiopia, I met with a few of the 100-plus stakeholders that will take part in the design phase of the Center. Public and private sectors, development partners, NGOs and academia were eager to share their expertise and experience of what was needed for a CIC in Ethiopia. These are my thoughts following those discussions:
Development Marketplace winner Pachamama Coffee Cooperative (PCC) was featured in the New York Times not too long ago. Its newest initiative CoffeeCSA.org found its roots in humble beginnings. Springing from the Community Supported Agriculture (CSA) movement which began in the 1960’s in Switzerland, consumers receive their produce directly from the farmer through a household subscription paid for in advance. Then on a weekly or bi-weekly basis, the consumer cum subscriber receives a portion of the overall harvest.
CoffeeCSA.org is a platform that allows consumers to pay in advance for a coffee subscription ranging from one month to one year. There consumers have a direct link to farmers who grew their coffee in Ethiopia, Mexico, Nicaragua, Peru or Guatemala. And the advance subscription provides a more stable income to farmers. It’s a great adaptation of an old model for coffee farmers who often live on only $2 per day.