Capital Accumulation in Eastern and Southern Africa

100 Pages·2003·2.83 MB·English

by  World Bank Group

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A Decade of Setbacks
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/-/-
MV/5-
WORLD BANK STAFF WORKING PAPERS
Number 562 57
4u J 7
Capital Accumulation in Eastern and Southern Africa
A Decade of Setbacks
Ravi Gulhatia
Gautam Datta
The World Bank
Washington, D.C., U.S.A.
Copyright © 1983
The International Bank for Reconstruction
and Development / THE WORLD BANK
1818 H Street, N.W.
Washington, D.C. 20433, U.S.A.
First printing April 1983
All rights reserved
Manufactured in the United States of America
This is a working document published informally by the World Bank. To
present the results of research with the least possible delay, the typescript has
not been prepared in accordance with the procedures appropriate to formal
printed texts, and the World Bank accepts no responsibility for errors. The
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manufacture and distribution.
The views and interpretations in this document are those of the author(s) and
should not be attributed to the World Bank, to its affiliated organizations, or to
any individual acting on their behalf. Any maps used have been prepared
solely for the convenience of the readers; the denominations used and the
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any judgment on the legal status of any territory or any endorsement or
acceptance of such boundaries.
The full range of World Bank publications is described in the Catalog of World
Bank Publications; the continuing research program of the Bank is outlined in
World Bank Research Program: Abstracts of Current Studies. Both booklets are
updated annually; the most recent edition of each is available without charge
from the Publications Distribution Unit of the Bank in Washington or from the
European Office of the Bank, 66, avenue d'Iena, 75116 Paris, France.
Ravi Gulhait is the chief economist of the Eastern Africa Regional Office of
the World Bank; Gautam Datta is a consultant to the World Bank.
Library of Congress Cataloging in Publication Data
Gulhati, Ravi.
Capital accumulation in eastern and southern Africa.
(World Bank staff working papers ; no. 562)
Bibliography: p.''
1. Saving and' investment--Africa, Eastern. 2. Saving
and investment--Africa, Southern. 3. Capital producti-
vity--Africa, East'ern. 4. Capital productivity--Africa,
Southern'. I. Datta, Gutam, 1947- . II. Title.
III. Series.
RC860.Z9S34 1983 332'.0415'09676 83-5899
ISBN 0-8213-0169-1
ABSTRACT
The paper attempts to analyze the magnitude of the setback in
capital accumulation in Eastern and Southern Africa and the proximate causes
of this phenomenon. The sample consists of 16 countries and available data
for the late 1960s and 1970s are explored. Given the weakness of the
statistics, the authors rely more on expert observations than on rigorous
quantitative assessments; although available data are analysed. Capital
formation increased fairly rapidly during 19 67-1974 but then slowed down
considerably. Investment was financed to a considerable extent by external
concessional assistance; rapid growth in such funds during the late 1970s
helped offset declining national savings rates to some extent. The setback in
investment rates was greatly accentuated by a large and widespread
deterioration in the productivity of capital brought about by the impact of
government policy, strained absorptive capacity and a variety of exogenous
factors.
-ACKNOWLEDGMENTS
We are grateful to Ram Agarwala, Rolf Gusten, Robert Armstrong and Peter
Hansen for valuable comments on an earlier draft of this paper.

CONTENTS
Section Page No.
I. Introduction . .................................... 1
II. First, A Look At the Record ....................... 4
III. Behavior of Investment ............................ 10
IV. Productivity of Capital ........................... 23
Capacity Utilization 24
Sector-Mix and Sectoral ICORs 28
Absorptive Capacity 30
Impact of Government Policy 31
V. Conclusion ......................................... 34
Figures
Figure 1. The Investment Ratio and GDP Per Capita ....... 13
Figure 2. The Median Ratios of Savings and Investment
to GDP, Eastern Africa ..... 16
Figure 3. The Savings Ratio and GDP Per Capita .......... 18
Figure 4. The Savings Ratio and Terms of Trade, Zambia
and Zaire ..................................... 20
Figure 5. The Savings Ratio and Terms of Trade, Ethiopia
and Uganda .................................... 21
Page No.
Annex I - Statistical Tables
Table 1 The Growth of GDP in Constant Prices, Eastern
Africa and Comparator Countries, 1960-70 and
1970-79 ................................................ 38
Table 2 The Growth of GDP in Constant Prices, 1967-78
and Sub-Periods 1967-73 and 1973-78 ..................... 39
Table 3 The Growth of Gross Domestic Investment in Constant
Prices, Eastern Africa and Comparator Countries,
1960-70 and 1970-79 ................................... 40
Table 4 The Growth of Gross Domestic Investment in Constant
Prices, 1967-78 and Sub-Periods 1967-73 and 1973-78 .... 41
Table 5 The Incremental Capital Output Ratio In The Periods
1961-68, 1967-73 and 1973-79 .......................... 42
Table 6 Incremental Gross Capital Output Ratios in Five
Developed Countries, 1967 to 1974 ...................... 43
Table 7 Historical Incremental Capital Output Ratios In
Developed Countries ................................... 44
Table 8 The Ratio of Gross Domestic Investment to GDP,
1967-78. Three-Year Moving Averages ................... 45
Table 9 Index of Real Gross Fixed Capital Formation By the
Central Government .................................... 46
Table 10 The Ratio of Gross National Savings to GDP.
Three-Year Moving Averages, 1967-78 .... ............... 47
Table 11 Terms of Trade Estimates, 1967 to 1978. Three-Year
Moving Averages ........................................ 48
Table 12 Gross National Savings as a Percentage of Gross National
Investment. Three-Year Moving Averages, 1967-78 .... ... 49
Table 13 Net Official Development Assistance as a Percentage
of External Resources Inflow ........................... 50
Table 14 Direct Investment as a Proportion of Long-Term Capital
Inflows ................................................ 51
Table 15 New Private Direct Investment From DAC Sources .... .....5 2
Page No.
Annex I - Statistical Tables (Cont'd)
Table 16 The Stock of Foreign Direct Investment in
Eastern Africa, End 1978 ............................... 53
Table 17 Gross Eurocurrency Credit to Eastern Africa .... ........ 54
Table 18 Capacity Utilization in Selected Sectors in
Tanzania, 1978-79 ...................................... 55
Table 19 Capacity Utilization in a Sample of Parastatal Firms
in Tanzania, 1979 ...................................... 56
Table 20 Capacity Utilization in a Single of Public
Enterprises, 1976-78, Somalia .......................... 57
Table 21 Capacity Utilization in Certain Manufacturing Firms
in Sudan, 1973 ......................................... 58
Table 22 Capacity Utilization in the Public Industrial Sector
in Sudan, 1975-76 ...................................... 59
Table 23 Frequency Distribution of Capacity Utilization in
Plants/Processes of the INDECO Group, Zambia, 1981-82 .. 60
Table 24 Quantum Index of Imports, 1967 to 1978 .... ............. 61
Table 25 Petroleum Imports Into Eastern Africa. Three-Year
Moving Averages ........................................ 62
Table 26 Public Current Expenditure Per Pupil in Constant
Prices At The First Level (Ages 7 to 13) .... ........... 63
Table 27 Share of Public Investment (Including Parastatal
Investment) in Total (Three-Year Moving Averages) ....... 64
Table 28 Index of Real Recurrent Expenditure on Economic Services
In Four Eastern African Countries ...................... 65
Annex II Interrelations between the ICOR, Growth Rate, Invest-
ment Ratio and the Investment Rate ..................... 66
Annex III Limitations of National Account Data in Eastern Africa 71
References ........... ............................................ 71