The Africa Competitiveness Report 2004

COMMITTED TO IMPROVING THE STATE OF THE WORLD

While the political landscape in most of sub-Saharan Africa has improved considerably in recent years, the long awaited renaissance of the African

to point to a single group of African economies that has experienced high, sustained per capita income growth.

The Africa Competitiveness Report 2004 highlights the prospects for growth in the region and, more importantly, the obstacles to improving competitiveness in the region. Through in-depth analysis of regional trends and detailed country profiles, the Report assesses the comparative strengths and weaknesses of 25 African countries. It also contains essays from prominent academics and development experts on a variety of issues relevant to Africa’s development agenda. The Africa Competitiveness Report 2004 is an invaluable tool for policy-makers, business strategists and other important stakeholders, as well as essential reading for all those with an interest in the region.

COMMITTED TO IMPROVING THE STATE OF THE WORLD

ISBN 92-95044-00-2

The Africa Competitiveness Report 2004

economy has not yet taken place. Indeed, with few exceptions, it is difficult

Africa

The

Competitiveness Report 2004

Ernesto Hernández-Catá The Johns Hopkins University

Klaus Schwab World Economic Forum

Augusto Lopez-Claros World Economic Forum

World Economic Forum Geneva, Switzerland 2004

The Africa Competitiveness Report 2004 Dr Ernesto Hernández-Catá The Paul Nitze School of Advanced International Studies, The Johns Hopkins University Editor

COMMITTED TO IMPROVING THE STATE OF THE WORLD

The Africa Competitiveness Report 2004 is published by the World Economic Forum within the framework of the Global Competitiveness Programme. Professor Klaus Schwab Executive Chairman Dr Augusto Lopez-Claros Director Jennifer Blanke Emma Loades Philippe Sion Catherine Vindret Saadia Zahidi

Editing by AmadeaEditing

Graphic design, production and printing by Kamal Kimaoui, World Economic Forum SRO-Kundig Jessica Da Mata, Appi The terms country and nation as used in this report do not in all cases refer to a territorial entity that is a state as understood by international law and practice. The term covers well-defined, geographically self-contained economic areas, which may not be states, but for which statistical data are maintained on a separate and independent basis. World Economic Forum Geneva Copyright © 2004 by the World Economic Forum Published by World Economic Forum www.weforum.org All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of the World Economic Forum. ISBN 92-95044-00-2

Contents

Preface

i

Klaus Schwab Executive Summary

iii

Ernesto Hernández-Catá

Part 1 Chapters 1.1 The Economic Tragedy of the Twentieth Century: Growth in Africa Elsa V. Artadi and Xavier Sala-i-Martin

1

1.2 Health, Economic Growth, and Competitiveness in Africa Alan W. Whiteside

19

1.3 Africa’s Economic Morass: Will a Common Currency Help? Paul R. Masson and Heather Milkiewicz

31

1.4 Africa’s Competitiveness and Regional Infrastructure Peter L. Watson

37

1.5 How Should Africa Position Itself in the International Trading System? Maria A. Oliva and Luis A. Rivera-Batiz

43

1.6 Building Capacity to Narrow the Digital Divide in Africa from Within Ewan McPhie

59

1.7 How the Congo Decomposed in the 1990s Philippe Beaugrand 1.8 What Does the Growth Competitiveness Index Say About Development in Africa? Augusto Lopez-Claros

73

81

Part 2 Country Profiles How Country Profiles Work

101

List of Countries

103

Partner Institutes

205

Preface

Klaus Schwab, Executive Chairman, World Economic Forum

Amartya Sen and others have noted the welcome shift in the debate on the key ingredients of a successful development strategy. Earlier neglect of “soft” concerns, such as the role of safety nets to protect the poor, or the provision of political and civil rights, has given way to an approach that recognises their key importance and actually tries to incorporate them into the design of aid programmes and development strategies. Even in the international financial institutions—long identified with the notion that macroeconomic stability was an indispensable condition for sustained growth—the focus appears to be gradually shifting to the creation of conditions for so-called “high quality growth.” This is a term that explicitly acknowledges the importance of policies aimed at reducing poverty, improving opportunity, tackling corruption, and protecting the environment. The importance of this broadening of intellectual horizons cannot be overestimated, for this more inclusive approach to development, which explicitly recognises the relevance of factors hitherto largely ignored, is likely to have vast implications for the success of development programmes. Nowhere are the implications of this shift in approach more consequential than in Africa, a continent that has yet to fulfil its enormous potential.

this clear. While readily acknowledging the importance of a stable macroeconomic foundation for the creation of an environment supportive of growth, the Forum has long argued that other elements are equally important. Whether the private sector and the business community can operate in an environment with reasonably well-run public institutions, in which the state allocates adequate resources to education, public health, and infrastructure, through mechanisms that are reasonably transparent— all make a tangible difference in a country’s ability to generate growth. In the age of globalisation it matters a great deal whether scarce public resources go to boost Internet penetration rates in the schools, or to finance unproductive expenditures.

For over two decades now, the World Economic Forum has been firmly identified with the notion that just getting price signals right and adding some elements of liberalising, deregulating, and privatising to the policy mix will not suffice to create conditions for rapid growth and increase per capita income. The competitiveness indices produced by the World Economic Forum make

The World Economic Forum’s Executive Opinion Survey and the associated annual compilation of individual country profiles identifying strengths and weaknesses in a broad range of areas, from the quality of public institutions, to a country’s technological readiness, to the macroeconomic environment, are an important contribution to a better understanding of the challenges ❚ Preface

i

The work done by the World Economic Forum in the area of competitiveness has repeatedly shown that countries that build up sound public institutions are better able to attract larger levels of investment and boost their growth potential. Weak rule of law, the absence of economic opportunities, poorly formulated spending priorities of governments—leading them to neglect the role of public services—represent, in some form or another, significant barriers to successful development.

faced by policy makers and the international community in their efforts to better assist these countries. The Forum’s ability to do this meaningfully in Africa was boosted last year by a significant expansion in the coverage of our competitiveness work, which now includes a total of 25 African countries. This year’s Africa Competitiveness Report is thus a more comprehensive attempt to place the continent in a broader international context. The Report also includes a number of analytical articles that address a broad range of issues at the heart of the debate on how to improve the quality of life for its citizens: from finding better ways to cope with HIV/AIDS, which continues to exact a heavy toll on Africa, to questions of infrastructure, trade, governance, and institution building.

ii

The unfinished agenda which the international community confronts in Africa is complex and daunting. We approach these with a heightened sense of responsibility, painfully aware that the World Economic Forum’s competitiveness work is a humble attempt to

❚ Preface

cast light on some important aspects of development in the region. We will continue to broaden the coverage of our work in Africa, and to enhance the quality of the indicators we produce. Along the way, we expect to remain fully engaged in the region, a voice for better policies, improved governance, more intelligent aid efforts by the international community, and increased involvement of the private sector in finding solutions to African challenges. Finally we would like to thank Dr Ernesto HernándezCatá from the Johns Hopkins School for Advanced International Studies, Editor of this Africa Competitiveness Report, for having generously shared his time and broad experience. Equally warm words of appreciation to Dr Mamphela Ramphele, Managing Director for Human Development at the World Bank, for her support and encouragement, and to Augusto Lopez-Claros, the Director of the Global Competitiveness Programme, and to his team, Jennifer Blanke, Emma Loades, Philippe Sion, Catherine Vindret and Saadia Zahidi.

Executive Summary

Ernesto Hernández-Catá, The Paul Nitze School of Advanced International Studies, The Johns Hopkins University

In other parts of Africa, however, the political situation remains unsettled. While in previously peaceful and prosperous Côte d’Ivoire and in Liberia, fighting has stopped, partly through the efforts of international peacekeeping forces, including African forces, the civil war goes on in Sudan. And while democracy continues to thrive in South Africa, Zimbabwe has seriously backtracked in the areas of individual freedom and human rights, with the efficiency and the stability of its economy suffering greatly from self-inflicted and misguided policies. More generally, the long awaited renaissance of the African economy has not taken place. Indeed, it is very difficult to point to a single group of African economies that have experienced high, sustained per capita income growth. Countries will hop into and drop out of any such group with considerable frequency,

with Mauritius and Botswana appearing to be the only permanent members of the group. In the lead article to this Africa Competitiveness Report, “The Economic Tragedy of the Twentieth Century: Growth in Africa”, Elsa Artadi and Xavier Sala-i-Martin characterize Africa’s dismal growth performance after decolonization as “the worst economic tragedy of the 20th century”, with most sub-Saharan African countries in a state of greater poverty now than they were when they became independent. The authors provide convincing quantitative evidence to back their statements. Per capita GDP in sub-Saharan Africa is now US$200 lower than in 1974, a decline of 11 percent over a quarter of a century. During this same period the rest of the world was growing at an average annual rate of 2 percent, while per capita income in many of the East Asian countries was converging rapidly towards advanced country levels. Artadi and Sala-i-Martin also show conclusively that the distribution of income in Africa has deteriorated, mostly because of a rise in within-country inequality, rather than an increase in inequality among countries. The Gini coefficient, a widely used measure of income distribution, shows a pronounced trend away from equality during the 30-year period from 1970 to 2000, a period during which, in contrast, inequality declined worldwide. Data for a comparable period shows that poverty in Africa increased dramatically, at a time when it was falling rapidly in the rest of the world. They conclude that the only reliable way to reduce poverty in the continent is to set the economy into a path of positive, long-term growth. ❚ Executive Summary

iii

In recent years, the political landscape in most of subSaharan Africa has improved considerably. Duly elected presidents came to power in Senegal and Ghana, significantly strengthening democracy in the region. Ethiopia and Eritrea signed a peace accord, and the long and devastating conflicts in Angola and Sierra Leone came to an end. The warring parties in the Democratic Republic of Congo came to an agreement that augurs well for a lasting solution to the problems of this potentially rich country. This is all good news, for armed conflicts in the region have exacted a terrible human toll, discouraged private investment, destroyed infrastructure, and hindered development.

Artadi and Sala-i-Martin offer a wide range of explanations for Africa’s “dismal” performance in the last third of the 20th century. The most important of these include expensive investment goods, low levels of education, poor health (due in large measure to the prevalence of malaria), adverse geography (as reflected in the proportion of territory located in the tropical zone), relatively closed economies, too much public expenditure, and devastating armed conflicts. As if these problems were not daunting enough, the onslaught of HIV/AIDS in the last ten years has seriously complicated the task of improving living standards in Africa, including in some of the most successful countries, such as Botswana. In his article on “Health, Economic Growth, and Competitiveness in Africa”, Alan Whiteside warns that the expected trend of improving health, falling child mortality, and rising life expectancy can no longer be taken for granted in Africa. He predicts that, in the absence of affordable, effective and deliverable treatment, including anti-retroviral therapy, health conditions in sub-Saharan Africa will continue to deteriorate.

iv

It is often said that Africa’s development problems cannot be resolved entirely within the borders of one country, and that they require an approach based on international cooperation, or even integration. Institutions such as the West African Economic and Monetary Union (WEAMU) and the related Central Bank of West Africa (BCEAO) have already been in place for years, and the general view is that they have contributed to price stability in francophone West Africa. In their article “Africa’s Economic Morass: Will a Common Currency Help?” Paul Masson and Heather Milkiewicz examine issues of monetary integration in Africa, and the ambitious plans by politicians to widen the membership of existing monetary unions. These include the creation of a more comprehensive union in West Africa, which would link Nigeria and other anglophone countries to the members of WEAMU, and eventually help to create a common African currency. Already, there are projects for regional monetary unions, and the bidding process for an eventual African central bank is about to begin. However, in their essay, Masson and Milkiewicz ask a fundamental question: is a common currency worth the effort, and will it provide an important solution to Africa’s problems? The authors argue that those problems are linked to civil conflicts and corruption, to the absence of rule of law, to undisciplined fiscal policies, poor infrastructure, and low investment. Monetary union, they say, can address few of these problems: “At best, it can produce low inflation, but it cannot guarantee growth.” In fact, without a fiscal policy that avoids large and continued government deficits, they contend that there is no monetary policy that will work. The government will have to accumulate foreign debt and face mounting debt service problems ❚ Executive Summary

or, as has frequently been the case in Africa, to run domestic arrears and discourage private investment. Masson and Milkiewicz consider that the New Partnership for African Development (NEPAD) is a more promising initiative through which African countries can exert peer pressure to correct governance failures, and thus contribute to the solution of Africa’s problems. It is too early to see if that process will be effective. If it succeeds, monetary union can crown the achievement. If not, monetary union will almost certainly fail, and highlight Africa’s more fundamental policy problems. While there are legitimate doubts about a far-reaching extension of monetary integration, it seems clear that regional cooperation within Africa has an important role to play in certain areas, and particularly with regard to infrastructure. It has been recognized for some time that improving infrastructure will favor investment, growth and poverty reduction. In addition, improved infrastructure in the areas of transportation and communication will improve competitiveness and encourage exports, by reducing those “transaction costs” that Paul Collier has long recognized as being serious obstacles to private business, and especially to international transactions. In this context, the author of “Africa’s Competitiveness and Regional Infrastructure”, Peter Watson, contends that the emphasis on regional infrastructure is well placed because most of the African economies are too small to generate the economies of scale that can be realized in larger markets. He stresses that “the potential for increasing economic efficiency through shared production, management, and operations, as well as through hubs, development corridors or poles, is immense.” Existing studies already point to the possibility of substantial saving from regional cooperation projects, such as the West African Pipeline for gas transportation and trade, the Nile Basin Initiative for water resource management, and the Southern African Power Pool, which seeks to provide a stable supply of electricity to member countries in southern Africa. However, Watson makes an important point: the selection of infrastructure projects must be based on economic, not on political considerations. They should not be imposed, but solidly grounded on estimates of an adequate rate of return of the project. The pitfalls of regional integration are also visible in analyzing sub-Saharan Africa’s external trade and trade policies. In their paper “How Should Africa Position Itself in the International Trading System?” Maria Oliva and Luis Rivera-Batiz note that, except for South Africa, few African countries are significantly involved in international trade. Moreover, the continent’s share in world merchandise trade has basically stagnated at a very low level (2-3 percent) since 1990. Trade participation has been hindered by insufficient education

All these factors have played a role in eroding the competitive position of African producers. But Oliva and Rivera-Batiz suggest that Africa’s trade policy, which focuses on preferential regional agreements among groups of African countries and on preferences granted to these countries by the United Sates and by the European Union, has not promoted trade. They stress that the policies needed for competitive integration into large global markets are “largely inconsistent with the customs union approach to trade integration followed by African countries up to now.” They recommend that, in future, African countries consider other avenues for penetrating the world trading system, such as participation in multilateral trade negotiations for products of particular interest for African producers, and unilateral trade liberalization. Regional cooperation could also play a useful role in the area of communications, notably, in the area of information and communications technology (ICT). In his article “Building Capacity to Narrow the Digital Divide in Africa from Within”, Ewan McPhie sees ICT as an effective “tool for social and economic development”. He recalls that the New Partnership for African Development (NEPAD) had set a number of ambitious objectives, including bridging the digital divide and developing the capacity to solve Africa’s problems from within, with the e-Africa Commission mandated to deal with ICT-related issues. NEPAD has also stressed the importance of forming “strategic partnerships” between the public and private sectors in the ICT area. The key preoccupation of central banks in Africa has been the avoidance of high inflation, an area in which some countries in the region have been fairly successful in recent years. The preoccupation is legitimate, and fears that it might lead to an overly restrictive, “antigrowth” monetary policy have turned out to be mistaken. The literature on this subject suggests that inflation, with its attendant uncertainty, is bad for growth and for competitiveness, and is particularly bad for the poorest segments of the population. In his article “How the Congo Decomposed in the 1990s”, Philippe Beaugrand vividly recounts how an exceptionally long period of hyperinflation led to the ruin of the Congolese economy, and the destruction of the country’s social and political fabric. Faced with over-extended financial commitments and a crumbling political system, the regime of Mobutu Sese Seko sought an easy way out of its problems by printing money. “The expedient,” concludes Beaugrand, “slightly relieved financial constraints for a short period, but the macroeconomic

situation quickly worsened, ultimately contributing to the end of the Mobutu regime”. In his paper “What Does the Growth Competitiveness Index Say About Development in Africa?” which concludes the Report, Augusto Lopez-Claros argues that the main challenge facing development experts is to shed some light on the factors that explain the sharply different growth performances of countries in the developing world. To gain insight into this important question the World Economic Forum has developed a vehicle, the Executive Opinion Survey (EOS), an annual exercise which delivers a wealth of information about the impediments to growth in more than 100 countries accounting for the bulk of global GNP. This survey of business executives aims to assess the importance of a broad range of factors that contribute to a healthy business environment, supportive of economic activity. Over the years the EOS has delivered valuable countryspecific information about the varying strengths, weaknesses and challenges faced by the business community, as it proceeds to create jobs and contribute to productive activity. The Growth Competitiveness Index (GCI) identifies three “pillars” in the evolution of growth in a country: the quality of the macroeconomic environment, the state of the country’s public institutions, and the level of its technological readiness. The index uses a combination of hard data, such as budget deficits, the level of internet access in schools, and survey data, taking the “temperature” in areas such as judicial independence, the prevalence of institutionalized corruption, and the extent of inefficient government intervention in the economy. These various pieces are brought together under several “sub-indexes”, each capturing a different aspect of the growth process and aggregated to give an overall competitiveness “score.” Lopez-Claros examines some of the key components of this index and comments on both the performance of African countries and the factors that may lie behind the relatively low rankings achieved by the majority of them. Given the importance of a favorable environment for private sector activity, Lopez-Claros dwells on some of the institutional requirements for an improved growth performance in Africa, with particular reference to foreign investment, a central driver of growth in the developing world. The second part of the Report contains country profiles for the 25 African countries covered in the World Economic Forum’s Executive Opinion Survey. These profiles present some basic social and economic indicators, the GCI rankings and a National Competitiveness Balance Sheet, providing a useful data complement to the analytical pieces contained in the first part of the Report. ❚ Executive Summary

v

and skills, by the high “transaction costs” of transportation and communications, and sometimes by over-valued exchange rates, as, for example, in the French franc zone until 1994.

Part 1 Chapters

Chapter 1.1

The Economic Tragedy of the Twentieth Century: Growth in Africa

Elsa V. Artadi, Harvard University Xavier Sala-i-Martin, Columbia University, Universitat Pompeu Fabra, and NBER

Growth Documenting a tragedy There should be no doubt that the worst economic disaster of the 20th century is the dismal growth performance of the African continent. The newly freed citizens had high hopes when their countries became independent during the second half of the century, but most of them are substantially poorer now than they

were when their nations were born. Figure 1 displays the path of real GDP, a measure summarizing the average performance of the continent in the clearest way, relating it closely to income per person. The figure shows the period from 1960 to 2002, during which a substantial number of African countries became independent.1 We see that, between 1960 and 1980, per capita GDP increased slightly from US$1,500 to about US$2,000, but since then has stagnated at this very low level.

Figure 1: GDP per capita 5,000 4,500 4,000

US Dollars

3,500 3,000 2,500 2,000 1,500 1,000

0 1960

1

500

1965

1970

1975 Africa

1980

1985

Sub-Saharan Africa

1990

1995

2000

North Africa

Source: Authors’ calculations from Penn World Tables data

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa

The aggregate data for the entire continent masks the fact that Northern Africa has done only slightly better than the rest of the continent. Figure 1 also shows the evolution of per capita GDP for sub-Saharan Africa2 and displays a number of disturbing trends. First, the level of GDP per capita is smaller than that of the whole continent. This, of course, reflects the fact that the North African countries are indeed somewhat richer than their counterparts in the South. Second, and more significantly, the level of GDP began a long-term decline after its 1974 peak. Today, per capita GDP for SubSaharan Africa is US$200 less than it was in 1974, a decline of nearly 11% over a quarter of a century. This evolution is especially worrisome, if we consider that Africa was already extremely poor in 1974. Figure 2 breaks down the per capita growth rates over various sub-periods. Prior to the 1974 oil shock, the growth rates were positive: for the whole continent, they were around 3% in the early 60s, close to 2% in the late 60s, and slightly below 1.5% between 1970 and 1974. The growth rates for sub-Saharan Africa were only slightly smaller. Things changed dramatically in the second half of the 1970s. The growth rate for the

countries south of the Sahara desert became negative 0.5% in the late 70s, negative 1.2% in the second half of the decade, and zero between 1980 and 1985. In the first half of the 1990s, growth dropped dramatically to a record negative 1.5% per year. The continent seems to have recovered slightly since then, with positive, albeit low, growth for the second half of the 1990s, and the first two years of the new millennium. The African growth performance is dismal in absolute terms, particularly if one takes into account the fact that, during this same period, the rest of the world was growing at an annual rate of close to 2%. Moreover, even though the growth performance of the world’s technological leader, the United States, was not particularly spectacular after the oil shocks of the 1970s, the African continent has been losing ground to America. Figure 3 displays GDP per capita for the African continent (and the sub-Saharan subset) relative to the United States. The evidence of absolute divergence is clear: Africa has been losing ground dramatically and has been unable to catch up, owing, perhaps, to the fact that it started from a relatively backward position.

Figure 2: Per capita growth rates

6.0

5.0

4.0

Percent

3.0

2.0

1.0

0.0 1961 - 1965

1965 - 1970

1970 - 1974

1974 - 1980

1980 - 1985

1985 - 1990

2

-1.0

-2.0 Africa

Sub-Saharan Africa

Source: Authors’ calculations from Penn World Tables data

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa

North Africa

1990 - 1995

1995 - 2000

2000 - 2002

Figure 3: Divergence: Per capita GDP relative to the United States 0.18 0.16 0.14 0.12 0.10 0.08 0.06 0.04 0.02 0.00 1960

1965

1970

1975 Africa

1980

1985

Sub-Saharan Africa

1990

1995

2000

North Africa

Source: Authors’ calculations from Penn World Tables data

features of this figure are worth emphasizing. First, the bottom part of the distribution “shifts to the left” over time. This means that the incomes of the poorest citizens of Africa have deteriorated over the last thirty years. Second, the top part of the distribution did not change significantly. In other words, whereas the poorest citizens of the continent saw their economic situation worsen, the wealthiest people did not suffer much of a change. Third, since the poor tend to get poorer, and the rich do not seem to get poorer, it must be the case that individual income inequalities in Africa have been increasing. It is easy to estimate various measures of income inequality with the data used to construct Figure 4.

Distribution of income and the politics of reform If aggregate or average measures show that Africa has performed dismally over the last few decades, things do not look better when estimating individual incomes. In a number of recent studies, Sala-i-Martin (2003) has devised a methodology that combines individual income surveys with aggregate national account data, to estimate the entire distribution of income for each country in the world. In this paper, we borrow from this work to construct the distribution for each country in Africa, which we then aggregate to compute the distribution for the whole continent. Figure 4 reports the African income distributions for 1970, 1980, 1990 and 2000. A number of

Figure 4: Distribution of income in Africa

7

Poverty Line

6

Percent

5 4 3 2

0 10

100

1,000 1970

1980

10,000 1990

2000

100,000 US Dollars

Source: Sala-i-Martin (2004)

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa

3

1

Figure 5: Gini coefficient 0.66

0.64

0.62

0.60

0.58

0.56

0.54

0.52 1970

1972

1974

1976

1978

1980

1982

1984

Africa

1986

1988

1990

1992

1994

1996

1998

2000

Sub-Saharan Africa

Source: Sala-i-Martin (2004)

Figure 5 displays one of the most popular measures of income inequality: the Gini coefficient. As predicted, it shows an unambiguous trend towards greater inequality. For the continent as a whole, the coefficient increases from 0.57 in 1970 to 0.63 in the year 2000, a rise in inequality of over 10%. For Sub-Saharan Africa, the numbers are 0.58 and 0.65 respectively. It is interesting to note that most of the inequality within Africa can be accounted for by inequality within countries rather than across countries. Figure 6 shows an inequality measure that can be broken down into its within-country component— measuring the level of inequality that would exist in Africa if all countries had the same level of per capita income—and its across-country component—measuring the level of inequality that would

prevail if all citizens within each country had the same level of income, but countries differed in their aggregate levels of income per capita. Figure 6 shows that inequality in Africa has increased, both because rich countries in the continent have grown faster—indicating that across-country inequality has deteriorated—and because rich citizens within each country have benefited more than poor citizens—showing that within-country inequality has also increased. Of course, if both within and across country inequalities have increased, it must be the case that overall inequality in Africa has also dramatically increased. The finding is particularly significant if one takes into account that, as shown by Sala-i-Martin (2003), worldwide income inequalities have been decreasing over the same period.

Figure 6: Theil Index for Sub-Saharan Africa 1.0

0.9

0.8

0.7

0.6

0.5

4

0.4

0.3 1970

1972

1974

1976

1978

1980

Overall Inequality

1982

1984

1986

1988

Across-Country Inequality

Source: Sala-i-Martin (2004)

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa

1990

1992

1994

Witin Country Inequality

1996

1998

2000

Before leaving the discussion of the distribution of income in Africa, it is worth mentioning one last aspect of Figure 4. The fact that the “right-most” part of the income distribution does not seem to decrease over time has some potentially important implications. The reason is that the people responsible for implementing the legal, social and economic reforms that could potentially turn Africa around are themselves members of the economic and political elite, and do not seem to suffer much from the current situation. Thus, their incentives to introduce change are few. This phenomenon is even stronger for a number of individual countries, where the income of the “rich” not only does not decline, but actually increases. The clearest example of this perverse situation is Nigeria, whose income distribution is displayed in Figure 7. As for most of Africa, the lower part of the Nigerian income distribution constantly shifts to the left, meaning that the incomes of the lowest 80% of the population deteriorate over time. The shocking feature of this figure is that the upper part of the distribution moves to the right. In other words, the richest citizens of Nigeria actually benefit from the current disastrous economic situation. From the point of view of political economy, the problem is that those individuals whose incomes are improving may, in some cases, be the economic and political elites, who will have to approve and implement the required economic and social reforms.

The humans behind the tragedy: poverty rates and headcounts An additionally interesting aspect of both Figures 4 and 7 is the vertical line that represents the extreme poverty line. The first international poverty line was defined to be an income level of US$ 200 in 1970 prices (Ahluwalia, Carter and Chenery, 1979). People were regarded as poor if their incomes were lower than that figure. The vertical line displayed in Figures 4 and 7 represents one such international poverty line. It corresponds to the widely accepted definition of one-dollar-per-day. The fraction of African citizens whose income is less than one dollar per day is represented by the area below the distribution, and to the left of, the poverty line. Inspection of Figure 4 shows that this fraction has been increasing. In 1991, the World Bank adopted a definition of poverty in terms of consumption, and proposed what is now widely used as the extreme poverty line: a consumption level of one dollar per day (Ravallio, Datt and van de Walle, 1991). Since the original definition used 1985 dollars and the data used to construct the distributions in this paper are in 1996 dollars, we adjusted the poverty line accordingly. Moreover, following Bhalla (2002), an additional adjustment of 15% in the poverty line was made to take into account the tendency of the rich to underreport their income proportionally more than the poor. He suggests an adjustment of an additional 15%. We follow his advice here. Adding up the two adjustments, we arrive at a poverty line of 570 dollars

Figure 7: Distribution of income in Nigeria

7,000 Poverty Line 6,000

Thousands of people

5,000

4,000

3,000

2,000

1,000

10

100

1,000 1970

1980

1990

2000

10,000 US Dollars

Source: Sala-i-Martin (2004)

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa

5

0

per year. To estimate consumption poverty, Sala-iMartin (2004) computes individual country consumption distributions for each African country. Using these data, we calculate African poverty rates and headcounts, and report them in Figure 8. The fraction of the African population whose consumption is less than one dollar a day was 42% in 1970. The corresponding number for SubSaharan Africa was a staggering 48%: almost one of every two African citizens lived in poverty in 1970. Although these poverty rates reflected a terrible human tragedy, the dismal economic performance over the following three decades made things worse, and by 1995 actually raised

the poverty rates to 50% for the continent as a whole and to 60% for sub-Saharan Africa. The positive growth rates of the second half of the 1990s implied a small reduction in poverty rates during those five years. The negative evolution of African poverty rates between 1970 and 1995 is particularly troubling given the fact that, over the course of these three decades, the world as a whole has been improving dramatically in this dimension. Figure 8 shows that, while African poverty rates soared, worldwide poverty ratios fell from 37% in 1970 to 16% in the year 2000.

Figure 8: Absolute consumption poverty rates

Percentage of population living on less than US$1 a day

70

60

50

40

30

20

10

0 1970

1975

1980 All Africa

1985

1990

Sub-Saharan Africa

1995

2000

World

Source: Sala-i-Martin (2004)

Figure 9: Absolute consumption poverty head counts 1,600,000 1,400,000

Thousands of people

1,200,000 1,000,000 800,000 600,000 400,000

6

200,000 0 1970

1975

1980 All Africa

1985 Sub-Saharan Africa

Source: Sala-i-Martin (2004)

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa

1990

1995 World

2000

Figure 9 reports the overall number of poor citizens rather than the fraction of citizens that are poor. The figure shows that the total number of poor in the world declined from 1.3 billion in 1975, to 900 million in 2000. During this period of overall improvement, however, Africa’s poor increased from fewer than 140 million in 1975, to over 360 million in the year 2000.3 Naturally, the implication is that the fraction of the world’s poor living in Africa has increased dramatically. In 1970, one out of every ten (10.5%) poor citizens in the world lived in Africa. By the year 2000, the number was close to one out of every two (or 42%). Poverty used to be an essentially Asian phenomenon. The excellent economic performance of Asia, paired with the disastrous growth performance of Africa, has turned poverty into an essentially African problem. Economic analysts tend to forget that negative growth rates have important consequences for human welfare. The case of Africa shows clearly that, when the economy does not grow, poverty worsens and vice versa. Indeed, the only reliable way to reduce poverty in Africa in a permanent fashion is to jump start the continent and put it in the pathway for positive aggregate growth. But how can this be done?

The role of investment To find out what could be done to lead Africa back to growth, we need to figure out what went wrong over the last forty years. The easiest way to improve is to correct the mistakes of the past. So the pivotal question is: why didn’t Africa grow?

In responding to this central question, the first thing economists are tempted to answer is that Africa did not grow because it did not invest enough. They offer a variety of reasons to explain this answer. First, some of the most widely accepted economic theories of economic growth (e.g. Solow-Swan) suggest that investment in physical capital plays a key role in the process of economic growth and development. Second, this belief was reinforced by the new theories of endogenous growth developed in the 1990s. Third, international development institutions, such as the World Bank, have long believed that physical capital accumulation was a central element in the process of economic development. This is why they have long used the doctrine of the “financing gap”. According to this doctrine, the World Bank would finance the difference between the investment rate needed to achieve a certain growth target, and the investment rate that the country could finance out of their own savings, as if the only determinant of long-term growth were physical capital investment (see Easterly (2001)). And finally, a simple look at the data confirms that the investment rate (the ratio of investment to GDP) in Africa was not only low, but that it declined over the last 40 years. Figure 10 shows that during this whole time period, investment rates were always below 15%. Moreover, the rate declined after 1975, and reached record lows of 7.5% for Sub-Saharan Africa and 8.5%, for the continent as a whole, in the first half of the 1990s. By way of comparison, investment rates for the average-performing OECD economies were between 20 and 25%, whereas investment rates for the miracle East-Asian economies reached an average of 30%.

Figure 10: Investment rates 35

30

Percent of GDP

25

20

15

10

5

7

0 1961 - 1965 1965 - 1970 1970 - 1975 1975 - 1980 1980 - 1985 1985 - 1990 1990 - 1995 1995 - 2000 Africa

Sub-Saharan Africa

OECD

East Asia

North Africa

Source: Authors’ calculations

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa

Many analysts are skeptical of the aggregate investment rates, because they believe that it is private, rate-ofreturn-driven investment that should lead to growth. Public investment tends not to be productive, since projects tend to be chosen according to political or noneconomic preferences. Examples of public infrastructures that had no impact on economic performance in Africa abound. The steel plant in Ajakouta (Nigeria) and the Akosombo dam on the Volta river in Ghana are just two of the most famous examples of failed giant public investment projects. (See Easterly (2001) for a colorful description of the gargantuan Akosombo failure). Figure 11 shows that Africa did very poorly in that area as well, as its ratio of private to public investment is extremely low.4 For the overall continent, the ratio was 1.3 in the 1980s and just above 2 in the 1990s. Breaking these continent-wide numbers into North and SubSaharan regions, yields very similar results for the two parts of the continent. These numbers are extremely low when compared with OECD economies—with a

ratio of private-to-public investment of 5.7 in the 1980s and 6.6 in the 1990s—or with the extremely successful economies of East Asia—with ratios of 4.8% and 5.1%, respectively, in each of the last two decades. The central point is that, not only were overall investment rates in Africa extremely low, but they were skewed in the wrong direction, in the sense that a large portion of the investments were undertaken by the inefficient public sector. In this sense, the information conveyed by figure 12, showing the private investment rate plotted for the 1990s, provides some comfort. Although the rate is quite low, it picked up during the decade. This increase in overall private investment may reflect a better economic environment, stemming from some of the reforms implemented in the 1990s, and may be one of the reasons behind the slight increase in growth rates of the second half of the decade and the first two years of the new century. However, the level of private investment remains too low to be a driving force for improved growth prospects over the next several decades.5

Figure 11: Private to public investment ratio

7

6

5

4

3

2

8

1

0 Africa

North Africa

Sub-Saharan Africa 1980s

1990s

Source: Authors’ calculations

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa

OECD

East Asia

Figure 12: Private investment in the 1990s 8

7

6

Percent of GDP

5

4

3

2

1

0 1990

1991

1992

1993

1994

Africa

1995

North Africa

1996

1997

1998

1999

2000

Sub-Saharian Africa

Source: Authors’ calculations

underlying risks, helps to explain the low private investment in the region.

Determinants of African growth: beyond investment Distortions and the cost of investment

9

A pivotal question is: why were private investment rates so low in Africa? Why was the continent unable to attract the kind of investment, which might have put it back on the road of economic growth and development? Many reasons have been given in the literature. For example, Collier and Pattillo (2000) argue that the rate of return to investment in Africa was about one third below that elsewhere. They also show that investment risk was very high for a variety of reasons. Among them: political instability, price volatility, the tendency of government to engage in sweeping policy reversals, and an uncertain macroeconomic environment. An interesting point made by Collier and Pattillo (2000), to the effect that the ratings of Africa may be overstating the true

In recent research, Sala-i-Martin, Doppelhofer and Miller (2003) found a number of robust determinants of long-term economic growth over a large sample of countries. One of the important variables found was the investment price ratio: countries in which investment goods tend to be expensive relative to consumption goods are those tending to have smaller growth rates. Figure 13 reports the average value of this relative price for Africa, the OECD and East Asia. For the African continent as a whole, the ratio is slightly above 120. For sub-Saharan Africa, the ratio is exactly 120, whereas for North Africa it is more than 150. These ratios compare unfavorably with the ratio of 70 found in OECD or East Asia. Thus, the fact that investment goods were very expensive in Africa is an important explanation for its low growth performance.6

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa

Figure 13: Relative price of investment 180

160

140

120

100

80

60

40

20

0 Africa

Sub-Saharan Africa

North Africa

OECD

East Asia

Source: Authors’ calculations

To estimate the impact of expensive investment goods on overall growth in Africa, Table 1 uses the econometric estimates of Sala-i-Martin et al. (2003) to show the growth rate that Africa would have achieved,

if the price of investment had been at OECD levels. The result is reported in the first row: the growth rate of Africa would have been 0.44 percentage points higher every year.

Table 1: Why Africa grew so little (1) Name of variable

(2) African value

(3) OECD value

Price of Investment Goods

123

70

0.44

Human Capital (I): Primary School Enrollment

0.42

0.97

1.47

Human Capital (II): Life Expectancy

(4) Foregone annual growth (%)

42

68

2.07

Human Capital (III): Malaria Prevalence

0.80

0.00

1.25

Geography: Fraction of Area in the Tropics

0.85

0.03

1.21

Openness

0.10

0.66

0.67

Public Spending in Consumption

0.16

0.07

0.40

Conflict: Ethno-linguistic Fractionalization

0.58

0.12

0.52

10

Notes: Column 1 displays the name of the variable. Column 2 shows the average value that the variable has for African countries. Column 3 reports the corresponding value for OECD economies. Finally, Column 4 uses the empirical estimates of Sala-i-Martin, Doppelhoffer and Miller (2003) to compute the additional annual growth rate that Africa would have enjoyed if, instead of the values reported in Column 2, it had had the OECD values reported in Column 3. For example, the average relative price of investment for Africa was 123. The corresponding price for OECD was 70. If investment in Africa had been as low as in OECD, Africa’s annual growth rate would have been 0.44 percentage points higher.

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa

Figure 14: Primary school enrollment 100

Percent of GDP

80

60

40

20

0 Africa

Sub-Saharan Africa

North Africa

OECD

East Asia

Source: Authors’ calculations

economic growth prospects over the next three to four decades are brighter than they were in the 1960s.

Education We continue to use the findings of Sala-i-Martin et al. (2002) to pin down other important empirical factors determining long-term growth rates. The next item on the list is human capital, which has two important components: education and health. The most significant measure of human education is the Primary School Enrollment in the 1960s.7 Figure 14 shows that Africa does not score well on these grounds, relative to either OECD or to Asia. For example, Sub-Saharan Africa had a primary school enrollment rate of 40% in 1960, whereas North Africa had an average rate of 56%. The overall African rate averaged 42%, in stark contrast with the nearly 100% rates in OECD or East Asia. The second row of Table 1 shows that if Africa had had enrollment rates at OECD levels, the average growth rate of GDP per capita would have been 1.47% larger every year. In other words, instead of the annual 0.9%, the growth rate would have been a much healthier 2.37% per year, and per capita incomes today would be two and a half times higher than they actually are. However, African enrollment rates have improved dramatically since 1960. This, of course, means that the

Health The other important measure of human capital is related to the health of the population.8 In this regard, the data showed two measures to be robust determinants of long-term growth: Life Expectancy in 1960—having a positive association with growth—and Malaria Prevalence today—with a negative correlation to growth. Figure 15 shows that Life Expectancy in 1960 was much lower in Africa than in OECD or East Asia. For the overall African continent, life expectancy was just above 40 years, whereas the corresponding values for OECD and East Asia were 67 and 62 years respectively. Table 1 shows that if Africa had had a life expectancy similar to the OECD, its annual growth rate would have been 2.07 percentage points higher. Life expectancy in Africa has increased substantially over the last 40 years, which points to possibly increased growth rates over the next few decades. The problem, of course, is that life expectancy began to deteriorate in the late 1990s due to the adverse impact of AIDS.

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa

11

Human capital

Figure 15: Health (1): life expectancy 70

60

50

Years

40

30

20

10

0 Africa

Sub-Saharan Africa

North Africa

OECD

East Asia

OECD

East Asia

Source: Authors’ calculations

Figure 16: Health (2): malaria prevalence 1 0.9 0.8

Percent of population

0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 Africa

Sub-Saharan Africa

North Africa

12

Source: Authors’ calculations

The other important measure of health picked up by the data is malaria prevalence, with average indexes displayed in Figure 16. Whereas OECD and East Asia have virtually no malaria prevalence, the index is close to 0.8 in Africa (and close to 0.9 in the Sub-Saharan

subcontinent). This is another important reason for the dismal growth performance of the continent as a whole. Table 1 estimates that if Africa had no malaria over the last four decades, its annual growth rate would have been 1.25 percentage points higher than it actually was.

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa

In summary, public health is one of the most important challenges facing Africa today. The most effective way for rich nations to help Africa would be by helping them deal with such public health issues. Lacking both expertise and money for R&D, Africans cannot do by themselves. If rich nations devoted ample resources to perform research and development on health issues—e.g. by reorienting current aid projects that are seen as systematic failures—millions of lives could be saved. Moreover, our estimates show that such research would also improve the standard of living and the welfare of those that survive.

Geography: the tropics and institutions Another robust determinant of the rate of economic growth is related to geography. For example, the fraction of a country that is located in the tropics turns out to have a significantly negative impact on economic growth. For some reason, tropical weather is not good for growth. Figure 17 shows that, once again, Africa does not fare well in this measure, since about 85% of its territory lies within the tropics. Indeed, the fraction goes up to 92%, considering only the Sub-Saharan countries. This picture contrasts dramatically with the 3% of OECD, and 60% of East Asian territory located in the tropics. Researchers have pointed out various reasons why tropical countries may have adverse growth prospects.

Sachs and Warner (1997), Gallup, Sachs and Mellinger (1998) and Sachs (2003) point to debilitating tropical diseases that reduce the productivity of workers, and lower incentives to invest in education and health. Other reasons cited include the fact that agriculture tends to be less productive, and that they cannot benefit from the technological progress enjoyed by rich countries, whose agricultural technologies are weatherspecific. Finally, researchers like Acemoglu, Johnson and Robinson (2001) point to the institutions left by the retreating colonial powers. Indeed, the claim is that the colonial governments established “extractive institutions” in inhospitable countries plagued by tropical diseases, whereas they introduced “Europeanstyle institutions”, guaranteeing the rule of law and property rights, in those areas where they could actually move to live. When they abandoned the colonies, the institutions remained. And the current situation still reflects the colonial past. Bad institutions seem to be especially dangerous in countries where natural resources are discovered. A recent paper by Sala-i-Martin and Subramanian (2003) shows that natural resources that are “easy to steal”, such as oil and minerals, turn out to have a highly adverse impact on growth, by triggering corruption chains that end up destroying institutions such as the rule of law. To solve this problem, they propose that the money generated by the sales of these natural

Figure 17: Geography: tropical area 100 90 80

Percent of territory

70 60 50 40 30

20

13

10 0 Africa

Sub-Saharan Africa

North Africa

OECD

East Asia

Source: Authors’ calculations

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa

resources could be distributed to the people directly, by making them direct owners of the oil or diamonds. This way, corrupt officials would not have easy access to oil money, unless they taxed people directly. They predict that this would have a beneficial effect on institutions and, ultimately, on growth. Table 1 estimates that Africa’s annual growth rate was reduced by 1.21 percentage points as a result of the continent’s disadvantageous tropical geography.

Openness The next important determinant of economic growth of a country is its degree of openness. It is widely believed that economies that are open to international forces tend to benefit from trade, and tend to have more access to foreign technological progress through FDI. Figure 18 shows that African economies are quite closed. The index of economic openness postulated—for example, by Sachs and Warner (1997)—is 0.10 for the African continent as a whole, and although slightly larger for North Africa than Sub-Saharan Africa, still quite small in both sets of countries. This compares very unfavorably with the OECD, with its openness index of 0.65, or East Asia, with an even more spectacular value

of 0.83. Table 1 shows that if Africa had been as open as OECD over the last 40 years, its annual growth rate would have been 0.67 percentage points higher.

Excessive public spending Another important variable is the ratio of public consumption to GDP. Sala-i-Martin et al. (2003) show that more public spending is bad for economic growth. This is true for both public consumption and public investment, but public consumption turns out to be more robust. This is hardly surprising, given that public consumption does not tend to have direct positive effects on economic growth. However, it is financed through distortionary taxes, which do have a negative effect on growth. The same argument applies to public investment if it is wasteful, as it is in so many instances! Here again, Africa does not score well: the fraction of GDP devoted to public consumption spending is 0.16— 0.164 for Sub-Saharan Africa and 0.12 for North-Africa). The corresponding comparative numbers are 0.07 for OECD, and 0.06 for East Asia. If Africa had had a level of public spending similar to that of the OECD over the last 40 years, its annual growth rate would have been 0.40 percentage points higher.

Figure 18: Openness

0.9

0.8

0.7

0.6

0.5

0.4

0.3

0.2

14

0.1

0 Africa

Sub-Saharan Africa

North Africa

Source: Index of Economic Openness, Sachs and Warner (1977)

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa

OECD

East Asia

Figure 19: Government consumption share of GDP

0.18 0.16 0.14 0.12 0.1 0.08 0.06 0.04 0.02 0 Africa

Sub-Saharan Africa

North Africa

OECD

East Asia

Source: Authors’ calculations

Military conflict and ethno-linguistic fractionalization We have left one of Africa’s most obvious problems for last: violence. No one will be surprised to hear that war has plagued the continent since independence in the 1960s. Military conflicts have involved countries such as Algeria, Angola, Burundi, Chad, Côte d’Ivoire, the Democratic Republic of Congo (Zaire), the Republic of Congo, Djibouti, Eritrea, Ethiopia, Guinea-Bissau, Liberia, Libya, Mauritania, Morocco, Mozambique,

Namibia, Niger, Nigeria, Rwanda, Sierra Leone, Somalia, South Africa, Sudan, Togo, Uganda and Zimbabwe. Some of these conflicts have been short-lived. Others have lasted decades. Whether short or long, all have brought untold human misery in their wake. But the tragedy goes far beyond those who suffer the immediate effects of the violence itself, and includes the future citizens, who have to deal with the consequences of the negative impact such conflicts have on economic growth, which brings with it inevitable deepening of poverty and further misery.

Figure 20: Ethnolinguistic fractionalization

0.7

0.6

0.5

0.4

0.3

0.2

15

0.1

0 Africa

Sub-Saharan Africa

North Africa

OECD

East Asia

Source: Easterly and Levine (1997)

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa

Some of the military conflicts have to do with natural resources—eg. the Sierra Leone conflict. Others reflect ethnic or tribal wars, such as the internecine battles between Tutsis and Hutus in Rwanda and Burundi. Still others combine both sets of factors, such as the Biafran war in Nigeria, or the conflict in the Congo (Zaire), with the latter also involving the conflicting international interests of Rwanda and Uganda (on the rebel side) and Angola Namibia and Zimbabwe (on the Congolese government side).

vaccines that prevent AIDS or malaria. Rich countries have little incentive to invest in these lines of research because the discoveries will help people with little ability to buy the resulting products. If international aid financed by bilateral donors as well as multilateral institutions were to be redirected towards the financing of the most important global public good, health, and to dealing with the epidemics currently threatening the poorest continent in the world, the situation of Africa might improve dramatically.

Easterly and Levine (1997) postulate that a central problem for most African economies has been the unusually large ethno-linguistic fractionalization of these communities. Such fractionalization could have arisen from the fact that the colonial powers divided the continent in ways that were arbitrary and unrelated to ethnicity. But, whatever the origin, ethno-linguistic conflicts tend to lead to inefficient economies.9 Of course, the worst economic outcome occurs when ethnic conflicts lead to war. But bad economic consequences can also result when groups fight, through regular politics or through the government budget, over the appropriation of resources. Figure 20 shows that, indeed, Africa, and especially Sub-Saharan Africa, is unusually fragmented. The index lies around 0.6. This contrasts with the values of 0.12 and 0.20 for OECD and East Asia respectively. Easterly and Levine’s insight turns out to be a robust finding as confirmed by Sala-i-Martin et al. (2003). Table 1 shows that if Africa had the same amount of ethno-linguistic fractionalization as the OECD, its annual growth rate would have been 0.52 percentage points larger.10

Among other factors contributing to the African tragedy, are the dramatic and devastating military conflicts that have plagued the continent over the last half a century. Africa’s economies will not grow until all these conflicts stop.

Conclusions

Other important factors which, if changed, will contribute to African growth, include institutions that can guarantee the rule of law and property rights, investment in education, reduction of policy distortions that make investment excessively expensive, and reduction of wasteful consumption expenditures. Opening up the African economies to the forces of trade, FDI, and technological diffusion is also important. African governments could do a great deal more to ensure that their economies open up. But Europe, Japan and the United States could also contribute, by facilitating access for African products to their markets, and by reducing subsidies of their agricultural products. Africa’s growth performance was the largest economic disaster of the 20th century. We can prevent it from being the largest disaster of the 21st.

Notes The African GDP per capita is constructed by aggregating the Penn World Tables Purchasing-Power-Parity-adjusted GDP data published by Summers-Heston-Aten (2002) for each country and dividing it by the total population. Since the data are measured in PPP-adjusted units, it is strictly comparable across countries and, therefore, can be aggregated. The countries used to construct this measure of African GDP are: Algeria, Angola, Burundi, Benin, Botswana, Burkina Faso, Cameroon, Cape Verde, Central African Republic, Chad, Republic of Congo, Democratic Republic of Congo, Côte d’Ivoire, Egypt, Ethiopia, Gabon, The Gambia, Ghana, Guinea, Guinea-Bissau, Equatorial Guinea, Kenya, Lesotho, Madagascar, Malawi, Mali, Mauritania, Mauritius, Morocco, Mozambique, Namibia, Niger, Nigeria, Rwanda, Senegal, Seychelles, Sierra Leone, South Africa, Swaziland, Tanzania, Togo, Tunisia, Uganda, Zambia, and Zimbabwe. 2 The set of sub-Saharan African countries are the African countries minus Algeria, Egypt, Morocco, and Tunisia. 3 Bhalla (2002) finds very similar results. He estimates that the total number of poor in Sub-Saharan Africa increased by 174 million between 1980 and 2000 (see his Table 9.2). 4 Collier and Gunning (1999) point to this imbalance between public and private investment in Africa as one of the reasons behind its low rates of economic growth. 5 Data on private and public investment shares should be interpreted with caution, because of the lack of consistency among countries in the classification of public enterprises. 6 Collier and Gunning (1999) reach a similar conclusion. 7 For econometric reasons, it is important to capture human capital at the beginning of the period because of its endogeneity: as the economy grows over time, it acquires more human capital. To alleviate endogeneity problems, econometric analyses typically use variables at the beginning of 1

16

The economic growth performance of the African continent has been tragically disappointing. We use the word “tragic”, because it has had enormous consequences for human welfare: hundreds of millions of citizens have become poor, as a direct consequence of this dismal economic performance. Hopefully, this study will contribute to an understanding of what went wrong. Perhaps, more importantly, it may help us understand what could be done to improve this situation. For example, it seems clear that the massive international aid programs of the past have not helped significantly. Easterly (2001) and the body of research led by Paul Collier provide some clues as to why international aid may have failed in the past and suggest some possible ways to amend the errors. Perhaps a more efficient way to help would be for the rich to undertake the tasks that the poor cannot possibly do. One of the most important of these is the research needed to tackle the health problems that are threatening to devastate the continent. Africans have neither the resources nor the expertise to discover

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa

the period. Since the Sala-i-Martin et al. (2003) study refers to the period 1960 to 2000, the exogenous variables such as school enrollment were evaluated in 1960. 8 This measure was first proposed by Jeffrey Sachs and his colleagues. See, for example, Gallup, Sachs and Mellinger (1998), Sachs (2003). 9 Collier has noted that the presence of only two large ethnic groups in a region, such as the Tutsi and Huttu in Rwanda and Burundi, is more likely to generate conflict than the cohabitation of a very large number of ethnic groups (Tanzania). 10 In addition to the variables reported here, Sala-i-Martin et al. (2003)’s list includes other variables, such as an East Asian dummy or Spanish Colony. Since these variables take the same value for OECD and Africa, we conclude that Africa would not have benefited from having OECD values for such variables. Thus, we have excluded them from our analysis.

References Acemoglu, D., S. Johnson, and J. Robinson. 2001. “The Colonial Origins of Comparative Development: An Empirical Investigation.” American Economic Review 91. December. 13691401. Ahluwalia, M., N. Carter and H. Chenery. 1979. “Growth and Poverty in Developing Countries.” Journal of Development Economics 41 (40). 2552. Bhalla, S. 2002. Imagine There is No Country: Poverty, Inequality and Growth in the Era of Globalization. Washington, DC: Institute for International Economics. Collier, P. and J.W. Gunning. 1999. “Why Has Africa Grown so Slowly?” Journal of Economic Perspectives 13 (3). Summer. Collier, P.and C. Pattillo, eds. 2000. Investment and Risk in Africa. London: Macmillan.. Easterly, W. 2001. The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics. Cambridge, MA: M.I.T. Press. Easterly, W. and R. Levine. 1997. “Africa’s Growth Tragedy: Policies and Ethnic Divisions.” Quarterly Journal of Economics CXII.12031250. Gallup, J.L., J. Sachs and A. Mellinger. 1998. “Geography and Economic Development.” Annual Bank Conference on Development Economics. Washington, DC: World Bank. April. Ravallion, M., G. Datt, and D. Van de Walle. 1991. “Quantifying Absolute Poverty in the Developing World.” Review of Income and Wealth 37 (4). December. 345361. Sachs, J. 2003. “Institutions Don’t Rule: Direct Effects of Geography on Per Capita Income., NBER Working Paper W9490. February. Sachs, J. and A. Warner. 1997. “Sources of Slow Growth in African Economies.” Journal of African Economics 6 (3). 335376. Sala-i-Martin, X. 2003. “Convergence, Period.” Mimeo. Columbia University. —————— 2004. “The World Distribution of Income: Falling Poverty and… Convergence.” Sala-i-Martin, X., G. Doppelhoffer, and R. Miller. 2003. “The Empirical Determinants of Growth: A Bayesian Average of Classical Estimates (BACE) Approach.” Forthcoming. American Economic Review.

17

Sala-i-Martin, X. and A. Subramanian. 2003. “Addressing the Natural Resource Curse: Nigeria.” Mimeo. Columbia University.

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa

Chapter 1.2

Health, Economic Growth, and Competitiveness in Africa

Alan W. Whiteside, Director, Health Economic and HIV/AIDS Research Division, University of Natal, Durban1

How important are healthy populations for economic growth? Which way does causality work: from healthy people to economic growth or from economic growth to improved health? The answer is not simple and could be debated at length by economists, planners and policy makers. The conclusion, inevitably, would be that it works both ways. Typically the debate would then move on to the measurement of the relative contributions of both aspects. Apart from its academic interest, such a debate would have little significant impact on policy, since we would go on striving for economic growth and better health, together and separately, seeing both as desirable goals. Furthermore we could expect to see the level of health of populations gradually improve over time, the exceptions being due to natural catastrophes or human ones such as war. But in the last ten years this debate has ceased to be academic. The expected trend of improving health, falling child mortality and rising life expectancy can no longer be taken for granted in Africa. The onslaught of HIV/AIDS means that we are entering a period of declining health for most sub-Saharan African countries. In the absence of affordable, effective and deliverable treatment (including Anti-retroviral Therapy) the health of Africans will continue to deteriorate. We must now ask how this will affect economic growth and competitiveness. It is increasingly evident, as the HIV epidemic evolves, that it is an immensely complex problem with

far-reaching, long term implications. It is only 22 years since the first cases of AIDS were identified in the United States (in 1981), and only 20 years since the cause, the human immuno-deficiency virus, was isolated and identified. In only one African country (Uganda) has the number of infections peaked and declined; in all others the number of infected people continues to rise.2 In Uganda the level of HIV prevalence peaked in about 1992 and has been declining since—the number of orphans however peaked in 2002/03 and the implications of so many children growing up without parents will not be clear for another decade or more. The complex nature of this disease is barely understood. For example, it is possible that AIDS is contributing to the social, economic and political turmoil in Zimbabwe. There is some evidence that in South Africa, the lack of political leadership around AIDS, combined with the high levels of infection, is contributing to a slowdown in foreign investment. There is a tendency for the private sector to move to out-sourcing, defined contributions rather than defined benefits, pension plans, and, in some instances, to more capital-intensive production, and this may be partly due to the potential impact of AIDS. While this makes sense for particular firms, it may have adverse affects on individual and nations. Employment through outsourcing is generally less advantageous in terms of benefits for employees, and means that the costs of ill health must be borne by individuals and families. Defined benefits offer greater security to employees. Replacing people with machinery may be logical for the companies, but in the context of high unemployment, may not be in the national interest.

1.2 ❚ Health, Economic Growth, and Competitiveness in Africa

19

Introduction

Health and economic growth Leaving aside the issue of HIV/AIDS for a moment, how important is health for economic growth? This question has been most recently (and exhaustively) addressed in the 2001 report of the Commission on Macroeconomics and Health (World Health Organisation, 2001). The report makes the compelling, but not entirely convincing, argument that investing in health will increase economic growth. It provides evidence to suggest that good health is necessary—but not sufficient—for economic growth. Historical evidence, going back to the development of Europe, the USA and other OECD countries, suggests that economic takeoff was supported by breakthroughs in public health, disease control, and better nutrition. The Commission argues that “societies with a heavy burden of disease tend to experience a multiplicity of severe impediments to economic progress” (p. 22). Most striking is the Commission’s statistical estimate that, other things being equal, each 10 percent improvement in life expectancy at birth (LEB) is associated with a rise in economic growth of 0.3 to 0.4 percentage points per year (p. 24). In the high income countries, life expectancy at birth is 75 for men and 81 for women and rising, while in Sub-Saharan Africa, it is 49 for men and 52 for women and falling (World Bank. 2000. Statistical annex). Thus, the difference in growth will be about 11.6 percentage points per year, and this will cumulate rapidly. “In short, health status seems to explain an important part of the difference in economic growth rates, even after controlling for standard macroeconomic variables” (p.24). The report identifies four key channels through which the disease can influence economic development: ❚ It reduces the number of years of healthy life expectancy; ❚ It affects parental investment in children. High levels of infant and child mortality result in families having more children, in turn reducing the ability of a family to invest in the health and education of the children; ❚ It reduces the rate of returns to business and infrastructure investment in a number of sectors;

20

❚ It can undermine social cooperation and even political and macro-economic stability. The Macroeconomic Commission suggests that “the population health of the developing countries in recent decades has been a story of good news, bad news and disastrous news” (p.40). The good news is the significant improvement in global public health in most low income countries: from 1960 and 1995, life expectancy rose by 22 years, and under-five mortality declined. The bad news is that the total burden of preventable disease remains high; even with the gains in health, there are still huge differences in life expectancy and child mortality

1.2 ❚ Health, Economic Growth, and Competitiveness in Africa

between the rich and poor worlds, and many preventable diseases are still widespread. Treating communicable disease, maternal and perinatal conditions and providing correct nutrition could do much to reduce disease in the developing world. Clean water alone would have a significant impact. The disastrous news is the advent of HIV-AIDS, which is resulting in unprecedented morbidity and mortality across much of sub-Saharan Africa. AIDS means that economic growth in Africa is under threat as never before. But it means more than this. Individual companies have to face increased illness and mortality among employees, declines in productivity and a change in the environment in which they do business. International aid agencies must recognise that AIDS is rolling back development gains by illness as effectively as war did in Sierra Leone and Liberia—and as is now happening in Congo and Côte d’Ivoire. The international community is facing a long-term humanitarian problem which will be difficult to resolve, for, unlike drought or flood, this one has deep roots and no simple solution. African governments are seeing increased demand for social services at the same time that their financial and human resource capacity to provide them is being eroded, while the lives of millions are being made miserable as they face increased poverty and declining living standards. Although growth is understood to be essential for poverty reduction, it is not neutral. Some forms of development may assist the spread of HIV-AIDS. For example the reliance of some countries on the textile industry, employing young women at minimum wages, has created a situation in which sexual exploitation has increased. Economic corruption and the long-term nature of the epidemic mean that the free market is unlikely to provide viable solutions. Indeed, experience is proving that that the social rate of return on fighting AIDS is much higher than the rate of return on private investment, and, therefore, that public investment is not only justified but essential. Moreover, AIDS is making Africa increasingly less competitive, less capable of saving locally, and increasingly less able to develop its own solutions to these major health problems.

The HIV/AIDS epidemic in Africa Soon after AIDS was reported in the United States, in 1981, there were already indications that it was spreading in Eastern and Central Africa (Shilts, 1987). By the beginning of the new millennium, it was apparent that AIDS is the most serious epidemic to affect Africa in centuries (Barnett et al. 2002). Indeed, HIV seems

Table 1: Regional HIV/AIDS statistics and features, end of 20034 Region

Sub-Saharan Africa

Epidemic started

late ’70s

early ‘80s

Adults and children living with HIV/AIDS

Adults and Adult prevalence children newly rate (*) infected with HIV (in percent)

% of HIVMain mode(s) of positive adults transmission (**) who are women for adults living with HIV/AIDS

29.4 million

3.5 million

8.8

58

Hetero

North Africa & Middle East

late ‘80s

550,000

83 000

0.3

55

Hetero, IDU

South & South-East Asia

late ‘80s

6.0 million

700 000

0.6

36

Hetero, IDU

East Asia & Pacific

late ‘80s

1.2 million

270 000

0.1

24

IDU, hetero, MSM

Latin America

late ‘70s

early ’80s

1.5 million

150 000

0.6

30

MSM, IDU, hetero

Caribbean

late ‘70s

early ‘80s

440,000

60 000

2.4

50

Hetero, MSM

1.2 million

250 000

0.6

27

IDU

early ‘80s

570 000

30 000

0.3

25

MSM, IDU

North America

late ‘70s early ‘80s

980 000

45 000

0.6

20

MSM, IDU, hetero

Australia & New Zealand

late ‘70s

15 000

500

0.1

7

MSM

42 million

5 million

1.2

50

Eastern Europe & Central Asia Western Europe

TOTAL

early ‘90s late ‘70s

early ‘80s

* The proportion of adults (15 to 49 years of age) living with HIV/AIDS in 2002, using 2002 population numbers. ** Hetero (heterosexual transmission), IDU (transmission through drug injection), MSM (sexual transmission by men who have sex with men). Source: UNAIDS

❚ A disease which lies dormant, allowing each person to potentially infect many others; ❚ A disease which kills most victims in the prime of their lives, after they have completed their education, started to work, and, in many cases, just begun to have children. The African epidemic is currently the most serious in the world. Each year UNAIDS produces their latest estimates on infections around the world.3 At the end of 2002 there were an estimated 40 million people living with HIV/AIDS. Of these 70 percent were African. Characteristic of the African AIDS epidemic is that the majority of infections are transmitted through heterosexual contact, and more women than men are infected. In East Africa the epidemic appears to be stable at levels of between 5 and 15 percent among adults. This translates into horrific numbers, however: over 2 million Ethiopians; 2.3 million Kenyans; and one million Mozambicans are infected. The 2002 UNAIDS Update noted the relatively low adult HIV prevalence rates in West and Central Africa, in countries such as Senegal (under 1%) and Mali (1.7%). Unfortunately, “HIV prevalence is estimated to exceed 5% in eight other countries of West and Central Africa, including Cameroon (11.8%), Central African Republic (12.9%), Côte d’Ivoire (9.7%) and Nigeria (5.8%)—sobering

reminders that no country or region is shielded from the epidemic. The sharp rise in HIV prevalence among pregnant women in Cameroon—more than doubling to over 11% among those aged 20–24 from 1998 to 2000)— shows how suddenly the epidemic can surge.” (p. 21) For many countries, such as Angola, the Democratic Republic of the Congo, Somalia and the Central African Republic, data are simply not available. The epicentre of the epidemic is southern Africa. The expectations in the early 1990s were that HIV prevalence would not exceed 25 percent in any country. The countries of Southern Africa have confounded this. The June 2002 UNAIDS Global Report states: “Circulating in southern Africa (where the epidemic is the most severe in the world) has been the hope that the epidemic may have reached its ‘natural limit’ beyond which it would not grow. Thus it has been assumed that the very high prevalence rates in some countries have reached a plateau …If a natural HIV prevalence limit does exist in these countries, it is considerably higher than previously thought.” (UNAIDS. 2002. p.23) The December 2002 update is even more disturbing: “The worst of the epidemic clearly has not yet passed, even in southern Africa where rampant epidemics are under way. In four southern African countries, national adult HIV prevalence has been higher than was thought possible in Botswana (38.8%), Lesotho (31%), Swaziland (33.4%) and Zimbabwe (33.7%).” (UNAIDS. 2002. p.16) Figure 1 shows these results for four of these countries.

1.2 ❚ Health, Economic Growth, and Competitiveness in Africa

21

destined to cause maximum disruption, given its deadly features: ❚ A sexually transmitted disease, viewed as a stigma; the prudishness and conservatism with which such illnesses are viewed tend to silence discussion, and delay preventive social action;

Figure 1: National trends in HIV prevalence

45

Botswana

40

Namibia South Africa

% HIV positive

35

Swaziland

30 25 20 15 10 5 0 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Source: UNAIDS

Basic epidemiology Any epidemic will follow a similar pattern: a few initial cases, followed by further spread, until the epidemic peaks at the point when all those who are susceptible have been infected. Then, as people recover or die, the epidemic curve turns down. An HIV curve is different because people do not recover; they remain in the pool of HIV positive people until they die. This is important, because it means that prevalence—the number of people infected in the population at a given time, expressed as a percent of the population—may be stable while the incidence—the number of new infections—remains high. This occurs when the number of new infections equals the number of deaths.

22

Figure 2: The two epidemic curves

Source: UNAIDS

1.2 ❚ Health, Economic Growth, and Competitiveness in Africa

What also sets HIV and AIDS apart from other epidemics is illustrated by the two curves shown in Figure 2. With most other diseases, infection is followed by illness within a few days, or at most weeks. In the case of HIV, the infection curve precedes the AIDS curve by five to eight years. This reflects the long incubation period between infection and the onset of illness. This is why HIV/AIDS is so lethal, as compared to cholera, for example. Cholera victims fall ill quickly and visibly, alerting both the general population and public health professionals to the dangers. With HIV, on the other hand, the long incubation period prolongs the time when HIV infected people are undetected and are able to unwittingly spread the infection.

Beyond the point T2, the lines are hatched. This is because we do not know how either the HIV or the AIDS curves will proceed. Uganda and Thailand are the only countries where national HIV prevalence and incidence has peaked and turned down. We know a great deal about HIV and AIDS. Scientific knowledge about the virus, how it works and what we need to do to combat it, is extensive. Unfortunately, we know considerably less about its impact on the political, social and economic well being of societies and countries, because: ❚ The full impact has not yet been felt; the number of infected people and the number of deaths are still rising, and we cannot easily predict their consequences; ❚ It is difficult to isolate the impact of AIDS from a range of other influences, such as globalisation, trade agreements, international instability, and domestic upheaval. ❚ There is limited research on the impact of HIV/AIDS on macro-economics generally5, but virtually none on its effect on trade and investment.

AIDS, economic growth, and competitiveness We shall now briefly review what we actually know about the effect of AIDS, at the macro-economic level, at the level of the firm, and that of the single household. We will then bring this together to assess the effect of AIDS on economic growth and competitiveness in subSaharan Africa.

Macro-economic studies6 The first assessment of the impact of HIV/AIDS on

economic growth in 30 African countries was made in the early 1990s (Over, 1992). It examined the impact on the labour force, capital accumulation and other factors. The models were subsequently refined by other macroeconomists. The headline conclusion was that total economic output would fall as a result of the disease. However, the findings, on a per capita basis were either politically unpalatable—the epidemic would leave the survivors better off—or academically uncertain—the per capita income of survivors could either go up or down as a result of the epidemic. An exhaustive study by the Bureau for Economic Research (BER) at Stellenbosch University (Bureau for Economic Research, 2001), South Africa, offers mixed messages. It concludes that: “While the economic impact of HIV/AIDS is negative, we are far from witnessing a doomsday scenario. The negative impact on real GDP growth is gradual and the economy could continue to register 3% average real GDP growth (or better) over the next 10 to 15 years … Having said that, the results clearly show that the macro-economic impact of the HIV/AIDS epidemic cannot be ignored.” (Bureau for Economic Research. 2001. p.5) The BER estimates that annual GDP growth in South Africa will average between 0.3% to 0.6%, that is, lower than it would have been in the absence of AIDS. Political and financial leaders, who have other more pressing and predictable crises to deal with—eg. exchange rate fluctuations, trade wars, or labour unrest—are left sceptical and uncertain as to how to act on this information: Will growth be slower? What does a 0.3% decline mean for actual policy? Despite the uncertainties inherent in macro-economic studies, there is growing interest in what the disease will actually mean for economies and economic policies. Because of the enormous numbers of infected people in its population, most of the studies focus on South African, with its sizable formal economy and analytical and academic capacity.7 Of particular note, is the renewed interest on the part of the private sector and investment advisors, who now recognise that the impact of the epidemic is inescapable, because: ❚ The scale and speed of the epidemic is worse than expected, with the number of people infected with HIV in 2000 almost twice that predicted in 1990; ❚ Demographic effects now give evidence of unavoidable economic consequences; ❚ Evidence of impact at the micro-level supports the estimates of macroeconomic studies; ❚ The complexity, scope and consequences of the disease are better understood; e.g. the loss of key government workers means reduced efficiency, less investment, 1.2 ❚ Health, Economic Growth, and Competitiveness in Africa

23

HIV infection moves through a population giving little sign of its presence. It is only later, when substantial numbers are infected, that AIDS deaths begin to rise. People do not leave the infected pool by getting better, as there is no cure for the disease. They leave by dying (of AIDS or other causes). This is illustrated in Figure 2. in which the vertical axis represents numbers of infections or cases of illness and the horizontal axis shows time. At time T1 the level of HIV is at A1 and the cumulative numbers of AIDS cases and deaths will be very much lower, at B1. AIDS cases will only reach A2— i.e. the same level as A1—at time T2. By that time, years will have passed, and the number of people who have been infected with HIV will have risen even higher. The figure also shows that, even if preventive actions succeed in lowering the number of new infections, AIDS case numbers and deaths will continue to increase, even after the tide of new HIV infections has been turned, if affordable and effective treatment is not given.

and slower economic growth.

In October 2002, Standard Bank organised a workshop on the economic implications of AIDS In South Africa, at which a review of the impact studies was presented8. The headline finding was that models are correct in indicating an adverse impact of AIDS on the economy, but the assumptions are variable and the outcome difficult to quantify. Firstly, because modelling involves simplification and cannot reflect how economies actually operate. Secondly, because the simplistic “with or without AIDS” estimations are not realistic: there is no “without AIDS” scenario for most of Africa.

Firm level studies From a technical point of view, the finest firm level studies are those by from Boston University9. This work shows that AIDS increases payroll cost, as well as the cost of doing business. Some of the data released at the Barcelona Conference in 2002 and are summarised in Table 2 (Rosen, et al. 2002). The authors estimated the cost of AIDS to businesses and the benefits of prevention and treatment using company-specific data on employees, costs, and HIV prevalence for five large enterprises in South Africa and Botswana. What is the effect of AIDS on productivity? The effect of health on productivity in general is not well researched. According to researchers at the Centre for International Health and Development of the Boston University School of Public Health, the reason for this is that, in most settings, neither the health nor the productivity of an individual worker can be directly observed. The exception is commercial agriculture in developing countries, where workers are paid according to the amount harvested each day, and typically receive health care from on-site, company-owned medical facilities. These agricultural enterprises, or estates, have data on both the daily output and the health of each worker. The Boston team refers to studies of schistosomiasis, malaria, and onchocercal skin disease. They are the first to examine the impact of AIDS on productivity (Fox, M.P. et al. 2003).

24

The research on a tea plantation in the Kericho district of Kenya is pioneering, but rigorous. Records of health and output over a five year period were reviewed by the team. The principal findings are during the last three years of tea pluckers who died of AIDS and were absent almost twice as often as other workers. More than half of this difference was accounted for by unpaid (and unauthorized) leave. Output began to fall as early as three years before death. Over the last three years of life, workers who were to die due to HIV infection averaged only 91 percent of “full” productivity. During the last year before death, productivity falls sharply, to 82 percent, and 77 percent in the last three months. These results show that labour is more expensive as a result of AIDS. In the mining industry in South Africa, there was speculation that the productivity impact would go beyond the sick individual. It was suggested that if one person on a 15 man gang were to fall ill, his workmates would tend to cover for him, with the result that productivity for the entire team would fall. Where people are paid for piecework or quantity of harvest, the impact of AIDS on productivity is more evident. However, Fox et al. note that their results may be confounded because tea pluckers often have family members who assist them, or even sub-contract to others. The impact on the productivity of other workers has not been Source: Rosen et al. (2002) 1.2 ❚ Health, Economic Growth, and Competitiveness in Africa

addressed. Of great concern is the public sector, in which job security is often seen as a substitute for salary. People accept lower pay and expect to receive other benefits, including substantial sick leave. Under normal circumstances, this can be (and frequently is) the case, but AIDS is an extraordinary phenomenon, forcing governments to increasingly operate with reduced inefficiency, with serious negative consequences for the business climate, competitiveness and output.

Table 2: Characteristics and results from five companies in Southern Africa10. Sector manufacturing Agribusiness Mining Mining Retail

Heav

Workforce size (number of employees) >25,000

5,000

10,000 <1,000 <1,000 <1,000 Est. HIV prevalence 2002 (%)

9.9

24.4

33.6

24.1

11.2

Cost per infection by job level (present value, 2001 US$)

Unskilled/semi-skilled 32,393

4,439

10,732

9,474

4,518

Technician/artisan 50,075

6,772

17,972

14,097

11,422

Supervisor/manager Average cost per infection (multiple of median salary)

83,789

18,956

63,271

45,515

24,149

4.3

1.1

5.1

2.9

0.9

65

Zimbabwe South Africa

60

Botswana Madagascar

Life expectancy (years)

55

Senegal 50

Mali

45

40

25

35

30 1950-55

1955-60

1960-65

1965-70

1970-75

1975-80

1980-85

1985-90

1990-95

1995-00

2000-05

Source: UNAIDS, 2002. Report on the global HIV/AIDS epidemic

1.2 ❚ Health, Economic Growth, and Competitiveness in Africa

Liability acquired in 2002 (future cost of incident infections) (% of payroll)

5.0

2.4

9.4

5.9

0.9

Undiscounted cost of prevalent infections in 2006 (% of payroll)

n/a

4.8

18.1

12.2

1.8

Projected population structure in 2020

80 75

Males

70

Females

65

Deficits due to AIDS

60

Age in years

55 50 45 40 35 30 25 20 15 10 5 0 140

120

100

80

60

40

20

0

20

40

60

80

100

120

140

Population (thousands) Source: UNAIDS

26

The household and public sector The full impact of the epidemic is being borne by the public sector and individual households. In those countries having a health and welfare sector, people will turn to the government for assistance as they fall ill, become impoverished and lose their access to private support. However, we must recognise that in many countries there is little interaction between the state and its citizenry, even though it is an ostensible goal of all governments to provide basic health care, education and some degree of social welfare. The effect of AIDS is to increase the demand for social services, while simultaneously reducing the state’s capacity to deliver these services. There is a growing body of data showing that hospital beds are increasingly being occupied by people with HIV related disease, at the same time that the nursing cadre is shrinking. Recent research provides shocking data on teacher mortality, indicating that, for example, in many countries, the number of replacement teachers being trained is well below those that are dying. When the state fails, or where the state is absent, people have no choice but to rely on their own resources, 1.2 ❚ Health, Economic Growth, and Competitiveness in Africa

including the household, the extended family, and the community. Although this subject is well beyond the scope of this chapter, it should be noted that a growing body of evidence suggests that it is here, that the full impact of the disease is being felt.

Human capital HIV/AIDS will, at a minimum, reduce the rate of growth, in addition to reducing the population as a whole. AIDS is radically altering not only life expectancy, but the whole structure of populations. As was noted earlier, the majority of HIV/AIDS infections occur in young adults, who have completed their education and started their families. In South Africa, for example, the highest mortality among women is among those aged 25 to 29, and among men, aged 30 to 34 (Dorrington et al. 2002. p.4). The result is that, in many countries, life expectancy will drop to below 40 years and the structure of the population will change dramatically, as is shown in Figures 3 and 4, respectively.

Figure 3: Life expectancy in selected African countries with high and low HIV prevalence, 1950-2005 Figure 4: Projected population structure with and without the AIDS epidemic, Botswana, 2020 In an earlier part of the chapter we looked at the impact of AIDS on measurable productivity. The Afro-barometer11, an independent research project measuring the social, economic and political atmosphere in Africa through regular surveys, analyses data about work in broader terms, including social reproduction of labour (Whiteside et al. 2002). It Source: Whiteside et al. (2002) provides us with a useful indicator of public health. As a measure of physical health, it asked respondents: “In the last month, how much of the time has your physical health reduced the amount of work you would normally do inside or outside your home?” This question admittedly covers a wide range of non-HIV/AIDS-related illnesses. However, the potential social, economic and political impact of AIDS on society stems not so much from the peculiar nature of the sickness itself, but from the fact that it makes people very ill, incapacitates, and ultimately kills them. Thus, to the extent that our chief interest is sickness (and subsequent mortality) a general measure of sickness is useful to track the sociopolitical impact of the disease. The types of disease brought on by immune deficiency not only make a person sick and lead to early death, but are also likely to lead to high levels of anxiety and depression among its victims. In general, levels of stress and anxiety tend to increase with illness. However, if people know or suspect they are ill with HIV/AIDS, the resulting stress and depression is likely to be even greater. Those affected may face discrimination in the workplace, at school, in the community, or even at home. They must worry about the possibility of infecting their partners, and women face the Source: Whiteside et al. (2002)

additional anxiety of possibly infecting their newborn children. Eventually, most people with HIV/AIDS face permanent physical disability and the prospect of being unable to earn an income for themselves or their families.

Moreover, the nature of the pandemic may raise levels of stress and mental illness even among those not infected. As the pandemic progresses and mortality levels rise, especially among the young, significant strain is put on the community’s emotional and psychological coping mechanisms. As a measure of

mental health, the Afro-barometer survey asked respondents: “In the last month, how much of the time have you felt so worried or anxious that you felt tired, worn out, or exhausted?” The responses reveal important cross-national variations in 0.07

Zimbabwe

Cumulative number of deaths, 1998

Zambia 0.06

0.05

Botswana 0.04

0.03

Malawi 0.02

Lesotho Namibia 0.01

South Africa

0

10

20

30

40

Percent of people who are both often sick and depressed Note: 1999 for Lesotho and South Africa Source: Whiteside et al. (2002)

1.2 ❚ Health, Economic Growth, and Competitiveness in Africa

27

0.00

physical and mental illness across Southern Africa.

Table 3: Physical health (Percent of respondents answering the question: “In the last month, has your physical health reduced the amount of work you would normally do inside or outside your home?”)

Namibia Lesotho Often 19 Sometimes

Botswana Zambia South Africa

Malawi Zimbabwe

15

16

9

31

42

7

29

27

37

38

27

12

25 19

21

16

Rarely

14

18

13

18 36

36

36

Never

28

23

33

49

Table 4: Mental health (Percent of respondents answering the question: “In the last month, how much of the time have you felt so worried or anxious that you have felt tired, worn out, or exhausted?”)

Namibia Lesotho Often 22

Botswana Zambia South Africa

Malawi Zimbabwe

15

20

36

51

8

12 34

25

36

Sometimes

42

29

14

32 19

25

17

Rarely

12

17

13

19 32

30

37

Never

22

16

21

37

28

To what extent do these measures inform us of the effects of AIDS in particular? There is a fairly strong correlation between physical and mental health. A combined measure of the proportions of people in each country who miss work often due to illness, and who suffer from anxiety fits very closely with epidemiological data, with the exception of Lesotho12. This suggests that as deaths rise in number, general health among the survivors deteriorates rapidly. This is shown in Figure 5. This is a very significant finding because it shows that as the disease progresses, economic activity is directly affected.

Figure 5: The correlation between AIDS deaths and physical and mental illness

1.2 ❚ Health, Economic Growth, and Competitiveness in Africa

Will AIDS put off investors? This is a real concern. In his opening remarks to the October 2002 workshop in Johannesburg, Iraj Abedian, Chief Economist of the Standard Bank, noted that AIDS—and the government response to it—is the number one concern for many foreign institutional, individual and group investors13. There is no published work on the impact of AIDS on investment flows, although the BER paper notes there will be a strong adverse effect on real private fixed investment as a result of lower levels of economic activity, increased interest rates, lower corporate profits and savings, and a smaller pool of national savings (Bureau for Economic Research, 2000. p.4). Four broad categories of investors may be identified: 1. Local investors locked in to the local market, resources or conditions, and having a commitment to remaining in the country; these will, if they have information, factor AIDS into their investment decisions. 2. Investors who are resource-dependent, exploiting local resources and unlikely to move; Botswana’s diamonds can be mined only in Botswana, Kenya’s tea grown only in Kenya. Although the investors may try to insulate themselves from the impact of AIDS, resource constraints mean that unless the costs increase considerably they are locked in to a country. One response is to wall off plants, mines and oilfields and operate in enclaves. 3. Companies who are market dependent, serving the local market, such as banks, oil companies, and brewers. They will need to consider the impact of AIDS on their markets. Clever company managers can do well even if the environment is not conducive to economic growth – the last man standing principle. 4. Footloose investors: those (such as garment manufacturers) who are attracted to a location because of special incentives, preferential access to foreign markets, and local conditions such as cheap or nonunionised labour. Such companies are least likely to adapt to AIDS impact and the most likely to move. This leaves three key questions in exploring the impact of AIDS on investment: 1. Are existing investors relocating to other places because of the epidemic? 2. Are new investors—particularly those companies establishing factories—being put off by HIV/AIDS and choosing not to invest in Africa? 3. Is there a measurable impact on the investment climate and investor perceptions? There is only one company that has made public the fact that it is diversifying its investment due to AIDS. This is South Africa’s JD Group (JDG), which sells furniture and household appliances (Whiteside et al. 2000). In 1998 the group carried out a study that looked at issues related to the development of a new product range, marketing

strategies, the opening and relocation of stores, lease negotiations for stores, and employee profiles and benefits. The report included a forecast of HIV prevalence among customers by market segment and store group. It concluded that the South African customer base would grow slowly until 2010. Thereafter, it predicted a decline in customers in all provinces, except the Western Cape, that other countries such as Swaziland, Lesotho and Botswana would experience a reduction in market size by 2010, and that the increase in illness and death would change consumption patterns, as disposable income was re-allocated. The JDG report concluded that: ❚ consumption patterns would change as households diverted funds to AIDS care; ❚ relationships between GDP, personal consumption expenditure and durable consumption expenditure would alter; ❚ there would be considerable social impact. Although the varied impact (by age group and market region) was anticipated to differ, JDG decided to reposition itself, to remain within core competencies, to leverage existing infrastructure to cater for other customer needs, and to diversify geographically away from the HIV/AIDS epidemic. As a result, JDG introduced personal services as part of its product range and expanded into Eastern Europe. A number of other firms have carried out, or propose to carry out, similar studies, but none has yet released their findings. Other companies are hedging their options: blue chip South African companies now listed on the London Stock Exchange include Anglo-American, Billiton, Old Mutual, Didata, South African Breweries and Investec. Did AIDS and the South African response to the epidemic influence these decisions? How important a factor was AIDS, and how did it rank alongside other factors such as cheaper capital, better ratings, greater liquidity and a central location? We simply do not know. The second question is problematic: whether investors are being dissuaded by the epidemic—and in some countries by the government’s response—because we are trying to measure something that has not happened. How can investment flows that have not taken place be measured?14 The fact that Standard Bank hosted the October 2002 meeting in Johannesburg clearly indicates that AIDS is, in reality, having an effect on investment. Investors tend, naturally, to go where the returns are best, and will weigh many factors before deciding to invest in a particular country (Whiteside A. ed. 1989). Clearly, AIDS is not helping the international perception of much of Africa. The headlines about declining GDPs and the erosion of the work force must be having an impact. A short piece in Time Magazine’s ‘Biz Watch’ in December 2002 was headed (in small type) “AIDS in Africa” and then (in large type) “THE WORLD’S

1.2 ❚ Health, Economic Growth, and Competitiveness in Africa

29

The impact of AIDS on investment

GRIMMEST TAX”.15 Jeffery Sachs, former Director of the Centre for International Development at Harvard University, commented in 2001 that the government’s handling of the crisis had undermined business confidence in South Africa, by causing bewilderment among investors over the policy judgement of the ruling party (Center for International Development, 2001). The trend toward corporate reporting on HIV/AIDS, discussed below, will have an impact on investor perceptions.

The “AIDS tax”

30

Does AIDS constitute a “tax” in the true sense of the word, rather than a simple metaphor? If so, who is applying the tax? In this paper, it has been used as a metaphor, something that raises the cost of trade and investment. But there are examples of real AIDS taxes: Zimbabwe has had a three per cent AIDS levy on individual and company taxes since 1999. This money is paid into a discrete fund, administered by the Ministry of Health and Child Welfare, and is supposed to be used wholly and exclusively for AIDS activities. The Namibian Government is planning to impose a special ”orphan tax” on the general population from April 200316. It is not clear what the effect of these taxes will be on expenditure and investment within a country. Who bears the burden of the taxes, real and metaphorical? Are they

1.2 ❚ Health, Economic Growth, and Competitiveness in Africa

Chapter 1.3

Africa’s Economic Morass : Will a Common Currency Help?1

Paul R. Masson, University of Toronto2 Heather Milkiewicz, The Brookings Institution3

Africa has suffered from decades of decline and marginalization. The early hopes of rapid development and enlightened government after independence were dashed by poor economic policies, civil wars, and kleptocratic rulers. This tragedy has led, first, to a reexamination of the effectiveness of aid by the major donor countries, and second to the recognition by Africans that they need to take charge of their own destiny. Two years ago NEPAD was launched as a vehicle for improving economic and political governance by Africans, and thus of assuring donors (and private investors) that resource flows to Africa would not be wasted. Its importance for continuing aid flows from the rich countries was reiterated at the June 2003 summit of the G-8 countries in Evian, France. However, if African countries do not get their macroeconomic policies right, they will not benefit from better economic and political governance and the associated capital inflows. Instead, they will continue to stagnate, and rich countries will draw lessons from past aid ineffectiveness and increasingly shun the continent. One important aspect of macroeconomic policies is the choice of the exchange rate regime and the associated monetary policy. In this context, a policy proposal currently receiving much attention addresses the creation of a common African currency. The project, though not explicitly linked to NEPAD, is intimately associated with the newly-formed African Union (AU), the larger institutional framework within which NEPAD operates. A common currency was also an objective of

the Organization for African Unity and the African Economic Community, the predecessors of the AU. The 1991 Abuja Treaty, which established the African Economic Community, outlines six stages— to be completed by approximately 2028—for achieving a single monetary zone for Africa. In the early stages, regional cooperation and integration within Africa were to be strengthened, and this could involve regional monetary unions. The final stage was envisioned to be the establishment of the African Central Bank (ACB) and creation of a single African currency and an African Economic and Monetary Union. In addition to establishing the African Union (AU), the 1999 Sirte Declaration calls for shortening implementation periods in order to speed up the process for creating institutions such as the African Central Bank. Though the bank will not be created until around 2020, the bidding process for its location is likely to begin soon. Ghana and Botswana are among those that would like to host it. In the meantime, there are plans for creating various regional monetary unions, which would presumably form building blocks for the single African Central Bank and currency. However, the various sub-regional groupings currently in place— which do not necessarily correspond to those that would ultimately form the single African currency—have very different starting points with respect to macroeconomic stability, and they involve considerable intra-regional diversity. This calls into question whether a common currency is possible, even over the fairly long horizon embodied in the African Union Treaty. 1.3 ❚ Africa’s Economic Morass: Will a Common Currency Help?

31

Introduction

Why monetary union? There are two principal reasons for the enthusiasm for monetary union in Africa. First, it is clear that the successful launch of the euro has stimulated interest in other regions. From Latin America to the Middle East and East Asia, monetary union is seen as a way of reinforcing regional cohesion and demonstrating a commitment to regional solidarity. However, it is sometimes forgotten just how long the road to monetary union in Europe actually was. The transition was fraught with obstacles and missteps, and even in official circles there were doubts, until the ultimate day of the changeover, whether the replacement of national currencies by euro notes and coins in January 2002 would go smoothly. Designing new institutions able to deliver stability-oriented monetary policy—particularly the European System of Central Banks—was complicated, as was the conclusion of the Solidarity and Growth Pact, which provides for regional coordination of fiscal policies. Despite the intense planning process, the institutions are still the object of considerable controversy and contention. If the process was so difficult for a set of rich countries with highly competent bureaucracies—countries which have cooperated closely for more than fifty years—then, to be realistic, the challenge for African countries must be considered enormous. The second important motivation in Africa has been the desire to counteract perceived economic and political weakness by putting in place regional institutions, of which a common currency and monetary union would be potent symbols. What is not well understood is that a common currency may be the symbol of weakness, not strength—as was the case for the rouble in the dying days of the Soviet Union, and at the time of the creation of the Commonwealth of Independent States. A currency that is ill-managed and subject to continual depreciation is not likely to stimulate pride in the region or give the member countries any clout on the world stage. Moreover, as Robert Mundell, the 1999 Nobel Prize winner in economics, emphasized, it is great countries (or great regions) that make great currencies. While the countries in the euro zone are important enough economically for the euro eventually to rival the dollar, that is not likely to be the case for an African currency even in the best circumstances. Africa’s Gross Domestic Product (GDP) is, and is likely to remain, only a small fraction of that of Europe or the United States. In fact, at the present time, it roughly equals that of Belgium.

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The state of African currencies Africa already has two functioning monetary unions: the CFA franc zone, (composed mainly of former French colonies, with the currency linked to the euro) and the Common Monetary Area, (CMA, centered on South Africa’s rand). Both are longstanding and have been generally successful in providing low inflation. However, 1.3 ❚ Africa’s Economic Morass: Will a Common Currency Help?

both have also suffered from periods of instability. In 1994, the CFA franc was devalued by 50 percent, while the rand has experienced a marked depreciation against major currencies since 1990, as well as a recent period (1998-2002) of especially high volatility. Moreover, trade remains low in the CFA zone—intra-CFA trade is only 7 percent of total trade—and the zone has not grown noticeably faster than neighboring countries. In southern Africa, the smaller CMA members have tended to converge toward South Africa’s higher per capita income. Convergence was even more rapid for Botswana, which left the monetary union in 1976.

Prospects for regional monetary unions As mentioned above, there are already several projects for new regional monetary unions in Africa. The West African Monetary Zone is to be created in July 2005 and will lead, in 2006, to a merger with the West African part of the CFA franc zone. This will bring into being a single currency for the 15-member Economic Community of West African States (ECOWAS), which includes the eight members of the West African CFA franc zone plus Cape Verde, the Gambia, Ghana, Guinea, Liberia, Nigeria, and Sierra Leone. However, Nigeria will make a difficult partner for the rest of West Africa. Given Nigeria’s much larger size, large budget deficit, generally undisciplined fiscal policies, and an export structure differing greatly from that of its neighbors—it exports oil while the other countries export other primary commodities—Nigeria has the potential to influence monetary policies, in ways that potential partners in a monetary union would find undesirable. Without an effective way to discipline the fiscal policies of member countries, and given that export and import prices in these countries—and therefore terms of trade—are subject to very different shocks, a single currency for ECOWAS would not seem advisable. In southern Africa, members of the Southern African Development Community (SADC) also intend to form a monetary union, though this is a much vaguer and more distant project. In any case, many SADC members are very far from macroeconomic stability. The southernmost countries, such as South Africa and other members of the Southern Africa Customs Union (like Namibia), are reasonably advanced and stable. However, their neighbors to the north include countries having not only recent or continuing problems of civil unrest—Angola, the Democratic Republic of the Congo, and Zimbabwe—but also facing severe drought and deep poverty—Malawi and Zambia, for instance. Their financial systems are generally much less developed than those of the southernmost countries and their corresponding share of manufactures in production and exports is low. The Commonwealth of Eastern and Southern Africa (COMESA), a group of countries that cuts across two geographical regions, is also developing a monetary union project. Three of its members—Kenya, Tanzania, and

Figure 1: Membership in regional arrangements

AMU - Arab Maghreb Union Algeria, Libya, Mauritania, Morocco, Tunisia COMESA - Common Market for Eastern and Southern Africa Angola, Burundi, Comoros, Democratic Republic of the Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Namibia, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia, Zimbabwe ECCAS - Economic Community of Central African States Burundi, Cameroon, Central African Republic, Chad, Democratic Republic of the Congo, Equatorial Guinea, Gabon, Rwanda, Sao Tome, and Principe

ECOW AS - Economic Community of West African States Benin, Burkina Faso, Cape Verde, Cote d'Ivoire, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, Gambia, Togo SADC - Southern African Development Community Angola, Botswana, Democratic Republic of the Congo, Lesotho, Malawi, Mauritius, Mozambique, Namibia, South Africa, Swaziland, Tanzania, Zambia, Zimbabwe

Attempts to advance on too many fronts often result in inaction. Disparities among COMESA countries are as significant as those affecting SADC; however, COMESA’s drawback is that South Africa, the greatest pole of monetary stability in the region, is not one of its members. Various officials have suggested merging or closing down some regional groupings, or having each country choose a single arrangement to which it would belong. It will be important to rationalize regional commitments to maximize their effectiveness. Rather than aiming for new, ambitious monetary unions, a more promising strategy would be to build on the credibility of existing monetary unions, such as the CFA franc zone and the CMA, by adding to them countries that have demonstrated their commitment and ability to deliver sound economic policies by satisfying convergence criteria for a significant length of time. Unfortunately, the western African CFA franc zone has been hurt by unrest in Côte d’Ivoire, and its central African counterpart is composed mainly of oil-producing countries with pronounced terms of trade swings. Extending the CMA, where South Africa is a fairly stable, developed pole, may be a more attractive possibility in the short run. With a few exceptions, however, South Africa’s SADC neighbors are too far from the degree of macroeconomic stability necessary to converge with South Africa and share the same currency, so many will not be candidates to join for decades. Moreover, the strategy of making good policies a precondition for entrance into a monetary union is fully consistent with the principles of NEPAD, namely peer review by African countries. This approach, if properly applied, can be expected to be much more effective than external pressures exerted by donors or by international financial institutions. But it is unlikely to favor the quick enlargement or de novo creation of monetary unions.

Is a common African currency a good thing? An important motivation for monetary union in Europe was to reduce the costs of changing money, associated with trade and tourism. However, intra-African trade is modest, and therefore gains from a monetary union deriving from lower transactions costs would necessarily be much smaller than in Europe. Consistent with the gravity model, which posits that a country will trade more with countries that have higher per capita incomes, most African trade, as shown in Figure 2, is conducted with the richer countries of Europe, North America, and Asia and will probably remain so.

Source: Report on the Third African Development Forum, Economic Commission for Africa.

1.3 ❚ Africa’s Economic Morass: Will a Common Currency Help?

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Uganda—plan to revive the East African Community which dissolved in the decade following independence. These different projects illustrate a pervasive problem in Africa: overlapping commitments that are not necessarily consistent. Within the five main regional groupings associated with the AU—the three mentioned above along with the Arab Maghreb Union and the Economic Community of Central African States— ten countries belong to more than one regional grouping, with the Democratic Republic of the Congo holding three memberships, as shown in Figure 1.

Figure 2: Origin and destination of Africa’s trade in 2000

Africa Europe Western Hemisphere Asia Middle East

of NEPAD shows that there is appropriate recognition that governance problems are fundamental, and that it is the responsibility of African governments to put their own houses in order. It is also evidence that peer pressure within Africa can help in that process. There are four priority areas where actions by African countries are most essential: ❚ Stop regional conflicts through regional peacekeeping forces and by making concerted regional efforts to prevent armed involvement and material support of rebels by neighboring countries; ❚ Increase transportation and communication links to stimulate trade and competition and to exploit economies of scale;

Source: Direction of Trade Statistics (International Monetary Fund, 2002)

A second important reason to create a monetary union may be to improve on the monetary policies provided by national central banks, which have typically been pressured to finance government deficits, and hence have produced high inflation and depreciating currencies. There may be some advantage to delegating monetary policy, in order to insulate it from such pressure. However, unless this occurs in the context of a large, stable anchor country (e.g. South Africa) or existing multilateral institutions with a track record of independence and sound policies (e.g. the West African CFA franc zone’s central bank), new institutions are unlikely to provide a durable “agency of restraint.” Instead, large countries (whose governments exert an important influence over monetary policy actions) will continue to use the central bank as a printing press, directly or indirectly financing their spending. This was the experience before the 1994 devaluation of the CFA franc in both western and central CFA franc zones. Hopefully, reinforced fiscal surveillance and the recent agreement to eliminate completely central bank advances to governments have solved the problem in the CFA franc zone. However, the mere creation of a regional central bank will not ensure its independence from fiscal policy.

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Monetary arrangements cannot provide solutions to the profound development problems facing many African countries. At best, a monetary regime supported by fiscal discipline and good structural policies can provide a framework for low inflation. But it cannot guarantee high growth. Thus, monetary union should not be seen as a panacea, or be driven by a grandiose political vision that hopes to find a meaningful symbol of unity and stability, when the reality is otherwise.

The way forward The solution to African economic problems does not lie with political gestures and grand schemes. The creation

1.3 ❚ Africa’s Economic Morass: Will a Common Currency Help?

❚ Adopt sustainable macroeconomic policies by making currencies convertible and monetary policies consistent with low inflation, reducing budget deficits, and eliminating central bank financing of government spending; ❚ Promote and attract investment in infrastructure, health, and education by convincing donors and private investors of the ability of African countries to provide a stable, non-corrupt environment based on the rule of law. NEPAD must prove itself in the above four areas, and deliver on its peer review mechanism. If it does, and a genuine domestic consensus in favor of sound policies emerges in African countries, Africa can benefit from more generous aid flows from donors, as was recently reaffirmed by the G-8 countries at their Evian summit. Moreover, monetary union should then be easy to achieve, to crown the reality, not only the promise, of African unity. However, if NEPAD and African governments fail, they risk a further decline in aid flows as donors, noting a history of aid ineffectiveness, pull back further. Attempts to forge a grand monetary union would likely produce yet another failure that harms, rather than helps, regional solidarity and integration. The NEPAD process has just begun. As of May 31, 2003, fifteen African countries have agreed to submit themselves to the African Peer Review Mechanism (APRM), a self-monitoring organization comprised of African Union member states. The purpose of the peer review panel, which will have between five and seven members, is to promote the implementation of policies and standards that will lead to political stability, economic growth, development, and integration on a regional and continent-wide level. The recently selected panel consists of six well-respected Africans from various disciplines and includes Graça Machel, humanitarian, former first lady of Mozambique, and wife of former South African President Nelson Mandela. It has yet to be seen how the APRM will be applied. Thus far, the signals from heads of state are not promising. If Thabo Mbeki cannot bring himself to condemn Zimbabwe’s excesses in both the political and

the economic realm, what hope is there for frank discussion and finger-pointing at lesser sins, like budget deficits over 5 percent of GDP or excessive foreign borrowing? On the one hand, African leaders must recognize and assume responsibility for their current financial problems in order to pave the way toward regional economic integration. If, on the other, nations throughout Africa continue to be beset by civil wars, poor infrastructure, unsustainable fiscal policies, and low investment, related to corruption and the absence of rule of law, a monetary union will only accentuate the failure of Africans to tackle these more fundamental problems.

Notes This paper originally appeared as Brookings Institution Policy Brief 121. Paul R, Masson was a Visiting Fellow in Economic and Governance Studies at the Brookings Institution when this paper was written. He is now Professor of Economics at the University of Toronto 3 Heather Milkiewicz is Research Assistant in Economic Studies at The Brookings Institution. 1

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2

1.3 ❚ Africa’s Economic Morass: Will a Common Currency Help?

Chapter 1.4

Africa’s Competitiveness and Regional Infrastructure

Peter L. Watson1, PLW Development Solutions Ltd.

It is a well established fact2 that Africa needs to improve its competitive position in order to penetrate global markets, its own national markets being too small to constitute a solid basis for sustainable growth and poverty reduction. It has also well recognized that infrastructure is a necessary, although not a sufficient, condition for competitiveness. Improved infrastructure and associated services3 reduce transaction costs that are already high for most African countries (Bloom et al. 1998). However, little attention has been paid to the issue of the role that regional infrastructure can or should play.

Why regional infrastructure? The concept of regional infrastructure is important because African economies are typically too small to generate the economies of scale that can be found in larger markets. The potential for increasing economic efficiency, through shared production, management and operations, as well as through hubs, development corridors, or poles is immense. In the power sector, this is exemplified by the success of integrated power markets in Europe and North America, and multi-country hydropower projects in Latin America. Closer to home, The West Africa Gas Pipeline project is attracting substantial private sector involvement, and the Maputo corridor has stimulated increased economic activity.

Opportunities for shared production and/or management facilities are obvious in the case of trade in electricity, a good example being the Southern African Power Pool, which pools facilities, with the objective of providing reliable and economical electricity to its member countries: Angola, Botswana, the Democratic Republic of the Congo, Lesotho, Namibia, Malawi, Mozambique, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe. It is estimated that pooling electricity generation facilities in Southern Africa could generate savings for South Africa of US$80 million per annum in operating costs and US$700 million in expansion costs over the next 20 years (Sparrow et al. 1999). The same applies to trade in gas, for example, by the West African Gas Pipeline, which will transport cheap Nigerian gas to Benin, Togo, Ghana and Côte d’Ivoire. The World Bank estimates that Benin, Togo and Ghana can save nearly US$500 million in energy costs over a 20-year period, as WAGP-supplied gas is substituted for more expensive fuels in power generation. Opportunities also exist in the areas of water resource management, for example, the Nile Basin Initiative (NBI). The Nile River has tremendous untapped potential, if the ten countries: Burundi, Egypt, Eritrea, Ethiopia, D.R. Congo, Kenya, Rwanda, Sudan, Tanzania and Uganda, which share the river, cooperate to achieve it. Recognizing this, the NBI represents an unprecedented example of such cooperation in Africa, under which the Nile states are exploring major cooperative investments in power generation, transmission and interconnection, irrigated food production and agribusiness, navigation, fisheries, 1.4 ❚ Africa’s Competitiveness and Regional Infrastructure

37

Introduction

and related investments in land management, watershed protection and environmental conservation. Creating multi-country telecommunications markets would encourage the private sector to invest in the latest technology to replace current out-dated systems. Railways linking coastal countries with the landlocked hinterlands are by definition regional projects. And in the roads sector, opportunities exist to undertake development corridors associated with international road projects, such as the Maputo Corridor between Mozambique and South Africa. In the port and air transport sectors, they are likely to arise through the development of port and airline hubs in critical locations to serve not only a single country, but also its hinterland. Creating air transport hubs could eliminate the need for costly airport construction in every country, focusing investment on those hubs that would carry large volumes of international and regional traffic. The fact that the Abidjan airport development cost US$32 million indicates the level of savings that could be achieved.

Planning for regional infrastructure It is important to emphasize, however, that the identification of such opportunities must be, first and foremost, an economic decision, rather than a political one. While a political decision will be required for implementation, the basic investment decision must rest on the economic rate of return of the project. Such decisions should not be imposed or centrally planned, in the absence of an economic rationale. Shared production facilities must produce identifiable economies of scale; development corridors or poles must emerge through competition as a result of the interplay of economic forces.

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The economies of scale that are sought through regional infrastructure projects can result both from the physical provision of infrastructure and from the associated operations and services. Clearly, it is more efficient to build one large, efficient, low-production cost power station than several smaller less-efficient, higher-cost facilities. Pooling resources across countries also tends to reduce the risk that sub-optimum market structures and pricing policies will compromise the achievement of the economies of scale. Multiplying power generation facilities across countries increases both the staff and management required to operate them and associated training costs. At the operating level, additional savings can also be achieved. Cross-border rail systems that require a change of locomotive and crew at each border crossing not only create higher than necessary operating costs— hence, higher prices for customers. They also create delays, increased time to market, and reduce competitiveness. 1.4 ❚ Africa’s Competitiveness and Regional Infrastructure

In terms of infrastructure-associated services, having to deal with multiple, different national systems with respect to customs, transit documents, insurance documents, etcetera, imposes a substantial burden on producers and manufacturers, especially when they create opportunities for corruption. These are only a few examples of the benefits that can be expected from regional infrastructure projects. In fact, similar examples could be given for virtually every infrastructure-related factor of production, and virtually every service associated with the export/import business. It is no wonder that Africa’s competitiveness remains compromised and its penetration of global markets remains weak. Yet a regional approach could provide economies of scale, and reduce both the costs of production and transaction in practically every area.

Where are we now? In many of these areas, integrated reform agendas have been designed, often through the regional economic communities (RECs), such as the Southern African Development Community (SADC), or the Economic Community of West African States (ECOWAS). The NEPAD Infrastructure Short-term Infrastructure Plan (ISTAP) sets out an impressive agenda of regional activities in the areas of ❚ Facilitation initiatives — the establishment of the policy, regulatory and institutional frameworks to create a suitable environment for investment and efficient operations; ❚ capacity building — initiatives to empower the implementing institutions to perform their mandates; ❚ investment — in physical and capital projects; ❚ studies — aimed at preparing future projects. The Plan even includes the “Top Twenty” Flagship Projects—considered by the experts who prepared the plan to be the highest priority regional infrastructure projects. But the program of investments and policy reforms is not being carried through to completion at the pace that is needed. Taking full advantage of electricity interchange agreements in Southern and West Africa is hindered by suspicions at the national level. Attempts to develop water-sharing agreements on international rivers break down into bilateral national bickering. Unilateral actions by Civil Aviation Authorities to protect national airlines are preventing the increases in efficiency and reductions in passenger and freight costs that were sought under the Yamoussoukro Decision. The Southern Africa Transport Protocol aimed to reduce transaction costs in the road and rail sectors, but the necessary actions from national ministries and operators have rarely been forthcoming. SADC and ECOWAS have failed to establish freedom of movement for labor and capital.

What is the problem? Why, when the evidence of the potential benefits of integration and cooperation seems so strong, can nations not come together to take advantage of them, to increase their competitiveness and to improve the well being of their citizens? To answer this question, it is instructive to look at a micro example. In a study of Export Processing Zones, Jenkins et al. (1998) argued that successful entrepreneurs are those who have the ability to master a number of skills: production technology, management, labor relations, access to markets, finance. Not only that, but the entrepreneur must master them all at once, for failure in any one domain will lead to failure of the enterprise as a whole. Watson (2001) has argued that the same is true for a country wishing to establish a successful EPZ. The government must master the creation of a pro-business environment, the provision of infrastructure and services, international marketing, investor relations—and must master them all at the same time. If the argument applies within the geographical confines of an export processing zone, then it applies, even more, to the task of making a whole country competitive. Moreover, the difficulties associated with the physical provision of infrastructure are minor, when compared with the task of harmonizing infrastructure and infrastructure-related services across a region. So what is missing is management of the change process on a broad front. Planners and decision-makers can and do understand the economic benefits associated with the integration of infrastructure at a regional level. What they fail to master is the socio-political process that must underpin the management of the changes required, changes that inevitably have social and political implications, costs and benefits, which are frequently at odds with the economic costs and benefits. Consider the debate in the transport sector over whether the expensive construction of physical infrastructure is more important than the low-cost removal of operational and supply chain constraints, i.e. the numerous obstacles associated with moving goods, especially across borders. These obstacles include delays at border posts and customs, incompatible paperwork requirements, unreasonable demands for local insurance and the all too frequent “unofficial” barriers and roadblocks that hamper movement along transport corridors. The authors of “Can Africa Reclaim the 21st Century” (World Bank, 2001) argue that Africa needs US$18 billion per year in infrastructure investment, both to improve infrastructure services and improve competitiveness, and

to act as a spur to African economies. Others argue that, while investment in physical infrastructure is needed, investment alone will not solve the problem—indeed, that it is not necessarily the highest priority—since improved physical infrastructure will not have the desired effect on competitiveness, if African countries do not recognize and address explicitly the constraints which have stunted previous initiatives. These include, inter alia: ❚ extended logistics chains plagued by inefficiency; ❚ over-regulation and corruption; ❚ the lack of popular support for reform; ❚ the complexity of structuring and enforcing multinational agreements; ❚ the power of deeply entrenched vested interests; ❚ the complexity of managing public-private, integrated facilities; ❚ the need for adequate cost recovery to service debts, maintain the facilities and attract private investors. The argument cannot be resolved because one side gives greater weight to economic considerations, while the other gives greater weight to socio-political considerations. The conflicts are illustrated in Table 1.

Table 1: Economic versus socio-political considerations in regional infrastructure development Physical Investments

Removing Constraints

Financial Cost

High

Low

Benefits to Industry

Low

High

Political Benefits Impact on Vested Interests Political Cost

High

Low

Positive

Negative

Low

High

When socio-political benefits and costs are not aligned with economic benefits and costs, experience shows that it is probable that the socio-political issues will predominate, since, more often that not, they conceal the efforts of highly placed people to protect their rents and privileges. In fledgling democracies, it is not always easy for leaders to follow regional approaches, when they appear to involve giving up sovereignty. After all, politicians need votes, and cannot do too many things contrary to the wishes of the people—at least unless the propaganda of the special interests can be countered by persuasion and explanation. Even then the potential for demagoguery is high, and hard to undermine. What is valid for the transport sector applies equally to the undertaking of all regionally integrated infrastructure facilities and services. Overcoming the imbalance requires an organized socio-politico-economic change management process, involving four critical elements: vision, consensus, concerted action, and continuity. 1.4 ❚ Africa’s Competitiveness and Regional Infrastructure

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While progress has been made in some regions on tariff harmonization, the refusal of certain states to participate leaves the reform agenda incomplete.

Vision It seems only too obvious that, in order to develop a successful regional integration program in any area, the countries involved must have a clear vision of where they are going and what they want to do. To do so across national boundaries raises the degree of difficulty substantially. It appears easier to realize bilateral integration projects, than to achieve projects at the level of a regional economic community, such as ECOWAS or SADC. Thus it seems fair to conclude that the degree of difficulty increases exponentially with the number of countries involved. This goes a long way in explaining why the regional economic communities have had limited success in bringing about integration. In the case of regional infrastructure, the vision must be clear, resolutely pro-business, export-oriented and aimed at a well-defined market. Without a vision, there is no way to rally different stakeholders in different countries behind a strong drive for results. If different stakeholders have different ideas about what the objective is, then efforts will be diffused or, worse, work against each other.

Consensus However, vision is not enough. Several African countries have articulated splendid visions of export-oriented growth. But without a consensus around the vision, progress is at best difficult, at worst impossible. If the private sector is trying to export and the public sector is focused on import substitution, the enabling policies, infrastructure and services will not be put in place. If the Ministry of Transport is building infrastructure in the wrong places, entrepreneurs will become frustrated and investors will not come. If the private sector is demanding job training and apprenticeship schemes, while the Ministry of Education is focusing on primary education, an essential element for success will be missing.

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Bringing about regionally integrated infrastructure projects and services requires change across a broad front. If there is not a solid consensus around the vision, there is a high risk that critical elements will not be put in place by one or more of the countries involved, and the regional program will fail. Of course, failure can also result from the inability to deal with entrenched opposition to a program on the part of vested interests having something to lose, but it should not be forgotten that failure can just as easily come from the misplaced good intentions of people doing their best, but not knowing what objectives they are supposed to be pursuing. This is difficult enough when all the actors are from the same country. When the consensus must be built across countries, it is that much more difficult. Issues of sovereignty arise, making the allocation of costs and benefits—the question of who pays and who benefits— much more complicated. Civil servants from one country 1.4 ❚ Africa’s Competitiveness and Regional Infrastructure

may be suspicious of the motives of their counterparts in another country. Technicians in one country may not trust the competence of their counterparts in another country. All tend to evoke the age-old issue of whether it is acceptable to put one’s country’s destiny in the hands of others. Being dependent on a power generation plant or a port in the next-door country could devastate a nation’s economy if something goes wrong technically, politically, or militarily. Given the degree of instability in Africa today, these are risks that must be given very serious consideration. In the case of many regional economic community initiatives, consensus is reached—or appears to have been reached—at the level of the heads of state or of the ministers concerned. Yet this consensus is not transmitted to those who will have to implement the changes at the operating levels of the civil services. At that level, there may be resentment, resistance—even outright sabotage—if the interests of the civil servants and other stakeholders are not aligned with the vision and consensus articulated by their leaders. It is essential to ensure that all relevant stakeholders in all the countries concerned know what the vision and objectives are. Building the consensus can take time, sometimes years. But every effort should be made to overcome any opposition to the initiative, to neutralize vested interests, and to bring into line misguided supporters, any or all of whom have the potential to undermine the initiative. It matters little whether people act out of malice or ignorance. The result is the same, and the program will fail. The fundamental point is that moving forward before a consensus has been achieved is virtually certain to be an exercise in futility.

Concerted action It seems axiomatic that to bring about change requires action, yet many initiatives, both national and regional, have failed because of inaction with respect to certain elements of the plan. This can happen because of failures regarding vision and consensus. It can also happen because the people concerned do not have the ability, or the tools, to do what they are supposed to do. It may happen simply as a result of inertia. Sometime, inaction stems from a lack of planning, sometimes from a lack of political will. What is abundantly clear is that someone needs to be in control of the program of actions, and that person must have political support at the highest levels. It is not enough to assume that decisions taken at a high level will be communicated to the people who need to act; it is not enough to assume that they will act; and it is not enough to assume that the decision-makers will be aware that critical actions have not taken place. Rigorous planning, monitoring and follow up are required, so that actions can be concerted and timely.

The final critical element, continuity, ensures that those responsible for the actions do not undermine or reverse them. Often, civil servants lose the battle to protect a vested interest through one mechanism, but immediately introduce a new mechanism to achieve the same objective. Civil servants and policy-makers do change, and it is important that the newcomers do not undermine an initiative through well-meaning attempts to revamp policy or programs, or because they have self-serving reasons to derail the program. Policy advice from development partners can also vary between institutions, or among different advisors in the same institution. It is vital that consistency and continuity be maintained, unless there is a good reason to change, which should involve establishing a new consensus around the change. Ideally, policy-makers and civil servants should be constantly seeking to improve policies and programs so that the initiative is continually strengthened.

Regional infrastructure and NEPAD One of the key themes underlying regional infrastructure projects is the importance of political commitment to having countries work together to solve common problems, and to creating shared benefits. Therefore, the creation of the New Partnership for Africa’s Development (NEPAD) in 2001—with precisely the goal of generating, supporting and reinforcing such political commitment—is both appropriate and timing. Created by the Heads of State of African countries, NEPAD4 recognizes explicitly that Africa’s development is in its own hands. Reinforced by declarations committing it to the pursuit of good governance and transparency, NEPAD has specific objectives for infrastructure: ❚ To improve access to, and to increase the affordability and reliability of infrastructure services for both firms and households; ❚ To enhance regional co-operation and trade, through expanded cross-border development of infrastructure; ❚ To increase financial investments in infrastructure, by lowering the risks facing private investors, especially in the area of policy and regulation. Thus, one of NEPAD’s specific objectives is to provide a forum, a peer group and a process for beginning to resolve the issues faced by African decision-makers and their development partners, in the process of bringing to fruition regional infrastructure projects. While NEPAD’s modus operandi has yet to be made explicit, it will not implement, finance or operate infrastructure facilities. It intends to act as a confidence builder, risk mitigator, catalyst, initiator, facilitator, and political leader for multi-country programs.

Acting as a catalyst, NEPAD could support and encourage governments, complement the private sector, and ensure that project development is entrusted to successful economic operators with regional scope, adequately supported by donors. However, a May 2003 update of the NEPAD Short-term Infrastructure Plan by the African Development Bank noted a lack of progress on NEPAD regional infrastructure projects, in the year since the production of the ISTAP, and signaled the need for greater clarity on roles, responsibilities and expectations, particularly on how NEPAD sees its own role in promoting and facilitating infrastructure programs and what it expects from the RECs. The review further highlighted the need to be much more explicit about the relationships between the RECs and the countries, and how they interrelate in regional project implementation. The RECS are urged to establish priority activities, while seeking to apply the principle of subsidiarity, by delegating coordination and implementation responsibilities to either the countries, or to other technical agencies. If the obstacles to the effective development of regional infrastructure programs could be eliminated, NEPAD could play a critical role, by providing leadership to resolve political issues, bringing leaders together to work on overcoming these issues, reporting back to heads of state on progress, and creating constituencies and alliances within Africa to translate the ideals of regional cooperation into reality. This could be extremely useful in supporting the socio-politico-economic change management process, without which too many regional infrastructure and integration initiatives will be doomed to failure.

Notes 1 Dr. Watson is former Director of Infrastructure and Energy for the Africa Region of the World Bank. 2 Most recently in World Bank. 2001. 3 This includes services associated with the supply chain, such as insurance, freight-forwarding and documentation, customs, and standards. 4 The New Partnership for Africa’s Development, document adopted by the African Heads of State, Abuja October 2001.

References Bloom, D.E., and J.D. Sachs. 1998. “Geography, Demography and Economic Growth in Africa.” Brookings Papers on Economic Activity 2. Jenkins, M., G. Esquivel, and F.B. Larraín. 1998. “Export Processing Zones in Latin America.” Development Discussion Paper 646, Harvard Institute for International Development. August. Sparrow, F.T., and W.A. Masters. 1999. “Modelling Electricity Trade in Southern Africa 1999–2000.” West Lafayette, IN: Purdue University. Watson, P. 2001. “Export Processing Zones: Has Africa Missed the Boat? Not Yet!” Africa Region Working Paper Series 17. World Bank. World Bank. 2001.“Can Africa Reclaim the 21st Century.” African Development Report, Abidjan: African Development Bank, 1999.

1.4 ❚ Africa’s Competitiveness and Regional Infrastructure

41

Continuity

Chapter 1.5

How Should Africa Position Itself in the International Trading System?

Maria A. Oliva, European Central Bank Luis A. Rivera-Batiz, Columbia University, McGill University, and University of Puerto Rico

Introduction

down from 2.8 percent in 1990. Trade participation has been hindered by the following factors:

This paper focuses on preferential agreements involving African countries. It examines why preferences granted to them by the European Union and the United States have not resulted in greater African trade and growth. Past experience leads us to believe that Africa’s low rate of increase in exports and lack of export diversification cannot be expected to change fundamentally through the operation of trade preferences alone. Moreover, recent laws prolonging agricultural subsidization in the United States and the European Union might hinder the Doha Round of negotiations. These conditions suggest that investment, as well as trade policies broadly defined, must work hand-in-hand with each other to secure a takeoff leading to both trade and income growth. Unfortunately, policies for competitive integration into large global markets are largely inconsistent with both the current initiatives of developed countries, and the customs union approach to trade integration, followed by African countries up to now.

❚ insufficient human development;

❚ poor physical infrastructure, in particular transportation, ❚ dependence on commodity prices, which, except for oil, have been falling in recent years. Regional and other forms of trade associations constitute one mechanism to promote trade. Indeed, the so-called New Regionalism, coinciding with the closure of the Uruguay Round, has given rise to a flurry of activity. With over 170 arrangements in place in 2002, developed and developing countries are moving beyond the rules and commitments reached in the multilateral negotiations agreement, seeking to increase the role of trade and foreign investment. African countries are and have been very active in the trade partnership field. The Southern African Customs Union (SACU), in place since 1910, is the oldest operating customs union in the world. There are many other regional arrangements, including, for example, the West African Economic and Monetary Union, as well as partnerships between African and developed countries. Preferential trading arrangements among African countries have not generally led to greater trade among themselves. This may have resulted form a combination of factors, such as, small markets, similar comparative advantages such as oil, certain agricultures and low-tech labor intensive products (see Yeats, 1998), geographic isolation, and weak transportation infrastructures (see Foroutan and Pritchett, 1993 and Limão and Venables, 2001).

1.5 ❚ How Should Africa Position Itself in the International Trading System?

43

In 2001, the share of developing countries in world merchandise exports reached 29 percent, up from the 26 percent level that had prevailed since 1995. However, the bulk of developing country participation in world merchandise exports is accounted for by only a few developing countries, including China and Mexico. With the exception of South Africa, there is no significant African participation in world trade. Africa’s share of total world merchandise exports in 2001 was only 2.4 percent, down from 3.1 percent in 1990. Africa’s share in world merchandise imports was only 2.2 percent in 2001,

❚ insufficient physical capital and technological development;

In the face of such long-standing obstacles, the intraregional trade strategy is likely to remain unsuccessful for the foreseeable future. In the short and medium term, African countries could consider alternative forms of inserting themselves into the world trading system, including participating in preferential arrangements with the European Union and the United States, and exploiting one-way U.S. and EU trade preferences. This promise, however, has not yet been fulfilled. Access to large markets, characterized by well-developed trade infrastructures, facilitates reaping the full benefits from international trade. However, greater integration will require negotiations aimed at eliminating some of the key factors currently preventing full exploitation of preferences granted by large trading groups. Trade strategies to support participation in world markets need not be based on preferences, which have both trade creation, as well as trade diversion effects. Ozden and Reinhard (2002) provide evidence indicating that trade preferences have delayed trade opening in developing countries. In fact, countries that have stopped benefiting from the United States’ Generalized System of Preferences (GSP) have tended to reduce barriers to trade and have liberalised their economies. Alternative strategies include multilateral trade liberalization for specific products of particular interest, and unilateral trade liberalization. Trade preferences in the form of customs unions, which characterize the goals of intra-African trade agreements, conflict with these alternatives. In fact, countries that share an external tariff common to the customs union cannot pursue the option of unilateral liberalization, and are limited as regards multilateral liberalization moves. Other strategies for opening trade include the active promotion of clusters, formulation of policies to attract foreign direct investment (FDI), the creation conditions for the successful transfer of technology, generation of competitive advantage, and export diversification. These strategies would help to expand manufacturing and enhance services, thus lessening the adverse effects of the agricultural policies of the developed countries, which spend some US$250 billion, annually, to subsidize their farmers. The effects of these enormous subsidies—which are as large as the total GDP of the largest preferential agreement in sub-Saharan Africa—damage the competitive position of the largely

agricultural African economies. Moreover, in 2002, the United States passed a farm bill promising to spend about $180 billion in subsidies over ten years, while France and Germany agreed to extend the Common Agricultural Policy (CAP) until 2013. These initiatives could derail the objective of supporting poor country development, the main goal of the Doha Round of multilateral trade liberalization, launched in 2001.

Africa’s challenges in the international arena A number of international initiatives have reinvigorated trade relations among African countries, as well as those obtaining between them and their main trading partners, the European Union and the United States. As part of this strengthened partnership, many developing countries, particularly in sub-Saharan Africa, have benefited from unilateral preferential arrangements established by the United States and the European Union.

The record Despite the proliferation of preferential agreements between and among African countries, trade among them is still very low, although higher than it was in the 1980s. The value of intra-regional trade has increased from $3 billion in 1980 to US$6 billion in 1997, and $11 billion in 2001. The intra-regional share of total trade has increased from 3 percent in 1980 to 7.8 percent in 2001. However, the share of intra-regional trade flows in world merchandise exports in 2001 was a mere 0.2 percent. Table 1 shows the sharp contrast between the intraregional trade shares of the Middle East and sub-Saharan Africa and those of other developing and developed regions. Yes, they are different. The intra-regional trade shares of Latin America and Eastern Europe are 17 and 26.6 percent, respectively. Over two thirds of Western Europe’s merchandise trade takes place among EU members. The major non-EU trading partners are the United States and Asia, ranked in that order. The bulk of US merchandise trade is also intra-regional, largely intraNAFTA, followed by trade with Asia and the European Union, in that order.

Table 1: Intra- and inter-regional merchandise trade in Africa (in percent) From/To

North America

Western Europe

C./E. Europe/Baltic States/CIS

Africa

Middle East

Asia

World

North America

39.5

16.5

19.0

0.7

1.3

2.1

20.9

100.0

Latin America

60.8

17.0

12.1

0.9

1.2

1.2

6.3

100.0

Western Europe

10.3

2.3

67.5

5.9

2.5

2.6

7.8

100.0

4.2

2.1

55.2

26.6

1.0

2.8

6.6

100.0

17.7

3.5

51.8

0.7

7.8

2.1

14.9

100.0

C./E. Europe/Baltic States/CIS

44

Latin America

Africa Middle East

16.5

1.3

16.5

0.8

3.8

7.6

47.3

100.0

Asia

25.1

2.7

16.8

1.1

1.6

3.0

48.2

100.0

World

21.9

5.6

40.6

4.2

2.1

2.7

21.7

100.0

Source: Adapted from WTO, 2003

1.5 ❚ How Should Africa Position Itself in the International Trading System?

The European Union clearly dominates trade relations with sub-Saharan countries. More than 30 percent of the region’s exports and imports involve an EU member country. The United States is the second major trading partner, in terms of both exports and imports. Over 22 percent of the region’s exports go to the United States, although imports to Sub-Saharan Africa from the United States are lower than those from France, which has developed a strong base in the region. Trade relations between the United States and subSaharan Africa remain volatile. Two-way trade between African countries and the US dropped substantially in 2002. US exports to sub-Saharan Africa declined faster than their imports from the region. Trade flows between the US and sub-Saharan Africa are concentrated in a few countries, with the bulk of US imports from the region coming from either South Africa or Nigeria.

Identifying bottlenecks In view of the above, it is clear that one of the most effective ways to expand trade is to strengthen Africa’s relations with developed countries. However, as was pointed out earlier, this will involve dealing with a number of counterproductive elements that partially nullify existing preferences granted to African countries: low efficiency in the provision of services by African governments, weak infrastructure for commerce, and social capital bottlenecks, including attitudinal factors, such as the lack of market-orientation, and negative attitudes toward foreign investment. The long-standing Generalized System of Preferences (GSP) exempts developing countries from the MostFavoured-Nation principle, which requires nondiscrimination among WTO members. Developing countries could benefit from a third arrangement, without offering reciprocity to other WTO members, i.e. from lower barriers to trade, in the form of lower tariffs and larger quotas for certain products. Two major recent initiatives address the continuing marginalization of African economies. The first, called the Everything But Arms (EBA) trade preferences initiative, introduced by the European Union in 2000, grants duty-free access to the world’s 48 least-developed countries. In practice, it applies to agricultural products, for which the least-developed African countries lack

comparative advantages. However, it is unlikely to affect them to any great extent, except in the case of certain grain products and beef. The second, the African Growth and Opportunity Act (AGOA), passed in 2000, represents an eight-year commitment by the United States for major unilateral trade preferences favouring countries engaged in promarket reforms. As of 31 December 2002, 38 sub-Saharan countries were favoured. The impact of AGOA differs across the sectors covered by the program. The AGOA program has expanded textile exports, but has not affected the share of machinery imports to the US. Moreover, AGOA’s preferences are contingent upon a) cost-increasing factors such as the purchase of fabrics and other inports from the US, and b) an annual US determination of progress in implementing labor standards, among others. Export diversification has remained an elusive goal in sub-Saharan Africa. Neither intra-regional nor inter-regional preferences have been able to support export diversification. Most countries remain dependent on the good and bad fortunes of the terms of trade of one or a few export products. Moreover, the predominance of agricultural production makes the economy vulnerable to natural factors such as drought, which affects a large part of the continent, creating severe food shortages. Several key factors concerning trade and investment marginalization of Africa constitute internally set high barriers to trade, which cannot be addressed by preferences alone. Paul Collier (1998) stresses the productive role of social capital, meaning the norms, values, social interactions, cultural coherence, and institutions that hold together the politico-economic system. Lack of trust, leading to high transaction costs, may be viewed as one of these social capital barriers to economic interaction. Other social capital barriers to regional and world market integration include: limited education, inadequate public governance roadblocks and other extra-legal barriers which have negatively affected trade, foreign investment, and therefore growth, Sub-Saharan African countries have made dramatic progress in boosting enrolment and school retention rates (World Bank, 2001). Between 1960 and 1995, on average, sub-Saharan Africa’s gross enrolment rates at the primary level doubled from 40 to about 80 percent. Secondary level enrolment rates also surged during the same period, from 3.4 to 27 percent. Gender disparities are also shrinking: between 1960 and 1995, the enrolment rates for girls in Uganda and Malawi doubled, while Guinea experienced a 12 percent annual increase. Much work still remains to be done. The average duration of formal schooling for adults is only 0.8 years in Mali and Niger, and 1.1 years in Mozambique and Ethiopia. Only 21 out of 43 sub-Saharan countries are expected to reach the 2015 target of 100 percent primary school enrolment.

1.5 ❚ How Should Africa Position Itself in the International Trading System?

45

New preferences, granted by developed countries, could have a substantial impact on Africa, which exports mainly to developed countries. Western Europe and the United States account for 52 and 18 percent of Africa’s total merchandise trade, respectively. Thus, the relative importance of the major developed countries in trade with African countries cannot be underestimated. Over 60 percent of sub-Saharan exports go to the European Union, the United States, or Japan. Sub-Saharan African imports from developed countries accounted for over 40 percent of their total imports in 2002.

Figure 1: Corruption perception indexes for African countries (2000-2002) 7 Global average

6

Score

5 Regional average

4

2000 2001 2002

3 2 1

Burkina Faso

Mozambique

Nigeria

Angola

Madagascar

Kenya

Uganda

Cameroon

Zambia

Zimbabwe

Côte d'Ivoire

Tanzania

Malawi

Senegal

Ethiopia

Ghana

Mauritius

Tunisia

South Africa

Namibia

Botswana

0

Country Source: Transparency International, 2000-2002

Another major trade-related social capital bottleneck has to do with widespread corruption, which raises the transaction costs of trade, encourages rent-seeking protectionism, and often involves the private appropriation of fiscal revenues from trade taxes. Figure 1 shows the corruption perception indexes for African countries during 2000-2002, a score of 10 indicating the lowest level of corruption, and 0 the highest; in 2002, only four out of the 21 African economies considered were ranked above the average world standard (i.e. were less corrupt than the average). Botswana is classified as the least corrupt country in Africa, and Nigeria the most corrupt—indeed, the second most corrupt country in the worldwide sample. Nigeria’s abundant oil resources and related trade have promoted a rent-seeking society characterized by monopoly of the benefits from oil revenues, ethnic conflict over who should get the resources, regional attempts to gain independence and secure a share of the oil resources, and widespread poverty.

46

The negative social and developmental impact of widespread corruption is substantial. Research conducted at the African Development Bank suggests that corruption could cost African governments up to 50 percent in lost tax revenues. It also doubles the cost of goods and services provided by the government, lowers their quality, and restricts their accessibility to the poor. The attitude toward both non-local entrepreneurs and foreign investors is relatively tolerant in the region. In some places, however, the effects of within- and crosscountry ethnic strife and of nationalistic attitudes toward foreign investors have been detrimental. This has contributed to a reduction in FDI to well below its

potential. In 2001, the share of Africa in world FDI inflows was a mere 2 percent—up from 1 percent in 2000—as recorded by the 2002 UNCTAD World Investment Report. The lion’s share of these investments corresponded to the primary sector, accounting for over fifty percent of the total. Thus, the transfer of technology has been reduced to a trickle and many potential trade linkages remain unexploited.

The drive for preferential arrangements: no trade, no growth A major force behind the drive for self-reliance by means of intra-African preferential arrangements has to do with the trade experience. African countries’ average trade-toGDP ratio is close to 50 percent, close to the world average. Because the majority of imports are fuel and unprocessed primary sector products the trade-to-GDP is low for trade in manufactured goods. As a result, trade has not generated technological change or learning-bydoing and has not been growth-promoting (Rivera-Batiz and Oliva, 2003). African countries are not competitive, and have fallen into the static comparative advantage trap, failing to acquire the dynamic advantages stressed by Grossman and Helpman (1991), Porter (1990), and Romer (1990). Given this experience, it is not surprising that trade and investment strategies have stressed alternatives to trade with the major developed countries. During the past decades, African authorities have actively sought regional integration through preferential trading arrangements, with over forty such agreements having been signed at the intra- and inter-regional level.

1.5 ❚ How Should Africa Position Itself in the International Trading System?

Sub-Saharan Africa At the intra-regional level, the race to form preferential arrangements has created an overlapping structure of economically small regional integration groups, each having different and often contradictory rules. Olarreaga and de la Rocha (2003) examined some of the resulting coordination difficulties and contradictions plaguing countries which belong, simultaneously, to more than one customs union. Moreover, these customs unions and common market arrangements, more often than not, make reference to goals rather than realities. In practice,

members are moving in irregular steps toward stated goals, beginning with the gradual establishment of free trade areas. This uncertain environment defies the attempt to promote true regional integration, coupled with trade liberalization. Tables 2 and 3 show the members of the major intraregional preferential arrangements involving African countries. Several facts are salient: the arrangements cover small markets; they substantially overlap in terms of membership; all the groups have been operating for decades, thus providing a record of their impact on trade.

Table 2: Regional integration within Africa Organization

Year of Formation

Members

COMESA (Customs Union)

1981, 1994*

EAC (Uncertain) ECCAS (Uncertain)

1967-77, 1996, 1999** 1983**

CEPGL (Uncertain) UDEAC/CEMAC (Customs Union)

1976 1964/1999****

ECOWAS (Customs Union)

1975

UEMOA (Monetary and Economic Union ) Entente Arrangement IOC (Arrangement) SADC****** (Customs Union)

1994***** 1959 1982 1980

SACU (Customs Union) UMA (Arrangement to achieve Common Market)

1969 1989

Angola, Burundi, Comoros, Democratic Republic of the Congo, Djibouti, Egypt (since 1998), Eritrea, Ethiopia, Kenya, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Rwanda, Seychelles, Somalia, Sudan, Swaziland, Tanzania, Uganda, Zambia, Zimbabwe Kenya, Tanzania, Uganda Angola, Burundi, Cameroon, Central African Republic, Chad, Democratic Republic of Congo, Equatorial Guinea, Gabon, Republic of Congo, Rwanda, Sao Tomé and Principe Burundi, Democratic Republic of Congo, Rwanda (CEMAC) Cameroon, Central African Republic, Chad, Equatorial Guinea, Gabon, Republic of Congo, Benin, Côte d'Ivoire, Guinea-Bissau, Mali, Burkina Faso, Niger, Senegal, Togo Benin, Burkina Faso, Cape Verde, Côte d'Ivoire, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leona, Togo Benin, Burkina Faso, Côte d'Ivoire, Guinea-Bissau, Mali, Niger, Senegal, Togo Benin, Burkina Faso, Côte d'Ivoire, Niger, Togo Comoros, France (for Réunion), Madagascar, Mauritius, Seychelles Angola, Botswana, Democratic Republic of Congo, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia, Zimbabwe Botswana, Lesotho, Namibia, South Africa, Swaziland Algeria, Libya, Mauritania, Morocco, Tunisia

*

In 1994, COMESA replaced the Preferential Trade Area for Eastern and Southern Africa (PTA), created in 1981.

**

Originally, the East African Community. Disbanded in 1977, a year before Tanzania and Uganda entered into war. Renamed East African Cooperation on 1996 and East African Community in 1999, when members agreed to re-establish a customs union within 4 years.

***

Largely inactive since 1991 due to finances and wars in Angola, Burundi, Central African Republic, Chad, Republic of Congo, the Democratic Republic of the Congo and Rwanda.

****

UDEAC is a customs union since 1966, except for agricultural products. CEMAC (Economic and Monetary Community of Central Africa), created in 1994, replaced UDEAC in 1999.

***** CEAO, the predecessor of UEMOA, was created in 1974 and dissolved in January 1994. ****** Former SADCC, created in 1980. This customs union can be traced back to 1910.

Trading Block

1970

1980

1985

1990

1995

1996

1997

1998

1999

2000

CEMAC CEPGL COMESA Cross Border Initiative ECCAS ECOWAS Indian Ocean Commission MRU SADC UDEAC UEMOA

0.16 0.28 1.61 0.80 0.60 1.06 0.08 0.14 2.15 0.16 0.28

0.25 0.09 0.56 0.28 0.34 0.37 0.05 0.04 1.65 0.25 0.26

0.24 0.06 0.53 0.23 0.42 1.05 0.04 0.06 1.18 0.24 0.24

0.18 0.05 0.43 0.18 0.34 0.58 0.05 0.08 1.01 0.18 0.14

0.11 0.03 0.35 0.17 0.21 0.42 0.04 0.03 0.76 0.11 0.11

0.14 0.03 0.38 0.18 0.25 0.51 0.04 0.03 0.79 0.14 0.13

0.14 0.03 0.35 0.16 0.24 0.47 0.03 0.03 0.78 0.14 0.11

0.12 0.02 0.32 0.15 0.21 0.42 0.04 0.03 0.69 0.12 0.13

0.13 0.02 0.32 0.14 0.23 0.39 0.03 0.02 0.63 0.13 0.11

0.17 0.02 0.40 0.14 0.30 0.48 0.04 0.02 0.57 0.17 0.09

Others APEC EU NAFTA Mercosur ASEAN GCC

36.0 45.6 21.7 1.7 2.3 1.9

33.7 41.0 16.6 1.6 3.9 8.5

38.9 37.8 17.4 1.9 3.9 3.4

39.0 44.0 16.2 1.4 4.3 2.5

46.3 39.8 16.8 1.4 6.4 2.0

46.0 39.2 17.4 1.4 6.5 2.2

47.2 38.0 18.3 1.5 6.5 2.3

46.1 39.9 18.7 1.5 6.1 1.7

46.6 39.2 18.8 1.3 6.4 1.9

48.5 35.9 19.1 1.4 6.6 2.6

Note that the percentages are not required to add up to 100 since the same country can be member of different agreements. Source: World Development Indicators, 2002

1.5 ❚ How Should Africa Position Itself in the International Trading System?

47

Table 3: Total exports by block (percent of world exports)

The groups are also relatively small economically, as measured by GDP. The two largest groups are the Common Market for Eastern and Southern Africa (COMESA) and the South African Development Community (SADC), which joins the Democratic Republic of the Congo with all the countries in the southern part of the continent. In 2001, the GDP of these two regions (in 1990 US dollars) was US$272 billion and US$219, respectively. The GDP of the Economic Community of West African States (ECOWAS), which unites the sub-Saharan West African countries, was US$60 billion—less than half the GNP of Belgium, a country of 10 million people. The small market syndrome, the result of slow growth experience in past decades, is a great disadvantage for preferential arrangements, and generates a vicious cycle. Small markets limit the exploitation of scale economies, reduce the diversity of available products, and make it difficult to support specialized skills. These factors, in turn, limit market expansion. As was pointed out earlier, most African countries belong simultaneously to several preferential arrangement groupings; for example, Angola, Benin, Ivory Coast, the Democratic Republic of Congo, and Kenya belong to three different arrangements. Tanzania, which has withdrawn from COMESA, currently belongs to both the East African Community (EAC) and SADC, although most of the countries in SADC also belong to COMESA. Senegal, Côte d’Ivoire and several other

French-speaking countries in West Africa are members of both the West African Economic and Monetary Union (WAEMU) and ECOWAS. Only a few countries belong to only one group agreement. Ghana and Nigeria, for example, are members of ECOWAS only. What have these multiple overlapping preferential arrangements accomplished in terms of trade? As regards total trade, neither intra-African preferential arrangements nor those with developed countries have not promoted/enabled an expansion of total trade relative to GDP.

Figure 2 depicts the relation between the GDP of countries involved in preferential arrangements and the aggregate trade to GDP ratio of these countries. Focusing on the largest groups, this ratio is 70 percent for SADC, 60 percent for ECOWAS, less than 60 percent for COMESA, and 20 percent for Economic Community of the Great Lakes Countries (CEPGL)1. These figures are modest by world standards and leave ample space for greater expansion of trade. By way of comparison, the total trade to GDP ratio of Belgium was 149 percent in 1999 and 173 percent in 2000. As regards intra-bloc trade, the preferential arrangements have not been able to promote trade within the blocs. In fact, it is striking that in most arrangements trade has actually declined relative to total member exports.

Figure 2: Major intra-regional African groups (trade as a percent of GDP to GDP)

Trade as a percent of GDP

100 80

SADC

CEMAC

90 IOC

70

ECCAS UDEAC

60

CBI

ECOWAS

COMESA

UEMOA

50

MRU

40

CEPGL

30 20 10 0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

GDP (PPP, current international US$, in millions) Source: World Development Indicators, 2002

Table 4: Share of intra-arrangement trade in its total trade

48

Arrangement

Year of Creation

GDP (PPP, in millions)

1970

1980

1990

COMESA

1981

20,000

9.6*

12.1*

7.5

1994 7.7

ECCAS

1983

13,000

2.4*

1.5*

2.1

2.4

ECOWAS

1975

17,000

3.0*

10.2*

7.9

10.7

SADC*

1980

45,000

2.6*

6.5*

2.6

8

COMESA (Common Market for Eastern and Southern Africa), ECCAS (Economic Community of Central African States), ECOWAS (Economic Community of West African States), SADC (Southern African Development Community). * Figures correspond to the pre-arrangement trade among the countries that participate in the arrangement (signed at a posterior date) relative to their total trade. Source: UNCTAD

1.5 ❚ How Should Africa Position Itself in the International Trading System?

Based on this evidence, we may safely say that preferential arrangements have not been successful in promoting trade within the region, or in stimulating export diversification. On the contrary, the data on African preferential trading arrangements show that, in general, they have not promoted total trade—not even trade among countries in the region. Moreover, countries’ commodity trade dependence ranges from 40 percent to almost 100 percent of total exports. This dependence has remained a constant feature for decades, and is often even greater than it was before independence from colonial masters. The experience of sub-Saharan countries supports the notion that trade and growth are positively associated. With several significant exceptions, the growth experience of African countries has not fundamentally improved in decades. Growth rates have remained stagnant or negative, while trade in value-added goods has not taken off. This experience raises the still unsettled chicken-and-egg question about the extent to which the positive trade-growth association reflects the effects of trade on growth (see Sachs and Warner, 1997) or, vice versa, the effects of growth on trade (see Rodrik, 1999).

North Africa Because of their common language and historic linkages, the North African countries are often classified together with those of the Middle East, However, North Africa is more closely linked to the European Union than to the rest of Africa or the Middle East. The short distance to European markets suggests that North African and European countries are natural trading partners. Moreover, the scarcity of water, coupled with the European commercial magnet, has resulted in most of the North African population living near the Nile banks or in valleys close to the Mediterranean and the Atlantic (Morocco). About 95 percent of Egypt’s population lives within 12 miles of the banks of the Nile River. Virtually 90 percent of the population of Algeria, Libya, Morocco, and Tunisia lives within 200 miles of the coast. The nearness of

North African population clusters to European markets, which are often closer than other North African markets, suggests that Europe is a more natural trading partner than their North African neighbours.

Are African PTAs natural regional blocs? Except for the successful gradual integration of the islands in the Indian Ocean Commission (Comoros, Madagascar, Mauritius, Seychelles and Réunion), subSaharan countries do not appear to constitute natural regional trading blocs. Members of preferential trading arrangements not only remain separated by large distances and weak transportation infrastructures, but are characterized by a thousand languages for only 500 million people, long-standing ethnic and political animosities, and other factors. Economic growth has faltered for so long, that the average country is currently as poor as it was before the independence wave of the 1960s, in some cases even poorer. The lack of diversification of Africa’s exports limits its growth through trade within the continent. Moreover, primary products, susceptible to exchange, are similar, which limits potential gains from trade. Africa’s existing structures of comparative advantage are not improved by preferential arrangements. The overwhelming majority of exports consist of commodities. Most of the population is engaged in agriculture, often subsistence farming and herding, both of which are subject to droughts in the dry climates. However, Southern Africa and coastal regions are amenable to export agriculture. Exploitable manufacturing niches have not emerged yet—with the exception of textiles (in Egypt, Tunisia, and Mauritius), where the Chinese competition is intense—and a few sectors such as non-electronic office, accounting and computing machinery (for countries in SACU and Senegal), and chemicals (in Morocco, Tunisia, Kenya, Guinea, and Senegal). Trade in product varieties and specialized inputs and services provide greater choice to consumers, greater input availability to producers, and permit the exploitation of economies of scale. However, trade in manufactures has not yet taken off. Instead, most African countries export unprocessed agricultural products, minerals, and refined petroleum. They have not developed competitive advantages in dynamic sectors that could produce technological change and support growth. In many cases, the export of manufactured goods represents a single digit percentage of total trade. This helps to explain why regional trade between East and West Africa, and trade between North and East Africa, is close to zero.

1.5 ❚ How Should Africa Position Itself in the International Trading System?

49

Table 4 shows total exports and the intra-group exports of the preferential trade arrangements (PTAs) for several decades. In general, intra-block trade, as a percentage of countries’ exports, is equal to, or even lower than, that which existed before the arrangements were formed. The only block showing significant intrablock trade expansion is WEAMU, in which current members expanded trade among themselves from 6 percent of total bloc exports in 1970, to 15 percent in 2000. By contrast, trade among the members of ECOWAS, founded in 1975, represented 10.1 percent of total ECOWAS exports in 1980, and 10.8 percent in 2002. The countries in the Economic and Monetary Community of Central Africa (CEMAC), the Economic Community for Central Africa States (ECCAs), and Central African Customs and Economic Union (UDEAC), and COMESA, were trading more among themselves in 1970 than in the new millennium.

Table 5: Railroad miles in Sub-Saharan Africa Railroad Miles

Countries

0

Gambia, Guinea Bissau, Niger, Central African Republic, Chad, Equatorial Guinea, Burundi, Rwanda, Somalia, Lesotho

1-499

Benin, Burkina Faso, Côte d'Ivoire, Liberia, Mali, Mauritania, Sierra Leone, Togo, Congo, Gabon, Djibouti, Eritrea, Ethiopia, Lesotho (1.6), Malawi, Swaziland

500-999

Ghana, Guinea, Senegal, Cameroon, Uganda, Botswana

1,000-3,000

Nigeria, Kenya, Angola, Mozambique, Namibia, Zambia, Zimbabwe

3,000-4,000

Democratic Republic of the Congo, Sudan, Tanzania

4,000-

South Africa (13,000)

Source: Ramsay, F. Jeffress (1999), Global Studies: Africa 8th edition, Guilford, Connecticut: Dushkin/Mc-Graw-Hill.

Historically, in the sub-Saharan region, economic activities and political power have been concentrated in the interior of many countries rather than on the coasts. The combination of a high concentration of the population in the interior and the isolation of the interior from the coastal areas represents a formidable barrier to all trade, whether local, interregional, or international. The inland transportation network, developed to secure access to mineral resources, was not matched by an extensive inland network. This condition promotes continued dependence on mineral resources and inhibits manufacturing. The subSaharan region has abundant water resources, but river transport does not generally connect the coast and the interior. Most rivers are only partly navigable. Falls, rapids and irregularities along their paths have meant that only the Niger River has been developed as a long navigable path connecting the inland to the coast. International trade is often favoured over interregional, because of the high costs of transportation. Trade across the vast regions of the African continent is both hazardous and costly, and is hindered by geography and inadequate means of interregional transportation—factors equally relevant to other large regions of the world, such as China, India, the United States, Europe and Argentina. In general, the interior and coastal areas are not well connected by roads and rail transportation, little enhanced by the inadequate transportation infrastructure inherited from the colonial past. Intra- and interregional trade is also hindered by natural barriers such as the Great Escarpment in the Drakenberg region of South Africa and the Sahara desert region, where 25 percent of African people live, despite the arduous living conditions. These formidable impediments, at least in part, explain why the population has clustered near the coasts and targeted European markets.

50

Transportation limitations within Africa are daunting. Even the railroad, virtually ubiquitous in other parts of the world, has yet to reach most of Africa. The number of highway miles is quite small relative to the size of the countries, and air transportation is scarce and costly. Table 5 describes the distribution of railroad miles in SubSaharan Africa. The number of railroad miles is less than 500 in 25 out of the 43 countries in the sample. The condition of roads, ports, and railways has actually deteriorated in many countries over the past two decades. This is the result of continuing economic stagnation, strained government finances, inefficient state operation of the transportation system, and violent conflict.

Table 6: Delays in customs clearing in ports Region

Average number of days

North America

3.5

Western Europe

4.0

North Africa

5.5

East Asia and the Pacific

5.6

Latin America and the Caribbean

7.1

West Africa

11.7

East and South Africa

12.0

Source: World Development Indicators (2001).

Table 6 presents data on customs delays in ports. Such delays in western, eastern and southern Africa are the longest in the world. Moreover, fourteen countries in subSaharan Africa are landlocked; Burkina Faso, Mali, Niger, Chad, Central African Republic, Uganda, Zambia, Malawi, Rwanda, Burundi, Botswana, Zimbabwe, Lesotho, and Swaziland. The area covered by these landlocked countries is enormous and this factor, coupled with poor transportation and communications infrastructure, has been found (by Limão and Venables, 2001) to seriously inhibit international trade. The cost of providing access to the coast is exorbitant. For example, theover 1,000-kilometer pipeline providing Chad with access to the Kribi port in Cameroon will require an estimated investment of US$4.5 billion (including wells). The Chad-Cameroon Oil Pipeline Project will be the largest single foreign investment in Africa. It promises large gains while at the same time raising environmental risks and the possibility of a Nigeria-like corruption effect. One particular factor found to be associated with close trade relations is the presence of a common language and culture. Despite the fact that French, English and Swahili, provide some commonality in large parts of Africa, this element is not present among African countries, which do not share a common language, culture, or ethnicity. In fact, linguistic and ethnic diversity is so great that there are large segments of the population within one country which have difficulty communicating amongst themselves. This condition predates colonial rule, which, was unable or unwilling to establish a solid national space with a common language for all citizens. Different colonial heritages have led to French-, English-, Spanish-,

1.5 ❚ How Should Africa Position Itself in the International Trading System?

To sum up: an intra-regional trade strategy of joining small markets with similar comparative advantages in uncertain, often mutually contradictory arrangements, which do not constitute natural trading regions, will probably remain unsuccessful for the foreseeable future. Next, we explore the possibilities offered by arrangements with developed countries.

North Africa Several studies have examined the prospects of regional integration among North Africa and Middle East (MENA) countries. The comparative advantages are similar, favouring exports of mineral fuels, labour-intensive manufactures (POSSIBLE TO SPECIFY?) and imports of capital-intensive and technology-intensive manufactures. This pattern of comparative advantages is suited to trade with the European Union, but not intra-regional preferential arrangements.

North-South trade agreements: The EU-Africa trade arrangements African trade with the European Union and the United States accounts for the bulk of trade exchanges. Coe and Hoffmaister (1998) conclude that bilateral trade between sub-Saharan countries and industrial countries in the 1990s can be explained by gravity models. They find that it is not unusually low, after controlling for the variables included in the gravity benchmark, which stresses the role of size and geography. The dynamic analysis done by Subramanian and Tamirisa (2003) for 1980, 1990 and 2000 finds evidence that Anglophone, but not Francophone Africa, is reversing a disintegration trend in trade with countries having advanced economies. Thus, measures taken by developed countries to ease trade relations with Africa could have a large impact on Africa’s performance while entailing few costs for the developed countries.

The European Union and its web of arrangements The European Union is the most important participant in preferential agreements falling under the scope of the WTO. Before 1990, the European Union participated in half of 32 preferential arrangements. With the proliferation of PTAs in the nineties, the EU participation increased in absolute terms, while declining, relatively, to about 65 arrangements out of over 170 in 2002. As pointed out in Sapir (1998), the European Union grants Most-FavouredNation status to only six countries: Australia, Canada, Japan, New Zealand, Taiwan, and the U.S. Other countries are subject to some type of preferential treatment. The European Union maintains a complex, in some cases overlapping, web of agreements with African countries (see Box 1). North African countries participate in two longstanding arrangements: the Mediterranean Partnerships (Egypt, Morocco, Algeria, and Tunisia) and the Free Trade Areas, called the Euro-Mediterranean Association arrangement (EMA), with Tunisia and Morocco.

Box 1: The European Union and its Web of Arrangements The European Union maintains a complex, and in cases overlapping, web of agreements with African countries The Mediterranean Partnerships are the 1976 bilateral partnerships with Morocco, Algeria, and Tunisia, and a 1977 agreement with Egypt, which in 2010 will become a net of bilateral free trade areas comprising a $5 billion EU assistance package. Free Trade Areas, known as the Euro-Mediterranean Association Arrangement (EMA) with Tunisia and Morocco. Other countries concerned, but still in the negotiation process, include other Maghreb and Mashrak countries (Algeria, Egypt, Jordan, Lebanon, the Palestinian Authority, Syria, and Israel). This arrangement is part of the "Global Mediterranean Policy" initiated by the European Union to harmonize the various, already operating, bilateral agreements of the 1970s. This partnership was agreed to in 1994, and goes beyond economic and financial cooperation to include political and security aspects as well as social and human matters. The final economic goal is the establishment of bilateral free trade areas between the European Union and the countries considered by the year 2010. The Africa, Caribbean and Pacific (ACP) Preferences are unilateral trade preferences granted to 47 sub-Saharan African countries and others. The Cotonou Agreement, which replaces the Lomé Convention, is both a trade agreement and a development program. By 2008, these one-way preferential arrangements will be replaced by a system of reciprocal preferences similar to the bilateral Mediterranean partnerships. Preferential treatment on sugar, bananas, beef and veal will stay, though with some changes. Generalised System of Preferences (GSP) exempt developing countries from the Most Favoured National principle (requiring non-discrimination among WTO members), so that developing countries can benefit from lower barriers to trade (in the form of lower tariffs for certain products, larger quotas for others) than other WTO members. The EU grants free access to about 3300 non-sensitive products and preferential tariff reductions to flat rates of 3.5 percent to about 3700 sensitive products out of a total of 7,000 products subject to positive duties. Textiles, clothing, footwear (sensitive products subject to high tariff rates) are subjected to 20 percent preference margin. In general, however, agriculture products covered under the Common Agriculture Policy (CAP) are excluded from the Agreement. Since 2001, however, the least developed countries (49 countries including 33 subSaharan economies) are guaranteed quota-free access to the EU.

1.5 ❚ How Should Africa Position Itself in the International Trading System?

51

Portuguese-, Dutch-, and Arab-speaking regions, with minimal commonality at the sub-regional level.

Sub-Saharan countries benefit from the Africa, Caribbean and Pacific (ACP) unilateral trade preferences (benefiting 47 sub-Saharan countries) and the Generalized System of Preferences (GSP). The Cotonou Agreement, which was signed in 2000 and replaced the Lomé Convention as the basis for the economic partnership between the ACP and the EU, is both a trade agreement and a development program. By 2008, these one-way preferential arrangements will be replaced by a system of reciprocal preferences similar to the bilateral Mediterranean partnerships. The most recent initiative is the 2000 Everything But Arms Initiative for the least-developed African countries, which is examined below. On the basis of an evaluation of these arrangements, firm conclusions cannot be drawn about the gains achieved, especially those resulting from the GSP program. Out of a total of 7,000 products subject to positive duties) the EU grants free access to about 3,300 non-sensitive products, and either preferential tariff reductions or flat rates of 3.5 percent to about 3,700 sensitive products— defined as those requiring higher border protection. Textiles, clothing, and footwear are classed as sensitive products subject to high tariff rates and a 20 percent preference margin. In general, agricultural products, covered under the Common Agriculture Policy (CAP), are excluded from the agreement. Since 2001, however, the least developed countries—49 (including 33 subSaharan) countries—are guaranteed quota-free access to the EU. The current Generalised System of Preferences applied by the EU limits the potential benefits to be gained by African countries. First, products such as textiles and

clothing, in which North African countries have a growing market share, are excluded from this preferential access to EU markets. Moreover, these products are subject to strict quotas determined under the Multi-Fibre Agreement (MFA), although this agreement is scheduled to be eliminated by year 2005. However, it is highly probably that other measures, such as threats to file antidumping duties on textiles, will restrict these countries’ exports to world markets. According to Panagariya (2002), only three African countries, Ivory Coast, Mauritius, and Zimbabwe, have clearly extracted benefits from the Africa, Caribbean and Pacific (ACP) preferences. Hudec (1988) points out that one-way liberalization has the effect of induce countries to expand market access for their exports while keeping barriers against imports.

European Union and Africa: The Everything But Arms Initiative (EBA) The European Union has recently reformed its preferential trade arrangements with the least-developed countries. The Everything But Arms (EBA) Initiative, adopted in October 2000, seeks to stimulate growth in least-developed countries by extending trade interactions. It grants least developed countries quotaand duty-free access to the EU market. The agreement includes all “originating” products included in the EU GSP system. A major factor limiting the impact of the program is that the EBA Initiative applies, in practice, to agricultural products for which the least-developed African countries lack comparative advantages, such as sugar, cotton and bananas.

Figure 3: Agriculture products price gaps between EU and world, 1999-2000

World Prices EU Prices

Cheese Butter Skimmed Milk Powder Whole Milk Powder Mutton/Lamb Poultry Pork Beef Tomatoes Citrus Fruit Bananas Sugar Milled Rice

52

Maize Wheat

0

500

1,000

1,500

2,000

Euros per ton

Source: USDA, World Agricultural Outlook 2001.

1.5 ❚ How Should Africa Position Itself in the International Trading System?

2,500

3,000

3,500

Figure 3 illustrates the existing gap between EU set prices and world prices for several key agricultural products between 1999 and 2000. With the EBA program, few gains are expected for sensitive products, such as bananas, rice, and sugar. Until now, only a few countries have exported bananas to the European Union. In 1999, Cape Verde exported 10 tons of bananas, while traditional exporters Somalia and Madagascar exported none at all. Rice production is dependent on ample rain or flooding, conditions not normal for most of the leastdeveloped African countries. Among the least-developed African countries, the only significant exporters of sugar are Sudan (with net exports of over 100,000 tons per year), and Zambia, (with exports of about 80,000 tons). On the basis of Brenton’s (2003) follow up of the EBA program, we can identify the following points: ❚ Many primary export products already benefit from zero most favoured nation (MFN) duties, or from substantially liberalized markets. ❚ Liberalization has been postponed for products such as rice and sugar—of major importance to some

African exporters to the European Union. Bananas will not benefit from a zero tariff until year 2006, and the zero rate will not be applied to rice and sugar until 2009. In the meantime, tariff quotas2 on rice and raw sugar are being expanded from 74,185 tons to 197,355 tons in 2009. Duties on fresh bananas are being cut by an annual 20 percent, starting in 2002. Duties on rice and sugar will be reduced by 20 percent in 2006, by 50 percent in 2007, and by 80 percent in 2008. By 2009, quotas and tariffs will be completely eliminated. ❚ Cumbersome rules of origin legislation have become a de facto barrier to trade, by increasing the cost of exports to high or prohibitive levels; ❚ Requirements for “sufficient processing”—in order to be considered as a national product—make exporting difficult and expensive; ❚ The provision for temporary suspension of preferences—in case of a massive increase of imports from developing countries in relation to previous import levels—creates uncertainty, and has the effect of inhibiting export-oriented investment.

Table 7: Product liberalization under the EBA (2001) Country

Total Exports to the EU (in Euro thousands)

Eligible Exports of Products Liberalized in 2001

Exports of products liberalized in 2001 requesting access under EBA

ACP countries Angola

1,944,630

91.0

0

Republic of Congo

941,784

7.0

0

Equatorial Guinea

754,865

0.0

0

Liberia

736,973

10.0

0

Madagascar

600,912

72.0

0

Guinea

579,518

41.0

0

Mozambique

530,174

248.5

0

Tanzania

395,283

35.0

0

Sudan

303,550

778.0

0

Mauritania

258,568

6.0

0

Uganda

242,524

116.3

0

Malawi

194,903

0.0

0

Ethiopia

159,389

12.0

0

Zambia

158,375

1,359.0

0

Central African Republic

152,804

0.0

0

Niger

119,613

6.0

0

Benin

63,698

69.0

0

8,634,365

3,344.0

0

68

Total ACP

Bangladesh

3,318,865

69.0

Cambodia

482,480

0.0

0

Laos

143,716

74.0

74

Nepal

135,119

0.0

0

Yemen

83,596

169.0

91

4,225,518

313.0

234

Total Non-ACP Source: Brenton (2001)

1.5 ❚ How Should Africa Position Itself in the International Trading System?

53

Non-ACP Countries

Table 7 reports the countries in which the EBA program is expected to have little or no impact. In particular, several African countries will not benefit from the program, either because they are not eligible, or because the products exported are already subject to a zero-rate. Countries like Angola, Central African Republic, Chad, and Niger, among others, will reap few benefits from EBA, because products eligible for tariff reductions account for less than 5 percent of their exports to the European Union, and most of their exports already face zero most-favoured-nation rates. The Everything But Arms Initiative can make a difference for Benin, Burkina Faso, Comoros, and Zambia, for the reason that more than 30 percent of their exports are eligible for preferential treatment and thus, for tariff rebates. The drawback is that less than 5 percent of African exports are actually benefiting from these rebates. In 2001, Lesotho was the only country filling requests for more than 30 percent of exports in order to maximize tariff rebate advantages.

Barriers to trade and rules of origin Will the dismantling of tariffs contemplated in the EBA improve market access for exports from African countries? The answer to the issue of market access covers more than just tariff removal, simplification of tariff schemes, and limits to the use of tariff escalation practices. The EBA program gives broad discretion to EU authorities to impose safeguards against bananas, sugar, and rice if their imports cause “serious disturbance” to EU markets. Also, the rules of origin will be tightened and imports of these products will be subject to monitoring to avoid fraud or transhipment, in which case preferences for these products would be suspended. Restrictive technical standards limit trade, and can represent a stiff non-tariff barrier that should be eliminated. UNIDO (2002) finds that the aflatoxin standard introduced in the EU legislation—which differs from the international aflatoxin standard—is expected to have an infinitesimally small impact on health risk. The cost of such a measure, however, is expected to generate a drop in African exports of cereals, dried fruit, and nuts to the EU markets to the tune of some $670 million.

As regards the clothing sector, Brenton and Manchin (2002) find that the EU rules of origin entail a doublestep processing requirement, under which clothing made from fabric originating in third countries is excluded from preferential treatment. EU rules of origin require clothing to be made from either locallyproduced fabric or fabric from EU member countries. Moreover, EU legislation foresees the possibility of demanding proof, retrospectively, of the origin of previous years’ exports. For instance, EU authorities found that about 15,308 certificates of origin for textiles and clothing items, which had been issued between 1994 and 1996, did not satisfy EU rules of origin, and retrospectively, imposed full duties on these items.

North-South trade agreements: US-Africa trade arrangements In the 1990s, the US engaged in a flurry of trade agreements. US preferential arrangements with African countries can be classified into three major programs: First, is the Generalised System of Preferences (GSP), which went into effect in 1976. It currently grants duty-free entry for more than 4,600 imported products from about 40 designated countries and territories. Second, the Trade Capacity Building program assists developing and transitional economies in building the capacity to benefit from trade opening. In 2001, sub-Saharan countries received $192 million, which corresponds to 14 percent of the total US support of $1.3 billion under this program. The program addresses barriers to exports, such as product standards that limit African exports. The third, most recent program is the 2000 African Growth and Opportunity Act (AGOA), which targets the least developed African countries. Box 2 compares U.S. and EU arrangements.

54

Rules of origin, uncertainties about derogations from requirements, use of safeguard measures,

administrative procedures to make market access effective and without extra costs, applicable sanitary and health standards, are just some of the non-tariff barriers limiting the potential gains from the initiative. Rules of origin on packaging could substantially raise final product costs. This is particularly true for valueadded food products competing in sophisticated European consumer markets.

1.5 ❚ How Should Africa Position Itself in the International Trading System?

Box 2: Current Limitations of Existing Agreements and Preferences

Table 8: Ratio of duty-free exports to total exports to the US Country

Duty-free/total exports (percent, 1994)

Mozambique

The Multi-Fibre Agreement (MFA) imposes quotas until 2005.

76

Swaziland

52

Zimbabwe

40

The EU GSP excludes textiles and clothing.

Namibia

23

Burkina Faso

16

Except for petroleum, most African countries do not exploit US GSP.

Madagascar

14

The EU’s African, Caribbean and Pacific (ACP) preferences have clearly benefited only Ivory Coast, Mauritius, and Zimbabwe.

Senegal

12

Sierra Leone

12

South Africa

9

Kenya

8

Mali

8

The EU Everything But Arms (EBA) trade preferences initiative of 2000, granting duty-free access to the world’s 48 least-developed countries, applies in practice to agricultural products, for which the least-developed African countries lack comparative advantages.

Mauritius

7

Equatorial Guinea

7

The preferences under the African Growth and Opportunity Act (AGOA) are contingent on preferential purchases of input such as fabric from the US, implementation of labor standards, and other cost-increasing factors. Only a few countries are exploiting the benefits of AGOA. As of November 2002, only half of the eligible countries (18 out of a total of 36) actually exported clothing duty-free to the US. Until now, AGOA has not affected the share of machinery imports to the US and has had relatively little impact on footwear. Both EBA and AGOA have stringent rules of origin that limits the impact of the preferences.

7

Tanzania

7

Côte d'Ivoire

6

Botswana

4

Togo

3

Total (Thirty-four SSA Countries)*

5

* The other countries are Benin, Cameroon, Ghana, Zaire, Central African Republic, Uganda, Niger, Ethiopia, Gambia, Mauritania, Zambia, Burundi, Lesotho, Guinea, Congo, and Angola. Source: US Department of Commerce

If the reader is surprised by the figures indicating low duty-free exports in the face of preferences given to specific countries, then the data on the impact of the program on the continent as a whole will be equally striking. Most of the countries with a high percentage of duty-free exports (out of their total exports to the US) do not export much to the US. By focusing on those countries accounting for most duty free exports, it turns out that a single country, South Africa, accounted for over 60 percent of all duty-free exports to the US in 1994. Well over two decades after it was launched, the GSP program had scarcely affected the African continent at all.

African Growth and Opportunity Act (AGOA) In 2000, President Clinton signed a preferential trade agreement, aiming to reinvigorate relations with the subSaharan African economies actively engaged in marketbased reforms. This eight-year unilateral preferential agreement, revised on an annual basis, is known as the African Growth and Opportunity Act (AGOA). Greater market access to US markets is granted to those countries showing progress on “best practice“ policies: establishing a free trade, market-based economy;

55

Table 8 shows the percentage of total sub-Saharan African exports to the United States, which entered dutyfree in 1994. Almost two decades after the GSP was initiated in 1976, the average percentage of total exports entering the US duty-free was 5.4. Only four countries exceeded 20 percent: Mozambique (sugar cane accounts for over 90 percent of exports to the US), Swaziland, Zimbabwe, and Namibia. For 26 countries, the percentage was less than 10. By contrast, the corresponding figures for Malaysia and Thailand were 36 and 24 percent, respectively.

Malawi

1.5 ❚ How Should Africa Position Itself in the International Trading System?

improving the rule of law; fighting corruption; passing internationally-recognised legislation on workers’ rights protection. On 31 December 2002, there were 38 eligible countries out of 48 sub-Saharan African countries. AGOA extended the standard Generalized System of Preferences—covering about 4,300 tariff-line items at the time—to include 1,800 additional items, such as clothing and shoes, as well as certain motor vehicle components exported by countries in Central Africa , SACU, and others. AGOA eligibility is based on GSP eligibility. That is, out of 48 sub-Saharan countries benefiting from the standard GSP, 45 can also benefit from the new rebates as well as the clothing provisions stated under AGOA. Mattoo, Roy and Subramanian (2003) estimate the cumulative medium-term benefits of the agreement for non-oil exporting countries to range between $100 million (about eight percent of non-oil exports) and $140 million (about 11 percent of non-oil exports), depending on the restrictiveness of the rules of origin. These are very low cumulative figures. Major gains were registered by Kenya, Swaziland, and least-developed countries such as Madagascar and Lesotho. Following AGOA, in 2000-2001 these countries’ clothing exports increased from 47 to 83 percent. Restrictive rules of origin explain why clothing exports from South Africa and Mauritius increased by lower, albeit quite healthy rates of 9 to 14 percent, respectively.

Stringent rules of origin The Achilles’ heel of AGOA is the stringent impact of the rules of origin attached to the Act. The purpose of rules of origin is to ensure that non-eligible countries do not have access to unilateral preferences. But stringent rules of origin often constitute non-tariff barriers that reduce flexibility and raise production costs. They do not permit the choice of inputs based on cost efficiency parameters, but rather on market eligibility, given the rules of origin restrictions. Mattoo, Roy and Subramanian (2003) stress the limitations to gains due to choosing the stringent “yarn-forward” rule— granting benefits only to the signatories of the agreement, and not to third parties—rather than the rule of origin of the Multi Fibre Agreement, which requires only assembly in the beneficiary countries.

The outcome of AGOA should be distinguished from the effects of MFA dismantling. The first phase of the AGOA program should end by the year 2004, the same year the MFA is scheduled for elimination. AGOA’s first phase gives eligible countries a temporary exemption from the stringent rules of origin required by AGOA. By year 2005, just as the Multi-Fibre Agreement will phase out, eligible countries will stop benefiting from preferential rules of origin treatment under AGOA. Eligible countries will be required to abide by the same rules of origin applied to other economies. As a result, exports by eligible African countries will be less competitive and thus limited, and U.S. prices will remain high compared to free market prices. Several African countries are experiencing clear gains from AGOA, but few eligible countries are actually receiving the benefits available under the Act. As of November 2002, only 18 out of a total of 36 eligible African countries actually exported duty-free clothing to the United States.

AGOA’s record Total U.S. imports from sub-Saharan countries dropped during 2001-03, but imports under AGOA have increased during the same period. The AGOA success is the result of duty-free imports under the current and past GSP systems, textile and clothing duty-free preferential treatment, and quota-exemptions. Including account oil-related imports, up to fifty percent of all U.S. imports from the region fall under the Act. Most of these are petroleum products, subject to Code D under the International Trade Commission. Code D goods are those having AGOA GSP eligibility. The other products are textiles and clothing, transportation equipment, and agricultural products. Many items that are not subject to Code D are, however, still exempt from import duties, because they are eligible under GSP or because their statutory import duty is zero.

56

Least developed countries qualify for the Special Rule for Lesser Developed Countries that exempts them from all requirements until September 2004. This exemption allows using raw materials from all over the world, without any restrictive rule regarding place of origin. If the Special Rule does not apply for a country,

then at least 35 percent of the value added must be accounted for by AGOA countries, or by the United States. The sub-Saharan countries benefiting from dutyfree access for manufactured garments (included in the ‘Wearing Apparel’ provisions) are required to meet more stringent requirements than those of the MFA, scheduled to be dismantled by the end of 2004. These clauses are binding in the important case of the rules of origin that clothing exporters must comply with. For instance, with some exceptions, the use of third-country non-eligible inputs is not allowed. By 2005-2008, least developed countries will be subject to the “yarn forward rule”.

1.5 ❚ How Should Africa Position Itself in the International Trading System?

Table 9: Sectoral analysis of AGOA Products Year

Imports under AGOA+GSP (in percent)

Imports under GSP (in percent)

Duty-free items added (in percent)

2000

2001

2002

2000

2001

2002

2000

2001

2002

Agricultural products

0

0

23.3

16.4

12.6

12.9

0

7.1

11.9

Forest products

0

0

24.7

16.4

20.6

27.3

0

0.1

0.2

Chemicals and related products

0

0

30.4

8.3

22.6

40.4

0

0.6

1.1

Energy-related products

0

0

58.3

21.0

19.0

28.4

0

47.8

58.3

Textiles and apparel

0

0

70.7

0.3

0.4

0.3

0

35.7

70.4

Footwear

0

0

21.8

0.0

0.0

0.0

0

16.2

21.8

Minerals and metals

0

0

13.8

9.9

8.3

9.1

0

3.0

5.1

Machinery

0

0

7.7

17.7

8.7

7.7

0

0.0

0.0

Transport equipment

0

0

87.7

41.5

14.9

9.9

0

60.4

77.8

Electronic products

0

0

17.8

36.9

25.7

17.8

0

0.0

0.0

Misc. manufactures

0

0

34.5

39.6

41.4

56.3

0

0.3

0.7

Spec. provisions

0

0

0.0

0.0

0.0

0.0

0

0.0

0.0

All sectors

0

0

49.4

17.7

16.1

22.3

0

36.0

45.9

Source: US Trade and Investment with Sub-Saharan Africa (2003)

Table 9 presents a sectoral analysis of imports under the AGOA program. The impact of the Agreement differs by sector. Most US imports on transport equipment, textiles, and clothing are covered under the AGOA and GSP programs. Most of the gains from the Act are expected to be in clothing and textiles. In contrast, the introduction of the AGOA program has not affected the share of U.S. machinery imports covered by the program.

Conclusions Solutions to the African tragedy must urgently be found. Thirteen percent of the world’s population, over 800 million people, live in Africa and their number is expected to grow to 1.3 billion by 2020. Preferential trading arrangements among African countries have not increased trade among their members and have not led to greater overall international trade. The attempt to form preferential arrangements among economically small countries with similar comparative advantages, separated by poor transportation infrastructures, language, ethnicity, culture, and politics, has not been successful. Reliance on intra-regional trade strategies and increasing trade aggregates are likely to remain ineffective. Participation in preferential arrangements with developed countries shows greater promise of success at the present time. However, this participation has resulted in hub-spoke structures that have not increased openness or growth. Moreover, competitive African agricultural products are often excluded or penalized, since they must compete with heavily subsidized developed country agricultural production.

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Why is it that the US GSP program has not been substantially utilized? First, Olarreaga and Ozden (2003) show that export incentives are limited because export prices have increased by only a third of the tariff cut. They attribute this, in part, to rents obtained by importers at the expense of African exporters. Second, these preferences are uncertain. In the past they have been changed when exporters exploited them. Third, the exporting infrastructure is weak in Africa. Government corporations control communications, transportation, and utilities throughout the region, because they are deemed to be strategic and must not be ceded to the private sector, including foreign investors. Unfortunately, the low level of efficiency on the part of controlling public corporations limits the scope of trade relations. Fourth, until the dismantling of the MFA in 2005 and, with the exception of the least developed countries, the quotas set under the MFA limit the trade gains on clothing. Quotas restrict import volumes to certain pre-determined levels and keep U.S. import prices from falling.

Finally, it should be noted that non-tariff barriers are not a good explanatory variable in this context, because they do not substantially affect the majority of African exports.

1.5 ❚ How Should Africa Position Itself in the International Trading System?

Africa remains mired in the static comparative advantage trap. A host of past and present preferential agreements have not been able to break this pattern. The elimination of key factors currently preventing the full exploitation of preferences with large trading groups should result in greater trade. However, African countries might also be well advised to consider alternative forms of inserting themselves into the world trading system, by participating effectively in multilateral negotiations for products of interest to Africa, and unilateral liberalization. For example, Chile was able to take off economically through unilateral liberalization in the 1980s. Unfortunately, customs unions impede this option, unless a country becomes an associate rather than a full member of the union. A good example is Chile, which became an associate member of the Mercosur customs union, for the express purpose of escaping the restriction on unilateral liberalization. Policy strategies to break out of the trap of comparative advantage can also involve the active promotion of clusters and foreign direct investment, as well as the creation of conditions for the successful transfer of technology, the generation of competitive advantages, and export diversification. From our perspective, these alternatives contrast sharply with the route to growth by means of preferential trade arrangements, as a means of widening opportunities for the fuller participation of African countries in the system of international trade.

Foroutan, F. and L. Pritchett. 1993. “Intra-Sub-Saharan African Trade: Is It Too Little?” Journal of African Economies 2 (1). 74-105. Grossman, G.M. and E. Helpman. 1991. Innovation and Growth in the Global Economy. Cambridge, MA: MIT Press. Hoekman, B., C. Michalopoulos, and L. A. Winters. 2003. “Special and Differential Treatment for Developing Countries: Towards a New Approach in the WTO.” Mimeo. World Bank. Hudec, R.E. 1988. Developing Countries in the GATT Legal System. London: Harvester Wheatsheaf and Trade Policy Research Centre. Limão, N. and A.J. Venables. 2001. “Infrastructure, Geographical Disadvantage, Transport Costs, and Trade.” World Bank Economic Review 15 (1). 451-479. Mattoo, A., D. Roy and A. Subramanian. 2003. “The Africa Growth and Opportunity Act and Its Rules of Origin: Generosity Undermined?” World Economy 26 (6). 829-851. Mshomba, R. 2000. Africa in the Global Economy. Boulder, CO: Lynne Rienner Publishers. Olarreaga, M. and M. de la Rocha. 2003. “Multilateralism and Regionalism: Trade Opportunities for Sub-Saharan Africa.” Mimeo. World Bank. Olarreaga, M. and C. Ozden. 2003. “Who Captures Tariff Rent in the Presence of Preferential Market Access?” Mimeo. World Bank. Ozden, C. and E. Reinhardt. 2003. “The Perversity of Preferences: The Generalized System of Preferences and Developing Country Trade Policies, 1976-2000.” World Bank Working Paper 2955. Washington, D.C.: World Bank. Panagariya, A. 2002. “EU Preferential Trade Policies and Developing Countries.” Mimeo. University of Maryland. Porter, M. 1990. The Competitive Advantage of Nations. New York: Free Press. Ramsay, F.J. 1999. Global Studies: Africa. 8th Edition. Guilford, CT: Dushkin/Mc-Graw-Hill. Rivera-Batiz, L.A.and M.A. Oliva. 2003. International Trade Analysis: Theory, Strategies and Evidence. Oxford: Oxford University Press. Rodrik, D. 1999. Trade Policy and Economic Performance in Sub-Saharan Africa. Stockholm: Almqvist & Wiksell. Romer, P.M. 1990. “Endogenous Technological. Change,” Journal of Political Economy 90, SS. 1-102.

Notes 1 2

Commission économique pour les pays des grands lacs. A tariff quota is two-tiered. A lower in-quota tariff (t) is applied to the first units of imports and a higher over-quota tariff is applied to all additional imports. The terms “tariff quota” and “tariff-rate quota” are employed interchangeably in the literature. Technically, tariff quota, a more accurate description, includes specific tariffs, while tariff-rate quota excludes them.

References Bhagwati, J. ed. 2002. Going Alone: The Case for Relaxed Reciprocity in Freeing Trade. Cambridge, MA: MIT Press. Brenton, P. 2003. “Integrating the Least Developed Countries into the World Trading System: The Current Impact of EU Preferences under ‘Everything But Arms.’” World Bank, Policy Research Working Paper 3018. Washington, D.C.: World Bank. Brenton, P. and M. Manchin. 2002. “Making EU Trade Arrangements Work: The Role of Rules of Origin.” Center for European Policy Studies. Working Document 183. Coe, D.T. and A. W. Hoffmaister. 1999. “North-South Trade: Is Africa Unusual?” Journal of African Economies, 8 (2). 228-256.

Sapir, A. 1998. “The Political Economy of EC Regionalism,” European Economic Review 42. 717-732. Subramanian, A. and N.T. Tamirisa. 2003. “Is Africa Integrated in the Global Economy?” IMF Staff Papers 50 (3). 352-372. UNIDO. 2002. Enabling market access. UNIDO’s engagement with regional integration. Online at: http://www.unido.org/userfiles/timminsk/UNIDOEnabling_Market_Access-Regional_Integration.pdf World Bank. 2001. “Education Sector. Human Development Network. 2001. Education for Dynamic Economies: Accelerating Progress Towards Education for All.” Washington, D.C.: World Bank. World Bank and International Monetary Fund. 2001. “Education for Dynamic Economies: Accelerating Progress Towards Education for All (EFA).” Development Committee (Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries). DC2001-0025. Washington, D.C.: World Bank. World Bank. 2001. World Development Indicators. Washington, D.C.: World Bank. Yeats, A.J. (1998). “What Can Be Expected from African Regional Trade Arrangements? Some Empirical Evidence.” Policy Research Working Paper 2004. World Bank.

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Collier, P. 1998. “Social Capital and Poverty.” Social Capital Initiative, Working Paper 4. World Bank.

Sachs, J. and A. Warner. (1997). “Sources of Slow Growth in African Economies,” Journal of African Economies 6. 335-376.

1.5 ❚ How Should Africa Position Itself in the International Trading System?

Chapter 1.6

Building Capacity to Narrow the Digital Divide in Africa from Within

Ewan McPhie, bridges.org

The countries of Africa face a diverse range of challenges and obstacles as they strive to develop their economies, decrease their dependence on the developed world, and ready themselves for participation in the global economy. Key to the process of achieving e-readiness—defined by bridges.org as “how ready a country is to gain the benefits offered by ICT in terms of policy, infrastructure, and ground level initiatives”— is the effective use of information and communications technology (ICT) as a tool for social and economic development. The New Partnership for African Development (NEPAD)1 offers a vehicle for African leaders to drive the necessary changes, and within the NEPAD context the e-Africa Commission has been given the mandate to deal with issues related to ICT. NEPAD has set a number of ambitious objectives, including bridging the digital divide and developing the capacity to solve Africa’s problems from within. Africa’s leaders recognise not only the part that ICT can play in development, but also the value of forming strategic partnerships with the public and private sectors as contributors to their efforts. The Information Society Partnership for Africa’s Development (ISPAD) will be the vehicle by which the private sector and other actors can engage in the process. However, before anything can be achieved, there must be a clear understanding of where things stand now, of what still needs to be done, and a realistic time frame for moving forward. Moreover, ground-level stakeholders must be included in policy-making processes at the

outset, because their involvement and “buy-in” is critical to empower government to make and implement difficult, and at times conflicting, decisions. Changes of the magnitude required do not happen overnight, and all the partners in this process must work together, with a long-term vision.

Collecting information on basic e-readiness in African countries The discussion of how best to harness the power of ICT for development is often framed in terms of “e-readiness”, or how ready a country is to gain the benefits offered by ICT. There is no uniform level of e-readiness or socio-economic development within NEPAD. Each member state, and the continent as a whole, must take its own path towards e-readiness, and attempts to impose a single model would prove ineffective. It is important that the Commission and ISPAD have accurate, current information about e-readiness and other factors in NEPAD countries, so that they can frame an effective dialogue on the issues. E-readiness strategies must be tailor-made to address the unique local needs, priorities and ground-level realities reflected within each state and the broader regional goals. By looking at where their countries stand on a number of basic e-readiness indicators, African leaders can gain a realistic appreciation for what ICT can—and cannot—do for their countries, and plan effectively to achieve the greatest benefits in the context of their specific situation.

1.6 z Building Capacity to Narrow the Digital Divide in Africa from Within

59

Introduction and background

The overall objective of this paper is to lay the foundation for an e-Readiness Policy Programme to build on, and to inform, the efforts of NEPAD, and of the Commission more generally. Throughout the life of the Programme, stakeholders from government, the private sector and civil society would be invited to review this and other information collected, and to provide updates and comments. Not only will stakeholder input verify the information collected, but it can also serve as a first step toward the creation of a group dynamic among the stakeholders, and a sense of ownership over the Commission’s efforts. While every effort has been made to ensure that the information contained in this report is accurate and up-to-date, information on many African countries is difficult to find, and sources are often unreliable. Readers who find inaccuracies or omissions are invited to provide additional data, so that this document can be updated.

Overview of basic e-readiness across Africa Policy environment overview There is unanimous agreement among Africa’s leaders and pan-African structures on the benefits that ICT can bring and the impact it can have on a wide range of development issues. The ICT policy reform process has begun in almost all of the countries in Africa, but there is no uniform level of progress across the continent. The majority of countries, especially those with more developed economies, have embarked on programmes featuring various degrees of liberalisation and deregulation of the telecommunications sector. The African Information Society Initiative (AISI), and the National Information and Communications Infrastructure (NICI), promoted by the U.N, Economic Commission for Africa (UNECA), have done much to inform the process and provide guidance and support.2 But even where there has been progress towards liberalisation, the level of regulatory influence has not kept pace with change, and few of the telecommunications regulators in Africa are truly independent. Policy reforms to end fixed line telecommunications monopolies are advanced in a number of countries, and the rapid growth of mobile telecommunications across the continent, largely based on pay-as-you-go services, serves to drive change and increase the numbers of mobile operators. Civil war and unstable governments continue to inhibit progress in a number of countries, notably Angola, the Democratic Republic of Congo, Burundi and Liberia.

60

Infrastructure development overview The state of infrastructure development across the continent varies widely from country to country. While telecommunications infrastructure plays a crucial part, it is equally important to have stable and developed infrastructure in the financial, transport and fiscal sectors, as well as effective power and water distribution. For some countries, provision of these more basic needs will remain a priority, and progress towards e-readiness is dependant on building stable infrastructure across these sectors. There remains an imbalance in the level of infrastructure rollout between urban and rural Africa, with rural locations suffering at the expense of urban development. While

initiatives to rectify this imbalance are under way in many countries, more needs to be done to provide basic levels of service to rural communities. However, there are good examples of ICT being used in Africa to overcome the problems created by lack of infrastructure, such as the Women Farmers Advancement Network (WOFAN) in Nigeria, which has used radio to deliver information about agriculture and gender issues. Their programs have not only empowered women, but have also helped to introduce labour-saving technology, the use of solar power, and improved access to credit and insurance facilities.3 Ground-level projects overview There is an extensive and diverse range of ground level initiatives underway in Africa to promote and facilitate the use of ICT, funded by the public and private sectors. Projects to establish telecenters and ICT access points are underway in most countries, run by the United States Agency for International Development (USAID) Leland programme, the International Telecommunications Union (ITU), Canada’s International Development Research Centre (IDRC), and others. There also projects in many countries related to education and training, including the SchoolNet programme, Cisco’s Networking Academies, intended to increase the number of ICT skilled professionals across the continent, UNESCO’s community based learning programme, and their science and technology in education initiative. Policy development initiatives include the U.K.’s Department for International Development (DFID) development support programme, and IDRC’s ACACIA policy advice programme. There are also numerous health care initiatives designed to demonstrate and evaluate the value of ICT in health care such as the HealthNet programme, which provides e-mail connections to health workers, and Satellife’s evaluation of the use of handheld devices in health care programmes in Ghana, Kenya and Uganda. Economic overview There is evidence of growth in the e-commerce sector, notably in South Africa, forecast to generate $0.5 billion worth of business in 2002, and to grow to $6.1 billion by 2006. But if this rate of growth is extrapolated for Africa as a whole, then the continent’s share of global e-commerce in 2006 would only be 0.05% of the world’s total. The cost of basic telephony and Internet connections remains disproportionately high across the continent, a major obstacle to economic growth. At present, it is impossible for the vast majority of Africa’s population to pay even basic access costs.4 A detailed overview of the current economic situation in Africa is provided in Annex 2.

E-readiness assessments conducted in Africa Information on the status of e-readiness and other socioeconomic factors can help governments plan effective ICT strategies to bring the greatest economic and social benefits to their countries, and e-readiness assessment can be a useful tool if used wisely. However, e-readiness assessments in Africa are not used effectively overall.5 Many of the region’s most developed countries have been assessed repeatedly: 26 have been assessed at least 4 times,

1.6 z Building Capacity to Narrow the Digital Divide in Africa from Within

These problems were highlighted in the WEF-SADC report, but new assessments continue to be carried out in countries that have already been assessed. Since January 2002, 8 of the 14 countries that had already been assessed have been assessed again. Assessments are time-consuming and expensive to carry out, and scarce resources must be better managed. If NEPAD is going to make a concerted effort in the e-readiness area, it should start by seeing to it that the results of e-readiness assessments already completed are put to better use and not duplicated, and that resources are directed toward those countries that have never been assessed.

Creating a framework for analysing the issues and proposing country groupings NEPAD has stressed the need for appropriate policies that take into account the diversity of Africa’s economies and their varying levels of development. It is unlikely that universal strategies can be designed that would be applicable or acceptable to all countries, yet if progress is to be made, some common ground must be reached on how to approach ICT. Dividing the African countries into groupings, according to their differing levels of e-readiness, and the various internal and external challenges they face, would prove useful for making appropriate recommendations. This would help the e-African Commission develop broad solutions, which could then be adapted for local conditions and requirements. In this section, a framework is proposed, for use in analysing e-readiness issues, and a suggestion made for grouping African countries according to their level of ereadiness. We then provide two examples of how the framework and the groupings could be used by the Commission, ISPAD, and others, to examine ICT policy issues, raise awareness, and build a dialogue. First, the framework template is used to examine a relevant ereadiness policy issue and the different approaches that are needed across the groupings. Then, one particular, characteristic of the challenges affecting a particular country grouping, is examined in more detail.

Framework for analysing e-readiness policy issues The framework for the analysis of e-readiness policy issues first presented in the WEF-SADC report has been used as the basis for examining key issues with an African perspective and drawing comparisons between NEPAD countries. This template can help policy-makers and stakeholders frame a dialogue on issues that apply to groups of countries at comparative levels, so they can learn from relevant experience and best practice. The framework is intended for use as a tool throughout the life of the Programme to examine and present useful comparative information on key issues, to inform the efforts of the Commission and the NEPAD member countries. Framework template E-readiness policy issue (a) Widely agreed policy recommendation: <description of the general consensus on how this issue should be addressed, generally taken from the international perspective> (b) Key proponents of this recommendation: <list of the main institutions and organisations that recommend this agreed position on the issue> (c) Issues affecting application in developing countries: <explanation of why the way forward recommended by the general consensus at the international level may prove to be tricky given the realities in developing countries> (d) Recommended way forward: Grouping countries according to level of e-readiness In a review of basic e-readiness and a number of other indicators for the African countries, three general levels of e-readiness, or groupings, emerged, which are used in Table 1, below. The factors considered included: z United Nations Development Programme (UNDP) Human Development Index score and related socioeconomic factors; z Teledensity (fixed and mobile); z Level of telecom deregulation and state of progress; z Internet penetration, bandwidth availability, and cost; z Conducive legal, regulatory, and fiscal frameworks; z Infrastructure (communications and other); z Economic development. Table 1 sets out ratings for each African country in a number of key areas, along with the number of recorded e-readiness assessments as of December 2003. The country grouping assigned for purposes of this proposed framework appears in the last column. The Human Development Index (HDI) for 2000 is presented first, and ranks the countries of the world according to an index measuring three basic dimensions of human

1.6 z Building Capacity to Narrow the Digital Divide in Africa from Within

61

including Egypt (16 times), and South Africa (14 times). While it is true that an e-readiness assessment is most effective if comparative data is collected over time and milestones are reviewed, this is seldom the reason for the duplication of assessments in these African countries. In most cases, assessments have been conducted by different groups using different tools and criteria, so that the results are rarely comparable. Moreover, few of these reports are publicly available, and there is often little or no follow-up. Moreover, many of the results have limited usefulness, because information was collected by means of short summary questionnaires, or using present statistical data that is not thoroughly explained. At the same time, the least developed countries, which stand to gain the most from an assessment, rarely receive one: 2 of the 54 countries have never been assessed for e-readiness at all. The fact that these countries have never been assessed means that those facing the most severe problems also do not have access to some of the key tools for comparison that might help them put ICT to work in their countries.

three groupings there is no ranking. The “1”, “2” and “3” ratings are used to indicate where the countries stand in relation to each other, rather than in comparison to other parts of the world, with 1 being the highest level of ereadiness. The table is based on objective criteria and levels of human development, irrespective of the ideological systems in place. 7

development: life expectancy, knowledge, and per capita income.6 The information on e-readiness and economic status presented in Annex 2 was used to rate policy, infrastructure and ICT projects. The three categories emerged in almost all of the data reviewed, although there were slight differences in the groupings, depending on the criteria being measured. Within the

Table 1: African country ratings and groupings8

62

Country9

Algeria Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Central African Republic Chad Comoros Congo Republic Côte d’Ivoire Democratic Republic of the Congo Djibouti Egypt Equatorial Guinea Eritrea Ethiopia Gabon Gambia Ghana Guinea Guinea - Bissau Kenya Lesotho Liberia Libya Madagascar Malawi Mali Mauritania Mauritius Morocco Mozambique Namibia Niger Nigeria Rwanda Sao Tome and Principe Senegal Seychelles Sierra Leone Somalia South Africa Sudan Swaziland Tanzania Togo Tunisia Uganda Western Sahara Zambia Zimbabwe

HDI

161 106 158 126 169 171 135 n/a 165 166 137 136 156 155 149 115 111 157 168 117 160 129 159 167 134 132 n/a 64 147 163 164 152 67 123 170 122 172 148 162 119 154 47 173 n/a 107 139 125 151 141 97 150 n/a 153 128

Policy

Infrastructure

ICT project

E-readiness

Country

level

level

level

assessments

grouping

3 3 3 1 3 3 2 2 2 3 3 3 2 3 3 1 3 3 2 3 3 1 3 2 1 3 3 3 2 2 2 2 1 2 1 3 3 2 3 3 3 2 3 3 1 2 3 1 3 3 1 3 2 2

1 3 3 2 3 3 3 2 3 2 3 3 2 3 1 1 3 3 3 2 2 2 3 3 2 3 3 1 3 2 3 3 1 1 3 2 3 2 3 3 2 1 3 2 1 2 3 2 3 1 3 3 3 2

1 2 3 1 1 3 2 3 3 2 2 3 3 3 2 1 2 2 2 2 2 2 2 3 2 3 3 2 3 2 3 3 1 2 2 2 2 1 3 3 2 2 2 2 1 2 3 2 2 1 2 3 2 2

5 3 5 6 3 2 6 3 2 3 2 2 4 3 3 16 1 3 5 3 4 4 3 0 7 2 1 1 7 2 4 3 6 11 6 6 3 10 5 1 7 1 2 1 14 2 2 7 2 9 8 0 4 7

2 3 3 1 3 3 2 3 3 3 3 3 2 3 3 1 3 3 2 2 3 2 3 3 2 3 3 2 3 2 3 3 1 2 2 2 3 2 3 3 2 2 3 3 1 3 3 2 3 1 2 3 2 2

1.6 z Building Capacity to Narrow the Digital Divide in Africa from Within

Countries in this category have shown a commitment towards the integration of ICT as an essential part of their economy, and of social and academic progress in general. To varying degrees, they have also begun to introduce legislation that helps, rather than hinders, the growth and affordability of, and access to ICT. They represent some or all of the most advanced African countries in social and economic terms. Also evident in the case of some, notably Egypt, is the effect of strong leadership on the part of government to advance and promote the use of ICT, as a tool of government, and for socio-economic development. But it is important to remember that, even within these countries, there remains a digital divide, usually based on geographical (e.g. rural/urban), socio-economic or cultural factors, or gender. This is not meant to demean the efforts of these countries, or to underestimate what they have already achieved. Some, particularly South Africa, have already enacted legislation designed to facilitate the growth of e-commerce, and all have high rates of fixed and mobile teledensity. For most, deregulation and liberalisation of the telecommunications sector, as well as the establishment of an independent and effective regulator, remain a challenge.

Category 2: Countries with a medium-level of progress towards e-readiness: Cameroon, Côte d’Ivoire, Ethiopia, Gabon, Ghana, Kenya, Libya, Malawi, Morocco, Mozambique, Namibia, Nigeria, Senegal, Seychelles, Tanzania, Uganda, Zambia, Zimbabwe. The countries in this group confront many of the challenges faced by the previous group. In addition, they have a less developed infrastructure and a weaker commitment to achieving e-readiness. Tanzania has embarked on an inclusive process, designed to achieve ereadiness, and the methodology used is an example which others are advised to follow. These countries, not surprisingly, are also less developed in socioeconomic terms. Investment in ICT is expensive, and these countries have other more pressing challenges. They have begun to introduce ICT, primarily in the field of telecommunications, but they should not overlook the impact that the effective use of ICT could have for development, and for solving other challenges, notably healthcare, resource management and education. Because of a lack of capacity and institutionalization, they differ from the first category in terms of their ability to deliver a higher level of progress.

Category 3: Countries with a low-level of progress towards e-readiness: Algeria, Angola, Benin, Burkina Faso, Burundi, Cape Verde, Central African Republic, Chad, Comoros, Democratic Republic of Congo, Djibouti, Equatorial Guinea, Eritrea, Gambia, Guinea, Guinea-Bissau, Lesotho, Liberia, Madagascar, Mali, Mauritania, Niger, Republic of Congo, Rwanda, Sao Tome and Principe, Sierra Leone, Somalia, Sudan, Swaziland, Togo, Western Sahara. In addition to all of the challenges described for the first two categories, the countries in this group face some of the greatest challenges, not only in relation to the introduction of ICT, but more importantly in relation to meeting basic human needs and restoring stable political environments, although it is important to note that the latter is not true in all of them. The available information suggests that most have basic levels of telecommunication and some more than that, but access is limited to rural areas and costs are high. In addition, lack of infrastructure in rural areas, the effects of civil unrest, and a lack of awareness of the impact that ICT could have on development and society, are important factors. Yet in many of these countries, less advanced forms of ICT could, and have had an impact on a variety of issues and challenges. For example, rural radio has served to empower farmers, notably women, and has also been used to “deliver” the Internet, where there is no telecommunications infrastructure.

Applying the framework to an issue within the context of the country groupings This section uses the analysis framework to look at a single issue faced by all of the African countries in a structured way. It considers the range of external challenges and offers recommendations for next steps appropriate to each of three country groupings. Used in this way, the framework and country grouping represent a mechanism for studying the issues, and for helping governments and policy-makers identify the most realistic and appropriate policy, or set of policies, for their particular needs. While this example is intended to demonstrate how the framework can be used to deal with a range of issues across the three levels of e-readiness, it is based on an issue that many countries struggle to address at different levels.

1.6 z Building Capacity to Narrow the Digital Divide in Africa from Within

63

Category 1: Countries with a high-level of progress towards e-readiness: Botswana, Egypt, Mauritius, South Africa, Tunisia.

Example of issue analysis Basic ICT infrastructure and access (a) Widely agreed policy recommendation Increased globalisation and the international information economy require ready access to ICT and global networks for information transfer and trade. African countries should build ICT infrastructure in order to compete in the global economy and communicate with the rest of the world. The medium must be reliable, easy to use, and affordable. (b) Key proponents of this recommendation The International business community, computer hardware and software providers, development agencies, NEPAD, and many African leaders have already acknowledged the importance of access to ICT, and its role in economic and social development. (c) Issues affecting application in developing countries Given the impact of poverty and infrastructure limitations in rural settings, high computer penetration levels are often not feasible. Further, the process of introducing new technology and its cost, in the context of social, cultural and technical aspects, must be taken into account. In this regard, the developing world has shown a great affinity for mobile ICT devices. In countries with a low level of e-readiness, it is likely that other issues will take priority over the provision of access to ICT, except in its most basic form, and in areas where there is already, albeit limited, infrastructure. Middle level countries will be faced with decisions over relative priorities, such as the rollout of services to rural areas, versus the provision of faster connections to urban users. Countries with the highest level of e-readiness are likely to be facing the challenges posed by liberalisation of the telecommunications sector and deregulation of services, especially where the state monopoly provider is protecting what it sees as its domain, and telecommunications sector employees are concerned about the impact of liberalisation on their jobs.

64

(d) Recommended way forward: Countries with low level e-readiness, in rural areas, and within disadvantaged communities in the medium and higher level country categories, community-based access to computer resources and other forms of ICT are more likely to be

achieved than individual access, given the cost of installation, maintenance and training.10 Community access points providing desktop computing should be supported by appropriate training programmes and relevant materials. Greater emphasis should be placed on mobile ICT devices that are increasingly more advanced and ubiquitous in terms of bandwidth, reach and utility. Research should also be conducted into the potential of mobile devices to leapfrog earlier technologies. Projects to develop and deliver content via wireless applications should run concurrently.

In the medium level countries, governments and policy-makers must develop strategic plans for the rollout of technologies, across countries and within cities. They should consider the creation of high-technology access points in cities and rural areas, rather than the blanket provision of services—unlikely to be achieved— and, wherever possible, they should use existing facilities, such as libraries and community centres, to house the access points. Before embarking on this course of action, they should assess which existing centres have a high level of utilisation, in order to increase the chances of success. The random and unplanned provision of telecentres and other facilities is unlikely to lead to the creation of sustainable resources. This is all the more important, when the resources involved are scarce and expensive

In countries with a high level of e-readiness would do well to explain to voters and taxpayers alike why access to ICT is important for socio-economic development, and why liberalisation and deregulation of telecommunications is a key part of the process. Increasing awareness of the issues, and of the benefits that will accrue to all in time, will lead to increased support for government initiatives, and an understanding and acceptance of policy directions which, at first, may seem likely to create disharmony. Liberalisation has already created tension in a number of countries, and it is evident that these problems could have been mitigated had they been dealt with in a more inclusive way. Increasing awareness is also likely to increase demand for, and interest in, ICT access, which, in turn, will help to make the related initiatives more viable.

1.6 z Building Capacity to Narrow the Digital Divide in Africa from Within

Looking deeper at ICT policy issues that apply to particular country groupings The above country groupings can also be used to examine issues in the context of the different levels of e-readiness. For example, some of the issues that face countries with a higher level of e-readiness, such as e-commerce, authentication and the provision of cryptography services, are not high-priority issues for those with a low level of e-readiness. And the reverse is also true: issues such as basic ICT access and the provision of service to rural communities are not so problematic for countries with a higher level of e-readiness, although universal service and the provision of basic telephony to rural communities are yet to be fully achieved, even in countries such as Egypt and South Africa. The solutions to Africa’s problems must come from within the continent, and Africa is ready to rise to the challenge. The vision of a few of Africa’s leaders that led to the formation of NEPAD recognised that the road ahead was long and challenging. But by removing obstacles to development, building indigenous capacity, and fostering partnerships between government, the private sector and civil society—both within Africa and with the developed world—they have cut to the root of the problem. And many of Africa’s leaders recognise the part that ICT has to play. Indeed, it is seen as the cornerstone on which many of the solutions to the problems facing Africa will be built. But ICT has to be more available to people in terms of physical access, affordability, appropriate technology and locally relevant content. Achieving e-readiness across Africa will require bold and ambitious steps. Legal and regulatory frameworks will have to be overhauled, sometimes in the face of opposition. Innovative uses of technology will have to be found, in order to deliver ICT where it is needed most. Content that is relevant to local needs must be produced and distributed. Governments and policy-makers will need help and advice to make tough decisions. Understanding the problems, and having a range of recommendations and solutions that are in a local context, will help Africa’s current and future leaders and administrators achieve their aims. NEPAD has the mandate, as well as the ability, to bring about change on a hitherto unseen scale in Africa, and its chances of success are enhanced by the commitment that its leaders have shown.

Bridges.org compiles information on the e-readiness assessments, conducted in developing countries by tracking the major international assessment initiatives, and inviting national and other programmes to submit information about their assessment activities. See bridges org 2002. 6 For more information on the UNDP Human Development Index, see http://www.undp.org/hdr2002/. 7 Nor has political ideology or the level of democracy in Africa’s countries been taken into account. These issues are being addressed by NEPAD in other fora, and it is not for the authors of this report to make judgements on these areas, regardless of their impact on e-readiness. 8 The information in this table is presented to explain some of the anomalies in the groupings that may seem counter-intuitive. For example, Mozambique has undertaken legal and regulatory reform, and has integrated the idea of ICT, as a basic component of the national socio-economic development strategy. However, despite these positive developments on a policy level, Mozambique is still plagued by low levels of infrastructure development and low HDI value, largely as a result of the civil war. 9 Not all of the countries in Africa are members of NEPAD, but for completeness, we have included all of them in this report, including those that have no UNDP Human Development Index. 10 There are initiatives to increase the number of government-supported telecentres, and to increase their financial sustainability. But increasing the number of telecentres has technical infrastructure implications. 5

References Bridges.org 2002. E-readiness Assessments: Survey of Who is Doing What and Where. updated 24 March. http://www.bridges.org/ereadiness/where.html/. United Nations Conference on Trade and Development (UNCTAD). 2002. E-Commerce and Development Report. http://www.unctad.org/en/docs//ecdr2002_en.pdf.

Notes NEPAD is a holistic, comprehensive and integrated strategic framework for the socio-economic development of Africa. Its primary objective is to eradicate poverty in Africa, and place African countries on a path of sustainable growth and development. See http://www.nepad.org 2 For an overview of the NICI initiatives in Africa, see http://www.uneca.org/aisi/nici.htm and http://www.uneca.org/aisi/nici/NICI%20in%20Africa.htm. 3 For more information on WOFAN, see http://www.electroniccommunity.org/wofan/contact_wofan.htm. 4 E-Commerce and Development Report. 2002.

1.6 z Building Capacity to Narrow the Digital Divide in Africa from Within

65

1

Annex 1: Model ICT policy issue paper The use of radio as an appropriate technology to support rural development in lesser-developed African states

Background and context In order to have a positive impact on the lives of the majority of Africans, the New Partnership for Africa’s Development (NEPAD) must take into account both the international context and continent-wide changes taking place, and the stark realities of the situation on the ground, within which actions and programmes are to be implemented. Africa is faced with an interconnecting web of challenges, from the need to integrate into an increasingly complex global economy, to the strengthening of democracy and pluralism, while simultaneously addressing the need to ensure food security, to manage and protect natural resources, improve standards of living, health and education, and to value and preserve their cultural heritage. Over the last three decades, Africa has experienced a major decline in per capita food production, and in the next two decades, the continent is projected to be the only region in the world where malnutrition is expected to increase by 50% from 1997-2020. Poverty, the lack of an adequate income, and the inability to purchase or produce enough food, affects approximately 90% of the rural African population. Further, most African societies are characterised by a wide range of ethnic and linguistic groups spread over extensive geographic areas, with limited available infrastructure and low levels of literacy and education.

66

Communication, information, knowledge and technology are essential in overcoming the constraints to rural development and to face these challenges. Rural communities must be empowered to use appropriate tools, and to access and convey useful information and knowledge. They should be able to exchange experiences, knowledge and techniques, and be actors in the debate on development issues. Rural radio was introduced in Africa in the early 1960s, and remains the most cost-efficient and effective means of communicating and empowering rural communities, and of crossing the barriers of distance, illiteracy and diversity. It has been estimated that by the end of the 1990s there were approximately 12 newspapers, 52 televisions, and 198 radios for every 1,000 Africans, highlighting the importance of radio in any strategy that involves rural development. The use of a radio as an appropriate technology with locally produced and relevant content has proven to be a winning combination for empowering and supporting the socio-economic development of rural communities, and particularly for helping to address the dire challenges of food security.

The use of rural radio has developed considerably over the last twenty years. Radio content has expanded from its earlier function of covering mostly issues of agricultural extension, and now encompasses all aspects of development, reflecting the social, educational, and cultural needs of the communities that it serves. It has grown from an instructive medium to an interactive medium with dialogue, debate, and the exchange of ideas. These developments have been enhanced by the creation of regional radio stations to address specific socio-economic and linguistic needs. Listening and radio clubs have also been started, to create dialogue with audiences, encouraging them to take concrete action, and to provide input and feedback on the rural programming produced. On a national level, rural correspondents have been appointed to collect local information for incorporation into national broadcasts. Yet, despite the broad reach and recent developments in rural radio broadcasting, challenges still remain to ensure the optimal use of radio communications for development, particularly in the less developed countries of Africa.

Key challenges In most African countries, the general framework of the media is being redefined. Deregulation, the ending of state monopolies, the emergence of new broadcasting actors, and the development of enhanced broadcasting technologies are allowing for an approach to service and content which foster the development of rural radio broadcasting that empowers communities and gives them a voice in matters that directly affect their livelihoods. However, there are some pitfalls to these developments. The increase in the number of broadcasters has resulted in stations being driven by commercial, political, and sectarian motives, to the detriment of public service broadcasting, currently the only guarantee of equitable access to information and the media for rural populations. Rural radio stations are dependent on national policy and regulations for broadcasting licences. Deregulation of some broadcasting policies in Africa has resulted in the granting of licences to many more rural radio stations, yet licences, whether commercial or nonprofit, are still difficult to obtain in some countries. Public service broadcasting provided for the inclusion of local content quotas as a condition of licensing, similar to license obligations placed on incumbent telecommunication service providers, under what is known as universal service obligations. However, radio stations are still constrained by the lack of investment, low quality programming, and a lack of trained staff. Initiatives to set up rural radio stations are not properly coordinated nationally and regionally, and this may result in their being developed primarily in urban and peri-urban areas where the potential for advertising revenue is greater.

1.6 z Building Capacity to Narrow the Digital Divide in Africa from Within

Challenges also arise in the language medium of the information exchanges, as well as in the broadcasting content. Most information for broadcast is available in the languages of the developed world. Actions are needed to address the needs of other languages and cultures, as part of the effort to make ICT more accessible to all people. This will involve significant investment and support for local content production, both broadcasting and text, and the participation of the local community in determining its programming needs and priorities. Programmes are usually distributed on one radio network only, and do not reach the entire country. Coordination and network formation between radio stations at a local, regional, and national level will help ensure that optimum use is made of all the existing facilities to meet the needs of the audience, to provide the best territorial and linguistic coverage, and ensure the participation of marginalised groups, including women and youth. These efforts will empower women and children who are the most likely victims of rural poverty and food insecurity. Increasingly, emphasis is being placed on research and development processes that empower women farmers, such as access to resources, and consideration of their indigenous knowledge. Radio has provided the means for reaching women farmers, their organisations and rural schools. A notable example has been the success of the Women Farmers’ Advancement Network (WOFAN) in Nigeria. This has resulted in tangible improvements in the lives of some of the most disadvantaged women and children in Kano State.

Recommendations The following recommendations outline some areas where actions can be taken. 1. Form and support training institutions that specialise in rural broadcasting. CIERRO (Centre International d’études en Radios Rurales de Ouagadougou)1 is the only such regional training centre in rural radio. It was established in 1978 by the URTNA (Union des Radiodiffusions et Télévisions Nationales d’Afrique2). CIERRO has trained

producers and technicians in most Francophone countries, and offers a two-year, nationally recognised training course, as well as short training courses. Its functions also include research, documentation and dissemination of information in rural radio. Community radio stations, such as Bush Radio in Cape Town, South Africa, provide in-house training for community radio station interns and aspiring broadcasters from around Africa and the world, including the developed world. There is currently no institution similar to CIERRO in Anglophone or Lusophone countries. 2. Consolidate extensive research and numerous case studies on the use of rural radio for development. Extensive research has already been conducted, initiatives launched, and international workshops hosted, resulting in a wealth of information on how rural radio can be used for development. These resources should be tabled in an inventory, giving organisations access to a comprehensive list of resources and available tools. Partnerships should include the World Association of Community Radio Broadcasters (AMARC) and the Media Institute of Southern Africa (MISA). 3. Further enhance and support connections between agricultural research and rural radio. Agricultural research plays a vital role in improving rural living standards and bringing affordable food to all, yet the full potential of such research is not being realised, principally because communication between scientists, extension staff, and farmers in the developing world is weak. The benefits from linking research with rural radio include: z sharing of research findings across great distances, and in languages and terminologies familiar to audiences in rural areas; z radio transmission of valuable information to farmers, including what research is available and where; z relay of information concerning what farmers think about various technologies; z preparation for and dealing with natural disasters; z Dissemination of weather and market information. 4. Continue to reform and coordinate regional and national communications policy and regulation. Opening up the airwaves should be encouraged, and efforts made to harmonise the various existing legal statutes that determine the legal form and status of the new stations. Efforts are already underway to examine the existing legal and regulatory frameworks, and the findings should be disseminated to other countries as best practice examples. Incentives should be legislated requiring private sector broadcasters to provide services to

1.6 z Building Capacity to Narrow the Digital Divide in Africa from Within

67

Physical infrastructure issues remain a key challenge to be addressed throughout each NEPAD member state, whether in terms of basic telecommunications infrastructure, advanced fibre optic cabling, or even the basic rollout of electricity. However, even when such infrastructures are in place, difficulties arise when they are poorly maintained, or are too costly to be used by local citizens. Radio, despite its widespread nature, is not exempt from these challenges. The setting up of rural radio stations requires an initial capital investment for hardware and software infrastructure. Production equipment is often outdated, and always overused. And since most equipment is acquired from different donors, or through different aid mechanisms, it is often of diverse origin, and may comprise end-of-series products. This makes for serious problems for maintenance and the acquisition of spare parts.

administer matters relating to national legislation and the allocation of broadcasting frequencies, and coordinate training and research programmes with relevant training bodies.

rural communities. 5. Rural development projects must consider the wider systemic economic, social, and communication needs of rural communities. Rural development strategies should shift from technology-driven projects, and function on multiple levels, addressing numerous interlinked challenges, in order to effect change. Caution should be exercised, so that unnecessarily technological—often expensive—solutions are not implemented, when the use of simpler radio technology might be able, more effectively, to address some of these challenges. Solutions must be technologically appropriate, take into account the reality they seek to address, and be compatible with the grassroots level. 6. Coordinate deployment, use and maintenance of infrastructure. This is necessary to ensure that Africa does not become the technological graveyard of the developed world. An assessment of existing infrastructure should be undertaken, with international technical and financial partners, to ensure that technically and economically appropriate infrastructure is being deployed to meet the needs of the rural communities. There should be a process of standardisation, and a related development of industrial capacity to develop and maintain the infrastructure.

Rural radio remains the only form of information and communications technology within the reach of the majority of rural Africans. It is well adapted to the local economic, social and cultural conditions of rural communities, and provides both access to information, and an avenue for expression and communication. It is imperative that African policy makers, business and development organisations grasp the importance of radio, take the necessary steps to support confidence in this medium, and ensure its survival in Africa, particularly at a time when it is often thought more fashionable to direct scarce resources at other, less appropriate technological solutions. To ensure its continued survival and development, radio must adapt to a rapidly changing environment, the infrastructure and equipment challenges that plague its use must be solved, legal and regulatory frameworks governing it must be modified to enhance its capacity to meet the needs of listeners in local languages, and networks formed to provide adequate staff training.

Annex 1 Notes 1

International Centre for Rural Radio Studies of Ouagadougou.

68

7. Support and strengthen national regulatory bodies. Such coordinating bodies will define the specifications for the different rural radio stations, ensure components of public service broadcasting,

Conclusions

1.6 z Building Capacity to Narrow the Digital Divide in Africa from Within

Annex 2: Overview of the current economic situation, and cost of telecommunications in each African country Inflation Population rate below % poverty line (2001) % (2001)

Algeria

3.8

$5,600.00

3.0

23.0 (1999)

Angola

5.4

$1,330.00

110.0

n/a

Unemployment Rate % (2001)

Internet Access costs/pm (US$)2

Local Telephone Costs (2000) in USD Fixed Line Mobile Cellular (per minute) (per 3 minutes)

34.00

$73.08

$0.02

$0.13

/2 the population

$75.00 3

$0.08

$0.24 4

1

Benin

5.4

$1,040.00

3.0

37.0

n/a

$2.40/hr 5

$0.09

$1.01

Botswana6

4.7

$7,800.00

6.6

47.0 (2000)

40.00

$25.82 7

$0.60

$1.30 8

Burkina Faso

4.7

$1,040.00

3.5

45.0

n/a

$63.11 9

$0.08

$0.63

Burundi

1.4

$600.00

14.0

70.0

n/a

$150

$0.03

n/a

Cameroon

4.9

$1,700.00

2.0 (2000)

48.0 (2000)

30.00

$4,000

$0.06

n/a 10

Cape Verde11

3.0

$1,500.00

3.0

30.0 (2000)

21.00 (2000)

n/a

$0.04

$0.85

Central African Rep.

1.8

$1,300.00

3.6

n/a

8.00

$6.90/hr 12

$0.49

$0.58 13

Chad

8.0

$1,030.00

3.0 (2000)

80.0

n/a

$20.00 14

$0.14

n/a

Comoros

1.0

$710.00

3.5

60.0

20.00 (1996)

$573.69

$0.14

n/a 15

Congo Republic

4.2

$900.00

3.0

n/a

n/a

n/a

$0.63

n/a

Côte d’Ivoire

-1.0

$1,550.00

2.5 (2000)

n/a

13.00 (1998)

$4,015.82 16

$0.05

$0.63 17

0

$1,400.00

2.0

50.0

50.00 (2000)

$295.72

$0.20

$0.59 18

19

$0.59/min 20

Djibouti DRC

-4.0

$590.00

358.0

n/a

n/a

$100.00

Egypt

2.5

$3,700.00

2.8

22.9 (1996)

12.00

$0. 25/hr 21

$0.36

$0.01

$0.78

Equatorial Guinea

6.0

$2,100.00

6.0

n/a

30.00

n/a

$0.05

n/a

Eritrea

7.0

$740.00

15.0

n/a

n/a

$25 to $28 22

$0.02

n/a

Ethiopia

7.3

$700.00

6.8

64.0 (1996)

n/a

$19 and 23 $34

$0.02

$0.26

Gabon

2.5

$5,500.00

1.5

n/a

21.00 (1997)

$516.31

$0.15

n/a

Gambia

5.7

$1,770.00

4.0

n/a

n/a

$19.60 (2000) 24

$0.27

$0.23

Ghana

3.0

$1,980.00

25.0

31.4 (1992)

20.00 (1997)

$45.00 (2000) 25

$0.04

$0.90

Guinea

3.3

$1,970.00

6.0 (2000)

40.0 (1994)

n/a

$20.95 26

$0.09

$0.26 27

Guinea Bissau

7.2

$900.00

5.0

50.0 (1991)

n/a

$45.00 (10hrs) 28

$0.15 (1999) 29

n/a

Kenya

1.0

$1,000.00

3.3

50.0 (2000)

40.00

$2,500 - $3,500

$0.05

$0.59

Lesotho

2.6

$2,450.00

6.9

49.2 (1999)

45.00 (2000)

$114.94 /yr 30

$0.02

$0.62/min 31 n/a

Liberia

5.0

$1,100.00

8.0

80.0 (2000)

70.0

n/a

n/a

Libya

3.0

$7,600.00

13.6

n/a

30.00 (2000)

$45.00 (10hrs)32

$0.03/3 min (1999)33

n/a

Madagascar

5.0

$870.00

7.0

70.0 (1994)

n/a

Vary: $305.9734

$0.09

$0.78

Malawi

1.7

$660.00

28.635

54.0 (1991)

n/a

$5.2936

$0.03

$0.35/min 37 $1.26

Mali

4.8 (2000)

$850.00 (2000)

0.8 (2000)

n/a

n/a

NA

$0.07

Mauritania

4.0

$1,800.00

4.4

50.0

21.00 (1999)

$30.00

$0 08

n/a

Mauritius

5.2

$10,800.00

5.4 38

10.0

8.60

$3.43 39

$0.03/3min 40

$0.15

Morocco

5.0

$3,700.00

1.0

19.0 (1999)

23.00 (1999)

$44.19/hr 41

$0.08

$0.56

Mozambique

9.2

$900.00

10.0

70.0

21.00 (1997)

$25.00

$0.07

$0.46

Namibia

4.0

$4,500.00

8.8

n/a

40.00 (1997)

$478.40 42

$0.11/min 43

$0.70/min 44

Niger

3.1

$820.00

4.2

63.0 (1993)

n/a

$860.53

$0.11

$0.23

Nigeria

3.5

$840.00

14.9

45.0 (2000)

28.00 (1992)

n/a

n/a

n/a

Rwanda

5.0

$1,000.00

5.0

70.0 (2000)

n/a

$174 to $300 45

$0.02

n/a

Sao Tome and Principe

4.0

$1,200.00

7.0

n/a

n/a

n/a

$0.06

n/a

Senegal

5.7

$1,580.00

3.3

54.0

48.00

n/a 46

$0.11

$0.56

Seychelles

1.5

$7,600.00

6.1

n/a

n/a

$46.54 47

$0.14

$0.50

Sierra Leone

3.0

$500.00

15.0 (2000)

68.0 (1989)

n/a

n/a 48

$0.03

n/a

Somalia

3.0

$550.00

Over 100%

n/a

n/a

$1.00/min 49

$0. 40/min 50

n/a

South Africa

2.6

$9,400.00

5.8

50.0 (2000)

37.00

$10 - $20 51

$0.07 52

$0.30/min 53

Sudan

5.5

$1,360.00

10.0

n/a

18.70

$100 54

$0.02

$0.14

Swaziland

2.5

$4,200.00

7.5

n/a

34.00 (2000)

$14.00

$0.05

$0.80

Tanzania

5.0

$610.00

5.0

51.1 (1991)

n/a

Vary with ISPs 55

$0.08

n/a

Togo

2.2

$1,500.00

2.3

32.0 (1989)

n/a

$16.09 56

$0.10

$0.75

Tunisia 57

4.8

$6,600.00

2.7

6.0 (2000)

15.60 (2000)

$15.62 58

$0.03

$0.18/min 59

60

$0.14

$0.36

Uganda

5.1

$1,200.00

3.5

35.0 (2001)

n/a

Western Sahara

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

Zambia

3.9

$870.00

21.5

86.6 (2000)

50.00 (2000)

$25.00 61

$0.06

$0.68

Zimbabwe

-6.5

$2.450.00

100.0

60.0 (1999)

60.00

$40.00

$0.05

$0.50

Source: Unless stated otherwise, indicators sourced from the CIA World Factbook, 2002

$200.00

Source: ITU World Telecommunications Dev.Report’02 (for telephone costs)1, and APC/AISI database (for Internet costs), unless otherwise stated.

1.6 z Building Capacity to Narrow the Digital Divide in Africa from Within

69

Country

Real GDP GDP per capita growth % US$ (2001) (2001)

Data estimates for 1999. See http://www.uneca.org/aisi/nici/Cote%20d’Ivoire/coteinfra.htm. 18 Estimates for 1999. Connection charge US$281/month; monthly subscription: US$50.60; PSTN three minute local call US$0.59. http://www.uneca.org/aisi/nici/Djibouti/djbinfra.htm. 19 Dialup Full Internet – InterConnect: US$100/month for 10 hours, US$10/ hour for additional hours. Local calls via Telecell cost US$0.36/minute cell to cell and US$0.59/minute cell to OCPT. Local calls via Comcell cost US$0.30 cell to cell, and US$0.55 cell to OCPT. http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=CD. 20 Local call via Telecel per minute – Cell to Cell: US$0.39, Cell to OCPT: US$0.59; Local call via Comcell per minute - Cell to Cell: US$0.30, Cell to OCPT: US$0.55 in 1999. http://www.uneca.org/aisi/nici/DRCongo/drcinfra.htm. 21 Have a non-cost dial-up, and a US$0.25 per hour charge. Hrvoje Hrnjski, Africa ICT Policy Monitor, Egypt boasts free Internet access, 09 September 2002, http://www.apc.org/english/rights/africa/?-2-Egypt; Lulcas Ledwaba, ITWeb, Egypt takes on the digital divide, 31 October 2002. http://www.itweb.co.za/sections/quickprint/print.asp?storyID=128393; and Mats Palmgren, Egyptians Flock to New Net Plan, Wired News, 25 June 2002. http://www.wired.com/news/business/0,1367,52993,00.html; see also 22 Setup: US$55. Subscription US$28/month for an account with a one megabyte volume limit. Tfanus: US$25/month. http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=ER. 23 Individual: Setup: US$56. Subscription US$34 /month for 15 free hours/month, US$19/month for 8 free hours a month. US$4/hour for additional hours. 1MB free storage. International NGOs, Embassies and Business Sectors: Setup: US$113. Subscription US$75/month for 40 free hours a month. US$4/hour for additional hours. 2MB free storage. Public Education, Health and Agricultural Sectors: Setup: US$38, Subscription – US$25/month for 40 free hours a month. US$2/hour for additional hours. 2MB free storage. All non-profit organisations: Setup: US$56. Subscription US$38 /month for 40 free hours a month. US$2/hour for additional hours. 2MB free storage. Additional email boxes - US$5 /month. Additional Hard disk space US$2/month/MB. http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=ET. 24 See http://www.gamtel.gm/ 25 See Network Computer Systems (NCS). http://www.ghana.com 26 40,000.00 GNF (= US$20.95 as of 20 November 2002, http://www.oanda.com/convert/classic). Source: ETI-BULL. http://www.eti-bull.net, and Mirinet: http://www.mirinet.net.gn/ 27 As of 1999, connection was US$70; monthly subscription: US$14.60; 3-minute local call (Peak: US$0.31, Off-peak: US$0.21) for mobile cellular calls. http://www.uneca.org/aisi/nici/Guinea/guineainfra.htm. 28 See Guinea Telecom (GT). http://sol.gtelecom.gw and http://www.uneca.org/aisi/nici/Guinea-Bissau/bisinter.htm. 29 See http://www.uneca.org/aisi/nici/Guinea-Bissau/bisinfra.htm. 30 Email, Software and extra services: email, web browser and server space for a personal web page, cost: R 1100 (R1,100 = US$114.94 as of 20 Nov.2002, http://www.oanda.com/convert/classic) for Internet Subscription for a year with LEO, http://www.lesoff.co.za/services/default.htm. 31 Connection charge is US$16.40, and monthly subscription is US$16.40, http://www.uneca.org/aisi/nici/lesotho/lesinfra.htm. 32 Costs were US$45/month, including 10 free hours / month, and a US$4/hour for additional hours in 1999. http://www2.sn.apc.org/africa/countdet.cfm?countries__ISO_Code=LY. 33 In 1999, PSTN connection charge (residential) was: US$124; Connection charge: US$533; Monthly subscription (residential): US$46 and US$46.10 for businesses, http://www.uneca.org/aisi/nici/Libya/libyinfra.htm. 34 Com#Pro Tariffs. 19.2Kbps leased line: Setup: 2500 FRF, Subscription 2000 FRF/month (2000.00 French franc (FRF) = 304.9 euro (EUR) 304.9 Euro = 305.967 US Dollar as of 20 Nov 2002, http://www.oanda.com/convert/classic), 28.8Kbps leased line: Setup: 4 000 FRF, Subscription 2500 FRF. DTS. - Monthly fees for dial-up internet access: 36FRF. Up to 10 email boxes, plus 1Mb disk space for web hosting per email box (36FRF/month per extra 1 Mb.) - Internet connections are taxed at 0.5FRF/min. Simicro. Dialup subscription (includes unlimited email addresses, 1MB disk space, software and support from 7- 22hr: Setup: 20 000MGF, 5 hours/month - 84 000 MGF /month, 10 hour/month -160 000 MGF/month, 20 hour/month - 310 000 MGF/month, 30 hours/month 450,000 MGF/month. Additional time - 300 MGF/minute. Additional MB web space - 20,000 MGF/month; and for Sinergic. Dialup account: Setup: 20,000 MGF, 1.5hours/month - 57,000 MGF/month, 3 hours/month – 84,000 MGF/month, 5hours/month – 126,000 MGF/month, 40 hours/month 864,000 MGF/month. Additional time - 570 MGF/minute. http://www2.sn.apc.org/africa/countdet.cfm?countries_ISO_Code=MG. 35 Inflation rate was 16.1 in July 2002 and 16.5 in August 2002. See Malawi Statistics in http://www.nso.malawi.net/, http://www.un.org/Pubs/CyberSchoolBus/infonation/e_infonation.htm. 17

Annex 2 Notes International Telecommunication Union (ITU). World Telecommunication Development Report: Reinventing Telecoms, World Telecommunication Indicators, March 2002, ISBN 92-61-09831-2; Place des Nations, CH-1211 Geneva, Switzerland. 2 Local currencies converted into US$ as of 20 November 2002 rates, http://www.oanda.com/convert/classic. 3 EBONet: Dialup PPP: Setup US$99, including installation, manual and training. Unlimited use: US$75 /month (US$64 if annual payment) 19.2kbps analogue Leased Line: Setup: US$450, US$600/month. Netangola: Personal account - Setup US$50, Annual subscription US$420. Corporate: Setup US$240, Annual Sub US$1890. Email only: US$240, http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=AO, as updated in September 2002. 4 Source: ITU 2002 ibid. Also AISI/NICI indicates the following: Connection: US$112.9; Monthly subscription: US$37.6; Local call per 3 minutes: US$0.30 (Peak) for year 2000. http://www.uneca.org/aisi/nici/angola/anginfra.htm. 5 OPT Internet charges: Dial-up access to Internet - Startup cost: US$10 or 4,950 CFA Francs (payable once) - Usage cost: 51 CFA Francs per minute; Email account - Account creation: 20,064 CFA Francs - Monthly subscription: 10,032 CFA Francs; Analogue Leased Line (4 wire, 28Kbps or lower) Account creation: 150,018 CFA Francs - Monthly subscription cost: 400,026 CFA Francs; and Digital 64Kbps Leased Line + Class C address - Router rental: 60,010 CFA Francs/ month - Setup: 1,000,032 CFA Francs, subscription: 2,800,050 CFA Francs/month. http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=BJ. 6 See the Central Statistics Office of Botswana at http://www.cso.gov.bw/cso/. 7 Info Botswana, Dialup: Unlimited Use - BWP 150 per month, payable quarterly or BWP 100 per month, payable annually. Email only: BWP 80 per month, payable quarterly or BWP 53 monthly payable annually; GIA Botswana/ Abacus Computing: Dialup: Setup - BWP 140, Unlimited use - BWP 80/month /BWP 470/year. Web space hosting: - up to 2MB for individuals free, http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=BW. 8 Public phones are charged at BWP P0.50 per 1st meter period – See BTC charges in http://www.btc.bw/tar_psb_pp.htm, and http://www.uneca.org/aisi/nici/botswana/botsinfra.htm. 9 ONATEL Internet Charges: Dial-up access - Startup: 6500 CFA Francs Connect time 1000 CFA Francs/hour; Analogue Leased Line (4 wire, 33,6K bps - Account creation: estimate on request - subscription: 550,000 CFA Francs/month; Digital 64Kbps Leased Line with Class C address - Account creation: estimate on request - subscription: 850,000 CFA Francs/month; Email Account - Account creation: 8500 CFA Francs - subscription: 5200 CFA Francs/month; All prices subject to 15% tax. http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=BF. 10 No data on cellular costs, but landline cost are elaborated as follows: IntelCam - Leased line: US$4000/month (2M CFA Francs) for a 64Kbps link; Dialup: Setup - 20 000 CFA Francs. 2 hours/month - 6,000 CFA Francs/month. 10 hours/month - 20,000 CFA Francs/month. 20 hours/month - 35,000 CFA Francs/month. Additional hours: 2000 CFA Francs/hour. Ditof – Dialup: 2000 CFA Francs/hour. Uninet - Dialup: 2 hours/month - 2000 CFA Francs/hour. Analogue leased line: 400,000 CFA Francs/month, (email only: 200,000 CFA Francs/month). Website hosting: 15MB 35,000 CFA Francs, 50MB 200,000 CFA Francs/month, server colocation 600,000 CFA Francs/month. Centre Syfed: Free for public institutions, others: Monthly fee: - Minitel: 4,000 CFA Francs/month, Minitel or PC: 6,000 CFA Francs; Local calls cost 40 CFA Francs / 6 minutes US$1.55/hour. About 30% cheaper after hours US$1.1/hour. http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=CM. 11 Also see Instituto Nacional de Estatistica Cabo Verde, at http://www.ine.cv/http://wwwindex.html. 12 Dialup Internet costs 15,000 CFA Francs to set up and 10,000 CFA Francs/month plus 60 CFA Francs/minute (US$6.9/hour). http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=CF. 13 Estimates for year 2000. See http://www.uneca.org/aisi/nici/car/carinfra.htm. 14 CNAR provides email only facility: US$20/month. Local calls cost 100 CFA Francs/minute (US$10.50/hour). http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=TD. 15 Dialup Internet access costs 5,000 FCM/month, unlimited time. Local calls cost 25 FCM 3 minutes. The Comorian Franc is fixed at 75 per French franc. http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=KM. 16 Centre Syfed: free to non-profit organizations Netafric - Email only: 10 email addresses for 20,000 CFA Francs setup fee, 40,000 CFA Francs/month, 3,000 /hour, 50 email addresses 150,000 CFA Francs/month, 2,000/hour. Full Internet + 1 email - 3000 CFA Francs/hour 8-18h, 1500 CFA Francs/hour 188h, or 25,000 CFA Francs/month for up to 15 hours, 2000 CFA Francs/hour for supplemental hours, or unlimited connection for 35,000 CFA Francs/month (45,000 CFA Francs/month includes web page). Web hosting @ 120,000 CFA Francs/Year for 200Kb, 204,000 CFA Francs/year for up to 10MB. http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=CI.

70

1

1.6 z Building Capacity to Narrow the Digital Divide in Africa from Within

For individuals: 750 SCR setup fee, 250 SCR/month (250.00SCR = $ 46.54 as of 20 Nov 2002. http://www.oanda.com/convert/classic) for one address and 20 hours of connection time. http://www2.sn.apc.org/africa/countdet.CFM?countries__ISO_Code=SC. 48 See Internet in Sierra Leone. http://www.firstmonday.dk/issues/issue2_2/kargbo/#dep4. 49 While this may appear inexpensive compared to many other African countries, income is very low in Somalia and affordability is still a problem. The high cost of subscribing to the Internet is seen as the reason why very few people have opened an account. The initial installation fee is US$120, equivalent to the monthly income of some Somali families. It costs US$30/month to rent a line, and $1/minute (2002) to connect to the Internet. http://news.bbc.co.uk/1/hi/world/africa/459319.stm. See also Abdigani Jama, Secretary General of the STA, January 2002, SW News. http://www.somaliawatch.org/archivedec01/020111101.htm. 50 Competition is reducing international call charges in Somalia. The current price war was started by Netexchange and TeleAtlantic in December 2002, when they reduced their prices to US$0.40 and $0.35/minute respectively. http://allafrica.com/stories/200203250235.html. 51 See http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=ZA. 52 Telkom costs: ZAR0.70c per minute for domestic calls (with the radius of 50km), during office hours, and lower after peak hours. http://www.telkom.co.za/pricing/content/nationalcall.jsp. 53 Cellular charges between three operators almost similar: peak voice calls: ZAR2, 85/min ($0.30 as of 20 Nov 2002, http://www.oanda.com/convert/classic); off-peak voice calls: ZAR1, 55/min; SMS peak: ZAR0, 75 cents; and SMS off-peak: ZAR0, 30 cents http://www.vodacom.co.za/prepaid/packages.asp; also see CellC charges: ZAR2, 60 during peak hours, etc http://www.cellc.co.za/chatpacks.asp?sPage=chatpackscharges, and MTN at http://www.mtn.co.za/personal/payg/. 54 Sudatel Dialup Internet: Embassies, NGOs and businesses pay US$500 to subscribe and US$100 in monthly service fees. Government ministries and universities pay US$345 and US$145 respectively to sign up, then US$45 per month. Individual subscribers pay US$200 to subscribe with monthly service charges of US$40, http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=SD. 55 SITA: 9.6Kbps international leased line - US$4500/month. 64Kbps US$14,000/month. COSTECH: US$20/month and US$0.1 per Kb of international traffic. Datel 19.2Kbps wireless link: US$US$350/month for each end (US$700/month total). Muhimbili: Email - US$20/month. Installation - US$50. UDSM: Users on campus - US$10/month. External users - US$150/month. CyberTwiga: Email only - US$50/month. Unlimited Web/Email - US$75/month. Setup is free if self-installed. US$200 for an on-site installation, http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=TZ. 56 An unlimited dialup account subscription costs about 10,000 CFA Francs per month (= US$16.09 as of 20 Nov 2002, http://www.oanda.com/convert/classic). Free access is provided to members of the UNDP’s SDNP programme. Dialup access to the Internet through Togotel costs 60 CFA Francs/ 4 minutes. Cafe dialup Internet costs 50,000 CFA Francs/Month. http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=TG. 57 Also see Tunisia Institut National de la Statistique at http://www.ins.nat.tn/_private/idc/page01141.idc. 58 The cost of Internet access is 21 TND/month for unlimited access (= $15.62 as of 20 November 2002, http://www.oanda.com/convert/classic), plus 40 Dinars for software and installation. (1 TND = US$0.80 as of 20 November 2002). Calls to the Internet are a fixed price throughout the country, regardless of the distance dialled -0.15 FRF/minute http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=TN. 59 Connection fee was US$105/month, subscription was US$13.17, and an additional US$0.18 per minute in 1998. http://www.uneca.org/aisi/nici/Tunisia/tunisinfra.htm. 60 BushNet: Radio equipment US$6,500 installation and training, US$1,000 running costs: No extra charge if customer is polled only once a day, US$200/month if a customer chooses to be polled more than once a day, US$0.3/ Kb of data (typical customer usage is currently at about US$120 per month). Infocom offers email for US$30 per month, unlimited full Internet access for US$50. Most of the other ISPs are now providing wireless Internet connections for as little as US$200/month. Together, the four active ISPs had some 4100 accounts at the start of 2000, serving an estimated 25,000.00 users. http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=UG. 61 Zamnet: US$25/month for full Internet access. Local calls cost US$2.5/hour peak, US$1.5/hour off-peak. http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=ZM.

1.6 z Building Capacity to Narrow the Digital Divide in Africa from Within

71

MalawiNet: Email only: Setup: 2000 MWK, Subscription 420 MWK/month, Free Time - 2hours/month, additional time 2.4 MWK/minute Dialup Internet: Setup: 4160 MWK, Subscription 2500 MWK/month, Free Time - 20 hours/month, additional time 1.6MWK/minute. Additional email addresses - Setup 1500 MWK, 1000 MWK/month post office charge and 420 MWK/month per user id. 9.6Kbps analogue lased line. Own router Setup: US$1,200, Subscription: US$700/month. Router included - Setup: US$1500, Subscription US$950/month. Drop in service - 1000Mk/month. Web hosting. 5MB storage: Setup: US$135, Subscription US$135/month, up to 25MB storage: Setup: US$400, Subscription US$300/month. Web design. US$65/hour http://www2.sn.apc.org/africa/countdet.cfm?countries_ISO_Code=MW. 37 “Celtel and TNM were provided with licenses, which were followed by overwhelming reception of mobile phone technology among many Malawians, especially the briefcase-carrying business community…while people were initially enthused with the modern gadgets, consumers have lately been complaining of the ever-rising tariff rates. It now costs an average of US$0.35 per minute for a subscriber…”. Hobbs Gama, All Africa.com, 21 October 2002, http://allafrica.com/stories/200210210658.html. 38 Annual inflation rate stood at 4.2% in 2000, and 5.4% in 2001 in Mauritius. See the Central Statistics Office (CSO) of Mauritius at http://ncb.intnet.mu/cso.htm. 39 The cost of access is 100 MUR a month (100 MUR = US$3.43 on 20 Nov 2002, http://www.oanda.com/convert/classic), and 100 MUR for each email address and then 300Rs for 10 hours. The cost of web hosting is 2,000 MUR per mega-octet. 19.2Kbps leased lines are 5000Rs setup and 11,500Rs/month in Port Louis, 64Kbps over X.25 is available for 35,000Rs / month. Cost of a local call is 1 MUR for 3 minutes, (1FRF=3.55 MUR), but for Internet calls this fee is bundled into the above internet access charge and is not billed for separately. http://www2.sn.apc.org/africa/countdet.cfm?countries_ISO_Code=mu. 40 See also the Mauritius telecom rates at http://ncb.intnet.mu/media/contelcm.htm#intnet. 41 ACDIM: Monthly - 450 MAD (= US$44.19 as of 20 Nov 2002, http://www.oanda.com/convert/classic), Off Peak account: 250 MAD (12h30, 14h00, 20h30, 7h00 every day, Email only: 150 MAD , Installation: 250 on site, 150 MAD on premises, no setup fee if user installs. Azure: Usage: 1 MAD every 2 minutes or 650MAD unlimited. Leased lines: 2500 MAD setup + 7000 MAD/month. Diagone MarocNet: 240 MAD /month, unlimited usage. Elan: Private acct: 300 MAD a month, corporate account 500 MAD /month (both unlimited access) Group Open SA: 500 MAD /month for individuals, 699 MAD /month for company account. 300 MAD /month for access only between 7h00 and 16h00. L&L: 300 MAD /month, if paid annually. Email 100/month. + 0.80 MAD/ 3 minutes peak hours, 40 MAD/ 3 minutes off peak. MaghrebNet: 350 MAD/monthly. Leased line: 2000 MAD setup fee, 4000 MAD/month MTDS: Educational acct: 280 MAD /15 hours, 350 MAD/20 hours, individual acct: 400 MAD/ 30 hours, 500 MAD/ 30 hours. Corporate ACCT: 720 MAD/40 hours, 900 MAD/ 60 hours. 20% discount for payment 1 yearr in advance. Additional hours 35 MAD. Wafenagoce: 300 MAD/monthly, for 8 free hours a month for businesses, or 5 free hours a month for individuals. Additional hours 25 MAD/hour. http://www2.sn.apc.org/africa/countdet.cfm?countries_ISO_Code=MA.. 42 See http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=NA.. 43 It is NAD$ 35c per minute for a local call. National calls under 100km went up with 17.6% from 51c to 60c (excl. VAT) per minute. Calls under 200km went down with -1% from NAD$1 to 99c per minute and calls above 200km went down with -5.4% from NAD$1.11 to NAD$1.05 (June 2001), source: Telecom Namibia. http://www.telecom.na/toocheap.html. 44 Connection fee is US$36.00, monthly subscription US$14.40, local call at peak hours is US$0.70 and US$0.28 at off-peak in year 2000. http://www.uneca.org/aisi/nici/namibia/naminfra.htm. 45 RwandaTel (http://www.rwanda1.com) tries to charge US$4,500 per ISP and to mandate that ISPs should charge US$50.00/user per month. Based on a population of 50 subscribers, the ISPs proposed to charge the user a monthly fee between US$174 (proposed by one of the ISPs) and US$300 (proposed by the other); In relation to the monthly charge per ISP, the USAID Leland Initiative asked Rwandatel to charge only US$2,500 per ISP. A compromise between the three parties (which excluded consumers) should lead to a mid-point price. http://www.UNECA.org/AISI/NICI/rwanda/rwaninter.htm. 46 Setup: 25 000 CFA Francs (without sales tax - VA), Monthly: 10 000 CFA Francs VA, 4 hours Training at Telecom-Plus: 30 000 CFA Francs VA per person Metissacana Cybercafe: 2,000 CFA Francs/hour or 8,000/month unlimited access. http://www2.sn.apc.org/africa/countdet.CFM?countries__ISO_Code=SN. 47 Atlas’ access charges are: For commercial companies: 3,000 SCR setup fee, 1000 SCR a month for 4 email addresses and 20 hours of connection time. 36

Chapter 1.7

How the Congo Decomposed in the 1990s

Philippe Beaugrand1, International Monetary Fund

In The Economic Consequences of the Peace (1919, p. 149), John Maynard Keynes wrote: “Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency.” Both Lenin and Keynes correctly foresaw that high inflation and currency depreciation would ruin a country and destroy its political and social fabric. As a matter of historical record, however, the causality has run both ways. The “debauched currency” has often been the effect rather than the cause of an “overturned society.”

This paper reviews the story of how the Congo “decomposed” in the 1990s and highlights some features of its inflationary policies. It concludes by stressing that hyperinflation and rapid currency depreciation are not so much the result of misguided policies, as the consequence of a failed political system. Economic development requires above all a stable political and social environment, based on the rule of law.

The story of the Democratic Republic of the Congo— then known as Zaïre2—in the 1990s offers a remarkable example of hyperinflation pathology. Like the decomposition of Weimar Germany in 1922–23, or post-war Hungary in 1945–46, the Congo was faced with overextended financial commitments and a crumbling political system, and the country sought an easy way out through the money-printing machine. The expedient slightly relieved financial constraints for a short period, but the macroeconomic situation quickly worsened, ultimately contributing to the end of the Mobutu regime. A unique feature of the Congo’s experience in the 1990s was the extraordinary length of the inflationary period, with inflation remaining very high for more than a decade.

Following the classic study published by Phillip Cagan in 1956, a period of hyperinflation is commonly defined as beginning in the month when the monthly rate of increase in prices exceeds 50 percent, and ending in the month before the increase in prices drops and stays below that level for at least a year. Based on this criterion, the Congo underwent two short episodes of hyperinflation: from October 1991 to September 1992, and from November 1993 to September 1994, with short-lived bouts in August 1998 and December 1999. In a broad sense, the country was continuously in the vicinity of hyperinflation throughout the 1990s (Figure 1). Apart from a brief lull in 1997–98, the Congo’s annual rate of inflation remained generally in excess of 500 percent from 1991 to 2000, with a monthly average of 22 percent. 1.7 ❚ How the Congo Decomposed in the 1990s

73

High inflation and hyperinflation Overview

Figure 1: Monthly inflation rate

250 225 200 175

Percent

150 125 100 75 50 25 0 -25 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

Source: Data provided by the Congolese authorities; and IMF staff estimates.

Historically, most episodes of hyperinflation last from a few months to no more than a couple of years. Hyperinflation tends to bring itself rapidly to an end, because it generates the seeds of the collapse of the financial system. As the value of money tumbles, it loses its raison d’être and financial intermediation is no longer possible. Over the last fifty years, the longest episode of hyperinflation was recorded in Nicaragua, from June 1986 to March 1991 (Fischer and others, 2002, Table 2, p. 840). Even though it does not strictly qualify as such in Cagan’s terms, hyperinflation in the Congo was at least as staggering in many respects. In particular, its period of very high inflation lasted longer and exhibited record high annual and quarterly increases in consumer prices.

74

Table 1 below shows the main characteristics of recent episodes of very high inflation. The countries selected were those that experienced a 12-month rate of inflation of at least 1,000 percent over the last few decades and the period identified was based on a threshold of 25 percent monthly inflation;

1.7 ❚ How the Congo Decomposed in the 1990s

i.e. the period begins when the monthly increase in prices exceeds 25 percent, and ends in the month before the increase in prices drops and stays below that level for at least one year. The Congo stands out, together with Nicaragua and Brazil, as having experienced the highest rates and the longest period of very high inflation in recent times. In the 12-month period through September 1994, consumer prices in the Congo rose by more than 90,000 percent— an increase by a factor of 900. Meanwhile, the Congo’s currency—the new zaïre, adopted in the wake of a monetary exchange conducted in late 1993— depreciated as fast as prices increased: 1,000 currency units in September 1993 were worth 1 unit only a year later! The Congo also had a record high inflation of 3,300 percent during the three-month period ending in January 1994.3 Its period of very high inflation lasted longer than in any other high inflation period recorded in history: more than ten years, with a lull in 1997–98. However, the cumulative inflation in the Congo (64 billion percent) was less than half the rate recorded in Nicaragua (150 billion percent).

Table 1: Episodes of very high inflation in the late twentieth century (percentage changes)

Countries Democratic Republic of the Congo

2

91,253

250

Periods2

Duration (months)

Cumulative Inflation

Average Monthly Inflation

Oct 90 – Jan 97

76

63,727,999,422

30.6

Aug 98 – Jun 01

35

9,872

14.1

Nicaragua

63,776

261

May 85 – Mar 91

71

149,701,249,470

34.7

Armenia

27,020

438

Jan 93 – Dec 94

24

204,638

37.4

Bolivia

23,447

183

Aug 83 – Jan 86

30

643,293

34.0

Argentina

20,266

197

Aug 75 – Apr 76

9

379

19.0

Sep 84 – Jun 85

10

746

23.8

Jul 88 – Feb 91

32

218,552

27.2

Jun 89 – Jan 90

8

1,433

40.7

Nov 91 – Oct 93

24

213,198

37.6

Croatia

1

Highest Inflation Annual1 Monthly

19,449

64

Peru

12,378

397

Jul 88 – Aug 90

26

1,153,642

43.3

Angola

12,035

303

Jan 93 – Jan 97

49

23,154,061

28.7

Ukraine

10,155

91

Jun 92 – Dec 94

31

176,036

27.3

Brazil

6,821

82

Sep 88 – Jun 94

70

1,450,671,496

26.6

Kazakhstan

3,115

55

Jan 93 – Jul 94

19

15,073

30.3

Belarus

2,796

158

Jan 92 – Feb 95

38

1,329,637

28.4

Georgia

2,668

211

Feb 94 – Sep 94

8

2,767

52.1

Bulgaria

2,019

242

Dec 96 – Feb 97

3

553

86.9

Azerbaijan

1,900

118

Apr 91 – Jan 95

46

1,532,656

23.3

Poland

1,173

77

Aug 89 – Jan 90

6

644

39.7

Russia

1,067

38

Feb 92 – Aug 93

19

3,591

20.9

12-month running annual rate. Using a threshold of 25 percent monthly inflation. Excludes brief episodes of high inflation, especially for transition economies for which insufficient data are available prior to 1991.

Source: Data compiled from IMF, International Financial Statistics.

The surge in the Congo’s inflation from late 1990 onward reflected an attempt by the authorities to spend more than they were able, given the state’s capacity to raise revenue. This endeavor quickly turned into a Faustian bargain and ultimately led to the demise of the regime. As in many other countries in Africa and elsewhere, the pressure toward democratization in the Congo built up in 1990. Faced with growing discontent and widespread demands for political change and improved living standards, President Mobutu initiated a transition process that was supposed to lead to multiparty elections. His government awarded large wage increases to civil servants, which nearly trebled the government’s wage bill. At the same time, years of poor maintenance resulted in a cave-in at a copper mine operated by the parastatal company Gécamines and revenue from export royalties fell. The government was able to settle the promised wage increases only by resorting to money printing on a large scale. In the six months through March 1991, broad money—i.e. banknotes and banks deposits denominated in domestic currency—grew by 225 percent, up from 60 percent during the previous six-

month period. Twelve-month running inflation surged from 40–50 percent to 500 percent in early 1991.4 The government’s attempt to extract seigniorage was partly successful at first, but the financial situation quickly worsened because of rising inflation and thriving dollarization.5 As a first approximation, seigniorage can be estimated by measuring the increase in broad money and converting the local currency value into U.S. dollars.6 On this basis, monthly seigniorage gains amounted to US$10–20 million in the first half of 1990 rose to US$45 million in the third quarter, and to US$77 million in the fourth quarter. At the same time, however, monthly inflation surged from 5–6 percent in the first three quarters to 35 percent in the last quarter of 1990, while the value of the stock of broad money (at the parallel market exchange rate) fell from US$500 million to US$380 million by year’s end. Thus, in order to continue extracting seigniorage on a similar scale, the Zaïrian authorities had to keep on raising the rate of money growth, thereby pushing up inflation and entering a vicious spiral, threatening the complete collapse of the financial system. In addition to the decline in mining revenue mentioned above, the surge in inflation also had a negative effect on other government revenues. Specifically, inflation 1.7 ❚ How the Congo Decomposed in the 1990s

75

Seigniorage and economic dislocation

lowered the real value of tax and customs revenues, given the normal lag of 4–6 weeks between assessments and actual collections.7 Coupled with a severe contraction in economic activity brought about by the growing instability, this resulted in a drastic fall of government revenue, from the equivalent of US$75 million per month in the first half of 1990, to US$55 million in the second half of that year, and to less than US$40 million in the early months of 1991—a nearhalving in less than one year. From the economic, social, or political points of view, the Congo’s situation continued to deteriorate from 1991–94. Average monthly inflation rose from 11.5 percent in 1990 to a range of 30–40 percent in 1991–93, and to 47 percent in 1994. The Central Bank experienced serious difficulties in continuing to expand the money supply at the fast pace required by the government, because of the rising cost of printing currency, and the public’s resistance to the introduction of higher-denomination banknotes. As a result, there were recurrent shortages of cash, which prevented the government from meeting its financial commitments. From 1992 onward, the issuance of higher-denomination banknotes provoked boycotts, often accompanied by riots, looting, and mutinies, in which government workers and soldiers demanded back pay and wage increases. Meanwhile, the political setting veered toward anarchy: during most of 1993, the Congo had two Prime Ministers and two Parliaments, but no working government!8 In an attempt to address its predicament, the Central Bank organized a currency exchange in October 1993,

in which the zaïre was replaced by the new zaïre at a parity of Z 3 million = NZ 1 and an initial exchange rate of NZ 3 per US dollar. Despite difficulties in forcing acceptance of the new zaïre, the government succeeded in unloading massive amounts of the new currency. The stock of currency doubled in October 1993, again in November, and then trebled in December, yielding a cumulative growth of 1,100 percent in only three months. Inflation naturally soared to unprecedented levels, reaching 248 percent in the month of November 1993 alone, 240 percent in December, and 190 percent in January 1994, or a three-monthly rate in excess of 3,300 percent! At the same time, government revenue collapsed to US$10 million per month in the last quarter of 1993, and less than US$5 million in January and February 1994.9

The curious case of the missing currency Even considering the debauch of currency issue during the last quarter of 1993, the level of inflation was extraordinarily high in that period. The extension of dollarization and the rise in the opportunity cost of holding money, due to inflation itself, translated into a faster velocity of money, and therefore into a higher rate of inflation for any given rate of money growth.10 Yet, a brief look at the time series (Figure 2) suggests that special factors may have been at play in late 1993 and in 1994.

Figure 2: Broad money growth and inflation

1,000 900

Consumer prices (peak of 3,300 percent in January

800

1994)

Percentage change

700 600 500 400 300 200 Broad money

76

100 0 Mar

Jun

Sep

Dec

Mar

Jun

Sep

Dec

1993

1993

1993

1993

1994

1994

1994

1994

Source: Data provided by the Congolese authorities; and IMF staff estimates.

1.7 ❚ How the Congo Decomposed in the 1990s

It is nearly impossible to ascertain the amount of parallel currency issued in 1993–94, but indirect estimates suggest that it may have been as high as 10–20 percent of the currency stock, representing a market value of about US$1–2 million per month. While not very large in absolute terms, it is likely that this amount contributed significantly to further eroding confidence in the Congo’s monetary system.

Short-lived stabilization From late 1994, Prime Minister Kengo succeeded to some extend in reining in inflation and restoring financial stability. By early 1995, inflation had nearly halted and government revenue began to recover. Positive economic growth was recorded for the first time in seven years, and the government was able to settle its wage bill on time, albeit at a much depreciated rate. By the mid-1990s, average monthly wages in the public sector had fallen to about US$10–15 per employee, as compared with US$60 in 1990. In spite of the noteworthy progress, the Congo’s financial situation remained precarious. Part of the recovery in government revenue was taking the form of a buildup of bank deposits, which could not be spent because of a shortage of currency. Commercial banks held large illiquid excess reserves with the Central Bank, and this gave rise to a steep discount—up to 50 percent—of checks over cash. In order to restore normalcy, the government had to sterilize part of its revenue by freezing its deposits with the Central Bank, which would have gradually absorbed the overhang of illiquid bank reserves. In mid-1995, however, the pressure to settle wage arrears and resume urgent public works became too strong and the government started using up its accumulated balances with commercial banks. By the end of the year, inflation had returned to monthly rates in excess of 30 percent. Throughout 1995 and 1996, the Central Bank continued to face popular resistance to the issuance of largedenomination currency. While this limited the scope for monetary expansion, it also contributed to fueling inflation by shrinking net seigniorage gains. In 1995, the cost of issuing currency (including transportation charges) was perhaps as high as US$80 million (for a recorded total of 832 million new banknotes). Given the

depletion of its foreign asset position and the near disappearance of domestic money market operations, the Central Bank had virtually no income of its own. For the whole of 1995, the increase in the currency stock represented the equivalent of US$180 million. Therefore, nearly half of the currency issued by the Central Bank was used to acquire foreign exchange in order to pay for the issuance of new currency!

Halt and resumption of inflation Although inflation continued in the second half of 1995 and 1996, it broadly stabilized at a monthly average of less than 20 percent. The Congo made little progress toward political normalization, and the regime weakened rapidly, as President Mobutu was terminally ill and often hospitalized abroad for cancer treatment. In late 1996, a rebellion erupted in the eastern part of the country, actively supported by Rwanda and Uganda. The government was unable to mount a counteroffensive and quickly lost control of many provinces. Facing hardly any military resistance, the rebels completed their conquest in May 1997, and their leader, Laurent Désiré Kabila, proclaimed himself President upon his triumphant entrance into Kinshasa. Inflation halted instantly and even turned into deflation for about six months, as the demand for domestic currency picked up (from May to October 1997, consumer prices fell by a cumulative 36 percent and the appreciation of the new zaïre against the U.S. dollar was of a similar magnitude). The new authorities prepared a comprehensive economic recovery program, including a monetary reform in which the new zaïre would be replaced by the Congo franc. In the run-up to the currency exchange, which took place successfully in August 1998 at a parity of NZ 100,000 = CF 1, the Central Bank used available stocks of money-printing paper to expand the supply of new zaïres. Although this involved some risks and led to somewhat higher inflation (a monthly average of 1.2 percent during the first half of 1998), it was needed to eliminate the overhang of illiquid bank reserves and thus establish parity between currency and bank deposits.12 The Central Bank’s success was short-lived, however. In August 1998, civil war resumed between rebels (backed by Uganda and Rwanda) and the government (this time backed by a coalition including Angola, Namibia, and Zimbabwe). Monthly inflation surged to 78.5 percent. In the following months, the Congolese economy returned to the same condition it had been in during the Zaïre period. While inflation did not rise durably to the rates experienced in 1991–94, it nevertheless remained near hyperinflation levels for about three years (with a monthly average of 14 percent, or 1,300 percent annually). The economic situation worsened further, as the country was de facto partitioned between the 1.7 ❚ How the Congo Decomposed in the 1990s

77

Indeed, there were indications in 1994 that part of the currency issued was not accounted for in the balance sheet of the Central Bank. The parallel issuance of currency was facilitated by a shift to a less reputable supplier of banknotes—ostensibly as a means to lower printing costs— who reportedly agreed to make supernumerary deliveries. This also coincided with an extraordinary situation at the Central Bank, which for many months responded only to President Mobutu but refused to heed orders from the Prime Minister.11

warring factions. The authorities introduced many economic controls, and funds were diverted to finance the war effort. Attempts at brokering peace yielded an agreement in Lusaka (Zambia) in July 1999, but the military situation on the ground turned into a stalemate and no progress was recorded in reuniting the country. The persistent war conditions and the strict controls imposed by the government accentuated the economic disintegration during 1999–2000. Following the murder of President Laurent Désiré Kabila in January 2001, and the appointment of his son Joseph to succeed him, the new government made significant progress in restoring stable conditions. However, the situation remained fragile and the political scene unsettled.

Concluding remarks— the importance of the rule of law The Congo’s predicament in the 1990s was in many respects unique, and owed much to the specific circumstances of the time—including the fall of the Berlin wall in November 1989 and President Mitterand’s speech at La Baule in June 1990, in which he called for accelerated democratization in Africa. It has had few parallels in recent times, even though similarities may be found with several other African countries.13 Thus, for developing countries the main lesson from Congo’s experience would seem to be that any process of decomposition can go on longer and run deeper than any rational observer would expect.

78

Notwithstanding its unusual features, the Congo’s experience in the 1990s was neither accidental nor exceptional. From the early 1960s onward, the country belonged to that group of basket cases that are now known as “failed states,” characterized by an unstable political framework, the absence of the rule of law, and pervasive corruption (see Wrong, 2000). While similar conditions in several other countries may not have yielded outcomes as stark as those in the Congo, they also resulted in economic regression and widespread destitution. Arguably, the nonexistence of a commonly agreed social order is a major factor underlying the poor performance of many African countries—as, conversely, solid institutions have been the key foundation for economic growth elsewhere (see, for example, IMF, 2003). The onset of very high inflation in Congo in 1990 was due to the authorities’ loss of control over the social and political situation. Senior officials in the Ministry of Finance and the Central Bank were well aware of the risks associated with unbridled currency issue. Even after inflation reached record levels and the financial system ceased to function in any meaningful sense of the word, there remained a large array of highly competent staff in the government and Central Bank. By then, 1.7 ❚ How the Congo Decomposed in the 1990s

however, the entire country was adrift, and the wheels of society virtually ground to a halt. Rather than try to fix dysfunctional institutions, people learned to cope with the situation and managed to get by as best as they could, with little or no regard for the consequences of their actions.14 Thus, hyperinflation in the Congo did not result from an infernal machine switched on inadvertently, but rather from the injection of a hard drug, administered deliberately in order to mask unbearable political and social conditions. The irony is that the treatment had the effect of an instant overdose and made conditions worse, jeopardizing prospects for a resolution of the Congolese political quagmire. The rebel takeover of May 1997 brought new hope, and the quick financial stabilization that followed demonstrated convincingly that there was little inherent inertia in the hyperinflation process—as had already been observed in early 1995. However, hyperinflation returned in 1998, as civil war resumed and political conditions remained unsettled. Developments in the late 1990s showed how little the Congo had changed in 40 years. Even a drastic shift in political regime and the adoption of radically new policies could not arrest its unrelenting decline. On the contrary, the country descended further into confusion and lawlessness, as it fell prey to its neighbors (Braeckman, 1999). Laying the foundation for a broadbased resumption of economic activity and improvement in living standards would have required fundamental changes in the organization of society, including in particular the establishment of the rule of law. Despite some progress in this direction since 2001, it is too early to tell whether the new regime heralds a genuine new beginning for the Congo.

Notes The views expressed in this paper are those of the author and do not necessarily reflect those of the International Monetary Fund. This article draws in part on earlier studies (Beaugrand, 1997 and 2003). 2 The Democratic Republic of the Congo became independent from Belgium in 1960. It was renamed “Zaïre” in 1971, but reverted to its former name in May 1997. Throughout this paper, the country will be referred to as “the Congo.” 3 Croatia was the second highest, with 2,070 percent in the quarter ending September 1992; the highest three-monthly inflation rate recorded in Nicaragua was 820 percent in January 1989. 4 Despite the Congo’s increasing economic dislocation in the 1990s, the Central Bank continued to maintain a large array of statistics, which the IMF staff generally deemed broadly reliable. However, it was widely suspected that the authorities kept financial accounts—including government budgets and, at times, monetary data—deliberately incomplete. 5 “Dollarization” is a generic term for currency substitution through the use of foreign currency—primarily U.S. dollar banknotes in this case, but also CFA francs (in the provinces bordering on the Republic of Congo, Brazzaville, and the Central African Republic), as well as Zambian kwacha and South African rand (in the Congolese province of Katanga). Rough estimates suggest that the rate of dollarization (i.e., the share of foreign currency in total currency holdings) rose from about 55 percent in 1990 to 70 percent in 1991, and to 90 percent in 1994 (Beaugrand, 2003). 6 Conversions are made at the parallel market exchange rates for currency and bank deposits. While bank deposits should normally be excluded from the computation of seigniorage, they are taken into account here, because the government often made large payments through bank transfers, even though the Central Bank was unable to provide enough cash to satisfy the 1

demand for withdrawals. This resulted in the emergence of a premium on cash over deposits, and explains the use of two different exchange rates for estimating the amount of seigniorage. 7 The impact of inflation on real tax revenue associated with the lag between assessments and collections was identified by Olivera (1967) and Tanzi (1977). 8 On several occasions, President Mobutu bowed to political pressure and appointed the leader of the opposition, Etienne Tshisekedi, as Prime Minister, only to dismiss him within a few weeks. In January 1993, the President issued an ordinance removing Prime Minister Tshisekedi from office; however, he refused to step down. In an episode reminiscent of the conflict between President Kasavubu and Prime Minister Lumumba in 1960, President Mobutu charged Prime Minister Tshisekedi with high treason, while the transition parliament stated its intention to impeach the President. 9 Actual revenue was probably higher than recorded, because Gécamines often made off-budget payments, especially to President Mobutu himself. However, the resources at Gécamines’ disposal also fell considerably, as its monthly copper output dropped from 35 thousand tons in 1990 to 5.5 thousand tons in 1993, and barely more than 2 thousand tons in 1994. The President’s unbridled plundering of Gécamines’ accounts—documented as early as 1981 in U.S. Congressional hearings—resulted in the demise of the golden goose that had sustained the regime for so many years. 10 In the standard quantitative equation, M V = P y, and assuming real output (y) to be constant in the short run, the rate of increase in prices (∆p) is equal to the rate of increase in money (∆m) plus the rate of increase in velocity (∆v). In a high inflation environment, the increase in money growth tends to raise velocity (i.e., lower the demand for money), leading to a larger-than-proportional increase in prices. 11 Prime Minister Tshisekedi was unable to establish control over Central Bank operations. Following his appointment in June 1994, Prime Minister Kengo suspended the governor of the Central Bank, and named his deputy as acting governor. However, the governor refused to step down until President Mobutu signed the revocation decree, in November. Prime Minister Kengo named a new governor in January 1995, six months after his decision to suspend the former governor. 12 The issuance of “new” new zaïres gave rise to a singular situation, whereby banknotes of the same denomination but of different color schemes cocirculated at different exchange rates. Prior to the currency reform, exchange rates also differed among provinces, even for the same types of banknotes, because the new authorities had maintained tight restrictions on the movement of commodities and currencies across the country. 13 Ghana in the 1970s, Uganda in the 1980s, Kenya through most of the 1990s, and Zimbabwe since 1999 are examples that come to mind. In some respects, Cameroon’s experience in the 1990s was most similar to Zaïre’s, in terms of weakened political situation and economic dislocation. Even though its quasi currency board system (as part of the CFA franc zone) prevented the emergence of hyperinflation, domestic arrears built up on a large scale instead. 14 In the late 1990s, a businessman was quoted as saying “One good thing the Congolese have learned through their suffering is to live without a functioning government. They can keep on going like this forever.” Gourevitch (2000), p.66.

Olivera, J. 1967. “Money, Prices, and Fiscal Lags: A Note on the Dynamics of Inflation.” Banca Nationale del Lavoro Quarterly Review 20. September. 258–67. Tanzi, V. 1977. “Inflation, Lags in Collection, and the Real Value of tax Revenue.” Staff Papers 24. International Monetary Fund. March. 154–67. Wrong, M. 2000. In the Footsteps of Mr. Kurtz: Living on the Brink of Disaster in Mobutu’s Congo. London: Fourth Estate.

References Beaugrand, P. 1997. “Zaïre’s Hyperinflation, 1990–96.” IMF Working Paper 97/50. Washington: International Monetary Fund. April. ———. 2003. “Overshooting and Dollarization in the Democratic Republic of the Congo.” IMF Working Paper 03/105. Washington: International Monetary Fund, May. Also available at www.imf.org Braeckman, C. 1999. “La République Démocratique du Congo dépecée par ses voisins.” Paris: Le Monde Diplomatique. October. Cagan, P. 1956. “The Monetary Dynamics of Hyperinflation.” Studies in the Quantity Theory of Money, ed. Milton Friedman. Chicago: University of Chicago Press. Fischer, S., R. Sahay, and C.A. Végh. 2002. “Modern Hyper- and High Inflations.” Journal of Economic Literature 40. September. 837–80.

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Gourevitch, P. 2000. “Forsaken: Congo Seems Less a Nation Than a Battlefield for Countless African Armies.” New Yorker, LXXVI:28. 25 September. International Monetary Fund. 2003. World Economic Outlook, April 2003— Growth and Institutions. Washington, D.C. Also available at www.imf.org Keynes, J.M. 1919. The Economic Consequences of the Peace. The Collected Writings of John Maynard Keynes, Vol. II. London: Macmillan/St Martin’s Press. 1971.

1.7 ❚ How the Congo Decomposed in the 1990s

Chapter 1.8

What Does the Growth Competitiveness Index Say About Development in Africa?

Augusto Lopez-Claros, Global Competitiveness Programme, World Economic Forum

In the prologue to his book “The Elusive Quest for Growth”, William Easterly refers to the quest by economists “to discover the means by which poor countries in the tropics could become rich like rich countries in Europe and North America.” He argues that those involved in this quest care about growth because “it makes the lives of poor people better; it frees the poor from hunger and disease.”1 It also allows them, one might add, to partly shift the focus of their lives from an undue concern with the struggle for material existence, to other pursuits very much at the centre of what we call “development.” Easterly’s work is effective in conveying a sense of the overarching importance of this quest. Higher growth reduces infant mortality; it is actually possible to estimate how many children’s lives could have been saved in Africa over a given period if growth, on average, had been a little higher—the numbers, in the hundreds of thousands, eloquently underscore why growth matters. The empirical evidence linking growth to poverty is likewise overwhelming: fast economic growth goes hand in hand with fast poverty reduction.2 But growth matters for many other reasons as well. Amartya Sen tells us that poverty robs people of the freedom to satisfy hunger, to achieve adequate levels of nutrition, to acquire medicine for treatable illnesses, to enjoy clean water, and to be adequately clothed. He argues that poverty is characterised not merely by low levels of income,

but more broadly, as a condition that involves the deprivation of basic opportunities that would allow the poor to actively participate in the economy and the life of the nation. Thus, development is “a process of expanding the real freedoms that people enjoy.”3 The absence of economic opportunity, misplaced spending priorities of governments—leading them to neglect the role of public services—indifference to political and civil rights, and what Sen calls the “over-activity of repressive states” all represent, in one form or other, obstacles to freedom, and thus barriers to successful development. Thus, being able to shed some light on the question of why some countries are able to grow for prolonged periods of time—pulling vast segments of the population out of poverty along the way— while others remain stagnant, or worse, actually see an erosion of living standards, has to be the main challenge facing development experts, whether in the academic community, aid agencies, or growing number of civil society organisations engaged in development work. Figures 1 and 2 illustrate some contrasting country growth experiences during the last 35-year period: Ghana and Korea had broadly similar per capita income levels in 1970; by 2003, Korea’s GDP per capita was some 30 times larger than that of Ghana. Hungary’s GDP per capita this year is projected to be about 28 times higher than that of oil-rich Nigeria, whereas it was only 5 times higher in 1970.

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?

81

Introduction

Figure 1: GDP per capita, current US$ GHANA

12,000

KOREA TURKEY

10,000

Current US Dollars

8,000

6,000

4,000

2,000 South Korea:Ghana Ratio in 1970= 1:1 Ratio in 2004= 30:1

03 20

00 20

97 19

94 19

91 19

88 19

85 19

82 19

79 19

76 19

73 19

19

70

0

Source: IMF World Economic Outlook

Figure 2: GDP per capita, current US$ COLOMBIA

10,000

HUNGARY

9,000

NIGERIA 8,000

Current US Dollars

7,000 6,000 5,000 4,000 3,000 2,000 Hungary:Nigeria

1,000

Ratio in 1970 = 5:1 Ratio in 2004 = 28:1

03 20

00 20

97 19

94 19

91 19

88 19

85 19

82 19

79 19

76 19

73 19

19

70

0

Source: IMF World Economic Outlook

82

The Growth Competitiveness Index For the last two decades the World Economic Forum has been trying to gain some insights into this important question. There are at least two reasons why the Forum may be in a good position to make a contribution to the debate about the key building blocks for successful development: first, by bringing together key

representatives from the private sector and the corporate world, on the one hand, and a broad spectrum of senior government policy makers, on the other, it has created opportunities for an exchange of ideas and experiences on best practices, which may have acted as an important catalyst in identifying these key factors. Some of the topics that have been at the centre of the agenda in many of the summits and other interactions organized by the

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?

Second, the Forum has developed a vehicle, the Executive Opinion Survey (EOS), which delivers, annually, a wealth of information about the impediments to growth in more than 100 countries, which account, in aggregate, for the overwhelming share of global GNP.4 This survey of business executives in all these countries aims to assess the importance of a broad range of factors that contribute to a healthy business environment, supportive of economic activity. A fair and simple tax and regulatory environment, labour market legislation that provides incentive for employment and job search, a stable macroeconomic environment, the absence of corruption and other irregular practices in the economy at large, the quality of the country’s infrastructure and education—these are only a few of the areas covered by the EOS. Over the years the EOS has continued to deliver a treasure trove of country-specific information about the varying strengths, weaknesses and challenges faced by the business community, as it proceeds to create jobs and contribute to productive activity. Indeed, the Country Profiles prepared by the Forum, on the basis of the information delivered by the EOS, contain valuable information for policymakers, aid agencies and others, engaged in processes aimed at improving not only economic performance but the quality of people’s lives. The “growth competitiveness index” (GCI), initially designed by McArthur and Sachs, brings together a number of complementary concepts.5 In formulating the range of factors, the index identifies three “pillars” in the evolution of growth in a country: the quality of the macroeconomic environment, the state of the country’s public institutions and, given the growing importance of technology, the level of its technological readiness. The index uses a combination of hard data, such as inflation rates, budget deficits, the level of internet access in schools, and survey data, taking the “temperature” in areas such as judicial independence, the prevalence of institutionalized corruption, and the extent of inefficient government intervention in the economy. These various pieces are brought together under several “sub-indexes”, each capturing a different aspect of the growth process, such as the state of contracts and law, and the stability of the macroeconomic environment. These are aggregated to give an overall competitiveness “score”. McArthur and Sachs also introduced the notion that while technology matters a great deal, it matters in different ways for

different countries, depending on the stage of development. Innovation will be key in Finland, but the adoption of foreign technologies and technology transfer may be relatively more important in Ecuador, a distinction that led them to separate countries into two sets, so called “core innovators” and “non-core innovators”. A third concept was the idea that those factors that portray a given nation’s competitiveness will vary in importance across these two sets of countries. Thus, macroeconomic stability is likely to be a relatively more important factor in Nigeria than in Sweden. The methodology underlying the construction of this index is described in Appendix 1, at the end of this chapter; the GCI rankings for the 25 countries in Africa are shown in Appendix 2. In the sections that follow, we will examine some of the key components of this index and comment on both the performance of African countries and the factors that may lie behind the relatively low rankings achieved by the majority of them. Where necessary, we may refer to other information delivered by the EOS, particularly if it provides additional insight into the nature of problems in Africa. Given the importance of an enabling environment for private sector activity, we will dwell on some of the institutional requirements for an improved growth performance in Africa, with particular reference to foreign investment, a central driver of growth in the developing world.

The macroeconomic environment However important factors such as the role of governance, education, investment in infrastructure and public health are for enhancing national competitiveness, the fact remains that many of the countries in Africa have not yet reached the stage where short-term macroeconomic stabilisation concerns can take a secondary role to longer-term institutional reform. A stable financial environment is vital for the successful implementation of broad-based reforms, and for the establishment of a macroeconomic environment that will support private sector activity. The adoption of growth and efficiency as primary objectives of economic policy necessitates that domestic policies be directed toward achieving an appropriate growth of aggregate demand, that keeps inflation under control while avoiding high unemployment. Countries should thus pursue prudent fiscal policies that allow adequate levels of private sector credit, while limiting the growth of total credit to levels consistent with non-inflationary growth in the money supply and a viable external position. These policies, by contributing to low inflation and a more stable domestic environment also contribute to business confidence and investment, both domestic and foreign. While the above observations have gained broad

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?

83

World Economic Forum in past years have included the role of corruption in delaying the development process, the central importance of women’s education for boosting per capita incomes, the interplay between political and civil rights, the willingness of the public to freely engage in economic activity, the role of a free press, and safety net arrangements put in place by governments to enhance opportunities for participation in the economic life of the nation.

acceptance in the developing world and have led to significant improvements in the policy environment, some African countries are still lagging behind in establishing a solid foundation of macro-stability, characterised by low inflation and cautious public finances. Although inflation rates have been coming down worldwide—indeed, international inflation in 2003 was at its lowest level in the post WW II period— countries like Nigeria, Malawi, Ghana, Mozambique, Zambia, Angola and Zimbabwe, continue to have double-digit rates of inflation.6 Not surprisingly, these same countries have exhibited other macroeconomic imbalances as well, including major inefficiency and rigidity in the financial sector. While not explicitly included in the definition of the GCI, African countries, as a group, score particularly low on those survey questions which assess the level of sophistication of financial markets, the soundness of the banking sector, and the ease with which the private sector has access to bank lending, all of which reflect, to some extent, an unsettled financial environment.

Figure 3: Government fiscal surplus/deficit (in % of GDP) Country Cameroon Algeria

(Rank) (4) (6)

South Africa

(32)

Morocco

(35)

Kenya

(51)

Nigeria

(53)

Angola

(62)

Egypt

(73)

Tanzania

(74)

Ghana

(75)

Madagascar

(83)

Zimbabwe

(95)

Uganda

(98)

Ethiopia

(101)

Mozambique (102)

Korea

-20

-15

-10

-5 0 Percent of GDP

5

(2)

Colombia

(56)

Turkey

(99)

10

There are several issues worth highlighting here. First, several countries in Africa remain unduly dependent on aid flows to finance persistently high public sector deficits. This, at first, has tended to be seen as more benign than seeking to finance budgetary shortfalls through some other more costly means (e.g., bank loans or the issuance of government paper or payments arrears); however, in practiceit has resulted in unusually high levels of aid dependence, and may have created perverse incentives against sound fiscal adjustment. An interesting indication of this was recently seen in the context of official debt relief initiatives sponsored by the multilateral organizations which have not had the effects—for fiscal sustainability—that were initially envisaged. Second, there is, in the African context, the issue of the efficiency of government expenditure. Clearly fiscal policy should give priority to public sector expenditures that contribute directly to growth, such as outlays for human capital and spending on essential infrastructure, as opposed, for instance, to the maintenance of large military establishments (in countries not facing immediate security threats). Regrettably, there is still considerable room for improvement here: according to the World Bank, military expenditures in Sub-Saharan Africa in 2001 amounted to 2% of GDP, higher than in Latin America and in the EU, and only marginally lower than total spending in public health. It is disturbing to note that there are 13 countries in Africa for which military expenditures exceed 3% of GDP, the level in the United States.8 More generally, in an attempt to capture the concept of “government waste”, the World Economic Forum has constructed an index using the responses to three questions in the EOS which assess the extent of distortive government intervention in the economy, the diversion of public funds for non-public ends, and a measure of trust in the financial integrity of national political figures.9 This measure of government waste is included in the GCI, as a component of the macroeconomic environment index. African countries such as Kenya, Madagascar, Mozambique, Nigeria, Angola and Zimbabwe are among the world’s worst performers, as can be gleaned from Figure 4. South Africa, the best performer in Africa, is ranked 37.

84

Sources: OECD African Economic Outlook 2002/03; IMF Country Reports

Furthermore, as the data in Figure 3 show, budget deficits in Africa remain among the highest in the world; in fact, nine of the 12 largest deficits among the 102 countries covered in the EOS are in Africa. (Argentina and Turkey also belong to this set, two countries in the midst of severe financial crises in 2002, the reference period for purposes of this analysis.7)

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?

competitiveness. Until relatively recently, however, the investment policies of many African countries have not been sufficiently geared to promoting direct investment from abroad. Domestic investment has also been discouraged through a variety of policies, including the administrative allocation of foreign exchange, high marginal tax rates on company profits, inadequate expenditures for maintenance and investment in socially productive infrastructure, and the preservation of inefficient public enterprises.

Country

(Rank)

South Africa

(37)

Tanzania

(43)

Morocco

(44)

Egypt

(45)

Ghana

(46)

Uganda

(60)

Senegal

(62)

Ethiopia

(66)

Algeria

(67)

Cameroon

(74)

Kenya

(77)

Madagascar

(81)

Mozambique

(82)

Zambia

(84)

Nigeria

(91)

Angola Zimbabwe

(92) (100)

Korea

(30)

Colombia

(73)

Turkey

(75) 1.0

2.0

3.0

4.0 Score

5.0

6.0

7.0

Source: Executive Opinion Survey 2003

Third, fiscal policies—indeed, all policies—should be seen as stable and consistent, rather than subject to frequent and unpredictable swings, to offer the assurance of macroeconomic stability and a sound investment climate. The EOS does not have a question that directly addresses the issue of “policy instability.” It does, however, have many questions that address aspects of the quality of public institutions, from which we may see the extent to which the lack of stability and consistency in the macroeconomic policy framework is a problem in Africa. We will return to this issue later. Although not a “macroeconomic stability” issue per se, the question of a country’s integration with the global economy has acquired growing importance over the past decade, particularly in the context of discussion about the interactions between the process of globalisation and economic development. While not explicitly incorporated in the GCI, the EOS provides a number of insights, which may be useful to review briefly here. In an increasingly interdependent world economy, a more outward-looking orientation has become an essential element of successful economic reform. In addition to the well-known gains from international trade, relative openness and strong links with the world economy impose on domestic producers the valuable discipline of international competition, and provide opportunities for new exports. An open orientation can also attract much needed capital and expertise, thus enhancing the prospects for growth through increased efficiency and

The above economic policies have led to severe structural rigidities, excessive involvement of the state in the economy, a plethora of unproductive investments and, as a consequence, widespread misallocation of scarce resources. In turn, these problems have been reflected in the balance of payments problems that have caused many African countries to face serious external financing problems in recent years. The Forums EOS clearly reveals the need for policy makers in Africa to implement reforms aimed at encouraging greater flexibility of the economy to respond to future economic uncertainties, in particular, through trade policies aimed at the reduction or elimination of discrimination against tradables, and the development of private enterprises that are competitive by international standards. Greater integration with the world economy also serves as an important channel for absorbing technological advances from abroad, as is evident from the experience of many outward-oriented Asian economies that have developed strong export sectors based on new manufacturing industries.

Figure 5: Hidden trade barriers Country

(Rank)

South Africa

(32)

Angola

(70)

Ghana

(72)

Morocco

(74)

Egypt

(76)

Algeria

(78)

Tanzania

(79)

Kenya

(80)

Ethiopia

(84)

Uganda

(86)

Mozambique

(92)

Madagascar

(94)

Zimbabwe

(97)

Cameroon

(99)

Nigeria

(100)

Korea

(43)

Turkey

(58)

Colombia

(59) 1.0

85

Figure 4: Government waste

2.0

3.0

4.0 Score

5.0

6.0

7.0

Source: Executive Opinion Survey 2003

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?

As seen in Figure 5, the EOS allows a ranking of countries according to the extent to which hidden import barriers—other than published tariffs and, where they exist, quotas—are an obstacle to business activity. This is a very serious problem in Africa, with 18 of the 25 countries covered in the GCI occupying a rank of 70 or worse, among the total of 102. A similar result is obtained in the case of a question which gauges the total cost of importing foreign equipment, where 19 of the 25 countries sampled end up with a ranking of 70 or worse.10

Public institutions

86

While acknowledging the importance of macroeconomic stability for the creation of an environment conducive to sustainable growth, successful economic development strategies have much to do with the role of government in general and, more to the point, the exercise of political authority in a society for the management of its resources. Governance is the term that is increasingly being used in the development community to underscore the fundamental role of the quality of government in this process. It matters a great deal whether governments are accountable to their respective populations. Investors seem to care enormously whether judges and courts are reasonably independent, or whether they are up for sale. Do businesses have to pay bribes to clear goods through customs or to settle their taxes? Do governments show favouritism in their decisions, or are they fairly evenhanded in their relations with the private sector? Are public resources being allocated for public health and education—particularly of women—or rather to wasteful projects and what the IMF calls, euphemistically, “unproductive expenditures”? The concepts of competitiveness developed by the Forum explicitly incorporate concerns for public sector accountability, efficiency, transparency and, more generally, the ways in which the government interacts with economic agents in the domestic economy, particularly the business sector. The justification for these concerns varies. Sometimes they reflect reasonably well-established findings in empirical research; at other times, they build on concepts developed by international organizations engaged in economic development, and whose insights into the importance of these factors are based less on theoretical constructs and more often reflect years of valuable empirical observation. For instance, regarding accountability, the idea is that the periodic legitimisation of governments through some form of popular choice is important because it makes them more responsive to the needs of society, a notion closely linked to that of participatory development. Unless people feel that they have a say in who

governs, and on what principles, they cannot be expected to fully support the government's development strategies and policies. Without such public support, even well-designed plans are unlikely to succeed. The importance of the above cannot be overemphasised. A real life example will be useful. Sen states that “no famine has ever taken place in the history of the world in a functioning democracy, be it economically rich or relatively poor.”11 But, Sen tells us, they have occurred in ancient kingdoms and in contemporary authoritarian societies, in modern technocratic dictatorships, and in “colonial economies run by imperialists.” Democracy and the greater political freedoms that it brings—including public discussion in an environment of freedom of expression—help foster a climate in which early preventive actions can be taken to avoid the emergence of those circumstances which make famine possible. More generally, Sen convincingly argues that those countries in which governments operate in an environment of political legitimacy tend to be much better at allowing the formation of vital understandings and beliefs among the population that directly impinge upon aspects of the development process; for instance, the idea that education, employment and ownership rights of women exert powerful influences on their ability to control their environment and improve their condition. Closely linked to the issue of accountability is the importance of the rule of law, the concept that the rules which govern a society—and hence those that regulate economic activity—are applicable to all. There is increasing recognition that without a reasonably fair, efficient, and predictable judicial system and legal framework, accountability will have no legal underpinnings and the goals of good governance will be undermined. As regards the economy in particular, it has long been recognised that the absence of an adequate legal framework and judicial system increases business costs, discourages investment, and introduces an element of uncertainty into economic activity that is detrimental to development. In his discussion of some of the key building blocks of successful development, Sen refers to the need for openness and insists that societies operate better when individual economic agents can deal with one another under “guarantees of disclosure and honesty.” These, in turn, are essential for curtailing corrupt practices and various forms of abuse of the rules and institutions underlying a market economy. From the above discussion, it is clear that these various elements of good governance—accountability, transparency, the primacy of the rule of law—are not mutually independent. Interactions are inevitable and conflicts may arise in the short run. For example, participatory processes implemented in an

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?

The World Economic Forum’s central focus on public institutions and governance derives from its view that an approach to development that incorporates the elements discussed above is far more likely to bear fruit than one which concerns itself principally with macroeconomic policy. In an environment of political accountability, people have much more powerful incentives to become active participants in the economy. When they have a sense of entitlement to economic transactions, various groups in society can become engines of economic growth. Private incomes rise, generating tax revenue that enables the state to finance critical spending, especially in vital areas with a high rate of social return. Higher expenditures on education and health have been shown to be strongly correlated with reductions in infant mortality and birth rates. To the extent that improved education reaches women, it brings about changes in women’s fertility behaviour. Quite aside from the obvious benefits for women themselves, this has implications for the environment, the pressures on which are often linked to rapid population growth. The EOS provides a wealth of information about the role played by many of the above factors in creating a sound, growth-producing business environment. Figures 6-11 below present the results to six particular questions that look at different aspects of the quality of public institutions in Africa. One set of questions examines conditions of transparency and honesty in the management of public resources: specifically, the extent to which businesses have to make irregular payments to settle their taxes, diversion of public funds, and the extent of distortions introduced in the economy as a result of government intervention.

Figure 6: Irregular payments in tax collection Country

(Rank)

South Africa

(41)

Zimbabwe

(56)

Egypt

(66)

Ghana

(69)

Zambia

(72)

Mozambique

(78)

Angola

(79)

Tanzania

(80)

Senegal

(82)

Morocco

(85)

Ethiopia

(86)

Algeria

(87)

Uganda

(93)

Kenya

(93)

Cameroon

(95)

Madagascar

(96)

Nigeria

(98)

Colombia

(45)

Korea

(47)

Turkey

(58) 1.0

2.0

3.0

4.0 Score

5.0

6.0

7.0

6.0

7.0

Source: Executive Opinion Survey 2003

Figure 7: Diversion of public funds Country

(Rank)

Egypt

(39)

South Africa

(47)

Tanzania

(49)

Ghana

(50)

Ethiopia

(52)

Algeria

(53)

Morocco

(54)

Senegal

(75)

Angola

(83)

Zambia

(81)

Mozambique

(84)

Madagascar

(87)

Uganda

(90)

Kenya

(93)

Zimbabwe

(94)

Cameroon

(95)

Nigeria

(97)

Korea

(32)

Turkey

(70)

Colombia

(80)

87

environment of political pluralism and openness may add an element of unpredictability to the decisionmaking process. It may take much longer to forge the necessary consensus around a particular strategy. But this does not detract from their intrinsic value, and the overriding importance of pursuing them as essential ingredients of good governance. The alternative, a topdown approach that sees developing countries as passive recipients of aid programmes formulated in the capitals of the donor countries, has obviously failed. These observations have far-reaching implications for Africa, where fuller cooperation is vital among the key actors: government, donor agencies, and the private sector, in order to foster the development of these key building blocks, and contribute meaningfully to unleashing processes aimed at improving prosperity and enhancing people’s capacity to manage change.

1.0

2.0

3.0

4.0 Score

5.0

Source: Executive Opinion Survey 2003

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?

Figure 8: Extent of distortive government intervention Country

Country

(Rank)

(Rank)

Ghana

(20)

South Africa

(20)

South Africa

(24)

Tanzania

(43)

Morocco

(36)

Ghana

(45)

Tanzania

(51)

Morocco

(54)

Uganda

(52)

Zambia

(56)

Mozambique

(53)

Uganda

(57)

Cameroon

(56)

Senegal

(61)

Egypt

(61)

Egypt

(62)

Senegal

(66)

Algeria

(68)

Kenya

(67)

Nigeria

(72)

Zambia

(69)

Cameroon

(73)

Madagascar

(77)

Madagascar

(77)

Nigeria

(90)

Kenya

(82)

Algeria

(93)

Mozambique

(84)

Ethiopia

(99)

Ethiopia

(87)

Angola

(100)

Zimbabwe

(88)

Zimbabwe

(101)

Angola

(96)

Colombia

(38)

Korea

(41)

Korea

(40)

Colombia

(59)

Turkey

(94)

Turkey

(74)

1.0

2.0

3.0

4.0 Score

5.0

6.0

1.0

7.0

2.0

3.0

4.0 Score

5.0

Source: Executive Opinion Survey 2003

Source: Executive Opinion Survey 2003

Figure 9: Judicial independence

Figure 11: Freedom of the press

Country

88

Figure 10: Efficiency of legal framework

Country

(Rank) (15)

South Africa

(28)

Tanzania

(38)

Ghana

(43)

Ghana

(50)

Senegal

(46)

Zambia

(56)

Algeria

(56)

Uganda

(58)

Nigeria

(64)

Egypt

(59)

Madagascar

(68)

Nigeria

(61)

Zambia

(77)

Senegal

(69)

Kenya

(79)

Morocco

(71)

Tanzania

(80)

Cameroon

(72)

Mozambique

(81)

Algeria

(76)

Egypt

(90)

Kenya

(84)

Morocco

(91)

Mozambique

(85)

Cameroon

(92)

Madagascar

(86)

Uganda

(93)

Ethiopia

(87)

Ethiopia

(94)

Angola

(91)

Angola

(100)

Zimbabwe

(97)

Zimbabwe

(102)

Korea

(49)

Colombia

(49)

Turkey

(57)

Korea

(58)

Colombia

(70)

Turkey

(70)

2.0

3.0

Source: Executive Opinion Survey 2003

4.0 Score

5.0

6.0

7.0

7.0

6.0

7.0

(Rank)

South Africa

1.0

6.0

1.0

2.0

3.0

Source: Executive Opinion Survey 2003

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?

4.0 Score

5.0

The second question deals more directly with the efficiency of the legal framework. Finally, a question assessing the extent to which the press is free to report on development in the country without fear of retribution may be taken as a proxy for public sector accountability. The results for Africa (above Figures 6-11) show that there is room for improvement in each of these areas. African countries typically score low and often constitute the majority of those ranking below 70-80. These results are largely consistent with other findings in the work of organizations such as the World Bank, which have been documenting over a long period the incidence of governance factors in the development process. See, for instance, the excellent work done by Daniel Kaufmann of the World Bank Institute. In his latest piece he makes two observations of particular relevance to the above discussion. First, that there is evidence of an emerging “governance gap,” meaning that “improvements in governance are not keeping pace with the progress attained in some areas, including economic policy”. He goes on to say that shortcomings in governance have become a “central binding constraint to growth and development today in many settings”. In other words, improvements in the overall macro economic environment (lower inflation, a greater recognition of the importance of budget constraints, a greater willingness to deregulate, privatize, open up the economy) have not been matched by equivalent improvements in the basic elements of good governance. Second, he presents empirical evidence showing that “a country that significantly improves key governance dimensions, such as the rule of law, corruption, the regulatory regime, and voice and democratic accountability can expect, in the long run, a dramatic increase in its per capita income and other social dimensions.” Indeed, “an improvement in governance by only one standard deviation can result, in the long run, in up to a fourfold increase in per capita income.”12

The role of technological change A full discussion of the role of technology in explaining economic growth is outside the scope of this paper. We find the discussion by William Easterly to be extremely insightful.13 Blanke, Paua and Sala-i-Martin’s characterization is likewise useful: “Technological progress is, therefore, at the heart of economic growth. And the reason for thinking that, in the long run, no growth is possible without technological improvements is that the other potential determinants of growth must run into diminishing returns. For example, institutions and the macroeconomic environment can have important consequences for growth in countries with terrible environments. But once institutions are more or

less right, and once the macro economy is more or less stable, additional improvements along these lines will probably have little or no effect on economic growth. This contrasts with technological progress since there do not seem to be good arguments that would suggest that there are diminishing returns to ideas.”14 Appendix 1 at the end of this chapter provides detailed information on the way the GCI incorporates various aspects of technology into a measurement of competitiveness. In particular, it identifies the relative weights attached to innovation, technology transfer and the use of information and communications technology, as well as the relative breakdown between survey and hard data used in the construction of the overall technology index. The figures below present a brief overview of the performance of a few of the indicators used and the associated scores and rankings for 17 African countries. The numbers speak for themselves. Whether one looks at cellular mobile telephone subscribers per 100 inhabitants, internet penetration rates in the schools, firm level technology absorption, or tertiary enrolment rates—a good proxy for a country’s future capacity for innovation—the African countries overwhelmingly occupy the lowest rankings among the 102 countries covered by the GCI (Figures 12-15, respectively).

Figure 12: Cellular telephone subscribers per 100 inhabitants

Country

(Rank)

South Africa

(46)

Morocco

(53)

Egypt

(74)

Senegal

(75)

Kenya

(82)

Cameroon

(83)

Zimbabwe

(84)

Ghana

(86)

Mozambique

(88)

Uganda

(89)

Nigeria

(90)

Zambia

(91)

Algeria

(92)

Tanzania

(93)

Madagascar

(95)

Angola

(96)

Ethiopia

(102)

Korea

(25)

Turkey

(42)

Colombia

(69)

89

Two other questions deal more directly with the quality of the judicial climate, in particular, whether businesses may count on a fair degree of judicial honesty and independence when dealing with the courts.

0

10

20

30

40

50

60

70

Source: International Telecommunication Union, July 2003

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?

Figure 13: Internet access in schools Country

Figure 15: Gross tertiary enrollment Country

(Rank)

(Rank)

Egypt

(42)

Egypt

(37)

South Africa

(50)

South Africa

(65)

Morocco

(73)

Algeria

(67)

Uganda

(75)

Morocco

(73)

Zimbabwe

(81)

Cameroon

(83)

Senegal

(82)

Nigeria

(85)

Tanzania

(84)

Zimbabwe

(86)

Ghana

(85)

Senegal

(87)

Kenya

(86)

Ghana

(89)

Zambia

(88)

Kenya

(90)

Nigeria

(90)

Uganda

(91)

Algeria

(94)

Zambia

(92)

Cameroon

(95)

Madagascar

(93)

Mozambique

(97)

Ethiopia

(97)

Madagascar

(98)

Tanzania

(100)

Ethiopia

(99)

Angola

(101)

Angola

(101)

Korea

(4)

Turkey

(55)

Colombia

(65)

Mozambique (102)

Korea

1.0

2.0

3.0

4.0 Score

5.0

6.0

7.0

Source: Executive Opinion Survey 2003

(2)

Colombia

(55)

Turkey

(66) 0

10

20

30

40 50 Percent

60

70

80

Source: UNESCO Institute for Statistics; World Bank World Development Indicators 2003

Figure 14: Firm-level technology absorption

90

Country

To be sure, using Korea as a benchmark for comparison would appear to be unfair. By 2003 there were more broadband users in Korea than in all of Latin America, and the rates of internet use, personal computer use and internet penetration in schools had actually overtaken those of Canada! However, as noted earlier, the comparison is useful given the broadly similar levels of per capita income between Korea and some of the African countries in the late 1960s.

(Rank)

Senegal

(12)

South Africa

(39)

Morocco

(43)

Nigeria

(49)

Tanzania

(50)

Madagascar

(56)

Ghana

(57)

Uganda

(60)

Mozambique

(64)

Egypt

(71)

Algeria

(76)

Kenya

(77)

Zimbabwe

(80)

Cameroon

(84)

Angola

(85)

Zambia

(88)

Ethiopia

(98)

Korea

(10)

Turkey

(54)

Colombia

(59) 1.0

2.0

3.0

Source: Executive Opinion Survey 2003

4.0 Score

5.0

6.0

7.0

The above results highlight the extent to which macroeconomic stability and improvements in the institutional environment are likely to remain the focus of policymakers in Africa in coming years. This, of course, is not to say that attention should not be given to encouraging the development of the technology infrastructure, so essential in today’s globalized economy. Indeed, policymakers in Africa should pay attention to these issues, for instance, in the context of discussions about spending priorities in the budget, and in the design of aid programmes as part of the negotiation of packages of external assistance with members of the donor community. Few things matter more for the future of the African economies than empowering the populations—particularly women and the young—to be active, literate, well-informed members of society, able to benefit from the use of new

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?

Further insights from the EOS: building a favourable environment for the private sector During the period 1989 to 1994, Africa accounted, on average, for about 2% of total foreign direct investment (FDI) inflows. By 2000, this share had fallen to 0.7% (Table 1). Moreover, roughly half of this relatively small share was accounted for by two countries: Nigeria and Egypt.

Because FDI is often concentrated in import-substituting or export industries, it may also affect the host country's trade performance. Foreign investors are perceived to have a number of advantages over their domestic counterparts, which can contribute to better export performance. Technical know-how, easier recourse to financial resources, and long-term experience in gaining access to markets abroad, among others, help to explain the generally higher propensity of foreign affiliates to produce for export markets than their competitors in the local economy.

Market size and cost factors

Given the importance of FDI for growth (see below) and the central role played by the quality of the business environment in the Forum’s assessment of competitiveness, it will be useful to examine briefly the factors that help explain the relatively lacklustre performance of FDI in Africa and the impact that its significant increase might mean for the countries in the region. Borensztein et al. (1998)15 have tested the effect of FDI on economic growth, using data on capital flows from industrial countries to a large set of developing countries. Their results suggest that FDI is not only the most important channel for technology transfer, but also that it contributes relatively more to growth than domestic investment.

The size of the domestic market and the foreign investor's perception of its growth potential are two of the key determinants of FDI. A large and rapidly expanding market will attract investors because it provides opportunities for on-site production on a level involving economies of scale. Furthermore, because of their technological, organisational, and marketing expertise, foreign investors typically find themselves well positioned to take full advantage of the opportunities implied by a growing market, both as regards the host country and its proximity to other promising markets. While there is strong evidence that both factors have played an important role in the recent sharp expansion of FDI to countries such as China or the transition economies in Central and Eastern Europe, the evidence for Africa is much less positive. Individual African markets are relatively small and, unlike transition economies in Europe, do not offer the same incentives to potential investors associated with their joining a much larger market already operating as an integrated economic space. Moreover, they also do not offer the prospect of future political and social stability normally associated with investments in an expanding common market, such as the EU, which create the conditions for longer-term planning, so essential for investment decisions.

This view is consistent with the notion, central to recent growth theory, that a key determinant of growth in developing countries is the catching-up process implicit, among other things, in the adoption of new technologies, and the acquisition of more modern management techniques, involving not only higher levels of capital formation in the host country, but higher levels of efficiency in the use of resources. FDI carried out by multinationals is seen as the primary channel for access to these new technologies, although in African countries, the level of the human capital stock may act as a constraint on the absorptive capacity of the recipient country. The importance of FDI for Africa cannot be overestimated, particularly given the growing body of evidence that suggests that the direction of causation is predominantly from FDI to growth—see, for instance the work done at the IMF by Havrylyshyn and others.16

In addition to size, a number of cost factors have an important bearing on the attractiveness of a given country as a foreign investment location. It is well known that labour costs, in particular, account for a large share of the total costs of the typical foreign manufacturing affiliate. The cost of material inputs and the cost of capital are also thought to be of importance in the foreign investment decision process. Nevertheless, little work has been done to estimate the relative importance of these cost factors among the many others that determine the location of overseas production, particularly in developing economies for which data is scarce. While, in general, the cost of capital is central to the investment decision process, it is often argued that differences in the cost of capital faced by multinationals across countries will be sharply reduced by the ability of the parent company to obtain funds in more competitive markets. As such,

Table 1: Regional recipients of FDI inflows Region

% in 1989-1994

% in 2000

Africa

2.0

0.7

Asia

23.3

13.1

Europe

40.1

50.8

Latin America

8.7

6.8

North America

24.1

27.1

1.8

1.5

Other Source: World Development Report.

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?

91

technologies, to interact with the rest of the world, and to gradually help push the country to the next stage of development, as has happened in countries like Korea, Chile, Singapore and Estonia.

differences in the local cost of capital in developing countries may not play a central role in explaining FDI inflows. The price of raw and other materials, however, is likely to be more important. Relatively low labour costs and a skilled labour force are frequently cited by foreign investors to transition economies as one of the factors that have made some of these countries attractive investment locations. While Africa can certainly offer potential foreign investors low labour costs, it has major drawbacks in terms of skills and, more generally, the quality of the educational system, as may be gleaned from the data presented in Figure 16. Literacy rates and school enrolment rates in many African countries remain among the lowest in the world.

The regulatory framework One of the most important factors affecting FDI—over which host countries have the greatest control—concerns the set of rules and regulations governing investment activity. Because foreign participation in domestic economic activity can sometimes give rise to special concerns—eg. the extent of foreign control of local industry, or the perception that the foreign investor has advantages over his local counterparts on account of superior technology, easier access to capital markets and managerial resources—most developing countries have combined a degree of regulation of FDI with incentives designed to attract it. A number of countries have imposed restrictions on FDI in certain sectors—eg.

Figure 16: Quality of the educational system Country

The regulatory framework in many African countries has moved in the direction of slowly eliminating restrictions, as well as lifting previous restrictions on remittances of investment dividends and majority participation. African countries have also made some progress in decentralising and streamlining authorisation procedures. Since investment decisions involve issues of long-range planning, investors prefer a set of well identified, simple, stable rules to a situation which they perceive to be opaque or subject to unpredictable changes. The importance of this factor seems to be increasingly recognized in Africa, as reflected in the relative rankings of African countries in a number of key questions in the EOS dealing with the regulatory environment for economic activity, including for FDI. Figure 17 shows that restrictions on foreign ownership are not perceived to be a particularly serious problem in many African countries. Zambia, Nigeria, South Africa, Morocco, Uganda, Ghana have ranks in the high 20s and low 30s. Similar results obtain for survey data on FDI and technology transfer (Figure 18).

Figure 17: Foreign ownership restrictions Country

(Rank)

Ghana

(57)

Nigeria

Zimbabwe

(59)

Zambia

(28)

Kenya

(60)

South Africa

(30)

Uganda

(63)

Morocco

(31)

Egypt

(67)

Uganda

(32)

South Africa

(68)

Ghana

(34)

Morocco

(71)

Senegal

(44)

Cameroon

(73)

Kenya

(48)

Tanzania

(76)

Cameroon

(49)

Nigeria

(79)

Tanzania

(52)

Zambia

(82)

Angola

(60)

Senegal

(84)

Mozambique

(62)

Ethiopia

(85)

Egypt

(70)

Algeria

(86)

Madagascar

(74)

Madagascar

(89)

Algeria

(96)

(91)

(21)

Zimbabwe

(101)

(102)

Ethiopia

(102)

Korea

(47)

Turkey

66)

Colombia

(61)

Korea

(68)

Turkey

(75)

Colombia

(79)

Mozambique Angola

92

(Rank)

banking, public utilities, defence industries—deemed to have "strategic" importance, or on grounds of national security. In those sectors where FDI is permitted, there may be restrictions on the extent of foreign ownership. Investors may be allowed to hold only minority equity participation in enterprises, or required to release ownership gradually through the sale of shares to residents.

1.0

2.0

3.0

Source: Executive Opinion Survey 2003

4.0 Score

5.0

6.0

7.0

1.0

2.0

3.0

Source: Executive Opinion Survey 2003

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?

4.0 Score

5.0

6.0

7.0

Figure 18: FDI and technology transfer

Figure 19: Extent of bureaucratic red tape

(Rank)

Country

Nigeria

(20)

Senegal

(47)

Kenya

(21)

South Africa

(61)

Uganda

(23)

Morocco

(66)

South Africa

(26)

Ghana

(70)

Tanzania

(29)

Mozambique

(74)

Mozambique

(30)

Kenya

(75)

Morocco

(41)

Zimbabwe

(80)

Ghana

(42)

Madagascar

(83)

Egypt

(57)

Tanzania

(89)

Zambia

(71)

Cameroon

(93)

Zimbabwe

(73)

Zambia

(94)

Angola

(74)

Egypt

(95)

Cameroon

(90)

Ethiopia

(96)

Senegal

(92)

Nigeria

(98)

Madagascar

(94)

Uganda

(99)

Ethiopia

(98)

Angola

(100)

Algeria

(102)

Algeria

(101)

Country

(Rank)

Colombia

(55)

Colombia

(35)

Korea

(58)

Korea

(37)

Turkey

(80)

Turkey

(69)

1.0

2.0

3.0

4.0 Score

5.0

6.0

1.0

7.0

2.0

3.0

4.0 Score

5.0

6.0

Source: Executive Opinion Survey 2003

Data on the extent of bureaucratic red tape show less encouraging results (Figure 19), suggesting that the reforms carried out in Africa in recent years to facilitate the growth of investment are incomplete, and that the quality of the regulatory framework remains an important constraint on its expansion.

Figure 20: Business costs of crime and violence

Political stability and other factors Setting aside issues that arise in connection with empirical testing, there is broad consensus that political stability has an important bearing on investment decisions. FDI is partly generated by the expectation of higher profits, and these in turn will depend on a number of factors, including the country's overall investment climate. Unpredictable swings in policies as a result of political events will introduce additional risk factors in the investment decision process. Regrettably, Africa has suffered from many armed conflicts over recent decades and, without doubt, this has greatly contributed to reductions in FDI. The level of education of the population, the flexibility of the labour market, the degree of urbanization and the quality of infrastructure— an important consideration in the case of African economies where the development of the transport and telecommunications network has lagged behind the rest of the world—the vicinity to other markets, the cost to business of crime and violence, are all further factors affecting the investment climate (Figure 20).

Country

(Rank)

Morocco

(33)

Egypt

(44)

Ethiopia

(45)

Algeria

(47)

Ghana

(57)

Zambia

(66)

Tanzania

(68)

Madagascar

(72)

Zimbabwe

(74)

Senegal

(76)

Uganda

(77)

Nigeria

(81)

Angola

(88)

Cameroon

(90)

Mozambique

(94)

South Africa

(96)

Kenya

(97)

Turkey

(18)

Korea

(30)

Colombia

(80)

93

Source: Executive Opinion Survey 2003

7.0

1.0

2.0

3.0

4.0 Score

5.0

6.0

7.0

Source: Executive Opinion Survey 2003

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?

Figure 21: Business impact of malaria Country

Figure 22: Business impact of HIV/AIDS

(Rank)

Country

(59)

Egypt

(52)

Egypt

(70)

Algeria

(62)

Morocco

(75)

Morocco

(72)

South Africa

(83)

Madagascar

(78)

Nigeria

(86)

Senegal

(79)

Zimbabwe

(87)

Nigeria

(82)

Madagascar

(88)

Angola

(85)

Kenya

(89)

Ghana

(86)

Ghana

(90)

Mozambique

(89)

Ethiopia

(92)

Uganda

(90)

Senegal

(93)

Kenya

(91)

Uganda

(94)

Ethiopia

(94)

Mozambique

(95)

Tanzania

(96)

Zambia

(96)

Cameroon

(97)

Tanzania

(97)

Zambia

Cameroon

(99)

South Africa

(100)

Zimbabwe

(102)

(99)

Angola

(100)

Korea

(37)

Turkey

(32)

Turkey

(41)

Korea

(34)

Colombia

(63)

Colombia

(55)

1.0

2.0

3.0

4.0 Score

5.0

6.0

7.0

1.0

2.0

3.0

4.0 Score

5.0

6.0

7.0

Source: Executive Opinion Survey 2003

Source: Executive Opinion Survey 2003

In Africa, moreover, the impact of malaria and HIV/AIDS are revealed by the EOS to be extremely important additional factors, adding significant uncertainty to the business environment, and possibly discouraging all forms of investment (Figures 21 and 22).

expenditure reduction necessary to service investment financed by equity will, as a rule, be smaller than that financed by debt. Furthermore, direct investment payments will, in general, have a maturity structure that bears a closer relation to the life of the investment project at hand than commercial bank credits. These would appear to be particularly important considerations for African countries, given the high levels of external indebtedness and the persistence of current account imbalances—close to a 5% of GDP deficit in Sub-Saharan Africa according to the latest World Economic Outlook, with considerable variation across countries. According to the IMF, debt service payments in Africa in 2003 accounted for over 150% of exports of goods and services.

Debt versus private investment

94

(Rank)

Algeria

The composition of capital inflows into countries undergoing a process of external adjustment has become an increasingly important issue. The recourse in the 1980s and 1990s by a number of countries to more bank credit, at the expense of foreign private investment, may have made them more susceptible to external disturbances. The view has emerged that foreign investment payments move more closely with a country's ability to service them than do interest payments on debt, which persist even if the original loans financed unprofitable activities—a frequent occurrence in a number of crisis economies in recent years. A fall in the terms of trade or a sudden reduction in the volume of exports leaves interest payments due on the stock of external debt unchanged. The foreign exchange needed will then have to be generated through expenditure reductions and changes in relative prices. However, such external disturbances are likely to reduce profits due on equity investment, as the country undergoes a period of adjustment. Thus, the

Conclusion The Growth Competitiveness Index, along with the Executive Opinion Survey that feeds it, are useful tools for the analysis of development in Africa, with particular reference to those factors that play a central role in explaining the growth process: the quality of the macroeconomic environment, the state of a country’s public institutions, and the level of technological readiness and sophistication. The index and the survey deliver numerous insights about the relative importance of the variables that determine the

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?

quality of the business environment in a given country and which, consequently, have a bearing on a country’s ability to sustain high growth rates over the long term.

14

African countries do not, on the whole, score well on the GCI. Their rankings are low across virtually all the various sub-components of the index, underscoring the region’s serious economic and institutional problems. However, and perhaps more importantly, these low rankings identify those areas in which policy reforms are vitally needed, if the continent is to fulfil its potential. Through its competitiveness work— including improvements to the methodologies used to gain a better understanding of the determinants of competitiveness—the World Economic Forum will continue to remain engaged in the region, and to lend its support to the search for creative solutions to the many challenges that must be addressed in coming years to improve the quality of life for the people of Africa.

References

Blanke, J. et al. 2004. p.5. Borensztein, E. et al, 1998. 16 See Havrylyshyn, O. et al. 1999. 15

Blanke, J., F. Paua, and X. Sala-i-Martin. 2004. “The Growth Competitiveness Index: Analyzing Key Underpinnings of Sustained Economic Growth.” The Global Competitiveness Report 2003-2004. World Economic Forum. Oxford University Press. 3-28. Borensztein, E., J. DeGregorio, and J-W Lee. 1998. “How Does FDI Affect Economic Growth?” Journal of International Economics 45. 115-135. Easterly, W. 2001. “The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics.” Cambridge, MA. MIT Press. Havrylyshyn, O. et al. “Growth Experience in Transition Economies, 1990-98.” Occasional Paper 184. International Monetary Fund. 1999. International Monetary Fund. World Economic Outlook. Kaufmann, D. 2004. “Governance Redux: The Empirical Challenge.” The Global Competitiveness Report 2003-2004. World Economic Forum. Oxford University Press. 137-164. McArthur, J.W. and J.D. Sachs. 2002. “The Growth Competitiveness Index: Measuring Technological Advancement and the Stages of Development.” The Global Competitiveness Report 2001-2002. World Economic Forum. Oxford University Press. Sen, A. 1999. Development as Freedom. Oxford University Press. World Bank. World Development Report. World Economic Forum. 2004. The Global Competitiveness Report 20032004. Oxford University Press.

Notes Easterly, W., 2001. p.xi. The question of what constitutes “economic success” (and how to measure it) is central to the debate about current approaches to development and policy formulation. Some have argued, for instance, that any income accounting system which treats the depletion of natural resources as current income, and thus as a positive contribution to the growth of GNP, is obviously one which provides perverse incentives. However, in this paper we deliberately stay away from examining the question of whether GNP is a good measure of human welfare. 3 Sen, A. 1999. p.5. 4 The 102 countries covered by the Executive Opinion Survey account for more than 95% of world GNP. 5 McArthur, J.W. et al. 2002. 6 In what is surely an eloquent indicator of recent world-wide progress in taming high inflation, a total of 83 countries among the 102 included in the EOS had annual inflation rates of less than 10 percent in 2002. Only four countries (Argentina, Turkey, Angola and Zimbabwe) had annual rates of inflation in excess of 25 percent. 7 In this and the figures that follow throughout the chapter we present the scores and ranks for 17 countries in Africa out of the 25 covered by the Forum’s competitiveness work. The criterion for choosing these 17 is population, these being the most populous. (Full data on the majority of questions for all 102 countries is available in CD-ROM format through the World Economic Forum.) The figures also present, for comparison purposes, the rankings for Colombia, Korea and Turkey. All of these countries had per capita incomes in the late 1960s that were not significantly different from those in some of the more developed African countries. But these countries, at various times during the last several decades, have also shared many common features with Africa, including civil strife, political instability, haphazard macroeconomic management and other structural rigidities. 8 The countries are Algeria, Angola, Botswana, Burundi, Eritrea, Ethiopia, Guinea-Bissau, Lesotho, Morocco, Rwanda, Sierra Leone, Sudan and Zimbabwe. For further details see World Development Indicators 2003, The World Bank, 2003, Washington DC. 9 For further details in the construction of this index see The Global Competitiveness Report 2003-2004. 10 The question is stated as follows: “When your firm needs to import foreign equipment, the combined effect of import tariffs, license fees, bank fees, and the time required for administrative red tape raises the cost by approximately (1 = less than 10%, 2 = 11-20%, 3 = 21-30%, ……9 = greater than 80%). 11 See Sen, op.cit. p.16. 12 Kaufmann, D. 2004. 13 See, in particular, Sen, op.cit. Chapter 3, titled “Solow’s Surprise: Investment Is Not the Key to Growth”, pp. 47-70. 1

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?

95

2

Appendix 1: Composition of the Growth Competitiveness Index The Growth Competitiveness Index is composed of three component indexes: the technology index, the public institutions index, and the macroeconomic environment index. These indexes are calculated on the basis of both “hard data” and “Survey data.” The repsonses to the Executive Opinion Survey are what we refer to as Survey data, with responses ranging from 1 to 7 (see the chapter at the end of the Report for further information on the Executive Opinion Survey); the hard data were collected from various sources, described in the Technical Notes and Sources at the end of the Report. All of the data used in the calculation of the Growth Competitiveness Index can be found in the data tables section of the Report. The standard formula for converting each hard data variable to the 1-to-7 scale is:

6x

(country value – sample minimum) (sample maximum – sample minimum)

+1

The sample minimum and sample maximum are the lowest and highest values of the overall sample, respectively. In some instances, adjustments were made to account for extreme outliers in the data. As explained in the chapter, the sample of countries is divided into two groups: the core innovators and the non-core innovators. Core innovators are countries with more than 15 US utility patents registered per million population in 2002; non-core innovators are all other countries.

Technology index components The technology index is calculated for the core and non-core innovators as follows: technology index for core innovators

=

(1/2 innovation subindex) + (1/2 information and communication technology index

technology index for non-core innovators

=

(1/8 innovation subindex) +(3/8 technology transfer subindex) +(1/2 information and communication technology subindex)

Innovation subindex innovation subindex

=

(1/4 Survey data) +(3/4 hard data)

Innovation Survey questions 3.01 What is your country’s position in technology relative to world leaders’? 3.02 Companies in your country are not interested/aggressive in absorbing new technology? 3.06 How much do companies in your country spend on R&D relative to other countries? 3.08 What is the extent of business collaboration in R&D with local universities?

Innovation hard data 3.17 US utility patents granted per million population in 2002 3.18 Gross tertiary enrollment rate in 2000 or most recent available year

For the core innovators, we place extra emphasis on the role of innovation and technology. The weightings for the core innovators are as follows:

Technology transfer subindex Growth Competitiveness Index for core innovators

=

(1/2 technology index) +(1/4 public institutions index)

technology transfer subindex

+(1/4 macroeconomic environment index)

For the non-core innovators, we calculate the Growth Competitiveness Index values as a simple average of the three component indexes: Growth Competitiveness Index for non-core innovators

=

=

unweighted average of two technology transfer Survey questions

3.03 Is foreign direct investment in your country an important source of new technology? 3.04 Is foreign technology licensing in your country a common means of acquiring new technology?

(1/3 technology index) +(1/3 public institutions index)

96

+(1/3 macroeconomic environment index)

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?

Appendix 1: Composition of the Growth Competitiveness Index (cont’d.) Information and communication technology (ICT) subindex information and communication technology subindex

=

(1/3 information and communication technology Survey data) +(2/3 information and communication technology hard data)

Macroeconomic environment index components

macroeconomic environment index

=

1/2 macroeconomic stability subindex +1/4 country credit rating in March 2003 +1/4 government waste in 2003

Information and communication technology Survey questions

Macroeconomic stability subindex

3.12 How extensive is Internet access in schools? 3.13 Is there sufficient competition among ISPs in your country to ensure high quality, infrequent interruptions and low prices? 3.14 Is ICT an overall priority for the government?

macroeconomic stability subindex

3.15 Are government programs successful in promoting the use of ICT?

=

(5/7 macroeconomic stability hard data) +(2/7 macroeconomic stability Survey data)

3.16 Are laws relating to ICT (electronic commerce, digital signatures, consumer protection) well developed and enforced? Macroeconomic stability Survey questions 2.01 Is your country’s economy likely to be in a recession next year? Information and communication technology hard data

2.09 Has obtaining credit for your company become easier or more difficult over the past year?

3.19 Cellular mobile subscribers per 100 inhabitants, 2002 3.20 Internet users per 10,000 inhabitants, 2002 3.21 Internet hosts per 10,000 inhabitants, 2002 3.22 Main telephone lines per 100 inhabitants, 2002

Macroeconomic stability hard data

3.23 Personal computers per 100 inhabitants, 2002

2.18 Government surplus/deficit in 2002 2.19 National savings rate in 2002 2.20 Inflation in 2002 2.21 Real exchange rate relative to the United States in 2002 2.22 Lending – borrowing interest rate spread in 2002

Public institutions index components 2.17 Institutionnal Investor country credit rating, March 2003 public institutions index

=

(1/2 contracts and law subindex)

Government waste composite, 2003

+(1/2 corruption subindex)

2.03 Do government subsidies to business in your country keep uncompetitive industries alive artificially or do they improve the productivity of industries?

Contracts and law subindex 6.01 Is the judiciary in your country independant from political influences of members of government, citizens or firms? 6.03 Are financial assets and wealth clearly delineated and well protected by law?

7.08 In your country, how common is the diversion of public funds to companies, individuals or groups due to corruption? 7.10 How high is the public trust in the financial honesty of politicians?

6.08 Is your government neutral among bidders when deciding among public contracts? 6.17 Does organized crime impose significant costs on business?

Corruption subindex 7.01 How commonly are bribes paid in connection with import and export permits? 7.02 How commonly are bribes paid when getting connected with public utilities?

97

7.03 How commonly are bribes paid in connection with annual tax payments?

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?

Appendix 2: Growth Competitiveness Index and Subindex Rankings Growth Competitiveness Index (GCI) Rank

Public institutions index Rank

Score

1

Botswana

36

4.56

1

Botswana

26

5.45

2

Tunisia

38

4.49

2

Tunisia

32

5.19

3

South Africa

42

4.37

3

Malawi

38

4.79

4

Mauritius

46

4.12

4

Gambia

39

4.73

5

Namibia

52

3.99

5

South Africa

43

4.69

6

Gambia

55

3.93

6

Mauritius

44

4.61

7

Egypt

58

3.84

7

Namibia

48

4.50

8

Morocco

61

3.77

8

Egypt

57

4.18

9

Tanzania

69

3.49

9

Tanzania

59

4.15

10

Ghana

71

3.46

10

Ghana

65

3.97

11

Algeria

74

3.39

11

Algeria

66

3.92

12

Malawi

76

3.36

12

Morocco

68

3.86

13

Senegal

79

3.34

13

Zambia

69

3.86

14

Uganda

80

3.25

14

Ethiopia

73

3.69

15

Kenya

83

3.21

15

Senegal

75

3.64

16

Nigeria

87

3.10

16

Mozambique

82

3.33

17

Zambia

88

3.10

17

Mali

83

3.33

18

Cameroon

91

2.98

18

Uganda

84

3.30

19

Ethiopia

92

2.92

19

Zimbabwe

90

3.21

20

Mozambique

93

2.91

20

Angola

91

3.16

21

Madagascar

96

2.85

21

Kenya

92

3.16

22

Zimbabwe

97

2.84

22

Cameroon

95

3.04

23

Mali

99

2.79

23

Madagascar

96

3.04

24

Angola

100

2.60

24

Nigeria

25

Chad

101

2.31

25

Chad

Macroeconomic environment index

98

Rank

Rank

Rank

Score

98

2.99

101

2.36

Technology index Rank

Score

Rank

Score

1

Botswana

30

4.44

1

South Africa

40

4.35

2

Tunisia

32

4.38

2

Mauritius

49

4.10

3

South Africa

40

4.08

3

Tunisia

57

3.90

4

Morocco

43

3.95

4

Botswana

59

3.78

5

Gambia

46

3.85

5

Namibia

62

3.72

6

Algeria

51

3.78

6

Egypt

68

3.64

7

Namibia

53

3.75

7

Morocco

71

3.50

8

Egypt

56

3.70

8

Kenya

74

3.36

9

Mauritius

57

3.66

9

Zimbabwe

75

3.34

10

Senegal

67

3.33

10

Uganda

77

3.25

11

Ghana

68

3.29

11

Gambia

80

3.22

12

Uganda

71

3.20

12

Tanzania

81

3.22

13

Nigeria

74

3.16

13

Nigeria

82

3.16

14

Tanzania

76

3.12

14

Ghana

86

3.10

15

Kenya

77

3.10

15

Senegal

89

3.04

16

Cameroon

78

3.10

16

Zambia

90

2.96

17

Madagascar

79

3.04

17

Mozambique

92

2.84

18

Ethiopia

84

2.89

18

Cameroon

93

2.80

19

Mali

91

2.67

19

Malawi

94

2.79

20

Mozambique

95

2.57

20

Algeria

96

2.48

21

Chad

96

2.50

21

Madagascar

97

2.47

Rank

22

Zambia

97

2.49

22

Angola

98

2.43

23

Malawi

98

2.49

23

Mali

99

2.36

24

Angola

101

2.22

24

Ethiopia

100

2.17

25

Zimbabwe

102

1.98

25

Chad

102

2.06

Source: World Economic Forum

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?

Part 2 Country Profiles

How Country Profiles Work This section includes four-page country profiles for twenty-five African countries. Each profile summarizes important data for a country. It displays major economic, financial, social, and trade data from both published sources and the World Economic Forum’s Executive Opinion Survey (EOS). Country profiles are laid out as follows: ❚ the first page presents basic indicators for the country in order to give a general overview of its present economic and social development; ❚ the second page includes charts presenting key growth, investment and trade data; ❚ the third and fourth pages present selected data for each economy from the World Economic Forum’s Growth Competitiveness Index and the EOS.

Algeria

US$ (millions)

FDI Inward and Outward Stock and Flow, 1999-2002

6000 5000 4000

Key Indicators Total population in millions, 2002 Average annual population growth rate (%), 1992-2002 Total GDP in billions US dollars, 2002

Human Development Indicators 31.40 1.80 54.15

GDP per capita (PPP) in US dollars, 2002

5,536.19

Real growth in GDP per capita (%), 2002

1.58

Growth of output (average annual percent growth) 1990-2001

1.64

Agriculture

4.07

Industry

1.65

Manufacturing

-0.75

Services

1.59

Inflation (annual percent change), 2002

1.40

Government surplus/deficit (as percent of GDP), 2002

2.20

Gross capital formation (as percent of GDP), 2001 Interest rate spread, 2002 Real exchange rate*, 2003

25.66 3.20 137.57

Exports of goods and services (as percent of GDP), 2001

37.18

Imports of goods and services (as percent of GDP), 2001

21.40

Current account balance (as percent of GDP), 2001 Average external tariff rate in percent, 1998

n/a 17.30

Gross international reserves in months of imports, 2001 Official development assistance and official aid (in millions US dollars), 2001 Total external debt in millions US dollars, 2001 Total external debt (as percent of GDP), 2001 Total debt service (as percent of GNI), 2001

112.0 70.8 15.0

FDI outflows

1999

2002

Source: UNCTAD Handbook of Statistics, year

<2 89.00

Life expectancy at birth, 2002

69.40

HIV prevalence age 15-49 (%), 2001

0.10

Reported malaria per 100,000, 2001

1.40

1%

Structure of Exports of Goods, 2001

1%

50.40

Fuels

2

Infrastructure and Technology Diffusion Indicators Paved roads, (percent of total roads), 1999

68.90

Electric power transmission and distribution losses (percent of output), 2000

14.53

Internet users per 10,000 inhabitants, 2002

FDI inflows

67.8

Population without sustainable access to an improved water source (%), 2000

Personal computers per 100 inhabitants, 2002

FDI outward stock

8.26

Gross tertiary enrollment, 2000 or most recent

Cellular mobile telephone subscribers per 100 inhabitants, 2002

FDI inward stock

0.53

Gross secondary enrollment (percent of relevant age group), 2001

Main telephone lines per 100 inhabitants, 2002

0

22,503

Gross primary enrollment (percent of relevant age group), 2001

Estimated TB cases per 100,000, 2001

1000

182.0

19.50

Share of population living in the income below 1 dollar a day (%), 2001

2000

16.0

Total debt service (as percent of exports of goods and services), 2001

Adult literacy rate age 15 and above (%) , 2001

3000

1

Manufactured goods Others

6.10 1.28

98%

0.71 159.78 Source: UNCTAD Handbook of Statistics, year

GDP Growth, 1970-2003 Percent

12 10 8 6

3

4 2 20 03

20 00 20 01 20 02

19 98 19 99

19 94 19 95

19 96 19 97

19 90 19 91 19 92 19 93

19 84 19 85

19 86 19 87 19 88 19 89

19 80 19 81 19 82 19 83

19 76 19 77 19 78 19 79

19 72 19 73 19 74 19 75

19 70 19 71

0 -2 -4

-8

Source: World Economic Outlook Database, April 2003

2.1 ❚ Country Profiles

Page 1 Key Indicators of Country Performance, Human Development, Infrastructure and Technology Diffusion These three sections present recent data providing estimates of 1 the size and structure of the economy, and the stability of the macroeconomic environment; 2 the state of social development, including literacy rates and life expectancy; 3 the extent to which infrastructure and technology is developed within the country in question. The primary data sources used are World Development Indicators 2003, World Bank; Economist Intelligence Unit; World Economic Outlook Database, IMF, April 2003; International Financial Statistics, IMF, March 2004; State of the World Population 2002, UNFPA; Global Atlas, World Health Organization, March 2004; The World Health Report 2003, World Health Organization; Human Development Report 2003, UNDP; Institute for Statistics UNESCO; Index of Economic Freedom 2003, The Heritage Foundation and The Wall Street Journal; International Telecommunication Union, March 2004; African Economic Outlook 2002/03, OECD.

2.2 ❚ Country Profiles

Page 2 1 FDI Inward and Outward Stock and Flow, 1999-2002 The chart at the top of the page provides a comparison of the inward and outward stocks and flows of foreign direct investment for the two years, 1999 and 2002. The data source is the UNCTAD Handbook of Statistics, online, March 2004.

2 Structure of Exports of Goods, 2001 The chart in the middle of the page provides information on the export structure of each country, with each good exported shown as a percentage of total exports. Since this data is not available for a number of countries, this chart does not appear in some country profiles. The data source is the UNCTAD Handbook of Statistics, online, March 2004.

3 GDP Growth, 1970-2003 The chart at the bottom of the page presents annual real GDP growth rates since 1970. These data were obtained from the World Economic Outlook Database, IMF, April 2003.

2 ❚ Country Profiles

101

Sources: World Development Indicators 2003 (World Bank, 2003); World Economic Outlook Database, April 2003 (International Monetary Fund); Global Atlas (World Health Organization); Human Development Report 2002 (UNFP); Index of Economic Freedom 2003 (The Heritage Foundation, 2003)

3

2

-6 *2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States.

Competitiveness Rankings

National Competitiveness Balance Sheet Rank out of 25 African countries

Rank out of 102 countries

11

74

Growth Competitiveness Index Rank

Notable competitive Advantages Growth Competitiveness index

1

Rank out of 25 African countries

Notable competitive Disadvantages Rank out of 102 countries

Macroeconomic Environment

6

51

Macroeconomic Stability Subindex Rank

1

5

2.18 2.19

National savings rate, 2002

2.20

Inflation, 2002

2.22

Interest rate spread, 2002

1

8

67

Country Credit Rating Rank Rank

14

68

Government surplus/deficit, 2002

Rank out of 25 African countries

Rank out of 102 countries

Macroeconomic Environment

Macroeconomic Environment Index Rank Government Waste Subindex Rank

Growth Competitiveness index

2

6

2.03

Extent of distortive government subsidies

23

3

6

2.09

3

17

2.17

Country credit rating, 2003

8

68

19

7.08

Diversion of public funds

10

53

7.10

Public trust of politicians

10

53

Access to credit

13

95 74

Public Institutions Index Rank

11

66

2.01

Recession expectations

12

29

Contracts and Law Subindex Rank

13

59

2.21

Real exchange rate, 2002

11

42

9

72 4

25

7.03

Irregular payments in tax collection

18

87

10

48

7.02

Irregular payments in public utilities

12

80

6

50

6.01

Judicial independence

18

76

Property rights

14

70

24

100

Corruption Subindex Rank

Public Institutions Technology Index Rank

20

96

Innovation Subindex Rank

6

74

ICT Subindex Rank

16

91

Technology Transfer Subindex Rank* (out of 77 non-core innovators)

25

76

6.08

Favoritism in decisions of government officials

6.17

Organized crime

7.01

Irregular payments in exports and imports

Public Institutions

6.03

Source: GCR

Technology 3.16 3.13 Algeria

GCI

Relative performance: GCI scores and GDP

102 country average

6

2

0

Macroeconomic environment index

Public institutions index

22

96

Internet access in schools

18

94

Cellular telephones, 2002

18

92

3.15

Government success in ICT promotion

23

91

3.21

Internet hosts, 2002

16

90

3.01 Technology index

2

scale from 1 to 7)

Quality of competition in the ISP sector

3.19

3.08

4 GDP per capita (normalized on a

Laws relating to ICT

3.12

University/industry research collaboration

20

Technological sophistication

89

18

89

3.06

Company spending on research and development

18

87

3.23

Personal computers, 2002

12

83

3.14

Government prioritization of ICT

3.20

Internet users, 2002

9

80

3.03

FDI and technology transfer

25

77

3.02

Firm-level technology absorption

16

76

3.22

Telephone lines, 2002

7

73

3.17

Utility patents, 2002

3.04

Prevalence of foreign technology licensing

3.18

Tertiary enrollment

19

80

8

72

20

67

4

67

Source: World Economic Forum and World Economic Outlook Database, April 2003

Other indicators

Access to financing Inefficient government bureaucracy

8.09

Wage equality of women in the workplace

11

21

6.09

Extent of bureaucratic red tape

3.10

Availability of scientists and engineers

2

23

10.02

Value chain presence

24

101

6.18

Informal sector

3

39

10.01

Nature of competitive advantage

24

100

6.13

Reliability of police services

5

40

8.01

Intensity of local competition

4.08

Impact of HIV/AIDS on FDI

3

46

5.06

Telephone infrastructure quality

17

90

6.14

Business costs of crime and violence

9

47

5.04

Air transport infrastructure quality

20

88

2.06

Soundness of banks

22

10.12

Extent of staff training

21

87

2.07

Ease of access to loans

17

85

5.07

Postal efficiency

15

82

5.03

Port infrastructure quality

11

72

Policy instability Restrictive labor regulations Inadequate supply of infrastructure Tax regulations

3

Inadequately educated workforce

23

101

98

87

5.01

Overall infrastructure quality

11

69

Corruption

6.15

Government effectiveness in reducing poverty

17

68

Tax rates

4.02

Quality of public schools

Government instability/coups

8.08

Private-sector employment of women

Inflation

5.05

Quality of electricity supply

10.15

Reliance on professional management

Foreign currency regulations

4.06

Business impact of tuberculosis

3

Crime and theft

4.07

Business impact of HIV/AIDS

4

62

4.05

Business impact of malaria

2

59

4

Poor work ethic in national labour force

0%

% of responses

30%

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings. Source: World Economic Forum, Executive Opinion Survey 2003

Page 3 1 Competitiveness Rankings The table at the top of the page presents the overall Growth Competitiveness Index (GCI) Rankings for (1) the 25 African countries covered in this Report, and (2) the entire group of 102 countries covered in The Global Competitiveness Report 2003-2004. Details on the calculation of the GCI can be found in Chapter 8, Appendix 1 of this Report.

2 Relative Performance: GCI Scores and GDP The chart in the middle of the page compares ❚ the country’s overall GCI score; ❚ each GCI subindex score (technology, public institutions and the macroeconomic environment); ❚ GDP per capita in 2003 to the average values of the 102 countries included in The Global Competitiveness Report 2003-2004. Note that all scores are on a scale from 1 to 7, with 1 representing the least competitive and 7 the most competitive end of a spectrum. The GDP data were obtained from the World Economic Outlook Database, IMF, April 2003.

3 The Most Problematic Factors for Doing Business The chart at the bottom of the page summarizes those factors seen by CEOs and top executives as the most problematic for doing business in their country. The information is drawn from a question in the Executive Opinion Survey in which respondents were presented with 14 different factors and asked to rank those they considered the most problematic on a scale from 1 to 5. The responses were tabulated and weighted according to the rank assigned by the respondents.

2 ❚ Country Profiles

9

68

12

66

8

66

14

64 64

5.02

Railroad infrastructure development

9

58

6.05

Freedom of the press

7

56

*Source: Global Competitiveness Report 2003-2004, World Economic Forum.

2.3 ❚ Country Profiles

102

25

5

Other indicators

The Most Problematic Factors for Doing Business

2.4 ❚ Country Profiles

Page 4 National Competitiveness Balance Sheet This page forms a country competitiveness balance sheet, providing detailed information on the relative strengths and weaknesses of each economy. The balance sheet is broken into two main sections: one including all of the variables included in the calculation of the Growth Competitiveness Index and one including a list of other noteworthy indicators about the economic environment of each country. The rankings for each variable are given for the 25 African countries included in this Report, as well as for the entire group of 102 countries included in The Global Competitiveness Report 2003-2004. The rule for deciding whether variables are advantages or disadvantages is based on the methodology used for the 102-country sample employed in The Global Competitiveness Report. For top-ranked countries in the GCI, variables ranked between 1 and 10 are considered an advantage. For those countries ranked from 11 to 51 overall in the GCI, variables ranked better than the country’s own rank are considered to be advantages. For those countries with an overall GCI rank lower than 51, any variables ranked equal to or better than 51 are considered as advantages.

List of Countries

Algeria ........................................................................................104 Angola ........................................................................................108 Botswana....................................................................................112 Cameroon ...................................................................................116 Chad ...........................................................................................120 Egypt ..........................................................................................124 Ethiopia ......................................................................................128 Gambia.......................................................................................132 Ghana.........................................................................................136 Kenya..........................................................................................140 Madagascar................................................................................144 Malawi .......................................................................................148 Mali ............................................................................................152 Mauritius ....................................................................................156 Morocco......................................................................................160 Mozambique...............................................................................164 Namibia ......................................................................................168 Nigeria........................................................................................172 Senegal.......................................................................................176 South Africa................................................................................180 Tanzania .....................................................................................184 Tunisia ........................................................................................188 Uganda.......................................................................................192 Zambia........................................................................................196

103

Zimbabwe...................................................................................200

2 ❚ Country Profiles

Algeria Key Indicators Total population in millions, 2002 Average annual population growth rate (%), 1992-2002

Human Development Indicators 31.40 1.8

Gross primary enrollment (percent of relevant age group), 2001 Gross secondary enrollment (percent of relevant age group), 2001

112.0 70.8

Total GDP in billions US dollars, 2002

54.15

Gross tertiary enrollment (percent of relevant age group), 2000 or most recent year available

GDP per capita (PPP) in US dollars, 2002

5,536

Adult literacy rate age 15 and above (%) , 2001

Real growth in GDP per capita (%), 2002

1.6

Percent of population living on income below 1 dollar a day, 2001

1.6

Population with sustainable access to an improved water source (%), 2000

Agriculture

4.1

Life expectancy at birth, 2002

Industry

1.6

HIV prevalence age 15-49 (%), 2001

0.1

Manufacturing

-0.7

Reported malaria per 100,000, 2001

1.4

Services

1.6

Estimated TB cases per 100,000, 2002

Inflation (annual percent change), 2002

1.4

Government surplus/deficit (as percent of GDP), 2002

2.2

Growth of output (average annual percent growth) 1990-2001

Gross fixed capital formation (as percent of GDP), 2002 Interest rate spread, 2003 Real exchange rate*, 2003

24.7 2.8 137.6

15.0 67.8 <2 89 69.4

50.4

Infrastructure and Technology Diffusion Indicators Paved roads (percent of total roads), 1999

69

Electric power transmission and distribution losses (percent of output), 2000

16

Main telephone lines per 100 inhabitants, 2002

6.1

Exports of goods and services (as percent of GDP), 2002

35.6

Cellular mobile telephone subscribers per 100 inhabitants, 2002

1.3

Imports of goods and services (as percent of GDP), 2002

25.6

Personal computers per 100 inhabitants, 2002

Current account balance (as percent of GDP), 2001

n/a

Average external tariff rate in percent, 1998

17.3

Gross international reserves in months of imports, 2001

16.0

Official development assistance and official aid (in millions US dollars), 2001 Total external debt in millions US dollars, 2001 Total external debt (as percent of GDP), 2001 Total debt service (as percent of GNI), 2001

0.8 159.8

182.0 22'503 41.2 8.3 19.5

104

Total debt service (as percent of exports of goods and services), 2001

Internet users per 10,000 inhabitants, 2002

*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States. Sources: World Development Indicators 2003 (World Bank, 2003); World Economic Outlook Database, April 2003 (International Monetary Fund); Global Atlas (World Health Organization); Human Development Report 2002 (UNFP); Index of Economic Freedom 2003 (The Heritage Foundation, 2003)

2 ❚ Country Profiles

US$ (millions)

FDI Inward and Outward Stock and Flow, 1999-2002

6,000 5,000 4,000 3,000 2,000 1,000 0 FDI inward stock

FDI outward stock

FDI inflows

1999

FDI outflows

2002

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

1%

Structure of Exports of Goods, 2001

1%

Fuels Manufactured goods Others

98% Source: UNCTAD Handbook of Statistics online (accessed March 2004)

GDP Growth, 1970-2003 Percent

12 10 8 6 4 2 02

01

03 20

20

99

98

97

00

20

20

19

19

19

5

96 19

94

93

92

91

90

19 9

19

19

19

19

89

88

87

86

85

84

19

19

19

19

19

19

83

82

81

80

79

78

19

19

19

19

19

19

77

76

75

74

73

72

71

19

19

19

19

19

19

19

19

-2

19

70

0

105

-4 -6 -8

Source: World Economic Outlook Database, IMF, April 2003

2 ❚ Country Profiles

Competitiveness Rankings Rank out of 25 African countries

Rank out of 102 countries

11

74

Macroeconomic Environment Index Rank

6

51

Macroeconomic Stability Subindex Rank

1

5

Government Waste Subindex Rank

14

67

Country Credit Rating Rank Rank

8

68

Public Institutions Index Rank

11

66

Contracts and Law Subindex Rank

13

59

Corruption Subindex Rank

9

72

Technology Index Rank

20

96

Innovation Subindex Rank

6

74

ICT Subindex Rank

16

91

Technology Transfer Subindex Rank* (out of 77 non-core innovators)

25

76

Growth Competitiveness Index Rank

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

Algeria

Growth Competitiveness Index

Relative performance: Growth Competitiveness Index scores and GDP

102 country average

6 4

GDP per capita (normalized on a

Technology index

2

scale from 1 to 7)

0

Macroeconomic environment index

Public institutions index

Sources: World Economic Forum and World Economic Outlook Database, April 2003

The Most Problematic Factors for Doing Business Access to financing Inefficient government bureaucracy Policy instability Restrictive labor regulations Inadequate supply of infrastructure Tax regulations Inadequately educated workforce Corruption Tax rates Government instability/coups Inflation

106

Poor work ethic in national labour force Foreign currency regulations Crime and theft 0

5

10

15 % of responses

20

25

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings. Source: World Economic Forum, Executive Opinion Survey 2003

2 ❚ Country Profiles

30

National Competitiveness Balance Sheet Notable Competitive Advantages Growth Competitiveness Index

Notable Competitive Disadvantages

Rank out of Rank out of 25 African countries 102 countries*

Growth Competitiveness Index

Macroeconomic Environment

Rank out of Rank out of 25 African countries 102 countries*

Macroeconomic Environment

2.18

Government surplus/deficit, 2002

2

6

2.03

Extent of distortive government subsidies

23

95

2.19

National savings rate, 2002

3

6

2.09

Access to credit

13

74

2.20

Inflation, 2002

3

17

2.17

Country credit rating, 2003

8

68

2.22

Interest rate spread, 2002

1

19

7.08

Diversion of public funds

10

53

2.01

Recession expectations

12

29

7.10

Public trust of politicians

10

53

2.21

Real exchange rate, 2002

11

42

6.08

Favoritism in decisions of government officials

4

25

7.03

Irregular payments in tax collection

18

87

6.17

Organized crime

10

48

7.02

Irregular payments in public utilities

12

80

7.01

Irregular payments in exports and imports

6

50

6.01

Judicial independence

18

76

6.03

Property rights

14

70

3.16

Laws relating to ICT

24

100

3.13

Quality of competition in the ISP sector

22

96

3.12

Internet access in schools

18

94

3.19

Cellular telephones, 2002

18

92

3.15

Government success in ICT promotion

23

91

3.21

Internet hosts, 2002

16

90

3.08

University/industry research collaboration

20

89

3.01

Technological sophistication

18

89

3.06

Company spending on research and development

18

87

3.23

Personal computers, 2002

12

83

3.14

Government prioritization of ICT

19

80

3.20

Internet users, 2002

3.03

Public Institutions

Public Institutions

Technology

9

80

FDI and technology transfer

25

77

3.02

Firm-level technology absorption

16

76

3.22

Telephone lines, 2002

7

73

3.17

Utility patents, 2002

8

72

3.04

Prevalence of foreign technology licensing

20

67

3.18

Tertiary enrollment

4

67

Wage equality of women in the workplace

3.10

Availability of scientists and engineers

6.18

Informal sector

6.13

Reliability of police services

4.08

Impact of HIV/AIDS on FDI

6.14

Business costs of crime and violence

11

21

6.09

Extent of bureaucratic red tape

25

101

2

23

10.02

Value chain presence

24

101

3

39

10.01

Nature of competitive advantage

24

100

5

40

8.01

Intensity of local competition

23

98

3

46

5.06

Telephone infrastructure quality

17

90

9

47

5.04

Air transport infrastructure quality

20

88

2.06

Soundness of banks

22

87

10.12

Extent of staff training

21

87

2.07

Ease of access to loans

17

85

5.07

Postal efficiency

15

82

5.03

Port infrastructure quality

11

72

5.01

Overall infrastructure quality

11

69

6.15

Government effectiveness in reducing poverty

17

68

4.02

Quality of public schools

9

68

8.08

Private-sector employment of women

5.05

Quality of electricity supply

10.15

Reliance on professional management

4.06

Business impact of tuberculosis

4.07

12

66

8

66

14

64

3

64

Business impact of HIV/AIDS

4

62

4.05

Business impact of malaria

2

59

5.02

Railroad infrastructure development

9

58

6.05

Freedom of the press

7

56

*Source: Global Competitiveness Report 2003-2004, World Economic Forum.

2 ❚ Country Profiles

107

Other Indicators

Other Indicators 8.09

Angola Key Indicators Population in millions, 2002 Average annual population growth rate (%), 1992-2002

Human Development Indicators 13.90 2.9

Gross primary enrollment (percent of relevant age group), 2001

74.0

Gross secondary enrollment (percent of relevant age group), 2001

17.6

Total GDP in billions US dollars, 2002

11.63

Gross tertiary enrollment (percent of relevant age group), 2000 or most recent year available

GDP per capita (PPP) in US dollars, 2002

2,053

Adult literacy rate age 15 and above (%) , 2001

42

Real growth in GDP per capita (%), 2002

n/a

Percent of population living on income below 1 dollar a day, 2001

n/a

Growth of output (average annual percent growth) 1990-2001

1.5

Population with sustainable access to an improved water source (%), 2000

Agriculture

1.2

Life expectancy at birth (years), 2002

Industry

3.3

HIV prevalence age 15-49 (%), 2001

5.5

Manufacturing

-0.5

Reported malaria per 100,000, 2001

6,594

Services

-1.6

Estimated TB cases per 100,000, 2002

Inflation (annual percent change), 2002

108.9

Government surplus/deficit (as percent of GDP), 2002

-4.5

Gross fixed capital formation (as percent of GDP), 2001

34.0

Interest rate spread, 2003

70.1

0.7

38 39.9

201

Infrastructure and Technology Diffusion Indicators Paved roads (percent of total roads), 1999

10

Electric power transmission and distribution losses (percent of output), 2000

15

Real exchange rate, 2003*

77.9

Main telephone lines per 100 inhabitants, 2002

0.6

Exports of goods and services (as percent of GDP), 2001

74.0

Cellular mobile telephone subscribers per 100 inhabitants, 2002

0.9

Imports of goods and services (as percent of GDP), 2001

62.3

Personal computers per 100 inhabitants, 2002

Current account balance (as percent of GDP), 2001

-3.7

Internet users per 10,000 inhabitants, 2002

Average external tariff rate in percent

n/a

Gross international reserves in months of imports, 2001

0.2 29.4

1.2

Official development assistance and official aid (in millions US dollars), 2001

268.4

Total external debt in millions US dollars, 2001

9,600

Total external debt (as percent of GDP), 2001

101.4 23.7

Total debt service (as percent of exports of goods and services), 2001

26.5

108

Total debt service (as percent of GNI), 2001

*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States. Sources: World Development Indicators 2003, World Bank; Economist Intelligence Unit; World Economic Outlook Database, IMF, April 2003; International Financial Statistics, IMF, March 2004; State of the World Population 2002, UNFPA; Global Atlas, World Health Organization, March 2004; The World Health Report 2003, World Health Organization; Human Development Report 2003, UNDP; Institute for Statistics UNESCO; Index of Economic Freedom 2003, The Heritage Foundation and The Wall Street Journal; International Telecommunication Union, March 2004; African Economic Outlook 2002/03, OECD.

2 ❚ Country Profiles

US$ (Millions)

FDI Inward and Outward Stock and Flow, 1999-2002

14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 FDI inward stock

FDI outward stock

FDI inflows

1999

FDI outflows

2002

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Real GDP Growth, 1970-2003 Percent 20 15 10 5 03

02

01

00

20

20

20

99

98

97

20

19

19

19

5

96 19

94

93

19 9

19

92

91

90

19

19

19

89

88

87

19

19

19

86

85

84

19

19

19

83

82

81

19

19

19

80

79

78

19

19

19

77

19

76

75

74

19

19

19

73

72

71

19

19

19

19

-5

19

70

0

-10 -15 -20 -25 -30

109

Source: World Economic Outlook Database, IMF, April 2003

2 ❚ Country Profiles

Competitiveness Rankings Rank out of 25 African countries

Rank out of 102 countries *

Growth Competitiveness Index Rank

24

100

Macroeconomic Environment Index Rank

24

101

Macroeconomic Stability Subindex Rank

24

100

Government Waste Subindex Rank

24

92

Country Credit Rating Rank Rank

19

95

Public Institutions Index Rank

20

91

Contracts and Law Subindex Rank

23

90

Corruption Subindex Rank

18

91

Technology Index Rank

22

98

Innovation Subindex Rank

25

102

ICT Subindex Rank

23

100

Technology Transfer Subindex Rank (out of 77 non-core innovators)

20

66

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

Relative performance: Growth Competitiveness Index scores and GDP

Angola

Growth Competitiveness Index

102 country average

6 4

GDP per capita (normalized on a

Technology index

2

scale from 1 to 7)

0

Macroeconomic environment index

Public institutions index

Sources: World Economic Forum and World Economic Outlook Database, April 2003

The Most Problematic Factors for Doing Business Access to financing Inflation Corruption Inadequate supply of infrastructure Inadequately educated workforce Inefficient government bureaucracy Policy instability Foreign currency regulations Poor work ethic in national labour force Tax rates Tax regulations

110

Government instability/coups Crime and theft Restrictive labor regulations

0

5

10

15

20

25

30

% of responses

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings. Source: World Economic Forum, Executive Opinion Survey 2003

2 ❚ Country Profiles

Notable Competitive Advantages

Notable Competitive Disadvantages

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Macroeconomic Environment 2.01

Recession expectations

1

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

8

2.22 2.20 2.21 2.03 2.17 7.10 2.19 2.09 7.08 2.18

Macroeconomic Environment Interest rate spread, 2002 Inflation, 2002 Real exchange rate, 2002 Extent of distortive government subsidies Country credit rating, 2003 Public trust of politicians National savings rate, 2002 Access to credit Diversion of public funds Government surplus/deficit, 2002

25 24 24 24 19 23 16 17 16 11

101 101 99 98 95 88 84 84 83 62

6.03 6.01 7.01 7.02 6.08 7.03 6.17

Public Institutions Property rights Judicial independence Irregular payments in exports and imports Irregular payments in public utilities Favoritism in decisions of government officials Irregular payments in tax collection Organized crime

23 23 20 17 22 13 15

95 91 90 90 89 79 63

3.06 3.08 3.12 3.21 3.18 3.01 3.14 3.16 3.19 3.13 3.23 3.20 3.22 3.15 3.02 3.17 3.04 3.03

Technology Company spending on research and development University/industry research collaboration Internet access in schools Internet hosts, 2002 Tertiary enrollment Technological sophistication Government prioritization of ICT Laws relating to ICT Cellular telephones, 2002 Quality of competition in the ISP sector Personal computers, 2002 Internet users, 2002 Telephone lines, 2002 Government success in ICT promotion Firm-level technology absorption Utility patents, 2002 Prevalence of foreign technology licensing FDI and technology transfer

25 25 24 25 23 23 24 23 21 21 21 17 17 22 20 8 21 17

102 102 101 100 100 99 97 97 96 95 95 93 93 90 85 72 71 54

3.10 8.01 10.01 10.02 8.09 6.09 5.01 5.05 6.05 4.05 8.08 6.18 5.04 10.15 5.06 4.06 4.02 10.12 5.02 5.03 5.07 2.06 2.07 6.14 6.15 4.07 4.07 4.08 4.08 6.13

Other Indicators Availability of scientists and engineers Intensity of local competition Nature of competitive advantage Value chain presence Wage equality of women in the workplace Extent of bureaucratic red tape Overall infrastructure quality Quality of electricity supply Freedom of the press Business impact of malaria Private-sector employment of women Informal sector Air transport infrastructure quality Reliance on professional management Telephone infrastructure quality Business impact of tuberculosis Quality of public schools Extent of staff training Railroad infrastructure development Port infrastructure quality Postal efficiency Soundness of banks Ease of access to loans Business costs of crime and violence Government effectiveness in reducing poverty Business impact of HIV/AIDS Business impact of HIV/AIDS Impact of HIV/AIDS on FDI Impact of HIV/AIDS on FDI Reliability of police services

25 25 25 25 25 24 24 24 24 23 25 25 24 24 22 19 24 22 23 19 20 24 18 21 22 10 10 10 10 15

102 102 102 102 101 100 100 100 100 100 99 99 97 97 96 96 95 93 92 92 91 89 89 88 86 85 85 80 80 66

2 ❚ Country Profiles

111

National Competitiveness Balance Sheet

Botswana Key Indicators Population in millions, 2002 Average annual population growth rate (%), 1992-2002 Total GDP in billions US dollars, 2002

Human Development Indicators 1.60 2.1 5.04

Gross primary enrollment (percent of relevant age group), 2001 Gross secondary enrollment (percent of relevant age group), 2001 Gross tertiary enrollment (percent of relevant age group), 2000 or most recent year available

108.0 79.1 4.7

GDP per capita (PPP) in US dollars, 2002

8,244

Real growth in GDP per capita (%), 2002

2.1

Percent of population living on income below 1 dollar a day, 2001

5.4

Population with sustainable access to an improved water source (%), 2000

Agriculture

-0.5

Life expectancy at birth (years), 2002

Industry

4.4

HIV prevalence age 15-49 (%), 2001

38.8

Manufacturing

4.2

Reported malaria per 100,000, 2001

2,836

Services

8.2

Estimated TB cases per 100,000, 2002

Growth of output (average annual percent growth) 1990-2001

Inflation (annual percent change), 2002

5.5

Government surplus/deficit (as percent of GDP), 2002

-4.0

Gross fixed capital formation (as percent of GDP), 2002

24.2

Interest rate spread, 2003 Real exchange rate, 2003*

5.7 156.5

Adult literacy rate age 15 and above (%) , 2001

664

55

Electric power transmission and distribution losses (percent of output), 2000

n/a

Main telephone lines per 100 inhabitants, 2002 Cellular mobile telephone subscribers per 100 inhabitants, 2002

Imports of goods and services (as percent of GDP), 2001

34.7

Personal computers per 100 inhabitants, 2002

Average external tariff rate in percent, 1999

95 40.4

Paved roads (percent of total roads), 1999

50.9 8.4

24

Infrastructure and Technology Diffusion Indicators

Exports of goods and services (as percent of GDP), 2001 Current account balance (as percent of GDP), 2001

78.1

Internet users per 10,000 inhabitants, 2002

8.7 24.1 4.1 297.5

8.5

Gross international reserves in months of imports, 2001

25.3

Official development assistance and official aid (in millions US dollars), 2001

29.1

Total external debt in millions US dollars, 2001

370

Total external debt (as percent of GDP), 2001

7.1 1.1

Total debt service (as percent of exports of goods and services), 2001

1.7

112

Total debt service (as percent of GNI), 2001

*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States. Sources: World Development Indicators 2003, World Bank; Economist Intelligence Unit; World Economic Outlook Database, IMF, April 2003; International Financial Statistics, IMF, March 2004; State of the World Population 2002, UNFPA; Global Atlas, World Health Organization, March 2004; The World Health Report 2003, World Health Organization; Human Development Report 2003, UNDP; Institute for Statistics UNESCO; Index of Economic Freedom 2003, The Heritage Foundation and The Wall Street Journal; International Telecommunication Union, March 2004; African Economic Outlook 2002/03, OECD.

2 ❚ Country Profiles

US$ (Millions)

2,500

FDI Inward and Outward Stock and Flow, 1999-2002

2,000 1,500 1,000 500 0 FDI inward stock

FDI outward stock

FDI inflows

1999

FDI outflows

2002

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

1%

3%

Structure of Exports of Goods, 2001

5% Manufactured goods Ores and metals All food items Others

91% Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Real GDP Growth, 1970-2003 Percent 35 30 25 20 15

113

10 5

02

01

00

03 20

20

20

98

97

96

95

94

93

92

91

90

89

88

87

86

85

84

83

82

81

80

79

78

77

76

75

74

73

72

71

99

20

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

70

0

Source: World Economic Outlook Database, IMF, April 2003

2 ❚ Country Profiles

Competitiveness Rankings Rank out of 25 African countries

Rank out of 102 countries *

Growth Competitiveness Index Rank

1

36

Macroeconomic Environment Index Rank

1

30

Macroeconomic Stability Subindex Rank

2

23

Government Waste Subindex Rank

2

17

Country Credit Rating Rank Rank

1

38

Public Institutions Index Rank

1

26

Contracts and Law Subindex Rank

1

16

Corruption Subindex Rank

1

36

Technology Index Rank

4

59

Innovation Subindex Rank

8

80

ICT Subindex Rank

5

65

Technology Transfer Subindex Rank (out of 77 non-core innovators)

6

24

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

Botswana

Growth Competitiveness Index

Relative performance: Growth Competitiveness Index scores and GDP

102 country average

6 4

GDP per capita (normalized on a

Technology index

2

scale from 1 to 7)

0

Macroeconomic environment index

Public institutions index

Sources: World Economic Forum and World Economic Outlook Database, April 2003

The Most Problematic Factors for Doing Business Poor work ethic in national labour force Inadequately educated workforce Access to financing Inefficient government bureaucracy Restrictive labor regulations Inadequate supply of infrastructure Inflation Crime and theft Tax rates Policy instability Tax regulations

114

Foreign currency regulations Government instability/coups Corruption 0

5

10

15

20

25

30

% of responses

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings. Source: World Economic Forum, Executive Opinion Survey 2003

2 ❚ Country Profiles

Notable Competitive Advantages

Notable Competitive Disadvantages

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

2.19 7.10 2.01 2.21 2.09 7.08

Macroeconomic Environment National savings rate, 2002 Public trust of politicians Recession expectations Real exchange rate, 2002 Access to credit Diversion of public funds

2 1 5 8 1 2

5 9 17 17 20 24

2.20 2.18 2.22 2.03 2.17

Macroeconomic Environment Inflation, 2002 Government surplus/deficit, 2002 Interest rate spread, 2002 Extent of distortive government subsidies Country credit rating, 2003

14 10 6 8 1

70 56 51 38 38

6.01 6.08 6.03 6.17 7.03

Public Institutions Judicial independence Favoritism in decisions of government officials Property rights Organized crime Irregular payments in tax collection

1 2 1 3 1

11 17 21 24 30

7.02 7.01

Public Institutions Irregular payments in public utilities Irregular payments in exports and imports

1 3

41 38

3.04 3.15

Technology Prevalence of foreign technology licensing Government success in ICT promotion

2 7

10 29

3.13 3.18 3.12 3.16 3.20 3.17 3.02 3.08 3.22 3.06 3.21 3.23 3.01 3.19 3.03 3.14

Technology Quality of competition in the ISP sector Tertiary enrollment Internet access in schools Laws relating to ICT Internet users, 2002 Utility patents, 2002 Firm-level technology absorption University/industry research collaboration Telephone lines, 2002 Company spending on research and development Internet hosts, 2002 Personal computers, 2002 Technological sophistication Cellular telephones, 2002 FDI and technology transfer Government prioritization of ICT

20 9 8 12 5 8 13 11 5 11 4 5 5 3 10 9

93 84 76 73 72 72 69 68 68 64 63 59 53 51 39 36

4.08 4.07 6.09 3.10 10.02 4.06 8.01 5.06 4.05 5.03 10.12 5.04 6.05 4.02 2.07 5.05 6.18

Other Indicators Impact of HIV/AIDS on FDI Business impact of HIV/AIDS Extent of bureaucratic red tape Availability of scientists and engineers Value chain presence Business impact of tuberculosis Intensity of local competition Telephone infrastructure quality Business impact of malaria Port infrastructure quality Extent of staff training Air transport infrastructure quality Freedom of the press Quality of public schools Ease of access to loans Quality of electricity supply Informal sector

24 21 15 18 16 10 16 11 5 12 7 8 6 2 6 4 2

99 98 88 87 87 85 80 77 74 73 61 56 55 49 49 37 36

8.09 2.06 10.15 8.08 6.15 5.07 5.01 10.01 6.14 5.02 6.13

Other Indicators Wage equality of women in the workplace Soundness of banks Reliance on professional management Private-sector employment of women Government effectiveness in reducing poverty Postal efficiency Overall infrastructure quality Nature of competitive advantage Business costs of crime and violence Railroad infrastructure development Reliability of police services

1 1 2 3 3 1 3 1 4 3 4

2 16 23 23 25 26 28 30 32 33 34

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

2 ❚ Country Profiles

115

National Competitiveness Balance Sheet

Cameroon Key Indicators Population in millions, 2002 Average annual population growth rate (%), 1992-2002 Total GDP in billions US dollars, 2002

Human Development Indicators 15.50 2.4 9.04

Gross primary enrollment (percent of relevant age group), 2001 Gross secondary enrollment (percent of relevant age group), 1999 Gross tertiary enrollment (percent of relevant age group), 2000 or most recent year available

108.0 19.6 4.9

GDP per capita (PPP) in US dollars, 2002

1,712

Real growth in GDP per capita (%), 2002

1.5

Percent of population living on income below 1 dollar a day, 2001

1.1

Population with sustainable access to an improved water source (%), 2000

Agriculture

4.4

Life expectancy at birth (years), 2002

Industry

-0.6

HIV prevalence age 15-49 (%), 2001

11.8

Manufacturing

1.8

Reported malaria per 100,000, 2001

2,900

Services

-0.4

Estimated TB cases per 100,000, 2002

Inflation (annual percent change), 2002

4.5

Government surplus/deficit (as percent of GDP), 2002

3.0

Growth of output (average annual percent growth) 1990-2001

Gross fixed capital formation (as percent of GDP), 2001

17.8

Interest rate spread, 2002

13.0

Real exchange rate, 2003*

135.0

Adult literacy rate age 15 and above (%) , 2001

72.4 33 58 48.1

145

Infrastructure and Technology Diffusion Indicators Paved roads (percent of total roads), 1999

13

Electric power transmission and distribution losses (percent of output), 2000

22

Main telephone lines per 100 inhabitants, 2002

0.7

Exports of goods and services (as percent of GDP), 2001

31.8

Cellular mobile telephone subscribers per 100 inhabitants, 2002

4.3

Imports of goods and services (as percent of GDP), 2001

29.2

Personal computers per 100 inhabitants, 2002

Current account balance (as percent of GDP), 2001

-1.7

Internet users per 10,000 inhabitants, 2002

Average external tariff rate in percent, 2000

18.4

Gross international reserves in months of imports, 2001

1.4

Official development assistance and official aid (in millions US dollars), 2001

397.7

Total external debt in millions US dollars, 2001

8,338

Total external debt (as percent of GDP), 2001

98.1

Total debt service (as percent of GNI), 2001

4.3 12.6

116

Total debt service (as percent of exports of goods and services), 2001

0.6 37.9

*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States. Sources: World Development Indicators 2003, World Bank; Economist Intelligence Unit; World Economic Outlook Database, IMF, April 2003; International Financial Statistics, IMF, March 2004; State of the World Population 2002, UNFPA; Global Atlas, World Health Organization, March 2004; The World Health Report 2003, World Health Organization; Human Development Report 2003, UNDP; Institute for Statistics UNESCO; Index of Economic Freedom 2003, The Heritage Foundation and The Wall Street Journal; International Telecommunication Union, March 2004; African Economic Outlook 2002/03, OECD.

2 ❚ Country Profiles

US$ (Millions)

FDI Inward and Outward Stock and Flow, 1999-2002

1,600 1,400 1,200 1,000 800 600 400 200 0 FDI inward stock

FDI outward stock

FDI inflows

1999

FDI outflows

2002

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

5%

Structure of Exports of Goods, 2001

21% 52% Fuels Others Agricultural raw materials Manufactured goods

22% Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Real GDP Growth, 1970-2003 Percent 20 15 10 5

-5 -10 Source: World Economic Outlook Database, IMF, April 2003

2 ❚ Country Profiles

117

02

01

00

99

98

97

96

95

94

93

92

91

90

89

88

87

86

85

84

83

82

81

80

79

78

03 20

20

20

20

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

76

75

74

73

72

71

77

19

19

19

19

19

19

19

19

19

70

0

Competitiveness Rankings Rank out of 25 African countries

Rank out of 102 countries *

Growth Competitiveness Index Rank

18

91

Macroeconomic Environment Index Rank

16

78

Macroeconomic Stability Subindex Rank

10

59

Government Waste Subindex Rank

16

74

Country Credit Rating Rank Rank

14

87

Public Institutions Index Rank

22

95

Contracts and Law Subindex Rank

20

82

Corruption Subindex Rank

22

97

Technology Index Rank

18

93

Innovation Subindex Rank

12

85

ICT Subindex Rank

17

92

Technology Transfer Subindex Rank (out of 77 non-core innovators)

19

65

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

Relative performance: Growth Competitiveness Index scores and GDP

Cameroon

Growth Competitiveness Index

102 country average

6 4

GDP per capita (normalized on a

Technology index

2

scale from 1 to 7)

0

Macroeconomic environment index

Public institutions index

Sources: World Economic Forum and World Economic Outlook Database, April 2003

The Most Problematic Factors for Doing Business Access to financing Corruption Tax regulations Tax rates Inefficient government bureaucracy Inadequate supply of infrastructure Poor work ethic in national labour force Inflation Inadequately educated workforce Crime and theft Policy instability

118

Restrictive labor regulations Government instability/coups Foreign currency regulations 0

5

10

15

20

25

30

% of responses

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings. Source: World Economic Forum, Executive Opinion Survey 2003

2 ❚ Country Profiles

Notable Competitive Advantages

Notable Competitive Disadvantages

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

2.18 2.01 2.19 2.21

Macroeconomic Environment Government surplus/deficit, 2002 Recession expectations National savings rate, 2002 Real exchange rate, 2002

1 6 10 13

4 18 43 48

2.09 7.08 2.17 2.22 2.03 2.20 7.10

Macroeconomic Environment Access to credit Diversion of public funds Country credit rating, 2003 Interest rate spread, 2002 Extent of distortive government subsidies Inflation, 2002 Public trust of politicians

23 23 14 17 14 9 11

96 95 87 84 61 60 54

7.02 6.17 7.03 7.01 6.03 6.01 6.08

Public Institutions Irregular payments in public utilities Organized crime Irregular payments in tax collection Irregular payments in exports and imports Property rights Judicial independence Favoritism in decisions of government officials

24 24 21 21 20 17 12

99 95 95 92 88 72 59

3.08 3.14

Technology University/industry research collaboration Government prioritization of ICT

3 13

39 46

3.12 3.20 3.22 3.01 3.23 3.21 3.16 3.02 3.19 3.18 3.06 3.15 3.17 3.13 3.03 3.04

Technology Internet access in schools Internet users, 2002 Telephone lines, 2002 Technological sophistication Personal computers, 2002 Internet hosts, 2002 Laws relating to ICT Firm-level technology absorption Cellular telephones, 2002 Tertiary enrollment Company spending on research and development Government success in ICT promotion Utility patents, 2002 Quality of competition in the ISP sector FDI and technology transfer Prevalence of foreign technology licensing

19 18 16 19 16 15 17 19 11 8 16 18 8 10 19 18

95 94 92 90 89 89 87 84 83 83 75 73 72 68 65 63

8.09 3.10

Other Indicators Wage equality of women in the workplace Availability of scientists and engineers

3 3

4 36

4.05 4.06 5.06 5.05 4.07 5.04 10.01 6.09 6.05 6.14 5.07 10.12 4.08 2.07 5.01 8.01 5.03 10.02 4.02 10.15 5.02 6.13 6.18 6.15 2.06 8.08

Other Indicators Business impact of malaria Business impact of tuberculosis Telephone infrastructure quality Quality of electricity supply Business impact of HIV/AIDS Air transport infrastructure quality Nature of competitive advantage Extent of bureaucratic red tape Freedom of the press Business costs of crime and violence Postal efficiency Extent of staff training Impact of HIV/AIDS on FDI Ease of access to loans Overall infrastructure quality Intensity of local competition Port infrastructure quality Value chain presence Quality of public schools Reliance on professional management Railroad infrastructure development Reliability of police services Informal sector Government effectiveness in reducing poverty Soundness of banks Private-sector employment of women

22 22 24 22 20 22 21 18 20 22 18 19 13 16 16 17 14 13 14 20 15 17 12 15 13 7

99 99 98 98 97 94 94 93 92 90 88 85 85 84 84 81 79 79 76 75 74 73 67 62 59 58

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

2 ❚ Country Profiles

119

National Competitiveness Balance Sheet

Chad Key Indicators Population in millions, 2002 Average annual population growth rate (%), 1992-2002 Total GDP in billions US dollars, 2002

Human Development Indicators 8.40 3.1 1.94

Gross primary enrollment (percent of relevant age group), 2001

73.0

Gross secondary enrollment (percent of relevant age group), 2000

11.5

Gross tertiary enrollment (percent of relevant age group), 2000 or most recent year available

0.9

GDP per capita (PPP) in US dollars, 2002

1,008

Real growth in GDP per capita (%), 2002

8.2

Percent of population living on income below 1 dollar a day, 2001

3.9

Population with sustainable access to an improved water source (%), 2000

Agriculture

4.4

Life expectancy at birth (years), 2002

Industry

2.7

HIV prevalence age 15-49 (%), 2001

3.6

Manufacturing

4.7

Reported malaria per 100,000, 2001

4,683

Services

2.2

Estimated TB cases per 100,000, 2002

Growth of output (average annual percent growth) 1990-2001

Inflation (annual percent change), 2002

4.5

Government surplus/deficit (as percent of GDP), 2002

-11.0

Gross fixed capital formation (as percent of GDP), 2001

41.6

Interest rate spread, 2002

13.0

Real exchange rate, 2003*

108.2

Adult literacy rate age 15 and above (%) , 2001

44.2 n/a 27 47.7

226

Infrastructure and Technology Diffusion Indicators Paved roads (percent of total roads), 1999 Electric power transmission and distribution losses (percent of output), 2000

1 n/a

Main telephone lines per 100 inhabitants, 2002

0.2

14.3

Cellular mobile telephone subscribers per 100 inhabitants, 2002

0.4

Imports of goods and services (as percent of GDP), 2001

52.8

Personal computers per 100 inhabitants, 2002

Current account balance (as percent of GDP), 2001

-41.3

Internet users per 10,000 inhabitants, 2002

Average external tariff rate in percent, 2000

18.4

Exports of goods and services (as percent of GDP), 2001

Gross international reserves in months of imports, 2001

0.2 19.1

1.5

Official development assistance and official aid (in millions US dollars), 2001

179.0

Total external debt in millions US dollars, 2001

1,104

Total external debt (as percent of GDP), 2001

69.0 1.5

Total debt service (as percent of exports of goods and services), 2001

7.9

120

Total debt service (as percent of GNI), 2001

*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States. Sources: World Development Indicators 2003, World Bank; Economist Intelligence Unit; World Economic Outlook Database, IMF, April 2003; International Financial Statistics, IMF, March 2004; State of the World Population 2002, UNFPA; Global Atlas, World Health Organization, March 2004; The World Health Report 2003, World Health Organization; Human Development Report 2003, UNDP; Institute for Statistics UNESCO; Index of Economic Freedom 2003, The Heritage Foundation and The Wall Street Journal; International Telecommunication Union, March 2004; African Economic Outlook 2002/03, OECD.

2 ❚ Country Profiles

US$ (Millions)

FDI Inward and Outward Stock and Flow, 1999-2002

1,600 1,400 1,200 1,000 800 600 400 200 0 FDI inward stock

FDI outward stock

FDI inflows

1999

FDI outflows

2002

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Real GDP Growth, 1970-2003 Percent 20 15 10 5

02

01

00

99

98

97

96

95

94

93

92

91

90

89

88

87

86

85

84

83

82

81

80

79

78

03 20

20

20

20

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

76

75

74

73

72

71

77

19

19

19

19

19

19

19

-5

19

19

70

0

-10 -15 -20 -25

121

Source: World Economic Outlook Database, IMF, April 2003

2 ❚ Country Profiles

Competitiveness Rankings Rank out of 25 African countries

Rank out of 102 countries *

Growth Competitiveness Index Rank

25

101

Macroeconomic Environment Index Rank

21

96

Macroeconomic Stability Subindex Rank

20

91

Government Waste Subindex Rank

22

90

Country Credit Rating Rank Rank

21

97

Public Institutions Index Rank

25

101

Contracts and Law Subindex Rank

25

101

Corruption Subindex Rank

25

101

Technology Index Rank

25

102

Innovation Subindex Rank

24

101

ICT Subindex Rank

25

102

Technology Transfer Subindex Rank (out of 77 non-core innovators)

24

75

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

Relative performance: Growth Competitiveness Index scores and GDP

Chad

Growth Competitiveness Index

102 country average

6 4

GDP per capita (normalized on a

Technology index

2

scale from 1 to 7)

0

Macroeconomic environment index

Public institutions index

Sources: World Economic Forum and World Economic Outlook Database, IMF, April 2003

The Most Problematic Factors for Doing Business Access to financing Inadequate supply of infrastructure Corruption Tax rates Tax regulations Inefficient government bureaucracy Policy instability Inadequately educated workforce Crime and theft Restrictive labor regulations Inflation

122

Government instability/coups Poor work ethic in national labour force Foreign currency regulations 0

5

10

15 % of responses

20

25

30

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings. Source: World Economic Forum, Executive Opinion Survey 2003

2 ❚ Country Profiles

Notable Competitive Advantages

Notable Competitive Disadvantages

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

2.01

8.09 6.09

Macroeconomic Environment Recession expectations

Other Indicators Wage equality of women in the workplace Extent of bureaucratic red tape

3

5 1

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

14

9 46

2.19 2.09 2.17 2.18 7.08 7.10 2.22 2.03 2.21 2.20

Macroeconomic Environment National savings rate, 2002 Access to credit Country credit rating, 2003 Government surplus/deficit, 2002 Diversion of public funds Public trust of politicians Interest rate spread, 2002 Extent of distortive government subsidies Real exchange rate, 2002 Inflation, 2002

25 24 21 21 24 22 17 21 21 9

101 97 97 97 96 87 84 82 75 60

7.01 7.02 7.03 6.03 6.08 6.17 6.01

Public Institutions Irregular payments in exports and imports Irregular payments in public utilities Irregular payments in tax collection Property rights Favoritism in decisions of government officials Organized crime Judicial independence

25 25 24 25 25 25 24

102 100 99 98 97 97 96

3.12 3.22 3.13 3.19 3.01 3.02 3.06 3.15 3.20 3.18 3.08 3.21 3.14 3.23 3.16 3.03 3.04 3.17

Technology Internet access in schools Telephone lines, 2002 Quality of competition in the ISP sector Cellular telephones, 2002 Technological sophistication Firm-level technology absorption Company spending on research and development Government success in ICT promotion Internet users, 2002 Tertiary enrollment University/industry research collaboration Internet hosts, 2002 Government prioritization of ICT Personal computers, 2002 Laws relating to ICT FDI and technology transfer Prevalence of foreign technology licensing Utility patents, 2002

25 25 24 24 24 25 23 25 22 21 23 22 23 22 20 24 24 8

102 102 101 101 100 99 99 98 98 98 97 97 96 96 93 75 75 72

2.07 5.01 5.04 5.05 4.05 4.07 5.03 4.06 3.10 10.02 6.13 6.15 10.12 4.08 5.07 6.05 5.06 8.01 4.02 10.01 5.02 10.15 8.08 6.14 2.06 6.18

Other Indicators Ease of access to loans Overall infrastructure quality Air transport infrastructure quality Quality of electricity supply Business impact of malaria Business impact of HIV/AIDS Port infrastructure quality Business impact of tuberculosis Availability of scientists and engineers Value chain presence Reliability of police services Government effectiveness in reducing poverty Extent of staff training Impact of HIV/AIDS on FDI Postal efficiency Freedom of the press Telephone infrastructure quality Intensity of local competition Quality of public schools Nature of competitive advantage Railroad infrastructure development Reliance on professional management Private-sector employment of women Business costs of crime and violence Soundness of banks Informal sector

25 25 25 25 24 24 24 23 22 23 24 24 23 21 23 23 21 21 23 18 21 22 20 20 20 19

102 102 102 102 101 101 101 100 99 98 97 97 97 96 95 95 95 95 90 90 89 87 84 83 81 79

2 ❚ Country Profiles

123

National Competitiveness Balance Sheet

Egypt Key Indicators Population in millions, 2002 Average annual population growth rate (%), 1992-2002

Human Development Indicators 70.30 1.9

Gross primary enrollment (percent of relevant age group), 2001 Gross secondary enrollment (percent of relevant age group), 2001

100.0 85.7

Total GDP in billions US dollars, 2002

85.55

Gross tertiary enrollment (percent of relevant age group), 2000 or most recent year available

GDP per capita (PPP) in US dollars, 2002

3'701

Adult literacy rate age 15 and above (%), 2001

Real growth in GDP per capita (%), 2002

0.0

Percent of population living on income below 1 dollar a day, 2001

Growth of output (average annual percent growth) 1990-2001

3.5

Population with sustainable access to an improved water source (%), 2000

Agriculture

3.5

Life expectancy at birth (years), 2002

67.1

5.7

HIV prevalence age 15-49 (%), 2001

0.1

6.2

Reported malaria per 100,000, 2001

3.8

Estimated TB cases per 100,000, 2002

Industry Manufacturing Services Inflation (annual percent change), 2002

2.5

Government surplus/deficit (as percent of GDP), 2002

-5.9

Gross fixed capital formation (as percent of GDP), 2002

17.7

Interest rate spread, 2002 Real exchange rate, 2003*

4.5 120.6

78

Electric power transmission and distribution losses (percent of output), 2000

12

Main telephone lines per 100 inhabitants, 2002 Cellular mobile telephone subscribers per 100 inhabitants, 2002

Imports of goods and services (as percent of GDP), 2002

21.8

Personal computers per 100 inhabitants, 2002

Average external tariff rate in percent, 1998 Gross international reserves in months of imports, 2001

Internet users per 10,000 inhabitants, 2002

11.0 6.7 1.7 282.3

13.7 7.2

Official development assistance and official aid (in millions US dollars), 2001

1,255.2

Total external debt in millions US dollars, 2001

29,234

Total external debt (as percent of GDP), 2001

0 38

Paved roads (percent of total roads), 1999

18.2 0.7

3 97

Infrastructure and Technology Diffusion Indicators

Exports of goods and services (as percent of GDP), 2002 Current account balance (as percent of GDP), 2002

39.0 56.1

29.7 1.9

Total debt service (as percent of exports of goods and services), 2001

8.9

124

Total debt service (as percent of GNI), 2001

*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States. Sources: World Development Indicators 2003, World Bank; Economist Intelligence Unit; World Economic Outlook Database, IMF, April 2003; International Financial Statistics, IMF, March 2004; State of the World Population 2002, UNFPA; Global Atlas, World Health Organization, March 2004; The World Health Report 2003, World Health Organization; Human Development Report 2003, UNDP; Institute for Statistics UNESCO; Index of Economic Freedom 2003, The Heritage Foundation and The Wall Street Journal; International Telecommunication Union, March 2004; African Economic Outlook 2002/03, OECD.

2 ❚ Country Profiles

US$ (Millions)

FDI Inward and Outward Stock and Flow, 1999-2002

25,000 20,000 15,000 10,000 5,000 0 FDI inward stock

FDI outward stock

FDI inflows

1999

FDI outflows

2002

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

5%

Structure of Exports of Goods, 2002

3%

12%

39%

Fuels Manufactured goods Others All food items Ores and metals

41%

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Real GDP Growth, 1970-2003 Percent 20 15 10 5

-5 -10 Source: World Economic Outlook Database, IMF, April 2003

2 ❚ Country Profiles

125

02

01

00

99

98

97

96

95

94

93

92

91

90

89

88

87

86

85

84

83

82

81

80

79

78

03 20

20

20

20

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

76

75

74

73

72

71

77

19

19

19

19

19

19

19

19

19

70

0

Competitiveness Rankings Rank out of 25 African countries

Rank out of 102 countries *

7

58

Growth Competitiveness Index Rank Macroeconomic Environment Index Rank

8

56

Macroeconomic Stability Subindex Rank

12

63

Government Waste Subindex Rank

7

45

Country Credit Rating Rank Rank

6

53

Public Institutions Index Rank

8

57

Contracts and Law Subindex Rank

9

47

Corruption Subindex Rank

8

67

Technology Index Rank

6

68

Innovation Subindex Rank

1

39

ICT Subindex Rank

6

69

11

44

Technology Transfer Subindex Rank (out of 77 non-core innovators) * Source: Global Competitiveness Report 2003-2004, World Economic Forum.

Egypt

Growth Competitiveness Index

Relative performance: Growth Competitiveness Index scores and GDP

102 country average

6 4

GDP per capita (normalized on a

Technology index

2

scale from 1 to 7)

0

Macroeconomic environment index

Public institutions index

Sources: World Economic Forum and World Economic Outlook Database, IMF, April 2003

The Most Problematic Factors for Doing Business Access to financing Policy instability Inefficient government bureaucracy Tax regulations Foreign currency regulations Tax rates Corruption Inadequately educated workforce Inflation Restrictive labor regulations Poor work ethic in national labour force

126

Inadequate supply of infrastructure Government instability/coups Crime and theft 0

5

10

15 % of responses

20

25

30

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings. Source: World Economic Forum, Executive Opinion Survey 2003

2 ❚ Country Profiles

National Competitiveness Balance Sheet Notable Competitive Advantages

Notable Competitive Disadvantages

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Macroeconomic Environment

Macroeconomic Environment

2.22

Interest rate spread, 2002

2

35

2.09

Access to credit

15

78

7.08

Diversion of public funds

4

39

2.18

Government surplus/deficit, 2002

12

73

2.03

Extent of distortive government subsidies

9

40

2.19

National savings rate, 2002

12

73

2.20

Inflation, 2002

6

40

2.01

Recession expectations

20

61

7.10

Public trust of politicians

8

41

2.21

Real exchange rate, 2002

17

61

2.17

Country credit rating, 2003

6

53

Public Institutions

Public Institutions

6.08

Favoritism in decisions of government officials

5

26

7.02

Irregular payments in public utilities

14

84

6.17

Organized crime

8

45

7.03

Irregular payments in tax collection

9

66

6.01

Judicial independence

12

59

6.03

Property rights

10

58

7.01

Irregular payments in exports and imports

8

54

Technology

Technology

3.13

Quality of competition in the ISP sector

1

33

3.21

Internet hosts, 2002

12

86

3.15

Government success in ICT promotion

10

35

3.23

Personal computers, 2002

8

74

3.18

Tertiary enrollment

1

37

3.20

Internet users, 2002

7

74

3.04

Prevalence of foreign technology licensing

11

40

3.19

Cellular telephones, 2002

7

74

3.12

Internet access in schools

2

42

3.02

Firm-level technology absorption

14

71

3.14

Government prioritization of ICT

11

42

3.17

Utility patents, 2002

4

64

3.03

FDI and technology transfer

13

46

3.16

Laws relating to ICT

7

63

3.22

Telephone lines, 2002

3

61

3.08

University/industry research collaboration

7

54

3.06

Company spending on research and development

8

52

3.01

Technological sophistication

4

52

95

Other Indicators

Other Indicators

10.01

Nature of competitive advantage

3

33

6.09

Extent of bureaucratic red tape

20

10.02

Value chain presence

3

33

6.05

Freedom of the press

18

90

8.09

Wage equality of women in the workplace

15

40

2.06

Soundness of banks

23

88

6.13

Reliability of police services

6

42

4.06

Business impact of tuberculosis

5.01

Overall infrastructure quality

6

43

10.15

Reliance on professional management

6.14

Business costs of crime and violence

7

44

4.05

Business impact of malaria

4

70

5.02

Railroad infrastructure development

5

46

8.01

Intensity of local competition

7

67

2.07

Ease of access to loans

11

66

6.15

Government effectiveness in reducing poverty

5.03

4

71

17

70

48

5.04

Air transport infrastructure quality

48

10.12

Extent of staff training

9

66

Port infrastructure quality

6

49

5.06

Telephone infrastructure quality

6

64

4.08

Impact of HIV/AIDS on FDI

4

50

4.02

Quality of public schools

7

62

5.07

Postal efficiency

4

50

8.08

Private-sector employment of women

9

62

3.10

Availability of scientists and engineers

7

57

5.05

Quality of electricity supply

7

56

6.18

Informal sector

7

55

4.07

Business impact of HIV/AIDS

3

52

127

5 10

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

2 ❚ Country Profiles

Ethiopia Key Indicators Population in millions, 2002 Average annual population growth rate (%), 1992-2002

Human Development Indicators 66.00 2.8

Gross primary enrollment (percent of relevant age group), 2001

64.0

Gross secondary enrollment (percent of relevant age group), 2001

18.0

Total GDP in billions US dollars, 2002

5.99

Gross tertiary enrollment (percent of relevant age group), 2000 or most recent year available

GDP per capita (PPP) in US dollars, 2002

724

Adult literacy rate age 15 and above (%) , 2001

Real growth in GDP per capita (%), 2002

2.2

Percent of population living on income below 1 dollar a day, 2001

3.5

Population with sustainable access to an improved water source (%), 2000

Agriculture

3.2

Life expectancy at birth (years), 2002

Industry

3.1

HIV prevalence age 15-49 (%), 2001

6.4

Manufacturing

3.5

Reported malaria per 100,000, 2001

621

Services

5.6

Estimated TB cases per 100,000, 2002

292

Growth of output (average annual percent growth) 1990-2001

Inflation (annual percent change), 2002

-7.2

Government surplus/deficit (as percent of GDP), 2002

-14.9

Gross fixed capital formation (as percent of GDP), 2001

18.0

Interest rate spread, 2002 Real exchange rate, 2003*

4.6 162.5

1.6 40.3 82 24 48.0

Infrastructure and Technology Diffusion Indicators Paved roads (percent of total roads), 1999

13

Electric power transmission and distribution losses (percent of output), 2000

10

Main telephone lines per 100 inhabitants, 2002

0.5

Exports of goods and services (as percent of GDP), 2001

15.4

Cellular mobile telephone subscribers per 100 inhabitants, 2002

0.1

Imports of goods and services (as percent of GDP), 2001

31.2

Personal computers per 100 inhabitants, 2002

0.2

Current account balance (as percent of GDP), 2001

-4.4

Internet users per 10,000 inhabitants, 2002

7.4

Average external tariff rate in percent

n/a

Gross international reserves in months of imports, 2001 Official development assistance and official aid (in millions US dollars), 2001

2.9 1,079.8

Total external debt in millions US dollars, 2001

5,697

Total external debt (as percent of GDP), 2001

91.4

Total debt service (as percent of GNI), 2001

3.0 18.7

128

Total debt service (as percent of exports of goods and services), 2001

*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States. Sources: World Development Indicators 2003, World Bank; Economist Intelligence Unit; World Economic Outlook Database, IMF, April 2003; International Financial Statistics, IMF, March 2004; State of the World Population 2002, UNFPA; Global Atlas, World Health Organization, March 2004; The World Health Report 2003, World Health Organization; Human Development Report 2003, UNDP; Institute for Statistics UNESCO; Index of Economic Freedom 2003, The Heritage Foundation and The Wall Street Journal; International Telecommunication Union, March 2004; African Economic Outlook 2002/03, OECD.

2 ❚ Country Profiles

US$ (Millions)

FDI Inward and Outward Stock and Flow, 1999-2002

1,200 1,000 800 600 400 200 0 -200 FDI inward stock

FDI outward stock

FDI inflows

1999

FDI outflows

2002

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

1%

14%

Structure of Exports of Goods, 2002

All food items All food items Others Manufactured goods Ores and metals

16% 69%

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Real GDP Growth, 1970-2003 Percent 15 10 5

02

01

00

99

98

97

96

95

94

93

92

91

90

89

88

87

86

85

84

83

82

81

80

79

78

03 20

20

20

20

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

76

75

74

73

72

71

77

19

19

19

19

19

19

19

19

19

70

0

129

-5 -10 -15 Source: World Economic Outlook Database, IMF, April 2003

2 ❚ Country Profiles

Competitiveness Rankings Rank out of 25 African countries

Rank out of 102 countries *

Growth Competitiveness Index Rank

19

92

Macroeconomic Environment Index Rank

18

84

Macroeconomic Stability Subindex Rank

15

74

Government Waste Subindex Rank

13

66

Country Credit Rating Rank Rank

22

98

Public Institutions Index Rank

14

73

Contracts and Law Subindex Rank

15

68

Corruption Subindex Rank

11

76

Technology Index Rank

24

100

Innovation Subindex Rank

23

100

ICT Subindex Rank

24

101

Technology Transfer Subindex Rank (out of 77 non-core innovators)

22

73

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

Relative performance: Growth Competitiveness Index scores and GDP

Ethiopia

Growth Competitiveness Index

102 country average 6 4

GDP per capita (normalized on a

Technology index

2

scale from 1 to 7)

0

Macroeconomic environment index

Public institutions index

Sources: World Economic Forum and World Economic Outlook Database, IMF, April 2003

The Most Problematic Factors for Doing Business Inefficient government bureaucracy Access to financing Inadequate supply of infrastructure Policy instability Tax regulations Corruption Inadequately educated workforce Poor work ethic in national labour force Tax rates Foreign currency regulations Restrictive labor regulations

130

Crime and theft Government instability/coups Inflation 0

5

10

15 % of responses

20

25

30

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings. Source: World Economic Forum, Executive Opinion Survey 2003

2 ❚ Country Profiles

Notable Competitive Advantages

Notable Competitive Disadvantages

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

2.20 2.21 2.22

Macroeconomic Environment Inflation, 2002 Real exchange rate, 2002 Interest rate spread, 2002

1 7 3

1 14 37

2.18 2.19 2.17 2.09 2.03 2.01 7.10 7.08

Macroeconomic Environment Government surplus/deficit, 2002 National savings rate, 2002 Country credit rating, 2003 Access to credit Extent of distortive government subsidies Recession expectations Public trust of politicians Diversion of public funds

24 24 22 22 22 23 12 9

101 100 98 95 91 86 58 52

6.17

Public Institutions Organized crime

7

39

6.01 7.03 6.03 7.02 6.08 7.01

Public Institutions Judicial independence Irregular payments in tax collection Property rights Irregular payments in public utilities Favoritism in decisions of government officials Irregular payments in exports and imports

22 17 19 13 17 9

87 86 83 81 66 61

3.01 3.13 3.19 3.20 3.16 3.06 3.21 3.12 3.02 3.23 3.18 3.22 3.08 3.14 3.15 3.04 3.03 3.17

Technology Technological sophistication Quality of competition in the ISP sector Cellular telephones, 2002 Internet users, 2002 Laws relating to ICT Company spending on research and development Internet hosts, 2002 Internet access in schools Firm-level technology absorption Personal computers, 2002 Tertiary enrollment Telephone lines, 2002 University/industry research collaboration Government prioritization of ICT Government success in ICT promotion Prevalence of foreign technology licensing FDI and technology transfer Utility patents, 2002

25 25 25 25 25 24 24 22 24 23 20 19 22 21 21 23 23 8

102 102 102 102 101 101 99 99 98 97 96 95 92 86 84 74 73 72

10.12 5.03 4.08 8.08 10.02 4.06 2.07 3.10 6.09 6.05 5.06 4.07 5.01 8.01 4.05 5.02 4.02 5.05 10.15 10.01 2.06 6.15 6.18 5.07 6.13

Other Indicators Extent of staff training Port infrastructure quality Impact of HIV/AIDS on FDI Private-sector employment of women Value chain presence Business impact of tuberculosis Ease of access to loans Availability of scientists and engineers Extent of bureaucratic red tape Freedom of the press Telephone infrastructure quality Business impact of HIV/AIDS Overall infrastructure quality Intensity of local competition Business impact of malaria Railroad infrastructure development Quality of public schools Quality of electricity supply Reliance on professional management Nature of competitive advantage Soundness of banks Government effectiveness in reducing poverty Informal sector Postal efficiency Reliability of police services

24 23 23 24 22 20 22 21 21 22 20 17 21 20 15 20 20 13 21 17 19 21 17 12 9

101 99 98 97 97 97 96 96 96 94 94 94 93 93 92 88 87 86 84 84 79 78 76 69 53

5.04 6.14 8.09

Other Indicators Air transport infrastructure quality Business costs of crime and violence Wage equality of women in the workplace

3 8 17

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

38 45 45

2 ❚ Country Profiles

131

National Competitiveness Balance Sheet

Gambia Key Indicators Population in millions, 2002 Average annual population growth rate (%), 1992-2002 Total GDP in billions US dollars, 2002

Human Development Indicators 1.40 3.3 0.35

GDP per capita (PPP) in US dollars, 2002

1,723

Real growth in GDP per capita (%), 2002

Gross primary enrollment (percent of relevant age group), 2001

82.0

Gross secondary enrollment (percent of relevant age group), 2001

37.4

Gross tertiary enrollment (percent of relevant age group), 2000 or most recent year available

1.9

Adult literacy rate age 15 and above (%) , 2001

37.8

2.0

Percent of population living on income below 1 dollar a day, 2001

59.3

4.3

Population with sustainable access to an improved water source (%), 2000

Agriculture

5.2

Life expectancy at birth (years), 2002

Industry

3.2

HIV prevalence age 15-49 (%), 2001

1.6

Manufacturing

1.8

Reported malaria per 100,000, 2001

10,096

Services

3.7

Estimated TB cases per 100,000, 2002

Growth of output (average annual percent growth) 1990-2001

Inflation (annual percent change), 2002

7.1

Government surplus/deficit (as percent of GDP), 2002

-9.4

Gross fixed capital formation (as percent of GDP), 2001

17.9

Interest rate spread, 2002

11.5

Real exchange rate, 2003*

200.0

62 57.1

280

Infrastructure and Technology Diffusion Indicators Paved roads (percent of total roads), 1999

35

Electric power transmission and distribution losses (percent of output), 2000

n/a

Main telephone lines per 100 inhabitants, 2002

2.8

54.4

Cellular mobile telephone subscribers per 100 inhabitants, 2002

7.3

Imports of goods and services (as percent of GDP), 2001

71.5

Personal computers per 100 inhabitants, 2002

Current account balance (as percent of GDP), 2001

-13.5

Internet users per 10,000 inhabitants, 2002

Average external tariff rate in percent, 2000

14.8

Exports of goods and services (as percent of GDP), 2001

Gross international reserves in months of imports, 2001 Official development assistance and official aid (in millions US dollars), 2001 Total external debt in millions US dollars, 2001 Total external debt (as percent of GDP), 2001

1.4 188.3

3.5 50.9 489 125.3 2.8

Total debt service (as percent of exports of goods and services), 2001

3.8

132

Total debt service (as percent of GNI), 2001

*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States. Sources: World Development Indicators 2003, World Bank; Economist Intelligence Unit; World Economic Outlook Database, IMF, April 2003; International Financial Statistics, IMF, March 2004; State of the World Population 2002, UNFPA; Global Atlas, World Health Organization, March 2004; The World Health Report 2003, World Health Organization; Human Development Report 2003, UNDP; Institute for Statistics UNESCO; Index of Economic Freedom 2003, The Heritage Foundation and The Wall Street Journal; International Telecommunication Union, March 2004; African Economic Outlook 2002/03, OECD.

2 ❚ Country Profiles

US$ (Millions)

FDI Inward and Outward Stock and Flow, 1999-2002

300 250 200 150 100 50 0 FDI inward stock

FDI outward stock

FDI inflows

1999

FDI outflows

2002

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

2% Structure of Exports of Goods, 2000

17%

All food items Manufactured goods Others

81%

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Real GDP Growth, 1970-2003 Percent

25 20 15 10 5 02

01

00

99

133

98

97

96

95

94

93

92

91

90

89

88

87

86

85

84

83

82

81

80

79

78

03 20

20

20

20

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

76

75

74

73

72

71

77

19

19

19

19

19

19

19

19

-5

19

70

0

-10 -15 Source: World Economic Outlook Database, IMF, April 2003

2 ❚ Country Profiles

Competitiveness Rankings Rank out of 25 African countries

Rank out of 102 countries *

6

55

Growth Competitiveness Index Rank Macroeconomic Environment Index Rank

5

46

Macroeconomic Stability Subindex Rank

16

75

Government Waste Subindex Rank

3

24

n/a

n/a

Public Institutions Index Rank

4

39

Contracts and Law Subindex Rank

3

23

Corruption Subindex Rank

7

58

Technology Index Rank

11

80

Innovation Subindex Rank

20

96

Country Credit Rating Rank Rank

ICT Subindex Rank Technology Transfer Subindex Rank (out of 77 non-core innovators)

8

73

17

58

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

Gambia

Growth Competitiveness Index

Relative performance: Growth Competitiveness Index scores and GDP

102 country average

6 4

GDP per capita (normalized on a

Technology index

2

scale from 1 to 7)

0

Macroeconomic environment index

Public institutions index

Sources: World Economic Forum and World Economic Outlook Database, IMF, April 2003

The Most Problematic Factors for Doing Business Access to financing Inflation Inadequate supply of infrastructure Inadequately educated workforce Foreign currency regulations Tax rates Poor work ethic in national labour force Tax regulations Inefficient government bureaucracy Policy instability Corruption

134

Government instability/coups Crime and theft Restrictive labor regulations

0

5

10

15 % of responses

20

25

30

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings. Source: World Economic Forum, Executive Opinion Survey 2003

2 ❚ Country Profiles

National Competitiveness Balance Sheet Notable Competitive Advantages

Notable Competitive Disadvantages

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Macroeconomic Environment

Macroeconomic Environment

2.21

Real exchange rate, 2002

3

5

2.18

Government surplus/deficit, 2002

17

91

2.03

Extent of distortive government subsidies

4

19

2.22

Interest rate spread, 2002

15

82

7.10

Public trust of politicians

3

28

2.19

National savings rate, 2002

15

81

7.08

Diversion of public funds

3

29

2.20

Inflation, 2002

16

77

2.01

Recession expectations

19

59

2.09

Access to credit

8

56

Public Institutions

Public Institutions

6.17

Organized crime

1

18

7.02

Irregular payments in public utilities

9

73

6.08

Favoritism in decisions of government officials

3

20

7.03

Irregular payments in tax collection

8

61

6.01

Judicial independence

3

30

6.03

Property rights

4

34

7.01

Irregular payments in exports and imports

4

46

3.15

Government success in ICT promotion

2

9

3.08

University/industry research collaboration

24

101

3.14

Government prioritization of ICT

3

13

3.06

Company spending on research and development

22

96

3.02

Firm-level technology absorption

4

42

3.18

Tertiary enrollment

19

95

3.03

FDI and technology transfer

12

44

3.01

Technological sophistication

17

87

3.13

Quality of competition in the ISP sector

2

46

3.16

Laws relating to ICT

16

83

3.20

Internet users, 2002

11

83

3.22

Telephone lines, 2002

9

83

3.12

Internet access in schools

9

78

3.23

Personal computers, 2002

10

78

3.19

Cellular telephones, 2002

6

73

3.17

Utility patents, 2002

8

72

3.21

Internet hosts, 2002

5

69

3.04

Prevalence of foreign technology licensing

19

65

Technology

Technology

Government effectiveness in reducing poverty

8.09

Wage equality of women in the workplace

6.14 6.13

Other Indicators 2

16

4.05

Business impact of malaria

25

102

10

16

3.10

Availability of scientists and engineers

23

100

Business costs of crime and violence

2

27

5.05

Quality of electricity supply

20

95

Reliability of police services

3

33

4.06

Business impact of tuberculosis

15

91

10.15

Reliance on professional management

5

35

4.07

Business impact of HIV/AIDS

2.06

Soundness of banks

7

38

10.12

5.04

Air transport infrastructure quality

4

44

5.03

Port infrastructure quality

5

44

6.18

Informal sector

5

50

9

83

Extent of staff training

17

82

8.01

Intensity of local competition

15

79

10.02

Value chain presence

12

78

5.07

Postal efficiency

14

74

10.01

Nature of competitive advantage

16

71

5.02

Railroad infrastructure development

13

71

6.05

Freedom of the press

11

71

4.08

Impact of HIV/AIDS on FDI

6

69

5.06

Telephone infrastructure quality

8

67

6.09

Extent of bureaucratic red tape

6

63

2.07

Ease of access to loans

8

59

4.02

Quality of public schools

5

57

8.08

Private-sector employment of women

6

54

5.01

Overall infrastructure quality

7

53

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

2 ❚ Country Profiles

135

Other Indicators 6.15

Ghana Key Indicators Population in millions, 2002 Average annual population growth rate (%), 1992-2002 Total GDP in billions US dollars, 2002

Human Development Indicators 20.20 2.4 6.06

Gross primary enrollment (percent of relevant age group), 2001

80.0

Gross secondary enrollment (percent of relevant age group), 2001

36.2

Gross tertiary enrollment (percent of relevant age group), 2000 or most recent year available

3.3

GDP per capita (PPP) in US dollars, 2002

2,050

Real growth in GDP per capita (%), 2002

1.9

Percent of population living on income below 1 dollar a day, 2001

4.4

Population with sustainable access to an improved water source (%), 2000

Agriculture

2.9

Life expectancy at birth (years), 2002

Industry

3.3

HIV prevalence age 15-49 (%), 2001

3.0

Manufacturing

0.0

Reported malaria per 100,000, 2001

17,143

Services

5.9

Estimated TB cases per 100,000, 2002

Growth of output (average annual percent growth) 1990-2001

Inflation (annual percent change), 2002

14.5

Government surplus/deficit (as percent of GDP), 2002

-6.2

Gross fixed capital formation (as percent of GDP), 2001

23.7

Interest rate spread, 2002

11.4

Real exchange rate, 2003*

169.00

Exports of goods and services (as percent of GDP), 2001

52.2

Imports of goods and services (as percent of GDP), 2001

70.5

Current account balance (as percent of GDP), 2001

-4.7

Average external tariff rate in percent

n/a

Gross international reserves in months of imports, 2001

651.8

Total external debt in millions US dollars, 2001

6,759

Total external debt (as percent of GDP), 2001

127.5

45 73 57.6

201

Infrastructure and Technology Diffusion Indicators Paved roads (percent of total roads), 1999

30

Electric power transmission and distribution losses (percent of output), 2000

1

Main telephone lines per 100 inhabitants, 2002

1.3

Cellular mobile telephone subscribers per 100 inhabitants, 2002

2.1

Personal computers per 100 inhabitants, 2002 Internet users per 10,000 inhabitants, 2002

0.4 78.4

6.2 12.7

136

Total debt service (as percent of exports of goods and services), 2001

72.7

1.3

Official development assistance and official aid (in millions US dollars), 2001

Total debt service (as percent of GNI), 2001

Adult literacy rate age 15 and above (%) , 2001

*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States. Sources: World Development Indicators 2003, World Bank; Economist Intelligence Unit; World Economic Outlook Database, IMF, April 2003; International Financial Statistics, IMF, March 2004; State of the World Population 2002, UNFPA; Global Atlas, World Health Organization, March 2004; The World Health Report 2003, World Health Organization; Human Development Report 2003, UNDP; Institute for Statistics UNESCO; Index of Economic Freedom 2003, The Heritage Foundation and The Wall Street Journal; International Telecommunication Union, March 2004; African Economic Outlook 2002/03, OECD.

2 ❚ Country Profiles

US$ (Millions)

FDI Inward and Outward Stock and Flow, 1999-2002

2,000

1,500

1,000

500

0 FDI inward stock

FDI outward stock

FDI inflows

1999

FDI outflows

2002

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

5% 9%

Structure of Exports of Goods, 2000

Others All food items Ores and metals Manufactured goods Fuels

43%

12%

31% Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Real GDP Growth, 1970-2003

Percent 15 10 5

02

01

00

03 20

20

20

98

97

96

95

94

93

92

91

90

89

88

87

86

85

84

83

82

81

80

79

78

77

76

75

74

73

72

71

99

20

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

70

0

137

-5 -10 -15 Source: World Economic Outlook Database, IMF, April 2003

2 ❚ Country Profiles

Competitiveness Rankings Rank out of 25 African countries

Rank out of 102 countries *

Growth Competitiveness Index Rank

10

71

Macroeconomic Environment Index Rank

11

68

Macroeconomic Stability Subindex Rank

14

70

Government Waste Subindex Rank

8

46

Country Credit Rating Rank Rank

10

79

Public Institutions Index Rank

10

65

Contracts and Law Subindex Rank

10

50

Corruption Subindex Rank

13

79

Technology Index Rank

14

86

Innovation Subindex Rank

10

83

ICT Subindex Rank

13

88

Technology Transfer Subindex Rank (out of 77 non-core innovators)

12

45

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

Ghana

Growth Competitiveness Index

Relative performance: Growth Competitiveness Index scores and GDP

102 country average

6 4

GDP per capita (normalized on a

Technology index

2

scale from 1 to 7) 0

Macroeconomic environment index

Public institutions index

Sources: World Economic Forum and World Economic Outlook Database, IMF, April 2003

The Most Problematic Factors for Doing Business Access to financing Inflation Inadequate supply of infrastructure Inefficient government bureaucracy Corruption Poor work ethic in national labour force Tax rates Foreign currency regulations Government instability/coups Inadequately educated workforce Policy instability

138

Tax regulations Crime and theft Restrictive labor regulations 0

5

10

15

20

25

30

% of responses

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings. Source: World Economic Forum, Executive Opinion Survey 2003

2 ❚ Country Profiles

National Competitiveness Balance Sheet Notable Competitive Advantages

Notable Competitive Disadvantages

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Macroeconomic Environment

Macroeconomic Environment

2.21

Real exchange rate, 2002

6

13

2.20

Inflation, 2002

21

92

2.03

Extent of distortive government subsidies

5

20

2.22

Interest rate spread, 2002

14

81

2.01

Recession expectations

8

22

2.17

Country credit rating, 2003

10

79

2.19

National savings rate, 2002

9

37

2.18

Government surplus/deficit, 2002

14

75

7.10

Public trust of politicians

9

46

2.09

Access to credit

12

71

7.08

Diversion of public funds

8

50

6.01

Judicial independence

9

50

7.02

Irregular payments in public utilities

15

87

6.17

Organized crime

11

50

7.01

Irregular payments in exports and imports

12

69

7.03

Irregular payments in tax collection

10

69

6.03

Property rights

11

61

6.08

Favoritism in decisions of government officials

10

55

Public Institutions

Public Institutions

Technology

Technology

3.14

Government prioritization of ICT

4

17

3.20

Internet users, 2002

21

97

3.15

Government success in ICT promotion

4

22

3.21

Internet hosts, 2002

19

93

3.03

FDI and technology transfer

8

34

3.23

Personal computers, 2002

18

92

3.04

Prevalence of foreign technology licensing

13

47

3.18

Tertiary enrollment

13

89

3.22

Telephone lines, 2002

12

88

3.19

Cellular telephones, 2002

13

86

3.12

Internet access in schools

13

85

3.01

Technological sophistication

10

74

3.17

Utility patents, 2002

8

72

3.13

Quality of competition in the ISP sector

9

65

3.08

University/industry research collaboration

8

57

3.02

Firm-level technology absorption

9

57

3.06

Company spending on research and development

9

56

3.16

Laws relating to ICT

4

53

Other Indicators Wage equality of women in the workplace

9

14

5.06

Telephone infrastructure quality

18

91

10.15

Reliance on professional management

6

38

4.05

Business impact of malaria

13

90

6.15

Government effectiveness in reducing poverty

8

40

4.07

Business impact of HIV/AIDS

11

86

6.05

Freedom of the press

4

43

4.06

Business impact of tuberculosis

6.13

Reliability of police services

8

46

4.08

Impact of HIV/AIDS on FDI

3.10

Availability of scientists and engineers

16

80

4.02

Quality of public schools

16

80

5.02

Railroad infrastructure development

17

79

5.05

Quality of electricity supply

10

78

6.18

Informal sector

16

75

8.08

Private-sector employment of women

14

75

5.04

Air transport infrastructure quality

12

74

8.01

Intensity of local competition

12

74

10.12

Extent of staff training

12

72

5.01

Overall infrastructure quality

12

71

2.07

Ease of access to loans

12

70

6.09

Extent of bureaucratic red tape

8

70

5.03

Port infrastructure quality

9

67

10.02

Value chain presence

6

64

5.07

Postal efficiency

7

62

6.14

Business costs of crime and violence

11

57

2.06

Soundness of banks

11

53

10.01

Nature of competitive advantage

9

51

9

84

12

83

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

2 ❚ Country Profiles

139

Other Indicators

8.09

Kenya Key Indicators Population in millions, 2002 Average annual population growth rate (%), 1992-2002 Total GDP in billions US dollars, 2002

Human Development Indicators 31.90 2.3 11.76

Gross primary enrollment (percent of relevant age group), 2001

94.0

Gross secondary enrollment (percent of relevant age group), 2001

30.6

Gross tertiary enrollment (percent of relevant age group), 2000 or most recent year available

3.0

GDP per capita (PPP) in US dollars, 2002

992

Adult literacy rate age 15 and above (%) , 2001

Real growth in GDP per capita (%), 2002

-0.7

Percent of population living on income below 1 dollar a day, 2001

1.9

Population with sustainable access to an improved water source (%), 2000

Agriculture

1.0

Life expectancy at birth (years), 2002

50.9

Industry

1.7

HIV prevalence age 15-49 (%), 2001

15.0

2.1

Reported malaria per 100,000, 2001

545

3.0

Estimated TB cases per 100,000, 2002

515

Growth of output (average annual percent growth) 1990-2001

Manufacturing Services Inflation (annual percent change), 2002

2.0

Government surplus/deficit (as percent of GDP), 2002

-3.4

Gross fixed capital formation (as percent of GDP), 2002

13.1

Interest rate spread, 2002

12.5

Real exchange rate, 2003*

111.4

83.3 23 57

Infrastructure and Technology Diffusion Indicators Paved roads (percent of total roads), 1999

12

Electric power transmission and distribution losses (percent of output), 2000

22

Main telephone lines per 100 inhabitants, 2002

1.0

Exports of goods and services (as percent of GDP), 2002

26.5

Cellular mobile telephone subscribers per 100 inhabitants, 2002

4.2

Imports of goods and services (as percent of GDP), 2002

30.6

Personal computers per 100 inhabitants, 2002

Current account balance (as percent of GDP), 2001

-2.8

Internet users per 10,000 inhabitants, 2002

Average external tariff rate in percent, 2000

12.4

Gross international reserves in months of imports, 2001

3.0

Official development assistance and official aid (in millions US dollars), 2001

452.6

Total external debt in millions US dollars, 2001

5,833

Total external debt (as percent of GDP), 2001

51.2

Total debt service (as percent of GNI), 2001

4.1 15.4

140

Total debt service (as percent of exports of goods and services), 2001

0.6 125.3

*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States. Sources: World Development Indicators 2003, World Bank; Economist Intelligence Unit; World Economic Outlook Database, IMF, April 2003; International Financial Statistics, IMF, March 2004; State of the World Population 2002, UNFPA; Global Atlas, World Health Organization, March 2004; The World Health Report 2003, World Health Organization; Human Development Report 2003, UNDP; Institute for Statistics UNESCO; Index of Economic Freedom 2003, The Heritage Foundation and The Wall Street Journal; International Telecommunication Union, March 2004; African Economic Outlook 2002/03, OECD.

2 ❚ Country Profiles

US$ (Millions)

FDI Inward and Outward Stock and Flow, 1999-2002

1,200 1,000 800 600 400 200 0 FDI inward stock

FDI outward stock

FDI inflows

1999

FDI outflows

2002

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Structure of Exports of Goods, 2002

13% 32%

All food items Fuels Manufactured goods Others

24%

31%

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Real GDP Growth, 1970-2003

Percent 18 16 14 12 10 8 6

141

4 2 02

01

00

99

98

97

96

95

94

93

92

91

90

89

88

87

86

85

84

83

82

81

80

79

78

03 20

20

20

20

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

76

75

74

73

72

71

77

19

19

19

19

19

19

19

19

19

70

0 -2

Source: World Economic Outlook Database, IMF, April 2003

2 ❚ Country Profiles

Competitiveness Rankings Rank out of 25 African countries

Rank out of 102 countries *

Growth Competitiveness Index Rank

15

83

Macroeconomic Environment Index Rank

15

77

Macroeconomic Stability Subindex Rank

11

60

Government Waste Subindex Rank

17

77

Country Credit Rating Rank Rank

11

82

Public Institutions Index Rank

21

92

Contracts and Law Subindex Rank

19

80

Corruption Subindex Rank

21

95

Technology Index Rank

8

74

Innovation Subindex Rank

11

84

ICT Subindex Rank

11

86

2

17

Technology Transfer Subindex Rank (out of 77 non-core innovators) * Source: Global Competitiveness Report 2003-2004, World Economic Forum.

Kenya

Growth Competitiveness Index

Relative performance: Growth Competitiveness Index scores and GDP

102 country average 6 4

GDP per capita (normalized on a

Technology index

2

scale from 1 to 7)

0

Macroeconomic environment index

Public institutions index

Sources: World Economic Forum and World Economic Outlook Database, IMF, April 2003

The Most Problematic Factors for Doing Business Corruption Access to financing Inadequate supply of infrastructure Tax rates Crime and theft Inefficient government bureaucracy Policy instability Tax regulations Inflation Poor work ethic in national labour force Inadequately educated workforce

142

Government instability/coups Restrictive labor regulations Foreign currency regulations 0

5

10

15 % of responses

20

25

30

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings. Source: World Economic Forum, Executive Opinion Survey 2003

2 ❚ Country Profiles

Notable Competitive Advantages

Notable Competitive Disadvantages

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

2.01 2.20

Macroeconomic Environment Recession expectations Inflation, 2002

4 4

15 28

7.08 2.19 2.22 2.17 2.09 2.21 7.10 2.03 2.18

Macroeconomic Environment Diversion of public funds National savings rate, 2002 Interest rate spread, 2002 Country credit rating, 2003 Access to credit Real exchange rate, 2002 Public trust of politicians Extent of distortive government subsidies Government surplus/deficit, 2002

21 18 16 11 16 19 16 13 8

93 87 83 82 80 70 67 60 51

3.04 3.03 3.06

Technology Prevalence of foreign technology licensing FDI and technology transfer Company spending on research and development

3 2 4

18 19 41

7.02 7.03 7.01 6.01 6.17 6.08 6.03

Public Institutions Irregular payments in public utilities Irregular payments in tax collection Irregular payments in exports and imports Judicial independence Organized crime Favoritism in decisions of government officials Property rights

21 19 18 19 22 18 13

96 93 88 84 83 77 67

3.18 3.22 3.12 3.23 3.19 3.14 3.20 3.02 3.21 3.15 3.13 3.01 3.17 3.16 3.08

Technology Tertiary enrollment Telephone lines, 2002 Internet access in schools Personal computers, 2002 Cellular telephones, 2002 Government prioritization of ICT Internet users, 2002 Firm-level technology absorption Internet hosts, 2002 Government success in ICT promotion Quality of competition in the ISP sector Technological sophistication Utility patents, 2002 Laws relating to ICT University/industry research collaboration

14 13 14 14 10 20 9 17 8 19 11 9 7 9 9

90 89 86 86 82 81 80 77 77 75 73 72 70 67 60

6.14 4.08 5.06 4.07 6.13 5.07 4.05 5.01 4.06 8.08 5.05 6.18 6.05 2.07 2.06 6.09 5.03 5.02 4.02 6.15 10.02 8.09 10.12 3.10 10.15

Other Indicators Business costs of crime and violence Impact of HIV/AIDS on FDI Telephone infrastructure quality Business impact of HIV/AIDS Reliability of police services Postal efficiency Business impact of malaria Overall infrastructure quality Business impact of tuberculosis Private-sector employment of women Quality of electricity supply Informal sector Freedom of the press Ease of access to loans Soundness of banks Extent of bureaucratic red tape Port infrastructure quality Railroad infrastructure development Quality of public schools Government effectiveness in reducing poverty Value chain presence Wage equality of women in the workplace Extent of staff training Availability of scientists and engineers Reliance on professional management

25 22 19 15 22 19 12 18 11 21 11 20 14 13 18 12 13 12 10 18 7 20 8 5 10

97 97 93 91 89 89 89 88 87 86 82 81 79 77 76 75 74 70 70 69 65 63 63 54 52

8.01 10.01 5.04

Other Indicators Intensity of local competition Nature of competitive advantage Air transport infrastructure quality

2 6 7

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

29 41 48

2 ❚ Country Profiles

143

National Competitiveness Balance Sheet

Madagascar Key Indicators Population in millions, 2002 Average annual population growth rate (%), 1992-2002

Human Development Indicators 16.90 2.9

Gross primary enrollment (percent of relevant age group), 2001 Gross secondary enrollment (percent of relevant age group), 1999

103.0 14.3

Total GDP in billions US dollars, 2002

4.48

Gross tertiary enrollment (percent of relevant age group), 2000 or most recent year available

GDP per capita (PPP) in US dollars, 2002

735

Adult literacy rate age 15 and above (%) , 2001

67

Real growth in GDP per capita (%), 2002

-14.5

Percent of population living on income below 1 dollar a day, 2001

49

2.2

2.3

Population with sustainable access to an improved water source (%), 2000

Agriculture

2.0

Life expectancy at birth (years), 2002

Industry

2.6

HIV prevalence age 15-49 (%), 2001

0.3

Manufacturing

2.4

Reported malaria per 100,000, 2001

n/a

Services

2.7

Estimated TB cases per 100,000, 2002

251

Growth of output (average annual percent growth) 1990-2001

47 56.3

Inflation (annual percent change), 2002

4.5

Government surplus/deficit (as percent of GDP), 2002

-7.7

Gross fixed capital formation (as percent of GDP), 2002

16.1

Interest rate spread, 2002

13.3

Real exchange rate, 2003*

93.1

Main telephone lines per 100 inhabitants, 2002

0.4

Exports of goods and services (as percent of GDP), 2002

16.2

Cellular mobile telephone subscribers per 100 inhabitants, 2002

1.0

Imports of goods and services (as percent of GDP), 2002

25.4

Personal computers per 100 inhabitants, 2002

-6.8

Internet users per 10,000 inhabitants, 2002

Current account balance (as percent of GDP), 2002 Average external tariff rate in percent, 1995 Gross international reserves in months of imports, 2001

12

Electric power transmission and distribution losses (percent of output), 2000

n/a

0.4 34.6

5.2 353.9

Total external debt in millions US dollars, 2001

4,160

Total external debt (as percent of GDP), 2001

90.4 1.5 43.3

144

Total debt service (as percent of exports of goods and services), 2001

Paved roads (percent of total roads), 1999

25.5

Official development assistance and official aid (in millions US dollars), 2001

Total debt service (as percent of GNI), 2001

Infrastructure and Technology Diffusion Indicators

*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States. Sources: World Development Indicators 2003, World Bank; Economist Intelligence Unit; World Economic Outlook Database, IMF, April 2003; International Financial Statistics, IMF, March 2004; State of the World Population 2002, UNFPA; Global Atlas, World Health Organization, March 2004; The World Health Report 2003, World Health Organization; Human Development Report 2003, UNDP; Institute for Statistics UNESCO; Index of Economic Freedom 2003, The Heritage Foundation and The Wall Street Journal; International Telecommunication Union, March 2004; African Economic Outlook 2002/03, OECD.

2 ❚ Country Profiles

US$ (Millions)

FDI Inward and Outward Stock and Flow, 1999-2002

500 400 300 200 100 0 FDI inward stock

FDI outward stock

FDI inflows

1999

FDI outflows

2002

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Real GDP Growth, 1970-2003 Percent 15 10 5

02

01

00

99

98

97

96

95

94

93

92

91

90

89

88

87

86

85

84

83

82

81

80

79

78

03 20

20

20

20

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

76

75

74

73

72

71

77

19

19

19

19

19

19

19

19

19

70

0 -5 -10 -15

145

Source: World Economic Outlook Database, IMF, April 2003

2 ❚ Country Profiles

Competitiveness Rankings Rank out of 25 African countries

Rank out of 102 countries *

Growth Competitiveness Index Rank

21

96

Macroeconomic Environment Index Rank

17

79

Macroeconomic Stability Subindex Rank

18

87

Government Waste Subindex Rank

19

81

Country Credit Rating Rank Rank

n/a

n/a

Public Institutions Index Rank

23

96

Contracts and Law Subindex Rank

22

88

Corruption Subindex Rank

20

94

Technology Index Rank

21

97

Innovation Subindex Rank

18

93

ICT Subindex Rank

19

94

Technology Transfer Subindex Rank (out of 77 non-core innovators)

21

72

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

Relative performance: Growth Competitiveness Index scores and GDP

Madagascar

Growth Competitiveness Index

102 country average 6 4

GDP per capita (normalized on a

Technology index

2

scale from 1 to 7)

0

Macroeconomic environment index

Public institutions index

Sources: World Economic Forum and World Economic Outlook Database, IMF, April 2003

The Most Problematic Factors for Doing Business Access to financing Inadequate supply of infrastructure Corruption Inefficient government bureaucracy Policy instability Tax regulations Inflation Tax rates Government instability/coups Inadequately educated workforce Poor work ethic in national labour force

146

Restrictive labor regulations Foreign currency regulations Crime and theft 0

5

10

15 % of responses

20

25

30

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings. Source: World Economic Forum, Executive Opinion Survey 2003

2 ❚ Country Profiles

Notable Competitive Advantages

Notable Competitive Disadvantages

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

2.01

Macroeconomic Environment Recession expectations

7

21

2.19 2.09 2.21 2.22 7.08 2.18 7.10 2.03 2.20

Macroeconomic Environment National savings rate, 2002 Access to credit Real exchange rate, 2002 Interest rate spread, 2002 Diversion of public funds Government surplus/deficit, 2002 Public trust of politicians Extent of distortive government subsidies Inflation, 2002

22 21 23 20 18 16 20 15 9

98 94 90 87 87 83 80 62 60

6.03 7.03 7.02 6.01 7.01 6.08 6.17

Public Institutions Property rights Irregular payments in tax collection Irregular payments in public utilities Judicial independence Irregular payments in exports and imports Favoritism in decisions of government officials Organized crime

24 22 20 21 17 20 18

97 96 94 86 86 80 72

3.14 3.15

Technology Government prioritization of ICT Government success in ICT promotion

12 13

44 50

3.22 3.12 3.19 3.16 3.23 3.18 3.21 3.20 3.06 3.08 3.01 3.13 3.04 3.17 3.03 3.02

Technology Telephone lines, 2002 Internet access in schools Cellular telephones, 2002 Laws relating to ICT Personal computers, 2002 Tertiary enrollment Internet hosts, 2002 Internet users, 2002 Company spending on research and development University/industry research collaboration Technological sophistication Quality of competition in the ISP sector Prevalence of foreign technology licensing Utility patents, 2002 FDI and technology transfer Firm-level technology absorption

23 21 20 21 20 17 17 14 17 18 15 15 22 8 21 8

100 98 95 94 94 93 91 90 86 85 85 79 73 72 69 56

2.06 8.08 8.09 3.10

Other Indicators Soundness of banks Private-sector employment of women Wage equality of women in the workplace Availability of scientists and engineers

5 5 16 8

33 44 44 60

2.07 5.02 5.01 5.07 10.01 5.05 5.04 6.18 5.03 5.06 4.02 4.05 10.12 6.13 6.09 4.06 10.02 8.01 4.07 4.08 10.15 6.14 6.05 6.15

Other Indicators Ease of access to loans Railroad infrastructure development Overall infrastructure quality Postal efficiency Nature of competitive advantage Quality of electricity supply Air transport infrastructure quality Informal sector Port infrastructure quality Telephone infrastructure quality Quality of public schools Business impact of malaria Extent of staff training Reliability of police services Extent of bureaucratic red tape Business impact of tuberculosis Value chain presence Intensity of local competition Business impact of HIV/AIDS Impact of HIV/AIDS on FDI Reliance on professional management Business costs of crime and violence Freedom of the press Government effectiveness in reducing poverty

24 25 22 21 20 19 21 22 18 16 21 11 20 20 14 7 14 14 6 7 18 14 10 16

101 96 96 93 93 93 92 91 90 89 88 88 86 85 83 82 81 78 78 73 72 72 68 64

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

2 ❚ Country Profiles

147

National Competitiveness Balance Sheet

Malawi Key indicators Population in millions, 2002 Average annual population growth rate (%), 1992-2002

Human Development Indicators 11.80 1.9

Gross primary enrollment (percent of relevant age group) Gross secondary enrollment (percent of relevant age group), 2001

n/a 35.7

Total GDP in billions US dollars, 2002

1.93

Gross tertiary enrollment (percent of relevant age group), 2000 or most recent year available

GDP per capita (PPP) in US dollars, 2002

586

Adult literacy rate age 15 and above (%) , 2001

61

Real growth in GDP per capita (%), 2002

-0.2

Percent of population living on income below 1 dollar a day, 2001

42

Growth of output (average annual percent growth) 1990-2001

3.2

Population with sustainable access to an improved water source (%), 2000

Agriculture

7.3

Life expectancy at birth (years), 2002

Industry

2.3

HIV prevalence age 15-49 (%), 2001

15.0

Manufacturing

1.4

Reported malaria per 100,000, 2001

20,080

Services

2.6

Estimated TB cases per 100,000, 2002

Inflation (annual percent change), 2002

14.1

Government surplus/deficit (as percent of GDP), 2002

-9.9

Gross fixed capital formation (as percent of GDP), 2001

10.9

Interest rate spread, 2002

19.5

Real exchange rate, 2003* Exports of goods and services (as percent of GDP), 2001

111.54 26.0

Imports of goods and services (as percent of GDP), 2001

38.0

Current account balance (as percent of GDP), 2001

-30.4

Average external tariff rate in percent, 1998

11.5

Gross international reserves in months of imports, 2001

0.3

57 40.2

432

Infrastructure and Technology Diffusion Indicators Paved roads (percent of total roads), 1999

19

Electric power transmission and distribution losses (percent of output), 2000

n/a

Main telephone lines per 100 inhabitants, 2002

0.7

Cellular mobile telephone subscribers per 100 inhabitants, 2002

0.8

Personal computers per 100 inhabitants, 2002 Internet users per 10,000 inhabitants, 2002

0.1 25.9

2.4

Official development assistance and official aid (in millions US dollars), 2001

401.5

Total external debt in millions US dollars, 2001

2,602

Total external debt (as percent of GDP), 2001

148.8 2.3

Total debt service (as percent of exports of goods and services), 2001

7.8

148

Total debt service (as percent of GNI), 2001

*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States. Sources: World Development Indicators 2003, World Bank; Economist Intelligence Unit; World Economic Outlook Database, IMF, April 2003; International Financial Statistics, IMF, March 2004; State of the World Population 2002, UNFPA; Global Atlas, World Health Organization, March 2004; The World Health Report 2003, World Health Organization; Human Development Report 2003, UNDP; Institute for Statistics UNESCO; Index of Economic Freedom 2003, The Heritage Foundation and The Wall Street Journal; International Telecommunication Union, March 2004; African Economic Outlook 2002/03, OECD.

2 ❚ Country Profiles

US$ (Millions)

FDI Inward and Outward Stock and Flow, 1999-2002

250 200 150 100 50 0 FDI inward stock

FDI outward stock

FDI inflows

1999

FDI outflows

2002

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Structure of Exports of Goods, 2001

2% 9% All food items Manufactured goods Others

89%

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Real GDP Growth, 1970-2003 Percent 20 15 10 5

03 20

01

00

99

98

97

96

95

94

93

92

91

90

89

88

87

86

85

84

83

82

81

80

79

78

02 20

20

20

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

76

75

74

73

72

71

77

19

19

19

19

19

19

19

19

19

70

0

149

-5 -10 -15 Source: World Economic Outlook Database, IMF, April 2003

2 ❚ Country Profiles

Competitiveness Rankings Rank out of 25 African countries

Rank out of 102 countries *

Growth Competitiveness Index Rank

12

76

Macroeconomic Environment Index Rank

23

98

Macroeconomic Stability Subindex Rank

23

99

Government Waste Subindex Rank

15

68

Country Credit Rating Rank Rank

17

90

Public Institutions Index Rank

3

38

Contracts and Law Subindex Rank

6

42

Corruption Subindex Rank

3

43

Technology Index Rank

19

94

Innovation Subindex Rank

19

95

ICT Subindex Rank

22

98

Technology Transfer Subindex Rank (out of 77 non-core innovators)

15

52

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

Malawi

Growth Competitiveness Index

Relative performance: Growth Competitiveness Index scores and GDP

102 country average 6 4

GDP per capita (normalized on a

Technology index

2

scale from 1 to 7)

0

Macroeconomic environment index

Public institutions index

Sources: World Economic Forum and World Economic Outlook Database, IMF, April 2003

The Most Problematic Factors for Doing Business Access to financing Inadequate supply of infrastructure Inflation Tax rates Inefficient government bureaucracy Poor work ethic in national labour force Policy instability Tax regulations Foreign currency regulations Corruption Inadequately educated workforce

150

Crime and theft Restrictive labor regulations Government instability/coups 0

5

10

15 % of responses

20

25

30

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings. Source: World Economic Forum, Executive Opinion Survey 2003

2 ❚ Country Profiles

National Competitiveness Balance Sheet Notable Competitive Advantages

Notable Competitive Disadvantages

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Public Institutions Organized crime Irregular payments in exports and imports Judicial independence Irregular payments in tax collection Property rights

6 1 7 4 7

32 36 40 43 50

2.19 2.22 2.01 2.18 2.20 2.17 2.03 2.21 7.10 2.09 7.08

Macroeconomic Environment National savings rate, 2002 Interest rate spread, 2002 Recession expectations Government surplus/deficit, 2002 Inflation, 2002 Country credit rating, 2003 Extent of distortive government subsidies Real exchange rate, 2002 Public trust of politicians Access to credit Diversion of public funds

23 23 24 18 20 17 20 18 17 9 13

99 97 95 92 91 90 79 69 68 62 62

6.08 7.02

Public Institutions Favoritism in decisions of government officials Irregular payments in public utilities

16 4

65 56

Technology 3.03

FDI and technology transfer

2.06 8.09 10.15 6.15 10.01

Other Indicators Soundness of banks Wage equality of women in the workplace Reliance on professional management Government effectiveness in reducing poverty Nature of competitive advantage

Technology 9

35

3.18 3.23 3.19 3.21 3.20 3.01 3.02 3.12 3.22 3.16 3.14 3.08 3.15 3.17 3.06 3.13 3.04

Tertiary enrollment Personal computers, 2002 Cellular telephones, 2002 Internet hosts, 2002 Internet users, 2002 Technological sophistication Firm-level technology absorption Internet access in schools Telephone lines, 2002 Laws relating to ICT Government prioritization of ICT University/industry research collaboration Government success in ICT promotion Utility patents, 2002 Company spending on research and development Quality of competition in the ISP sector Prevalence of foreign technology licensing

25 25 22 21 19 20 22 17 15 19 22 16 20 8 10 5 15

102 99 97 96 95 93 92 92 91 90 89 83 76 72 62 55 54

2 13 3 12 8

20 28 29 50 50

4.06 4.07 5.03 4.05 6.09 5.05 4.08 4.02 5.06 2.07 5.01 8.08 8.01 5.04 6.05 3.10 10.12 10.02 6.18 5.02 5.07 6.13 6.14

Other Indicators Business impact of tuberculosis Business impact of HIV/AIDS Port infrastructure quality Business impact of malaria Extent of bureaucratic red tape Quality of electricity supply Impact of HIV/AIDS on FDI Quality of public schools Telephone infrastructure quality Ease of access to loans Overall infrastructure quality Private-sector employment of women Intensity of local competition Air transport infrastructure quality Freedom of the press Availability of scientists and engineers Extent of staff training Value chain presence Informal sector Railroad infrastructure development Postal efficiency Reliability of police services Business costs of crime and violence

21 18 20 14 17 16 14 19 15 14 13 16 13 13 12 10 11 8 13 10 9 10 10

98 95 93 91 90 89 87 85 84 80 79 78 77 75 73 70 69 69 68 66 65 57 54

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

2 ❚ Country Profiles

151

6.17 7.01 6.01 7.03 6.03

Mali Key Indicators Population in millions, 2002 Average annual population growth rate (%), 1992-2002

Human Development Indicators 12.00 2.8

Gross primary enrollment (percent of relevant age group), 2001

61.0

Gross secondary enrollment (percent of relevant age group), 1999

15.0

Total GDP in billions US dollars, 2002

3.09

Gross tertiary enrollment (percent of relevant age group), 2000 or most recent year available

GDP per capita (PPP) in US dollars, 2002

878

Adult literacy rate age 15 and above (%) , 2001

26

Real growth in GDP per capita (%), 2002

7.1

Percent of population living on income below 1 dollar a day, 2001

73

Growth of output (average annual percent growth) 1990-2001

3.4

Population with sustainable access to an improved water source (%), 2000

Agriculture

1.9

Life expectancy at birth (years), 2002

Industry

8.9

HIV prevalence age 15-49 (%), 2001

1.6

Manufacturing

2.8

Reported malaria per 100,000, 2001

741

Services

2.6

Estimated TB cases per 100,000, 2002

320

Inflation (annual percent change), 2002

4.9

Government surplus/deficit (as percent of GDP), 2002

-10.5

Gross fixed capital formation (as percent of GDP), 2002

18.6

Interest rate spread, 2002

11.3

Real exchange rate, 2003*

137.3

1.9

65 44.8

Infrastructure and Technology Diffusion Indicators Paved roads (percent of total roads), 1999

12

Electric power transmission and distribution losses (percent of output), 2000

n/a

Main telephone lines per 100 inhabitants, 2002

0.5

31.6

Cellular mobile telephone subscribers per 100 inhabitants, 2002

0.5

Imports of goods and services (as percent of GDP), 2002

33.6

Personal computers per 100 inhabitants, 2002

Current account balance (as percent of GDP), 2001

-10.3

Internet users per 10,000 inhabitants, 2002

Average external tariff rate in percent, 2000

12.0

Exports of goods and services (as percent of GDP), 2002

Gross international reserves in months of imports, 2001

0.1 23.5

3.4

Official development assistance and official aid (in millions US dollars), 2001

349.9

Total external debt in millions US dollars, 2001

2,890

Total external debt (as percent of GDP), 2001

109.2 3.2

Total debt service (as percent of exports of goods and services), 2001

8.8

152

Total debt service (as percent of GNI), 2001

*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States. Sources: World Development Indicators 2003, World Bank; Economist Intelligence Unit; World Economic Outlook Database, IMF, April 2003; International Financial Statistics, IMF, March 2004; State of the World Population 2002, UNFPA; Global Atlas, World Health Organization, March 2004; The World Health Report 2003, World Health Organization; Human Development Report 2003, UNDP; Institute for Statistics UNESCO; Index of Economic Freedom 2003, The Heritage Foundation and The Wall Street Journal; International Telecommunication Union, March 2004; African Economic Outlook 2002/03, OECD.

2 ❚ Country Profiles

US$ (Millions)

FDI Inward and Outward Stock and Flow, 1999-2002

800 700 600 500 400 300 200 100 0 FDI inward stock

FDI outward stock

FDI inflows

1999

FDI outflows

2002

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Real GDP Growth, 1970-2003 Percent 20 15 10 5

02

01

00

99

98

97

96

95

94

93

92

91

90

89

88

87

86

85

84

83

82

81

80

79

78

03 20

20

20

20

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

76

75

74

73

72

71

77

19

19

19

19

19

19

19

19

19

70

0 -5 -10

153

Source: World Economic Outlook Database, IMF, April 2003

2 ❚ Country Profiles

Competitiveness Rankings Rank out of 25 African countries

Rank out of 102 countries *

Growth Competitiveness Index Rank

23

99

Macroeconomic Environment Index Rank

19

91

Macroeconomic Stability Subindex Rank

19

89

Government Waste Subindex Rank

18

78

Country Credit Rating Rank Rank

18

91

Public Institutions Index Rank

17

83

Contracts and Law Subindex Rank

14

62

Corruption Subindex Rank

23

98

Technology Index Rank

23

99

Innovation Subindex Rank

22

98

ICT Subindex Rank

21

97

Technology Transfer Subindex Rank (out of 77 non-core innovators)

23

74

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

Mali

Growth Competitiveness Index

Relative performance: Growth Competitiveness Index scores and GDP

102 country average

6 4

GDP per capita (normalized on a

Technology index

2

scale from 1 to 7) 0

Macroeconomic environment index

Public institutions index

Sources: World Economic Forum and World Economic Outlook Database, IMF, April 2003

The Most Problematic Factors for Doing Business Access to financing Inadequate supply of infrastructure Inadequately educated workforce Inefficient government bureaucracy Corruption Tax regulations Tax rates Poor work ethic in national labour force Foreign currency regulations Policy instability Restrictive labor regulations

154

Inflation Crime and theft Government instability/coups 0

5

10

15 % of responses

20

25

30

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings. Source: World Economic Forum, Executive Opinion Survey 2003

2 ❚ Country Profiles

Notable Competitive Advantages

Notable Competitive Disadvantages

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

2.21

Macroeconomic Environment Real exchange rate, 2002

12

43

2.09 2.18 7.08 2.17 2.19 2.22 2.01 2.03 7.10 2.20

Macroeconomic Environment Access to credit Government surplus/deficit, 2002 Diversion of public funds Country credit rating, 2003 National savings rate, 2002 Interest rate spread, 2002 Recession expectations Extent of distortive government subsidies Public trust of politicians Inflation, 2002

25 19 20 18 17 13 21 16 15 13

99 95 92 91 85 80 74 66 66 66

6.17

Public Institutions Organized crime

5

28

7.03 7.02 6.03 7.01 6.08 6.01

Public Institutions Irregular payments in tax collection Irregular payments in public utilities Property rights Irregular payments in exports and imports Favoritism in decisions of government officials Judicial independence

25 22 22 19 15 14

100 97 94 89 63 63

3.14

Technology Government prioritization of ICT

5

21

3.19 3.12 3.23 3.22 3.01 3.16 3.06 3.18 3.02 3.21 3.20 3.08 3.13 3.04 3.03 3.17 3.15

Technology Cellular telephones, 2002 Internet access in schools Personal computers, 2002 Telephone lines, 2002 Technological sophistication Laws relating to ICT Company spending on research and development Tertiary enrollment Firm-level technology absorption Internet hosts, 2002 Internet users, 2002 University/industry research collaboration Quality of competition in the ISP sector Prevalence of foreign technology licensing FDI and technology transfer Utility patents, 2002 Government success in ICT promotion

23 23 24 21 22 22 21 18 23 18 15 21 16 25 22 8 17

100 100 98 98 98 96 95 94 94 92 91 90 84 77 72 72 71

8.09 6.14 6.05 2.06

Other Indicators Wage equality of women in the workplace Business costs of crime and violence Freedom of the press Soundness of banks

7 3 2 8

11 31 36 41

5.03 10.12 10.15 5.06 2.07 10.01 4.05 5.04 5.02 5.01 8.01 10.02 5.05 4.07 5.07 4.06 4.02 3.10 4.08 8.08 6.15 6.13 6.09 6.18

Other Indicators Port infrastructure quality Extent of staff training Reliance on professional management Telephone infrastructure quality Ease of access to loans Nature of competitive advantage Business impact of malaria Air transport infrastructure quality Railroad infrastructure development Overall infrastructure quality Intensity of local competition Value chain presence Quality of electricity supply Business impact of HIV/AIDS Postal efficiency Business impact of tuberculosis Quality of public schools Availability of scientists and engineers Impact of HIV/AIDS on FDI Private-sector employment of women Government effectiveness in reducing poverty Reliability of police services Extent of bureaucratic red tape Informal sector

25 25 25 25 23 23 21 23 22 19 19 17 15 12 17 8 17 15 9 15 19 12 4 9

102 102 100 99 99 98 98 95 91 91 91 89 88 87 86 83 82 79 78 76 74 60 60 59

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

2 ❚ Country Profiles

155

National Competitiveness Balance Sheet

Mauritius Key Indicators Population in millions, 2002 Average annual population growth rate (%), 1992-2002 Total GDP in billions US dollars, 2002

Human Development Indicators 1.20 1.1 4.53

Gross primary enrollment (percent of relevant age group), 2001 Gross secondary enrollment (percent of relevant age group), 2001

109.0 77.1

Gross tertiary enrollment (percent of relevant age group), 2000 or most recent year available

11.4

Adult literacy rate age 15 and above (%) , 2001

84.8

GDP per capita (PPP) in US dollars, 2002

10,530

Real growth in GDP per capita (%), 2002

4.2

Percent of population living on income below 1 dollar a day, 2001

n/a

Growth of output (average annual percent growth) 1990-2001

5.7

Population with sustainable access to an improved water source (%), 2000

100

Agriculture

1.1

Life expectancy at birth (years), 2002

71.9

5.8

HIV prevalence age 15-49 (%), 2001

0.1

5.5

Reported malaria per 100,000, 1999

6.3

Estimated TB cases per 100,000, 2002

Industry Manufacturing Services Inflation (annual percent change), 2002

6.0

Government surplus/deficit (as percent of GDP), 2002

-6.5

Gross fixed capital formation (as percent of GDP), 2002

22.1

Interest rate spread, 2003

11.5

Real exchange rate, 2003*

134.4

1 67

Infrastructure and Technology Diffusion Indicators Paved roads (percent of total roads), 1999

96

Electric power transmission and distribution losses (percent of output), 2000

n/a

Main telephone lines per 100 inhabitants, 2002

27.0

Exports of goods and services (as percent of GDP), 2002

62.3

Cellular mobile telephone subscribers per 100 inhabitants, 2002

28.9

Imports of goods and services (as percent of GDP), 2002

58.6

Personal computers per 100 inhabitants, 2002

Current account balance (as percent of GDP), 2001 Average external tariff rate in percent, 1998 Gross international reserves in months of imports, 2001 Official development assistance and official aid (in millions US dollars), 2001

5.5

Internet users per 10,000 inhabitants, 2002

11.7 991.3

23.8 3.7 21.7

Total external debt in millions US dollars, 2001

1,724

Total external debt (as percent of GDP), 2001

38.3 4.5

Total debt service (as percent of exports of goods and services), 2001

6.9

156

Total debt service (as percent of GNI), 2001

*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States. Sources: World Development Indicators 2003, World Bank; Economist Intelligence Unit; World Economic Outlook Database, IMF, April 2003; International Financial Statistics, IMF, March 2004; State of the World Population 2002, UNFPA; Global Atlas, World Health Organization, March 2004; The World Health Report 2003, World Health Organization; Human Development Report 2003, UNDP; Institute for Statistics UNESCO; Index of Economic Freedom 2003, The Heritage Foundation and The Wall Street Journal; International Telecommunication Union, March 2004; African Economic Outlook 2002/03, OECD.

2 ❚ Country Profiles

US$ (Millions)

FDI Inward and Outward Stock and Flow, 1999-2002

800 700 600 500 400 300 200 100 0 FDI inward stock

FDI outward stock

FDI inflows

1999

FDI outflows

2002

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Structure of Exports of Goods, 2002

1%

26% Manufactured goods All food items Others 73%

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Real GDP Growth, 1970-2003

Percent 25 20 15 10 5

-5 -10 Source: World Economic Outlook Database, IMF, April 2003

2 ❚ Country Profiles

157

02

01

00

99

98

97

96

95

94

93

92

91

90

89

88

87

86

85

84

83

82

81

80

79

78

03 20

20

20

20

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

76

75

74

73

72

71

77

19

19

19

19

19

19

19

19

19

70

0

Competitiveness Rankings Rank out of 25 African countries

Rank out of 102 countries *

4

46

Growth Competitiveness Index Rank Macroeconomic Environment Index Rank

9

57

Macroeconomic Stability Subindex Rank

13

64

Government Waste Subindex Rank

10

58

Country Credit Rating Rank Rank

4

46

Public Institutions Index Rank

6

44

Contracts and Law Subindex Rank

4

36

Corruption Subindex Rank

6

57

Technology Index Rank

2

49

Innovation Subindex Rank

5

73

ICT Subindex Rank

1

40

13

48

Technology Transfer Subindex Rank (out of 77 non-core innovators) * Source: Global Competitiveness Report 2003-2004, World Economic Forum.

Mauritius

Growth Competitiveness Index

Relative performance: Growth Competitiveness Index scores and GDP

102 country average 6 4

GDP per capita (normalized on a

Technology index

2

scale from 1 to 7)

0

Macroeconomic environment index

Public institutions index

Sources: World Economic Forum and World Economic Outlook Database, IMF, April 2003

The Most Problematic Factors for Doing Business Inefficient government bureaucracy Corruption Inadequately educated workforce Poor work ethic in national labour force Restrictive labor regulations Access to financing Inflation Tax regulations Inadequate supply of infrastructure Policy instability Crime and theft

158

Tax rates Foreign currency regulations Government instability/coups 0

5

10

15 % of responses

20

25

30

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings. Source: World Economic Forum, Executive Opinion Survey 2003

2 ❚ Country Profiles

National Competitiveness Balance Sheet Notable Competitive Advantages

Notable Competitive Disadvantages

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Macroeconomic Environment 2.19

National savings rate, 2002

2.01 2.03

Macroeconomic Environment 4

16

2.22

Interest rate spread, 2002

12

Recession expectations

15

40

2.18

Government surplus/deficit, 2002

15

79 76

Extent of distortive government subsidies

11

45

7.10

Public trust of politicians

18

75

2.20

Inflation, 2002

15

73

7.08

Diversion of public funds

12

59

2.09

Access to credit

7

54

2.21

Real exchange rate, 2002

14

49

2.17

Country credit rating, 2003

4

46

Public Institutions

Public Institutions

6.17

Organized crime

4

27

7.01

Irregular payments in exports and imports

6.03

Property rights

5

40

7.02

Irregular payments in public utilities

14

79

5

59

7.03

Irregular payments in tax collection

3

42

6.08

Favoritism in decisions of government officials

6

42

6.01

Judicial independence

8

44

3.14

Government prioritization of ICT

1

4

3.13

Quality of competition in the ISP sector

3.15

Government success in ICT promotion

3

13

23

99

3.08

University/industry research collaboration

14

3.16

Laws relating to ICT

3

77

32

3.06

Company spending on research and development

15

73

3.04

Prevalence of foreign technology licensing

3.20

Internet users, 2002

10

35

3.17

Utility patents, 2002

8

72

1

38

3.18

Tertiary enrollment

5

3.22

71

Telephone lines, 2002

1

41

3.02

Firm-level technology absorption

11

63

3.23

Personal computers, 2002

1

41

3.03

FDI and technology transfer

18

62

3.19

Cellular telephones, 2002

1

43

3.01

Technological sophistication

6

60

3.21

Internet hosts, 2002

2

49

3.12

Internet access in schools

4

49

Technology

Technology

Other Indicators

Other Indicators

5.03

Port infrastructure quality

1

21

5.02

Railroad infrastructure development

24

94

4.06

Business impact of tuberculosis

1

22

8.09

Wage equality of women in the workplace

24

81

10.02

Value chain presence

1

22

6.09

Extent of bureaucratic red tape

9

71

2.07

Ease of access to loans

1

24

3.10

Availability of scientists and engineers

9

66

5.04

Air transport infrastructure quality

2

26

8.08

Private-sector employment of women

8

61

10.12

Extent of staff training

3

31

6.13

Reliability of police services

11

59

4.05

Business impact of malaria

1

32

10.15

Reliance on professional management

11

57

4.07

Business impact of HIV/AIDS

1

33

5.07

Postal efficiency

5

55

4.08

Impact of HIV/AIDS on FDI

1

33

5.06

Telephone infrastructure quality

3

52

6.15

Government effectiveness in reducing poverty

6

33

4.02

Quality of public schools

3

50

5.01

Overall infrastructure quality

5

35

8.01

Intensity of local competition

3

50

10.01

Nature of competitive advantage

4

36

2.06

Soundness of banks

6.14

Business costs of crime and violence

6

38

5.05

Quality of electricity supply

6.05

Freedom of the press

3

41

6.18

Informal sector

4

42

48

6

47

159

10

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

2 ❚ Country Profiles

Morocco Key Indicators Population in millions, 2002 Average annual population growth rate (%), 1992-2002

Human Development Indicators 31.00 1.7

Gross primary enrollment (percent of relevant age group), 2001

94.0

Gross secondary enrollment (percent of relevant age group), 2000

39.3

Total GDP in billions US dollars, 2002

37.15

Gross tertiary enrollment (percent of relevant age group), 2000 or most recent year available

GDP per capita (PPP) in US dollars, 2002

3'767

Adult literacy rate age 15 and above (%) , 2001

Real growth in GDP per capita (%), 2002

3.2

Percent of population living on income below 1 dollar a day, 2001

2.9

Population with sustainable access to an improved water source (%), 2000

Agriculture

5.2

Life expectancy at birth (years), 2002

Industry

3.4

HIV prevalence age 15-49 (%), 2001

0.1

Manufacturing

3.5

Reported malaria per 100,000, 2001

0.2

Services

3.5

Estimated TB cases per 100,000, 2002

115

Growth of output (average annual percent growth) 1990-2001

Inflation (annual percent change), 2002

2.8

Government surplus/deficit (as percent of GDP), 2002

-2.0

Gross fixed capital formation (as percent of GDP), 2002

22.9

Interest rate spread, 2002 Real exchange rate, 2003*

9.2 134.2

Main telephone lines per 100 inhabitants, 2002

29.2

Cellular mobile telephone subscribers per 100 inhabitants, 2002 Personal computers per 100 inhabitants 2002

Gross international reserves in months of imports, 2001 Official development assistance and official aid (in millions US dollars), 2001 Total external debt in millions US dollars, 2001 Total external debt (as percent of GDP), 2001 Total debt service (as percent of GNI), 2001

Internet users per 10,000 inhabitants, 2002

6 3.8 20.9 2.4 236.1

25.8 7.7 516.5 16'963 49.6 7.9 17.8

160

Total debt service (as percent of exports of goods and services), 2001

56

Electric power transmission and distribution losses (percent of output), 2000

32.2

Average external tariff rate in percent, 2000

80 70.8

Paved roads (percent of total roads), 1999

Imports of goods and services (as percent of GDP), 2002

4.1

<2

Infrastructure and Technology Diffusion Indicators

Exports of goods and services (as percent of GDP), 2002 Current account balance (as percent of GDP), 2002

10.3 49.8

*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States. Sources: World Development Indicators 2003, World Bank; Economist Intelligence Unit; World Economic Outlook Database, IMF, April 2003; International Financial Statistics, IMF, March 2004; State of the World Population 2002, UNFPA; Global Atlas, World Health Organization, March 2004; The World Health Report 2003, World Health Organization; Human Development Report 2003, UNDP; Institute for Statistics UNESCO; Index of Economic Freedom 2003, The Heritage Foundation and The Wall Street Journal; International Telecommunication Union, March 2004; African Economic Outlook 2002/03, OECD.

2 ❚ Country Profiles

US$ (Millions)

FDI Inward and Outward Stock and Flow, 1999-2002

12,000 10,000 8,000 6,000 4,000 2,000 0 FDI inward stock

FDI outward stock

FDI inflows

1999

FDI outflows

2002

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Structure of Exports of Goods, 2001

4% 2% 8% Manufactured goods All food items Ores and metals Fuels Others

21% 65%

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Real GDP Growth, 1970-2003

Percent 20 15 10 5

-5 -10 Source: World Economic Outlook Database, IMF, April 2003

2 ❚ Country Profiles

161

02

01

00

99

98

97

96

95

94

93

92

91

90

89

88

87

86

85

84

83

82

81

80

79

78

03 20

20

20

20

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

76

75

74

73

72

71

77

19

19

19

19

19

19

19

19

19

70

0

Competitiveness Rankings Rank out of 25 African countries

Rank out of 102 countries *

Growth Competitiveness Index Rank

8

61

Macroeconomic Environment Index Rank

4

43

Macroeconomic Stability Subindex Rank

5

37

Government Waste Subindex Rank

6

44

Country Credit Rating Rank Rank

5

50

Public Institutions Index Rank

12

68

Contracts and Law Subindex Rank

11

55

Corruption Subindex Rank

17

85

Technology Index Rank

7

71

Innovation Subindex Rank

4

71

ICT Subindex Rank

7

71

Technology Transfer Subindex Rank (out of 77 non-core innovators)

9

40

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

Relative performance: Growth Competitiveness Index scores and GDP

Morocco

Growth Competitiveness Index

102 country average

6 4

GDP per capita (normalized on a

Technology index

2

scale from 1 to 7)

0

Macroeconomic environment index

Public institutions index

Sources: World Economic Forum and World Economic Outlook Database, IMF, April 2003

The Most Problematic Factors for Doing Business Access to financing Inadequate supply of infrastructure Tax regulations Corruption Inefficient government bureaucracy Tax rates Inadequately educated workforce Restrictive labor regulations Poor work ethic in national labour force Policy instability Foreign currency regulations

162

Government instability/coups Inflation Crime and theft 0

5

10

15 % of responses

20

25

30

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings. Source: World Economic Forum, Executive Opinion Survey 2003

2 ❚ Country Profiles

National Competitiveness Balance Sheet Notable Competitive Advantages

Notable Competitive Disadvantages

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Macroeconomic Environment

Macroeconomic Environment

2.03

Extent of distortive government subsidies

6

22

2.22

Interest rate spread, 2002

11

69

2.19

National savings rate, 2002

6

24

7.08

Diversion of public funds

11

54

2.09

Access to credit

2

27

2.18

Government surplus/deficit, 2002

4

35

7.10

Public trust of politicians

7

36

7.03

Irregular payments in tax collection

16

85

2.01

Recession expectations

16

41

7.01

Irregular payments in exports and imports

15

82

2.20

Inflation, 2002

7

44

7.02

Irregular payments in public utilities

10

75

2.17

Country credit rating, 2003

5

50

6.01

Judicial independence

16

71

2.21

Real exchange rate, 2002

15

50

6.08

Favoritism in decisions of government officials

11

56

6.03

Property rights

9

56

Public Institutions

Public Institutions 6.17

Organized crime

9

47

3.15

Government success in ICT promotion

8

32

3.22

Telephone lines, 2002

8

80

3.03

FDI and technology transfer

7

33

3.21

Internet hosts, 2002

10

79

3.06

Company spending on research and development

3

38

3.20

Internet users, 2002

8

78

3.02

Firm-level technology absorption

5

43

3.23

Personal computers, 2002

9

75

3.04

Prevalence of foreign technology licensing

12

45

3.13

Quality of competition in the ISP sector

12

74

3.12

Internet access in schools

6

73

3.18

Tertiary enrollment

6

73

3.17

Utility patents, 2002

8

72

3.01

Technological sophistication

7

64

3.14

Government prioritization of ICT

15

63

3.16

Laws relating to ICT

6

57

3.19

Cellular telephones, 2002

4

53

3.08

University/industry research collaboration

6

53

Technology

Technology

Other Indicators Private-sector employment of women

8.09

Wage equality of women in the workplace

6.15

Government effectiveness in reducing poverty

6.13

Reliability of police services

5.07

Postal efficiency

5.06

Telephone infrastructure quality

6.14

Business costs of crime and violence

5.05

Quality of electricity supply

2.06

Soundness of banks

5.02

Railroad infrastructure development

Other Indicators 2

10

6.05

Freedom of the press

12

24

4.06

Business impact of tuberculosis

19

91

5

76

5

31

4.05

Business impact of malaria

6

75

2

32

4.08

Impact of HIV/AIDS on FDI

8

74

3

32

4.07

Business impact of HIV/AIDS

5

72

1

33

10.15

Reliance on professional management

16

69

5

33

10.01

Nature of competitive advantage

15

69

5

40

8.01

Intensity of local competition

8

68

9

47

6.09

Extent of bureaucratic red tape

7

66

6

48

5.01

Overall infrastructure quality

4.02

10

65

Quality of public schools

8

64

2.07

Ease of access to loans

10

62

5.04

Air transport infrastructure quality

9

57

3.10

Availability of scientists and engineers

4

53

6.18

Informal sector

6

53

10.02

Value chain presence

4

51

10.12

Extent of staff training

5

51

5.03

Port infrastructure quality

7

51

163

8.08

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

2 ❚ Country Profiles

Mozambique Key Indicators Population in millions, 2002 Average annual population growth rate (%), 1992-2002 Total GDP in billions US dollars, 2002

Human Development Indicators 19.00 2.6 3.92

Gross primary enrollment (percent of relevant age group), 2001

92.0

Gross secondary enrollment (percent of relevant age group), 2001

11.9

Gross tertiary enrollment (percent of relevant age group), 2000 or most recent year available

GDP per capita (PPP) in US dollars, 2002

1'237

Real growth in GDP per capita (%), 2002

7.3

Percent of population living on income below 1 dollar a day, 2001

6.0

Population with sustainable access to an improved water source (%), 2000

Growth of output (average annual percent growth) 1990-2001

Agriculture Industry Manufacturing Services

38 57

3.9 13.0

HIV prevalence age 15-49 (%), 2001

13.0

18.8

Reported malaria per 100,000, 2001

19'842

3.1 16.8

Government surplus/deficit (as percent of GDP), 2002

-18.4

Gross fixed capital formation (as percent of GDP), 2002

12.3

Real exchange rate, 2003*

0.6 45.2

Life expectancy at birth (years), 2002

Inflation (annual percent change), 2002

Interest rate spread, 2002

Adult literacy rate age 15 and above (%) , 2001

7.2 127.1

Estimated TB cases per 100,000, 2002

42.6

265

Infrastructure and Technology Diffusion Indicators Paved roads (percent of total roads), 1999

19

Electric power transmission and distribution losses (percent of output), 2000

10

Main telephone lines per 100 inhabitants, 2002

0.5

13.1

Cellular mobile telephone subscribers per 100 inhabitants, 2002

1.4

Imports of goods and services (as percent of GDP), 2002

19.0

Personal computers per 100 inhabitants, 2002

Current account balance (as percent of GDP), 2001

-44.5

Internet users per 10,000 inhabitants, 2002

Average external tariff rate in percent, 1997

17.4

Exports of goods and services (as percent of GDP), 2002

Gross international reserves in months of imports, 2001

0.5 27.4

1.9

Official development assistance and official aid (in millions US dollars), 2001

934.8

Total external debt in millions US dollars, 2001

4'466

Total external debt (as percent of GDP), 2001

123.8 2.6

Total debt service (as percent of exports of goods and services), 2001

3.4

164

Total debt service (as percent of GNI), 2001

*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States. Sources: World Development Indicators 2003, World Bank; Economist Intelligence Unit; World Economic Outlook Database, IMF, April 2003; International Financial Statistics, IMF, March 2004; State of the World Population 2002, UNFPA; Global Atlas, World Health Organization, March 2004; The World Health Report 2003, World Health Organization; Human Development Report 2003, UNDP; Institute for Statistics UNESCO; Index of Economic Freedom 2003, The Heritage Foundation and The Wall Street Journal; International Telecommunication Union, March 2004; African Economic Outlook 2002/03, OECD.

2 ❚ Country Profiles

US$ (Millions)

FDI Inward and Outward Stock and Flow, 1999-2002

2,000

1,500

1,000

500

0 FDI inward stock

FDI outward stock

FDI inflows

1999

FDI outflows

2002

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Structure of Exports of Goods, 2001

5%

8%

Ores and metals All food items Fuels Manufactured goods Others

10% 54%

23%

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Real GDP Growth, 1970-2003 Percent 20 15 10 5

02

01

00

99

98

97

96

95

94

93

92

91

90

89

88

87

86

85

84

83

82

81

80

79

78

03 20

20

20

20

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

76

75

74

73

72

71

77

19

19

19

19

19

19

19

19

19

70

0 -5

165

-10 -15 -20 Source: World Economic Outlook Database, IMF, April 2003

2 ❚ Country Profiles

Competitiveness Rankings Rank out of 25 African countries

Rank out of 102 countries *

Growth Competitiveness Index Rank

20

93

Macroeconomic Environment Index Rank

20

95

Macroeconomic Stability Subindex Rank

22

97

Government Waste Subindex Rank

20

82

Country Credit Rating Rank Rank

16

89

Public Institutions Index Rank

16

82

Contracts and Law Subindex Rank

21

87

Corruption Subindex Rank

15

83

Technology Index Rank

17

92

Innovation Subindex Rank

21

97

ICT Subindex Rank

20

95

Technology Transfer Subindex Rank (out of 77 non-core innovators)

14

49

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

Mozambique

Growth Competitiveness Index

Relative performance: Growth Competitiveness Index scores and GDP

102 country average

6 4

GDP per capita (normalized on a

Technology index

2

scale from 1 to 7) 0

Macroeconomic environment index

Public institutions index

Sources: World Economic Forum and World Economic Outlook Database, IMF, April 2003

The Most Problematic Factors for Doing Business Corruption Access to financing Inefficient government bureaucracy Inadequate supply of infrastructure Inadequately educated workforce Restrictive labor regulations Crime and theft Inflation Tax rates Tax regulations Poor work ethic in national labour force

166

Foreign currency regulations Policy instability Government instability/coups 0

5

10

15 % of responses

20

25

30

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings. Source: World Economic Forum, Executive Opinion Survey 2003

2 ❚ Country Profiles

Notable Competitive Advantages

Notable Competitive Disadvantages

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

3.03

Technology FDI and technology transfer

6

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

26

2.18 2.20 2.17 2.09 7.08 7.10 2.19 2.03 2.01 2.22 2.21

Macroeconomic Environment Government surplus/deficit, 2002 Inflation, 2002 Country credit rating, 2003 Access to credit Diversion of public funds Public trust of politicians National savings rate, 2002 Extent of distortive government subsidies Recession expectations Interest rate spread, 2002 Real exchange rate, 2002

25 22 16 19 17 19 13 17 18 8 16

102 94 89 87 84 78 75 69 58 58 57

7.01 6.17 6.01 6.08 6.03 7.03 7.02

Public Institutions Irregular payments in exports and imports Organized crime Judicial independence Favoritism in decisions of government officials Property rights Irregular payments in tax collection Irregular payments in public utilities

22 23 20 21 16 12 8

93 86 85 83 78 78 72

3.18 3.20 3.21 3.12 3.22 3.01 3.06 3.13 3.16 3.08 3.23 3.19 3.17 3.02 3.04 3.14 3.15

Technology Tertiary enrollment Internet users, 2002 Internet hosts, 2002 Internet access in schools Telephone lines, 2002 Technological sophistication Company spending on research and development Quality of competition in the ISP sector Laws relating to ICT University/industry research collaboration Personal computers, 2002 Cellular telephones, 2002 Utility patents, 2002 Firm-level technology absorption Prevalence of foreign technology licensing Government prioritization of ICT Government success in ICT promotion

24 23 23 20 20 21 20 19 18 19 15 14 8 12 17 14 14

101 99 98 97 97 95 92 92 89 88 88 88 72 64 59 55 53

3.10 8.01 6.18 5.07 8.08 10.02 4.05 6.14 2.07 4.08 5.01 10.01 5.05 4.06 4.07 5.03 6.13 2.06 4.02 10.12 5.04 6.05 5.06 8.09 5.02 10.15 6.09 6.15

Other Indicators Availability of scientists and engineers Intensity of local competition Informal sector Postal efficiency Private-sector employment of women Value chain presence Business impact of malaria Business costs of crime and violence Ease of access to loans Impact of HIV/AIDS on FDI Overall infrastructure quality Nature of competitive advantage Quality of electricity supply Business impact of tuberculosis Business impact of HIV/AIDS Port infrastructure quality Reliability of police services Soundness of banks Quality of public schools Extent of staff training Air transport infrastructure quality Freedom of the press Telephone infrastructure quality Wage equality of women in the workplace Railroad infrastructure development Reliance on professional management Extent of bureaucratic red tape Government effectiveness in reducing poverty

24 24 24 24 23 21 18 23 20 19 20 19 17 14 13 16 19 21 18 18 17 16 12 23 16 19 11 14

101 100 98 96 96 96 95 94 94 94 92 91 91 90 89 86 84 83 83 83 82 81 78 76 76 74 74 60

2 ❚ Country Profiles

167

National Competitiveness Balance Sheet

Namibia Key Indicators Population in millions, 2002 Average annual population growth rate (%), 1992-2002 Total GDP in billions US dollars, 2002

Human Development Indicators 1.80 2.7 2.87

Gross primary enrollment (percent of relevant age group), 2001 Gross secondary enrollment (percent of relevant age group), 2001 Gross tertiary enrollment (percent of relevant age group), 2000 or most recent year available

112.0 61.7 5.9

GDP per capita (PPP) in US dollars, 2002

6,410

Real growth in GDP per capita (%), 2002

-0.3

Percent of population living on income below 1 dollar a day, 2001

4.1

Population with sustainable access to an improved water source (%), 2000

Agriculture

5.1

Life expectancy at birth (years), 2002

Industry

2.4

HIV prevalence age 15-49 (%), 2001

22.5

Manufacturing

3.5

Reported malaria per 100,000, 2000

1,502

Services

4.3

Estimated TB cases per 100,000, 2002

Growth of output (average annual percent growth) 1990-2001

Inflation (annual percent change), 2002

11.3

Government surplus/deficit (as percent of GDP), 2002

-3.0

Gross fixed capital formation (as percent of GDP), 2001

24.0

Interest rate spread, 2002 Real exchange rate, 2003*

6.0 190.3

Adult literacy rate age 15 and above (%) , 2001

82.7 35 77 49.3

626

Infrastructure and Technology Diffusion Indicators Paved roads (percent of total roads), 1999

14

Electric power transmission and distribution losses (percent of output), 2000

n/a

Main telephone lines per 100 inhabitants, 2002

6.5

Exports of goods and services (as percent of GDP), 2001

53.7

Cellular mobile telephone subscribers per 100 inhabitants, 2002

8.0

Imports of goods and services (as percent of GDP), 2001

66.2

Personal computers per 100 inhabitants, 2002

Current account balance (as percent of GDP), 2001

-0.2

Internet users per 10,000 inhabitants, 2002

Average external tariff rate in percent, 1999

8.5

Gross international reserves in months of imports, 2001

1.3

Official development assistance and official aid (in millions US dollars), 2001

7.1 266.7

109.1

Total external debt in millions US dollars, 2001

n/a

Total external debt (as percent of GDP), 2001

n/a n/a

Total debt service (as percent of exports of goods and services), 2001

n/a

168

Total debt service (as percent of GNI), 2001

*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States. Sources: World Development Indicators 2003, World Bank; Economist Intelligence Unit; World Economic Outlook Database, IMF, April 2003; International Financial Statistics, IMF, March 2004; State of the World Population 2002, UNFPA; Global Atlas, World Health Organization, March 2004; The World Health Report 2003, World Health Organization; Human Development Report 2003, UNDP; Institute for Statistics UNESCO; Index of Economic Freedom 2003, The Heritage Foundation and The Wall Street Journal; International Telecommunication Union, March 2004; African Economic Outlook 2002/03, OECD.

2 ❚ Country Profiles

US$ (Millions)

FDI Inward and Outward Stock and Flow, 1999-2002

1,600 1,400 1,200 1,000 800 600 400 200 0 -200 FDI inward stock

FDI outward stock

FDI inflows

1999

FDI outflows

2002

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Structure of Exports of Goods, 2001

4%

1%

9% Manufactured goods All food items Ores and metals Others Fuels

50%

36%

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Real GDP Growth, 1970-2003 Percent 10

5

02

01

00

99

98

97

96

95

94

93

92

91

90

89

88

87

86

85

84

83

82

81

80

79

78

03 20

20

20

20

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

76

75

74

73

72

71

77

19

19

19

19

19

19

19

19

19

70

0

169

-5

-10

-15 Source: World Economic Outlook Database, IMF, April 2003

2 ❚ Country Profiles

Competitiveness Rankings Rank out of 25 African countries

Rank out of 102 countries *

Growth Competitiveness Index Rank

5

52

Macroeconomic Environment Index Rank

7

53

Macroeconomic Stability Subindex Rank

7

49

Government Waste Subindex Rank

9

48

Country Credit Rating Rank Rank

7

57

Public Institutions Index Rank

7

48

Contracts and Law Subindex Rank

7

45

Corruption Subindex Rank

5

55

Technology Index Rank

5

62

Innovation Subindex Rank

7

76

ICT Subindex Rank

4

64

Technology Transfer Subindex Rank (out of 77 non-core innovators)

8

33

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

Namibia

Growth Competitiveness Index

Relative performance: Growth Competitiveness Index scores and GDP

102 country average

6 4

GDP per capita (normalized on a

Technology index

2

scale from 1 to 7) 0

Macroeconomic environment index

Public institutions index

Sources: World Economic Forum and World Economic Outlook Database, IMF, April 2003

The Most Problematic Factors for Doing Business Inadequately educated workforce Poor work ethic in national labour force Access to financing Crime and theft Inefficient government bureaucracy Inflation Corruption Restrictive labor regulations Tax rates Tax regulations Government instability/coups

170

Inadequate supply of infrastructure Foreign currency regulations Policy instability 0

5

10

15 % of responses

20

25

30

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings. Source: World Economic Forum, Executive Opinion Survey 2003

2 ❚ Country Profiles

National Competitiveness Balance Sheet Notable Competitive Advantages

Notable Competitive Disadvantages

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Macroeconomic Environment

Macroeconomic Environment

2.21

Real exchange rate, 2002

4

7

2.20

Inflation, 2002

2.19

National savings rate, 2002

6

24

2.17

Country credit rating, 2003

2.01

Recession expectations

10

25

2.22

Interest rate spread, 2002

7.10

Public trust of politicians

5

34

2.03

Extent of distortive government subsidies

2.09

Access to credit

6

41

2.18

Government surplus/deficit, 2002

7

45

7.08

Diversion of public funds

6

48

6.01

Judicial independence

4

32

6.17

Organized crime

14

58

6.03

Property rights

6

45

7.02

Irregular payments in public utilities

3

55

7.03

Irregular payments in tax collection

6

55

6.08

Favoritism in decisions of government officials

9

54

7.01

Irregular payments in exports and imports

7

53

Public Institutions

18

86

7

57

7

53

12

51

Public Institutions

Technology

Technology

3.04

Prevalence of foreign technology licensing

5

22

3.18

Tertiary enrollment

3.01

Technological sophistication

2

41

3.02

Firm-level technology absorption

3.06

Company spending on research and development

5

43

3.20

Internet users, 2002

6

73

3.12

Internet access in schools

3

46

3.19

Cellular telephones, 2002

5

72

3.03

FDI and technology transfer

14

48

3.17

Utility patents, 2002

8

72

3.23

Personal computers, 2002

3

50

3.22

Telephone lines, 2002

6

72

3.08

University/industry research collaboration

12

71

3.14

Government prioritization of ICT

17

70

3.16

Laws relating to ICT

10

68

3.15

Government success in ICT promotion

15

66

3.13

Quality of competition in the ISP sector

8

61

3.21

Internet hosts, 2002

3

52

81 75

Other Indicators

5.01

Overall infrastructure quality

2

20

3.10

Availability of scientists and engineers

20

93

5.03

Port infrastructure quality

2

27

4.08

Impact of HIV/AIDS on FDI

17

92

5.02

Railroad infrastructure development

2

28

4.07

Business impact of HIV/AIDS

16

92

10.01

Nature of competitive advantage

2

32

4.06

Business impact of tuberculosis

13

89

2.07

Ease of access to loans

3

33

4.05

Business impact of malaria

5.05

Quality of electricity supply

3

35

6.14

2.06

Soundness of banks

6

35

5.04

Air transport infrastructure quality

6

46

6.15

Government effectiveness in reducing poverty

11

49

8

85

Business costs of crime and violence

18

78

10.02

Value chain presence

11

77

6.13

Reliability of police services

18

76

6.09

Extent of bureaucratic red tape

10

72

8.01

Intensity of local competition

9

69

5.07

Postal efficiency

10

66

6.05

Freedom of the press

8.08

Private-sector employment of women

5.06

Telephone infrastructure quality

10.15

Reliance on professional management

9

65

10

63

4

59

12

58

6.18

Informal sector

8

56

10.12

Extent of staff training

6

53

4.02

Quality of public schools

8.09

Wage equality of women in the workplace

4

52

18

50

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

2 ❚ Country Profiles

171

Other Indicators

7 15

Nigeria Key Indicators Population in millions, 2002 Average annual population growth rate (%), 1992-2002 Total GDP in billions US dollars, 2002

Human Development Indicators 120.00 2.8 42.73

Gross primary enrollment (percent of relevant age group)

n/a

Gross secondary enrollment (percent of relevant age group)

n/a

Gross tertiary enrollment (percent of relevant age group), 2000 or most recent year available

4.0

GDP per capita (PPP) in US dollars, 2002

851

Adult literacy rate age 15 and above (%) , 2001

Real growth in GDP per capita (%), 2002

-2.2

Percent of population living on income below 1 dollar a day, 2001

3.3

Population with sustainable access to an improved water source (%), 2000

Agriculture

3.6

Life expectancy at birth (years), 2002

48.8

Industry

2.1

HIV prevalence age 15-49 (%), 2001

5.8

2.2

Reported malaria per 100,000, 2000

3.8

Estimated TB cases per 100,000, 2002

Growth of output (average annual percent growth) 1990-2001

Manufacturing Services Inflation (annual percent change), 2002

12.9

Government surplus/deficit (as percent of GDP), 2002

-3.6

Gross fixed capital formation (as percent of GDP), 2001

27.6

Interest rate spread, 2002 Real exchange rate, 2003*

8.0 275.2

65.4 70 62

30 235

Infrastructure and Technology Diffusion Indicators Paved roads (percent of total roads), 1999

31

Electric power transmission and distribution losses (percent of output), 2000

32

Main telephone lines per 100 inhabitants, 2002

0.6

Exports of goods and services (as percent of GDP), 2001

48.3

Cellular mobile telephone subscribers per 100 inhabitants, 2002

1.3

Imports of goods and services (as percent of GDP), 2001

49.0

Personal computers per 100 inhabitants, 2002

Current account balance (as percent of GDP), 2001 Average external tariff rate in percent, 1995 Gross international reserves in months of imports, 2001 Official development assistance and official aid (in millions US dollars), 2001 Total external debt in millions US dollars, 2001 Total external debt (as percent of GDP), 2001 Total debt service (as percent of GNI), 2001

Internet users per 10,000 inhabitants, 2002

0.7 35.0

20.0 7.1 184.8 31,119 75.2 6.7 12.0

172

Total debt service (as percent of exports of goods and services), 2001

n/a

*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States. Sources: World Development Indicators 2003, World Bank; Economist Intelligence Unit; World Economic Outlook Database, IMF, April 2003; International Financial Statistics, IMF, March 2004; State of the World Population 2002, UNFPA; Global Atlas, World Health Organization, March 2004; The World Health Report 2003, World Health Organization; Human Development Report 2003, UNDP; Institute for Statistics UNESCO; Index of Economic Freedom 2003, The Heritage Foundation and The Wall Street Journal; International Telecommunication Union, March 2004; African Economic Outlook 2002/03, OECD.

2 ❚ Country Profiles

US$ (Millions)

FDI Inward and Outward Stock and Flow, 1999-2002

25,000 20,000 15,000 10,000 5,000 0 FDI inward stock

FDI outward stock

FDI inflows

1999

FDI outflows

2002

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Structure of Exports of Goods, 2000

Fuels

100%

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Real GDP Growth, 1970-2003 Percent 35 30 25 20 15 10 5

-10 -15 Source: World Economic Outlook Database, IMF, April 2003

2 ❚ Country Profiles

173

02

01

00

03 20

20

20

98

97

96

95

94

93

92

91

90

89

88

87

86

85

84

83

82

81

80

79

78

77

76

75

74

73

72

71

99

20

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

70

0 -5

Competitiveness Rankings Rank out of 25 African countries

Rank out of 102 countries *

Growth Competitiveness Index Rank

16

87

Macroeconomic Environment Index Rank

13

74

Macroeconomic Stability Subindex Rank

4

32

Government Waste Subindex Rank

23

91

Country Credit Rating Rank Rank

14

87

Public Institutions Index Rank

24

98

Contracts and Law Subindex Rank

18

78

Corruption Subindex Rank

24

99

Technology Index Rank

13

82

Innovation Subindex Rank

15

88

ICT Subindex Rank

18

93

3

20

Technology Transfer Subindex Rank (out of 77 non-core innovators) * Source: Global Competitiveness Report 2003-2004, World Economic Forum.

Nigeria

Growth Competitiveness Index

Relative performance: Growth Competitiveness Index scores and GDP

102 country average 6 4

GDP per capita (normalized on a

Technology index

2

scale from 1 to 7)

0

Macroeconomic environment index

Public institutions index

Sources: World Economic Forum and World Economic Outlook Database, IMF, April 2003

The Most Problematic Factors for Doing Business Inadequate supply of infrastructure Corruption Access to financing Policy instability Inefficient government bureaucracy Crime and theft Inflation Government instability/coups Inadequately educated workforce Poor work ethic in national labour force Foreign currency regulations

174

Restrictive labor regulations Tax rates Tax regulations 0

5

10

15 % of responses

20

25

30

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings. Source: World Economic Forum, Executive Opinion Survey 2003

2 ❚ Country Profiles

Notable Competitive Advantages

Notable Competitive Disadvantages

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

2.21 2.19 2.01

Macroeconomic Environment Real exchange rate, 2002 National savings rate, 2002 Recession expectations

1 5 11

2 19 28

7.08 7.10 2.20 2.17 2.03 2.09 2.22 2.18

Macroeconomic Environment Diversion of public funds Public trust of politicians Inflation, 2002 Country credit rating, 2003 Extent of distortive government subsidies Access to credit Interest rate spread, 2002 Government surplus/deficit, 2002

25 24 19 14 19 10 9 9

97 89 89 87 73 65 64 53

7.01 7.02 7.03 6.08 6.03 6.17 6.01

Public Institutions Irregular payments in exports and imports Irregular payments in public utilities Irregular payments in tax collection Favoritism in decisions of government officials Property rights Organized crime Judicial independence

24 23 23 23 18 19 13

100 98 98 91 82 75 61

3.03 3.04 3.15 3.02

Technology FDI and technology transfer Prevalence of foreign technology licensing Government success in ICT promotion Firm-level technology absorption

1 6 12 6

18 23 39 49

3.20 3.21 3.22 3.12 3.19 3.18 3.01 3.23 3.13 3.08 3.16 3.17 3.06 3.14

Technology Internet users, 2002 Internet hosts, 2002 Telephone lines, 2002 Internet access in schools Cellular telephones, 2002 Tertiary enrollment Technological sophistication Personal computers, 2002 Quality of competition in the ISP sector University/industry research collaboration Laws relating to ICT Utility patents, 2002 Company spending on research and development Government prioritization of ICT

24 20 18 16 16 10 14 13 13 13 13 6 12 16

100 94 94 90 90 85 84 84 77 76 75 68 69 67

8.09 8.08 10.15

Other Indicators Wage equality of women in the workplace Private-sector employment of women Reliance on professional management

4 4 9

6 42 45

5.07 5.01 5.05 6.09 4.02 6.18 6.13 6.15 10.02 4.05 5.02 5.06 2.07 4.08 4.07 6.14 5.03 4.06 5.04 2.06 10.12 6.05 10.01 3.10 8.01

Other Indicators Postal efficiency Overall infrastructure quality Quality of electricity supply Extent of bureaucratic red tape Quality of public schools Informal sector Reliability of police services Government effectiveness in reducing poverty Value chain presence Business impact of malaria Railroad infrastructure development Telephone infrastructure quality Ease of access to loans Impact of HIV/AIDS on FDI Business impact of HIV/AIDS Business costs of crime and violence Port infrastructure quality Business impact of tuberculosis Air transport infrastructure quality Soundness of banks Extent of staff training Freedom of the press Nature of competitive advantage Availability of scientists and engineers Intensity of local competition

25 23 23 22 25 23 23 23 18 9 19 14 15 11 8 19 15 6 15 17 10 8 12 6 4

100 99 99 98 96 94 93 91 91 86 84 83 82 82 82 81 81 79 78 74 68 64 60 55 54

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

2 ❚ Country Profiles

175

National Competitiveness Balance Sheet

Senegal Key Indicators Population in millions, 2002 Average annual population growth rate (%), 1992-2002 Total GDP in billions US dollars, 2002

Human Development Indicators 9.90 2.4 5.11

GDP per capita (PPP) in US dollars, 2002

1,535

Real growth in GDP per capita (%), 2002 Growth of output (average annual percent growth) 1990-2001

Gross primary enrollment (percent of relevant age group), 2001

75.0

Gross secondary enrollment (percent of relevant age group), 1999

17.0

Gross tertiary enrollment (percent of relevant age group), 2000 or most recent year available

3.8

Adult literacy rate age 15 and above (%) , 2001

38

-0.4

Percent of population living on income below 1 dollar a day, 2001

26

3.6

Population with sustainable access to an improved water source (%), 2000

Agriculture

3.1

Life expectancy at birth (years), 2002

Industry

4.9

HIV prevalence age 15-49 (%), 2001

0.5

Manufacturing

3.8

Reported malaria per 100,000, 2000

11,925

Services

3.5

Estimated TB cases per 100,000, 2002

Inflation (annual percent change), 2002

2.2

Government surplus/deficit (as percent of GDP), 2002

-2.2

Gross fixed capital formation (as percent of GDP), 2001

20.0

Interest rate spread, 2002 Real exchange rate, 2003*

9.0 145.8

78 55.8

167

Infrastructure and Technology Diffusion Indicators Paved roads (percent of total roads), 1999

29

Electric power transmission and distribution losses (percent of output), 2000

17

Main telephone lines per 100 inhabitants, 2002

2.2

Exports of goods and services (as percent of GDP), 2001

29.6

Cellular mobile telephone subscribers per 100 inhabitants, 2002

5.5

Imports of goods and services (as percent of GDP), 2001

37.6

Personal computers per 100 inhabitants, 2002

Current account balance (as percent of GDP), 2001

-6.4

Internet users per 10,000 inhabitants, 2002

Average external tariff rate in percent, 2000

12.0

Gross international reserves in months of imports, 2001

2.8

Official development assistance and official aid (in millions US dollars), 2001

418.9

Total external debt in millions US dollars, 2001

3,461

Total external debt (as percent of GDP), 2001

74.5

Total debt service (as percent of GNI), 2001

4.7 13.3

176

Total debt service (as percent of exports of goods and services), 2001

2.0 104.2

*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States. Sources: World Development Indicators 2003, World Bank; Economist Intelligence Unit; World Economic Outlook Database, IMF, April 2003; International Financial Statistics, IMF, March 2004; State of the World Population 2002, UNFPA; Global Atlas, World Health Organization, March 2004; The World Health Report 2003, World Health Organization; Human Development Report 2003, UNDP; Institute for Statistics UNESCO; Index of Economic Freedom 2003, The Heritage Foundation and The Wall Street Journal; International Telecommunication Union, March 2004; African Economic Outlook 2002/03, OECD.

2 ❚ Country Profiles

US$ (Millions)

FDI Inward and Outward Stock and Flow, 1999-2002

1,000 800 600 400 200 0 FDI inward stock

FDI outward stock

FDI inflows

1999

FDI outflows

2002

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

6%

Structure of Exports of Goods, 2002

4%

16%

Manufactured goods Fuels All food items Ores and metals Others

51%

23%

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Real GDP Growth, 1970-2003

Percent 20 15 10 5

-5 -10 Source: World Economic Outlook Database, IMF, April 2003

2 ❚ Country Profiles

177

02

01

00

99

98

97

96

95

94

93

92

91

90

89

88

87

86

85

84

83

82

81

80

79

78

03 20

20

20

20

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

76

75

74

73

72

71

77

19

19

19

19

19

19

19

19

19

70

0

Competitiveness Rankings Rank out of 25 African countries

Rank out of 102 countries *

Growth Competitiveness Index Rank

13

79

Macroeconomic Environment Index Rank

10

67

Macroeconomic Stability Subindex Rank

8

56

Government Waste Subindex Rank

12

62

Country Credit Rating Rank Rank

9

76

Public Institutions Index Rank

15

75

Contracts and Law Subindex Rank

16

71

Corruption Subindex Rank

12

78

Technology Index Rank

15

89

Innovation Subindex Rank

9

82

ICT Subindex Rank

10

81

Technology Transfer Subindex Rank (out of 77 non-core innovators)

18

64

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

Relative performance: Growth Competitiveness Index scores and GDP

Senegal

Growth Competitiveness Index

102 country average

6 4

GDP per capita (normalized on a

Technology index

2

scale from 1 to 7) 0

Macroeconomic environment index

Public institutions index

Sources: World Economic Forum and World Economic Outlook Database, IMF, April 2003

The Most Problematic Factors for Doing Business Access to financing Tax rates Corruption Inefficient government bureaucracy Restrictive labor regulations Inadequately educated workforce Poor work ethic in national labour force Policy instability Inadequate supply of infrastructure Tax regulations Inflation

178

Government instability/coups Crime and theft Foreign currency regulations 0

5

10

15 % of responses

20

25

30

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings. Source: World Economic Forum, Executive Opinion Survey 2003

2 ❚ Country Profiles

National Competitiveness Balance Sheet Notable Competitive Advantages

Notable Competitive Disadvantages

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Macroeconomic Environment

Macroeconomic Environment

2.20

Inflation, 2002

5

32

2.09

Access to credit

18

86

2.21

Real exchange rate, 2002

9

33

2.19

National savings rate, 2002

14

77

2.18

Government surplus/deficit, 2002

5

36

2.17

Country credit rating, 2003

9

76

2.03

Extent of distortive government subsidies

10

43

7.08

Diversion of public funds

14

75

2.01

Recession expectations

17

48

2.22

Interest rate spread, 2002

10

67

7.10

Public trust of politicians

14

64

7.03

Irregular payments in tax collection

15

82

7.02

Irregular payments in public utilities

7

82

6.03

Property rights

17

81

7.01

Irregular payments in exports and imports

13

74

6.01

Judicial independence

15

69

6.17

Organized crime

17

68

6.08

Favoritism in decisions of government officials

13

60

89

Public Institutions

Technology

Technology

3.02

Firm-level technology absorption

1

12

3.06

Company spending on research and development

19

3.14

Government prioritization of ICT

6

23

3.18

Tertiary enrollment

12

87

3.15

Government success in ICT promotion

11

36

3.13

Quality of competition in the ISP sector

17

86

3.22

Telephone lines, 2002

11

86

3.20

Internet users, 2002

12

85

3.21

Internet hosts, 2002

11

83

3.12

Internet access in schools

11

82

3.16

Laws relating to ICT

14

78

3.01

Technological sophistication

11

78

3.19

Cellular telephones, 2002

8

75

3.17

Utility patents, 2002

8

72

3.23

Personal computers, 2002

7

71

3.03

FDI and technology transfer

20

67

3.08

University/industry research collaboration

10

63

3.04

Prevalence of foreign technology licensing

16

57

96

Other Indicators Soundness of banks

4

28

5.05

Quality of electricity supply

21

10.01

Nature of competitive advantage

7

43

2.07

Ease of access to loans

21

95

6.13

Reliability of police services

7

44

4.05

Business impact of malaria

16

93

6.05

Freedom of the press

5

46

5.01

Overall infrastructure quality

17

87

6.09

Extent of bureaucratic red tape

2

47

4.06

Business impact of tuberculosis

11

87

3.10

Availability of scientists and engineers

17

84

5.02

Railroad infrastructure development

18

82

8.08

Private-sector employment of women

17

80

10.12

Extent of staff training

15

80

4.02

Quality of public schools

15

79

4.07

Business impact of HIV/AIDS

6.14

Business costs of crime and violence

10.02

Value chain presence

9

74

8.09

Wage equality of women in the workplace

22

73

8.01

Intensity of local competition

11

73

6.18

Informal sector

15

70

10.15

Reliance on professional management

15

66

4.08

Impact of HIV/AIDS on FDI

5

65

5.07

Postal efficiency

8

64

5.06

Telephone infrastructure quality

5

62

6.15

Government effectiveness in reducing poverty

5.03

Port infrastructure quality

5.04

Air transport infrastructure quality

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

7

79

16

76

13

58

8

58

10

58

2 ❚ Country Profiles

179

Other Indicators

2.06

South Africa Key Indicators Population in millions, 2002 Average annual population growth rate (%), 1992-2002

Human Development Indicators 44.20 1.5

Gross primary enrollment (percent of relevant age group), 2001 Gross secondary enrollment (percent of relevant age group), 2001

111.0 87.3

Total GDP in billions US dollars, 2002

104.77

Gross tertiary enrollment (percent of relevant age group), 2000 or most recent year available

GDP per capita (PPP) in US dollars, 2002

10,132

Adult literacy rate age 15 and above (%) , 2001

Real growth in GDP per capita (%), 2002

1.0

Percent of population living on income below 1 dollar a day, 2001

1.7

Population with sustainable access to an improved water source (%), 2000

Agriculture

0.7

Life expectancy at birth (years), 2002

50.7

Industry

0.5

HIV prevalence age 15-49 (%), 2001

20.1

0.5

Reported malaria per 100,000, 2001

2.4

Estimated TB cases per 100,000, 2002

Growth of output (average annual percent growth) 1990-2001

Manufacturing Services Inflation (annual percent change), 2002

10.0

Government surplus/deficit (as percent of GDP), 2002

-1.4

Gross fixed capital formation (as percent of GDP), 2002

15.0

Interest rate spread, 2002 Real exchange rate, 2003*

5.0 202.3

30.4

Personal computers per 100 inhabitants, 2002

8.5

Official development assistance and official aid (in millions US dollars), 2001 Total external debt in millions US dollars, 2001 Total external debt (as percent of GDP), 2001 Total debt service (as percent of GNI), 2001

Internet users per 10,000 inhabitants, 2002

7.3 682.0

428.5 24,050 21.2 4.0 11.6

180

Total debt service (as percent of exports of goods and services), 2001

8 10.7

Cellular mobile telephone subscribers per 100 inhabitants, 2002

2.5

20

Main telephone lines per 100 inhabitants, 2002

33.3

Gross international reserves in months of imports, 2001

61 556

Electric power transmission and distribution losses (percent of output), 2000

29.9

Average external tariff rate in percent, 1999

86

Paved roads (percent of total roads), 1999

Imports of goods and services (as percent of GDP), 2002

0.3

<2

Infrastructure and Technology Diffusion Indicators

Exports of goods and services (as percent of GDP), 2002 Current account balance (as percent of GDP), 2002

15.2 85.6

*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States. Sources: World Development Indicators 2003, World Bank; Economist Intelligence Unit; World Economic Outlook Database, IMF, April 2003; International Financial Statistics, IMF, March 2004; State of the World Population 2002, UNFPA; Global Atlas, World Health Organization, March 2004; The World Health Report 2003, World Health Organization; Human Development Report 2003, UNDP; Institute for Statistics UNESCO; Index of Economic Freedom 2003, The Heritage Foundation and The Wall Street Journal; International Telecommunication Union, March 2004; African Economic Outlook 2002/03, OECD.

2 ❚ Country Profiles

US$ (Millions)

FDI Inward and Outward Stock and Flow, 1999-2002

60,000 50,000 40,000 30,000 20,000 10,000 0 -10,000 FDI inward stock

FDI outward stock

FDI inflows

1999

FDI outflows

2002

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Structure of Exports of Goods, 2002

4% 11% Manufactured goods Fuels All food items Ores and metals Others

11% 62% 12%

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Real GDP Growth, 1970-2003

Percent 8 6 4 2

-2 -4 Source: World Economic Outlook Database, IMF, April 2003

2 ❚ Country Profiles

181

02

01

00

03 20

20

20

98

97

96

95

94

93

92

91

90

89

88

87

86

85

84

83

82

81

80

79

78

77

76

75

74

73

72

71

99

20

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

70

0

Competitiveness Rankings Rank out of 25 African countries

Rank out of 102 countries *

Growth Competitiveness Index Rank

3

42

Macroeconomic Environment Index Rank

3

40

Macroeconomic Stability Subindex Rank

6

41

Government Waste Subindex Rank

4

37

Country Credit Rating Rank Rank

2

40

Public Institutions Index Rank

5

43

Contracts and Law Subindex Rank

5

40

Corruption Subindex Rank

4

48

Technology Index Rank

1

40

Innovation Subindex Rank

3

58

ICT Subindex Rank

2

44

Technology Transfer Subindex Rank (out of 77 non-core innovators)

1

3

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

South Africa

Growth Competitiveness Index

Relative performance: Growth Competitiveness Index scores and GDP

102 country average 6 4

GDP per capita (normalized on a

Technology index

2

scale from 1 to 7)

0

Macroeconomic environment index

Public institutions index

Sources: World Economic Forum and World Economic Outlook Database, IMF, April 2003

The Most Problematic Factors for Doing Business Inadequately educated workforce Crime and theft Restrictive labor regulations Poor work ethic in national labour force Inefficient government bureaucracy Access to financing Foreign currency regulations Inflation Tax rates Corruption Policy instability

182

Tax regulations Inadequate supply of infrastructure Government instability/coups 0

5

10

15 % of responses

20

25

30

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings. Source: World Economic Forum, Executive Opinion Survey 2003

2 ❚ Country Profiles

National Competitiveness Balance Sheet Notable Competitive Advantages

Notable Competitive Disadvantages

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Macroeconomic Environment

Macroeconomic Environment

2.21

Real exchange rate, 2002

2

4

2.20

Inflation, 2002

17

84

2.01

Recession expectations

2

9

2.19

National savings rate, 2002

11

71

2.03

Extent of distortive government subsidies

3

18

7.08

Diversion of public funds

5

47

2.09

Access to credit

3

28

2.22

Interest rate spread, 2002

4

45

2.18

Government surplus/deficit, 2002

3

32

7.10

Public trust of politicians

6

35

2.17

Country credit rating, 2003

2

40

6.01

Judicial independence

2

15

6.17

Organized crime

20

81

6.03

Property rights

3

31

7.02

Irregular payments in public utilities

6

61

7.03

Irregular payments in tax collection

2

41

7.01

Irregular payments in exports and imports

5

48

6.08

Favoritism in decisions of government officials

8

45

Public Institutions

Public Institutions

Technology

Technology

3.04

Prevalence of foreign technology licensing

1

2

3.18

Tertiary enrollment

3

65

3.06

Company spending on research and development

1

21

3.22

Telephone lines, 2002

4

65

3.08

University/industry research collaboration

1

21

3.20

Internet users, 2002

2

52

3.03

FDI and technology transfer

4

23

3.13

Quality of competition in the ISP sector

3

50

3.16

Laws relating to ICT

2

24

3.12

Internet access in schools

5

50

3.17

Utility patents, 2002

1

31

3.23

Personal computers, 2002

2

48

3.15

Government success in ICT promotion

9

34

3.19

Cellular telephones, 2002

2

46

3.14

Government prioritization of ICT

8

35

3.21

Internet hosts, 2002

1

44

3.01

Technological sophistication

1

39

3.02

Firm-level technology absorption

3

39

5.04

Air transport infrastructure quality

1

12

4.08

Impact of HIV/AIDS on FDI

25

101

10.15

Reliance on professional management

1

16

4.07

Business impact of HIV/AIDS

23

100

5.01

Overall infrastructure quality

1

19

6.14

Business costs of crime and violence

24

96

5.02

Railroad infrastructure development

1

24

4.06

Business impact of tuberculosis

16

92

5.05

Quality of electricity supply

1

24

6.13

Reliability of police services

21

86

10.12

Extent of staff training

1

25

4.05

Business impact of malaria

7

83

2.06

Soundness of banks

3

26

3.10

Availability of scientists and engineers

12

74

6.05

Freedom of the press

1

28

8.09

Wage equality of women in the workplace

21

67

8.01

Intensity of local competition

1

28

10.01

Nature of competitive advantage

14

67

5.03

Port infrastructure quality

3

32

5.07

Postal efficiency

11

67

2.07

Ease of access to loans

4

34

5.06

Telephone infrastructure quality

7

66

8.08

Private-sector employment of women

11

64

6.18

Informal sector

11

62

6.09

Extent of bureaucratic red tape

5

61

4.02

Quality of public schools

6

60

10.02

Value chain presence

5

53

6.15

Government effectiveness in reducing poverty

9

42

Other Indicators

183

Other Indicators

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

2 ❚ Country Profiles

Tanzania Key Indicators Population in millions, 2002 Average annual population growth rate (%), 1992-2002

Human Development Indicators 36.80 2.6

Gross primary enrollment (percent of relevant age group), 2001

63.0

Gross secondary enrollment (percent of relevant age group), 2001

5.8 0.7

Total GDP in billions US dollars, 2002

9.39

Gross tertiary enrollment (percent of relevant age group), 2000 or most recent year available

GDP per capita (PPP) in US dollars, 2002

557

Adult literacy rate age 15 and above (%) , 2001

76

Real growth in GDP per capita (%), 2002

3.8

Percent of population living on income below 1 dollar a day, 2001

20

Growth of output (average annual percent growth) 1990-2001

3.5

Population with sustainable access to an improved water source (%), 2000

Agriculture

3.4

Life expectancy at birth (years), 2002

Industry

3.5

HIV prevalence age 15-49 (%), 2001

7.8

Manufacturing

2.8

Reported malaria per 100,000, 1999

1,207

Services

3.3

Estimated TB cases per 100,000, 2002

Inflation (annual percent change), 2002

4.7

Government surplus/deficit (as percent of GDP), 2002

-6.1

Gross fixed capital formation (as percent of GDP), 2001

16.8

Interest rate spread, 2002

13.1

68 46.5

344

Infrastructure and Technology Diffusion Indicators Paved roads (percent of total roads), 1999

4

Electric power transmission and distribution losses (percent of output), 2000

22

Real exchange rate, 2003*

99.7

Main telephone lines per 100 inhabitants, 2002

0.5

Exports of goods and services (as percent of GDP), 2001

15.6

Cellular mobile telephone subscribers per 100 inhabitants, 2002

2.0

Imports of goods and services (as percent of GDP), 2001

24.3

Personal computers per 100 inhabitants, 2002

Current account balance (as percent of GDP), 2001

-7.9

Internet users per 10,000 inhabitants, 2002

Average external tariff rate in percent, 2000

14.2

Gross international reserves in months of imports, 2001 Official development assistance and official aid (in millions US dollars), 2001

6.0 1,233.4

Total external debt in millions US dollars, 2001

6,676

Total external debt (as percent of GDP), 2001

71.5

Total debt service (as percent of GNI), 2001

1.6 10.3

184

Total debt service (as percent of exports of goods and services), 2001

0.4 23.2

*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States. Sources: World Development Indicators 2003, World Bank; Economist Intelligence Unit; World Economic Outlook Database, IMF, April 2003; International Financial Statistics, IMF, March 2004; State of the World Population 2002, UNFPA; Global Atlas, World Health Organization, March 2004; The World Health Report 2003, World Health Organization; Human Development Report 2003, UNDP; Institute for Statistics UNESCO; Index of Economic Freedom 2003, The Heritage Foundation and The Wall Street Journal; International Telecommunication Union, March 2004; African Economic Outlook 2002/03, OECD.

2 ❚ Country Profiles

US$ (Millions)

FDI Inward and Outward Stock and Flow, 1999-2002

2,500 2,000 1,500 1,000 500 n/a

0 FDI inward stock

FDI outward stock

FDI inflows

1999

FDI outflows

2002

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Structure of Exports of Goods, 2001

6%

12%

All food items Others Manufactured goods Ores and metals

45%

37%

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Real GDP Growth, 1970-2003

Percent 8 7 6 5 4 3 2

02

01

00

03 20

20

20

98

97

96

95

94

93

99

20

19

19

19

19

19

19

19

91

90

89

88

87

86

85

84

83

82

81

80

79

78

77

76

75

74

73

72

71

92 19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

70

0 -1 -2 Source: World Economic Outlook Database, IMF, April 2003

2 ❚ Country Profiles

185

1

Competitiveness Rankings Rank out of 25 African countries

Rank out of 102 countries *

9

69

Macroeconomic Environment Index Rank

14

76

Macroeconomic Stability Subindex Rank

17

79

Growth Competitiveness Index Rank

Government Waste Subindex Rank

5

43

Country Credit Rating Rank Rank

12

83

Public Institutions Index Rank

9

59

Contracts and Law Subindex Rank

8

46

Corruption Subindex Rank

10

73

Technology Index Rank

12

81

Innovation Subindex Rank

16

90

ICT Subindex Rank

15

90

5

23

Technology Transfer Subindex Rank (out of 77 non-core innovators) * Source: Global Competitiveness Report 2003-2004, World Economic Forum.

Relative performance: Growth Competitiveness Index scores and GDP

Tanzania

Growth Competitiveness Index

102 country average 6 4

GDP per capita (normalized on a

Technology index

2

scale from 1 to 7)

0

Macroeconomic environment index

Public institutions index

Sources: World Economic Forum and World Economic Outlook Database, IMF, April 2003

The Most Problematic Factors for Doing Business Inadequate supply of infrastructure Access to financing Tax rates Corruption Tax regulations Inefficient government bureaucracy Inadequately educated workforce Crime and theft Poor work ethic in national labour force Policy instability Foreign currency regulations

186

Inflation Restrictive labor regulations Government instability/coups 0

5

10

15 % of responses

20

25

30

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings. Source: World Economic Forum, Executive Opinion Survey 2003

2 ❚ Country Profiles

National Competitiveness Balance Sheet Notable Competitive Advantages

Notable Competitive Disadvantages

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Macroeconomic Environment

Macroeconomic Environment

2.01

Recession expectations

9

23

2.19

National savings rate, 2002

19

91

7.10

Public trust of politicians

4

32

2.22

Interest rate spread, 2002

19

86

2.03

Extent of distortive government subsidies

7

35

2.21

Real exchange rate, 2002

22

83

7.08

Diversion of public funds

7

49

2.17

Country credit rating, 2003

12

83

2.09

Access to credit

14

77

2.18

Government surplus/deficit, 2002

13

74

2.20

Inflation, 2002

12

63

Public Institutions

Public Institutions

6.01

Judicial independence

6

38

7.03

Irregular payments in tax collection

14

80

6.08

Favoritism in decisions of government officials

7

44

7.02

Irregular payments in public utilities

11

78

7.01

Irregular payments in exports and imports

10

62

6.17

Organized crime

13

53

6.03

Property rights

8

53

Technology

Technology

3.04

Prevalence of foreign technology licensing

7

24

3.18

Tertiary enrollment

22

99

3.03

FDI and technology transfer

5

25

3.22

Telephone lines, 2002

22

99

3.15

Government success in ICT promotion

6

27

3.19

Cellular telephones, 2002

19

93

3.14

Government prioritization of ICT

7

28

3.20

Internet users, 2002

16

92

3.06

Company spending on research and development

6

46

3.23

Personal computers, 2002

17

90

3.08

University/industry research collaboration

5

50

3.21

Internet hosts, 2002

13

87

3.02

Firm-level technology absorption

7

50

3.12

Internet access in schools

12

84

3.01

Technological sophistication

12

82

3.17

Utility patents, 2002

8

72

3.13

Quality of competition in the ISP sector

6

56

3.16

Laws relating to ICT

5

55

Other indicators

Wage equality of women in the workplace

6

10

4.05

Business impact of malaria

20

97

6.15

Government effectiveness in reducing poverty

4

28

4.07

Business impact of HIV/AIDS

19

96

10.15

Reliance on professional management

7

42

4.06

Business impact of tuberculosis

18

95

5.02

Railroad infrastructure development

7

50

5.05

Quality of electricity supply

18

92

6.09

Extent of bureaucratic red tape

16

89

4.08

Impact of HIV/AIDS on FDI

15

88

10.02

Value chain presence

15

85

8.08

Private-sector employment of women

19

83

6.05

Freedom of the press

15

80

5.04

Air transport infrastructure quality

16

79

5.06

Telephone infrastructure quality

10

76

4.02

Quality of public schools

13

75

10.12

Extent of staff training

13

73

3.10

Availability of scientists and engineers

11

73

2.06

Soundness of banks

15

71

6.14

Business costs of crime and violence

13

68

2.07

Ease of access to loans

11

68

5.03

Port infrastructure quality

10

68

6.13

Reliability of police services

13

63

10.01

Nature of competitive advantage

13

62

6.18

Informal sector

10

61

5.01

Overall infrastructure quality

8

61

5.07

Postal efficiency

6

58

8.01

Intensity of local competition

5

57

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

2 ❚ Country Profiles

187

Other indicators 8.09

Tunisia Key Indicators Population in millions, 2002 Average annual population growth rate (%), 1992-2002

Human Development Indicators 9.70 1.3

Gross primary enrollment (percent of relevant age group) Gross secondary enrollment (percent of relevant age group), 2001

117.0 78.3

Total GDP in billions US dollars, 2002

21.25

Gross tertiary enrollment (percent of relevant age group), 2000 or most recent year available

GDP per capita (PPP) in US dollars, 2002

6,579

Adult literacy rate age 15 and above (%) , 2001

Real growth in GDP per capita (%), 2002

0.6

Percent of population living on income below 1 dollar a day, 2001

5.0

Population with sustainable access to an improved water source (%), 2000

Agriculture

5.4

Life expectancy at birth (years), 2002

Industry

4.6

HIV prevalence age 15-49 (%), 2001

n/a

Manufacturing

3.3

Reported malaria per 100,000, 2001

n/a

Services

5.4

Estimated TB cases per 100,000, 2002

34

Growth of output (average annual percent growth) 1990-2001

Inflation (annual percent change), 2002

3.1

Government surplus/deficit (as percent of GDP), 2002

-2.5

Gross fixed capital formation (as percent of GDP), 2001

26.1

Interest rate spread, 2002 Real exchange rate, 2003*

5.0 144.6

64

Electric power transmission and distribution losses (percent of output), 2000

11

Main telephone lines per 100 inhabitants, 2002 Cellular mobile telephone subscribers per 100 inhabitants, 2002

Imports of goods and services (as percent of GDP), 2002

49.1

Personal computers per 100 inhabitants, 2002

Current account balance (as percent of GDP), 2002

-3.5

Internet users per 10,000 inhabitants, 2002

Average external tariff rate in percent

28.8

Total external debt in millions US dollars, 2001 Total external debt (a percent of GDP), 2001 Total debt service (as percent of GNI), 2001

11.7 5.2 3.1 516.8

2.1 377.7 10,884 54.4 7.1 12.9

188

Total debt service (as percent of exports of goods and services), 2001

80 71.6

Paved roads (percent of total roads), 1999

44.8

Official development assistance and official aid (in millions US dollars), 2001

<2

Infrastructure and Technology Diffusion Indicators

Exports of goods and services (as percent of GDP), 2002

Gross international reserves in months of imports, 2001

21.7 72.1

*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States. Sources: World Development Indicators 2003, World Bank; Economist Intelligence Unit; World Economic Outlook Database, IMF, April 2003; International Financial Statistics, IMF, March 2004; State of the World Population 2002, UNFPA; Global Atlas, World Health Organization, March 2004; The World Health Report 2003, World Health Organization; Human Development Report 2003, UNDP; Institute for Statistics UNESCO; Index of Economic Freedom 2003, The Heritage Foundation and The Wall Street Journal; International Telecommunication Union, March 2004; African Economic Outlook 2002/03, OECD.

2 ❚ Country Profiles

US$ (Millions)

FDI Inward and Outward Stock and Flow, 1999-2002

16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 n/a

0 FDI inward stock

FDI outward stock

FDI inflows

1999

FDI outflows

2002

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Structure of Exports of Goods, 2001

1%

1% 8% 9%

Manufactured goods Fuels All food items Ores and metals Others 81%

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Real GDP Growth, 1970-2003 Percent 20

15

10

02

01

00

99

98

97

96

95

94

93

92

91

90

89

88

87

86

85

84

83

82

81

80

79

78

03 20

20

20

20

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

76

75

74

73

72

71

77

19

19

19

19

19

19

19

19

19

70

0

-5 Source: World Economic Outlook Database, IMF, April 2003

2 ❚ Country Profiles

189

5

Competitiveness Rankings Rank out of 25 African countries

Rank out of 102 countries *

Growth Competitiveness Index Rank

2

38

Macroeconomic Environment Index Rank

2

32

Macroeconomic Stability Subindex Rank

3

31

Government Waste Subindex Rank

1

11

Country Credit Rating Rank Rank

3

45

Public Institutions Index Rank

2

32

Contracts and Law Subindex Rank

2

22

Corruption Subindex Rank

2

42

Technology Index Rank

3

57

Innovation Subindex Rank

2

50

ICT Subindex Rank

3

59

Technology Transfer Subindex Rank (out of 77 non-core innovators)

7

31

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

Relative performance: Growth Competitiveness Index scores and GDP

Tunisia

Growth Competitiveness Index

102 country average

6 4

GDP per capita (normalized on a

Technology index

2

scale from 1 to 7)

0

Macroeconomic environment index

Public institutions index

Sources: World Economic Forum and World Economic Outlook Database, IMF, April 2003

The Most Problematic Factors for Doing Business Access to financing Poor work ethic in national labour force Inefficient government bureaucracy Restrictive labor regulations Tax regulations Foreign currency regulations Inadequate supply of infrastructure Inadequately educated workforce Tax rates Corruption Inflation

190

Policy instability Government instability/coups Crime and theft 0

5

10

15 % of responses

20

25

30

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings. Source: World Economic Forum, Executive Opinion Survey 2003

2 ❚ Country Profiles

National Competitiveness Balance Sheet Notable Competitive Advantages

Notable Competitive Disadvantages

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Macroeconomic Environment

Macroeconomic Environment

2.03

Extent of distortive government subsidies

1

4

2.20

Inflation, 2002

8

7.10

Public trust of politicians

2

11

2.22

Interest rate spread, 2002

5

46

7.08

Diversion of public funds

1

21

2.17

Country credit rating, 2003

3

45

2.09

Access to credit

4

29

2.18

Government surplus/deficit, 2002

6

40

2.19

National savings rate, 2002

8

30

2.01

Recession expectations

14

38

2.21

Real exchange rate, 2002

10

34

6.08

Favoritism in decisions of government officials

1

11

7.03

Irregular payments in tax collection

5

48

6.17

Organized crime

2

21

7.02

Irregular payments in public utilities

2

47

6.03

Property rights

2

28

6.01

Judicial independence

5

33

7.01

Irregular payments in exports and imports

2

37

3.15

Government success in ICT promotion

1

3

3.21

Internet hosts, 2002

14

88

3.14

Government prioritization of ICT

2

5

3.19

Cellular telephones, 2002

9

77

3.16

Laws relating to ICT

1

19

3.23

Personal computers, 2002

6

65

3.04

Prevalence of foreign technology licensing

4

19

3.17

Utility patents, 2002

2

62

3.02

Firm-level technology absorption

2

23

3.22

Telephone lines, 2002

2

60

3.08

University/industry research collaboration

2

31

3.13

Quality of competition in the ISP sector

7

60

3.12

Internet access in schools

1

33

3.18

Tertiary enrollment

2

57

3.06

Company spending on research and development

2

33

3.20

Internet users, 2002

3

55

3.01

Technological sophistication

3

42

3.03

FDI and technology transfer

11

41

Public Institutions

47

Public Institutions

Technology

Technology

Other Indicators

Other Indicators

Government effectiveness in reducing poverty

1

3

6.05

Freedom of the press

8.09

Wage equality of women in the workplace

2

3

4.05

Business impact of malaria

17

87

3

65

8.08

Private-sector employment of women

1

6

8.01

Intensity of local competition

3.10

Availability of scientists and engineers

1

13

10.15

Reliance on professional management

6

64

13

6.13

Reliability of police services

1

17

2.06

Soundness of banks

12

62 56

6.14

Business costs of crime and violence

1

21

4.06

Business impact of tuberculosis

2

56

6.18

Informal sector

1

21

6.09

Extent of bureaucratic red tape

3

55

4.02

Quality of public schools

1

22

10.01

Nature of competitive advantage

10

52

10.02

Value chain presence

2

24

5.06

Telephone infrastructure quality

2

49

10.12

Extent of staff training

2

26

4.07

Business impact of HIV/AIDS

2

46

5.07

Postal efficiency

2

28

5.04

Air transport infrastructure quality

5

45

2.07

Ease of access to loans

2

29

5.05

Quality of electricity supply

2

31

5.01

Overall infrastructure quality

4

33

4.08

Impact of HIV/AIDS on FDI

2

36

5.02

Railroad infrastructure development

4

36

5.03

Port infrastructure quality

4

37

191

6.15

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

2 ❚ Country Profiles

Uganda Key Indicators Population in millions, 2002 Average annual population growth rate (%), 1992-2002 Total GDP in billions US dollars, 2002

Human Development Indicators 24.80 3.0 5.87

GDP per capita (PPP) in US dollars, 2002

1,354

Real growth in GDP per capita (%), 2002 Growth of output (average annual percent growth) 1990-2001

Agriculture Industry Manufacturing Services Inflation (annual percent change), 2002

Gross primary enrollment (percent of relevant age group) Gross secondary enrollment (percent of relevant age group), 2000 Gross tertiary enrollment (percent of relevant age group), 2000 or most recent year available

n/a 15.2 3.0

Adult literacy rate age 15 and above (%) , 2001

68

4.2

Percent of population living on income below 1 dollar a day, 2001

82

6.7

Population with sustainable access to an improved water source (%), 2000

3.9

Life expectancy at birth (years), 2002

49.3

10.4

HIV prevalence age 15-49 (%), 2001

5.0

11.0

Reported malaria per 100,000, 2000

7.3 -2.0

Government surplus/deficit (as percent of GDP), 2002

-12.6

Gross fixed capital formation (as percent of GDP), 2002

22.2

Interest rate spread, 2002

13.4

Real exchange rate, 2003*

171.7

Estimated TB cases per 100,000, 2002

52

46 324

Infrastructure and Technology Diffusion Indicators Paved roads (percent of total roads), 1999 Electric power transmission and distribution losses (percent of output), 2000

7 n/a

Main telephone lines per 100 inhabitants, 2002

0.2

Exports of goods and services (as percent of GDP), 2002

11.8

Cellular mobile telephone subscribers per 100 inhabitants, 2002

1.6

Imports of goods and services (as percent of GDP), 2002

28.4

Personnal computers per 100 inhabitants, 2002

Current account balance (as percent of GDP), 2001

-6.5

Internet users per 10,000 inhabitants, 2002

Average external tariff rate in percent, 2000

6.1

Gross international reserves in months of imports, 2001

7.3

Official development assistance and official aid (in millions US dollars), 2001

782.6

Total external debt in millions US dollars, 2001

3,733

Total external debt (as percent of GDP), 2001

65.8 0.9

Total debt service (as percent of exports of goods and services), 2001

7.4

192

Total debt service (as percent of GNI), 2001

0.3 40.5

*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States. Sources: World Development Indicators 2003, World Bank; Economist Intelligence Unit; World Economic Outlook Database, IMF, April 2003; International Financial Statistics, IMF, March 2004; State of the World Population 2002, UNFPA; Global Atlas, World Health Organization, March 2004; The World Health Report 2003, World Health Organization; Human Development Report 2003, UNDP; Institute for Statistics UNESCO; Index of Economic Freedom 2003, The Heritage Foundation and The Wall Street Journal; International Telecommunication Union, March 2004; African Economic Outlook 2002/03, OECD.

2 ❚ Country Profiles

US$ (Millions)

FDI Inward and Outward Stock and Flow, 1999-2002

2,000 1,500 1,000 500 0 -500 FDI inward stock

FDI outward stock

FDI inflows

1999

FDI outflows

2002

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Structure of Exports of Goods, 2002

2% 6% 7%

21%

All food items Others Manufactured goods Fuels Ores and metals

64%

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Real GDP Growth, 1970-2003

Percent 15

10

5

-10 Source: World Economic Outlook Database, IMF, April 2003

2 ❚ Country Profiles

193

02

01

00

99

98

97

96

95

94

93

92

91

90

89

88

87

86

85

84

83

82

81

80

79

03 20

20

20

20

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

78

77

76

75

74

-5

19

19

19

19

19

72

71

73

19

19

19

19

19

70

0

Competitiveness Rankings Rank out of 25 African countries

Rank out of 102 countries *

Growth Competitiveness Index Rank

14

80

Macroeconomic Environment Index Rank

12

71

Macroeconomic Stability Subindex Rank

9

58

Government Waste Subindex Rank

11

60

Country Credit Rating Rank Rank

13

85

Public Institutions Index Rank

18

84

Contracts and Law Subindex Rank

17

73

Corruption Subindex Rank

19

93

Technology Index Rank

10

77

Innovation Subindex Rank

13

86

ICT Subindex Rank

14

89

4

22

Technology Transfer Subindex Rank (out of 77 non-core innovators) * Source: Global Competitiveness Report 2003-2004, World Economic Forum.

Uganda

Growth Competitiveness Index

Relative performance: Growth Competitiveness Index scores and GDP

102 country average 6 4

GDP per capita (normalized on a

Technology index

2

scale from 1 to 7)

0

Macroeconomic environment index

Public institutions index

Sources: World Economic Forum and World Economic Outlook Database, IMF, April 2003

The Most Problematic Factors for Doing Business Access to financing Corruption Tax rates Inadequate supply of infrastructure Inefficient government bureaucracy Policy instability Tax regulations Government instability/coups Inflation Crime and theft Poor work ethic in national labour force

194

Inadequately educated workforce Foreign currency regulations Restrictive labor regulations 0

5

10

15 % of responses

20

25

30

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings. Source: World Economic Forum, Executive Opinion Survey 2003

2 ❚ Country Profiles

Notable Competitive Advantages

Notable Competitive Disadvantages

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

2.20 2.21 2.03 2.01

Macroeconomic Environment Inflation, 2002 Real exchange rate, 2002 Extent of distortive government subsidies Recession expectations

2 5 2 13

3 12 17 33

2.18 2.19 7.08 2.22 2.17 2.09 7.10

Macroeconomic Environment Government surplus/deficit, 2002 National savings rate, 2002 Diversion of public funds Interest rate spread, 2002 Country credit rating, 2003 Access to credit Public trust of politicians

22 21 19 21 13 11 13

98 94 90 88 85 69 61

3.03 3.15 3.04 3.14 3.08

Technology FDI and technology transfer Government success in ICT promotion Prevalence of foreign technology licensing Government prioritization of ICT University/industry research collaboration

3 5 9 10 4

20 25 26 39 43

7.01 7.03 7.02 6.17 6.08 6.03 6.01

Public Institutions Irregular payments in exports and imports Irregular payments in tax collection Irregular payments in public utilities Organized crime Favoritism in decisions of government officials Property rights Judicial independence

23 19 18 21 19 15 11

95 93 92 82 79 75 58

3.22 3.20 3.23 3.18 3.19 3.01 3.21 3.12 3.16 3.17 3.02 3.13 3.06

Technology Telephone lines, 2002 Internet users, 2002 Personal computers, 2002 Tertiary enrollment Cellular telephones, 2002 Technological sophistication Internet hosts, 2002 Internet access in schools Laws relating to ICT Utility patents, 2002 Firm-level technology absorption Quality of competition in the ISP sector Company spending on research and development

24 20 19 15 15 16 9 7 8 5 10 4 7

101 96 93 91 89 86 78 75 66 66 60 53 51

6.09 4.05 6.05 4.06 10.15 4.08 2.06 8.08 4.07 5.03 5.07 5.05 5.04 5.01 6.14 10.12 3.10 10.02 4.02 5.02 5.06 6.13 8.01 6.18 2.07 10.01

Other Indicators Extent of bureaucratic red tape Business impact of malaria Freedom of the press Business impact of tuberculosis Reliance on professional management Impact of HIV/AIDS on FDI Soundness of banks Private-sector employment of women Business impact of HIV/AIDS Port infrastructure quality Postal efficiency Quality of electricity supply Air transport infrastructure quality Overall infrastructure quality Business costs of crime and violence Extent of staff training Availability of scientists and engineers Value chain presence Quality of public schools Railroad infrastructure development Telephone infrastructure quality Reliability of police services Intensity of local competition Informal sector Ease of access to loans Nature of competitive advantage

23 17 21 17 23 16 25 22 14 17 16 12 18 14 17 14 13 10 12 14 9 16 10 14 9 10

99 94 93 93 91 91 90 90 90 87 85 84 83 80 77 77 77 75 74 73 73 72 72 69 61 52

8.09 6.15

Other Indicators Wage equality of women in the workplace Government effectiveness in reducing poverty

14 7

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

31 39

2 ❚ Country Profiles

195

National Competitiveness Balance Sheet

Zambia Key Indicators Population in millions, 2002 Average annual population growth rate (%), 1992-2002

Human Development Indicators 10.90 2.1

Gross primary enrollment (percent of relevant age group), 2001

78.0

Gross secondary enrollment (percent of relevant age group), 2001

23.5

Total GDP in billions US dollars, 2002

3.74

Gross tertiary enrollment (percent of relevant age group), 2000 or most recent year available

GDP per capita (PPP) in US dollars, 2002

806

Adult literacy rate age 15 and above (%) , 2001

79

Real growth in GDP per capita (%), 2002

0.9

Percent of population living on income below 1 dollar a day, 2001

64

Growth of output (average annual percent growth) 1990-2001

0.3

Population with sustainable access to an improved water source (%), 2000

Agriculture

4.2

Life expectancy at birth (years), 2002

Industry

-1.3

HIV prevalence age 15-49 (%), 2001

21.5

Manufacturing

2.2

Reported malaria per 100,000, 2001

18,877

Services

2.2

Estimated TB cases per 100,000, 2002

Inflation (annual percent change), 2002

22.2

Government surplus/deficit (as percent of GDP), 2002

-14.4

Gross fixed capital formation (as percent of GDP), 2001

18.7

Interest rate spread, 2002

21.9

Real exchange rate, 2003*

111.1

Paved roads (percent of total roads), 1999

1.3

Cellular mobile telephone subscribers per 100 inhabitants, 2002 Personal computers per 100 inhabitants, 2002

0.7 48.2

1.2 373.5

Total external debt in millions US dollars, 2001

5,671

Total external debt (as percent of GDP), 2001

155.8 3.7 11.7

196

Total debt service (as percent of exports of goods and services), 2001

Internet users per 10,000 inhabitants, 2002

13.1

Official development assistance and official aid (in millions US dollars), 2001

Total debt service (as percent of GNI), 2001

3 0.8

27.1

Gross international reserves in months of imports, 2001

n/a

Main telephone lines per 100 inhabitants, 2002

37.3

Average external tariff rate in percent, 1997

653

Electric power transmission and distribution losses (percent of output), 2000

Imports of goods and services (as percent of GDP), 2001

n/a

64 39.7

Infrastructure and Technology Diffusion Indicators

Exports of goods and services (as percent of GDP), 2001 Current account balance (as percent of GDP), 2001

2.5

*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States. Sources: World Development Indicators 2003, World Bank; Economist Intelligence Unit; World Economic Outlook Database, IMF, April 2003; International Financial Statistics, IMF, March 2004; State of the World Population 2002, UNFPA; Global Atlas, World Health Organization, March 2004; The World Health Report 2003, World Health Organization; Human Development Report 2003, UNDP; Institute for Statistics UNESCO; Index of Economic Freedom 2003, The Heritage Foundation and The Wall Street Journal; International Telecommunication Union, March 2004; African Economic Outlook 2002/03, OECD.

2 ❚ Country Profiles

US$ (Millions)

FDI Inward and Outward Stock and Flow, 1999-2002

3'000 2'500 2'000 1'500 1'000 500 n/a

0 FDI inward stock

n/a FDI inflows

FDI outward stock 1999

FDI outflows

2002

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Structure of Exports of Goods, 2002

2% 6%

9%

19%

Ores and metals Manufactured goods All food items Others Fuels

64%

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Real GDP Growth, 1970-2003

Percent 15 10 5

03 20

01

00

99

98

97

96

95

94

93

92

91

90

89

88

87

86

85

84

83

82

81

80

79

78

02 20

20

20

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

76

75

74

73

72

77

19

19

19

19

19

19

19

70

19

19

71

0

197

-5 -10 -15 Source: World Economic Outlook Database, IMF, April 2003

2 ❚ Country Profiles

Competitiveness Rankings Rank out of 25 African countries

Rank out of 102 countries *

Growth Competitiveness Index Rank

17

88

Macroeconomic Environment Index Rank

22

97

Macroeconomic Stability Subindex Rank

21

96

Government Waste Subindex Rank

21

84

Country Credit Rating Rank Rank

19

95

Public Institutions Index Rank

13

69

Contracts and Law Subindex Rank

12

56

Corruption Subindex Rank

14

82

Technology Index Rank

16

90

Innovation Subindex Rank

17

92

ICT Subindex Rank

12

87

Technology Transfer Subindex Rank (out of 77 non-core innovators)

16

55

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

Zambia Growth Competitiveness Index

Relative performance: Growth Competitiveness Index scores and GDP

102 country average

6 4

GDP per capita (normalized on a

Technology index

2

scale from 1 to 7) 0

Macroeconomic environment index

Public institutions index

Sources: World Economic Forum and World Economic Outlook Database, IMF, April 2003

The Most Problematic Factors for Doing Business Access to financing Inflation Tax rates Inadequate supply of infrastructure Corruption Tax regulations Inefficient government bureaucracy Poor work ethic in national labour force Inadequately educated workforce Foreign currency regulations Policy instability

198

Crime and theft Restrictive labor regulations Government instability/coups 0

5

10

15 % of responses

20

25

30

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings. Source: World Economic Forum, Executive Opinion Survey 2003

2 ❚ Country Profiles

Notable Competitive Advantages

Notable Competitive Disadvantages

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

2.19

10.01 8.09 10.15

Macroeconomic Environment National savings rate, 2002

Other Indicators Nature of competitive advantage Wage equality of women in the workplace Reliance on professional management

1

5 8 8

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

4

39 12 43

2.18 2.22 2.20 2.17 2.09 7.10 2.01 7.08 2.21 2.03

Macroeconomic Environment Government surplus/deficit, 2002 Interest rate spread, 2002 Inflation, 2002 Country credit rating, 2003 Access to credit Public trust of politicians Recession expectations Diversion of public funds Real exchange rate, 2002 Extent of distortive government subsidies

23 24 23 19 20 21 22 15 20 18

100 98 96 95 92 83 82 81 71 71

7.02 7.03 7.01 6.03 6.08 6.01 6.17

Public Institutions Irregular payments in public utilities Irregular payments in tax collection Irregular payments in exports and imports Property rights Favoritism in decisions of government officials Judicial independence Organized crime

16 11 11 12 14 10 12

89 72 67 64 62 56 52

3.18 3.19 3.22 3.20 3.02 3.12 3.08 3.01 3.23 3.14 3.13 3.21 3.16 3.17 3.06 3.15 3.03 3.04

Technology Tertiary enrollment Cellular telephones, 2002 Telephone lines, 2002 Internet users, 2002 Firm-level technology absorption Internet access in schools University/industry research collaboration Technological sophistication Personal computers, 2002 Government prioritization of ICT Quality of competition in the ISP sector Internet hosts, 2002 Laws relating to ICT Utility patents, 2002 Company spending on research and development Government success in ICT promotion FDI and technology transfer Prevalence of foreign technology licensing

16 17 14 13 21 15 17 13 11 18 14 7 11 8 13 16 15 14

92 91 90 89 88 88 84 83 82 79 78 76 72 72 71 67 52 52

4.06 4.02 4.07 5.03 4.08 6.15 10.02 2.07 4.05 6.09 6.18 8.01 10.12 5.01 2.06 3.10 5.04 6.13 5.06 5.07 6.05 5.05 8.08 6.14 5.02

Other Indicators Business impact of tuberculosis Quality of public schools Business impact of HIV/AIDS Port infrastructure quality Impact of HIV/AIDS on FDI Government effectiveness in reducing poverty Value chain presence Ease of access to loans Business impact of malaria Extent of bureaucratic red tape Informal sector Intensity of local competition Extent of staff training Overall infrastructure quality Soundness of banks Availability of scientists and engineers Air transport infrastructure quality Reliability of police services Telephone infrastructure quality Postal efficiency Freedom of the press Quality of electricity supply Private-sector employment of women Business costs of crime and violence Railroad infrastructure development

24 22 22 22 20 20 20 19 19 19 18 18 16 15 14 14 14 14 13 13 13 9 13 12 11

101 89 99 96 95 75 95 93 96 94 77 82 81 82 62 78 76 64 82 73 77 70 69 66 69

2 ❚ Country Profiles

199

National Competitiveness Balance Sheet

Zimbabwe Key Indicators Population in millions, 2002 Average annual population growth rate (%), 1992-2002

Human Development Indicators 13.10 1.5

Gross primary enrollment (percent of relevant age group), 2001

95.0

Gross secondary enrollment (percent of relevant age group), 2001

44.5

Total GDP in billions US dollars, 2002

19.30

Gross tertiary enrollment (percent of relevant age group), 2000 or most recent year available

GDP per capita (PPP) in US dollars, 2002

1,993

Adult literacy rate age 15 and above (%) , 2001

89

Real growth in GDP per capita (%), 2002

-15.1

Percent of population living on income below 1 dollar a day, 2001

36

3.9

0.5

Population with sustainable access to an improved water source (%), 2000

Agriculture

3.4

Life expectancy at birth (years), 2002

Industry

-0.8

HIV prevalence age 15-49 (%), 2001

33.7

Manufacturing

-1.4

Reported malaria per 100,000, 2000

5,410

Services

2.3

Estimated TB cases per 100,000, 2002

Growth of output (average annual percent growth) 1990-2001

Inflation (annual percent change), 2002

140.0

Government surplus/deficit (as percent of GDP), 2002

-10.5

Gross fixed capital formation (as percent of GDP), 2001 Interest rate spread, 2002

7.7 18.3

83 37.9

628

Infrastructure and Technology Diffusion Indicators Paved roads (percent of total roads), 1999

47

Electric power transmission and distribution losses (percent of output), 2000

21

Real exchange rate, 2003*

37.6

Main telephone lines per 100 inhabitants, 2002

2.5

Exports of goods and services (as percent of GDP), 2001

21.8

Cellular mobile telephone subscribers per 100 inhabitants, 2002

3.0

Imports of goods and services (as percent of GDP), 2001

20.7

Personal computers per 100 inhabitants, 2002

Current account balance (as percent of GDP), 2001 Average external tariff rate in percent, 1998 Gross international reserves in months of imports, 2001

n/a

Internet users per 10,000 inhabitants, 2002

5.2 429.8

16.4 0.7

Official development assistance and official aid (in millions US dollars), 2001

159.0

Total external debt in millions US dollars, 2001

3'780

Total external debt (as percent of GDP), 2001

41.7 1.5

Total debt service (as percent of exports of goods and services), 2001

6.8

200

Total debt service (as percent of GNI), 2001

*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States. Sources: World Development Indicators 2003, World Bank; Economist Intelligence Unit; World Economic Outlook Database, IMF, April 2003; International Financial Statistics, IMF, March 2004; State of the World Population 2002, UNFPA; Global Atlas, World Health Organization, March 2004; The World Health Report 2003, World Health Organization; Human Development Report 2003, UNDP; Institute for Statistics UNESCO; Index of Economic Freedom 2003, The Heritage Foundation and The Wall Street Journal; International Telecommunication Union, March 2004; African Economic Outlook 2002/03, OECD.

2 ❚ Country Profiles

US$ (Millions)

FDI Inward and Outward Stock and Flow, 1999-2002

1,200 1,000 800 600 400 200 0 FDI inward stock

FDI outward stock

FDI inflows

1999

FDI outflows

2002

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

1%

Structure of Exports of Goods, 2002

20% 35%

Manufactured goods All food items Others Ores and metals Fuels

21% 23% Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Real GDP Growth, 1970-2003

Percent 20 15 10 5

02

01

00

99

98

97

96

95

94

93

92

91

90

89

88

87

86

85

84

83

82

81

80

79

78

03 20

20

20

20

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

76

75

74

73

72

71

77

19

19

19

19

19

19

19

19

19

70

0

201

-5 -10 -15 Source: World Economic Outlook Database, IMF, April 2003

2 ❚ Country Profiles

Competitiveness Rankings Rank out of 25 African countries

Rank out of 102 countries *

Growth Competitiveness Index Rank

22

97

Macroeconomic Environment Index Rank

25

102

Macroeconomic Stability Subindex Rank

25

101

Government Waste Subindex Rank

25

100

Country Credit Rating Rank Rank

23

100

Public Institutions Index Rank

19

90

Contracts and Law Subindex Rank

24

93

Corruption Subindex Rank

16

84

Technology Index Rank Innovation Subindex Rank ICT Subindex Rank Technology Transfer Subindex Rank (out of 77 non-core innovators)

9

75

14

87

9

80

10

41

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

Zimbabwe

Growth Competitiveness Index

Relative performance: Growth Competitiveness Index scores and GDP

102 country average

6 4

GDP per capita (normalized on a

Technology index

2

scale from 1 to 7) 0

Macroeconomic environment index

Public institutions index

Sources: World Economic Forum and World Economic Outlook Database, IMF, April 2003

The Most Problematic Factors for Doing Business Inflation Foreign currency regulations Policy instability Corruption Government instability/coups Inefficient government bureaucracy Crime and theft Restrictive labor regulations Inadequate supply of infrastructure Access to financing Poor work ethic in national labour force

202

Tax regulations Tax rates Inadequately educated workforce 0

5

10

15 % of responses

20

25

30

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings. Source: World Economic Forum, Executive Opinion Survey 2003

2 ❚ Country Profiles

Notable Competitive Advantages

Notable Competitive Disadvantages

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

Rank out of Rank out of Growth Competitiveness Index 25 African countries 102 countries*

2.09

Macroeconomic Environment Access to credit

5

30

2.01 2.20 2.21 2.03 2.17 7.10 2.22 2.18 7.08 2.19

Macroeconomic Environment Recession expectations Inflation, 2002 Real exchange rate, 2002 Extent of distortive government subsidies Country credit rating, 2003 Public trust of politicians Interest rate spread, 2002 Government surplus/deficit, 2002 Diversion of public funds National savings rate, 2002

25 25 25 25 23 25 22 19 22 20

102 102 102 101 100 97 96 95 94 92

6.01 6.08 6.03 7.02 7.01 6.17 7.03

Public Institutions Judicial independence Favoritism in decisions of government officials Property rights Irregular payments in public utilities Irregular payments in exports and imports Organized crime Irregular payments in tax collection

25 24 21 19 16 16 7

97 94 93 93 84 64 56

3.04

Technology Prevalence of foreign technology licensing

8

25

3.14 3.15 3.13 3.18 3.22 3.19 3.16 3.12 3.02 3.08 3.06 3.21 3.01 3.17 3.20 3.23 3.03

Technology Government prioritization of ICT Government success in ICT promotion Quality of competition in the ISP sector Tertiary enrollment Telephone lines, 2002 Cellular telephones, 2002 Laws relating to ICT Internet access in schools Firm-level technology absorption University/industry research collaboration Company spending on research and development Internet hosts, 2002 Technological sophistication Utility patents, 2002 Internet users, 2002 Personal computers, 2002 FDI and technology transfer

25 24 18 11 10 12 15 10 18 14 14 6 8 3 4 4 16

99 97 87 86 85 84 82 81 80 77 72 71 69 63 62 53 53

10.15 10.12

Other Indicators Reliance on professional management Extent of staff training

4 4

30 35

4.06 4.07 6.05 6.13 6.15 5.06 10.01 8.01 5.03 5.07 10.02 4.08 3.10 5.05 4.05 5.04 6.18 8.08 6.09 6.14 2.06 4.02 5.01 2.07 8.09 5.02

Other Indicators Business impact of tuberculosis Business impact of HIV/AIDS Freedom of the press Reliability of police services Government effectiveness in reducing poverty Telephone infrastructure quality Nature of competitive advantage Intensity of local competition Port infrastructure quality Postal efficiency Value chain presence Impact of HIV/AIDS on FDI Availability of scientists and engineers Quality of electricity supply Business impact of malaria Air transport infrastructure quality Informal sector Private-sector employment of women Extent of bureaucratic red tape Business costs of crime and violence Soundness of banks Quality of public schools Overall infrastructure quality Ease of access to loans Wage equality of women in the workplace Railroad infrastructure development

25 25 25 25 25 23 22 22 21 22 19 18 19 14 10 19 21 18 13 15 16 11 9 7 19 8

102 102 102 98 98 97 97 96 95 94 94 93 88 87 87 85 83 82 80 74 72 72 63 55 52 52

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

2 ❚ Country Profiles

203

National Competitiveness Balance Sheet

Partner Institutes

The World Economic Forum would like to thank the following Partner Institutes of the Global Competitiveness Programme for their invaluable support in the 2003 Executive Opinion Survey process:

Algeria Centre de Recherche en Economie Appliquée pour le Développement (CREAD) Professor Yassine Ferfera

Mali Groupe de Recherche en Economie Appliquée et Théorique (GREAT) Massa Coulibaly, Coordinator

Angola SOF - Serviços de Organização e Finanças Marcolino Meireles, Manager Manuel José Alves Da Rocha, Consultant Emil Moreso Grion, Consultant

Mauritius Joint Economic Council of Mauritius Raj Makoond, Director

Cameroon Centre d’Etudes et de Recherches en Economie et Gestion Professor Seraphin Magloire Fouda, Director Chad Groupe de Recherches Alternatives et de Monitoring du Projet Pétrole-Tchad-Cameroun (GRAMP-TC) Professor Gilbert Maoundonodji, Director Egypt Egyptian Center for Economic Studies Dr. Ahmed Galal, Executive Director Ethiopia Ethiopian Economic Association/Ethiopian Economic Policy Research Institute Berhanu Nega, Director Kibre Moges, Senior Researcher Worku Gebeyehu, Assistant Researcher Gambia Gambia Economic and Social Development Research Institute (GESDRI) Makaireh A. Njie, Director Ghana The International Institute for IT (INIIT) Professor Clément Dzidonu, President and Senior Research Fellow Eliza Sam, Projects Officer Kenya Institute of Policy Analysis and Research (IPAR) Dr. T. Nzioki Kibua, Executive Director John Omiti, Senior Research Fellow and Coordinator, Real Sector R. Njeri Chacha, Resource Centre Manager Madagascar University of Antananarivo Pépé Andrianomanana, Director, Centre of Economic Studies Malawi Malawi Investment Promotion Agency Alick C. E. Sukasuka, Director of Operations

Mozambique EconPolicy Research Group, Lda Dr. Peter Coughlin, Partner Professor Dr. Paulo N. Mole, Partner Namibia Namibian Economic Policy Research Unit Dr. Christoph Stork, Senior Researcher Antony N. Masarakufa, Researcher Nigeria Nigerian Economic Summit Group (NESG) Chris Onyemenam, Director, Operations & Administration Dr. Felix Ogbera, Associate Director, Research Mayowa Obilade, Research Consultant Senegal Centre de Recherches Economiques Appliquées (CREA) Abdoulaye Diagne, Director Dr. Gaye Daffé, Scientific Coordinator South Africa Business South Africa Ben Van Der Ross, Chief Executive Officer Friede Dowie, Secretary General Tanzania Economic and Social Research Foundation Professor Haidari Amani, Executive Director John Ulanga, Coordinator, Commissioned Studies Department Moses Msuya, Research Assistant, Commissioned Studies Department Tunisia Institut Arabe des Chefs d’Entreprises Faycal Lakhoua, Conseiller Uganda Makarere Institute for Social Research Professor J. C. Munene Zambia INESOR: Institute of Economic and Social Research University of Zambia Chileshe L. Mulenga, Director Zimbabwe University of Zimbabwe Professor A. M. Hawkins, Director, Graduate School of Management

❚ Acknowledgements

205

Botswana Botswana Institute for Development Policy Analysis (BIDPA) Dr. N. H. Fidzani, Executive Director Kedikilwe P. Maroba, Programme Coordinator

Morocco Université Hassan II Fouzi Mourji, Professor of Economics

COMMITTED TO IMPROVING THE STATE OF THE WORLD

While the political landscape in most of sub-Saharan Africa has improved considerably in recent years, the long awaited renaissance of the African

to point to a single group of African economies that has experienced high, sustained per capita income growth.

The Africa Competitiveness Report 2004 highlights the prospects for growth in the region and, more importantly, the obstacles to improving competitiveness in the region. Through in-depth analysis of regional trends and detailed country profiles, the Report assesses the comparative strengths and weaknesses of 25 African countries. It also contains essays from prominent academics and development experts on a variety of issues relevant to Africa’s development agenda. The Africa Competitiveness Report 2004 is an invaluable tool for policy-makers, business strategists and other important stakeholders, as well as essential reading for all those with an interest in the region.

COMMITTED TO IMPROVING THE STATE OF THE WORLD

ISBN 92-95044-00-2

The Africa Competitiveness Report 2004

economy has not yet taken place. Indeed, with few exceptions, it is difficult

Africa

The

Competitiveness Report 2004

Ernesto Hernández-Catá The Johns Hopkins University

Klaus Schwab World Economic Forum

Augusto Lopez-Claros World Economic Forum