Can national statistical offices shape the data revolution?
In recent years, breakthrough technologies in artificial intelligence (AI) and the use of satellite imagery made it possible to disrupt the way we collect, process, and analyze data. Facilitated by the intersection of new statistical techniques and the availability of (big) data, it is now possible to create hypergranular estimates.
National statistical offices (NSOs) could be at the forefront of this change. Conventional tasks of statistical offices, such as the coordination of household surveys and censuses, will remain at the core of their work. However, just like AI can enhance the capabilities of doctors, it also has the potential to make statistical offices better, faster, and eventually cheaper.
Still, many countries struggle to make this happen. In a COVID-19 world marked by constrained financial and statistical capacities, making innovation work for statistical offices is of prime importance to create better lives for all. PARIS21 and World Data Lab have joined forces to support innovation in statistical offices and make them fit for this purpose, including Colombia’s national statistical office. If we enrich existing surveys and censuses with geospatial data, it will be possible to generate very granular and more up-to-date demographic and poverty estimates.
In the case of Colombia, this novel method facilitated a scale-up from existing poverty estimates that contained 1,123 data points to 78,000 data points, which represents a 70-fold increase. This results in much more granular estimates highlighting Colombia’s heterogeneity between and within municipalities (see Figure 1).
Figure 1. Poverty shares (%) Colombia, in 2018
The averages for each municipality still contain big variances as poverty depends on many more factors than geography.
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Traditional methods don´t allow for cost-efficient hypergranular estimations but serve as a reference point, due to their ground-truthing capacity. Hence, we have combined existing data with novel AI techniques, to go down to granular estimates of up to 4×4 kilometers. In particular, we have trained an algorithm to connect daytime and nighttime satellite images. In a next step, we have used this algorithm to predict poverty rates based on daytime satellite imagery. Since these remotely sensed data are available on a very granular level, this has allowed us to significantly increase the granularity of the data on poverty. Finally, we have combined these predictions with information from the latest census to ensure their reliability. This combination of traditional and novel techniques has allowed us to capture the variance in poverty rates across and within communities all over the country. Applying these techniques to poverty shares sheds light on the differences in poverty rates in Colombia, even within municipalities. Take the department of Antioquia with its capital Medellín, the second largest city in Colombia. In Figure 2, the detected variance, which is as high as 48 percent, becomes visible by comparing the existing data with the hypergranular estimates.
This reveals the capabilities of combining conventional poverty analysis methods with novel AI techniques and the potential to get more granular in the future.
Figure 2. Poverty shares (%) in Antioquia, in 2018
We further used satellite imagery to predict population density on the city-block level, by using a machine-learning technique called Random Forest. This approach builds on a large number of individual classifications or regression trees, each of them aimed at providing the best possible prediction. Averaging over the predictions of all individual trees eventually leads to the final prediction of the Random Forest. This technique has allowed us to distribute input data on the municipality level to a granularity of a 100×100 meter area. Breaking down each municipality into even smaller fractions reveals immense deviations from the average. Let us take the district of Bogotá D.C. as an example. The census data suggest an average population density of 46 persons living in a range of 100×100 meters. However, our methods reveal a more heterogeneous distribution, notably between rural and urban regions, ranging from one to 999 people per 100×100 meters. This instance shows how we can drastically improve the granularity of existing data by integrating state-of-the-art methods and novel data types into our analysis.
Figure 3. Population density in Cundinamarca in 2018
Previous examples show how valuable this kind of engagement is in a country like Colombia, where 42.5 percent of the population lives in monetary poverty, with great disparities between and even within municipalities (as shown in Figure 2). The granularity obtained from the use of novel machine-learning methods, as developed in this exercise, allows public entities to formulate and implement policies that focus on the most vulnerable and strive to leave no one behind—even more as these policies can be addressed to the most suitable areas, with the highest impact. The outcomes of this collaboration have proven to be essential for the decisionmaking processes associated with the recovery agendas to overcome the difficulties caused by the COVID-19 pandemic.
In conclusion, innovation in statistical methods and AI technology could be a facilitator for NSOs to become the main provider for data-based decisionmaking. The opportunity to create hypergranular and quality data depends on the investment of resources in AI techniques and novel scientific approaches. The future demand for, and the technical improvement of, real-time data and forecasts can resolve the prevalent perfectionism fallacy in NSOs. Consequently, contributing to technical innovation and partnering up with providers of cutting-edge enterprises will accelerate the transformation process. If this opportunity window is used properly, we can pave the way for statistical offices to enter the 21st century.
COVID-19 impacts on foreign direct investments in sub-Saharan Africa
In June of this year, the United Nations Conference on Trade and Development (UNCTAD) released its 2021 World Investment Report, in which it focuses on investing in a sustainable recovery from the pandemic. The report itself looks at how the COVID-19 pandemic impacted foreign direct investment globally and investment priorities for the recovery phase. The complex health and economic challenges created by the pandemic throughout the African continent have significant impacts on the foreign direct investment (FDI) both to and from the region. In fact, Africa’s share of total global FDI inflows for developing economies fell from 6.3 percent to 5.9 percent between 2019 and 2020 (Figure 1). Although FDI inflows were already on a decline, COVID-19 continued to have a negative impact on investment globally and regionally.
Figure 1. Foreign direct investment inflows, 2007-2009 and 2018-2020
Source: United Nations Conference on Trade and Development, World Investment Report. 2021.
Overall, FDI inflows to sub-Saharan Africa decreased by 12 percent between 2019 and 2020, but a few countries did see investments grow. In fact, Central Africa registered a consistent increase in FDI with inflows increasing to $9.2 billion from $8.9 billion. East Africa and southern Africa, on the other hand, saw 16 percent drops in inflows each since 2019. Notably, even within regions the impacts of the pandemic varied. For example, in West Africa, Ghana saw a 52 percent decline in FDI inflows in the year 2020—a drop from $3.9 billion to $1.9 billion; meanwhile, inflows to Nigeria slightly increased from $2.3 billion in 2019 to $2.4 billion in 2020.
FDI outflows were also impacted by the COVID-19 pandemic, but, again, varied across and within regions (Figure 2): According to the report, FDI outflows from Africa fell by two-thirds from $4.9 billion in 2019 to $1.6 billion in 2020. Notably, the highest outflows came from Togo, which, according to the report, were mostly to other African countries. For example, Togolese company Afrik Assurances opened financial services operations in Benin and Côte d’Ivoire during the pandemic. While Ghana saw a decrease in outflows, it still made up a significant percentage of total outflows from the continent. Another notable trend was the significant drop in outflow investment for southern Africa, which, according to the authors, is due to South African multinational enterprises repatriating capital from foreign countries.
Figure 2. Foreign direct investment outflows, 2007-2009 and 2018-2020
Source: United Nations Conference on Trade and Development, World Investment Report. 2021.
The report authors, overall, remain optimistic despite these drops. In fact, UNCTAD suggests that Africa will see a rise in both FDI inflows and outflows in the year 2021 with potential to reach pre-COVID levels in 2022. Notably, the report also suggests that the African Continental Free Trade Area and the Sustainable Investment Protocol (phase II of the AfCFTA) could boost FDI flows in the long term as well. In the long run, for a successful recovery, the authors stress increasing vaccine availability and call for international financial support, among other country-focused policies.
Accelerating COVID-19 vaccinations in Africa
The rapid spread of the delta variant of COVID-19 has made the successful rollout and uptake of vaccinations against the disease around the world more urgent than ever. Through regional cooperation and tough national actions, among other factors, the African continent has made impressive strides toward preventing the devastating impacts of the pandemic seen elsewhere. However, recent months have seen massive upticks in case numbers as containment measures are relaxed and global travel resumes. In fact, the region has now counted over 7 million cases, and this number is rising rapidly, alongside large numbers of tragic and preventable deaths.
Already, regional institutions, led by the Africa Centers for Disease Control and Prevention and the African Union, have worked tirelessly to obtain much-needed medical supplies, ventilators, diagnostic tests, and personal protective equipment, among other essential materials, in order to shore up Africa’s defenses against the virus. Of course, one of the most effective tools for combating the spread of the virus is the vaccine, of which many versions now exist.
However, this essential tool continues to be out of reach for most Africans: Indeed, the region is far behind the rest of the world in obtaining and distributing the vaccine due to a myriad of challenges, including supply, cost, poor roads, few cold chain storage facilities, and patient hesitancy, among other constraints. Donations of these vaccines from the U.S., Europe, and many other partners—both bilaterally and through the efforts of COVAX—have increased supplies, but those donations are far too few, and the speed of the vaccine rollout is much too slow to truly blunt the impact of COVID-19 in the region, especially as variants continue to accelerate the spread. In fact, as of this writing, less than 2% of Africa’s over 1 billion people have been fully vaccinated.
The pandemic is far from over and developing countries lack access to important tools to control the COVID-19 virus. Given this pressing challenge, on Wednesday, September 15, the Brookings Africa Growth Initiative will host a discussion on approaches for accelerating vaccinations against COVID-19 in Africa, including strategies for procuring the vaccine, financing the rollout, addressing vaccine hesitancy, and reaching as many people as possible.
Viewers can submit questions for the panel by emailing events@brookings.edu or via Twitter @BrookingsGlobal by using #VaccinateAfrica.
Renewing US rural prosperity: Federal policy in the Biden administration
Amid 21st-century shifts in the global and U.S. economy, demographics, and climate, federal leadership must modernize to improve its coherence, effectiveness, and ability to support rural communities. The Biden administration’s public commitment to “rebuild rural” represents a once-in-a-generation opportunity to reimagine policy to maximize rural prosperity. Critical to its success will be addressing several questions, including: How can federal leadership create policies and programs that respond to the demographic, economic, and social diversity of today’s rural and Native American communities? Why is rural development policy important for the nation’s overall economic well-being? How can the U.S. transform a fragmented, project-oriented approach to community and economic development into a coordinated and strategic effort for rural communities?
On September 8, the Center for Sustainable Development at Brookings will host a virtual event to answer these questions and more. It will begin with a conversation between Secretary of Agriculture Tom Vilsack and New York Times Columnist Nicholas Kristof on new USDA initiatives to meet the rural development imperative. Then, a panel of government leaders and rural experts will discuss current administration and legislative efforts focused on rural community and economic development, as well as how the federal government can be a trusted partner to rural communities as they seek to realize their visions for prosperity.
During the live event, the audience may submit questions by emailing events@brookings.edu or by using the Twitter hashtag #ReimagineRural.
Which will be the top 30 consumer markets of this decade? 5 Asian markets below the radar
Despite COVID-19, the global consumer class—those who are middle class or rich—is rising fast. In an earlier post, we showed that we are experiencing a truly secular shift in the size of this global consumer class. COVID-19 is a transitory setback of one or two years in this long-term shift. Since 2000, the global consumer class grew by more than 4 percent each year, reaching a new milestone of 4 billion people—for the first time—in 2020 or 2021. At the beginning of this century, the middle class was mostly a Western phenomenon. Consumer companies were selling their goods in OECD countries, especially the USA and Europe. Today, the consumer class is global and increasingly Asian. Spending by the Asian middle class exceeds that in Europe and North America combined.
We define the global consumer class as anyone living in a household spending at least $11 per day per person, of which the global middle class ($11-$110 per day) represents the lion’s share with 3.75 billion people. It is very important to define the global consumer class correctly and allow for comparability across countries and over time. Incorrect definitions could cost companies billions, as Nestle experienced painfully in Africa. The company based its decision to expand on announcements of a rapid rise of Africa’s middle class. While Africa’s middle class has indeed been rising rapidly, the threshold of $3 per day in consumer spending was too low to gain traction with products that are enjoyed by American or European consumers. Cornel Krummenacher, then chief executive for Nestle’s equatorial Africa region, noted that “we thought this would be the next Asia, but we have realized the middle class here in the region is extremely small.” Even today, Africa’s consumer class is only 283 million people strong according to projections by World Data Lab, growing at 4.1 percent per year. However, there is an untapped potential in Africa below the middle-class threshold. If companies want to benefit from Africa’s growth in this decade, a focus closer to the bottom of the pyramid would yield more success.
Under current projections, Asia will represent half of the world’s consumer spending by 2032.
By contrast, Asia’s consumer class is advancing strongly. Since 2016, half of the global consumer class has been Asian. Today, out of the 4 billion global middle-class consumers, 2.2 billion live in Asia. However, while Asia has more than half of the world’s consumers, they only represent approximately 41 percent of consumer spending ($26 trillion out of $63 trillion in 2011 purchasing power parity, see Table 1). Under current projections, Asia will represent half of the world’s consumer spending by 2032.
Table 1. Asia’s consumer class power
Asia
Rest of the world
TOTAL
Asia’s share
Consumer class (billion)
2.2
1.8
4.0
55%
Spending of the consumer class (trillion $)
26
37
63
41%
Source: World Data Lab’s MarketPro; 2021 projections.
Today, there are 13 Asian economies in the top 30. The composition of these top 30 countries will not change until 2030. However, there are big shifts within the top 30: Only 7 countries are expected to keep their position; 14 countries will lose position while 9 countries gain positions (see Figure 1). To assess which countries will move up in the consumer class tally, we used our unique modeling capacity to project the change of the consumer class between 2020 and 2030.
Figure 1. The top 30 consumer markets of this decadeDaily spending of more than $11 (2011 PPP)
Source: World Data Lab’s MarketPro.
Everyone is familiar with consumer class growth in China and India. In Europe and North America, the numbers in the consumer class will stagnate and growth will come about only because households will become richer.
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But there are other countries, too, growing under the radar, which are forecast to have very large increases, in the tens of millions, in the numbers in the consumer class in 2030.
Here is an overview of the five top movers:
Bangladesh (+17 positions), from place 28 to 11; future consumer class: 85 million (+50 million)Global share of consumer class: 0.8 percent (2020), 1.6 percent (2030). Bangladesh’s consumer class is projected to more than double by 2030: Today, 35 million people in Bangladesh spend more than $11 a day. By 2030, it will be 85 million!
Pakistan (+8 positions), from place 15 to 7; future consumer class: 121 million (+56 million)Global share of consumer class: 6 percent (2020), 2.3 percent (2030). Pakistan will add 56 million new consumers by 2030, for a total of 121 million. This means that in 2030, for the first time, every other Pakistani will be able to spend more than $11 per day.
Vietnam (+7 positions), from place 26 to 19; future consumer class: 56 million (+21 million)Global share of consumer class: 9 percent (2020), 1.1 percent (2030). Vietnam’s consumer class will grow from 35 million to 56 million within this decade, which is a success story particularly of the middle-aged generation: Consumers between 45 and 65 years of age will contribute nearly 25 percent of Vietnam’s spending, as opposed to 20 percent today.
Philippines (+6 positions), from place 20 to 14; future consumer class: 79 million (+38 million)Global share of consumer class: 1 percent (2020), 1.5 percent (2030). The Filipino consumer class is projected to grow steadily, from 41 million today to 79 million in 2030. By then, more than two-thirds of the Filipino population will spend more than $11 per day.
Indonesia (+2 positions), from place 6 to 4; future consumer class: 199 million (+76 million)Global share of consumer class: 2 percent (2020), 3.8 percent (2030). While Indonesia is only moving up two places, it is experiencing a large gain of consumer class growth. Starting from an already large base of 123 million, Indonesia will have almost 200 million consumers in 2030, making it the fourth-largest consumer market in the world.
The big message of this analysis is that the consumer class is spreading across the world, and that many emerging markets will have large consumer markets where supply-chain-scale economies, digital platforms, and local preferences will need to be better understood and developed.
How Chile implemented its computer science program
Computer science (CS) education helps students acquire skills such as computational thinking, problem-solving, and collaboration. It has been linked with higher rates of college enrollment (Brown & Brown, 2020; Salehi, Wang, Toorawa, & Wieman, 2020), and a recent randomized control trial showed that lessons in computational thinking improved student response inhibition, planning, and coding skills (Arfé et al., 2020). Since these skills take preeminence in the rapidly changing 21st century, CS education promises to significantly enhance student preparedness for the future of work and active citizenship.
CS education can also reduce skills inequality if education systems make a concerted effort to ensure that all students have equitable access to curricula that provide them with the needed breadth of skills—regardless of their gender, ethnicity, or socioeconomic status.
Based on prior analyses and expert consultations, we selected 11 CS-education country, state, and provincial case studies with lessons that can broadly apply to other education systems. These cases come from diverse global regions and circumstances and have implemented CS education programs for various periods of time and to different levels of success. As such, we have examined information to extract lessons that can lead to successful implementation.
This particular study will examine how Chile is training a future workforce of creative problem-solvers to maintain its status as one of the higher-income countries in Latin America. To accomplish this goal, the Ministry of Education designed the National Plan for Digital Languages to prepare students to compete in an increasingly digital global economy. Now in the early stages of implementing this plan, the government seeks to increase the number of students learning about CS and computational thinking in the coming years.
An overview of CS education in Chile
Chile has been preparing its schools, teachers, and students for CS education for many years. The federal education program, Enlaces, introduced digital devices and internet connectivity to nearly all schools in the 1990s and early 2000s. While this infrastructure was not originally intended for CS lessons, educators have used these devices for CS and computational thinking lessons in the last few years. Even more recently, the Ministry of Education’s Innovation Center and NGO partners have also run programs and introduced online platforms to train teachers in computational thinking, programming, and project-based learning (Jara et al., 2018). Even without mandating that schools adopt any of these activities, the government estimates that about half of primary schools will offer computational thinking lessons by 2022. Yet, despite the Ministry of Education’s and partners’ efforts, CS education in Chile has not developed as hoped.
Lessons learned
Though Enlaces gained more political and financial support over time, it lost flexibility to implement new projects. This may have delayed the progress of CS education.
The Ministry of Education leans on private companies and nonprofit partners for expertise in teacher training and student engagement activities. However, regular funding and stable training programs, including for preservice teachers, are needed for better quality and more widely available CS education.
Chile does not require schools to teach CS but encourages and supports educators that want to include the subjects in their classroom activities. While this mitigates the possibility of alienating teachers who are unfamiliar with the subject, it also risks low-scale and unequal access to CS education.
Read the full case study > >
How Chile implemented its computer science education program
Computer science (CS) education helps students acquire skills such as computational thinking, problem-solving, and collaboration. It has been linked with higher rates of college enrollment (Brown & Brown, 2020; Salehi, Wang, Toorawa, & Wieman, 2020), and a recent randomized control trial showed that lessons in computational thinking improved student response inhibition, planning, and coding skills (Arfé et al., 2020). Since these skills take preeminence in the rapidly changing 21st century, CS education promises to significantly enhance student preparedness for the future of work and active citizenship.
CS education can also reduce skills inequality if education systems make a concerted effort to ensure that all students have equitable access to curricula that provide them with the needed breadth of skills—regardless of their gender, ethnicity, or socioeconomic status.
Based on prior analyses and expert consultations, we selected 11 CS-education country, state, and provincial case studies with lessons that can broadly apply to other education systems. These cases come from diverse global regions and circumstances and have implemented CS education programs for various periods of time and to different levels of success. As such, we have examined information to extract lessons that can lead to successful implementation.
This particular study will examine how Chile is training a future workforce of creative problem-solvers to maintain its status as one of the higher-income countries in Latin America. To accomplish this goal, the Ministry of Education designed the National Plan for Digital Languages to prepare students to compete in an increasingly digital global economy. Now in the early stages of implementing this plan, the government seeks to increase the number of students learning about CS and computational thinking in the coming years.
An overview of CS education in Chile
Chile has been preparing its schools, teachers, and students for CS education for many years. The federal education program, Enlaces, introduced digital devices and internet connectivity to nearly all schools in the 1990s and early 2000s. While this infrastructure was not originally intended for CS lessons, educators have used these devices for CS and computational thinking lessons in the last few years. Even more recently, the Ministry of Education’s Innovation Center and NGO partners have also run programs and introduced online platforms to train teachers in computational thinking, programming, and project-based learning (Jara et al., 2018). Even without mandating that schools adopt any of these activities, the government estimates that about half of primary schools will offer computational thinking lessons by 2022. Yet, despite the Ministry of Education’s and partners’ efforts, CS education in Chile has not developed as hoped.
Lessons learned
Though Enlaces gained more political and financial support over time, it lost flexibility to implement new projects. This may have delayed the progress of CS education.
The Ministry of Education leans on private companies and nonprofit partners for expertise in teacher training and student engagement activities. However, regular funding and stable training programs, including for preservice teachers, are needed for better quality and more widely available CS education.
Chile does not require schools to teach CS but encourages and supports educators that want to include the subjects in their classroom activities. While this mitigates the possibility of alienating teachers who are unfamiliar with the subject, it also risks low-scale and unequal access to CS education.
Read the full case study > >
The role of fiscal decentralization in promoting effective domestic resource mobilization in Africa
The lingering economic impact of the COVID-19 pandemic is disrupting sub-Saharan Africa’s traditional financial inflows, revealing the heightened need to strengthen domestic resource mobilization and improve tax administration in the region. This unprecedented shock to the world economy has revealed the volatility of financial inflows that African nations are dependent on: Indeed, foreign direct investment (FDI)—an increasingly important source of development financing traditionally rooted in oil, gas, and infrastructure projects—has declined approximately 12 percent and 25 percent in sub-Saharan and North Africa, respectively, between 2019 and 2020. Remittance inflows, which millions of African households rely on to support their families, declined by 12.5 percent throughout sub-Saharan Africa over the same period. In addition, discontent with globalization, inconsistent political environments, and competing humanitarian issues are transforming official development assistance (ODA) into an increasingly uncertain source of development financing.
The fragility of Africa’s external financial inflows to shocks in the global economy suggests African nations should focus on securing more consistent domestic revenue streams. Indeed, ensuring more effective domestic resource mobilization and tax administration systems—sources of revenue that governments have direct control over—via fiscal decentralization reforms can offer an avenue to simultaneously bolster government coffers, improve the impact of government spending, capture uncollected tax revenue spillage, and augment taxation’s prominent role as a source of development financing.
Achieving better governance is easier said than done: Indeed, the experience from relatively well-executed fiscal decentralization in Brazil and Indonesia provides evidence that fiscal decentralization has the potential to improve the collection and spending of domestic tax and nontax sources of government revenue and, in addition, improve government accountability.
How can fiscal decentralization boost domestic resource mobilization?
For fiscal decentralization to be effective, countries must meet several key institutional preconditions. Meeting these institutional preconditions ensures regional/state and local/municipal governments have the capacity to institute effective decentralized expenditure allocation and revenue collection. Otherwise, fiscal decentralization has the potential to worsen public service delivery. Such preconditions include:
Stable political environments.
Effective autonomous subnational governments.
Institutional capacity at regional/state and local levels of government.
Government accountability.
Effective democratic election infrastructure at all levels of government.
Capacity to raise adequate levels of revenue locally.
Importantly, the potential for fiscal decentralization to benefit domestic resource mobilization stems from improvements in public service delivery, particularly in terms of allocative efficiency, preference matching, and stronger government accountability.
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Local governments benefit from an informational advantage, whereby their proximity allows them to better understand the needs and preference of their local constituents. Relative to the central government, this informational advantage enables local governments to more effectively allocate public resources and serve needs of the people.
Local governments’ geographic proximity to their constituents—the direct beneficiaries of public services—also pressures local authorities to efficiently allocate fiscal resources. This productive efficiency of local public service delivery promotes government accountability through the direct election of local officials by the local populace, which also empowers voters with control over their public authorities and institutions. The subsequent performance of neighboring localities also provides local voters with a model to compare the competencies and effectiveness of their local politicians, as well as encourages competition among local governments to produce effective public services.
Drawbacks of fiscal decentralization
While fiscal decentralization provides an alternative fiscal structure to improve the collection and spending of government revenue, drawbacks exist. Hierarchical fragmentation of government services can impose the loss of economies of scale and, therefore, cause decreased efficiency and higher costs in the production, implementation, and distribution of public goods and services. Fiscal decentralization, which reduces federal government revenue, may also weaken the central government and hinder its full capability to redistribute national resources from regions/states with surpluses to localities in need of funding. Furthermore, without the infrastructure to support legitimate democratic local elections, fiscal decentralization will not improve government accountability and may introduce incentives for rent-seeking political behavior and the misallocation of local resources to nonproductive expenditures. In what follows, we compare the experiences of Brazil, Indonesia, and Nigeria—three economic powerhouses in their respective regions.
Evidence from Indonesia
Following economic and financial crises, Indonesia transitioned to a decentralized governmental system in 1999. Regional governments became empowered to manage governmental and public services, with notable exceptions in the regulation of religion, defense, national security, and monetary policy. Indonesia’s fiscal structure enables provinces and municipalities to collect local taxes and set local tax rates according to their budgetary needs, while maintaining a fiscal network between the subnational and federal government to ensure an equitable budgetary balance across provinces. These transfer payments alleviate horizontal, cross-state fiscal imbalances and promote equitable distribution of state revenue.
Since the implementation of fiscal decentralization in Indonesia, social welfare, public service delivery, and a myriad of development indicators have improved significantly.
Evidence from Brazil
Brazil’s model of fiscal decentralization offers an insight into the importance of intergovernmental tax transfers to prevent revenue imbalances among states. The redistributive structure of the Brazilian federal fiscal system allows poorer states to access a greater share of revenue from federal transfers than wealthier states, which enjoy a more substantive tax base. In turn, these wealthier states also benefit from greater budgetary autonomy. As a result of the integration of intergovernmental transfers mediated by the federal government, Brazil’s equitable revenue transfer system allows it to maintain low levels of vertical imbalances—the differences between budgetary mandates and revenue assignments throughout all levels of government—relative to the international average and select wealthy countries such as United Kingdom, Spain, and Australia.
Evidence from Nigeria
Nigeria’s model of fiscal decentralization has persisted since 1946, but its decentralized system of revenue allocation and collection has not manifested in notable improvements to the country’s nominal tax revenue or tax-to-GDP ratio over the years. While some of Nigeria’s revenue collection inefficiencies may be tied to its relatively high rate of tax evasion and avoidance, the bureaucratic, administrative, and institutional requirements at the local level of government may be limiting the proper implementation and delivery of decentralized public services. Studies, however, have uncovered positive relationships between fiscal decentralization and social and health outcomes in Nigeria, such as higher literacy rates and lower infant mortality rates.
Can effective fiscal decentralization improve domestic resource mobilization?
The successful implementation and outcomes of fiscal decentralization in Brazil and Indonesia offer insight into decentralization’s ability to improve public service delivery, increase government accountability, and promote social, economic, and human development goals. Yet, the institutional preconditions throughout all levels of government that are necessary for successful implementation of fiscal decentralization suggest the reform is not always fully successful, as seen in Nigeria. Nonetheless, the potential for fiscal decentralization to improve public service delivery, efficiency, and accountability remains an attractive alternative governmental system, as Kenya became the most recent African nation to successfully institute a decentralized fiscal system following the approval of its new constitution in 2010.
Lessons for Africa
Shoring up and capturing the full potential of domestic taxation is one of the most important sources of development financing and therefore needs to be a policy priority for African governments. The ability of domestic resource mobilization to provide a hedge against fluctuations in the global economy and volatile commodity prices is especially important for resource-rich countries whose fiscal systems are heavily commodity dependent.
Because 46 African countries and 89 percent of sub-Saharan Africa are commodity-dependent economies (as categorized by the U.N.), African fiscal systems maintain significant exposure to international commodity markets and the global economy. The COVID-19 pandemic exposed this vulnerability, as large commodity-dependent economies with a hefty fiscal reliance on commodity exports, such as Angola, Nigeria, and the Democratic Republic of the Congo, experienced precipitous declines in government revenues in 2020. As a result, these countries were forced to respond with spending cuts, debt issuance, and support from international financial institutions, alongside heightened budgetary requirements, to tackle the pandemic and its economic fallout.
Considering the deleterious impact of the pandemic on African finances, restructuring fiscal dependence away from financial inflows and toward domestic tax resources will provide a route to greater fiscal self-reliance and economic stability. In turn, bolstering internal revenue streams and downstream fiscal stability will make African economies more attractive to international investors—who simultaneously see the continent’s enormous growth potential but remain apprehensive about its economic and political risks.
Why did state-building efforts in Afghanistan fail?
Afghanistan has received enormous amounts of foreign aid over the years, but despite the investment of funds and various efforts to build state capacity, the government quickly fell to the Taliban after the withdrawal of U.S. forces. To discuss what capacity-building efforts accomplished and why they ultimately fell short, David Dollar is joined by Jennifer Brick Murtazashvili, director of the Center for Governance and Markets at the University of Pittsburgh. Murtazashvili explains why the government’s unwillingness to reform led to the rapid unravelling witnessed earlier this month. She also describes how Taliban rule may impact women in Afghanistan, the opium trade, and the delivery of international aid.
Related content:
Northern Afghanistan once kept out the Taliban. Why has it fallen so quickly this time?
Land, the State, and War: Property Institutions and Political Order in Afghanistan (Cambridge University Press, 2021)
David Dollar
Senior Fellow – Foreign Policy, Global Economy and Development, John L. Thornton China Center
Twitter
davidrdollar
Jennifer Brick Murtazashvili
Director, Center for Governance and Markets – University of Pittsburgh
Africa in the news: South African economy, energy production, and Nigerian foreign relations updates
New definition measures South Africa’s GDP 11% higher than previously thought
This week, authorities in South Africa announced that the country’s economy is 11 percent larger than previous estimates after Statistics South Africa altered its method for calculating gross domestic product. The national statistical service’s new definition utilizes a refined, more modern classification of activities, new sources of information, and a new reference year (2015 instead of 2010). The new definition also changed estimates for other key variables, including household consumption relative to GDP and GDP per capita, which became 16 percent and 9 percent higher, respectively. This higher GDP also means that Africa’s (still) second-largest economy has a lower debt burden than previously thought. According to Annabel Bishop, chief economist at Investec Bank Ltd, the new definition suggests that South Africa’s debt-to-GDP ratio will remain below 80 percent through 2023-2024, whereas earlier estimates had it at 87.3 percent by that time. For more on South Africa’s debt burden and how the country’s economy has fared during the pandemic, read “From stimulus to debt: The case of South Africa.”
Meanwhile, South Africa’s unemployment rate has become the highest in the world, according to Bloomberg, which regularly monitors the indicator in 82 countries. The unemployment rate increased to 34.4 percent in the second quarter of 2021, up from 32.6 percent in the first quarter. South Africa is not the only country in the region with such high unemployment rates: The country’s jobless mark barely eclipses fellow sub-Saharan African countries Namibia (33.4 percent) and Nigeria (33.3 percent), which rank second and third in Bloomberg’s database. An expanded measure of unemployment, which includes those available for but not seeking work, reached 44.4 percent in South Africa, an increase of 1.2 percentage points from the first quarter. For recommendations for policies to create jobs for youth in South Africa, see “Solving South Africa’s unemployment: Could tourism, horticulture, agro-processing, or logistics hold the key?“
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New energy projects announced, including transforming landfills in Rwanda, expanding solar and wind capacity, and building and upgrading nuclear power plants
This week, the Rwandan capital of Kigali announced a new environmentally friendly project that aims to use the Nduba landfill to generate energy for the national grid. In 2020, the area was designated an environmental and health hazard, and this new project will transform the landfill so that it will capture gases (such as methane) that it produces and convert those gases into power instead of releasing them into the air. The solid waste can also be turned into other materials like plastic and repurposed into items like bricks, electric poles, and chairs. According to The New Times, the capture and use of landfill gas, the transformation of waste to energy, and aerobic composting can all make major contributions to the reduction of gas emissions that cause global warming. Overall, the government plans on investing $28 million in projects that can utilize gas landfills for power generation and which are also expected to create new green jobs.
The government argued that such action is essential as Rwanda’s cities undergo rapid urbanization—the population of Kigali alone has skyrocketed from just over 600,000 people in 2002 to 1.6 million in 2021.
At the launch, Environment Minister Jeanne d’Arc Mujawamariya explained the reasoning and outlined hoped-for next steps in the effort: “The waste should not be wasted. We should turn waste into revenues. Once investors generate revenues from recycling waste, we will work with them to reach the level of providing incentives to households.” The project is part of an agreement between Rwanda’s Ministry of Environment and the government of Luxembourg and is also a part of efforts to strengthen diplomatic ties and aid in the transfer of technology between the two nations.
Other renewable energy sources like solar continue to grow throughout the continent. Investment companies Gridworks and New GX have announced investments of $40 million into the company Sustainable Power Solution Investments (SPS), which will be used to build additional solar plants that can collectively generate 100 MW of power across sub-Saharan African countries, especially Ghana and Nigeria. The investment in SPS is Gridworks’ second since 2019, when it committed $31 million to facilitate the installation of 45 MW of solar energy across the region.
In related news, South Africa moved forward with plans to expand its solar and wind capacity by 2.6 GW and, this month, received 102 bids from companies for such projects. The Department of Mineral Resources and Energy, which will fund the projects, said that it would announce the successful bidders in October and November of this year, and the winners must complete the projects by April 2024.
Also as part of efforts to reduce the country’s dependance on carbon-intensive energy sources, South African energy regulators are looking to increase the country’s nuclear energy capacity. Last week, Mineral Resources and Energy Minister Gwede Mantashe announced plans to build a new 2,500 MW nuclear power plant by 2024. The announcement was met with some early opposition, though, with the civil society group Organization Undoing Tax Abuse (OUTA) arguing that the project is “not affordable, not appropriate and should not be approved.”
South Africa currently has the continent’s only nuclear plant, the Koeberg Nuclear Power Plant near Cape Town, which generates 5 percent of the country’s electricity. Notably, a new $1.2 billion program was recently launched to extend the operating life of that plant, which will involve replacing six steam generators and forced air cooler units, as well as perform needed maintenance on the turbine system. The modifications are expected to extend the operational life of the plant, which has been connected to the national grid since 1984, by 20 years.
Nigeria deepens relationships with Russia, South Korea
This week, Nigeria and Russia signed a military cooperation agreement that details the framework for the supplying of equipment from and training of troops by Russia to the West African country. According to the Nigerian ambassador to Russia, President Muhammadu Buhari feels Russia can aid Nigeria in defeating Boko Haram, which continues to contribute to insecurity in northern Nigeria.
This deal is another step in the strengthening of ties between the two countries: For example, in October 2019, Russia hosted its first summit with Africa that included 43 heads of state or government, with the purpose of reviving the economic, political, and military influence of Russia in Africa. At the summit, Russia made the first of many security and economic deals, including a contract to supply attack helicopters to Nigeria. For more on the Africa-Russia relationship see the 2019 op-ed, “Vladimir Putin is resetting Russia’s Africa agenda to counter the US and China.”
In related news, Nigeria and South Korea have been working to expand their political, economic, and defense relationships, as recently demonstrated by the visit of Korea’s First Vice Minister of Foreign Affairs Choi Jong Kun to Nigeria early this week. In fact, during his visit, Kun stated that, COVID situation pending, within the next five years, he wants to see a direct flight between the capitals of both countries, as well as increased cultural collaboration, technology, education, and trading. The two countries are looking to cooperate on security issues as well, as Kun and the Nigerian Minister of Transportation Rotimi Amaechi met to discuss maritime security during the visit.
This trip was another step in Korea’s pursuit of a long-term, mutually beneficial relationship with Africa in recent years: For example, Korea has sent $200 million in masks and medical equipment to the continent to aid its fight against COVID-19. In March of this year, the South Korean Ambassador to Nigeria stated that the embassy of South Korea was interested in a joint program for children as well as other cultural programs to aid Koreans in understanding Nigerians culturally. The Korea International Cooperation Agency (KOICA) has also been rapidly increasing its aid to the region since 2016.