Johannes Herderschee Nairobi, 29 September 2011

Transcription

1 Johannes Herderschee Nairobi, 29 September 2011

2 Outline of the presentation 1. Data issues 2. Where are we and where do we come from? 3. Technical constraints to growth: State effectiveness, Infrastructure, and Private sector development 4. How can we overcome these constraints? Elite deals, technology, external anchors and social accountability 5. Implications for DRC s development strategy 6. Implications for external partners?

3 Part I: Data is lacking but we started with addressing this issue Macroeconomic developments in the provinces A new Investment Climate/Enterprise Survey A new household survey (under preparation) A trucking survey (under preparation)

4 PART II Where are we and how did we get here?

5 Long-term economic developments,

6 And recent GDP growth was a bit higher than officially reported average Bandundu Bas Congo Equateur Kasai Occ Kasai Oriental Katanga Kinshasa Maniema North Kivu (conflict during ) Province Oriental South Kivu (conflict during ) Average 11 provinces National average reported by BCC

7 There are important regional difference in per capita income

8 In Katanga Province (25 percent of GDP) the mining boom was very pronounced III. SECTEUR TERTIAIRE 5000 SECTEUR SECONDAIRE III. MINES II. FORESTERIE I. AGRICULTURE, PECHE et ELEVAGE

9 Growth in agriculture and informal trade is consistent with rising school enrollment ratios (mostly paid for by the parents and donors and managed by faithbased organizations) Primary GER Secondary GER

10 Not the poorest but the educated youth are excluded (missing middle): Employment data come from the household survey; suggesting private sector employment of 1.2 percent of the labor force. The enterprise survey suggests only very modest employment growth in SMEs. Some large firms may have done well but hardly affect employment Public sector employment dominated by older employees This is particularly troubling in a country where households pay significantly for education

11 There are various obstacles to growth of SME development, including: Predation by tax authorities Payment for services that are not delivered, in particular trade facilitation services Absence of reliable infrastructure Limited financial sector development Limited on the job training

12 For example informal payments required by state agencies are a large share of SME turnover Informal payment Payment: % of annual Inspections % of sales reported for Number of inspections yes/no tax purposes required sales Share Mean Median Share Mean Median Manufacturing Small (< 20) 88.73% % 3.64% 36.58% 30.00% Medium (20-100) % % 2.00% 59.93% 70.00% Large (> = 100) % % 0.00% 64.82% 70.00% Service Small (< 20) 94.92% % 4.53% 36.04% 30.00% Medium (20-100) 93.94% % 4.26% 47.71% 41.50% Large (> = 100) % % 1.73% 63.53% 70.00% Source: 2010 ICA survey

13 Some things went right during recent years but this week The Economist reported: Wide as the gulf often is between a country s economic potential and its citizen s prosperity, it is rarely as gaping as in the Democratic Republic of Congo September 24 th 2011, page 60.

14 Part III What are the technical obstacles to growth?

15 Background studies Overview Institutional dynamics Macro Growth diagnostic Poverty Sector studies: Agriculture Natural resource management Urban Construction Cross-cutting issues: Infrastructure Trade facilitation Regional integration (Great Lakes region and Lower Congo River region) Labor issues Business environment

16 What is the main obstacle to growth? Results of a growth diagnostic HRV analysis National agricultural National non-agricultural Bandundu Katanga Kinshasa Orientale Sud-Kivu Binding Constraints - Security and public safety - Infrastructure - Access to finance - Access to finance - Electricity - Government Failures - Access to finance - Low appropriability - Human capital - Access to finance (for agriculture) - Electricity - Low appropriability - Security and public safety - Lack of infrastructure - Security and public safety - Lack of infrastructure

17 Bottom line technical obstacles State effectiveness Infrastructure Business environment (including trade facilitation) Quantification of obstacles and priorities is useful but does not explain why these obstacles are there

18 Part IV Political economy challenges and how they can be overcome

19 Which instruments have succeeded in DRC Agreements among DRC elites (those exercising and influencing power) Social accountability External anchors Technology opportunities

20 But no silver bullets (1) Area State building Successes Unresolved reforms Instrument Policy coordination Technology External anchor Social accountability Adoption of the OHADA authorizing legislation following sustained support from leading politicians Murky relations between the national and provincial governments Biometric census in the security forces Biometric census in the education sector Participation in the United Nations, Bretton Woods, and regional organizations Failure to honor requests for arrests by the International War Crimes Tribunal Free and fair elections in 2006 Little contact between elected officials and their constituents

21 But no silver bullets (2) Area Infrastructure Successes Unresolved reforms Instrument Policy coordination Technology External anchor Social accountability Opening up of major roads such as the RN4 connecting Kisangani to Uganda and the Matadi-Kinshasa road Poor maintenance of newly opened roads, as road maintenance funds are used for other purposes Automatic teller machines (ATMs) are not available in provincial cities. Inability to reform the electricity sector, as new technology is not used to measure electricity consumption by the public sector Construction of new infrastructure under a framework agreement with Chinese companies that ensures payment from mining revenues Limited interest of foreign investors in the management contract of Regideso, in spite of World Bank risk guarantees Collective maintenance of some rural roads by farmers who use these roads to move their products Poor maintenance of urban infrastructure, even though maintenance would offset the damage to cars using these roads

22 But no silver bullets (3) Area Instrument Policy coordination Technology External anchor Social accountability Private sector development Successes Decree limiting the number of agencies present at the border Unresolved reforms Enforcement of the border agency decree Rapid development of the telecom sector during the postwar period Mobile banking not yet in place because of internal legal obstacles Absence of exchange control and free use of U.S. dollars Enforcement of external dispute settlement mechanism Benefits to agriculture in the vicinity of Kinshasa from cooperation among farmers An absence of cooperatives that could borrow collectively, enforcing creditor rights

23 Ingredients for success Elites need to initiate/tolerate policies National elites may initiate but need support to follow through. To make policies sustainable you need any of the other three (technology, external anchors or social accountability) The other three can follow but initiate

24 Furthermore the Pillars for DRC s Renaissance are Interdependent Infrastructure State Effectiveness Private Sector Development

25 And the three instruments are interdependent (slide one out of three) State capacity State capacity Infrastructure Private sector development Reinforcing Undermining An effective state is able to pay its utility bills, in absence of such payments reform of the state electricity or water companies are failing. Selected state-supported transport companies do not respect weight limits on bridges. An effective state is able to provide a predictable regulatory environment conducive to private sector development A strong state is able to negate on its private sector contracts with impunity.

26 And the three instruments are interdependent (slide two out of three) Infrastructure State capacity Infrastructure Private sector development Reinforcing Undermining Development of the Inga- Katanga power line increases electricity exports reducing pressures on the balance of payments Construction of bridges and roads to neighboring countries is to be balanced by institutional arrangements to manage the risks. Effective infrastructure will boost private sector development. Effective infrastructure may lead to deforestation and long-term damage to private sector development

27 And the three instruments are interdependent (slide three out of three) Private sector development State capacity Infrastructure Private sector development Reinforcing Undermining A well developed private sector will contribute to tax revenues and state capacity Collusion among private producers as is the case in the cement sector may undermine public policy and economic growth A well developed private sector could contribute to the construction and management of infrastructure through public-private partnerships. An uncontrolled private sector does not observe weight restrictions in planes leading to crashes.

28 Measures of economic success are interdependent Bottom growth (in particular agriculture) lead to poverty alleviation Economic capital-intensive growth may over time lead to trickle down Small and medium-sized companies boost employment for skilled youth and diversity exports

29 Part V: Making growth more inclusive: Development of clusters A growth pole/resource corridor may address the missing middle thanks to: Resolution of coordination failures that limit state effectiveness Network effects in infrastructure Deeper cluster effects Initially neighboring countries and regional arrangements may help to trigger and sustain these conditions (external anchors)

30 Part VI Implications for external partners: Financial leverage remains important but is diminishing post HIPC The authorities may benefit from external support to overcome internal fragmentation, we need to aware of the temptation to defend commercial interest Emphasis on demand side: support civil society to monitor policy formulation and implementation

31 Before I conclude: The CEM was a collaborative effort with lots of partners Trade Facilitation Audit (TF + AFD) Diagnostic Trade Integration Study (IF and EU) Trade studies on regional integration (MDTF) Medium-term expenditure frameworks (TF) funded by BPRP (Belgium) and USAID Growth diagnostic funded by SIDA and GDTF Publication funded by TF, BPRP and possible EU to circulate it to all newly elected members of Parliament.

32 Thank you!