Mortalidad infantil en África

Se me pasó ya la época de plantearme hacer un doctorado. Pero hubo un periodo, sobre todo entre el 2003 y el 2006, durante el cual me parecía una opción bastante atractiva. Después fui y me gasté los pocos ahorrillos que teníamos hace dos años en hacer un máster en energía y finanzas - lo de hacer un segundo máster fue una decisión que parecía tener su lógica en ese momento: si quería dar el salto al sector privado habría que pasar por una escuela de negocios, ¿no? El caso es después de un año y medio de dudar la sabiduría de esa inversión, parece que al final sí que va a salir rentable.

Pero bueno, volviendo al tema del doctorado, el caso es que sí que se me ocurrieron algunos temas en los que me hubiera encantado profundizar a base de microeconometría. Uno de ellos es el misterioso descenso en la mortalidad infantil en Malawi, ilustrado en el gráfico de google que presento abajo. Entre 1992 y 2004 el ritmo del descenso fue mayor que en ningún otro país al sur del Sáhara (de 240 por cada 1.000 nacimientos vivos a 133 - los datos no se corresponden con los del gráfico, son de aquí). El caso es que es un misterio porque la opinión generalizada de la élite en Malawi es que la primera década de la democracia (1994-2004) fue una década perdida. Y es una opinión que se filtró a publicaciones oficiales, incluida la valoración del Banco Mundial de la reducción de la pobreza en el país de 2006.



La hipótesis que hubiera explorado, y sobre la que aún no hay una evaluación cuantitativa, hubiera sido que la reducción de la mortalidad infantil ha sido el resultado de:

(1) una caída de la pobreza causada por la liberalización del sector del tabaco (que antes de 1992 solo podían cultivar unos cuantos privilegiados a quienes el gobierno otorgaba una licencia);

y (2) la introducción de educación primaria gratuita en 1994, que supuso un incremento dramático en la alfabetización sobre todo de las niñas.

¿Por qué seguimos sin evidencia de los efectos positivos de estas reformas tan sencillas en un indicador tan fundamental como la mortalidad infantil? Para mi es un reflejo de todo lo que está mal con el sector del desarrollo internacional:

(1) Porque el mensaje de que la liberalización de los mercados agrícolas en África podía tener un impacto inequívocamente beneficioso no cuadraba ya con la versión post-Washington consensus.

(2) Porque el gobierno que llevó a cabo gran parte de las reformas acabó bastante corrupto en su segundo mandato (1999-2004) y por lo tanto a las agencias internacionales no les interesaba reconocer los éxitos que hubieran podido tener con anterioridad.

(3) Porque al nuevo presidente (elegido en 2004) también le interesaba que se vieran los mandatos de su antecesor como un rotundo fracaso.

(4) Porque a las élites nacionales no les beneficiaron los cambios - tenían que competir con más granjeros produciendo tabaco y la calidad de la educación primaria cayó bastante - y por lo tanto su percepción de ese periodo de su historia era y es muy negativo.

Y (5) porque así el Programa de Desarrollo de las Naciones Unidas y otros personajillos inconsecuentes se podían anotar, de forma totalmente inverosímil, el éxito de la reducción de la mortalidad infantil.

Así que ahí lo tenéis. El doctorado de Random Spaniard que nunca fue y nunca será. Eso sí, el tema sigue ahí abandonado, esperando que un joven investigador dispuesto a ir contra corriente se anime algún día.

Maravillas del mercado: peaje en África

El último post de Esplugas sobre los problemas asociados con el regalar ropa usada para pobres africanos me ha hecho recordar Malawi. Y mientras las buenas intenciones crean estos problemas, también había muchos ejemplos del mercado aportando soluciones inesperadas.

Por ejemplo los puentes sobre el río principal en Lilongwe (la capital), conectando dos partes distintas del mercado durante la estación lluviosa. Por el módico precio de 1o kwacha (algo así como 5 céntimos), podías usar estos puentes. La oportunidad de negocio era claramente muy buena, por lo que llegó un momento en el que había varios compitiendo en un espacio de menos de 100 metros.

Maravillas del mercado: empresas contra la pobreza II

Plagio el título de la última anotación de Esplugas. Y es que no me fio un pelo de lo que diga un informe de las Naciones Unidas. Mi candidata a la mayor maravilla del mercado es la compañía Farmers' World: Malawi's Growing Power. El web merece la pena, aunque sea sólo por lo bonitas que son algunas de las fotos de Malawi.



Esta empresa se dedica principalmente a vender fertilizante a algunas de las personas más pobres del planeta. En un país de 13 millones de personas tienen alrededor de 100 tiendas y almacenes. Algunos años han llegado a facturar 100 millones de dólares, aunque los beneficios siempre dependen de que el gobierno no se dedique a hacerles competencia desleal vendiendo fertilizante a menos de la mitad del precio de mercado desde sus almacenes públicos.

La empresa la gestionan dos hermanos griegos que se criaron en una granja de tabaco en el sur de Malawi. Estudiaron en la universidad en el Reino Unido y cuando terminaron decidieron volver e invertir sus vidas en el país en el que habían crecido. Con el apoyo de un par de socios irrumpieron en el mercado del fertilizante que hasta entonces había estado dominado por la multinacional Norsk Hydro (ahora Yara). Invirtiendo en su cadena de distribución y las conexiones logísticas con los puertos de Mozambique consiguieron desbancar a la poderosa multinacional como los mayores comercializadores de fertilizante del país. Hoy en día, en muchas partes remotas de Malawi sus tiendas son el único sitio en el que se puede comprar azúcar y cemento además de fertilizante.

A Malawi la han hecho más rica. A mí me convirtieron en un amante del mercado.

Carta abierta al presidente de Malawi

Your excellency

I first wrote to you congratulating you on your re-election seven months ago. Today I attended a book launch that inspired me to write to you again. The book is a detailed account of the economic reforms that have resulted in unprecedented growth and poverty reduction in Uganda since 1990.

What were the two key reforms of the early 1990s that kick started Uganda's boom? One of them, you might have guessed, was establishing fiscal control. As Alan Whitworth (one of the authors of the book) has written elsewhere, your Government also did this successfully during your first term in office. You have been widely congratulated and have reaped the benefits of this achievement.

The second critical reform of the early 1990s was the liberalisation of the exchange rate. The practical way of doing this was by legalizing the parallel market exchange rate. 'The results included a rapid expansion in non-coffee exports [a five-fold increase in four years!]; easier current transfers; and reduced rationing in imported consumer goods.' (p. 55).

Emmanuel Tumusiime-Mutebile, the current Governor of the Bank of Uganda and another of the book's authors, said during the launch:

"with the fixed exchange rate coffee farmers were GROSSLY cheated by the government. Also, as demonstrated by Uganda's experience over the last 18 months a flexible exchange rate makes adjustment to external shocks much less painful."

I reproduce again the chart showing the dramatic depreciation of the Uganda Shilling compared to the Malawi Kwacha following the financial crisis in September last year. You will be interested to know that despite of (or because of) the depreciation Uganda is expected by the IMF to have grown at 7% in 2009 and to grow at 6% in 2010 - that compares favourably to Malawi's growth rates of 5.9% and 4.6% for those two years.

In conclusion, I am afraid that the solution to the forex shortage is not to get Perks the Governor to tell people not to buy luxuries this Christmas (as reported in the article below). It is for Malawi to liberalise its exchange rate as Uganda did, to its significant benefit, 19 years ago. Until that happens the gains achieved during your first term will not be consolidated.

And if they are not consolidated your second term could be as poor as Acheya's. You will be remembered as the president who established fiscal discipline and a huge fertilizer subsidy. Acheya is the president that introduced universal primary education and allowed poor farmers (and not only well-connected estate owners) to grow tobacco. For the time being I still prefer Acheya's legacy, but you still have time to do better than him.

God bless Malawi.

Agricultural subsidies in poor countries ...

… are making a comeback.

After years of timid liberalisation efforts in the agricultural sector the momentum appears to have been lost. Part of this has to do with the hypocrisy of our own rich countries, which has been all too evident throughout the Doha round of trade negotiations. The persuasiveness of the technical advice provided by the World Bank is clearly eroded when the political leaders of the bank’s main shareholders (i.e. us, the rich OECD countries) appear incapable or unwilling to reduce their own agricultural subsidies.

The spike in food prices during the first half of 2008 has also led to a renewed focus on agricultural development and public investment in poor countries, including new multi-billion-dollar commitments from the G8 leaders at their latest meeting last month. Despite the well-meaning intentions of the donors and the bureaucrats that will eventually manage these funds, the reality is that a large proportion of these funds will likely be channelled towards unproductive subsidies.

I do not think agricultural subsidies in poor countries are necessarily a bad thing – there are informational asymmetries and credit market failures that provide an economic rationale for them sometimes. I even had a fleeting moment of fame two years ago being quoted in defence of the economics of the Malawi fertilizer subsidy in a front page New York Times article. I also believe subsidies can be designed in ways that support market development, which is what we tried to support the Government of Malawi with.

But in practice these nuances become too complicated for the politicians in charge, for whom the heart of the matter always appears to be to increase (or maintain) the size of the subsidies, rather than increase their efficiency and impact. Delivering the subsidies through Government structures rather than market ones also seems too difficult to resist for politicians. Thus we get the massive write-offs of agricultural debts in India or the delivery of fertilizer through government shops in Malawi, without a thought being given to the question of who will provide credit or who will invest in the fertilizer supply chain in future.

I got thinking about these issues again as I was reading “The Wealth and Poverty of Nations” by David Landes. Explaining why the Industrial Revolution and the era of capitalism took off in Britain of all places in chapter 15, he states “one can hardly exaggerate the contribution of agricultural improvement to Britain’s industrialization”. The tone of those few paragraphs appears to suggest that industrialisation was possible because first Britain was able to feed itself from its own production.

As much as I like Landes’ book (a highly recommended read), I am a little disappointed at the way this issue is addressed. Dan Morgan’s “Merchants of Grain” (an obscure source, I know) discusses Britain’s grain imports during the 19^th century. As early as 1815 there were trade laws regulating cereal imports. Albeit these had very protectionist elements, e.g. forbidding imports when domestic prices fell below a certain floor to protect domestic farmers, they show the increasing importance of imports early on in the century. Grain prices in the Polish port of Danzing often set the wheat price in England and the protectionist Corn Laws were finally repelled in 1846, leading to complete liberalisation of cereal imports. These imports, as much as any improvements in British agriculture, made it possible to feed an increasingly urban and industrialised workforce.

Both the G8 leaders discussing poor countries today and David Landes discussing 19^th century Britain focus exclusively on domestic agricultural production missing a factor at least of equal importance in achieving food security: liberalisation of agricultural trade, including getting rid of protectionist subsidies to rich-country farmers.

[Apologies for posting without including a single chart - that is a habit I don't want to get into]

Open economic letter to Mutharika on his re-election as Malawi's President

Your Excellency

Congratulations on your election victory – it provides an overwhelming endorsement of what your government has achieved by restoring fiscal discipline and broadly guaranteeing food security through your fertilizer subsidy. On the former I believe you have lessons to share with the US and UK governments, as they head for fiscal deficits of 15% of GDP.

I spent three years working in Malawi as an economist and I am now in grim London making some money as an independent consultant and, probably, over-investing in my human capital. Anyway, I am spending this week in Uganda and as I do so I can not help comparing it with Malawi. I wanted to share some of these thoughts with you.

Despite the global economic crisis, Uganda’s economic prospects are, like Malawi’s, optimistic according to the IMF. The economy is expected to grow at about 7% this year. In the short to medium term Uganda is also expected to start producing oil in commercial quantities, giving the economy a boost larger than the one Malawi is getting this year from Kayelekera. But I wanted to focus on one key difference in economic policy between Uganda and Malawi: exchange rate management. As you can see from the chart below since July last year the Uganda shilling has depreciated by over 30% vis a vis the dollar, while the Malawi kwacha has not moved.

Three benefits worth highlighting if you were to follow Uganda on their flexible approach to exchange rate management:

(1) A weaker currency would support your aim of making Malawi a more competitive exporting nation. Just ask your Chinese friends: for years they have been blamed for artificially depressing their currency to support their export drive. This might be one of the factors behind Uganda’s more diversified export base: coffee, the largest export, accounts for just for 15% of $2.4 billion of exports. In Malawi’s case tobacco accounted for over half of last year’s $1 billion worth of exports.

(2) A weaker kwacha is needed to allow Malawi to build a stronger foreign reserve position. Foreign reserves have been consistently below two months of imports throughout the past five years. This compares to between 5 and 6 months of imports for Uganda.

(3) Finally, tobacco prices are substantially down this year at the auction floors – why not boost farmers’ kwacha proceeds by allowing the currency to depreciate?

And as far as timing is concerned, the best time to do it is NOW because: (1) tobacco farmers would start benefiting immediately; (2) fertilizer and fuel prices have fallen dramatically from last year’s record, so even with a 30% depreciation Malawians should still be able to enjoy lower kwacha prices for these commodities; and (3) by doing it now, the depreciation can still be factored into next year’s budget.

So why not celebrate your victory by setting the kwacha free? And may Malawians be another 30% richer per capita at the end of your next five years.

Fiscal deficits: lessons from the world's second fastest growing economy

Let us be honest. Some of us, Spaniards who enjoy economic data, are rather jealous of Anglo-Saxon countries. The public authorities in the US and the UK show a degree of transparency when it comes to public finances that we can only marvel at.(*) For any reasonable forecast of what might happen to the public sector deficit and to public debt for the current year, let alone years further out, we do better to monitor the IMF and EU Commission press releases than anything that comes out of el Ministerio de Economía or el Banco de España, even if it has regained some degree of independence in recent months.

The chart below shows the standard public deficit and borrowing requirement forecasts released by Her Majesty’s Treasury two weeks ago. Of course they are scary, and it is widely acknowledged that they are hopelessly optimistic. But the point is that the British public can have an open debate on the basis of official government statistics and forecasts. In Spain we are made to choose between the view of external bodies or the vague Government pronouncements that invariably follow.

United Kingdom's fiscal deficits and borrowing requirements
Source: Her Majesty's Treasury, 2009

In any case, the US and the UK are heading towards public sector borrowing well in excess of 10% of GDP this year and similar rates a few years into the future. Spain’s deficits and borrowing requirements might be 2 percentage points below theirs, mostly as a result of our much better starting point (a surplus of 2% of GDP in 2007). The scary thing about all this is that we all become hostage to the bond markets, as this blog has argued from its inception four months ago. What happens if investors start requiring much higher yields from government bonds?

I have a real world example which might hold some lessons for us, whether American, British or Spanish. The source of the lessons is rather unusual: a small African country with a total GDP of no more than $5 billion, which I happen to know rather well. Malawi went through a fiscal crisis and recovered from it as has been well documented by my former colleague Alan Whitworth. What strikes me the most are the potential parallels between Malawi’s story during 2000-2009 and what might happen over here.

As the chart below shows Malawi run huge budget deficits for five consecutive years (2000-2004), with the domestic borrowing requirement being in excess of 20% of budgeted domestic public expenditure for the first four years. The results were dramatic. The stock of debt AND interest rates increased dramatically, so that in 2003/04 28% of all domestic expenditure was being used to finance interest payments.

How did Malawi get out of spiralling into an oblivion of debt and ruin? From 2004 the government committed itself to fiscal discipline with the advice and support of the IMF, balancing the books for the first time in their short democratic history. Five years later Malawi’s government spends less than 10% of its domestic expenditure on interest and the IMF expects it to grow at close to 7% in 2009 (the Economist’s forecasts earlier this year expected Malawi to be the second fastest growing economy in the world this year after Qatar!).

Malawi has a general election on 19 May. Despite its track record on the macro-economy, the President’s re-election is not assured. The important thing, however, is that whoever wins has seen the benefits of fiscal discipline and can be expected to remain committed to it.

Will our leaders in the US, the UK and Spain show us, the people that fund them, the path they intend to follow to balance the books in the medium term? None of them have done it thus far because they know that the process will be painful.

(*) An illustration of the extent of this transparency, which goes well beyond macroeconomic aggregates, is given by the outraged front-page headlines in virtually every newspaper about Gordon Brown’s domestic cleaning arrangements. Getting similar headlines in Spain, which does happen, is always the result of tough investigative journalism which is always disputed by the culprits leaving the public in a state of confusion.

Happy economic 2009, Malawi

Happy New Year, I say as I frantically try to get this out before January is over (still writing from Honduras, where I am working until Saturday)! It certainly seems set to be a happier New Year in Malawi than in most other places in the World – at least as far as economic growth is concerned. Hopefully 2009 will also see Malawi follow in the steps of Ghana’s exemplary elections.

Three weeks ago The Economist ranked Malawi’s expected economic growth for 2009 as the second fastest in the World.



The IMF approved and disbursed in December a $77m External Shock Facility – a very welcome vote of confidence on Malawi’s progress and at the same time a much needed forex injection. The report is now available and at 6.7% has a more moderate growth forecast for 2009 than The Economist.

1. Commodity prices
Malawi’s best economist, Dr. Khwima Nthara, worried about the impact of the financial crisis on Malawi on the World Bank's Africa Can (End Poverty) blog - wondering whether we might expect some bad news as a result of second round impacts through lower commodity prices. I feel the picture on commodities for 2009 in Malawi is far from clear, with a lot of potential upside.

(1.1) Tobacco. As I commented in my latest economic update sales at the auction floors for the 2008 season hit a historical record of $465 million. This was an increase of $280 million on 2007 and reflected both record historical prices (at an average of $2.43 per kg) and record volumes (at 190 million kg).

The very positive results of the 2008 season should provide greater incentives to grow tobacco this season. Therefore, greater hectarage can be expected, although yields might decline as a result of lower fertilizer application due to the increase in fertilizer prices (more on this below). On balance I suspect the buyers and the Tobacco Control Commission will be expecting a (substantially?) larger crop.

The question is then whether last season’s prices will be maintained. It is worth pointing out that despite the general collapse in commodity prices since their peak in July 2008, there are some agricultural commodities such as sugar and cocoa that have bucked the general decline (with cocoa prices rising over 50% in the last six months). So price declines in the coming auction season are not necessarily a given.

(1.2) Uranium. Paladin state that they are still on track to ramp up uranium production from Kayelekera from March. Prices of uranium have fallen dramatically from their peak 18 months ago of $120 per lb. Nevertheless, at current prices of $48 per lb, Malawi can still expect uranium exports of over to $150 million per annum, representing a step-increase in GDP of over 3%. Exports in 2009 are likely to be around $75 million, as the mine takes about six months to reach its target production of 3.3 million pounds of uranium per annum.

(1.3) Sugar. In November Illovo, the country’s only producer of processed sugar, announced the results for its operations in the six months to end September. The Malawi operation has always been the star performer of this regional group, contributing 17% of its total revenue and 41% of operating profit in the last full year.

Malawi’s performance in the first half of the current year was even more impressive: operating profit in the first six months was equivalent to approximately $53 million, compared to $61 million for the last full year. In other words, Illovo is on track for an increase in full year earnings this year of over 50%.

Although the financial statement does not provide the details, it is likely that this increase is largely driven by increased domestic consumption, a signal of increased disposable income among Malawi’s population.

(1.4) Fertilizer. We all know how dependent Malawi is on imported fertilizer, with or without a humongous Government fertilizer subsidy. The IMF’s latest estimates of the Terms of Trade impact of the 2008 fertilizer price increases was that Malawi required an additional $123 million for the year. In my view this is an underestimate: imports for the 2008 subsidy amount to 200,000 tons at an average price that is $670 per ton higher than the 2007 price. So the impact on the subsidy programme alone is already greater than the IMF estimate. If we add commercial imports my sense is that in 2008 Malawi required an additional $200 million (5% of GDP) to pay for its fertilizer imports.



The great news is that the gains in fertilizer prices of 2008 have been totally reversed, and are now back at their early 2007 levels, and shipping prices (the Baltic Exchange Dry Index) has fallen to the lowest level in over a decade. These two factors should result in a positive Terms of Trade shock of well in excess of $200 million in 2009 (again much higher than the IMF’s latest estimate of $102 million).

(1.5) Oil. On oil I have neither the inclination nor time to challenge the IMF estimates, so I just report here what they state. In 2008 Malawi required an additional $62 million to finance its fuel imports. As we know oil prices have fallen by two thirds since their peak in July 2008, and the IMF now estimate that this will represent a saving of $77 million in 2009 to Malawi’s economy.

2. Maize prices
Something bizarre continues to go on with Malawi’s maize prices. The attached shows prices to the first week of December – more recent figures have confirmed further increases. So prices have remained above $350 per ton since July and have recently broken above the $400 per ton barrier. This did not even happen in the 2005-06 food crisis. And whereas in July those price levels might have been consistent with world maize prices (as shown in the chart below), those world reference prices (Chicago and Jo’burg) have now fallen back to about $160 per ton.



As I said above my view is that the huge improvement in Illovo’s business is a sure sign of greater prosperity amongst the bulk of Malawi’s population. And yet these price levels have worrying implications for some sectors of the population, particularly those right at the bottom of the income distribution.

Views on what is going on are more than welcome – I want to hear from people who might know something the rest of us don’t.

3. The latest macroeconomic indicators
The latest macroeconomic indicators from the Reserve Bank of Malawi are now available, with data to the end of December 2008 (I was actually just waiting for it before finalising this update). The figures are, as always, revealing.

(3.1) Forex reserves. The chart below shows the forex situation towards the end of last year became more precarious than it had been at any time since early 2005. Official foreign reserves fell to just $70 million in October, presumably as a result of the large forex requirement for fertilizer imports. This continued precarious situation, in which Malawi appears incapable of stabilising its reserves at a level above two months of imports, provided the justification for the IMF’s ESF approval. The $77 million ESF disbursement plus presumably other substantial donor inflows in December resulted in reserves rising back to safer levels of nearly $300 million.



Nevertheless, the continued precariousness of the foreign reserves surely should make the authorities question the wisdom of their strong peg to the US$. In the past four months, apart from the Japanese yen, all serious World currencies have depreciated against the greenback. In this context it does not make any sense for Malawi to remain pegged at an artificially overvalued rate of K140 per US$ - even more so when some commentators are convincingly arguing that this overvaluation is the main immediate constraint to faster economic growth.

(3.2) Inflation and interest rates. Inflation has continued to creep up slowly, hitting 9.9% in December. Commercial interest rates remain at 19.3%, which means that for the first time in the decade real interest rates are possibly below 10%.



(3.3) Credit growth. In the context of the rapid deterioration of the credit market globally credit to the private sector in Malawi grew 50% in the last four months of 2008, closing the year at $464 million. Credit to Government also experienced a large step increase. If I have to guess what is going on here I would say that this increase is the result of the huge financing costs of fertilizer imports after World prices more than doubled in the months to July 2008. So for the time being the effects of the global credit crunch have not been felt in Malawi.



In conclusion…
Economic prospects are positive for Malawi despite the global financial and economic turmoil. It seems that the 2009 elections and improving the exchange rate management regime are, at the moment, much more important for Malawi’s continued progress than the potential impact of the global crisis.