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Friday, 23 May 2008

What matters for growth?

The final report from the Independent Commission on Growth and Development, a global panel of eminent experts, report is out. It tries to answer that great question - what matters for growth? The Commission tries to provide important lessons from countries that have achieved high, long-term economic growth. If you can't be bothered to read the large report, here is a short presentation from Michael Spencer or you can simply watch this video. As well as the main report there are many working working papers from leading experts on nearly every area from institutions to agriculture to urbanisation.

There's nothing in the final report that we have not discussed on this blog. In some respect the report simply brings together existing research. A number of areas where the report comfirms our discussions here (good opportunity for new readers to read some old posts!):

Investment (see
here) :

Based on the experience of the sustained, high-growth cases, the Report suggests that overall (private and public sector) investment rates of 25 percent of GDP or above is needed. The Report urges that about a third of that figure should be public investment in physical infrastructure and “human capital” (education and training).
Girl Child Education (see here ) :
Investment in education and health and a focus on educational outputs, such as literacy and numeracy, are all viewed by the Commission as essential inputs to growth, concluding that currently educational spending in many countries is marred by waste and inefficiency. The education of girls provides one strong test of a government’s commitment to equality of opportunity. Educated women have fewer, healthier children…..Their children are then more successful in school. Educating girls is thus one way to break an intergenerational cycle of poverty.
Infrastructure (see here , here , here and here) :
Infrastructure investment is also viewed as particularly important to growth by the Report. The Report argues the need for clearly written and monitored private/public sector partnerships with commercial risks born by the private party. Governments must also resist the temptation to see infrastructure as a source of revenue through increased taxation, leading to overpriced services, out of reach to large parts of the population.
Urban - Rural Drift (see here and here)
With half of the world’s population now living in cities, the Report reminds us that no country has ever industrialized without also urbanizing. Rather than considering urbanization an unpleasant side-effect of growth, the Report calls for the better management of urbanization and its benefits. The Report calls for greater financing of urban infrastructure with clear guidelines and appropriate incentives, well regulated housing finance, sound planning principles, and a robust systems of property rights. The Report also looks at the role of agriculture and the importance of rural public services, so that it is productivity that motivates migration to cities, rather than access to better services.
Mineral Resources (see here)
The Report also recommends that the first claim on resource rents be adequately funding public sector investments. The Commission recommends that the remaining rents should flow into a fund, managed by experienced investment professionals operating with a well defined set of parameters with respect return, risk and diversification. The fund should pay out (much as endowment funds in non-profit entities do) a percentage of the total each year for the benefit of the citizens either directly in the form of income or indirectly in the form of reduced tax burdens.

10 comments:

  1. I read parts of the final report and it's very Rodrik-ish, mostly when analyzing previous paterns of sustained growth. The idea of scheduling reforms according to their impact is always nice to read.

    The rest is quite interesting too, even though their desire to be complete and to properly present the complexity of each issue can be confusing at times.

    Nice read though.

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  2. The fund should pay out (much as endowment funds in non-profit entities do) a percentage of the total each year for the benefit of the citizens either directly in the form of income or indirectly in the form of reduced tax burdens.

    And I get all that. However, once you have so much money in one place, it would be a shame not to do something significant with that - other than lowering taxes.

    The newly found $413 million could be a springboard for major infrastructure investment.

    Zambia should be building small dams to benefit agriculture and prevent flooding.

    There could be a major project to regulate rainfall, runoff to prevent flooding, make year around agriculture a reality (doubling the food output even without putting one more hectare in use), fire fighting and clean drinking water.

    There should be an agrarian revolution.

    Instead, we have a bank governor stating that government money is just wasted anyway. (Which makes me suspicious that he is really working for the mining companies.)

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  3. MrK,

    I think the test is how to balance immediate needs with future needs.

    I agree with you on the need for money to be spent now....but we also need to keep some of it for the future to smooth revenue when the going gets tough..

    Many of your ideas of how to spend the "now" element are attractive. However, I would be interested to know your views on who you think should benefit MOST from additional revenues. Should the money primarily go to local communities or the nation as a whole???? In what proportion should this happen? These are the redistribution questions that I think have not been debated.

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  4. Cho,

    Many of your ideas of how to spend the "now" element are attractive. However, I would be interested to know your views on who you think should benefit MOST from additional revenues. Should the money primarily go to local communities or the nation as a whole???? In what proportion should this happen? These are the redistribution questions that I think have not been debated.

    But the issue of oversight is essential in the effective application of funds. Having said that...

    1) Priorities

    First of all disaster prevention. The annual flooding can be prevented with very simple ways to improve the hydrology of the country. Swales, small dams, reforrestation can be used to both divert flood water, and make it available for agriculture.

    Second, food security. Storage capacity can be improved so the country's food security can be extended for greater periods. So if the FRA had the capacity to store food for years, and distributed it's capacity throughout the districts, that could prevent hunger pretty much forever.

    Third, the state of the roads. Road repairs can do a lot for the ease with which goods are transported across the country, while at the same time create tens of thousands of jobs in road construction and repairs.

    Fourth, unlocking access to rural areas, which would link them to the national economy and make commerical farming possible.

    2) Redistribution

    I think some of the money should remain with the community where the mines are located. If 10% (for instance) of mining revenues would go to the areas where the mines are located (to their councils, or development funds), at least we can avoid situations like in the Nigerian Delta, where some of the poorest people live in an area which produces 10% of the world's oil. Which is unacceptable, and almost inevitably leads to resistance movements and unrest.

    In fact, the biggest future risk would be from dissatisfaction in the mining areas, which could ultimately lead to calls for secession. So I think the mining areas should be well taken care of, even though most of the revenues produced there will go to benefit the entire nation.

    The money could break down like this:

    Mining Areas: 40 million
    Infrastructure: 100 million
    Education: 100 million
    Healthcare: 100 million
    Keep for emergencies: 73 million

    (Total: 413 million)

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  5. The Report also recommends that the first claim on resource rents be adequately funding public sector investments. The Commission recommends that the remaining rents should flow into a fund

    Reading is fundamental.

    The Fund is the money that doesn't go into funding public sector investment. And putting it in a well-managed fund is about making sure it doesn't end up in some Swiss Bank account or into prestige investments.

    But yeah, it's all a neo-liberal plot to enrich the mine companies.

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  6. If 10% (for instance) of mining revenues would go to the areas where the mines are located (to their councils, or development funds), at least we can avoid situations like in the Nigerian Delta, where some of the poorest people live in an area which produces 10% of the world's oil. Which is unacceptable, and almost inevitably leads to resistance movements and unrest. 

In fact, the biggest future risk would be from dissatisfaction in the mining areas, which could ultimately lead to calls for secession.

    You know that in Nigeria 13% of the oil revenues are devolved to the States and that there is a Niger Delta devellopment fund (NDDC i think), right ?

    Much of corruption came from or with the complicity of local authorities. It's not coincidence than Ken Saro-Wiwa was sentenced and killed for the murder of traditional chiefs. The Niger Deltayouth movements are as angry about their elites as they are about the central government.

    I also don't know to which extend devolution prevents secessions and stuff. Much of the issue are about perceptions of fair distribution. If you look at places like Scotland or Spain or DRC or Belgium or Russia, you'll see that fair varies a lot. Some fight because they get less than others, some fight because they want to get more, some fight because they have to share at all.

    And like I said earlier, the distribution formula is really what matters...

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  7. Infrastructure investment is also viewed as particularly important to growth by the Report. The Report argues the need for clearly written and monitored private/public sector partnerships with commercial risks born by the private party. Governments must also resist the temptation to see infrastructure as a source of revenue through increased taxation, leading to overpriced services, out of reach to large parts of the population.

    There is an interesting article in The Post titled:

    Chigunta attributes poor road network to budget cycle

    In it, the UNZA professor attributes the state of the roads to the short budget cycle and a bureaucratic tendering process. He also noted that money was not the issue, because the large amount allocated that had not been spent.

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  8. "Much of corruption came from or with the complicity of local authorities. It's not coincidence than Ken Saro-Wiwa was sentenced and killed for the murder of traditional chiefs. The Niger Deltayouth movements are as angry about their elites as they are about the central government." - Random

    Good point. This is often overlooked in the "Niger Delta" debate.

    "In it, the UNZA professor attributes the state of the roads to the short budget cycle and a bureaucratic tendering process. He also noted that money was not the issue, because the large amount allocated that had not been spent." - MrK

    I'll read it.
    Money is the issue for large stratefic infrastructure. That is the reason why the Pedicle road is not tarred! its also the reason why the road from Mansa to Nchelenge is full of potholes. You need significant reasources. But of course there are other issues that we have touched on like ensuring "appropriate mode choice" for freight. The issue of budget cycle extends to all other type of spending. But I'll see what he is saying.

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  9. It is very false to say that oil wealth in Nigeria is redistributed.As at independence in 1960 the regions or states were entitled to 50 percent of their resources howver with the discovery of commercial quantities of oil the law was changed by the major ethnic groups in order to short change the people of the Niger Delta.What this fellow who made mention of the N.D.D.C failed to mention is the fact that the N.D.D.C. is partly funded by the oil producing states and the oil firms.People want more commitment on the part of the central government that recieves all of the oil money and is directly involved in the mining process.The Niger Delta development fund has been in existence for less than a decade will the problem caused by oil exploitation has been with the people of the Niger Delta for more than 5 decades.People from the region are not also considered for employments and contracts.All of that goes to people from the major ethnic groups and this has resulted in a distortion in the economic balance.Fishermen and farmers have lost the source of livelihood to the industry and to make matters worse the industry employs people that are`nt from the oil producing region.

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  10. It is very false to say that oil wealth in Nigeria is redistributed.As at independence in 1960 the regions or states were entitled to 50 percent of their resources howver with the discovery of commercial quantities of oil the law was changed by the major ethnic groups in order to short change the people of the Niger Delta.

    So, are you saying that the statement "13% of the oil revenues are devolved to oil producing states" is false ?

    I know well that under the 1st Republic, regions kept 50% of the revenue (they actually were responsible for collection) but the change wasn't designed to short-change the people of the Niger Delta. After all, they didn't have their own region, did they ? (and let's not get into the fact that "the leaders" of the Delta did pick their side at some crucial point and didn't mind being allied with those who ended up controlling the oil revenue for decades).

    What this fellow who made mention of the N.D.D.C failed to mention is the fact that the N.D.D.C. is partly funded by the oil producing states and the oil firms.People want more commitment on the part of the central government that recieves all of the oil money and is directly involved in the mining process.

    I didn't know much about how the NDDC is financed. And I agree that the federal government is not doing much but that's only half of the problem. I mean after 2000, after a long fight, the oil producing states did get 13%. It's not 50% but it's still important sums of money. And what happened ? It's quite clear that the people of the Niger Delta are not only exploited by the federal government but also by their own local government who doesn't do anything for them with the money allocated.

    And there's really no excuse for that either. If Cross River can manage to mantain its infrastructure with no oil revenue, there's no reason Rivers, Akwa Ibom or Aba are in a such a mess.

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