Paper series on transatlantic trade and development policy issues Analysis

July 2012 Number 8

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Summary: Low corruption, political stability, rule of law, good regulations, and transparency all help foster an enabling business environment. The lack of these features has been found to distort investment, at times hinder trade, and induce the misallocation of public resources. These facts are wellknown, but certain underlying mechanisms deserve further exploration in order for African leaders and their transatlantic partners to fully maximize private investments and ODA on the continent. The views expressed here are the views of the authors alone and do not necessarily reflect the stance of the German Marshall Fund of the United States.

Aid, Trade, Investment and Governance in Sub-Saharan Africa: By the Numbers

By Veronika Penciakova

Since 1980, countries in sub-Saharan Africa (SSA) have received over $555 billion in official development assistance (ODA).1 Yet, nearly 69 percent of the population remains without access to improved sanitation facilities, compared to 39 percent in the rest of the developing world. At 563 maternal deaths per 100,000 births, sub-Saharan Africas average maternal mortality ratio is five times higher than that of other emerging economies.2 The persistence of these and other development challenges have led many analysts and advocates to question the effectiveness of foreign assistance to the region. Many now argue that the answer to Africas development deficit is not more aid, but more trade. Trade and investment are seen as an essential driver of long-run sustainable development by many. The experiences of Latin America and East Asia are often cited as examples of how trade and investment, rather than aid, promote growth and poverty reduction. Over the past 30 years, emerging East Asia, spurred in part
1 This figure accounts for ODA disbursed by traditional Organisation for Economic Co-operation and Development (OECD) bilateral and multilateral donors.

by its impressive trade and investment performance, has experienced the fastest growth rates in GDP per capita in the world. Moreover, in just over 25 years (between 1981 and 2008), the region was able to reduce absolute poverty by nearly 63 percentage points, from 77 percent to 14 percent. During the same period, poverty in sub-Saharan Africa declined by just 4 percentage points, from 52 percent to 48 percent.3 One of the crucial questions facing sub-Saharan Africa today is how the region can attain and maximize the gains from trade and investment as other regions have done in the past. The policy options available to countries in SSA and their development partners are many, and this report cannot attempt to do justice to them all. Rather, it will focus on one strand of the literature good governance and institutional development. Low corruption, political stability, rule of law, good regulations, and transparency all help foster an enabling business environment. The lack of these features has been found to distort investment, at times hinder trade, and induce the misallocation of public
3 World Bank, An update to the World Banks estimates of consumption poverty in the developing world, March 2012.

1744 R Street NW Washington, DC 20009 T 1 202 683 2650 F 1 202 265 1662 E info@gmfus.org

World Bank, World Development Indicators, 2012 and authors own calculations.
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resources.4 These facts are wellknown, but certain underlying mechanisms deserve further exploration.

Figure 1. Trade, Investment, and Aid Flows as Share of GNI: Sub-Saharan Africa, 1980-2010
50%

In trying to understand why 40% sub-Saharan Africa may not be fully capturing potential gains 30% Net Ocial from global trade and investDevelopment ment, this report looks at three Assistance 20% interrelated topics: 1) the evolution of aid, trade, and investment Inward Foreign 10% in sub-Saharan Africa; 2) the Direct Investment distribution and composition of these flows; and 3) the prevailing 0% governance environment in 1980 1985 1990 1995 2000 2005 2010 Sources: International Monetary Fund, Direction of Trade Statistics, 2012; OECD, Development Assistance Committee Aid Statistics, 2012; which businesses in the region operate. The numbers indicate national income (GNI) as ODA to developing countries by not that SSA is receiving insuf2015.5 Between 2000 and 2010, net ODA rose by about 123 ficient private sector flows, but rather that the distribution percent.6 Yet the rise in aid did not translate to significantly and composition of these flows is not ideal for long-run higher aid dependence in sub-Saharan Africa, and more sustainable development. Further, these challenges may be importantly, it did not come at the expense of private sector directly related to, and exacerbated by, poor governance. flows. As transatlantic donors and businesses interested in Africa attempt to foster development in the region, this analysis By 2010, aid accounted for only 4 percent of regional implies that promotion of good governance may help foster GNI, down from its peak of nearly 7 percent in the mida better composition and distribution of private sector 1990s. At the same time, private sector flows (in the form flows. of exports and FDI) accounted for about 32 percent of regional GNI by 2010, compared to just 16 percent during Aid, Trade, and Investment Trends the mid-1990s. As Figure 1 indicates, the importance of in Sub-Saharan Africa exports and FDI to sub-Saharan Africa has risen substanThe discussion surrounding financial flows in and out of tially since 1980, and that of ODA has fallen. To put this sub-Saharan Africa tends to pit public sector flows (in the into context, consider that while over the past 30 years SSA form of ODA from bilateral donors and multilateral instihas received $555 billion in ODA, in just the past 5 years tutions) against private sector ones (including exports and the region has exported more than double that ($1.3 trilforeign direct investment FDI). It is true that aid flows lion) and received nearly half that ($203 million) in FDI.7 have risen substantially since the early 2000s, reflecting The importance of private sector compared to public sector donors renewed commitment under the Monterrey flows persists if we consider the bilateral flows between Consensus to strive toward a target of 0.7 percent of gross sub-Saharan Africa and the United States and Europe. Dutt, Pushan and Daniel Traca, Corruption and Bilateral Trade Flows: Extortion or In 2010, total exports to the United States accounted for Evasion?, The Review of Economics and Statistics, Vol.92, No.4, November 2010; Fosu, 6.1 percent of sub-Saharan Africas regional GNI, while Augustin Kwasi, Political Instability and Export Performance in Sub-Saharan Africa, Journal of Development Studies, Vol.39, Issue 4, 2003; Kimenyi, Mwangi and John Muaid disbursed by the United States accounted for only 0.7
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kum Mbaku, Africas War on Corruption, in Foresight Africa: The Continents Greatest Challenges and Opportunities for 2011 Africa growth Initiative at the Brookings Institution, January 2011; Mauro, Paolo, The Effects of Corruption on Growth, Investment, and Government Expenditure, IMF Working Paper, September 1996; Ng, Francis and Alexander Yeats, Good Governance and Trade Policy: Are they the Keys to Africas Global Integration and Growth?, World Bank Policy Research Working Paper, November 1998; Wei, Shang-Jin, How Taxing is Corruption on International Investors?, The Review of Economics and Statistics, Vol.82 No.1, February 2000.

Share of Gross National Income

Exports

5 6 7

United Nations Millennium Project, The 0.7% target an in-depth look, 2006. OECD Development Assistance Committee, ODA Statistics: DAC2a Table.

International Monetary Fund, Direction of Trade Statistics, 2012; OECD Development Assistance Committee, ODA Statistics: DAC2a Table, 2012; United Nations Conference on Trade and Development, Foreign Direct Investment Statistics, 2012.

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percent. Similarly, total exports to Europe accounted for 7.0 percent of regional GNI, while aid accounted for only 1.2 percent. These patterns suggest that SSA is far more dependent on exports and investment than it is on aid. Sub-Saharan Africas export and investment sectors have been steadily growing in importance over the past 30 years. And while the region continues to struggle with many development challenges and lag behind other developing regions, its growing global export and investment sectors have helped the region exceed its past economic performance. Sub-Saharan Africas average GDP per capita growth rate over the past five years has been a pretty healthy 2.6 percent, which is a significant improvement over the regions average of -0.2 percent for the previous 25 years (1980-2004). Similarly, although SSAs average GDP per capita in PPP terms of US$2,285 remains below the average of any other developing region, it has risen by 14.5 percent since 1980. It is no longer the case that sub-Saharan Africa can be painted as an isolated, aid-dependent region. Rather, for the most part, countries in SSA today are active participants in the global economy. And the regions persistent development challenges cannot be blamed solely on the ineffectiveness of aid. Given the importance of these private sector flows for longrun sustainable development, the remainder of this report focuses on these flows. Though several gains from trade and investment have materialized in SSA, these gains have not been as marked as those experienced by other developing regions. A contributing factor to the lack of progress on some development indicators and slow progress on others may be that the region has been unable to effectively capture and maximize the gains from existing and potential private trade and investment flows, despite increased involvement with the global economy. In particular, both the distribution and composition of these flows matter. Distribution and Composition of Trade and Investment in the Region Sub-Saharan Africa is made up of 49 individual countries that vary substantially across economic and development indicators.8 Among other things, these countries attract
Kaufmann, Daniel and Veronika Penciakova, On Africas New Dawn: from Premature Exuberance to Tempered Optimism, Brookings Institution, June 2011; Radelet, Steven, Emerging Africa: How 17 Countries are Leading the Way, Center for Global Development, September 2010.
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different levels and different kinds of trade and investment flows. It may then be that unequal distribution and suboptimal composition of private sector flows are among the reasons that, as a whole, the region has been unable to fully harness the development gains from trade and investment. Investment and trade flows in sub-Saharan Africa are unevenly distributed: The uneven distribution of private flows in sub-Saharan Africa can contribute to the regions economic and development challenges. If export and FDI flows are concentrated in a few countries, it is likely that the benefits of these flows are likewise concentrated. Between 2008 and 2010, the 10 largest exporters and destinations for FDI in SSA accounted for 81 percent of all private flows. These 10 countries have just 39 percent of the regions population, suggesting that the concentration of private flows far exceeded what was warranted by the size of these countries.9 In order to get a sense of how the trend in distribution of export flows has evolved, Figure 2 compares the flow from the largest 10 exporters to the remaining 38.10 Here the focus is on export flows since these far exceed FDI throughout the period. The distribution of exports has become more uneven over the past 15 years. The share of exports from the majority of SSA economies (the 38 countries not included in the top 10) has fallen from 27 percent of the top 10 in 1995 to under 23 percent in 2010. During this same period, these 38 countries share of the population rose from 52 percent to 61 percent. 11 Figure 2 also demonstrates that the pattern of rising concentration persists in bilateral trade relations. In particular, over the past 15 years, the exports from the majority of SSA countries to Europe as a share of the top 10 exporters fell by nearly 13 percentage points. Notably, exports to the United States are far more concentrated than exports to the world or Europe. Between 1995 and 2010, exports from the majority of SSA economies as a share of the top 10 exporters did not exceed 10 percent. And from the already low share of 6.3 percent in 1995, the export

9 Population was chosen to represent country size rather than GDP because exports are endogenous to trade and investment. 10 In these calculations, the top 10 countries were allowed to vary over time. Further, the total number of countries analyzed is 48 rather than 49 because of the lack of data available for South Sudan. 11

Authors calculations based on UNCTAD, International Trade Statistics, 2012 and World Bank, World Development Indicators, 2012.

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Figure 2: Share of Export from 38 SSA Countries as Share of Exports from Top 10 Exporting SSA Countries
40% Exports from 38/Exports from top 10 35% 30% 25% 20% 15% 10% 5% 0% 1995 2000 2005
Sources: UNCTAD Bilateral Trade Statistics, 2012

Exports to: World Europe

can be detrimental to long-run growth.14 Similarly, concentration in low-value-added primary exports may inhibit capacity building and productivity, inducing a perilous dependence on cyclical and volatile international prices.15

share of these countries fell further to just 4.5 percent by 2010.12 Unsurprisingly, the uneven distribution of private flows affects outcomes. The economic performance of the top ten exporters and FDI destinations between 2008 and 2010 Angola, Congo, Cote dIvoire, Equatorial Guinea, Gabon, Ghana, Nigeria, South Africa, Sudan, and Zambia exceeds that of the remaining 38 countries. Throughout the past 30 years, these economies outperformed others in the region in terms of GDP per capita growth. In particular, in the past five years, the average GDP per capita growth of the top 10 countries neared 4 percent, while that of other countries rested at just over 2 percent. Likewise, the average GDP per capita of the top 10, $7,223, is nearly three times higher than the average of the remaining economies in subSaharan Africa.13 Foreign direct investment and exports are heavily concentrated in the extractive resources sector: Evidence from developing countries also suggests that the composition of investment and exports matters for development. In particular, investment concentration in the extractive sector may create disincentives to invest in capacity building in other sectors, thus preventing the development of a diversified economic base. Further, research has shown that under certain circumstances resource dependence

Over the past ten years, economies in sub-Saharan Africa have attracted over $302 billion United States in foreign direct investment.16 Yet only around 1 percent of these flows were into the 2010 manufacturing sector.17 The vast majority of FDI is given to extractive industries (oil, gas, and minerals). Since investment is critical for the development of a strong export base, the lack of investment in manufacturing has contributed to SSAs undiversified export composition. Between 2008 and 2010, over 70 percent of all exports from sub-Saharan Africa were from extractive industries. Other primary commodities accounted for nearly 13 percent of exports. Overall, in 33 countries extractive resources or other primary commodities accounted for over 50 percent of total exports. Only 15 percent of exports were from the manufacturing sector. Moreover, the regions export composition is almost the inverse of global export composition. In recent years, extractive resources accounted for about 22 percent of global exports, other primary commodities around 10 percent, and manufacturing 68 percent.18
14 Boschini, J. Pettersson and J. Roine, Resource Curse or Not: A Question of Appropriability, The Scandinavian Journal of Economics, Vol.109 Issue 3, November 2007; Brunnschweiler and E. Bulte, The Resource Curse Revisited and Revised: A Tale of Paradoxes and Red Herrings,Journal of Environmental Economics and Management, Vol.55 Issue 3, May 2008; Isham, J., M. Woodcock, M. Pritchett, and G. Busby, The varieties of resource experience: how natural resource export structures affect the political economy of economic growth, World Bank Economic Review, 2005; Sala-i-Martin, X. and Subramanian, A., Addressing the natural resource curse: an illustration from Nigeria, NBER Working Paper, 2003. 15 Castro, Lucio, Luciano Cohan and Eduardo Levy-Yeyati, Latin America Economic Perspectives All Together Now: The Challenge of Regional Integration, The Brookings Institution, April 2012. 16 United Nations Conference on Trade and Development, Foreign Direct Investment Statistics, 2012. 17 Page, John, A New Agenda for Aid to Africa, in Foresight Africa: Top Priorities for the Continent in 2012, Africa growth Initiative at the Brookings Institution January 2012. 18

12 13

Authors calculations based on UNCTAD, International Trade Statistics, 2012. Authors calculations based on World Bank, World Development Indicators, 2012.

Authors calculations based on UNCTAD, International Trade Statistics, 2012.

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Figure 3: Share of Exports from Sub-Saharan Africa by Sector, 1995-2010
80% 70% Share of Total Exports 60% 50% 40% 30% 20% 10% 0% 1995 2000 2005
Sources: UNCTAD Bilateral Trade Statistics, 2012

The process of moving towards a more diversified export base does take time. To see whether the region is in the process of transitioning away from the extractive sector, Figure 3 explores the trend in the composition of exports between 1995 and 2010. But rather than becoming more diversified, it appears that over the past 15 years, subSaharan Africa has become less so. In fact, at the same time that extractive industry exports rose from 45.3 percent to 69.0 percent of exports, manufacturing fell from 27.4 percent to 16.1 percent. These patterns persist for exports to the United States and Europe. Bilateral exports to the United States have been dominated by extractive resources over the past 15 years. The share of extractive sector exports rarely fell below 80 percent throughout the period. Even from already high levels, there has been a slight rise in concentration since 1995 (from 84 percent to 86 percent). This came at the expense of both manufacturing and primary commodity exports. By 2010, manufacturing exports accounted for nearly 10 percent of total exports, down slightly from 11 percent in 1995. In the case of Europe, extractive exports rose from 45.5 percent in 1995 to 58.0 percent in 2010. But the rise was more at the expense of exports in other primary commodities than manufacturing. The primary commodity sector share of exports fell from 38 percent to 23 percent, while manufacturing saw a slight rise from 16 percent to nearly 18 percent. These prevailing trends in the distribution and composition of private flows in sub-Saharan Africa contribute to
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the regions mixed performance on economic and development indicators. The causes of uneven Extractive distribution and skewed compoResources sition of flows are numerous, and as such, the policy implications are many. Businesses often Manufacturing cite poor infrastructure, lack of access to capital, bureaucratic red tape, and corruption as among the key hindrances to doing busiOther Primary ness.19 Rather than attempting to Commodities do justice to all of these factors, here the sole focus will be on sub-Saharan Africas institutional/governance setting. In 2010 particular, the following sections will analyze the regions performance on several key governance variables with the aim of providing some guidance on areas in which improvements could perhaps help spur more and higher quality private sector flows. Institutional Development and Investment and Trade in Sub-Saharan Africa Good governance has been found to promote private sector development, spur investment, improve resource allocation, and facilitate long-run sustainable growth. In particular, research has shown that high levels of corruption increase bureaucratic red tape, decrease the quality of regulations, reduce FDI, and even impede trade.20 Further, weak regulatory quality and rule of law can discourage private investment by introducing uncertainties in areas such as property and intellectual rights protection.21 And a growing body of literature has demonstrated that specifi-

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Mutenyo, John and Nelipher Moyo, Addressing Uncertainty to Spur Investment in Africa, in AGOA at 10: Challenges and Prospects for U.S.-Africa Trade and Investment Relations, Africa Growth Initiative at the Brookings Institution, July 2010. Dutt, Pushan and Daniel Traca, Corruption and Bilateral Trade Flows: Extortion or Evasion?, The Review of Economics and Statistics, Vol.92, No.4, November 2010; Kurer, Oskar, Clientelism, corruption and the allocation of resources, Public Choice, Vol.77 No.2, 1993; Mauro, Paolo, The Effects of Corruption on Growth, Investment and Government Expenditure, IMF Working Paper, September 1996; Teravaninthorn, Supee and Gael Raballand, Transport Prices and the Costs in Africa: A Review of the Main International Corridors, Africa Infrastructure Country Diagnostics Working Paper, July 2008; Wei, Shang-Jin, How Taxing is Corruption on International Investors?, The Review of Economics and Statistics, Vol.82 No.1, February 2000.

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21 Cass, Ronald, Property Rights Systems and the Rule of Law, The Elgar Companion to Property Rights Economics, 2003.

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Figure 4: Global Competitiveness & Overall Governance
WGI Overall Governance (percentile rank), 2010 100 r = 0.80 80
CPV BWA NAM MUS ZAF

(CC) are the four most highly correlated with the Global Competitiveness and Doing Business Indexes.24 On all four governance indicators of interest, sub-Saharan Africa rates among the bottom third of countries worldwide (Figure 5). SSA performance is the weakest in government effectiveness (27th percentile) and the strongest in control of corruption (33rd percentile). Governance in the region also remains below the average for all other emerging economies, which rate near the top half of all countries.

60 40 20 0 0

GHA LSO MOZ BFA SWZ MLI MWI BEN TZA ZMB SEN GMB UGA MDG MRT AGO BDI NGA CIV TCD ZWE CMR KEN ETH RWA

20 40 60 80 WEF Global Competitiveness Index (percentile rank), 2011

100

Sources: World Economic Forum, Global Competitiveness Report, 2011; D. Kaufmann, A. Kraay and M. Mastruzzi, "Worldwide Governance Indicators: Methodology and Analytical Issues," October 2011.

cally in countries with poor governance, resource dependence will hinder long-run sustainable development.22 Figure 4 highlights the strong positive relationship between competitiveness and governance. It also demonstrates that the majority of countries in sub-Saharan Africa (identified in Figure 4) are relatively uncompetitive and face governance challenges. In fact, only three countries in the region (Rwanda, Mauritius, and South Africa) rate among the worlds top half on competiveness and only eight (Lesotho, Ghana, Seychelles, South Africa, Namibia, Cape Verde, Botswana, and Mauritius) rate among the top half on governance.23 As suggested above, there are aspects of good governance that are more closely related to private sector development than others. A simple correlation analysis indicates that of the six components of the Worldwide Governance Indicators (WGI), government effectiveness (GE), regulatory quality (RQ), rule of law (RL), and control of corruption

It should of course be noted that regional averages such as those presented in Figure 5 mask cross-country variation. On average across the four WGI components analyzed here (government effectiveness, regulatory quality, rule of law, and control of corruption), performance ranges from those countries with governance below the 10th percentile (such as Somalia, Zimbabwe, Democratic Republic of Congo, and Equatorial Guinea) to those rating above the 60th percentile (including Namibia, Cape Verde, South Africa, Botswana, and Mauritius). As has been suggested above, these differences in the quality of governance may help shed some light on the variations in competitiveness, trade composition, and economic and development outcomes seen across the region. To verify whether this is borne out in the data, countries in SSA were divided into terciles based on their average performance on WGI government effectiveness, regulatory quality, rule of law, and control of corruption in 2010. Countries in the best-governed tercile rate the highest in the region on the Global Competitiveness and Doing Business Indexes, while countries in the weakest tercile rate the

22 Boschini, J. Pettersson and J. Roine, Resource Curse or Not: A Question of Appropriability, December 2005; Brunnschweiler and E. Bulte, The Resource Curse Revisited and Revised: A Tale of Paradoxes and Red Herrings,2006; Sachs, Jeffrey and Andrew Warner, Natural Resource Abundance and Economic Growth, NBER Working Paper, December 1995. 23

24

The total number of countries covered by the Worldwide Governance Indicators is 213.

The six components covered by the WGI are: voice and accountability, political stability, government effectiveness, regulatory quality, rule of law, and control of corruption.

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Figure 5: Governance in Sub-Saharan Africa and Other Emerging Economies, 2010
100 Sub-Saharan Africa 80 Percentile Rnak 60 40 20 0
Sources: D. Kaufmann, A. Kraay and M. Mastruzzi, "Worldwide Governance Indicators: Methodology and Analytical Issues," October 2011.

countries with weaker governance. And finally, the dividend to good governance and higher quality private flows seems to extend to economic and development outcomes. As Table 1 indicates, the countries with the highestquality governance in subSaharan Africa have the highest growth rates and GDP per capita. These countries also have the lowest maternal mortality rates and highest access to sanitation. At a broader level, these countries rate higher on the Human Development Index than the remaining countries in the region.

Emerging Economies (excluding SSA)

Government Eectiveness

Regulatory Quality

Rule of Law

Control of Corruption

lowest.25 Differences in the composition of exports across the three terciles are also quite telling. On average, countries with the weakest governance are more dependent on extractive sector exports than countries with better governance (Figure 6). Moreover, countries with the highest quality of governance in the region tend to rely more on primary commodity and manufacturing exports than

Share of Total Exports

Good governance matters for private sector development, and more broadly for economic and social development. Variation in the quality of governance across countries in sub-Saharan Africa appears to contribute to differences in private flows and economic and development outcomes. Given the positive development dividend of good governance, Figure 6: Composition of Exports by WGI Government Eectiveness, governments in the region (and Regulatory Quality, Rule of Law, and Control of Corruption Terciles, their development partners Adequate Middling Quality of Governance: 201060% in both the public and private sectors) may find it beneficial 50% in the long run, alongside other policies, to continue to identify 40% and address governance challenges.
30% 20%

Policy Implications Trade and investment will likely be the drivers of sub-Saharan 10% Africas growth and development in the long run. Already the calls 0% for more trade have been heard. Extractive Resources Other Primary Commodities Manufacturing Inward FDI into the region rose Sources: D. Kaufmann, A. Kraay and M. Mastruzzi, "Worldwide Governance Indicators: Methodology and Analytical Issues," October 2011. nearly eight-fold and exports grew over six-fold over the past Specifically: On the Global Competitiveness Index, the highest tercile was in the 27 15 years. Most countries in the region are far more depenpercentile, middle tercile in the 20 percentile, and lowest tercile in the 6 percentile. Similarly, on Doing Business the highest tercile rated in the 45 percentile, the middle dent on private sector flows than aid. Even with this influx
25 th th th th

tercile in the 20th percentile, and the lowest tercile in the 9th percentile.

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ways in which ODA can be used to most GDP per Maternal effectively bolster capita GDP per Human Mortality Ratio Access to African business Quality of growth, capita Development (per 100,000 Sanitation, environments, Governance 2005-2010 (PPP), 2010 Index, 2011 live births), 2005 2010 alongside, of course, Adequate 3.3% 5,606 0.52 462 43.8% existing investments in poverty reduction, Middling 2.2% 2,264 0.43 619 28.5% health, education, Weak 1.8% 4,184 0.40 773 29.4% and other critical Sources: World Bank, World Development Indicators, 2012; United Nations Development Program, Human Development Report, 2011 areas. Combined with other private sectorof investment to the region and the expansion of exports promoting and competitiveness-enhancing policies, good out of it, the economic and development performance of governance reforms could contribute to long-run sustainsub-Saharan Africa continues to lag behind that of other able growth by promoting better development outcomes developing regions. and attracting not just more private sector flows, but better quality ones. This report has argued that a contributing factor to this uneven performance may be the regions inability to fully capture and maximize the potential gains from trade. The central problem is not that the region is receiving insufficient private sector flows (though there is certainly room About the Author for growth), but that the distribution and composition of Veronika Penciakova received her BA in economics and internathese flows is not ideal for long-run sustainable developtional affairs from the George Washington University and her MSc ment. Private sector flows are highly concentrated in few in Development Studies from the London School of Economics. She countries and sectors. The uneven distribution of these currently works as a research analyst. flows inhibits many countries in the region from benefiting from trade and investment, and their skewed composition About GMF toward the extractive sector may also hinder broad-based The German Marshall Fund of the United States (GMF) is a nondevelopment. Table 1: Economic and Development Performance by Governance Tercile Although the underlying causes of these challenges are numerous, the evidence suggests that one contributing factor is sub-par governance. Countries with high corruption and weak regulations and rule of law have trouble attracting investment and promoting private sector development. More broadly, good governance also contributes to growth, poverty reduction, and better development outcomes. It may therefore be beneficial for countries throughout SSA to learn from some of the regions good performers and put (or maintain) governance reforms on the policy agenda. This also has important implications for SSAs development partners, who are seeking to improve public-private partnerships and increase the effectiveness of trade and FDI as tools for development. In their efforts to improve development outcomes, experts may consider
partisan American public policy and grantmaking institution dedicated to promoting better understanding and cooperation between North America and Europe on transatlantic and global issues. GMF does this by supporting individuals and institutions working in the transatlantic sphere, by convening leaders and members of the policy and business communities, by contributing research and analysis on transatlantic topics, and by providing exchange opportunities to foster renewed commitment to the transatlantic relationship. In addition, GMF supports a number of initiatives to strengthen democracies. Founded in 1972 through a gift from Germany as a permanent memorial to Marshall Plan assistance, GMF maintains a strong presence on both sides of the Atlantic. In addition to its headquarters in Washington, DC, GMF has seven offices in Europe: Berlin, Paris, Brussels, Belgrade, Ankara, Bucharest, and Warsaw. GMF also has smaller representations in Bratislava, Turin, and Stockholm.