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Africa, debt relief, international financial institutions, private investment, aid selectivity
Ben Leo is a visiting fellow at the Center for Global Development (CGD) and a member of the Center’s Advisory Group. He currently serves as the Chief Executive Officer of Copernicus.io, an Africa data analytics firm. Copernicus is a proprietary geospatial platform that provides reliable and representative data on almost any customizable geographic area across the African continent.
Until October 2016, Leo served as a CGD senior fellow. His research focused on the rapidly changing development finance environment, with a particular emphasis on private capital flows, infrastructure, and debt dynamics. In addition, he tested a range of new technological methods for collecting high-frequency information about citizens’ development priorities. His research has been cited in leading international and regional media outlets, including the New York Times, Wall Street Journal, Washington Post, Financial Times, Forbes, USA Today, Mail and Guardian, CNBC Africa, This Day, and Daily Nation.
Prior to CGD, Leo held a number of senior roles at the White House, US Treasury Department, the ONE Campaign, African Union, and Cisco Systems.
This week, Chad became the 36th poor country to benefit from the world’s collective response to the debt crises of the 1980s and 1990s. It took years to reach this point, but in the end, Chad received over one billion dollars in irrevocable debt relief under the Heavily Indebted Poor Country (HIPC) Initiative. This brings the running total for African countries upwards of $110 billion in nominal relief over the last two decades or so. Only three qualifying countries remain in the queue — Eritrea, Somalia, and Sudan. Plus Zimbabwe, which has been stuck in a debt crisis for years, yet remains ineligible for HIPC relief. All of these countries are beset by internal conflict or extreme governance challenges. So, we’re down to a handful of basket cases and then the longstanding African debt crisis will be banished to the history books, right? That’s what I used to think. After recently digging into the data, I’m not so sure anymore.
Despite widespread progress, Sub-Saharan Africa remains home to several of the most heavily indebted developing countries in the world. These include three small places, both in terms of populations and land size – Cape Verde, Eritrea, and the Gambia – but not in terms of their relative debt burdens. Each of these countries has public debt obligations exceeding 100 percent of GDP. In fact, Cape Verde has the fourth highest debt ratio in the developing world, equaling 112 percent of its GDP. Only Jamaica, Lebanon, and its fellow African nation Eritrea are worse off. Its debt has increased by nearly 50-percentage points in just the last six years. This is a country that people broadly consider as a well-governed place. Its finance minister is even in the running to become the next head of the African Development Bank. On top of Cape Verde, the Gambia benefitted from HIPC debt relief only a few years ago. Who would have known?
The resurgent African debt story isn’t confined to the smallest nations in the region. Darlings of the donor and global financial worlds have reentered the danger zone of unsustainable debt as well. For instance, Ghana’s debt-to-GDP ratio fell to a miserly 26 percent after receiving 100 percent debt cancellation from the IMF, World Bank, and AfDB a decade ago. It even launched an oversubscribed Eurobond offering the year later. Fast forward to today. After years of runaway government deficits, its debt ratio has nearly tripled. And it had to run to the IMF for a bailout package to prevent a complete fiscal meltdown.
What does this all mean? For starters, it demonstrates that the demons of unsustainable debt haven’t been permanently banished. It also likely means that simply focusing on the remaining HIPC-eligible basket cases isn’t enough. There are many other countries hovering at the precipice, either for the first time (Cape Verde) or once again (Ghana and the Gambia). If it wasn’t for Chad, I may have never dug into the figures. And now I’m partly wishing that I hadn’t.
In this project, we analyzed whether mobile phone-based surveys are a feasible and cost-effective approach for gathering statistically representative information in four low-income countries (Afghanistan, Ethiopia, Mozambique, and Zimbabwe).
On March 19, 2015, senior fellow and director of CGD’s Rethinking US Development Policy Initiative Ben Leo testified before the Senate Foreign Relations Committee Subcommittee on Africa and Global Health Policy at a hearing about the potential for greater US trade and investment with Sub-Saharan Africa.
Jobs and economic opportunies are increasingly at the top of developing nations' agendas. According to CGD senior fellow Ben Leo, China and other emerging market nations are aligning their development tools and activities with these new priorities. "The US," Ben says, "has been much slower to the game." Listen to Ben's ideas for modernizing US development finance and read the policy paper by Ben and co-author Todd Moss, "Bringing US Development Finance into the 21st Century: Proposal for a Self-Sustaining, Full-Service USDFC".
The imperative for US development finance has increased significantly due to a number of factors over the last decade. There is growing demand for private investment and finance from businesses, citizens, and governments in developing countries. Given the scale of challenges and opportunities, especially in promoting infrastructure investments and expanding productive sectors, there is an increasingly recognized need to promote private sector-based solutions.
Update:This blog was updated on 3/11/2015 from the original version.
The days of pushing priorities, pet projects, or expat consultants on countries are coming to a close. Connected and increasingly empowered individuals are demanding a greater say in setting priorities, designing and implementing programs, and assessing whether projects have achieved their desired results. For those agencies that recognize this trend, the question is how to meaningfully and cost effectively engage citizens in real time. This is where the explosion of mobile phone technology comes in.
By illustration, nearly 300,000 Ugandans get a brief survey on their mobile phone every week. The questions typically ask about people’s access to public services or options for expanding economic opportunities, such as buying agricultural land. There are now countless tools like UReport all across the developing world that gather input from thousands of people in a matter of hours.
However, many question whether mobile phone surveys are truly reliable tools and can accurately reflect the broader population. After all, aren’t they just reaching the urban elite and failing to reach poor people? There have been few studies that have rigorously grappled with this completely legitimate question.
Along with our World Bank collaborators (Tiago Peixoto, Jon Mellon, and Steve Davenport), we sought to rigorously test whether mobile phone surveys can reliably produce nationally representative samples across a range of country contexts. We focused on four poor countries (Afghanistan, Ethiopia, Mozambique, and Zimbabwe) that have very different levels of mobile phone penetration. We deliberately picked countries where we thought it might work and where it probably wouldn’t; and then, dispassionately assessed the findings.
Here are a few key takeaways of what we found. We will be publishing a working paper soon that will include much more detail, both on the findings and the underlying methodology so please stay tuned for that.
Including the Poor: The survey performed well at reaching poor inhabitants. We used several asset ownership questions as proxies for respondents’ income level. In Afghanistan and Zimbabwe, our samples mirrored the underlying population in terms of these measures. While less precise in Ethiopia and Mozambique, they were still quite close. This gives us comfort that we were reaching the bottom of the pyramid, in contrast to common criticisms and truthfully, what we expected to find.
Reaching Rural Women: Reaching rural women was a consistent challenge, especially in Afghanistan and Ethiopia. Some of this was due to cultural norms as well as mobile phone ownership and usage patterns. At the same time, we made a few regrettable methodological choices, such as using a male voice for the surveys. We plan to adjust these techniques going forward and test new approaches that may improve our ability to capture more rural female respondents.
Sample Precision: After normal weighting methods, sample accuracy was a challenge in the two lower feasibility countries (Ethiopia and Mozambique), with a sampling error of +/- 5 to 7 percent. While these figures are relatively high, the data collected was still meaningful for a range of purposes. On the other hand, the sample was much more precise in Zimbabwe (+/- 2.8 percent). We will explore all of this in much greater detail in a forthcoming post.
Mobile Penetration Rate versus Sample and Population Difference
Our findings only start to rigorously assess the reliability of mobile surveys. Yet, they suggest that these tools may be a promising way to promote representative engagement with citizens in many places. Not to mention that they are extremely cheap (roughly $10-15k per country). Going forward, we plan to expand this work to other countries, including some additional tough places. Plus, we hope to test new techniques for better reaching under-represented groups, such as rural women. These new country cases and lessons learned will further deepen our understanding of where and how mobile phones can be reliably deployed. But for now, we hope that this work adds to the body of knowledge about these innovative techniques for deepening citizen engagement in poor countries.
*We are thankful to Voto Mobile, particularly Levi Goertz, for their commitment to and unending patience on this research project.
The Overseas Private Investment Corporation (OPIC) is the US government's development finance institution. Balancing risks, financial needs, and development benefits is riven with numerous tensions, statutory restrictions, and tradeoffs. This raises an important policy question - how well does OPIC’s actual portfolio balance these competing goals? Since much data about the OPIC portfolio is unavailable in an accessible format, we built the OPIC Scraped Portfolio database to address this question.
This is shaping up to be a big year for US trade policy. Most eyes are on potential deals with the Pacific Rim and Europe (and reeling from Senator Reid’s latest blow to their prospects). Those of us concerned with trade as a driver for development should also be watching Congress’ and the Obama Administration’s review of the African Growth and Opportunity Act (AGOA). It has been the cornerstone of US trade policy with Sub-Saharan Africa for over a decade. AGOA uses preferential access to the $17 trillion US economy as a way of boosting trade, investment, and growth in African economies. With AGOA set to expire in September 2015, this is the right time to take a big step back and think about what’s worked and what needs to change. Not just with AGOA itself, but with US trade capacity assistance as well.
By all accounts, AGOA has produced only modest results. Oil, minerals, and South African manufactures continue to dominate the US-Africa trade picture. Even though over 96 percent of African products receive duty-free access. Just three nations (Angola, Nigeria, and South Africa) account for more than three-quarters of regional exports to the US. That number reaches well over 90 percent once you add in the other oil exporting countries.
Granted, AGOA has contributed to pockets of success in a few countries and sectors, such as apparel and agricultural goods. And, US imports from the six largest non-oil economies have increased by nearly 60 percent since 2005. Although, they still account for only 2 percent of regional exports to the US (while accounting for 13 percent of regional GDP). Despite these achievements, even its most ardent supporters would admit that AGOA’s impact has fallen short of its potential.
Sub-Saharan Africa Exports to US Market, by Country Groups
Source: US International Trade Commission database and authors’ calculations
In a new policy paper, we catalogue how very high indirect costs continue to hold back firms’ competitiveness in many African countries. Issues like unreliable electricity, expensive and slow transport, burdensome licensing requirements, and corruption. Plus, how small African markets often prevent firms from gaining sufficient scale to become globally competitive. None of this is new – to African governments, the US government, or businesses. But, if the US wants to promote trade as a development driver, and it clearly does, then it should be much more focused on helping to address these challenges.
Firm Cost Structure: Share of Indirect and Other Costs, Select Countries
Source: Eifert, Gelb, and Ramachandran (2008)
Things are beginning to change. Last June, President Obama announced a new Trade Africa Initiative, which will support efforts to speed up port and border crossing times in East Africa. Plus, the Power Africa Initiative should help to ease electricity constraints in a handful of countries. What’s still missing is an overarching strategy that guides all US agency efforts across the entire region.
This will require a fresh look at broader US trade capacity programs. Since 2005, the Millennium Challenge Corporation (MCC) has provided the lion’s share of trade-related assistance, focusing mostly on ports, roads, and power. That’s been a good thing. However, outside of MCC compacts, US efforts have been under resourced, fragmented, and lacking strategic focus. Nearly 20 government agencies, with almost no formal coordination amongst them, have been responsible for delivering about $80 million a year. That’s only $2.5 million per country, on average. A drop in the bucket.
The US government should do four things to make its trade-related programs more meaningful and effective:
(1) Establish a centralized policy body, with appropriate budgetary authority, to focus and coordinate related programs;
(2) Further increase USAID support for regional economic communities that are supporting integration and harmonized policies;
Let’s be clear, none of these are silver bullets. African governments and businesses are ultimately in the driver’s seat. Plus, these actions focus largely on the US government and less on US private investment (which arguably is more important). But, with a few modest changes, the US government could do a much better job of supporting African nations’ efforts and helping to boost US-Africa trade and investment.
[We will be posting a blog soon on whether the US should consider revising its AGOA country eligibility requirements. So, please stay tuned for that.]
In Burkina Faso, where most live on less than $2 a day, people want better infrastructure even more than they want jobs. In Benin, Guinea, Liberia, Mozambique, Tanzania – some of Africa’s poorest nations – it is the same. In fact, the cry for more and better basic services is heard in nearly every African country. It is a top-tier economic, political and social issue. Investments in transport, power and sanitation are widely viewed as critical for promoting growth, increasing economic opportunities and improving social services such as health and education. Much has been written about African infrastructure demand but, until now, few studies have examined the nature of that demand: who wants what where?
In a new CGD paper, we draw upon Afrobarometer survey data from 33 African countries to provide at least partial answers to these important questions.
Our analysis shows us:
People in poorer African nations are more concerned with infrastructure (or lack thereof) while citizens of wealthier countries tend to emphasize jobs and income-related issues.
Specifically, transportation and sanitation are the biggest infrastructure demands.
Some countries don’t follow the trend, e.g., Mali and Niger where food security are major issues. In others, electricity and housing top the list of peoples’ greatest concerns.
Within countries, citizens’ priorities transcend demographics, even gender and urban/rural divisions.
Infrastructure rollout often follows a pattern: first mobile phone services, then piped water and electricity, then paved roads, and finally, in wealthier areas, sewage services.
Africans living in areas without infrastructure services are significantly more likely to say it’s a national problem – and the more people want better services, the lower they tend to rate their government’s performance in providing them.
In this study, we attempt to move beyond topline estimates of infrastructure access rates towards a more nuanced understanding of broader service availability and citizen demand across African nations. This analysis also allows us to identify several potential implications for policymakers. We’ve listed some of these after the graphs below, which highlight what the survey data tells us about Africans’ most pressing concerns.
Figure 1 – Most Frequent First Response, by Country Income Level (% of Respondents)
Figure 2 – Most Frequent Second Response, by Country Income Level (% of Respondents)
Figure 3 – Most Demanded Type of Infrastructure, by Country Income Level
Potential Policy Implications
The politics of infrastructure can be both charged and highly nuanced, depending on citizen demands, sub-national differences in service availability, and past government investments. Readily available time-series data can help inform policymakers’ investment strategies and reform agendas. This information is likely most useful for deepening policy discussions and informing political decisions within African countries. However, there also are potential lessons and applications for global development partners, including bilateral and multilateral agencies. These include:
Public attitude survey data can be a tool for better understanding political economy issues within and across African countries.
Mapping infrastructure service availability to household access could help to highlight impediments, and also possible solutions, for improving service outcomes. For example, Afrobarometer data can be cross-referenced with DHS household data to identify geographic areas with available services but low access rates. This information could help narrow potential public policy options, such as first considering why millions of people are living under the electrical grid without power instead of pursuing massive capital expenditures for grid extension.
Donor agencies should be cautious about pushing priorities from their capitals, instead of responding to pressing priorities emanating from African citizens and their governments. Previous research has illustrated how US development assistance is not aligned with African citizens’ most pressing concerns. Comparing citizen demands with service availability (infrastructure, schools, clinics, etc.) can help shape and inform donors’ investment decisions at the regional, national, and sub-national levels.
Service availability and citizen demand patterns reinforce the need for customized infrastructure investment strategies that reflect countries’ unique circumstances. Beyond this, when considering large infrastructure investment projects, African and donor governments may wish to compare plans against infrastructure rollout hierarchies within that country, for both urban and rural areas.
We readily admit that the relevant survey data has its limitations. For instance, it only provides a snapshot in time of service availability and citizens’ most pressing demands. Yet, this information may provide an important, yet often overlooked, insight into highly localized political and social dynamics. Such dynamics should be considered much more systematically when African governments and their international partners are making important decisions about how scarce resources should be invested.
Ben Leo testified before the House Subcommittee on International Monetary Policy and Trade on July 27, 2011 about the importance of multilateral development banks to the United States and the greater world.
Last week President Obama’s Global Development Council at long last held its first official, public meeting at the National Press Club in Washington. For those of you who don’t remember (and you’ll be excused for forgetting), President Obama signed an executive order that formally established the Council in February 2012, although the Council’s origin story dates back to the 2010 Presidential Policy Directive on Global Development. After the public meeting, the Council’s ten non-governmental members were joined by Secretary of State John Kerry, Secretary of Defense Chuck Hagel, USAID Administrator Rajiv Shah, the heads of OPIC and the MCC, and other top officials in a private meeting with President Obama that was duly disclosed in a White House press release.
The meeting has been a long time coming. Here at CGD, we met news of the creation of a Global Development Council with cautious optimism. We waited for members to be appointed and then watched with disappointment last year as two public meetings were scheduled only to be canceled.
So we are pleased that the US Global Development Council has indeed held a public meeting. Even better, the group released a concise seven-page document with the encouraging title Beyond Business as Usual that sets clear priorities—many informed by CGD’s own work.
Led by Mohamed El-Erian, former CEO of the Pacific Investment Management Company (PIMCO), a global investment management firm, the Council has put forward specific proposals for how the Administration can be smarter, faster and more effective in advancing sustainable growth and development around the world—mostly by making better use of existing budgets and executive instruments. The recommendations build on the 2010 Presidential Policy Directive, with a healthy emphasis on how to go more quickly from vision to implementation. It’s an excellent blueprint that we hope gains wide attention and serious follow-through from the administration.
Council members said that they welcome public comments. We are happy to oblige.
What We Like and Hope to See Implemented:
Leveraging much more private capital for development-friendly investment
The Council’s considerable emphasis on harnessing the private sector reflects the reality that many US development goals—including expanded energy access, improved food security, and reduced emissions of heat trapping gases driving climate change—will only be met with active private sector engagement. Topping the Council’s list of recommendations is the creation of a US Development Finance Bank that would combine the US Overseas Private Investment Corporation (OPIC), America’s strong and effective development finance institution, with several smaller entities at USAID (like the Development Credit Authority), the US Trade and Development Agency and others, all of which have similar goals of encouraging US and domestic private investment in developing countries. A US Development Bank, as envisioned by Todd Moss and Ben Leo in a 2011 proposal, would reduce existing inter-agency inefficiencies, help the US benefit from commercial opportunities in emerging markets, yield development benefits, and operate on a self-sustaining budget neutral basis. The Council also made calls to further unleash OPIC individually, by allowing it to make equity investments, retain a portion of its profits to increase staffing, and mix direct investments with loan guarantees.
Outcome-focused incentives for development
Across multiple recommendations, the Council emphasizes paying for results – the application of cash-on-delivery, implementation of development impact bonds, and payment for performance in the context of protecting valuable ecosystems. Innovation isn’t just about technology: these innovative funding models offer the promise of increased impact at reduced costs. Amid Congressional budget battles, approaches to foreign assistance that pay for results have clear political advantages over the old model of paying for inputs. More importantly, however, focusing on outcomes aligns incentives for success, while offering the flexibility to experiment and innovate.
More emphasis on win-win programs that minimize climate change and maximize growth and development
The latest IPCC reports have confirmed what many of us had feared. Climate change poses serious threat to the rich, but will prove catastrophic for the poor. The Council pushes for specific programs that would support climate-smart increases in agricultural production and productivity that are sustainable and intensive – and not associated with exploiting more land. It calls on USAID to exploit increasingly available satellite-based, geospatial information (such as Global Forest Watch) in its Feed the Future programs, and to establish “pay for performance” or cash-on-delivery like projects to provide incentives for agricultural expansion into degraded lands, rather than into forested areas.
Foreign assistance has for too long been the sole lens through which the foreign policy community and successive administrations have viewed development. We’re pleased that investment finance (and not just traditional US grants) topped the Council’s recommendations this time, and that the issue of climate–where the US could support faster transfer of technology for example—found a place on the agenda. We hope this will not be the last such exercise, and that in subsequent rounds the Council will include consideration of trade, intellectual property rights, and the potential for US leadership on global initiatives – such as combating drug resistance, dealing with sex and drug trafficking, and addressing small arms proliferation.
What do you think? Post your own views on Beyond Business as Usual and any reactions to ours in the comments section below. Or send them to directly to President Obama’s Global Development Council at firstname.lastname@example.org.
Many thanks to Casey Dunning and Erin Collinson for their contributions to this post.