[PPT] - A ID IN AFRICA : ECONOMIC RECOVERY AND G ROWTH ECONOMIC RECOVERY AND PowerPoint Presentation

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AID IN AFRICA :

ECONOMIC RECOVERY AND GROWTH

6/28/2011

ECONOMIC RECOVERY AND GROWTH

E t A t

1

Ernest Aryeetey University of Ghana

1

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MAIN THESIS MAIN THESIS

Aid has facilitated economic growth in many countries

f the region
f the region.

This happened for two reasons It increased the amount of capital available to countries for It increased the amount of capital available to countries for

public investments and public consumption

It was accompanied by general economic management and

institutional reforms that helped to improve performance of the economy

There are questions about the sustainability of growth in the absence of structural g

transformation. Aid was not designed to

facilitate that.

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1. MACROECONOMIC FUNDAMENTALS
1. MACROECONOMIC FUNDAMENTALS

Growth Rates Across Regions , 1980-2015, IMF

g , ,

12 14 World 8 10 DP Developing Asia 4 6 wth Rate of GD Latin America and the Caribbean

Note the drop in growth rates in 2009.

2 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 Grow Middle East and North Africa

4
2

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 Sub-Saharan Africa

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…// CONT.

Other Key Macroeconomic Variables, 1980-

2015, IMF ,

70 80 40 50 60 Inflation rate C 10 20 30 Current account balance, % of GDP External debt, % of GDP

N t

Hi h t l d bt hi h i fl ti t

20
10

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Note: High external debt, high inflation rates. Can the current account deficits be sustained?

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2. AID FLOWS TO AFRICA
2. AID FLOWS TO AFRICA

Stock of ODA Net Disbursement by Regions,

1960-2009, OECD 1960 2009, OECD

1200 1400 800 1000 1200

nstant USD)

400 600 llions (2008 co ODA Total, Net disbursements 200 Europe Africa America Asia Oceania Bil

Africa and Asia, the two biggest beneficiaries

f ODA disbursements.

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GHANA AS A CASE STUDY

The economy has grown at an average

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annual rate of about 5.2% over 1992-2010

Growth was especially less volatile

8/2011

p y between 2003 and 2008–averaging around 6.0%

A recent rebasing exercise now places the

country in the lower middle income country in the lower middle income category

However even at this level of growth the However, even at this level of growth the

country will take over 20 years to get to the upper middle income level

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the upper middle income level

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CURRENT ECONOMIC SITUATION IN GHANA

(ECONOMIC GROWTH CONT’D) (ECONOMIC GROWTH CONT D)

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Real GDP Growth Rates of Ghana, 1980-2010

8.6

8/2011

5.1 5.2 4.8 7.9 5.3 6.2 4.9 4.6 4 2 4.7 4.4 4 2 4.5 5.2 5.6 5.9 6.4 6.4 7.3 4.7 7.7 0 5 2.9 3.3 3.3 4.0 4.2 4.4 3.7 4.2 0.5

3.3

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

3.3

6.9
4.5

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CURRENT ECONOMIC SITUATION IN GHANA

(SECTORAL COMPOSITION OF GDP IN GHANA) (SECTORAL COMPOSITION OF GDP IN GHANA)

Historically, agricultural sector has been the

t i t t t f th Gh i

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most important sector of the Ghanaian economy

Until recently, agricultural sector had always

b th bi t t ib t t GDP

8/2011

been the biggest contributor to GDP

However, the sector relinquished its position as

h l ib i l h the largest contributor to national output to the service sector in the year 2010 I d i h i l

Industry is another important sector, currently

contributing 25.7% of the total GDP (2010)

H h b lk f hi i d i i d

However the bulk of this is due to mining and

construction

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SLIDE 9

CURRENT ECONOMIC SITUATION IN GHANA

SECTORAL CONTRIBUTIONS TO GDP: 2003 2010 SECTORAL CONTRIBUTIONS TO GDP: 2003-2010

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30 0 35.0 40.0

8/2011

20.0 25.0 30.0 5.0 10.0 15.0 2003 2004 2005 2006 2007 2008 2009 2010 Agriculture 36 1 36 7 37 0 35 8 34 7 33 9 34 5 32 4 0.0 Agriculture 36.1 36.7 37.0 35.8 34.7 33.9 34.5 32.4 Industry 24.9 24.7 24.7 25.4 26.1 25.6 24.9 25.7 Service 29.8 29.5 29.4 30.0 30.5 31.8 32.3 32.8

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POVERTY HAS IMPROVED BUT INEQUALITY

REMAINS PROBLEMATIC

The incidence of poverty in Ghana has almost halved

REMAINS PROBLEMATIC

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The incidence of poverty in Ghana has almost halved

from the 1990s level

Poverty in Ghana remains a widespread rural

8/2011

y p phenomenon

Per capita income in the urban areas has been growing

p g g faster than it is in the rural areas

The ratio of per capita income of rural dwellers to per

capita income of urban dwellers has been on a decline since 1991/92

Whil th ti f it i f l d ll t

While the ratio of per capita income of rural dwellers to per

capita income of urban dwellers was 0.83 in 1991/29, it declined to 0.68 in 1998/99 and further to 0.59 in 2005/6

10 10

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GROWTH HAS IMPACTED POSITIVELY ON THE INCIDENCE OF POVERTY GROWTH HAS IMPACTED POSITIVELY ON THE INCIDENCE OF POVERTY

IN GHANA

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11 11

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BUT INEQUALITY REMAINS PROBLEMATIC

Per capita income in constant prices of the respective years of the

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p p p y surveys by rural/urban Year Rural Urban Rural/Urban

8/2011

1991/92 100, 000 120, 000 0.83 1998/99 469, 000 692, 000 0.68 2005/2006 3, 050, 000 5, 170, 000 0.59

12 12

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FISCAL DEVELOPMENTS

Ghana has faced a number of macro-fiscal

imbalances and institutional weaknesses for l

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several years,

These include (but are not restricted to

L b d d fi i di i li i l

8/2011

Large budget deficits responding in part to political

cycles

recurrent expenditures especially compensation of public

p p y p p employees (‘wage bill’) remains very high

The quality of spending can be improved

High inflation

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High inflation High interest and exchange rates Low capacity in key sectors

Low capacity in key sectors

Low capacity is sometimes borne out of ineffective delegation

The status quo is not desirable and cannot support

and sustain a higher broad-based growth agenda

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FISCAL DEVELOPMENTS - CONTD FISCAL DEVELOPMENTS - CONTD

Government’s fiscal space remains rather limited

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Recent studies suggest that the only potential areas

f fiscal space are ‘improving efficiency of public

spending and to a limited extent increase tax revenue

8/2011

p g

The structure of public expenditures is inflexible

making it difficult to reduce – and so the high b d t d fi it budget deficits

As a result of HIPC, external debt went down

from 120 5 per cent of GDP in 2001 (US$6 325 6 from 120.5 per cent of GDP in 2001 (US$6, 325.6 million) to about 17.6 per cent (US$2,637 million)

f GDP at the end of September 2007 (Budget

St t t 2008) Statement, 2008)

New debt has started to accumulate recently due

to rapidly increasing fiscal deficits

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to rapidly increasing fiscal deficits

14

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CURRENT ECONOMIC SITUATION IN GHANA

(MONETARY DEVELOPMENTS) (MONETARY DEVELOPMENTS)

Bank of Ghana is now more independent

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The BoG has operated an inflation targeting

regime since 2002

8/2011

This has coincided with declining inflation and

relatively low depreciation in nominal exchange t rate.

More recently, the country has recorded single

digit i fl ti digit inflation

There is concern about the real exchange rate –

businesses argue that it is hurting them businesses argue that it is hurting them

This is also reflected in the poor performance of the

manufacturing sector

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g

15

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FOREIGN AID TO GHANA

Ghana has enjoyed considerable aid

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inflows since the 1990s.

Net ODA to Ghana has increased from

8/2011

under US$300million in 1990 to over US$800million in 2009 (based on data $ ( from OECD-DAC)

However both the level and the ratio (% of However both the level and the ratio (% of

GNI) have been decreasing since about 2007 2007

The ratio of grants to loans has decreased

ver this period (based on GoG data)

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ver this period (based on GoG data)

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GHANA’S DEPENDENCY ON AID REMAINS HIGH

6/28/2011

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BUT THE GRANTS COMPONENT IS DIMINISHING

IN SIGNIFICANCE IN SIGNIFICANCE

2000

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1600 1800

8/2011

1200 1400 600 800 1000 Grant Loan Total Aid 200 400 600 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009* 2010*

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PRIVATE CAPITAL FLOWS TO GHANA PRIVATE CAPITAL FLOWS TO GHANA

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Total private capital inflows which consists of

FDI and other private investment have h i i t d i 2000

8/2011

shown increasing trend since 2000

From about US$500 million in 2000, it has

h d b t US$2billi b 2009 reached about US$2billion by 2009

This very significant increase can be

d f b i i d FDI accounted for by private remittances and FDI with other equity flows being less important

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PRIVATE CAPITAL FLOWS TO GHANA

PRIVATE CAPITAL FLOWS AND GROWTH CORRELATIONS PRIVATE CAPITAL FLOWS AND GROWTH CORRELATIONS

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AID AND STRUCTURAL TRANSFORMATION

TREND OF LABOUR DISTRIBUTION 1991-2006 TREND OF LABOUR DISTRIBUTION, 1991-2006

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Agricultural sector appears as the most

important sector in terms of employment provision

8/2011

provision

Even though agriculture share of employment

declined from 62 2 percent of the total labour declined from 62.2 percent of the total labour force in 1991/92 to 55.8 percent in 2005/06, the sector still employs more than halve of the labour force

Historically, trading and manufacturing are the

next significant sources of employment after agriculture in Ghana

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EMPLOYMENT UNDEREMPLOYMENT AND EMPLOYMENT, UNDEREMPLOYMENT AND UNEMPLOYMENT

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1991/9 2 1998/9 2005/6

8/2011

2 Employment rate (15-64) 75.9

70.2

E l ( ) 86 5 82 85 9 Employment rate (25-65) 86.5 82 85.9 Child labour rate (7-14) 27.9

15.9

Elderly Employment rate (65+) 63 55 52.4 Unemployment rate (25- 64) 2.7 2.4 2.3

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AID AND STRUCTURAL TRANSFORMATION

DISTRIBUTION OF THE CURRENTLY EMPLOYED POPULATION AGED 15 - 64 YEARS, BY

INDUSTRY GROUP, (PERCENT) Main industry

1991/92 1998/99 2005/6

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Main industry

1991/92 1998/99 2005/6 Agriculture 62.2 55.0 55.8 Mining/Quarrying 0 5 0 7 0 7

8/2011

Mining/Quarrying 0.5 0.7 0.7 Manufacturing 8.2 11.7 10.9 Utilities 0.1 0.2 0.2 Utilities 0.1 0.2 0.2 Construction 1.2 1.4 1.8 Trading 15.8 18.3 15.2 Transportation/com munication 2.2 2.2 2.8 Fi i l i 0 5 0 8 0 3 Financial services 0.5 0.8 0.3 Community/Social services 9.3 9.8 8.6

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Other 0.0 0.0 3.7

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DOES HOUSEHOLD DATA PROVIDE EVIDENCE OF

CHANGING STRUCTURE? CHANGING STRUCTURE?

Sources of per capita income in Ghana 1991/92 1998/99 2005/6

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Source of income 1991/92 1998/99 2005/6 Nominal values % Nominal values % Nominal values %

8/2011

values (cedis) values (cedis) values (cedis) Wage

18,000 16.8 120,000 22.7 1,430,000 33.3

Household agriculture

43,000 40.2 195,000 36.9 1,250,000 29.1

N f lf

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Non-farm self- employment

37,000 34.6 165,000 31.3 990,000 23.0

Rent

1,000 0.9 11,000 2.1 80,000 1.9

Remittances

5,000 4.7 25,000 4.7 500,000 11.6

Other

3,000 2.8 12,000 2.3 50,000 1.2

Total

107,000 100 528,000 100 4,300,000 100

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Household agriculture (40.2), non-farm self

emplo ment(34 6) and ages (16 8) ere the main

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employment(34.6), and wages (16.8)were the main sources of household income in the early 1990s - contributed almost 92% of household income

8/2011

contributed almost 92% of household income

By 2005 the importance of the three sources together

had decreased to about 85%

As at 2005, wage employment was the major source of

income followed by household agriculture

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Remittances have also become quite an important

source of household income – almost 12% compared to the under 5% in 1991

This may signify a decreasing importance of

i lt ll i th agriculture generally in the economy

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IS OIL THE ANSWER?

World Bank estimates put potential government

revenue at around US$1.0 billion on average per

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year between 2011 and 2029 about 5-6% (pre- rebasing) or 3-3.5%or of GDP (rebased) i iti ll d l GDP g

8/2011

initially, and less as GDP grows

In any event, these projections of oil revenues are

y , p j roughly half the current and projected budget deficit—

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Oil will undoubtedly lead to increases in

government revenue but its net effect on the government revenue but its net effect on the economy depend on the management and use of the revenues

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CONCLUDING COMMENTS CONCLUDING COMMENTS

Generally aid, FDI and Private Capital have increased

ver the years

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ver the years

The increases in foreign flows have been associated

with increases in growth and improvement in human

8/2011

with increases in growth and improvement in human development

However inequality and unemployment (and

q y p y ( underemployment) seem to have worsened

Agriculture remains the most important source of

employment in Ghana

So in spite of the growth and human development

improvement, not much has been achieved in terms of structurally transforming the economy in a way that higher productivity sectors can employ a lot more

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higher productivity sectors can employ a lot more Ghanaians

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