Andrle, M., David, A. C., Espinoza, R. A., Mills, M., and Zanna, L.-F. (2012). As you sow so shall you reap: Public investment surges, growth, and debt sustainability in togo.
Ansar, A., Flyvbjerg, B., Budzier, A., and Lunn, D. (2014). Should we build more large dams? the actual costs of hydropower megaproject development. Energy Policy, 69:43–56.
Berg, A., Gottschalk, J., Portillo, R., and Zanna, L.-F. (2010). The macroeconomics of medium-term aid scaling-up scenarios. IMF Working Papers, pages 1–45.
Buffie, E. F., Berg, A., Portillo, R., Pattillo, C. A., and Zanna, L.-F. (2012). Public investment, growth, and debt sustainability: Putting together the pieces. Number 12–144. International Monetary Fund.
Castellano, A., Kendall, A., Nikomarov, M., and Swemmer, T. (2015). Brighter Africa: The growth potential of the sub-Saharan electricity sector. McKinsey and Company.
Clark, M. W. and Rosales, M. M. (2013). The Investment-Financing-Growth Nexus: The Case of Liberia. Number 13–237. International Monetary Fund.
ESKOM (2014). Schedule of standard prices for eskom tariffs 1 april 2014 to 31 march 2015 for non-local authority supplies, and 1 july 2014 to 30 june 2015 for local authority supplies.
Hydrelect (2012). Station de transfert d’ Énergie par pompage de edolo, val camonica. http://www.hydrelect.info/articles.php?lng=fr&pg=930.
Issoufou, S., Buffie, M. E. F., Diop, M. B., and Thiaw, K. (2014). Efficient Energy Investment and Fiscal Adjustment in Senegal. Number 14–44. International Monetary Fund.
Makarechian, A. H. (1996). Hydroelectric pumped storage technology: International experience. ASCE.
Planete-TP (2008). Upstream of the romanche valley. http://www.planete-tp.com/en/upstream-of-the-romanche-valley-a235.html.
Appendix: Robustness of the Electricity Share in Production of Tradables and Non-Tradables
In this appendix we check the robustness of the assumption on the electricity share in the production of tradable and non-tradable goods.
It is a priori unclear whether Lesotho should face a higher or lower electricity intensity than the EU, the USA, China, or Japan. There are several possible reasons for a low electricity intensity in developing countries; one could be that the subsistence agricultural sector and the informal sector need little electricity to produce. Another reason could be that even sectors which are electricity intensive in industrial economies are less so in developing countries, as they optimally use more abundant and cheap resources as labor rather than scarce and outage-prone resources as electricity. On the other hand, it may be the case that Lesotho faces higher electricity shares than industrial economies as it specializes in sectors which are relatively energy intensive as textiles and mining.
For these reasons, we check the impact of both increasing and decreasing βx and βn. From our baseline of βx = 0.02 and βn = 0.01 in the first robustness check we decrease both numbers by 50% to βx = 0.01 and βn = 0.005. In the second check we increase them by 50% to βx = 0.03 and βn = 0.015 respectively. All the simulations are run in the case of low efficiency and high demand from South Africa, with the baseline being exactly the scenario presented in subsection B. of the scenarios section.
Figure 9 presents the results of this simulation. As the fourth panel shows there is no change in the path of public investments in electricity, which is costly due to low efficiency. Moreover, even the percent change in domestic electricity prices does not change. This is because the increase in the quantity of electricity is the same across scenarios.
The two parameters under investigation enter the production function of the domestic goods; therefore, it is unsurprising that the main impact of varying them is seen in the output growth. If the economy is 50% more electricity intensive than in the baseline, the project raises output by roughly 0.4 percentage points at the first growth peak after 9 years, which reaches a differential of 0.6 percentage points after 30 years. Conversely, if the economy is 50% less electricity intensive than in the baseline, the project will lower output by similar magnitudes.
The variation in output has a direct impact on consumption, this implies that an economy more electricity intensive would benefit relatively more from the project. In the higher βx and βn case, the percent increase in consumption keeps rising steadily: it stands 0.46 percent higher after 9 periods and reaches 0.91 percent higher after 30 periods. The size of the decrease in consumption in the opposite case is similar, with a decrease of 0.46 percent after 9 periods and of 0.91 percent after 30.
The private sector of the economy is quite sensitive to the electricity intensity, on the other hand, the fiscal sector does not experience much variation across regimes. Taxes and public debt follow closely their baseline values. In all three simulations taxes reach quickly 19 percent and stay there for a prolonged period of time. In the simulation with high βx and βn taxes start declining only one year before the baseline and in the simulation with low βx and βn they begin the declining path only one year after the baseline. Even in subsequent years the difference in the tax rate with the baseline never surpasses 0.5 percent. A similar observation carries through to public debt with the difference with the baseline being at most 2 percent, a small number considering the peak of public debt present in these simulations.
The robustness check presented in this appendix explores the sensitivity of the model to the choice of the parameters governing the electricity intensity of the production side of the economy. The outcome is that the welfare analysis is more sensitive to this assumption than the debt sustainability one. Consumption varies moderately across simulations whereas taxes and public debt do not.
We would like to thank Felipe Zanna, Manoj Atolia, Geremia Palomba, Ahmat Jidoud, David Dunn, and Marcus Wishart for helpful comments. All errors are our own. This working paper is part of a research project financed by the U.K.'s Department of International Development (DFID) to support macroeconomic research on Low Income Countries. This paper should not be reported as representing the view of the IMF or of DFID. The views expressed in this paper are those of the authors ans do not necessarily represent those of the IMF, or of IMF policy, or of DFID.
Data from BOS (2008)
How many hours and at what power the turbines are active.
The Southern African Customs Union (SACU) is a customs union between Lesotho, South Africa, Botswana, Namibia, and Swaziland. The revenues that arise from it are a substantial part of Lesotho budget, and given the small size of Lesotho compared to the custom union, they behave exogenously with respect to domestic developments.
The fact they are time-varying allows us to model staggered tax and transfers structures.