IMF Chief Economist Olivier Blanchard created quite a stir at the recent American Economics Association Meetings when he presented his joint paper with Daniel Leigh that showed that, for 26 European countries, the fiscal multipliers—the amount by which output expands with an increase in the fiscal deficit—were considerably higher than previously thought. Whereas these multipliers were previously thought to be around 0.5, they find them to be above 1.0. Applying these figures to a reduction in the fiscal deficit (sometimes called “fiscal consolidation”), Olivier and Daniel suggest that people may have underestimated the extent to which European economies would contract in the wake of their fiscal consolidation.
The dawn of a new year is a good time to reflect on the past year and look ahead. As it turns out, 2012 was a pretty average year for Kenya, mainly because the much anticipated national and regional elections, which will determine the course of the nation and its economy for years to come, were postponed to March next year.
Why do I say that 2012 was such a normal economic year for Kenya? Let’s rewind 12 months back. Kenya was facing major macroeconomic challenges: inflation stood at almost 20 per cent, the exchange rate was volatile and public debt increased markedly due to the weakening shilling. Economic pessimists predicted a global economic storm as the challenges in the euro-zone seemed unmanageable.
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 theTanzanian Newspaper The Citizen every Sunday.
Gold, gems, uranium, coal, iron, copper and nickel…Tanzania is rich in mineral resources. These 'treasures' have attracted considerable attention within the country and abroad. It is estimated that over 500,000 Tanzanians are employed in this sector, principally in traditional small scale activities.
The sector has also attracted enormous foreign direct investment. As a result, the mining sector has been one of the driving forces of the Tanzanian economy over several years as illustrated by the following statistics:
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.
Tourism is among the world’s most lucrative industries. The latest figures from 2009 show that the industry generated US$852 billion in export earnings worldwide, accommodated more than 800 million travelers, and accounted for more than 255 million jobs or nearly 11 per cent of the global workforce in that year. It is no surprise then that this industry is considered a major driver for employment, growth and development.
Every year, the World Bank’s country teams and sector experts assess the quality of IDA countries’ policy and institutional framework across 16 dimensions to measure their strenght and track progess.
The latest country policy and institutional assessment (CPIA) results show that despite difficult global economic conditions, the quality of policies and institutions in a majority of Sub-Saharan African countries remained stable or improved in 2011.
For several countries the policy environment is the best in recent years. Of the 38 African countries with CPIA scores, 13 saw an improvement in the 2011 overall score by at least 0.1. Twenty countries saw no change, and five witnessed a decline of 0.1 or more. The overall CPIA score for the region was unchanged at 3.2.
In short, despite a challenging global economic environment, African countries continued to pursue policies aligned with growth and poverty reduction.
Do you ever wonder, looking at the food in your plate, where it has come from and who produced it?
Surely you have thought about what explains its price on the shelf! Kenyans love sugar, which they use liberally in their tea: on average each Kenyan consumes 400 grams of sugar per week, much more than their Tanzanian neighbors who consume approximately 230 grams. In Africa, only the residents of Swaziland and South Africa have a sweeter tooth.
Globally, 70 percent of the sugar that is produced is consumed in the same country and only 30 percent is exported. In principle this is good for customers in sugar-producing countries, as long as the supply is sufficient to keep prices low. In Kenya, this is not the case: there are occasional sugar shortages and, when they can be anticipated, prices rise to extraordinary levels.
As European leaders convened in Brussels to find solutions—yet again!—to the debt crisis in the Euro zone, Kenyans are witnessing the old continent’s woes with a mix of surprise and self-satisfaction.
If only Greece had managed its debt like Kenya, Europe would be in a much better shape today. Greece’s debt would be standing at 45 percent of GDP, less than a third of what it actually is. Recent global economic history would need to be rewritten and Europe’s sick nation would be a macroeconomic success, with the luxury of deciding how to spend its resources well, rather than scrambling to mobilize them.
In development circles, people talk about “countries that are too big to fail and too small to succeed”. The jury may be out on the former but a new book by Shahid Yusuf and Kaoru Nabeshima, “Some Small Countries Do It Better” dispels the notion that countries can be too small to succeed.
Three small countries studied in the book - SIFIRE (SIngapore, FInland, IREland) – not only grew at high rates but were able to sustain them.
The book – which concludes with a section on implications for African countries – contends that growth recipes for SIFIRE were not tightly bound to the East Asian model of extremely high rates of savings and investment (although arguably, Singapore was in many ways the epitome of that model, thanks to its mandatory savings scheme which led to gross national savings in the neighborhood of 50 percent for decades).
The larger point is that these three countries augmented physical investment with healthy doses human capital and knowledge; by “opening their windows and letting it [knowledge in various forms, for example, that embodied in FDI] stream in”. And even though the book does not explicitly discuss it, they did so without massive infusions of foreign aid. Or perhaps it was the lack of aid that forced them to be nimble, agile, and forward-looking?
What precisely did SIFIRE get right?
Containers spend, on average, several weeks in ports in Africa. In fact, over 50% of total land transport time from port to hinterland cities in landlocked countries is spent in ports.
Our recent study demonstrates that, excluding Durban and Mombasa, average cargo dwell time in most ports in SSA is close to 20 days whereas it is close to 4 days in most large ports in East Asia or in Europe. In this setting, the main response has been to push for: (a) concession of terminal operators to the private sector, (b) investments in infrastructure (such as quays and container yards) and (c) investments in super-structures such as cranes and handling equipment.
What has been the result on cargo dwell time? Not much. On average, it is extremely difficult to reduce cargo dwell time. In Douala (Cameroon), for example, planners set an objective of 7 days at the end of the 1990s, but the dwell time remains over 18 days (despite real improvements for some shippers).
Recently, a friend from Indonesia visited me in Nairobi. He is one of the world’s leading experts on social development and a long-term Jakarta resident. One of his observations stuck in my mind: “Kenya is just like Indonesia ten years ago”, he said.
Comparing Kenya with Indonesia is counterintuitive—except perhaps when it comes to traffic jams—because of the many differences between the two countries. Indonesia is the world largest island state with more than 17.000 islands and a demographic heavyweight with 240 million people (six times more than Kenya). It is also 85 percent Muslim, while Kenya is about 85 percent Christian. Indonesia has massive natural resources – coal and gas (and some oil) – that it exports to other Asian countries, especially China, while Kenya’s economy is fuelled by a strong service sector.
There are many more reasons to challenge a comparison between these two countries but when one digs below the surface, there are also some similarities. Economically my friend was spot on: in GDP per capita terms, Kenya is roughly at the level of Indonesia a decade ago (about US$800 per capita). Today Indonesia is far ahead, but I don’t see any reason why Kenya couldn’t follow suit. Indeed, Indonesia is a good benchmark case for Kenya because it was never a “star reformer”, but instead a consistently strong performer.