Notes

Policies and i nstitutions that d ist ort r esource a ll ocation in s ub- s ahar an a fric a 83

M-Shwari loan is about US$12 with maturity of no more than 30 days (Cook and McKay 2015). Users are charged a fixed facilitation fee (instead of an interest rate). These fees are typically high—for instance, a monthly fee of 7.5 percent for M-Shwari (or 138 percent annually), or 10 percent per week for some Malawian digital loans (an annualized rate of 1,000 percent). Repayment of digital loans on time raises the probability of the user being granted larger loans with lower fees and longer maturity. It remains an open question whether the uptake of digital loans would decline if borrowers had more information on these products or were already fully informed about their costs (Francis, Blumenstock, and Robinson 2017).

Access to credit among women entrepreneurs is more restricted than among men because of inequality in the ownership of fixed assets (say, land or property) to serve as collateral to secure loans. However, developments in the financial technology industry can be harnessed to unlock the collateral challenge facing women entrepreneurs. Psychometric loan appraisal technologies— which predict the likelihood of loan repayment by entrepreneurs—have been used as an alternative to traditional collateral in Ethiopia (Alibhai et al. 2018). Specifically, they test the ability (business skills and intelligence) and willingness (ethics, honesty, attitudes, and beliefs) to repay a loan. Borrowers take an interactive, tablet-based test consisting of games, puzzles, and questions. If they score above a certain cutoff, they can obtain an uncollateralized loan of up to US$7,500. Customers scoring at a high threshold on the psychometric test were seven times more likely than lower-performing customers to repay their loans. This pilot is being currently scaled up in Madagascar and Zimbabwe and will be implemented next in Côte d’Ivoire, Nigeria, and Zambia. In the absence of collateral, and with limited information available on the creditworthiness of women borrowers, psychometric testing is a promising solution.

Finally, cash still dominates the transactions of many of the world’s poor despite the increased use of digital financial services. In this context, efforts to foster digital literacy would help potential users to understand the interface with digital financial systems. Training sessions to understand the benefits of digital financial products and, more importantly, how to use them will increase the uptake of digital accounts and deposits (Holloway, Niazi, and Rouse 2017).

1. The selection channel also involves distortions that can affect individuals’ occupational choices, such as (a) joining the formal sector as an entrepreneur (instead of as an informal entrepreneur or worker); and (b) agriculture versus nonagriculture jobs. 2. So far, the academic literature has identified some factors that can account for large effects of misallocation in agriculture; however, that is not the case for the extent of misallocation found in manufacturing (Restuccia and Rogerson 2017). 3. Revenue total factor productivity (TFPR) is typically defined as the ratio of firms’ sales (or revenues) to input costs (appropriately weighted by their production elasticities). The marginal product of land is the additional output gained from adding another unit of land. This might apply to a farmer who purchases a field adjacent to the existing property or to a factory owner who increases the square footage of a facility. 4. Restuccia and Santaeulàlia-Llopis (2017) use the 2010–11 Malawi Integrated Survey of Agriculture (ISA). This survey has ample information on agricultural production (physical amounts by drop and plot) and the inputs used in all agricultural activities at the plot level. The data are representative at the national level, with a sampling frame based on the census and an original sample that includes 12,271 households (56,397 individuals), of whom 81 percent live in rural areas.

Household land is measured as the sum of the size of each cultivated household plot, including rented-in land (about 12.5 percent of all cultivated land). Household farms, on average, cultivate 1.8 plots. Plot size is recorded in acres using the Global Positioning System (GPS) for 98 percent of plots. For each household, the amount of the land used for

84 Boosting Productivity in s u B - s ahar an a fric a

agricultural production is measured regardless of the tenure status. The operational scale of farms is small: 78.3 percent of households operate less than 1 hectare, 96.1 percent of households operate less than 2 hectares, and only 0.3 percent of households operate more than 4 hectares. The average farm size is 0.83 hectares. The data contain detailed information on the quality of land for each plot used in every household. It distinguishes up to 11 dimensions of land, thus enabling the control for land quality when measuring household-farm productivity. 5. Chen (2017) builds a two-sector general equilibrium model where untitled land cannot be rented or traded across farmers, and it can only be used by those who were originally assigned to the plot. Simulations of the model show that titling all of the land raises agricultural productivity by 51.8 percent. About 42.5 percent of this productivity gain arises from land reallocation, while 57.5 percent reflects lower distortions in occupational choice. 6. An increase in average temperature of 2 degrees Celsius is expected to reduce agricultural production by almost 25 percent (IPCC 2015). Attenuating the collateral effects of climatic shocks (such as migration, occupational change, and land changes) will require reallocation of land and labor. 7. Data from satellite images can provide a range of climatic parameters in almost real time (such as rainfall, temperature, and so on) that can reach farmers in remote areas without measurement stations and enable them to better manage crop growth. 8. Fertilizer implementation features that have weakened the impacts of targeted ISPs include frequent late delivery of vouchers, politicized voucher allocation, and illegal collusion between leaders and agrodealers, among others. 9. At the Second Ordinary Assembly of the

African Union in July 2003 in Maputo,

Mozambique, African heads of state and government endorsed the “Maputo Declaration on Agriculture and Food Security in Africa.” The Declaration’s important provisions included a “commitment to the allocation of at least 10 percent of national budgetary resources to agriculture and rural development policy implementation within five years.” 10. The 10 countries in the region with the largest

ISPs (Burkina Faso, Ethiopia, Ghana, Kenya,

Malawi, Mali, Nigeria, Senegal, Tanzania, and Zambia) spent US$1.02 billion on fertilizer subsidy programs in 2014 (Goyal and

Nash 2017). 11. The main criteria for the distinction between

“promoted” and “pioneer” are a sector’s labor intensiveness and linkage to the agriculture sector. “Pioneer” activities are the top tier of activities that are agriculture-based and require a large outlay or have strong linkage effects. “Promoted” activities are of secondary priority and include rainfed agriculture, livestock development, nonbasic industries, and contracting. 12. Bigsten, Gebreeyesus, and Söderbom (2016) also found that output tariff reductions had no impact on firms’ productivity in Ethiopia. 13. Increasing attention has been paid recently to the impact of infrastructure on poverty and inequality (Calderón and Servén 2004, 2010;

De Ferranti et al. 2004; Estache 2005; World

Bank 2005). 14. Infrastructure gaps in the Africa region are driven by a host of issues beyond the financing gap—for instance, the lack of commitment to sustainable tariffs in infrastructure services such as electric power, transportation, and water. Yet there is heavy reliance on public subsidies. The gap is also attributed to the poor performance of public utilities, characterized by weak management and political interference. There is also weak political support for sector reforms that can crowd-in private infrastructure investment, such as the opposition of state-owned enterprises to public-private partnerships. An in-depth discussion of the issues mentioned above—although highly relevant to understand infrastructure gaps in the region—goes beyond the scope of this report. 15. See Ndulu (2006) and Ayogu (2007) for diagnostic views on infrastructure and its long-term impact in Africa. 16. The estimation of a causal relationship exploits exogenous variation in outages, induced by an electricity rationing program, across small- and medium-size Ghanaian manufacturing firms. 17. Accounting for the likely endogeneity in the relationship between electrification and employment growth can be affected by endogenous criteria to place infrastructure