Transcript Comments on What are the constraints on inclusive growth in

What are the constraints on inclusive
growth in Zambia?
Elena Ianchovichina and Susanna Lundström
Arne Bigsten
University of Gothenburg
1. Purpose
• The main purpose of the analysis is “to
identify the key constraints on inclusive (and
sustained) growth in Zambia” and to sequence
them to get inclusive growth going.
2. Approach
• The method outlined is inspired by growth
diagnostics a la Hausmann et al.
• Looks at both supply and demand side
conditions that prevent the poor from taking
part in the growth process.
• On the supply side the idea is to look at
constraints that hamper employability and
access to labour markets.
• On the demand side the focus is on obstacles
to job creation and productivity improvements.
• Is it more fruitful to start the analysis from the poor
individual rather than from “above”.
• It is certainly important to discuss the poor's assets and
market access and to find ways to give them better
access to resources and capacity and open up new
opportunities. But for the policy discussion we need to
consider reasons as to why there is lack of wage/selfemployment or low returns, and on the whole this
approach leads us to the usual suspects
• Points to business environment analysis and analysis of
productivity dynamics, possibilities for economic
transformation and diversification, constraints affecting
labour mobility cross sectors and regions, labour
market constraints, access to education, finance and
infrastructure. This looks like a comprehensive review.
• Pedagogical advantage?
3. Analysis
• The main conclusion from the analysis is that the main
binding constraint is negative coordination
externalities.
• This refers to poor access to domestic and international
markets, inputs, services, and information. If further
covers high indirect costs – on infrastructure and
service related inputs into production including energy,
transport, telecom, water, insurance, marketing and
professional services.
• Or poor market integration and poor infrastructure.
• So why this term? Does the fact that something is or
poor quality mean that it is a negative externality
• Or is the concept aimed to pick up
coordination failures that mean that the
country is stuck in some low level equilibrium?
It is for example noted that "the services
needed require simultaneous, large-scale
investments in various sectors of the
economy."
• This seems to suggest that we need a Big Push
(a la Sachs). Is that the message? If so, this
should be made clear and it may require a
special discussion of the problems associated
with it.
Focus on employment is important.
The paper notes that the growth has largely taken
place in sectors such as community and social
services, real estate and business services,
wholesale and retail trade, which are
characterised as employers of last resort.
Are we talking about the informal sector?
People are leaving agriculture but the formal sector
does not absorb many of them. Since K/L is hardly going
up in Africa the mover get stuck in activities requiring
little capital, that is typically informal sector activities.
These are OK since they keep people alive, but they are
hardly the basis for an economic take-off. The informal
sector does not pay taxes, does not export, and does
not invest very much.
So how to get from this state to some something more
promising would be an interesting topic in a discussion
of pro-poor growth.
High cost of capital or lack of access to capital is
almost always cited in surveys of entrepreneurs as
top constraints on investment and
growth. However, investments are also held back
by lack of sufficiently profitable (given risk
premiums) investment opportunities.
It is argued that the fiscal impact of the mining
boom really been “negligible”. I understand that
direct payments have been very low (but
increasing), but the indirect effect I would assume
to be substantial?
Diagram 7: Rural growth incidence curve
Rural growth incidence curve
0
1
2
3
4
5
Annualised growth 1998-2004 for each consumption decile (%)
0
10
Source: Own calculations
20
30
40
50
60
70
Rural consumption deciles
80
90
100
Diagram 8: Urban growth incidence curve
Urban growth incidence curve
0
1
2
3
4
5
Annualised growth 1998-2004 for each consumption decile (%)
0
10
Source: Own calculations
20
30
40
50
60
70
Urban consumption deciles
80
90
100
Table 9: Decomposition of changes in rural moderate poverty
Period
Growth
Redistribution Residual Total change
component Component
In poverty
Head count (P0)
1998 to 2004 -6.53
0.21
0.34
-5.98
Depth (P1)
1998 to 2004 -7
1
0.16
-5.84
Severity P(2)
1998 to 2004 -6.06
1.1
0
-4.96
Source: Own calculations.
Table 10: Decomposition of changes in urban moderate poverty
Period
Growth
Redistribution Residual Total change
component component
In poverty
Head count (P0)
1998 to 2004 -5.9
2.85
0.12
-2.93
Depth (P1)
1998 to 2004 -3.45
1.84
-0.13
-1.74
Severity P(2)
1998 to 2004 -2.28
1.2
-0.14
-1.22
Source: Own calculations.
Table 13: Income diversification per quintile, percent
Quintile
1
2
3
Year
2001 2004 2001 2004 2001
Crops, own cons.
73.8 73.2 65.6 64.9 56.1
Crops, sales
7.0 8.4 9.7 13.8 14.4
Vegetables, sales
2.6 1.9 3.2 2.0 4.8
Livestock, income
2.4 5.6 2.9 5.0 3.7
Wage income
2.7 4.4 3.9 4.3 5.6
Remittances
5.0 2.4 4.4 1.8 3.3
Own business income 6.5 4.0 10.3 8.1 12.1
Sum
100 100 100 100 100
Source: Authors’ own calculations
2004
53.9
16.4
4.0
6.4
6.6
1.7
11.0
100
4
2001
41.0
15.4
5.6
3.9
13.7
2.8
17.7
100
2004
42.9
20.6
4.4
6.5
10.3
1.3
14.0
100
5
2001
15.2
10.3
6.0
2.3
30.6
1.3
34.3
100
2004
16.3
17.7
6.1
4.2
24.6
0.8
30.4
100
Also PPG needs growth analysis.
(a) Aggregate growth
(b) Access of the poor
(c) Policy conclusions
If coordination or integration is the key
we need to analyse the institutions
delivering it, such as firms and
government, to be able to come up
with polciies.
4. Policy conclusions
(1) Do something about “negative
coordination externalities”
(2) Deal with the real appreciation
(3) Improve productivity
(4) Improve access to capital
(5) Improve the quality of and access to
secondary and tertiary education
(1)
Improve tax revenue collection
(2) Improve government’s financial management
(3) Improved public sector efficiency and monitoring
(4) Improve infrastructure
(5) Private sector development strategy should be made
more efficient and avoid excessive intervention. If Zambia is
to be able to reach an economic take-off, the country must be
an attractive destination for both foreign and domestic
private investors with a better business environment and
improved infrastructure.
(6) Poverty relevant social services such as health and
education remain vital.
(7) Social protection
(8) Improved governance is the key to successful
development.
Important themes in
a PPG analysis for Zambia
(a) Market integration
(b) Infrastructrue
(c) Informal sector links
(d) Political economy
(e) Policy implementation