Challenges of African Growth - World Bank

1 The World Bank Challenges of African Growth opportunities , CONSTRAINTS. AND STRATEGIC DIRECTIONS. Benno Ndulu with Lopamudra Chakraborti, Lebohang Lijane, Vijaya Ramachandran, and Jerome Wolgin 2007 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW. Washington DC 20433. Telephone: 202-473-1000. Internet: E-mail: All rights reserved 1 2 3 4 5 09 08 07 06. This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work.

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3 , 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978-750-4470; Internet: All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: TABLE OF CONTENTS. Preface .. vii Acknowledgments .. ix Executive Summary .. xi Chapter 1: Facing the Challenges of African Growth ..1. Poverty in Africa Largely a Growth Challenge ..3. Breaking out of the Low- Growth Syndrome a Daunting Task but a Real Possibility ..9. The Report Endnotes ..26. Chapter 2: Africa's Long-Term Growth Experience in a Global Perspective ..27. Benchmarked against Asian Economies ..31. Diversity across Africa ..33.

4 Sectoral Endontes ..47. Chapter 3: Explaining the African Growth Record: What Appears to Matter Most ..49. Sources of Economic Growth : Lessons from Growth Accounting ..50. Doing Business in Africa: The Investment Climate . Transactions Costs, Risk, Indigenous Entrepreneurs and Minority-Owned Firms ..68. Benchmarking Growth Conditions in African Endnotes ..84. Chapter 4: Constraints to Growth ..87. Africa's Unfavorable Endowments: A Constraint to Growth but Not a Predicament ..88. Africa's Growth is Unusually Constrained by Geographical HIV/AIDS and the Demographic Transition ..100. Demographic Impacts ..102. iii Challenges OF African Growth . Natural Resources Curse and Potential ..103. Risks and Uncertainty ..105. Political Uncertainty and Weak Institutional The Financial Sector as a Constraint to Growth .

5 116. Low Savings ..123. Endnotes ..128. Chapter 5: Tackling the Challenges of African Lessons from 45 years of Africa's Growth Experience ..131. Changing Contexts and Emerging The Changing International Economic Environment New opportunities and New Challenges ..137. opportunities and Options for Growth The Key Strategic Innovation to Underpin Productivity Growth and Competitiveness ..149. Mobilizing Resources for Endnotes ..180. Annex 1 ..183. List of Tables Table Regional Growth Comparisons ..25. Table Growth and Selected Indicators in African Countries Categorized by Opportunity Table Predicted Shares of Economic Structure (Percent) at Selected Levels of Income per Capita ..46. Table Sources of Growth , Regions, 1960 2003 ..51. Table Sources of Growth , Africa, 1960 Table Productivity of Investment Returns.

6 57. Table Contributions of Individual Components of Drivers of Growth toward Explaining Deviation of SSA's Predicted Growth Relative to the Sample Mean, EAP and SA, for the Period 1960 2004 ..73. Table Evolution of Individual Contributions of Drivers of Growth toward Explaining Deviation of SSA's Predicted Growth Relative to the Sample Mean, EAP and SA, by Periods ..77. Table Contributions of Various Factors Influencing Growth iv TABLE OF CONTENTS. at the Country Level ..81. Table Evolution of Contribution to Deviation from Sample Mean at the Country Level ..82. Table Interregional Comparison of Geographical and Sovereign Fragmentation Table Age-Dependency Table Socioeconomic Indicators, Table Fiscal Policy Indicators for Selected Regions ..107.

7 Table Indicators of Financial Development Regional Table Regression Results ..194. List of Figures Figure Comparative per Capita Income Growth Paths: Sub-Saharan Africa vs. Other Figure Per Capita Incomes in 2004 Relative to Figure Similar opportunities , Different Strategies, Different Results ..7. Figure Smoothed Average Growth in Real GDP per Capita ..28. Figure Average Growth Rates, by Income Categories in SSA ..30. Figure Average per Capita Growth Rates ..31. Figure Smoothed Average Growth in Real GDP per Capita ..32. Figure GDP per Capita SSA and Other Regions, 1960 Figure Smoothed Average Growth in Real GDP per Capita ..34. Figure Growth Rates in Figure SSA's Smoothed Average Growth in Real GDP per Capita ..36. Figure Growth Experience of Countries in Figure Energy Costs and Power Figure Shares of Firms Owning Generators.

8 61. Figure Days to Clear Imports and Figure Inspections and Management Time Spent Dealing with Figure Crime, Unofficial Payments, and Securing of Figure Cost Structures, Firm-Level Average by Country ..65. Figure Net and Gross TFP, Adjusted Prices ..67. Figure Current Firm Size vs. Access to University Figure Percentage of Firms Receiving Figure Regression-Based Decomposition of Periodical Growth Figure Regression-Based Decomposition of Periodical Growth Figure Regression-Based Decomposition of Periodical Growth Figure Evolution of Contribution of Policy ..79. Figure Evolution of Contribution of Figure Sub-Saharan Africa Geographical Figure Demographic Transition Information ..97. Figure HIV Prevalence (%) in Adults in Africa, Figure Age Distribution of Deaths in Southern Africa.

9 102. v Challenges OF African Growth . Figure SSA's Smoothed Average Growth in Real GDP per Capita ..104. Figure Inflation Trends: Regional Comparisons, 1971 2004 ..105. Figure Regional Inflation: 1971 Figure Countries in Civil Figure Financial Development in SSA ..118. Figure Median Spread Regional Comparison ..119. Figure Access to Finance: Africa Relative to other Regions ..120. Figure Access to Financial Capital ..121. Figure Portfolio Allocation Figure Saving Trends: Regional Comparison by Decade ..124. Figure Saving Trends in SSA, 1980 Figure Savings Decomposition ..127. Figure Share of Countries with Competitively Elected Chief Executives ..136. Figure World Trade Trends ..137. Figure Developing Countries' Exports ..138. Figure ICT Investment Impact on Competitiveness.

10 153. Figure Education Investment Impact on Figure Smoothed Average Life Expectancy at Birth ..185. Figure Demographic Indicators ..186. Figure Policy Variables Over Time ..190. Figure Telephone Lines (per 1,000 People)..191. List of Boxes Box Different Development Strategies Very Different Results: Mauritius versus C te d'Ivoire ..40. Box. Contrasting Growth Paths of Two Landlocked Resource Countries: Botswana and Zambia ..42. Box The Demographic Transition and Family Planning in Ethiopia ..100. Box Technology, Adaptation and Exports: How Some Developing Countries Got It Right ..151. Box ICT Helping Improve Financial Services in Box Banking Sector and Savings Mobilization in Zambia ..173. Box Some Initiatives to Expand Access and Encourage Enhanced vi Preface Recent years have seen renewed international attention on Africa, which, despite recent successes in terms of increases in economic Growth , reduced conflict, expanded political liberalization and substantial improvements in governance, remains the continent where poverty is the deepest.