Ideas to Action:

Independent research for global prosperity

CGD in the News

July 12, 2018

The Coming Split in NATO (The Atlantic)

One of President Donald Trump’s chief complaints about America’s European allies is that they don’t spend nearly enough on defense; he has again raised the issue on Wednesday at the nato summit. Granted, Trump is hardly the first American president to point to miserly military spending on the part of fellow nato member states. This has been a sore spot in transatlantic relations since at least the 1970s. But the vociferousness of his complaints, and his transactional approach to alliances writ large, appears to have had an effect all the same. European powers are thinking harder about how to build their military strength and how they might use it in concert, even in—especially in—cases where the United States won’t be there to lend a hand. 

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Yet the alternatives to opening Europe’s borders will be daunting in their own right. Last year, researchers at the Center for Global Development released a working paper on the prospects for manufacturing in Africa, and their findings were sobering. With the important exception of Ethiopia, they found that industrial labor costs in most African states were far higher than one would expect when judging by their overall level of development. The upshot is that while export-oriented manufacturing has greatly reduced poverty in much of East Asia, Ethiopia might be the only country in sub-Saharan Africa suited to that development path. Other African states will have to make use of their labor abundance in other ways—for example, by developing their tourism sectors and by transforming themselves into destinations for wealthy expatriates. In other words, either Africans will come to Europe in search of employment, and Europeans will remake their societies to accommodate them, or Europeans will come to thriving African states in search of a higher quality of life, fueling the expansion of the local service-sector workforce in the process. 

Read the full article here.

May 11, 2018

IMF To Africa: Put Away The Credit Cards (Mail & Guardian)

From the article:

First, the good news: there has been a modest increase in economic growth in sub-Saharan Africa, according to the International Monetary Fund’s (IMF) latest regional economic outlook. This growth, projected at about 3.5% in 2018, is nearly a percentage point higher than last year, mostly thanks to stronger global growth and improved prices for commodities such as oil, aluminium, iron ore, copper, cotton, tea and vanilla.
 
But “these conditions are not expected to last very long”, warns Papa N’Diaye, a senior IMF official.
 
That’s not the bad news. The real worry is the number of countries struggling with ballooning debt. The IMF says that six African countries are in debt distress — Chad, Eritrea, Mozambique, the Republic of Congo, South Sudan and Zimbabwe. Another nine countries are at high risk of debt distress.
 
One statistic illustrates the scale of the problem: over the past four years, repaying national debt has, on average, tripled as a percentage of national expenditure — from 4% in 2013 to a whopping 12% in 2017.
 
A major reason for this debt was the sharp decline in oil prices in 2014, which forced oil exporters such as Angola, Chad and Gabon to borrow heavily to cover the shortfall. Elsewhere, countries borrowed to fund major investments in public infrastructure, although these investments were not always wise — just ask Mozambique, which now has an expensive fleet of tuna fishing boats that are rusting in the harbour.
 
N’Diaye says it’s not too late for heavily indebted countries to escape the debt trap but it requires the immediate implementation of consolidation plans.
 
The IMF did not comment on the irony of it sounding the alarm on debt, when its infamously expensive structural adjustment programmes precipitated Africa’s last major debt crisis, which began in the 1980s.
 
Another irony: it may have been African countries’ success in emerging from that last debt crisis that leaves it on the brink of a new one.
 
Justin Sandefur and Divyanshi Wadhwa of the Centre for Global Development said: “Economic growth converted a number of major African economies from low- into lower-middle-income countries ... in the process they seem to have fallen into an awkward middle ground: not facing any imminent crisis, they were too successful for most kinds of concessional finance from the multilateral financial institutions, but still fragile enough that the cost of finance from commercial creditors was high.”
 
 
November 9, 2017

Technology Cannot Solve All Of Africa’s Problems, But It Can Help With Many (The Economist)

From the article:

Asian countries such as Japan and later Taiwan, South Korea and China embraced many of the world’s latest technologies to build formidable manufacturing economies. But Africa was largely left out of the most recent waves of globalisation, in which labour-intensive manufacturing moved out of Europe and America and into Asia. In 1990 African countries accounted for about 9% of the developing world’s manufacturing output. By 2014 that share had slumped to 4%.

One reason was pinpointed in a recent study by economists at the Centre for Global Development in Washington, DC. It found that labour costs in Africa are about 60% higher than in comparable countries such as Bangladesh. More striking still, the capital cost of employing a worker in Kenya, at $10,000, is about nine times as much as in Bangladesh. This is partly because indirect costs caused by unreliable infrastructure, crime, corruption and poor regulation, among other things, can account for 20-30% of the total costs incurred by firms in Africa...

So can technology help change the fortunes of Africa, or should the region’s governments focus on getting ports and power to work? 

Read full article here.

October 15, 2017

Even Africa’s Poorest Countries Are Too Expensive To Be The World’s Next Manufacturing Hub (Quartz)

From the article:

Even though the global economy has evolved significantly in the last few decades away from the industrial revolution—which transformed many of the world’s advanced countries—there’s still much hope tied to the idea that manufacturing will play a key transformative role in developing countries in Africa today.

Yet, it may be foolish to place too big a bet on manufacturing in Africa, according to a new research paper from US think tank, Center for Global Development.

The researchers used World Bank data to look at 5,500 firms in 29 countries. They compared labor and capital costs, and productivity and efficiency of manufacturing in sub Saharan Africa with similar countries outside Africa, in particular Bangladesh. They did not have good news for most of the region.

Read full article here.