Aid, Policies and Performance: Africas G11

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Aid, Policies and Performance Africas G11
Francois Bourguignon, Alan Gelb and Bruno
Versailles, DECVP, April 2006.
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Which African Countries Have Grown in Last Decade
and Why?

• A complex relationship policies, aid, oil,
  conflict..hard to disentangle for causality
• Use a simple methodology analyze performance by
  country group
• Partition countries by growth and aid
• Construct G11 poor, high-aid-high-growth
  non-oil countries, and a control group (excluding
  conflict countries)
• Methodology is in between regressions and case
  studies. Cross-country regressions miss a lot of
  the country-specific factors.

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Country Groupings1994-2003The G11 and Control
Group
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Features of the G11 and Control

• GDP/head growth 2.5, 0.2
• Aid/DGP 17.5 12.8
• Policy rating 3.42 3.14
• Change in rating -0.07 0.51
• Income/head 228 321
• Fast-growing countries have combined good
  (improving) policies and aid. But some
  countries in control have also received a lot of
  aid.
• Three other features also shape the pattern
• Low-aid-high-growth often have oil
• High-aid low-growth often conflict countries
• Landlocked countries are poorer, get somewhat
  more aid and do a little worse

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Aid and Development the Debate

• Can aid underpin a process of improving policies,
  institutions and development performance?
• Or does aid cause Dutch Disease, as shown by
• Weakening macro falling savings, taxes
• Weakening competitiveness appreciating real
  exchange rates, low export growth and
  diversification
• Deteriorating governance.
• Are the G11 on a path towards sustainable growth?

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MacroManagement strengthened in G11, weakened in
Control
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S and I rose in G11from low base
And S and I weakened in Control
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Tax/GDP rose in G11 even as trade taxes declined
with liberalization
Tax/GDP fell in Control
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Real Exchange Rates initial appreciation but
reversed
No clear patterns. Real Ex Rates may follow
Terms of Trade more than aid
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Real Exports grew and diversified

• Real export growth averaged 6.6 for G11 and 4.8
  for control.
• Share of top 3 commodities declined, especially
  in G11. In Senegal, Ghana, Uganda, Tanzania and
  Mali
• Non-traditional exports grew at 17,
  traditional exports at 4
• The share of non-traditional exports rose from
  20 to 42

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Diversification Stronger in G11 than in rest of
SSA
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FDI to G11 rose steadily
Even though the G11 lack oil or major mining
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Institutions Strengthened in G11 especially
relative to SSA average
KKZ indices of Institutional quality and
corruption show similar relative trend
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Considerable Gains in Public Financial Management
in G11
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.this pattern is confirmed by HIPC PFM Indicators

• Between 2001 and 2004, for those countries
  covered by the Public Financial Management
  tracking indicators
• the average number of HIPC PFM Benchmarks met by
  G11 increased from 6.5 to 8.0,
• but scores for the control group deteriorated
  from 4.75 to 4.5
• However, quality of public administration may
  have declined across all groups. This is a
  matter of concern.

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Political Rights saw major gains in G11
Freedom House Indicator 7 not free, 1 free
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Was Growth Reflected in Progress towards MDGs?

• Only some countries have 2 comparable surveys to
  measure poverty trends 8 in the G11 and 3 in
  the Control
• For the G11 countries, poverty headcount decline
  averaged 1.2 percentage points per year, higher
  than SSA MDG target
• For the Control poverty headcount increased at
  2.2 percentage points

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Poverty Decline in G11
Growth has been poverty-reducing
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Poverty Increase in Control
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The Picture is Less Clear on Other MDGs

• Health G11 not much better except on
  immunization rates

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Education G11 makes somewhat faster gains but
from a low base
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Conclusions

• Looking at patterns does not prove causality. But
  it can help to disentangle some of the factors
  underlying the aid-growth story.
• The G11 shows that
• aid can underpin a process of growth, with
  improving policies and institutions
• growth reduces poverty
• but gains in social indicators may be slow
• This may relate to slow progress on quality of
  public administration.

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Conclusions (contd)

• There is little specific evidence that Dutch
  Disease dominates outcomes in the G11
• Aid may remove bottlenecks, or its adverse
  side-effects be compensated by improving policies
  and institutions.
• We need to recognize and understand success.
• However, some poorly-performing countries have
  continued to receive a lot of aid.
• Often conflict countries (aid is endogenous)
• But include others, like Zambia, Malawi, Gambia
• Understanding the failures is also important for
  credibility

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• END