Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Money to the People: A Calculation of Direct Dividend Payments in Africa Marcelo M. Giugale Director Economic Management & Poverty Reduction The World Bank Social Protection & Labor Global Practice Core Course THE WORLD BANK Washington, May 4, 2016 losure Authorized
Context 1. Better Technology: We Know 10% of Africa s Riches 2. Quantity Bonanza : Not Just About China 3. Previous Bonanzas Were (Mostly) Wasted 4. Literature: Natural Resources Weakens Governance 5. Resources to Citizens: Five Degrees of Separation
Can We Turn People Into Shareholders? 1. Not Many Actual Cases: Alaska s Permanent Fund; Iran 2. Sala-i-Martin & Subramanian (2003): Nigeria 3. Sandbu (2006): Give and Tax 4. Moss & Young (2009): Ghana 5. Segal (2011): Cut Global Poverty in Half 6. Arezki et. al. (2012): Better that Public Investment 7. Devarajan & Giugale, M. (2013): 8 Illustrations 8. Diamond & Mosbacher (2013): Just Do It 9. Gelb & Majerowicz (2011): The Uganda Case 10. Moss & Majerowicz (2013): The Objection List 11. Gelb & Clark (2013): Biometric Revolution
Why Can t We Do This? 1. Identification and Transfer Are Too Costly 2. Public Goods Need Funding 3. Politicians Have No Incentives 4. Bad Macroeconomic Impact 5. The Nationalization Debate 6. Behavioral Economics: Can The Poor Care? 7. You ll Weaken Broader Inst. Devlp. Efforts
How Would DDTs Actually Look in Africa? 1. Using Natural Resource Rent 2. Using Official Development Assistance
Thank you! References: Giugale M. and N. Nguyen, Money to the People: Estimates of the Potential Scale of Direct Dividend Payments in Africa, Center for Global Development, Policy Paper 043, May 2014 McGuirk E., A. Rajaram, and M. Giugale, The Political Economy of Direct Dividend Transfers in Resource-Rich Countries A Theoretical Consideration, World Bank Policy Research Working Paper 7575, February 2016. To discuss in real-time, tweet us: @Marcelo_WB
Direct Dividend Payments: Theory If the production function of public goods shows diminishing returns to scale in fiscal revenue AND If more citizen scrutiny leads to more public goods per unit of revenue. AND If more information on revenue leads to more scrutiny THEN
Public Goods p p H E H p(r, 0) p L E L R L R H Revenue R
Dividend Payments Can Increase both Private Consumption and Public Goods Public Goods p p(r, S D ) p H,D E H, D p H E H p(r, 0) p L p L,D E L, D E L (R L D T ) R L (R H D T ) R H Revenue R
Poverty Line Type National Poverty Line International Extreme Poverty Line Direct Dividend Payments From Natural Resources Covers Half Or More of the Average Poverty Depth Covers a Tenth or More of the Average Poverty Depth % of Resource Revenue Needed to Lift Everyone up to the Poverty Line 10% DDP to All 10% DDP to Poor 10% DDP to All 10% DDP to Poor 10% or Less A Third or Less EQG EQG Botswana Botswana EQG Botswana Chad Chad Chad Rep. of Congo Rep. of Congo Rep. of Congo Rep. of Congo Nigeria EQG Cote d Ivoire EQG EQG Nigeria Nigeria South Sudan Namibia South Sudan Nigeria South Sudan South Africa Sudan Rep. of Congo Cameroon Republic of Congo South Africa Cameroon Chad Rep. of Congo Nigeria Sudan Cameroon Chad Rep. of Congo Cote d Ivoire Ghana Mauritania Namibia Nigeria South Africa Sudan Cameroon Rep. of Congo Cameroon Rep. of Congo South Africa Sudan
Poverty Line Type Poverty Line Type National National Poverty Line Line Direct Dividend Payments From Official Development Assistance Covers Half Or More of the Average Poverty Depth Covers a Tenth or More of the Average Poverty Depth % of ODA Needed to Lift Everyone up to the Poverty Line Covers Half Or More of the Average Poverty Depth Covers a Tenth or More of the Average Poverty Depth % of ODA Needed to Lift Everyone up to the Poverty Line 10% DDP to All 10% DDP to All 10% DDP to Poor 10% DDP to Poor 10% DDP to All 10% DDP to All 10% DDP to Poor 10% DDP to Poor Half or Less Half or Less 100% or Less 100% or Less Sao Tome & Principe Cape Verde Cape Verde Benin Benin Benin Sao Tome & Principe Cape Rwanda Verde Cape Cote Verde d Ivoire Benin Burkina Faso Benin Cape Verde Benin Burkina Faso Rwanda Sao Tome & Principe Cote Rwanda d Ivoire Burkina Cape Verde Faso Cape Cote d Ivoire Verde Burkina Cape Verde Faso Sao Tome & Principe Rwanda Sao Tome & Principe Cape Cote d Ivoire Verde Cote Ethiopia d Ivoire Cape Cote d Ivoire Verde Sao Sierra Tome Leone & Principe Cote Ethiopia d Ivoire Ethiopia Mauritius Cote Ethiopia d Ivoire Sierra Tanzania Leone Ethiopia Ghana Mauritius Namibia Ethiopia Ghana Tanzania Ghana Liberia Namibia Rwanda Ghana Liberia Liberia Malawi Rwanda Sao Tome & Principe Liberia Malawi Malawi Mali Sao Sierra Tome Leone & Principe Malawi Mali Mali Mauritania Sierra Tanzania Leone Mali Mauritania Mauritania Mauritius Tanzania Uganda Mauritania Mauritius Mauritius Mozambique Uganda Mauritius Mozambique Mozambique Namibia Mozambique Namibia Namibia Rwanda Namibia Rwanda Rwanda Sao Tome & Principe Rwanda Sao Tome & Principe Sao Sierra Tome Leone & Principe Sao Sierra Tome Leone & Principe Sierra South Leone Sudan Sierra Tanzania Leone South Tanzania Sudan Tanzania Uganda Tanzania Uganda Uganda Uganda International Extreme Poverty Line No Country Cameroon Cape Verde Mauritania Sao Tome & Principe Seychelles Cape Verde Gambia Liberia Mauritania Sao Tome & Principe Seychelles Benin Burkina Faso Cameroon Cape Verde Cote d Ivoire Ethiopia Gambia Ghana Guinea Bissau Kenya Lesotho Liberia Mali Mauritania Mozambique Namibia Niger Rwanda Sao Tome & Principe Senegal Seychelles South Africa Sudan Swaziland Togo Uganda Cameroon Cape Verde Cote d Ivoire Ethiopia Gambia Ghana Mauritania Namibia Sao Tome & Principe Senegal Seychelles South Africa Togo Benin Burkina Faso Cameroon Cape Verde Cote d Ivoire Ethiopia Gambia Ghana Guinea Bissau Kenya Lesotho Liberia Mali Mauritania Mozambique Namibia Niger Rwanda Sao Tome & Principe Senegal Seychelles South Africa Sudan Swaziland Togo Uganda
Public Goods p p H E H p(r, 0) p L E L R L R H Revenue R
Public Goods p p(r, S D ) p H,D E H, D p H E H p(r, 0) p L p L,D E L, D E L (R L D T ) R L (R H D T ) R H Revenue R
10% Universal Distribution Would Pay For. 154% of the Poverty Depth in Equatorial Guinea 52% in 44% in 42% in the Republic of Congo 21% in Nigeria
A Perfectly-Targeted Cover of the Poverty Depth Would Cost. 5% of the Government s Resourcerelated in Equatorial Guinea 6% in 8% in 12% in Republic of Congo 15% in Mozambique 26% in Nigeria
A Perfectly-Targeted Cover of the Poverty Depth Would Cost. 18% of net ODA in Tanzania 23% in Uganda 32% in Republic of Congo 70% in Mozambique 112% in 265% in Equatorial Guinea
Bigger and Better Deals Africa is demanding better deals and getting them. New terms and renegotiations; e.g. Guinea $700million up front payment Size of the investments can be transformational Guinea: $20 billion in Iron Ore and Bauxite Mozambique: $10 Billion in Coal, $10 Billion in Gas Cameroon: $7 Billion in Iron Ore and Bauxite Ghana: $8-10 Billion in Oil and Gas +$40 billion in export revenue Uganda: $8-10 Billion in Oil, $50 billion in export revenue Africa s top growing economies are in extractive industries e.g. Ghana 2011, Sierra Leone 2012
Advances in the Governance Environment for Extractives Recent developments toward creating a better environment for good sector governance include establishment of sovereign wealth funds and related fiscal rules, Acceptance of international norms and standards (particularly the EITI) with 7 countries certified and over 30 countries engaged. Firms show willingness to review their investment agreements
GNI per capita (PPP US$) 25500 20500 15500 10500 5500 500 Under-five mortality rate vs. GNI per capita (2010) Argentina Malaysia Botswana Mauritius Costa Rica Armenia Paraguay Uruguay Equatorial Guinea Tajikistan Congo, Rep. of Uganda Nigeria Tanzania Sudan Mozambique 0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 Under-five mortality rate
GNI per capita (PPP int. US$) 25000 20000 15000 10000 5000 0 Life expectancy at birth vs. GNI per capita (2010) Equatorial Guinea Botswana Nigeria Congo, Rep. of Mozambique Sudan Uganda Argentina Malaysia Mauritius Costa Rica Armenia Paraguay Tajikistan Tanzania 45 50 55 60 65 70 75 80 Life expectancy at birth
Pricey Commodities 140 World Bank Commodity Price (annual price indices, 2010=100) 120 100 80 Non-energy 60 40 20 Energy 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 Source: The World Bank s Development Prospects Group