Transcript Country Economic Memorandum on Sources of Growth

Returns to Investments as
Potential Constraints
Applied Inclusive Growth Analytics Course
July 1, 2009
Susanna Lundstrom, PRMED
Business
Environment
Analysis
Returns to
economic
activity
Social Returns
Cost of finance
Private
Appropriability
Government
failures
Macro risks
International
sources
of finance
Market failures
Micro risks
Local sources
of finance
Domestic savings
Financial sector
intermediation
Social Returns to Investments
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“The underlying potential returns to investments,
given a non-distorted economy”
Geography
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Infrastructure
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minerals, land-locked, energy, tourism potential,
agriculture potential, etc
roads, electricity, mobile phones, water, rail roads, air
transport, etc
Human Capital
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Jesus Crespo Cuaresma’s presentation
Natural Resources and Geography
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Zambia is well endowed with natural resources
(water, forest, arable land, minerals)
Simple international benchmarking
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Endowment per capita
Cross-country regression evidence:
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tourist flows are much lower than expected, given
Zambia’s natural endowments
estimates suggest that if the road infrastructure and the
business climate were as in South Africa, Zambia’s tourist
flows would be 51 percent higher than existing levels
Natural Resources and Geography
- Agriculture
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Both extensive and intensive
expansion possible in Zambia
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Only 40% of arable land used
Productivity studies show both
substantial employment and
income potential from irrigation
Evidence of government
distortions in agriculture
High indirect costs to
agriculture, (direct taxes and
indirect costs through
macroeconomic and other
distortions)
Natural Resources and Geography
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Mountains? (ex Tajikistan)
Potential neighboring effects?
Landlocked geographic position? (ex Zambia)
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Pros: Serves as an import tax protecting domestic importcompeting industries; borders 8 countries and plays an
active role in regional trade
Cons: reaching global markets and realizing economies of
scale is a problem
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Affects ability to export bulky low–value products (e.g. farm
products)
Requires well-developed air transport and an emphasis on high
value, low weight and volume goods
Natural Resources and Geography
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Access to air
transport is low for
Zambia’s level of
per capita income
But primary roads
are fairly OK
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Important to look at
roads in a
disaggregated way
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Primary-Secondary
Rural-Urban
Zambia
GDP per capita (logs)
Fitted values
95% CI
Infrastructure
- Firm-level cost structure benchmarking gives a hint
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Zambian firms have the
second-highest share of
“indirect” costs:
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energy,
transport,
telecom,
water,
insurance,
marketing,
travel,
independent
professionals and
accounting
Infrastructure
- Roads in Zambia
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High domestic transport costs due to poor domestic
road condition and high fuel
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Affect the ability of rural residents to access markets
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cost for one ton per one kilometer was US$0.07 in Zambia, which
was higher than in countries like South Africa (US$0.02), Malawi
(US$0.07), etc
50% of the rural households were more than 9 (25) kilometers from
the nearest food (fertilizers and seeds) market
Binding constraint? Net returns 10 percent lower for remote
households
Look at examples where they have overcome road
constraints
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ex cotton growers in Zambia
Infrastructure
- Roads, continued
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Road congestion: A sign of high demand and limited supply
Dynamics (and benchmarking) of public investment in
infrastructure
Direct measure of quality:
Infrastructure
- ICA or BEEPs indicate constraints for firms
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Survey data shows that 56% of firms experienced power outages in Tajikistan
Percentage of people naming element as the biggest obstacle
faced by establishments in Tajikistan. 2008
Crime
Transport
Tax Administration
Political Instability
Custom and Trade
Regulations
Electricity
Access to Land
Business Licensing
and Permits
Corruption
Skills and Education of
Workers
Practices of Informal
Competitors
Tax Rates
Access to Financing
Source: Tajikistan BEEPS, 2008
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Private investments in power generators another potential indicator
Infrastructure
Connectivity services
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Market monopolies or state-owned enterprises
common
Mobile rate per minute – international benchmarking:
Mauritius
$0.04
$0.10
Zimbabwe
$0.14
Mozambique
$0.21
Namibia
Swaziland
$0.25
Tanzania
$0.25
$0.27
South Africa
$0.29
Malawi
$0.32
Botswana
$0.44
Zambia
$0.00
$0.05
$0.10
$0.15
$0.20
$0.25
$0.30
$0.35
$0.40
$0.45
Infrastructure
Connectivity services
20
Internet users per 100 inhabitants
18
16
Armenia
Azerbaijan
China
14
Georgia
Kazakhstan
Kyrgyzstan
12
Lao P.D.R.
Moldova
Mongolia
10
Russia
Tajikistan
Ukraine
Uzbekistan
Turkmenistan
8
6
4
2
0
1999
2000
2001
2002
2003
2004
2005
Infrastructure
- Differences rural-urban
The number of households with access to facilities within five kilometers
120
100
80
Rural
60
Urban
40
20
0
Food
Market
Input
Market
Post Office
Public
Transport
Public
Phone
Internet
Cafe
Infrastructure
Note…
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The reasons for poor access is not always
because of limited supply but because of industry
structures and interests
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It is not only about the average availability or
cost – it is also about the reliability
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Zambia: electricity costs are not high compared to
countries within and outside the region, but prices are
held too low for expansion outside mining
Number of power outages, harassment/road blocks
during transport, etc…
Always ask “But is it binding?”