More insights on poverty lines

When measuring purchasing power more people are poor in China then previously thought, but progress on poverty is still impressive. 

H/T: The Economist.

Rising poverty and xenophobia

While all eyes are on the outpour of angry township dwellers in South Africa, another important report on the rise of poverty in South Africa was published by the South African Human Rights Commission.  The number of South African living in relative poverty is rising. This contradicts earlier statements made by the Presidency on poverty, and seem to be in line with claims made by the Institute of Race Relations on the doubling of poverty in a decade (see earlier blogpost).  See also Poverty data continues to make headlines for some thoughts on poverty and rising discontent.

Without a way to address this tinderbox of failed expectations and rising socio-economic hardship, any reason can and will be used to ignite an outpour of angryness, whether by deliberate forces trying to destabilise the country or out of sheer desperateness.  

 

The 12 million people on social grants may prove not to be a sufficient insurance policy. The relative deprivation of the largely excluded young adult and unemployed group will continue to be a major risk.  

It is less relevant who actually lights the match and much more relevant that South Africans face the reality that we have continuously failed to effectively pay attention to the tinderboxes in our midst.   

Time for immediate, high level and informed action.

Cost benefit analysis: friend or foe of nature?

There is quite a debate going on the use of standard economic evaluation tools such as cost-benefit analysis in the protection of nature and the provision of a sustainable flow of environmental goods and services spawned by this article on Environmental Capital.

I think the debate can be enhanced by reflection on our departing points on the type of uncertainty we are implicitly accepting in our models of the future. Do we assume that the future will be like the past? Do we assume that the future will not be like the past at all? How much novelty is in the system? 

It is not only economists who have to deal with an uncertain future, anyone else, including environmentalists and politicians, to whom we may look for alternatives when discarding economic evaluation techniques, cannot escape an unknown future, and often implicit assumptions about future events.

Cost-benefit analysis plays an important role, even in the evaluation of projects and programmes with environmental implications.  Cost-benefit analysis is no substitute for good decision making though.  It helps, but is as bound by the uncertainty of future events as all other (often much less rigorous) techniques.

As Voltaire once said: Doubt is not a pleasant condition, but certainty is absurd. 

Invest in good evaluation techniques, but simultaneously invest in decision making skills for uncertain and complex environments.  In the process, do not try to get lost in methodological battles.

Next Einstein from Africa

If you believe that Africans are needed to solve Africa's problems, this link (www.nexteinstein.org) is for you.

While you are in a positive mood about Africa, keep an eye open for Neil Turok's TED Talk as well.

Commodities will keep Africa growing: blessing or curse?

Commodities will keep Africa growing, despite a slowdown in the world economy (see article). That sounds like good news, but there is more to this story. Time for an update on the 'resource curse' and whether Africa is diagnosed with Dutch disease.

An important key to analyse whether commodities are a blessing or a curse lies in the closing remark of the above-mentioned article:

 

With commodity prices remaining higher than their historic averages and robust North-South and South-South investor interest in Sub Saharan African assets, the window of opportunity remained open to strengthen Africa's economic fabric.

Will Africa be able to use the resource rents to strenghten its economic fabric? What does history tell us? What do we learn from theories on natural resource and development?

This is a topic of much study and debate. Some believe that South Africa, one of the more diversified economies, already suffers from Dutch disease. Some others emphasise, like this case in Ghana with a focus on good governance, that economies can be protected against this disease.

Solutions that have been put forward focus on institutional strengthening, bargaining, accountability. transparency - all aspects of good govervance.  With mixed messages on good governance in the continent, it is highly likely that their will be mixed success in this process to escape the disease and strengthen Africa's economic fabric.

Poor economic conditions and high HIV prevalence drive medical brain drain in Sub Saharan Africa

Sub-Saharan Africa has to cope with an exodus of high skilled people. In an earlier blogpost on the brain drain it was highlighted that up to 20 000 professionals leave Africa each year.

In this study published in the World Bank Economic Review it is pointed out that the medical brain drain is highly correlated to low wages and high HIV prevalence in sub-Saharan Africa.  

Restrictions on the movement of professionals will do little to improve the situation, the crux of the matter is to acknowledge the problem and invest in health systems. 

Blogging is good for you

Contribution from 26econ.com.

Harvard economists ignore natural resource constraints

A panel of Harvard economists have advised the South African government on the bottlenecks in its economic growth path.  The results were published by the National Treasury and released in public domain and have been discussed in the press (see this press release by Treasury and an article by Hillary Joffe originally published in Business Day).

Apart from the fact that the report is quite critical about some of governments' own policies, it sets the stage for an informed debate.  Dani Rodrik, one of the key authors does acknowledge that this document is not intended to be prescriptive, but he does expect government to be serious in evaluating the recommendations.

The panel presented a comprehensive set of recommendations.  One of the key recommendations are to improve South Africa's export effort, and in the process create more jobs in the tradable sector. This can only be achieved with a set of labour market reforms, including a wage subsidy, more choice in engaging with SETAs and lifting of restrictions on high skilled immigration.  It is argued that more high skilled jobs will create more low-skilled jobs.

From a perspective of South Africa's persistent poverty problems, and natural resource dependence the report disappoints.  There is no evidence of any analysis on the binding constraints of poverty, the availability of natural resources and the capacity of the environment to absorb the impacts of growth, on the country, this despite abundant evidence of increasing resource scarcity.  Currently it is not only manufactured and human capital, but natural capital, such as water supply and the the growing impact of climate change, that in many instances act as the limiting factor to development.  

The mainstream economic growth model assumes that natural capital and the environment is in abundant supply, or that a combination of technological developments and the price mechanism will take care of natural resource and environmental shocks on the economy. These are  very strong assumptions to make and one that needs to evaluated in much more detail in the further discussion of these recommendations.

 

One worrying consequence of such a policy document and the interaction between the Harvard economists and the National Treasury is that policies and a future development path for the country is being conceived, yet seemingly oblivious to a very important aspect of (South Africa's) reality.  What is required is a thorough investigation of the natural resource and environmental implications of alternative growth paths such the one propagated by this document and by earlier plans such as ASGISA. It is time that the National Treasury starts engaging strategically and actively with South African natural resource economists as well to manage these underlying risks in our chosen development paths.

Beijing and Africa's development models

It is certainly not news that China is seeing Africa, and particularly South Africa, as important trading partners.  What is not often mentioned is how this relationship will affect philosophies and theories on economic development and the role of the state. 

Dr Martyn Davies in a recent article 'Beijing's friendship puts SA in key commercial spot' published in Business Report does mention that this will also influence how we may think about development trajectories: a change from a "western model" based on the role of the state in the economy, ownership of the banking sector and a political system based on democracy. 

Development models in Africa are in flux. Watch the space.

Local level incentives for conservation of natural capital

Conservation philosophy is changing from state-controlled people versus planet options towards making people part of conservation efforts through the provision of suitable incentives. Governments are stepping in correct for conservation market failures, while utilising the power and innovation of people to implement this.  For example, Brazil will start to provide money and credits to the residents of the Amazon to preserve the forests, rather then farm the land or resort to illegal logging. Read the full story at iNsnet.org.

See also an earlier blogpost on remaining challenges to PES: such payments must be sufficient to change behaviour, and better measurement of ecosystems services are needed to ensure that transfers are cost-effective.

Local PES mechanisms are an important step, but need to be complemented by global mechanisms to support global goals. They are also one of many responses to conserve and restore the world's natural capital.  Others are to address the misspecification of property rights, remove perverse incentives and improve the content and flow of information on the benefits and value of natural capital.

For more on mechanisms to restore natural capital see this recently released book by Aronson et al.

Africa still lags behind on well-functioning PES schemes according to this very recent study. 

Needed: Stories on Africa's complexity

Complexity arises when dependencies among elements in a system becomes important. Story-telling is one way of dealing with alternative possibilities in such systems, or in other words, to make sense of the world. 

Africa needs stories or narratives on possible ways to deal with the continents' complex realities. Africans love to tell stories. That's a promising start.

This is just a thought after reading this interesting contribution on Scenarios and resilience.