28 July 2011
New Aid Instruments for South Sudan
I went to brief the next crop of ODI fellows heading to South Sudan, in London on Tuesday (good luck folks!). ODI are also running what seems to be a really interesting Budget Support Initiative, providing further technical assistance from a more experienced team. One of the issues the team, and the broader donor community is grappling with, is what lessons to learn from recent experience in other countries with direct budget support, and what new funding mechanisms are appropriate for the new South Sudan as the pooled trust funds expire (disclaimer: I know very little of the detail of arrangements in other countries, or the state of arrangements over the last year in South Sudan - however - I'm going to wade in anyway).
I think you would have to be mad to recommend direct budget support for South Sudan. For two simple reasons.
1 - The Government of South Sudan already has more per capita revenues than its more developed neighbours Kenya or Uganda.
2 - Spending control is poor.
If you want to increase aid to South Sudan, I would propose testing some new ideas, like
1 - Direct unconditional cash transfers to citizens. Run a pilot, it would be relatively easy to rigorously test and monitor to see whether markets can respond to new demand in remote areas, or
2 - Cash-on-delivery aid; offer the government a contract promising payment for outcomes, incentivising the government to figure out the best way of delivering effective services to its people.
And finally, are you really sure we should be giving more aid to South Sudan anyway? Remember it has only 8 million people, less than many cities. Remember it is an enormously expensive place to do business, so you get far less bang for your buck than is possible in cheaper environments. Better to build 1 school in Sudan or 10 schools in India?
And I am now regurgitating old arguments, but not increasing aid does not have to mean not increasing international support. There are lots of other good places to start, such as creating trade and investment policies which are more effective for development.
I think you would have to be mad to recommend direct budget support for South Sudan. For two simple reasons.
1 - The Government of South Sudan already has more per capita revenues than its more developed neighbours Kenya or Uganda.
2 - Spending control is poor.
If you want to increase aid to South Sudan, I would propose testing some new ideas, like
1 - Direct unconditional cash transfers to citizens. Run a pilot, it would be relatively easy to rigorously test and monitor to see whether markets can respond to new demand in remote areas, or
2 - Cash-on-delivery aid; offer the government a contract promising payment for outcomes, incentivising the government to figure out the best way of delivering effective services to its people.
And finally, are you really sure we should be giving more aid to South Sudan anyway? Remember it has only 8 million people, less than many cities. Remember it is an enormously expensive place to do business, so you get far less bang for your buck than is possible in cheaper environments. Better to build 1 school in Sudan or 10 schools in India?
And I am now regurgitating old arguments, but not increasing aid does not have to mean not increasing international support. There are lots of other good places to start, such as creating trade and investment policies which are more effective for development.
Learning to love the welfare state
James Purnell made some interesting welfare reform proposals on Newsnight yesterday. I have a soft spot for Purnell because he played in a game of football (senior advisors vs junior analysts) when I was at the Department for Work & Pensions and he was the Minister.
He also makes a very interesting point with regards to the Gillian Duffy episode; the whole dirty immigration debate is largely wound up with people's perceptions of unfairness in the welfare system. Lots of people believe that illegal immigrants are basically handed big wads of cash and free cars and houses upon arrival. There are lots of genuine racists out there, but there are also lots of people who genuinely care about fairness. And the welfare system is not fair, it is too easy to game.
So Purnell proposes a fundamental rethink starting from a clean slate, and reconfiguring the system to function more like the insurance scheme that it was designed to be. Personally, I really don't even understand why National Insurance is called insurance at all, and I worked as a British labour market analyst for a year. If welfare is to be an insurance scheme rather than a gravy train, it needs to be able to be transparently understood as an insurance scheme.
And who knows, if we can fix welfare, we might even be able to dial down the toxicity in the immigration debate. And never mind Blue Labour, with any luck we can get a proper progressive New Labour renewal with some proper progressive Blairites.
He also makes a very interesting point with regards to the Gillian Duffy episode; the whole dirty immigration debate is largely wound up with people's perceptions of unfairness in the welfare system. Lots of people believe that illegal immigrants are basically handed big wads of cash and free cars and houses upon arrival. There are lots of genuine racists out there, but there are also lots of people who genuinely care about fairness. And the welfare system is not fair, it is too easy to game.
So Purnell proposes a fundamental rethink starting from a clean slate, and reconfiguring the system to function more like the insurance scheme that it was designed to be. Personally, I really don't even understand why National Insurance is called insurance at all, and I worked as a British labour market analyst for a year. If welfare is to be an insurance scheme rather than a gravy train, it needs to be able to be transparently understood as an insurance scheme.
And who knows, if we can fix welfare, we might even be able to dial down the toxicity in the immigration debate. And never mind Blue Labour, with any luck we can get a proper progressive New Labour renewal with some proper progressive Blairites.
18 July 2011
Can Chindian Urban Planning Save the World?
If per capita carbon emissions in both China and India rise to U.S. per capita levels, then global carbon emissions will increase by 139 percent. If their emissions stop at French levels, global emissions will rise by only 30 percent. Driving and urbanization patterns in these countries may well be the most important environmental issues of the twenty-first century.Glaeser, Edward (2011). Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier (Kindle Locations 298-301). The Penguin Press. Kindle Edition.
14 July 2011
Ranil reflects on six years working in Africa
"it’s incredibly humbling when you’re still in the office at two am, trying to get a document printed before its deadline, and it suddenly strikes you that the person standing next to you is doing this for less than $150 a month." [AidThoughts]
13 July 2011
Footage from Juba as South Sudan became independent
This video was taken by Karuna Herrmann from the back of a motorbike on the streets of Juba as South Sudan gained its independence. My glass of Cava in the office in Connecticut doesn't quite compete.
11 July 2011
South Sudan needs macroeconomists
Urgently.
South Sudan will launch its new currency next Monday, just over a week after splitting from the north to become the world's newest nation, the country's finance minister said on Monday. [AFP]And as Keynes said,
"Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some... Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."
05 July 2011
Economic Prospects for the Republic of South Sudan
This post co-written with Abhijeet Singh and an anonymous third contributor
This coming Saturday, 9th July, the world's newest country will officially be born. What are the economic prospects for the new state? Will the new country be “economically viable” as a Western journalist smugly put it to Pagan Amum in London a couple of years ago? Now seems like a good time to take a look.
The Economic State of Southern Sudan: A look at the Data
Read almost any news article or NGO report on Southern Sudan and you will be sternly informed of the terrible situation in one of the poorest countries in the world. And yes, the challenges are real. Southern Sudan does indeed have some of the worst human development indicators in the world.
Only a third of the population above the age of six has ever attended school.
One in ten children don’t make it to their first birthday.
But it’s not all bad news.
The size of the economy in Southern Sudan is actually not all that small. There are not yet any official GDP estimates for the region, but two separate independent estimates, each using slightly different assumptions, put per capita GDP at around $1,300 (One from Ben Leo at CGD, another unpublished from an economist at an international organisation based in Juba). This is only slightly less than Northern Sudan, and puts Southern Sudan firmly in the lower-middle income category of states, similar to India, and richer than most other sub-Saharan African states. The government's annual budget, at the order of $250 per head, is substantially larger than the resources available to neighbouring Uganda, at only around $100 per head.
Whilst the economy as a whole is not that small right now, there is considerable uncertainty looking into the future. GDP relies incredibly heavily upon oil (which accounts for over 95% of the government budget). Most of the oil is located in the South, but it must be exported via the pipeline running through the North. Building a new pipeline heading South through Kenya is basically unaffordable. Greg Snyders estimates that the South will need to give the North 30% of their oil revenues to avert conflict. This is still a reduction from the present 50% which goes North, significantly increasing the resources available to GOSS. In addition to this uncertainty in the future oil-sharing agreement, there is uncertainty in future production (which has been estimated by industry consultants to have peaked, and to have declined by 50% in around 6 years from now), and uncertainty in global prices, which have ranged from $50 a barrel to $150 a barrel over the last few years. There is also the uncertainty of how much of the $35 billion debt owed by Sudan as a whole will be taken on by the South, though GOSS will be loath to take on much given that most of the debt is due to unpaid arrears by Khartoum on money borrowed to pay for projects in the North.
Poverty in Southern Sudan
The other main problem with an oil-based economy is that this wealth is not automatically distributed very widely, unless the government explicitly chooses to.
In 2005 someone scratched their head and decided that poverty must be about 90% of the population, and somehow this figure stuck. Just look at how poor they all are! However the latest actual survey of poverty in Southern Sudan found a rate closer to 50%. Although based on a different poverty line, Kenya also estimates poverty to be around 50%. The situation, though bad, is clearly not quite as dire as many would like to imagine.
Challenges and the need for realistic expectations
Despite this mixed picture, there are some unrealistically optimistic expectations about the future amongst many Southerners. The Vice-President recently proclaimed to be expecting $500 billion investment over the next five years (about as much as China receives). Plans for a new capital city show soaring skyscrapers emerging from the bush. The reality is that despite reasonable national income at present, there is still a shocking lack of infrastructure and enormous demands on public resources. There is also incredibly weak capacity in the central government. Even given the most optimistic scenarios, capacity in the government and investment in public infrastructure and services is going to be a slow process taking decades.
Southern Sudan is expensive. Partly due to poor infrastructure, partly due to a very high risk premium, and partly due to geography. It is sparsely populated with a large geographical spread (Kenya, Uganda and Rwanda combined). Not only is the density low (13 persons/sq. km, approx one-fifth the density of Uganda), but also this population is very dispersed (unlike say Australia or Canada or Libya, where population density is very low but most of it is concentrated in select urban centres). It is also landlocked and far from the coast. All of which means that the cost of trade is high.
The BSF's phase two completion report gives the unit cost of constructing lots of different things - on page 20, it has boreholes: the average cost of construction of a borehole is about £10,000. To put it in context, this is about ten times as expensive as a borehole in India. Even considering that the water table may be lower and that the terrain may be harsher than India, that probably doesn't come close to explaining this gap.
The dispersion of the population, and the lack of adequate infrastructure to reach them, is also a huge barrier to expecting markets to emerge spontaneously. To put it in context, about half of the households in the country did not use cash at all in the week preceding the poverty survey (pg. 11 of the Key Indicators document).
Governance
There are also serious concerns on not only the capacity of GOSS but also the political will to prevent GOSS from becoming a kleptocracy. So far, the signs are worrying - two successive Ministers of Finance fired for having their hand in the till, disregard for budget procedures by key ministries, the collapse of Nile Commercial Bank due to political figures loaning money to themselves, and entirely infeasible infrastructure plans (animal shaped cities, new capital) taken seriously. Maybe all of this will improve after independence as the need to stay united and put on a brave face towards possible Northern aggression recedes, but in general there are reasons to be skeptical. In 2009 the Ministry of Finance (illegally) spent 13 times its annual budget.
The Good News: The best things in life are cheap
The greatest source of hope is the great dynamism that has already been seen in South Sudan since the CPA. Yes, things are still bad, but they are vastly better than they were in 2004. The 2010 Statistical Yearbook shows the number of businesses by their year of opening - over three quarters of the businesses opened in or after 2007; over half of the total businesses opened in 2009 and half of 2010.
The literacy rate for the first cohort to benefit from educational opportunities following the CPA is vastly better than any of their predecessors. Systemic issues remain, including the heavy dependence on donors and NGOs (although that is truer of health than education), but the broad message is entirely hopeful.
To borrow a phrase from Charles Kenny, the best things in life are cheap. Despite economic stagnation, conflict, and corruption, Africa as a whole has seen enormous improvements in the living standards of ordinary people over the past 50 years. Much of this has come not from increases in incomes, but the falling prices of key goods and the development and propagation of new technologies, in particular health-related technologies (the word technology used in its widest sense to include behaviours such as hand-washing). Although coming from a low base, the prospects for improvement in human development indicators is great.
Roundup
So - an economy probably larger than you expected, but still a whole host of problems, many of which have barely been touched upon here. Some really appalling human development indicators, but progress being made. Should we be optimistic about Sudan's economic future? A very qualified yes.
Only a third of the population above the age of six has ever attended school.
One in ten children don’t make it to their first birthday.
But it’s not all bad news.
The size of the economy in Southern Sudan is actually not all that small. There are not yet any official GDP estimates for the region, but two separate independent estimates, each using slightly different assumptions, put per capita GDP at around $1,300 (One from Ben Leo at CGD, another unpublished from an economist at an international organisation based in Juba). This is only slightly less than Northern Sudan, and puts Southern Sudan firmly in the lower-middle income category of states, similar to India, and richer than most other sub-Saharan African states. The government's annual budget, at the order of $250 per head, is substantially larger than the resources available to neighbouring Uganda, at only around $100 per head.
Whilst the economy as a whole is not that small right now, there is considerable uncertainty looking into the future. GDP relies incredibly heavily upon oil (which accounts for over 95% of the government budget). Most of the oil is located in the South, but it must be exported via the pipeline running through the North. Building a new pipeline heading South through Kenya is basically unaffordable. Greg Snyders estimates that the South will need to give the North 30% of their oil revenues to avert conflict. This is still a reduction from the present 50% which goes North, significantly increasing the resources available to GOSS. In addition to this uncertainty in the future oil-sharing agreement, there is uncertainty in future production (which has been estimated by industry consultants to have peaked, and to have declined by 50% in around 6 years from now), and uncertainty in global prices, which have ranged from $50 a barrel to $150 a barrel over the last few years. There is also the uncertainty of how much of the $35 billion debt owed by Sudan as a whole will be taken on by the South, though GOSS will be loath to take on much given that most of the debt is due to unpaid arrears by Khartoum on money borrowed to pay for projects in the North.
Poverty in Southern Sudan
The other main problem with an oil-based economy is that this wealth is not automatically distributed very widely, unless the government explicitly chooses to.
In 2005 someone scratched their head and decided that poverty must be about 90% of the population, and somehow this figure stuck. Just look at how poor they all are! However the latest actual survey of poverty in Southern Sudan found a rate closer to 50%. Although based on a different poverty line, Kenya also estimates poverty to be around 50%. The situation, though bad, is clearly not quite as dire as many would like to imagine.
Challenges and the need for realistic expectations
Despite this mixed picture, there are some unrealistically optimistic expectations about the future amongst many Southerners. The Vice-President recently proclaimed to be expecting $500 billion investment over the next five years (about as much as China receives). Plans for a new capital city show soaring skyscrapers emerging from the bush. The reality is that despite reasonable national income at present, there is still a shocking lack of infrastructure and enormous demands on public resources. There is also incredibly weak capacity in the central government. Even given the most optimistic scenarios, capacity in the government and investment in public infrastructure and services is going to be a slow process taking decades.
Southern Sudan is expensive. Partly due to poor infrastructure, partly due to a very high risk premium, and partly due to geography. It is sparsely populated with a large geographical spread (Kenya, Uganda and Rwanda combined). Not only is the density low (13 persons/sq. km, approx one-fifth the density of Uganda), but also this population is very dispersed (unlike say Australia or Canada or Libya, where population density is very low but most of it is concentrated in select urban centres). It is also landlocked and far from the coast. All of which means that the cost of trade is high.
The BSF's phase two completion report gives the unit cost of constructing lots of different things - on page 20, it has boreholes: the average cost of construction of a borehole is about £10,000. To put it in context, this is about ten times as expensive as a borehole in India. Even considering that the water table may be lower and that the terrain may be harsher than India, that probably doesn't come close to explaining this gap.
The dispersion of the population, and the lack of adequate infrastructure to reach them, is also a huge barrier to expecting markets to emerge spontaneously. To put it in context, about half of the households in the country did not use cash at all in the week preceding the poverty survey (pg. 11 of the Key Indicators document).
Governance
There are also serious concerns on not only the capacity of GOSS but also the political will to prevent GOSS from becoming a kleptocracy. So far, the signs are worrying - two successive Ministers of Finance fired for having their hand in the till, disregard for budget procedures by key ministries, the collapse of Nile Commercial Bank due to political figures loaning money to themselves, and entirely infeasible infrastructure plans (animal shaped cities, new capital) taken seriously. Maybe all of this will improve after independence as the need to stay united and put on a brave face towards possible Northern aggression recedes, but in general there are reasons to be skeptical. In 2009 the Ministry of Finance (illegally) spent 13 times its annual budget.
The Good News: The best things in life are cheap
The greatest source of hope is the great dynamism that has already been seen in South Sudan since the CPA. Yes, things are still bad, but they are vastly better than they were in 2004. The 2010 Statistical Yearbook shows the number of businesses by their year of opening - over three quarters of the businesses opened in or after 2007; over half of the total businesses opened in 2009 and half of 2010.
The literacy rate for the first cohort to benefit from educational opportunities following the CPA is vastly better than any of their predecessors. Systemic issues remain, including the heavy dependence on donors and NGOs (although that is truer of health than education), but the broad message is entirely hopeful.
To borrow a phrase from Charles Kenny, the best things in life are cheap. Despite economic stagnation, conflict, and corruption, Africa as a whole has seen enormous improvements in the living standards of ordinary people over the past 50 years. Much of this has come not from increases in incomes, but the falling prices of key goods and the development and propagation of new technologies, in particular health-related technologies (the word technology used in its widest sense to include behaviours such as hand-washing). Although coming from a low base, the prospects for improvement in human development indicators is great.
Roundup
So - an economy probably larger than you expected, but still a whole host of problems, many of which have barely been touched upon here. Some really appalling human development indicators, but progress being made. Should we be optimistic about Sudan's economic future? A very qualified yes.
Sources:
Ben Leo, Sudan Debt Dynamics: Status Quo, Southern Secession, Debt Division, and Oil—A Financial Framework for the Future - CGD Working Paper 233,
BSF Report
Greg Snyders, Estimates of post-CPA oil sharing,
Uganda 2011-12 Budget Speech
Poverty Estimates from the SSCCSE
Key indicators for Southern Sudan
Statistical Yearbook for Southern Sudan (2010)
World Bank Country Economic Memorandum (2010)
2010 GOSS Budget
Ben Leo, Sudan Debt Dynamics: Status Quo, Southern Secession, Debt Division, and Oil—A Financial Framework for the Future - CGD Working Paper 233,
BSF Report
Greg Snyders, Estimates of post-CPA oil sharing,
Uganda 2011-12 Budget Speech
Poverty Estimates from the SSCCSE
Key indicators for Southern Sudan
Statistical Yearbook for Southern Sudan (2010)
World Bank Country Economic Memorandum (2010)
2010 GOSS Budget
04 July 2011
Tony Blair to advise Ouattara?
In his interview on Development Drums Tony Blair mentioned that his Africa Governance Initiative is looking to expand into new countries, but he wouldn't be drawn on which ones whilst discussions are still underway.
His website is advertising jobs for this new project development, with a particular interest in French speakers to scope projects in Francophone Africa.
So I'm guessing Cote D'Ivoire. Or maybe Burundi. Any other bets?
His website is advertising jobs for this new project development, with a particular interest in French speakers to scope projects in Francophone Africa.
So I'm guessing Cote D'Ivoire. Or maybe Burundi. Any other bets?
03 July 2011
Definitely the best diary of a Spanish freelance journalist in Juba right now
For those of us who came to Africa looking for otherness and new things to discover and explore (again: that whole ‘changing the world bullshit’ is, well, bullshit), Juba is still a good place, compared for example to the boring normality of Nairobi or (a bit less) Kampala. Juba still has exotic things, is very poor and underdeveloped, there’s no much tarmac and you feel you’re risking your life just by not wearing a helmet and being driven around by 13-year-old crazy boda (mototaxi) drivers who may be high on some shit. In fact, we journalists in Africa like to feel we are risking our lives but we don’t like to actually risk our lives. We just want to have stories to tell other journalist and to tell normal, boring people back home.Very funny throughout.
Développement Sans Frontières?
Oliver Burkeman's excellent psychology column in the Guardian discusses some new research on how we think about borders.
Recently, two psychologists working not far from that concrete slab, at the University of Utah, presented people with various scenarios involving where to build a home. Some were told there'd been an earthquake 200 miles away in a neighbouring state; others that there'd been one 200 miles away, but in the same state. They were shown maps, to underline the distances involved – and yet they deemed the risk of earthquakes a bigger problem when they occurred inside state lines. A second test, involving radioactive waste in a next-door state, reached a related conclusion: the risk was seen as smaller when the boundary on the map was drawn in a thicker line. Mental maps guide our lives, but they're quirky;How does this affect how we think about development, aid, trade, investment, conflict....?
And the Award for Best-dressed Finance Minister 2011 goes to....
02 July 2011
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