Africa’s recent economic crisis started with the impact of the sharp increase in food and oil prices that took place in 2008. While oil prices have now fallen, food price remain higher than they were in early 2007, and this is having a dramatic negative impact on the poor. Governments, donors and other organizations working on the ground face difficult trade-offs in attempting to cope with this shock through various policy and programmatic responses. Together with Chief Economist Office for Africa at the World Bank, DDVE is managing a flagship study on the Economic Crisis in Africa. Funding for this work was received from the Africa Regional Studies Program as well as from the Luxemburg Poverty Reduction Partnership Trust Fund. DDVE’s work includes analyzing the impact of the crisis on the poor and assessing the effectiveness of policy responses both by governments and by private groups.
Preliminary outputs from this work have been published in the World Bank’s Policy Research Working Paper Series, have been highlighted in a recent issue of the World Bank’s Research Digest, and are also made available as DDVE Working Papers. Highlights from this preliminary work are as follows:
Data from a dozen countries have been used to simulate the poverty impact of higher food prices. With a 50 percent increase in selected food prices, upper-bound increases in poverty measures range from 1.8 percentage points in Ghana to 9.6 points in Senegal. The average impact is around 3.5 percentage points. For Africa as a whole, this would mean 30 million more poor people. See DDVE Working Paper 2008-3
on Mali, DDVE Working Paper 2008-7
on Liberia, DDVE Working Paper 2008-6
on Ghana, and DDVE Working Paper 2008-2
which provides a synthesis of results obtained for a dozen West and Central African Countries.
Poverty mapping techniques show that impacts vary within countries. This poses a dilemma in focusing policy responses, since the hardest-hit areas in a country often are not the poorest. See DDVE Working Paper 2008-8
which is based on data from Guinea.
To deal with the crisis, many governments have reduced food taxes, often temporarily, but tax cuts have large fiscal costs and are poorly targeted. Expanding social protection programs shows more promise. Data suggest that in several countries the poor are roughly as likely as the nonpoor to benefit from food aid (DDVE Working Paper 2009-4). While this does not constitute good targeting, it is better than tax cuts. As for labor-intensive public works, simulations suggest that geographic targeting is required to avoid high leakage. See DDVE Working Paper 2008-1
which gives a review of the literature and evidence on this topic.
The most promising policy interventions are those boosting agricultural productivity. Mali’s rice initiative aims to increase production by 50 percent. Analysis suggests that a 15 percent increase in productivity could generate a large increase in rice production that would reduce poverty despite the increase in international rice prices. By contrast, import tax cuts would not reduce poverty by much. See DDVE Working Paper 2008-5
based on CGE simulations for Mali.
Another finding relates to the relative effects on households of oil and food price increases. Using social accounting matrices, analysis shows that in some countries the indirect multiplier effect of higher oil prices may be more severe than that of higher food prices. See DDVE Working Paper 2008-4
based on a SAM analysis for Ghana.
In addition to the above papers, summary policy oriented notes are being prepared for publication in the World Bank’s PREM Notes and will also be available as DDVE Notes.