Front Matter

Front Matter

Author(s):
Lamin Leigh, and Ali Mansoor
Published Date:
January 2016
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    Africa on the Move

    Unlocking the Potential of Small Middle-Income States

    EDITORS

    Lamin Leigh and Ali Mansoor

    © 2016 International Monetary Fund

    Cover design: IMF Multimedia Services Division

    Cataloging-in-Publication Data

    Joint Bank-Fund Library

    Names: Leigh, Lamin | Mansoor, Ali M.

    Title: Africa on the move : unlocking the potential of small middle-income states / Lamin Leigh, Ali Mansoor, editors.

    Description: Washington, DC : International Monetary Fund, 2016. | Includes bibliographical references and index.

    Identifiers: ISBN 978-1-51358-860-5

    Subjects: LCSH: Economic development—Africa. | Africa—Economic conditions.

    Classification: LCC HC800.A37 2016

    The views expressed in this book are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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    Contents

    Foreword

    The small middle-income countries (SMICs) in sub-Saharan Africa have delivered impressive economic performance in the past few decades. They have sustained growth while preserving macroeconomic stability. In general, their governments have also effectively addressed those countries’ development challenges, including narrowing the infrastructure gap and improving access to education and health. The current challenge for SMICs is how best to consolidate the gains made during the past few decades and move to the high-income level and eventually to advanced economy status.

    This book analyzes macroeconomic and structural issues facing SMICs from the perspective of IMF staff and draws on input from country officials to offer a number of policy options for addressing these challenges and realizing future opportunities. The areas covered in the book include the macroeconomic vulnerability faced by SMICs and how to enhance their resilience to shocks, an assessment of how labor market outcomes can be improved by reforms that cut spending and crowd in private initiative, structural policies and institutional frameworks that could boost productivity growth in SMICs, financial inclusion policies that are stability and growth friendly, and finally how political economy constraints could be relaxed to pave the way for gradual but systematic implementation of reforms. The policies discussed in the book lay out a possible road map for the implementation of reforms in all these areas to eventually propel SMICs to advanced economy status.

    The findings in each chapter offer specific insights for the convergence process to advanced economy status. Chapter 1 starts by providing an overview of the impressive achievements made by SMICs and their common policy challenges. It compares the SMICs with countries that have succeeded in becoming high income to identify applicable policy lessons and institutional arrangements.

    Despite the progress made, evidence suggests that a number of SMICs are facing residual macroeconomic challenges that make them vulnerable to global spillovers. Chapter 2 uses self-insurance models to assess the adequacy of reserves in SMICs. The chapter finds that even though international reserves held by some of the SMICs are broadly adequate to smooth large shocks, other SMICs do not have sufficient reserve buffers to withstand such shocks. Implications are drawn for medium-term fiscal and structural policies in SMICs.

    Chapter 3 notes that high unemployment persists in many SMICs despite public employment that contributes to relatively large governments. The analysis shows that high public employment is not only costly but may have a counter-productive impact on labor market outcomes in SMICs. The chapter concludes by assessing how labor market outcomes can be improved by reforms that cut spending and crowd in private initiative.

    The book proceeds in Chapter 4 to explore structural policies and institutional frameworks that could boost productivity growth. The analysis shows that the decline in the contribution of total factor productivity (TFP) to growth is largely responsible for the slowdown in trend growth in many SMICs, highlighting the need for policy actions to reinvigorate productivity growth, including by improving the quality of public spending, addressing the skills mismatch in the labor market, reducing the regulatory burden on firms, and facilitating structural transformation in these economies.

    The financial sector in SMICs continues to deepen and broaden, with global regulatory reform providing input to national regulatory settings. Although financial deepening is broadly similar to that in other middle-income countries, financial inclusion tends to lag in many SMICs in sub-Saharan Africa. Accordingly, many SMICs are pursuing policies to enhance financial inclusion as part of their efforts toward more inclusive growth. Chapter 5 notes that well-designed, market-conforming programs to enhance financial inclusion could work, especially with input from stakeholders; however, programs to increase access to credit through public sector institutions have so far generally been costly with little sustained impact. Addressing the supply-side and demand-side constraints to lowering intermediation costs and the better pooling of risks would provide a more sustainable basis for enhancing financial inclusion in a stability- and growth-friendly manner.

    In view of the main economic challenges in the region, no assessment would be complete without addressing the thorny issue of how to overcome the political economy constraints to reforms in SMICs. Drawing on policy lessons from successful countries that have managed to overcome some of those constraints and moved to advanced economy status, Chapter 6 lays out how political economy constraints could be relaxed by capacity building centered on peer learning and gradual but systematic implementation of reforms.

    The book has benefited from a wide range of discussions with public officials in SMICs, including at a seminar held in Mauritius in November 2014 that relied on multistakeholder cooperation to bring together 18 high-level economic officials from seven sub-Saharan African SMICs to examine how to avoid the “middle-income trap.” At this event, SMIC authorities saw merit in pursuing peer learning—a combination of policy dialogue and capacity development that has been used relatively rarely by the IMF—to help move reforms forward in their countries and considered the book a useful tool in this effort.

    The book also has broader applicability to sub-Saharan Africa because it highlights what lies ahead for a number of fast-growing frontier market economies in the region that are on their way to graduating to middle-income status and may well experience challenges similar to those faced by the SMICs in the region.

    Finally, this book represents an excellent collaborative effort with country officials in SMICs and what I hope is the beginning of a deeper policy dialogue between these members and the IMF on ways to implement reforms that would unlock their potential. As demonstrated by the IMF’s involvement in other peer groupings (for example, the Group of 20, the Group of 24, the BRICS [Brazil, Russia, India, China, and South Africa], and the UN Small States), the expertise of IMF staff can assist country authorities in realizing their potential. We trust that this book can contribute in a similar way to SMICs as they try to break the glass ceiling of the middle-income trap and move to advanced economy status.

    Antoinette M. Sayeh

    Director, African Department

    International Monetary Fund

    Acknowledgments

    The authors would like to thank the country authorities of Botswana, Cabo Verde, Lesotho, Namibia, Mauritius, Seychelles, and Swaziland for their input and for their helpful comments on an earlier draft of this publication. The authors would also like to thank Ana Semedo, Carla Cruz, Elizabeth Charles, Emma Haiyambo, Erwin Niamhwaka, Jittendra Bissesur, Matthew Wright, Prakash Hurry, Rachna Ramsurn, Sen Narrainen, Sephooko Motelle, Tau Puseletso, and Pako Thupayagale for their contributions. Thanks go to AFRITAC South; AFRITAC West-2; the Regional Multidisciplinary Centre of Excellence in Mauritius, especially Vitaliy Kramarenko and Bertrand Belle, for organizing a technical workshop in Mauritius during November 18–21, 2014, where the key findings of this book were discussed, accompanied by a training session for the various contributors from the seven countries. We are particularly indebted to Anne-Marie Gulde for her overall guidance and wise counsel, including on strategic issues, and for her strong support for the SMIC project from its inception all the way to final publication of this book. Bertrand Belle also deserves special mention for having assisted us in following up with and coordinating the comments from the various country authorities and for his contributions to Chapter 6. Our gratitude also goes to Antoinette M. Sayeh and the other Senior Reviewers in the African Department for their support for this publication. Thanks also to our two reviewers—Andrew Berg at the Institute for Capacity Development of the IMF and Dr. Yaw Ansu of the African Center for Economic Transformation, in Accra, Ghana—for their insightful commentary and useful suggestions. We are also indebted to the IMF’s Communications Department and other IMF colleagues for their comments and support. This publication would not have been possible without the excellent research assistance of Andrew Jonelis, who contributed to two chapters of the book; Mounir Bari, who also provided excellent research assistance at the final stage of the publication; and the editorial support of Breda Robertson. All remaining errors or omissions are, of course, our own.

    Contributors

    Bertrand Belle was pursuing a Master’s in Public Administration in International Development (MPA/ID) at Harvard University at the time this book was written. He is currently a Special Advisor to the Vice President of Seychelles. Prior to his studies he was the Permanent Secretary in the Ministry of Finance of Seychelles, primarily responsible for economic policy and planning. He holds an MEng in chemical engineering from the University of Manchester in the United Kingdom.

    La-Bhus Fah Jirasavetakul was an Economist in the African Department of the IMF and a desk economist for Cabo Verde at the time this book was written. She is currently an economist in the Fiscal Affairs Department. Her research interests include inequality, inclusive growth, labor markets, and tax policies in developing countries. She holds a DPhil and an MPhil in economics from the University of Oxford.

    Andrew Jonelis was a research analyst in the African Department of the IMF, where his responsibilities included working with the economists for Botswana, Lesotho, Namibia, South Africa, Swaziland, and Zimbabwe. His previous assignment in the IMF was as an economic systems analyst with the Country Assistance and Technical Support team in the Technology and General Services Department. He holds a BS in business economics and public policy from Indiana University and is currently pursuing a PhD in economics at the University of Kentucky.

    Lamin Leigh is the Coordinator for AFRITAC West-2 (the IMF’s Regional Technical Assistance Center) in Accra, Ghana. Before this he served as a Deputy Division Chief in the African Department, where his responsibilities included serving as mission chief for Botswana and Namibia and coordinating the department’s work on small middle-income countries in sub-Saharan Africa. He holds a PhD in economics from Nuffield College, University of Oxford, and earned his BA from Corpus Christi College, Cambridge University.

    Albert Touna Mama is an Economist in the African Department of the IMF, where his responsibilities include serving as primary desk on Mauritius. Before joining the IMF he was an academic at the University of Cape Town (South Africa). He holds a PhD in economics from the University of Montreal, and an MSc in finance and international economics from the University of Bordeaux.

    Ali Mansoor is currently an Assistant Director at the IMF and mission chief for Senegal. Previously he was the Financial Secretary of Mauritius from 2006 to 2013, where he formulated and implemented a wide-ranging reform program. He has written on regional integration, privatization, migration, fiscal decentralization, and capacity development.

    Marshall Mills was mission chief for Seychelles at the time this book was written. He is currently mission chief for Madagascar and Deputy Chief for the African Department’s Eastern 2 division. He holds degrees from the University of North Carolina, Princeton University’s Woodrow Wilson School, and France’s Ecole nationale d’administration.

    Yibin Mu is presently Senior Economist for South Africa and Co-Coordinator of the Financial Systems Network of the IMF’s African Department. Before joining the IMF, he worked at the World Bank, the People’s Bank of China, and the Hong Kong Monetary Authority. He holds a PhD in economics from Tsinghua University and an MPA from Harvard University.

    Friska Parulian is an Economist in the African Department of the IMF, and worked on Namibia and Botswana. Prior to her career at the IMF, she was an Economist at the Economic Research Institute for ASEAN and East Asia, and associate professor of Economics, University of Indonesia. She holds a PhD and an MA in public finance from Hitotsubashi University.

    Martin Petri was a Deputy Division Chief in the Eastern 2 Division of the African Department, and mission chief for Mauritius at the time of preparation of this book. He holds a PhD in economics from the University of California at Berkeley, a BA in economics from the University of Pennsylvania, a BS in International Management from the Wharton School, and a License in Economics from the University of Montpellier.

    Andrea Richter Hume is currently an Advisor in the Strategy, Policy, and Review Department of the IMF. At the time of writing this book she was a Division Chief in the African Department, where her responsibilities include serving as mission chief for Ethiopia, and previously as mission chief for Cabo Verde. She holds an MPhil and a DPhil in economics from Oxford and a BA in economics from Princeton.

    Ara Stepanyan is now in the Emerging Economies Unit of the European Department of the IMF. At the time this book was written, he was a Senior Economist in the African Department of the IMF, where his responsibilities included working on Botswana and Namibia. He holds a PhD and an MS in economics from the Armenian State University of Economics.

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