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Watch the Throne: Nigeria is Now leading Africa in GDP

April 14, 2014
Photo Courtesy of Zouzou Wizman: https://www.flickr.com/photos/zouzouwizman/

Photo Courtesy of Zouzou Wizman: https://www.flickr.com/photos/zouzouwizman/

Nigeria has catapulted ahead of South Africa for the title of largest economy on the African continent. On April 6, Nigerian government officials announced that they had revised their 2013 GDP calculation to the tune of $510 billion. But in 2012 the World Bank estimated Nigeria’s GDP at $262 billion. So what can account for this rapid change? The answer lies in how the Nigerian government did the math.

The process is called “rebasing.” To calculate any country’s GDP, economists must first set a base year on which to model the economic growth. Then economists try to paint a picture of the economy in that year by studying different industries like agriculture, energy, and manufacturing. In the years to come, economists look at how these industries have grown. All GDP calculations, sometimes many years later, are based on this initial point of reference. However, this system of measurement does not account for the informal economy. Nor does it account for rapidly developing sectors such as telecommunications and film—industries that have sprung up in Nigeria over the last 20 years.

Nigeria’s model year was 1990. The new base year is 2010. As we will see, much has changed in the Nigerian economy since 1990. New industries have emerged and historically strong industries have fallen. Thus far, the World Bank has supported Nigeria’s recalculation. It is recommended that a country rebase its GDP numbers every five years. Since Nigeria has held off for so long, the change was quite drastic. Nigeria saw the highest gains in the service industry. The agriculture, oil, and gas industries decreased in terms of percentage of GDP. Telecommunications shot up from less than one per cent to 8.7% of GDP. The Nigerian film industry, known as Nollywood, makes up about 1.2% of GDP.

Sadly, despite these good numbers, the average Nigerian citizen will not see improvements in their quality of life. South Africa, who Nigeria unseated from the throne, has a GDP per capita of $7,336, a long way from Nigeria’s $3,000 (and that is with the new rebased numbers). There is still corruption, terrorism, power outages, and vast inequality in Nigeria. Many have criticized the new calculations, saying that nothing will ultimately change for poor Nigerians. What the new numbers can do, however, is open the door to more Foreign Direct Investment. As Africa’s largest economy, Nigeria has put itself in an advantageous position in the world marketplace by calling positive attention to themselves. As Forbes recently reported, the country is full of potential. They have a growing educated class, energy reserves, and a spirit of entrepreneurship. But as of today it seems that there remains many political and institutional barriers to overcome.

Past Reconstruction to Constructing Rwanda

April 11, 2014

Twenty years after the genocide in Rwanda, things seem to be looking a bit brighter. With an average annual growth rate of eight percent since 2001 and over one million people lifted out of poverty, Rwanda is poised to continue growing by leaps and bounds. Even so, 20% of Rwanda’s economy comes from foreign aid, only trailing its exports of coffee and tea. As with most developing countries, one of the most visible signs of growth is the new buildings sprouting from the ground around the capital of Kigali. As impressive as office buildings and shopping malls are, it remains to be seen how beneficial these structures are to the economy and people of Kigali and other developing cities.

Construction workers in Kigali

The benefits of the construction industry in developing countries is clear. The global construction industry was approximately $1.7 trillion in 2007, and typically accounts for 5-7% of each country’s GDP. Jobs in the construction sector tend to be low-skill jobs, something that most developing countries, and especially Rwanda, have in abundance. A report by the International Labor Organization (ILO) found that workers in places as diverse as India, Brazil, and China were significantly more likely to be illiterate and have few years of schooling. Construction is also an investment, as there are roads, buildings, and other structures that can be used to house offices, transport goods, and improve the human and business capabilities. Kigali is already one of the most urbanized cities in Africa, and is expected to grow by 79.9% by 2025. Construction in Kigali and satellite cities is meant to ease congestion of an already dense capital of a densely-populated country.

Map of Rwanda

There are some issues with the construction industry in the developing world. The first one involves property rights. Large amounts of people in cities in the developing world don’t have a title or ownership to the land that they live on, especially in slums. Hernando de Soto, president of the of the Institute for Liberty and Democracy in Peru, has referred to slums as “dead capital”, alluding to the idea that people make improvements by building shantytowns but are not able to use it for collateral due to red tape. The perniciousness of not actually owning the land that one’s house is built on is even worse. In Kigali, 70% of housing is informal, with the government proposing to demolish that housing and creating more high-density areas and rent-to-own schemes. However, housing in the suburbs of Kigali currently typically costs 25,000 francs ($36.87) a month in a country where 45% of people still live below the poverty line. There’s a fear that parts of Kigali could end up like Nova Cidade de Kilamba, a suburb of Luanda that is a ghost town built and funded by the Chinese.

Developing countries, and Africa in particular, have been raising questions about who benefits from the construction industry. Recent reports by investigative journalists from the Forum for African Investigative Reporters (FAIR) in Kigali have found that foreign firms, notably the Chinese, have done a substantial portion of construction. The Chinese are able to undercut local firms by using Chinese contractors backed by subsidized loans provided by the Chinese state. An operations engineer at a Chinese company working in Rwanda stated that his company could get loans with an 8% interest payment while Rwandan companies could only obtain loans with 17-18%, if they could even get a loan at all.

The view of Kigali’s town center and surrounding areas

There is a final concern about construction and corruption. Since construction contracts tend to be a fee and cost of materials, construction companies tend to be implicated more frequently. They overstate the amount of labor used on a project, pocketing the difference. One field experiment in Indonesia found that an increase in official audits of construction projects reduced missing expenditures of labor, ie nonexistent workers, by between 14 and 22%. Construction and engineering companies dominate the current World Bank list of debarred firms, the largest of which was SNC-Lavalin, a Canadian firm, which was debarred over bribery charges around the $1.2 billion funding of the Padma bridge in Bangladesh. Because of these troubling factors, questions, concerns, and confidence over construction in cities like Kigali will continue to surface.

Quantity vs. Quality: Rethinking ODA

April 9, 2014

The UK has met its .7% Official Development Assistance (ODA) target for 2013, but from the limited coverage of this issue you would never know. Britain barely advertised this huge accomplishment, only sending out a single tweet of acknowledgement. The UK is just one of 7 countries currently meeting the ODA requirement set by Development Assistance Committee (DAC) countries in 1969 and it is the first of the world’s largest economies to do so. The other countries include Norway, Sweden Luxembourg, the Netherlands, and Denmark. By comparison, the US only uses about .2% of its GNI on foreign assistance programs. The timing of the UK achievement is interesting considering the recent criticism of the country’s Department for International Development (DfID).

imgresDfID is the primary channel through which UK ODA flows. It is responsible for almost 88% of UK ODA.  But just last week the Independent Commission for Aid Impact, a watchdog agency evaluating DfID learning strategies, gave the UK agency an “amber-red” rating for its ability to research and apply its findings to foreign assistance programs. The report criticized DfID for poor returns on investment and emphasized the organization’s inability to translate research into effective action. This creates the notion that the UK could achieve the same development goals at a much lower cost if it were to employ more effective investment strategies.

The UK’s interesting situation is a stark reminder that quantity does not ensure quality in development assistance, and begs the question of which is most important for development: the quantity of foreign assistance or its quality? A higher quality means greater returns on investment, but a higher quantity means a larger investment overall. It seems, however, that by increasing the funding for an ineffective organization, the UK is wasting an opportunity to more effectively use its high ODA level but the achievement of reaching the .7% of GNI achievement masks the underlying organizational problems.

It is difficult to deny the benefits of ODA quotas. ODA quotas hold countries accountable for their continued foreign assistance. Bilateral development assistance relies on ODA, and because of the OECD agreement from 1969, developed nations have a mutual obligation to maintain a substantial foreign assistance program. By setting the quota as a percentage of GNI, each country has a high, yet attainable goal to achieve. Even if countries do not reach that goal, just by attempting to do so they contribute a large amount to development programs. The quota also serves the purpose of being an easily measurable target that ideally allows for comparisons across countries. The percentage encourages countries to contribute the same relative amount, creating a sense of equality.

The UK has drastically increased its ODA recently

The UK has drastically increased its ODA recently

The greatest negative aspect, however, of ODA as a percentage of GNI is the measure’s strict simplicity. As demonstrated, the benchmark only demonstrates how much money is spent on foreign assistance. It says nothing about the types of programs and, more importantly, the quality of these programs. Is this foreign assistance money used in the most effective way or in the areas in most dire need of assistance? It allows countries to abuse the ODA system. Countries are already under fire for suspicious ODA practices. A recent post on this blog highlighted how countries use ODA as a way to turn a profit often at the expense of a developing nation. Simply setting a high ODA target for developed nations without addressing organization issues could further contribute to this problem.

Has the age of ODA quotas come to an end? It might be time to move away from a system of ODA targets as a percentage of GNI. Development work is all about the quantifiable measures. Perhaps it is time the development community creates a quantifiable measure for ODA quality instead of merely the quantity. It is not enough for developed nations to merely donate a portion of their GNI, especially when that money is not funneled to effective development programs.

Food for Thought

April 4, 2014

The Intergovernmental Panel on Climate Change (IPCC) recently released its newest findings on global warming, and the general conclusion is unsurprising: pollution is harming our environment in such a way that there will be dire consequences in the future. But the report had an even more interesting finding: the framing around climate change is all wrong. Climate change has become much more than an environmental issue and, as a future determinant of food security, has bled into our understanding of human rights.images

The framing of an issue is critical to policy formation and resource mobilization. If an issue does not have the proper framing, one that appeals to the general public, then gaining public support becomes that much more difficult. Look at issues such as gay marriage. When gay marriage was a religious issue, no progress was made on legalizing it. Only when supporters framed gay marriage as a civil rights issue did legalization begin to occur. The same theory applies to development issues.

The current understanding of climate change is that it is an environmental issue that can affect the occurrence and size of natural disasters. Climate change can lead to massive blizzards, devastating typhoons, and the melting of the polar icecaps. But framing climate change in a natural disaster context does not convey the urgency of the issue. With or without climate change, natural disasters are going to occur. No human intervention can stop it. As a result, the common perception is that there are no immediate benefits to addressing climate change and this understanding promotes apathy in the general public.

Courtesy of IPCC

Courtesy of IPCC

The discussion of climate change, however, might be more productive if the development community transformed it into a food security issue that directly impacts human rights. IPCC findings show that agricultural yields could drastically decrease as soon as 2030, and just a two-degree change in temperature has the ability to kill crops and create food shortages. The IPCC report further shows that not only will there be a food shortage, but the shortage could cause a food price increase anywhere from 3% to 84%. So in addition to there being too little food, food will only be affordable for the wealthy, placing countries with high food insecurity at an elevated risk for civil unrest.

Framing climate change as a food security issue adds more urgency to the problem and could help mobilize the general public to take action, regardless of their history with natural disasters. It transforms the picture of climate change from being a disaster like Typhoon Haiyan to an issue directly on people’s doorstep that could affect them at any moment. Food insecurity directly affects people at an individual level and puts every individual’s human rights at risk. It encourages the “not in my backyard” mentality that Americans in particular are very fond of. Climate change no longer just places the rights of those in developing nations at risk. Even those far removed from natural disasters can feel its effect.

images-1Some argue that the IPCC is overdramatizing the threat to food security. While this is entirely possible, it does not change the fact that a changing the framework of climate change could be key to mobilizing the public to take preventative measures. The same applies to any development issue. The development community must place increasing importance on the framing of its issues as a way to mobilize support. Some issues have already benefited from changing its frame. Female empowerment as an economic necessity is the perfect example of an issue capitalizing on a universally appealing framework. But the development community must do even more to further its other causes. Framing will tell people why they should care about international development. How can private organizations benefit from foreign investment? Why should high-income individuals care about a problem thousands of miles away? If the proper framework is not in place, then development will continue to face an uphill battle against public apathy.

Niger Delta Blues

April 3, 2014

The nickname “black gold” has always been apt when dealing with oil. But dreams of riches and development have been masked by the murky nature of money flows connected to it. Nigeria in particular has been blessed and cursed with its abundant oil supplies. With the second largest GDP in Africa, Nigeria still has 46% of its population below the poverty line. This is despite the oil and gas sector representing 35% of the Nigerian economy, according to OPEC. The Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture has even asserted that the oil and gas sector has been distorting the Nigerian economy. Recent revelations have shown that corruption in the oil sector is still rampant. The question becomes what pressure can be brought on the industry.

Lamido Sanusi, former Nigerian central banker and whistle-blower

Recently, Lamido Sanusi, the Nigerian central bank president, was suspended and removed from his position by President Goodluck Jonathan. Sanusi’s suspension was prompted by the revelation that $20 billion in oil revenue was not accounted for by the Nigerian National Petroleum Corporation. The revelation created enough of an uproar that a forensic audit has been called for to try and account for the missing money. This is on top of the fact that a month earlier, the NNPC was selling kerosene to marketers at one-third of the international price, allowing them to mark up kerosene to Nigerian citizens 300-500%. The mark-up is the difference between 140-160 naira per liter ($.85-$.97) and 40 naira per liter ($.24).

In the past, Nigeria tried to tackle the issue of corruption and the lack of transparency in the oil sector by establishing the Nigeria Extractive Industries Transparency Initiative (NEITI) in 2007, which is the local adaptation of the Extractive Industries Transparency Initiative (EITI). NEITI is mandated to audit the extractive industries, and provide transparency and accountability. It is comprised of representatives from the government, oil industries, and civil society. While the cooperation of national governments and NGOs is a laudable achievement, the voluntary nature of the EITI has been criticized.

Shell and the Niger Delta

International NGOs, such as Oxfam and Publish What You Pay (PWYP), feel that the standard adopted by extractive industries should also be backed by a legal enforcement framework. EITI has also been criticized for the role of civil society organizations (CSOs) in the EITI framework. EITI can be considered a top-down reform, and the governments and extractive industries still have more power than the CSOs, creating pressure for the CSOs to go along with the EITI process, according to Kees Visser at the Focus on the Global South. There is also the question of which CSOs are chosen to be represented. EITI has also not been shown to reduce the Corruption Perceptions Index. In Nigeria, the NEITI has published audits, which have had no effect on laws,  because dissemination is not simple in a country with low internet access. There have also been representatives of NGOs who were actually single person self-promoters.

With the doubt cast over the EITI, the question remains on what model civil society in Nigeria should use to ensure that all Nigerians benefit from their extractive industries. While there is a local chapter of Publish What You Pay, coalitions in Ghana and Uganda could serve as templates for counterbalances to the government and industries. The Civil Society Coalition on Oil and Gas (CSCO) in Uganda and the Ghana Civil Society Platform on Oil and Gas are both large coalitions of CSOs: 40 in CSCO and 120 in Ghana compared to 19 in PWYP. Both coalitions use the expertise from individual CSOs to issue media campaigns and community interaction to pressure governments to keep oil and gas taxes and concessions transparent. In Ghana, the Civil Society Platform on Oil and Gas issues “Readiness Report Cards” and actively contributes to the Public Interest and Accountability Committee and proposed laws through the committee. The Ghana platform is funded by various international donor agencies, such as USAID and the EU, and therefore have the backing of powerful partners. Both of these countries have only recently discovered oil, so it remains to be seen how successful these coalitions will be in exerting pressure. For the most part, there’s nowhere to go but up.

Between a Schoolhouse Rock and a Hard Place

March 31, 2014

In both developed and developing countries, governments are trying to figure out the vital components of a successful education system. Partially, this stems from the rate of return on education, with as little as 8.5% in OECD for primary education to 25.4% in Sub-Saharan Africa for primary education as reported by the World Bank, though some of these figures are disputed. The solutions range from teacher accountability through standardized tests to competition from private schools. Some trends have been emerging from the data, and common themes are starting to become apparent.

 

Top 10 countries in categories according to PISA

Recently, the OECD came out with the results from the Programme for International Student Assessment (PISA), a cross-country test comparing the results in math, science, and reading of 15-year-old students. PISA is taken every 3 years in all 34 OECD countries, along with 31 developing countries who wish to participate, such as Jordan, Kazakhstan, Thailand, and Indonesia, among others. The stark results from this year was the drop of Finland and the rise of the East Asian states. Meanwhile, a number of developed countries underperformed the average, including the United States and Sweden. The mean score for OECD countries ended up being 494, with Shanghai-China attaining 613 and Peru propping up the table with 368.

 

Test scores and economic growth vs. years of education and economic growth.

PISA has found certain elements in school systems to be correlated with higher educational outcomes through test scores. High-performing school systems are more likely to distribute resources more evenly between socio-economically advantaged and disadvantaged areas. The better performers also tend to give more autonomy to schools, principals, and teachers over curricula and assessments than the lower performing schools. Better school systems also recruit and retain high quality teachers through higher salaries and more autonomy, although the correlation only works for countries with GDP per capita over $20,000. Finally, the less stratification there is in classes, by tracking gifted students into a separate track, the better the school test scores are.

Other reports from various academics tend to corroborate the data that OECD has been producing. Eric Hanushek and Ludwig Woessman have done a large amount of research using PISA and data from other test scores. They found that 73% of variation between test scores is down to educational quality, with a higher effect in countries below the median GDP per capita. This effect is also magnified through the openness of trade withing a country. Over a long time horizon, a 20 year reform leads to 5% higher GDP, with the effect over 75 years after the room resulting in a 36% higher GDP than without the reform. Meanwhile, the effect of dollars spent or number of years of schooling have little to no effect on educational outcomes.

 

Finnish primary education classroom

The question then turns to the factors that improve educational quality. Charles Kenny found that an increase in school autonomy over budgets, hiring teachers, and course content improves scores on average 17 points, which would be a big swing for most countries. Adding a couple hours of instruction, assessments for student promotion, and monitoring by principals for lessons makes scores leap 42 points, which would be almost a 10% improvement for the OECD average. This highlights the how autonomy and accountability complement each other. Private schools have also been shown to improve schooling in Indiaand Kenya, though other reports on private voucher programs in Chile and Catholic schools in the United States show no effect. The idea from these mixed results is that private schooling in countries with weak public institutions could benefit from private schools while in developed countries its questionable.

 

Growth and education reform

A final factor on improving educational quality is equity. Another study by Hanushek and Woessman showed that the earlier that tracking, or placing students into different classes or schools based on ability level, the more inequality there is in the system. As family socio-economic background is one of the major determinants of educational attainment, Hanushek and Woessman show that background is negated the longer that there is no tracking. This partially why Pasi Sahlberg, director of the Finnish Ministry of Education’s Center for International Mobility, has been emphasizing that the Finnish school system reformed decades ago to make education more equitable. Subsequently, test scores improved.

Education and its effect on human capital is probably one of the most important factors in development. Slowly, we are moving away from the model of just building schools, and realize that the quality of instruction also matters. In different circumstances, pre-primary education, choice in schools, autonomy, and equality have all been shown to have some impact in multiple countries. Now it’s simply a matter of determining which course of action is the best and for what circumstance.

April is the Cruelest Month: the Coming Austerity Measures and Elections in Ukraine

March 28, 2014
Photo Credit: REUTERS/Anatolii Stepanov

Photo Credit: REUTERS/Anatolii Stepanov

The International Monetary Fund has offered Ukraine a two-year bailout package of $18 billion in return for steep economic reforms. The long-term goal of the bailout package is to stabilize a Ukrainian economy that is running up expenses and moving toward a debt default. It is hoped that economic stability in Ukraine will lead to the political stability that can then ease Ukraine’s transition to democracy, and more importantly, away from Russia. By opening up to the IMF deal, Ukraine will signal to nations like the US and Japan that they are committed to restructuring their economy and are open to investment. For example, the United States Congress is working on a bill for $1 billion in aid to Ukraine as well as economic sanctions against Russia. The European Union has put $15 billion on the table. It total, Ukraine is in position to receive around $27 billion in aid.

The downside to these deals is that the enforced austerity measures will likely hurt the average Ukrainian citizen by increasing gas prices by 50% and inflating the currency, the hryvnia, by somewhere between 12% and 14%. Therefore, we may see the cost of living rise while the purchasing power of the hryvnia plummets. Ukraine’s interim Prime Minster Arseniy P. Yatsenyuk explained that there would be a minimum-wage freeze and an increase in taxes for Ukraine’s largest companies. All of this spells out hard times for Ukraine in the coming years. But consider the result if Ukraine were not to accept the austerity measures. As The New York Times reported, Yatsenyuk “told the Parliament on Thursday that the country was ‘on the brink of economic and financial bankruptcy’ and that gross domestic product could drop 10 percent this year unless urgent steps were taken in conjunction with the fund.” With such instability, Ukraine’s interim government would not have the time or the legitimacy to set up the proper institutions before the planned election in May.

Photo Credit: Genya Savilov/AFP/Getty Images

Photo Credit: Genya Savilov/AFP/Getty Images

The top candidates for the election include former Prime Minister Yulia V. Tymoshenko, billionaire businessman Petro Poroshenko, and Parliamentary leader as well as former professional boxer Vitali V. Klitscho. Tymoshenko, who was born in the industrial and Russian-leaning eastern Ukraine, has support from the western and central provinces. However, it is Poroshenko and Klitscho who lead in the polls. No matter the result in May, the next president of Ukraine is set to face a difficult transition in all aspects of society. Somehow, he or she must ease the pains of economic liberalization, consolidate political factions, and reign in nationalist as well as pro-Russian sentiments. International aid may help, but the real battle for Ukrainian independence must be fought from within. It is a fight to defeat the legacy of authoritarianism; a fight that Ukraine desperately needs to win.

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