Transcript . The Problems of Small States in Africa

AFRICA: DEVELOPMENT AND SMALL
STATES
• Small states have long been viewed by
international organizations as a special category
with special problems
• UN Office of the High Representative for the Least
Developed Countries, Landlocked Developing
Countries, and Small Island Developing States
 This shows that the UN regards small developing
states that are landlocked or islands as being on par
with the least developed countries (LDCs)
• LDCs = low income states with a 3 year average
income per capita of less than $905
• Typically, LDCs are characterised by:
i.
Human resource weakness
- health
- food security
- education etc.
i.
Economic vulnerability
- instability of agricultural production
- instability of exports
- handicap of economic smallness (markets etc)
• Economic theory suggests that small states may
have intrinsic disadvantages
• The provision of public services usually yield
increasing returns to scale i.e. big states are
more efficient
• Thus small states suffer from “scale diseconomies”
• Returns on private investment may also have
increasing returns to scale, which may be difficult
to realize in small states
• Small size may also limit an economy’s scope for
diversification
• Many small states are islands or landlocked,
and face problems of remoteness
Southern Africa
is a particularly
good example
of this
• Small states also often only produce a
few items and import the rest
• Being relatively open economies (they
have to be, in order to import needed
goods) they are then more exposed to
trade shocks
• Small states are also disproportionately
affected by natural hazards
Typical constraints generally attributed to small
states also include:
1.
2.
3.
market size – lack of consumers
export composition – small export portfolio
vulnerability to exogenous shocks – particularly
regarding commodity price fluctuation
AFRICA
14 countries are classified
as small states
Of these, SEVEN are in southern Africa
THE INHERENT DISADVANTAGES OF SMALL AFRICAN STATES
Five disadvantages of small African states:
1.
High infrastructural costs
2.
High public service and institutional costs
3.
High costs of tertiary education and limited
opportunities for high-skilled employment
4.
High exposure to natural hazards
5.
High volatility of GDP
HIGH INFRASTRUCTURAL COSTS
• One study examined whether business costs were
higher for four categories of small states than in
median-size countries (population 10 million):
- micro (under 12,000 inhabitants)
- very small (under 200,000) – Seychelles, Comoros
- threshold (under 1.6 million) – Swaziland, Mauritius
- small (under 4 million) – Botswana, Lesotho, Namibia
Disadvantages—higher charges for
transport, utilities, and skills etc—were
modest for countries with up to 4 million
population
But the disadvantages worsened rapidly as
size diminished, and was very high for the
“very small” and “micro” categories
Micro states where such business costs are 30–40% higher will find
it difficult to compete in manufacturing - even with very low wages
 Their viability lies in finding economic niches (such as tourism)
 EXAMPLES: Mauritius and Seychelles
HIGH PUBLIC SERVICE AND INSTITUTIONAL COSTS
• The share of government consumption in GDP
is higher in small states because the fixed costs
of many government services—such as defence,
bank supervision and higher education—are
high
• Government administrative capacity tends to
be limited in states with very small
populations.
• In response, small states have devised
innovative ways to overcome scale
diseconomies
• Southern African Customs Union (established in 1910)
brings together Botswana, Lesotho, Swaziland,
Namibia and South Africa
• Provides a common external tariff - all customs and
excise collected are paid into South Africa’ national
Revenue Fund and is then shared among members
according to a revenue-sharing formula
• SACU revenue constitutes a major share of state
revenue for the smaller states
•  Costs are reduced
HIGH COSTS OF TERTIARY EDUCATION, LIMITED JOB
OPPORTUNITIES
• Universities/technical training institutions need a
minimum size to attract suitable staff and students – but
creating skills often causes brain drain
• World Bank report revealed that in Africa, nationals who
attended university and have left their country the most
are from:
-
Cape Verde (68 %)
Gambia (63 %)
Mauritius (56 %)
Seychelles (56 %)
 44% of doctors posts, 19% of posts for nurses and 17% of
nursing assistant posts in Swaziland are unfilled
 In Lesotho, a study found that 37% of people
interviewed had a family member working in South
Africa, with 26% having a family member permanently
settled there, whilst 18% had obtained South African
identification documents
• BUT Remittances are a critical lifeline for families and entire
communities across Africa
Top remittances per capita (US$) to Africa:
1.
2.
3.
4.
5.
6.
Cape Verde
Seychelles
Swaziland
Botswana
Senegal
Nigeria
262
129
86
75
75
62
 Remittances come in foreign currency and go directly to
households
 means that these transfers have a significant impact on poverty
reduction, funding for housing and education, basic essential needs
and even business investment
Remittances are also quite steady and reliable flows of
income
HIGH EXPOSURE TO NATURAL HAZARDS
• In Africa, disaster damage as a proportion of GDP averaged 58%
in small states against 8% for large states
Compounded by:
• Limited natural resource base, intensity of land-use, immediacy
of interdependence in human environment systems, spatial
concentration of productive assets
• High external transport costs, time delays and high costs in
accessing external goods, delays and reduced quality in
information flows, geopolitically weakened
• Small exposed interiors, large coastal zones
• Weak disaster mitigation capability
• Limited hazard forecasting ability
• Little insurance cover
• Small economies, dependence on external finance, small
internal market, dependence on natural resources, highly
specialised production
Geographic location
might be problematic
 An example outside of
southern Africa: Cape
Verde suffered a
hurricane that struck the
island of Brava in 1982, a
severe volcanic eruption
on Fogo in 1995, a deadly
flooding in Sao Nicolau
in 2009, and a dengue
fever epidemic in 2009
SMALL STATES HAVE HIGHER GDP VOLATILITY
• Small states are typically dependent on a few
economic activities
• A boom or bust in these sectors can propel GDP up or
down much more than in large countries.
• Such countries are generally relatively open
economies, highly sensitive to changes in the global
economy
• Volatility (measured as the standard deviation of the
growth rate of per capita GDP) is 3.9 in small states,
as against 1.4 in low-income countries and 1.5 in
middle-income countries (World Bank)
• However, Africa, the region that is
poorest and most dependent on
commodity exports, is an exception
• While volatility of GDP growth is high in
Africa, it was lower between 1981 and
2002 in small states (5.85) than in large
states (6.63)
WHY?
• In Africa, some larger states are relatively undiversified
commodity producers.
• But many small states are more diversified, since even a
modest amount of tourism or industry creates substantial
diversification out of commodity production
 Share of agriculture in GDP in small African states = 17 %
vs. 32 % in large African states
 Share of services in GDP was 50% in small African states
vs. 43% in large African states
CHARACTERISTICS OF AFRICAN SMALL STATES
1. African small states are a very heterogeneous group
SIZE: Contrary to groups of small states in the Caribbean, the
Pacific or Europe, African small states show a wide range of
population and land area from 460 km² in Seychelles to 823,290 km²
in Namibia
LOCATION: Some African small states are islands (e.g. Cape Verde,
Comoros and São Tomé e Príncipe), while others are landlocked
(Botswana, Lesotho, Swaziland)
ECONOMY: Some of them have valuable natural resources
(Botswana, Namibia, Equatorial Guinea), while most others do not
GOVERNANCE: Institutions are generally strong in many African
small states such as Botswana and Mauritius, but a few have
experienced recurring bad governance (Swaziland and Lesotho)
WEALTH: Variation in GDP per capita is substantial, ranging from
$1,700 in Lesotho to $23,200 in Seychelles
2. However, many small states in Africa are better off
 small states are on average substantially richer than
the average SSA country
 Median GDP per capita of African small states $2,217more than 4x median of larger SSA states
 African small states are, however, much poorer than
the average small state globally
 The GDP per capita of all African small states, with
the exception of Seychelles, falls below the small
states average.
Name
Comoros
Area (km²)
Population
Density (per
km²)
Per capita GDP
($)
2,170
752,438
346.7 1,000
23,000
516,055
22.4 2,800
2,040
1,284,264
629.5 14,000
Seychelles
455
87,476
192.2 23,200
Equatorial
Guinea
28,051
633,441
22.6 36,600
267,667
1,514,993
5.6 14,500
1,001
212,679
600,370
1,990,876
Lesotho
30,355
2,130,819
70.2 1,700
Namibia
825,418
2,108,665
2.6 6,900
Swaziland
17,363
1,123,913
64.7 4,500
Cape Verde
4,033
429,474
107.3 3,800
Gambia
11,300
1,782,893
157.7 1,900
Guinea-Bissau
36,120
1,533,964
42.5 1,100
Djibouti
Mauritius
Gabon
São Tomé &
Príncipe
Botswana
212.4 1,800
3.3 14,000
African small states are more open than their
African sub-Saharan counterparts
In general, small states tend to be more open, the
argument being that trade enables small states to
alleviate constraints associated with their small
domestic market
However, some African small states tend to have
relatively low shares of trade in terms of GDP
The trade share is particularly low in Comoros
(trade share of 56 %) and Guinea- Bissau (60 %). Both
countries are recovering from decades of civil war.
i.
In contrast, the trade share of some other African
small states, such as Lesotho, Mauritius, Seychelles
and Swaziland exceeded the small states’ average
during the last decades
ii. Other small African countries, such as Cape Verde
and São Tomé and Príncipe have increasingly
integrated into the world economy during the last 25
years
 BUT whilst small African states are more open than
other SSA countries, a lot remains in terms of making
them easy to do business in
Average ease of doing business
 Easiest
Hardest 
As a consequence of higher GDP and a larger share of capital
expenditure, infrastructure (measured as the paved roads as a share
of total roads and the number of telephone lines as a share of
population) is substantially better in African small states compared to
SSA overall.
Nonetheless, several African small states continue to suffer from a
weak infrastructure, in particular Djibouti, Gabon and Guinea-Bissau
 Infrastructure and geography have been identified as the main
determinants of trade costs
A small population size implies lower ethnic
divisions
African borders were drawn to a large extent
exogenously from ethnic boundaries by the
European colonial powers, which resulted on
average in higher ethnic fractionalization in SSA
States that happened to have smaller populations
are likely to include a smaller number of ethnic
groups
Since high ethnic fractionalization has been linked
to a higher probability of conflict and weaker
institutions, “smallness” actually turns out to be an
advantage in the African context
Of course there are very important exceptions
• In southern Africa, some small states
are pretty homogenous:
i.
ii.
iii.
iv.
Botswana:
Lesotho:
Swaziland:
Seychelles:
80% Tswana
99.7% Basotho
97% Swazi
70% Creole
Countries in Africa with a high degree of ethnic
fractionalization tend to have weaker governance
Ethnic fractionalization also tends to weaken
institutions
 ethnic fractionalization may lead to
uncoordinated rent-seeking activities where
each ethnic group competes with the other
Moreover, ethnic fractionalization may weaken
the centralization of control and useful checks and
balances
This then can weaken accountability and open the
door for corruption.
• In line with this theory, governance is generally
stronger in African small states, partly as a result
of lower fractionalization
• The institutional quality of the average small
African states is higher than the sub-Saharan
African average
• Small African states are less corrupt, have more
effective and accountable government, a better
regulatory environment and better rule of law
overall
• This difference between small and larger African
states is particularly large in the case of rule of
law: ten out of 14 small states fare better than the
average sub-Saharan African state
• The Ibrahim Index of African Governance (an annual
assessment of African countries based on the
quality of their governance) has been in operation
since 2007
Top three performers (in descending order):
2007 Index: Mauritius, Seychelles, Botswana
2008 Index: Mauritius, Seychelles, Cape Verde
2009 Index: Mauritius, Cape Verde, Seychelles
2010 Index: Mauritius, Seychelles, Botswana
2011 Index: Mauritius, Cape Verde, Botswana
2012 Index: Mauritius, Cape Verde, Botswana
2013 Index: Mauritius, Botswana, Cape Verde
2014
Of all of Africa’s small states, only Djibouti is less
stable then the average for sub-Saharan Africa.
Political rights in these countries are actually stronger
on average than in SSA
Armed conflict is substantially rarer in African small
states compared to the average for sub-Saharan
Africa
The probability of state failure is also much less in a
small state, compared to the average sub-Saharan
state
STATE PERFORMANCE
• Three determinants of small state performance: geographical
location, natural resources, and policies and institutions
i. Geographical Location
• Determines distance to markets, transport costs, and ease of
integration with neighbours
• Small states are mainly islands or landlocked and undoubtedly
suffer from disadvantages in this respect
• BUT in Africa, the small landlocked states (Botswana, Lesotho,
and Swaziland) are well linked to the big market and good
infrastructure of South Africa
• Larger landlocked countries in Africa mostly have neighbours
with smaller markets and weak infrastructure  and suffer
accordingly
ii. Natural Resources
• Natural resources - the most important are minerals and
agricultural resources for tropical crops
• Many small states are commodity exporters:
• Botswana and Namibia have diamonds and other minerals
• Mauritius has excellent agro-climatic conditions for growing
sugar
• Lesotho exports water to South Africa
• Donor policies in the past have aimed to encourage the
export of commodities
• Substantial aid and trade preferences have focused on
developing and protecting commodity exports
 also, natural beauty i.e. tourism, is a natural resource
iii. Policies and Institutions
• The large number of small-state successes
suggests that good policies and institutions can
overcome disadvantages arising from
geographical location or factor endowments.
• Very small states have exceptionally high
disadvantages in transport, infrastructure, and
governance costs
• Small states such as Mauritius and Seychelles
have no great mineral or agricultural
endowments, but their policies and institutions
have attracted enough foreign investment,
financial services, and tourism to make them
(relatively) rich
• However, other small states that have
suffered from poor policies and
governance have been among the
weakest performers
• In Africa, small states with good policies
and institutions (notably Botswana and
Mauritius) have prospered, while those
with weak governance and policies
(Comoros, Guinea-Bissau) have
remained poor
CONCLUDING REMARKS
• Despite the advantage for growth that large states
with resource bases and domestic markets should
theoretically enjoy, Africa’s three most populous
countries — Nigeria, Ethiopia and the DRC are per
capita income very poor
• On the other hand, per capita income in countries
with lower than 2 million inhabitants has shown
steady growth for the last 15 years
• Big African states have not succeeded in establishing
political and administrative systems capable of coping
with the challenge posed by their size
• They remain poorly governed, poorly administered
and perpetually unstable
• Small African states however have relatively
reconciled their internal political, ethnic, and religious
differences and established systems capable of
accommodating the demands and interests of their
various constituencies
 Africa in some respects represents a paradox in the
literature on small states and this is particularly the case
in southern Africa