Pathways to sustainable growth in Niger A WORLD BANK GROUP COUNTRY ECONOMIC MEMORANDUM © 2022 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 3 ACKNOWLEDGEMENTS This Country Economic Memorandum (CEM) was produced by a team of World Bank staff and external experts led by Paolo Di Lorenzo (Senior Economist) and Fatoumata Fadika (Financial Sector Specialist) under the guidance of Theo Thomas (Practice Manager), Consolate Rusagara (Practice Manager), Soukeyna Kane (Country Director until June 2021) and Clara de Sousa (current Country Director). The report was edited by Paolo Di Lorenzo and Carlos Topi (Consultant), based on the contributions of the following team members: for chapter 1, Paolo Di Lorenzo (lead), Chadi Bou Habib (Lead Economist), Sally Beth Murray (Young Professional), Catalina Quintero (Consultant) ; for chapter 2, Paolo Di Lorenzo (lead), Chadi Bou Habib (Lead Economist, EMFTX), Hans Lofgren (Consultant), Martin Cicowiez (Consultant), Arthur Galego Mendes (Consultant), Steve Pennings (Economist); for chapter 3, Fatoumata Fadika (lead), Juan Buchenau (Consultant), Emiliano Duch (Lead Private Sector Specialist), Anouk Pechevy (Strategy Analyst, IFC), Doreen Oppan (Operations Officer); for chapter 4, Abel Bove (lead, Senior Governance Specialist), Kelvin Tan (Consultant), Rahma Ahmed, Arthur Galego Mendes; for chapter 5, Claudia Soto (lead, Disaster Risk Management Specialist), Oscar A. Ishizawa (Senior Disaster Risk Management Specialist), Simon Hagemann (Financial Sector Specialist), with the support of Luc Bonnafous (Young Professional), Illya Miko (Consultant), Joaquín Muñoz (Consultant), Nathalie Wandel (Junior Professional Officer) Mare Lo (Senior DRM Specialist) and Antoine Bavandi (Senior Financial Sector Specialist). Comments and suggestions from Jean-Pierre Chauffour (Program Leader), Joelle Dehasse (Country Manager), Andreas Eberhard (Consultant), Anne Goujon (IIASA), Markus Kitzmuller (Lead Economist), Ivailo Izvorski (Practice Manager), Yue Man Lee (Lead Economist), Martin Lokanc (Senior Mining Specialist), Jean Michel Marchat (Lead Economist), Michel Matera (Sector Leader), Dino Merotto (Lead Economist), Aminata Ndiaye (Senior Economist), Nathalie Picarelli (Economist), Gael Raballand (Lead Public Sector Specialist), Ernest Sargenti (Senior Economist), James Thurlow (IFPRI), are gratefully acknowledged. Micky Ananth (Operation Analyst), Theresa Bampoe (Program Assistant), Ofumilayo Fewo Olympio (Program Assistant) and Maude Jean-Baptiste (Program Assistant) provided administrative support. The authors are very grateful to the many counterparts in Niger who graciously gave their time, knowledge, and support in many ways. Regional Vice President: Ousmane Diagana Country Director: Ana Coutinho de Sousa Global Practice Director: Marcelo Estevao Regional Director: Abebe Adugna Practice Manager: Theo Thomas Task Team Leader: Paolo Di Lorenzo; Fatoumata Fadika 4 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER TABLE OF CONTENTS Executive Summary 7 Country Context 20 Chapter 1: Niger’s growth experience in the last 20 years: low income and labor productivity gains, many unresolved problems 26 1. Niger’s development pattern vis-a-vis successful development experiences 27 2. Unfavorable demographics and the weak dynamic of labor productivity does not support substantial income growth 31 3. The scope of structural change has been limited 36 4. Conclusions 41 Chapter 2: Policies for income growth and poverty reduction in Niger: Alternative scenarios up to 2050 43 1. The Long-Term Growth Model 44 2. Sustainable Development Goal Simulation model 57 3. Conclusions 59 Chapter 3: Leapfrogging private sector-led growth with New Technologies 61 1. Niger private sector development 61 2. Sectors where technology can help create a strategic and dynamic shift 67 3. Boosting financial inclusion to support this strategic shift 78 4. Conclusions 85 Chapter 4: The extractive sector in Niger: Impact on growth, jobs, governance and fragility 87 1. Overview of the resource sector in Niger 88 2. The impact of the extractive sector on growth (LTGM) 91 3. The impact of the extractive sector on Jobs (Local Content) 99 4. The Impact of the extractive sector on institutions and fragility 104 5. Conclusions 108 Chapter 5: Disaster and climate-related risks in Niger 110 1. Historical disaster and climate-related risk context in Niger 110 2. Niger country risk profile 112 3. Impact of disasters on poverty and food security 115 4. Macro-economic impact of disasters 118 5. Future drivers of disaster risk: climatic conditions and urbanization trends 123 6. Institutional and policy framework for disaster risk management 126 7. Disaster risk financing in Niger 128 8. Conclusions 134 Chapter 6: Key policy options 135 1. Private sector development 136 2. Natural resource management 140 3. Disaster risk management and financing 143 Appendix 145 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 5 LIST OF FIGURES Figure 1. Real and per capita growth rate (1970-2019) 20 Figure 2. Drivers of FCV in Niger 23 Figure 3. Niger reported fatalities 24 Figure 4. Reported fatalities and violent incidents by type of violence & Protests and riots in Niger 2010-2020 24 Figure 5. FDI, investment and capital stock in Niger 29 Figure 6. The main drivers of per capita growth 31 Figure 7. GDP per capita (left panel) and per person employed (right panel) compounding annual growth rates and levels in Niger and peer countries 32 Figure 8. Demographic trends in Niger 33 Figure 9. Evolution of the weekly worked hours in Niger 35 Figure 10. Evolution of the employment structure 35 Figure 11. Productivity decomposition (upper panels) and sectoral evolution (lower panels) 38 Figure 12. Productivity levels (Value added per worker) 39 Figure 13. Baseline production of oil, Barrels per day 46 Figure 14. Baseline reserves of oil, Billions of barrels 46 Figure 15. Baseline investment, Percent of GDP 47 Figure 16. Baseline oil income 47 Figure 17. Baseline GDP growth in Niger 48 Figure 18. Distribution of GDP per capita growth in LIC and LMICs, Average over 2009-2019 48 Figure 19. Decomposition of baseline GDP per capita growth, 2021-2050 49 Figure 20. Distribution of TFP growth in LIC & LMICs 51 Figure 21. The effects of reforms to non-oil TFP on GDP per capita growth, Annual growth rate, % 51 Figure 22. Human capital growth is faster in countries with low schooling rates 52 Figure 23. The effects of reforms to human capital on GDP per capita growth, Annual growth rate, % 52 Figure 24. Distribution of private investment in LIC and LMICs, Average over 2000-2019 53 Figure 25. The effects of reforms to investment on GDP per capita growth, Annual growth rate, % 53 Figure 26. The effects of reform packages on GDP per capita growth, Annual growth rate, % 55 Figure 27. The effects of reform packages on GDP per capita. Real 2010 U.S. Dollars 55 Figure 28. Decomposition of Incremental Growth, Percentage points of extra growth due to each reform 55 Figure 29. Closing the gap with today’s Lower-Middle Income Countries 56 Figure 30. Sectoral contributes to Niger’s real GDP growth, 2013-2018 62 Figure 31. Widespread informality creates unfair competition with the formal private sector 62 Figure 32. Average change in monthly sales of Nigerien firms between June 2019 and June 2020 65 Figure 33. Share of Nigerien firms that have experienced changes in liquidity and cash management between COVID-19 outbreak and June 2020 65 6 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Figure 34. Mobile penetration rate for voice (2G) and broadband (3G, 4G), % pop., 2018 69 Figure 35. Percentage of offline people 69 Figure 36. Average cost of digital services per capita 69 Figure 37. Low adoption of digital services compared to the rest of the world 69 Figure 38. Market limits without Temperature-Controlled Logistics 72 Figure 39. Market with Temperature-Controlled Logistics 73 Figure 40. New Blockchain-based agri value chain financing model 75 Figure 41. Dry onion exports quantity and value, Niger and Senegal 77 Figure 42. Number of P2P payments in WAEMU compared to peer countries 79 Figure 43. Growth of percentage of adult population with a formal transaction account (bank microfinance and mobile money) 80 Figure 44. Value of mobile money transactions/ GDP 80 Figure 45. Location of industrial-scale extractive industry in Niger 88 Figure 46. Government resource revenues in large African oil exporters*, Percent of resource GDP 92 Figure 47. Government oil revenues, Percent of total government revenues 92 Figure 48. Oil price, Real 2010 U.S. Dollars per barrel 95 Figure 49. Government oil revenue, Percent of GDP 95 Figure 50. Incremental public investment, Percent of GDP, (Incremental = scenario - baseline) 96 Figure 51. Incremental GDP growth, Percentage points (Incremental = scenario – baseline) 96 Figure 52. Gross domestic income incremental growth, Percentage points (Incremental = scenario - baseline) 97 Figure 53. Gross domestic income per capita, Real 2010 U.S. Dollars/barrel 97 Figure 54.Government oil revenue, Percent of GDP 97 Figure 55. Incremental GDP growth, Percentage points (Incremental = scenario - baseline) 97 Figure 56. Total population affected by type of disaster 111 Figure 57. Total deaths by type of disaster 111 Figure 58. Annual GDP growth and GDP per capita 113 Figure 59. People affected by catastrophic floods in the Niger River Basin from 1980 to 2014 from 3 different data sources 115 Figure 60. Principal causes of poverty (percentage of households, 2011) 116 Figure 61. Shocks are more frequent in rural areas 117 Figure 62. Number of food insecure people and humanitarian response in Niger according to multiple sources 118 Figure 63. Classification of regional population by Chronic Food Insecurity (CFI) level 119 Figure 64. Growth impact of drought as a function of drought indexes percentiles 121 Figure 65. Contribution of extremes to annual precipitation since 1982 according to satellite observations 124 Figure 66. Time series of annual maximum discharge of the gauging station of Garbey Kourou 125 Figure 67. Urbanization projections in Niger 126 Figure 68. Drought-related food insecurity 129 Figure 69. Overall costs related to food insecurity 129 Figure 70. Niger appeal amounts and coverage 2011 – 2019 130 Figure 71. Financial instruments for disaster response – a framework 130 Figure 72. Financial instruments in Niger 131 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 7 EXECUTIVE SUMMARY This Country Economic Memorandum aims to support • Foster the development of digital finance; Niger’s efforts to walk on a path conducive to a resilient • Promote sound local content policies in the extractive and sustainable economic growth. It does so by attempting sector; to answer the following five questions, each of which • Manage oil revenues in a transparent and fiscally constitutes a separate chapter: (i) What were the salient responsible way; structural characteristics of Niger’s growth performance in • Strengthen the disaster risk management framework the last 20 years? (ii) What are the margins to accelerate and establish a disaster risk financing strategy growth in the medium to long term? (iii) How can technology be a vehicle for private sector development? (iv) How It is worth emphasizing that these pathways are can the country’s large natural resource endowments be not mutually exclusive. Instead, overall growth managed in a transparent way that benefits the whole performance will be magnified by the implementation of population? (v) How can the current disaster management overarching reforms that exploit the significant existing framework be strengthened to increase resilience to complementarities between each of these areas. natural shocks? Amidst competing development needs and priorities, 20 YEARS OF LOW PRODUCTIVITY, LOW INCOME three main areas of analysis and policy reforms have been AND UNRESOLVED PROBLEMS selected. The selection criteria were based on the lessons Although Niger’s recent GDP growth performance has drawn from other developing countries’ experiences, on been relatively robust (5.2 percent on average from Niger specificities, and on the potential gains from moving 2000 to 2020), it has not led to the fundamental change to the frontier. The areas are, i) the use of technology in the economy required to achieve a prolonged period to develop private sector, ii) the development of a well- of income growth and poverty reduction in the face of managed extractive industry, and iii) the establishment challenging demographic prospects. Per capita GDP at of a disaster risk management and finance frameworks. current prices stands at only US$ 568 as of 2020, compared For each area, long-standing bottlenecks that have held to US$ 197 in 2000. This modest change in per capita GDP is back growth performance are identified and specific policy also attributable to the weak productivity gain of around 2 options presented, with a view to create pathways for percent per annum and a rapid population growth rate of increasing economic diversification, reducing vulnerability 3.8 percent. With the highest fertility rate in the world (6.2 to natural disasters and ultimately boosting long term children per woman in 2020 according to the most recent growth in a sustainable manner. national survey), Niger’s economic growth has been too In particular, five pathways are identified throughout the weak to significantly dent poverty. While the poverty rate chapters: decreased from above 50 percent to 41.2 percent during this period, the number of people living in extreme poverty • Leverage new technologies to promote agricultural (i.e., with less than US$ 1.9 per day) increased, reaching 10 productivity and export orientation; million in 2020. 8 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER A suitable metaphor to represent this situation might intra-communal tensions such as those among pastoralists be that of an athlete running on a treadmill: energetic and farmers. They also exacerbate conflict over natural but static. The reason behind this inertia is that the resources, the marginalization of youth and women in the Nigerien economy has fundamentally remained the same labor market and low public service provision in border as two decades ago: undiversified and poorly specialized. areas. While the first peaceful transition of power took Agriculture remains the main sector as share of workers place in 2021, it is yet to be seen if this will reestablish employed (75 percent of the total workforce) and accounts the social contract that has been eroded as a result of for roughly the same share of valued added (40.8 percent) the lack of improvement in living standards. The Nigerien as services. However, frequent climatic shocks impact political sphere is characterized by a system whereby social agricultural productivity and cause food insecurity. On cohesion and political stability are maintained by granting average, droughts create yearly agricultural income losses political elites privileged control over parts of the economy of US$ 15 million, and between US$ 20 million and US$ and state power. This leads to the centralization of power 70 million are caused by floods. Weak institutions, poor and services in Niamey, leaving the majority of those in the governance, the spread of violence and insecurity and rest of the country with limited access. This equilibrium other internal and external drivers of fragility further is upheld by privileging stability over dynamism, avoiding complicate the pursuance of a long-term development the short-term disruption that a bold reform agenda might strategy. The longstanding challenges that need to be entail. addressed to create the conditions for the self-sustaining growth process required to lift millions out of poverty The process of economic development requires a set of include an underdeveloped formal private sector, a large structural changes able to sustain a continuing increase agriculture sector marked by low productivity (both in in income and social welfare (see chapter 1). Unfortunately, level and growth) and insufficient ties with export and Niger has only partly been able to replicate the patterns financial markets, a low level of financial inclusion, a observed in other countries that have successfully growing extractive sector with limited local content, and transitioned from a system where the economic structure the adverse impacts of recurrent natural disasters on lives was mainly characterized by low income, informal, and and livelihoods. labor-intensive activities, to one with higher incomes, higher savings and domestically financed investment, In 2022, Niger finds itself at a critical juncture, as formidable especially in manufacturing. For instance, given the low- development challenges are exacerbated by multifaced income level and continued rapid population growth, shocks and the risk of escalating conflicts. The spread of domestic consumption is still highly tilted (70 percent violence and instability continues to be an issue even as of GDP) towards food, and even the composition of food the country celebrates its first peaceful political transition. items consumed does not show a pattern towards more Niger has faced political instability since its independence sophisticated or higher nutritional items. The sustained in 1960. Since then, it has experienced seven republics and demographic trend generates growing demand for services violent seizures of power by the national army. The growing and infrastructure and at the same time constrains the regional insecurity and the presence of violent extremist current level of domestic saving. Such demand cannot be groups in border areas threaten the stability of the country accommodated therefore without high access to foreign and fuel pre-existing inter- and intra-communal tensions. capital. This is largely evident in the extractive sector, where These drivers of fragility and conflict have a large impact there are monopoly foreign operators in the uranium, gold on the economy as they amplify pre-existing inter- and and oil sectors, each operating a single site. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 9 A significant inflow of foreign capital has not been able to high productivity-level sectors) have taken place at a raise productivity or broaden the production basis. Large slower pace than in many peer countries. From 2010 to foreign direct investments (FDI) above the Sub-Saharan 2019, Niger saw an increase in the share of agriculture in African average as share of GDP, had until 2011 contributed value added, and a continuous decline in the employment to dramatically increasing the share of gross fixed capital share in industry at a yearly average rate of -0.5 percentage formation to around 24 percent of GDP. However, the real points. Services is the only sector contributing positively value of the total stock of public and private capital (as to structural change, but the impact is much lower than share of GDP) per person in 2019 was 86 percent of what in comparator countries. Weak governance and the failure it was in 2000. FDI has been concentrated mainly in rent- to develop a level playing field over the years have had seeking activities in the extractive industries, although a negative effect on the private sector, preventing the they exhibit a high level of ‘localization’ in their operations reallocation of resources to a more productive sector. On a in terms of fractions of expenses occurring in Niger or by brighter note, empirical evidence shows that in resource- Nigerien staff. Investments in agriculture have been almost rich countries, a lower rate of structural change does absent, inhibiting the adoption of technologies that, in not necessarily imply lower overall productivity growth. combination with adequate public policies to develop Resource-rich countries tend to have highly capitalized access to markets, would have supported the development enclave mining and extraction industries. The average of comparative advantages in agricultural trade. productivity gains of moving one person from agriculture into industry are actually 30 percent higher in resource-rich Structural change in the last twenty years has been very than in resource-poor low-income countries (LICs). This limited, amounting to 12 percent of the total change in bodes well for Niger in view of the expected increase in the productivity, and contributing only 0.25 percentage employment share in industry following the expansion of points to yearly per capita value added growth. Inter- the natural resources sector, provided that the policies to sectoral movements (i.e., labor movement from low to develop a local content are in place. Decomposition of GDP per worker, Niger % Yearly Contribution to Growth 2000-2019 2000-2009 2010-2019 Total per capita Value Added 1.43 0.46 2.05 Productivity 2.07 0.70 3.17 Within-sector productivity 1.82 0.54 2.74 Across-sector productivity1 0.25 0.16 0.41 Participation rate -0.41 0.14 -1.04 Employment rate -0.04 -0.01 -0.07 Demographic change -0.19 -0.37 -0.01 1 Across-sector productivity gain captures two elements, 1) labor relocation to sectors with high productivity level and, 2) dynamic-type across- sector movements, as highlighted in the charts (workers’ relocation to sectors with increasing (or decreasing) productivity levels) (McMillan, Rodrik, & and Sepúlveda, 2017). However, this second term alone can be difficult to interpret when, for example, reductions in the employment share are accompanied by increases in productivity. This is because the term becomes negative, seemingly acting as a drag on productivity, when in fact it could be viewed as a positive development in such sectors as agriculture. 10 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER The low level of productivity per worker might be hiding men. Gaps in access to basic services, increased childcare underemployment and underuse of productive potential. responsibilities during the pandemic, and movement Intra-sectoral productivity has grown fast in Niger but restrictions added to women’s existing poverty trap chains the overall level of productivity (measured by the value in Niger. added per worker) is still very low. One of the reasons behind this performance (especially in agriculture) is the underutilization of existing human capital (low number POLICIES FOR INCOME GROWTH AND POVERTY of hours worked) and technologies, as a result of lack REDUCTION IN NIGER: ALTERNATIVE SCENARIOS of inputs (water, electricity) or inaccessibility to markets UP TO 2050 (costly transportation). Meanwhile the few available Under current policies, growth performance is not resources are not used in an efficient way. A large share expected to significantly accelerate compared to recent of the working age population is employed, but work is years. Simulation on the basis of two economic models (see concentrated in small-scale, low-productivity activities, chapter 2) show that economic growth rates is expected mostly in agriculture. Waged jobs are the exception: 40.7 to average at 4.8 percent between 2026 and 2050. Despite percent of work in Niger’s agriculture sector is unpaid, and population growth, GDP per capita growth is projected to a further 51.6 percent is self-employed. As a result, a third step up to 2 percent in the 2040s. In particular, simulations of working rural adults are unpaid, compared to just 8.7 from the World Bank’s Long Term Growth Model (LGTM) percent in urban areas. Productivity in agriculture could projects that average GDP per capita growth will rise to 1 be increased through a more extensive use of the labor percent in the 2030s and increase to 2 percent in the 2040s. input by removing the bottlenecks in market structure and These simulations assume that the population will grow at accessibility that are impeding the use of labor productive an average speed of 3.5 percent while the production of capacity (see chapter 3). oil is projected to reach a plateau at 120,000 barrels per Labor productivity is hindered by stark gender day at a price of US$ 60 dollars (real 2010 prices) but start inequalities which have high costs in terms of economic to decline in the mid-2030s. Reserves of oil are prudently opportunities. Despite efforts, the primary completion estimated at two billion barrels in 2020, and the baseline rate for girls aged between 15-18 has only reached 26.5 assumes that, in the absence of further discoveries, oil percent compared to that of boys at 41.4 percent. Young reserves are projected to halve by 2050. The depletion of women face especially daunting challenges related to oil reserves and lack of productivity gains lead investment early marriage and childbearing, low access to education in the oil sector collapsing to nearly zero in the long term. and labor force participation, and limited representation As a result, investment in the non-oil sector increases from in local and national governance structures, particularly 20 percent of GDP in the short-term to 25 percent in the traditional ones. Social norms and some legal barriers lead long term. Moreover, the efficiency of investment (i.e., the to gender inequality that result in women having fewer marginal product of capital) increases over time due to the opportunities in the labor market than men, receiving less continuation of trends in productivity gains in the non-oil pay and being less productive. In 2018, a woman was twice sector—mainly through total factor productivity (TFP) but as likely to not be earning an income, compared to a man: also human capital. As a result, the contribution of non-oil 63.2 percent of women were either out of the labor force investment to growth accelerates from 1 percentage point or in unpaid employment, compared to 32.5 percent of in the medium term to 1.7 in the 2030s and 2.2 in the 2040s. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 11 Therefore, Niger is not projected to catch-up but to Broad-based economic reforms could generate witness a growing development gap vis-à-vis other low- significant economic gains and reduce the development income countries. A per capita growth rate of 2 percent gap. Simulations from the LGTM show that a moderate in the long term lies above the 75th (95th) percentile of reforms package based on increasing non-oil TFP and the growth distribution in low-income and lower-middle- human capital to the 75th percentiles of distribution income countries (LICs and LMICs respectively) in Sub- in LIC and LMICs, and investment to the 90th percentile, Saharan Africa (SSA) over the last decade. Although this would boost GDP per capita growth by an additional 2.3 rate of growth is not trivial, Niger‘s trajectory of GDP per percentage points on average until 2050 compared to the capita would still remain below the country’s ambition, baseline, raising it to around US$ 1,720. A decomposition of remaining below US$1,000 (in 2010 constant prices) by growth shows that reforms to private investment generate 2050, well below the level observed today in many SSA significant extra growth in the medium term but in the countries. If income per capita in the LMICs continues to long-run, incremental growth is mostly driven by reforms grow at the same rate observed between 2000 and 2019 to non-oil TFP and human capital. GDP per capita growth (2.7 percent), in 2050 Niger’s GDP per capita would remain could be boosted by an additional 2.2 percentage points on around 20 percent of the level expected in LMICs. Niger’s average until 2050 under a more ambitious reform package GDP per capita would need to grow at 9 percent until 2050 where all drivers of growth are increased to the 90th in order to catch up with this group of countries, at a GDP percentile or higher of the distribution in LIC and LMICs, as per capita level of USD 5,337 in current 2010 prices. Given Niger would benefit from complementarity among reforms. the underlying demographic assumptions, this will require For instance, reforms to investment benefit greatly from an average real GDP growth of 12.5 percent a year. If the higher non-oil TFP growth, as it increases the marginal economy grows at the trend observed under the baseline, product of capital, preventing the efficiency of investment the convergence is expected to happen only in the year from declining too sharply over time. Under this most 2170. favorable scenario, the convergence to the average level of income per capita in the group of low-income countries will happen in 2060 Simulated GDP per capita: lower-middle income countries versus Niger’s baseline and reform scenarios, Real 2010 U.S. Dollars 12 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER FIRST PATHWAY: LEAPFROGGING PRIVATE infrastructure to ensure growth to move from subsistence SECTOR-LED GROWTH WITH NEW agriculture to a more commercial one. Intra-Sahel trade TECHNOLOGIES opportunities are limited because of the climate similarities. However, new opportunities are appearing with the increase There is ample room to enhance growth by reforming the of Niger underground water as observed through the NASA fundamentals of the economy and removing bottlenecks Grace Satellite. This might allow the country to become a to the development of the private sector (see chapter 3). bigger producer and exporter of horticultural value chains The priority for low-income countries like Niger should products and increase its participation to global value be to keep investing in skills and physical capital while chains beyond sesame, onions, tiger nuts, and livestock removing regulatory bottlenecks, including access to value chains products etc.. For that, it will be critical for finance, entrepreneurship and private sector development. Niger to increase investments in temperature-controlled At present, Niger’s business climate, market landscape and logistics, transport infrastructure, and mobilizing private governance system rather than supporting private sector capital in the agriculture sector. Diverse policies will be development and job creation, hamper its attractiveness to needed to allow Niger’s participation to the global value foreign investment and discourage entrepreneurship. chains including among others improved trade facilitation policy, regulation of business services, favorable business New technologies such as agri-platforms, blockchain, taxation, better conformity to international standards. The precision agriculture, technology-based storage and atomized structure of the agriculture and agribusiness management of products, temperature-controlled sectors is a significant obstacle for the generation of a logistics among others offer opportunities to improve larger supply of homogeneous high-quality agricultural the productivity and competitiveness of agricultural products and will need to be addressed by strengthening value chains in Niger, but this will not be enough. While the farmers organizations (FOs). If adequately supported digital solutions could play a key role, there is a need to and overseen, FOs can play a significant role in aggregating establish a new paradigm. The limitations of the present the produce of smallholder farmers and revolutionize trading patterns need to be better understood. It will be the sector but a strong political will be needed at this important to redefine target markets where Niger will have aim. In addition, a variety of measures will be needed sustainable competitive advantages by taking into account to strengthen financial intermediaries, especially those the counter seasonality and estimates of climate change serving agriculture, so that they can provide a sustainable impacts on its main competitors. The country will need and competitive access to finance for all actors across the to invest substantially in irrigation, logistics and digital value chain. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 13 New Blockchain-based agri value chain financing model SECOND PATHWAY: FOSTER THE DEVELOPMENT the next decade to spur its private sector development and OF DIGITAL FINANCE FOR FINANCIAL INCLUSION increase the resilience of its population and enterprises. A central place should be given to the implementation of Experiences of countries with structural similarity to the Government’s existing digital economies initiatives Niger have confirmed that mobile technology can drive and projects, the digital transformation of the Niger’s financial inclusion even in fragile environments and traditional financial system, the digitalization of boost resilience and productivity. Indeed, mobile finance Government payments, and the creation of a conducive has changed the landscape of the financial markets in six legal framework to boost mobile adoption given the weak out of eight countries in the West African Economic and reputation of private mobile operators and limited trust Monetary Union (WAEMU) region by doubling or even in mobile finance. This will be critical to ensure that the tripling the percentage of adults with transaction accounts 85.5 percent of the populations that is currently financially in the last two years. In Mali and Burkina Faso for example, excluded can access basic final services and move away in 2017 the percentage of adult population with formal from the existing cash economy with all its challenges. accounts grew by 115 percent from 20 to 43 percent, and Better accessibility to financial access points and increased by 335 percent from 14 to 71 percent, respectively thanks number of use cases for mobile finance will be crucial. to higher mobile penetration2. The Central Bank estimated Current number of money access points at 25,100 including at 340,000 the number of active mobile money accounts in about 9570 active ones compared to the very low number Niger compared to 7.8 million in Burkina Faso. As access to of bank branches and microfinance institutions at 3723 is financial services is an inextricable part of the process of a clear pointer that mobile finance will be key to financial productivity growth and economic growth, it will be key for inclusion in Niger. Niger to put more emphasis on digital financial services in 2 Findex 2017 3 World Bank, ANSI, SOFRECOM , Demand and supply Mobile money in Niger report, 2021 14 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Quick wins will come from concerted efforts between the uranium revenues due to mine closures and depressed Government and the private sector to ensure that the global uranium market prices. Under baseline projections, mobile money access points are functional and liquid, the oil sector prior to the construction of the Niger-Benin facilitating digital payments across key sectors of the pipeline is small, accounting for only 2 percent of GDP in economy. Agriculture digital payments in rural areas, safety 2022. As the pipeline becomes operational in 2023-2024, the nets, scholarships, taxes and other types of Government oil sector expands to 12 percent of GDP. In per capita terms, payments can be paid electronically through mobile or annual oil income increases from US$13 to US$84, which banks. Efforts are needed to make sure that financial and represents about 15 percent of the GDP per capita of 2020. digital literacy is available for women and youth (with However, this extra income is not sustainable, slowly falling support of religious and traditional authorities), increasing to US$25 by 2050 in the absence of new discoveries. Growth mobile coverage is reliable, biometric identification in the extractive sector is impeded by the same structural systems ID are available to largest part of the population factors that have held back Niger’s growth, notably, the to facilitate account opening and access to credit, digital scarcity of financial capital and domestic skilled human infrastructure platforms are in place to facilitate large capital. scale digital on-boarding and, and second generation of mobile finance products such as digital lending credit, and Oil revenues are unlikely to have a large impact on Niger’s insurance through mobile are introduced. This will allow long-term economic growth, even under a fiscal rule Niger to accelerate adoption of mobile finance, move from that invests all oil windfalls. Oil windfalls from higher oil the low 0.6 digital finance transaction per habitant per year prices are not projected to be large or persistent enough to a 35 digital finance transactions per habitant per year to yield a substantial boost to investment and growth in like in Mali, and therefore starting the country’s de-cashing the long term, even under procyclical fiscal rules. Higher process. The benefits will be high for Niger in the fiscal oil prices -by around US$ 10 -than in the baseline would sector, as the impact of de-cashing would be felt on both generate extra fiscal revenues by about one percent of the revenue and the expenditure sides. On the revenue GDP vis-à-vis baseline by 2030. In the case of a transitory side, the level of nontax revenue for governments from shock, the boost to growth would be small even if all the signorage will be inevitably affected4. windfall is invested. Moreover, even a permanent increase in oil prices would not be able to finance a significantly higher level of public investment in the long term. This is THIRD PATHWAY: MANAGE OIL REVENUES IN because Niger’s oil sector is expected to contract sharply A TRANSPARENT AND FISCALLY RESPONSIBLE due to the expected depletion of oil reserves. In later WAY; years, the oil sector will generate less fiscal revenue while the effectiveness of investment falls sharply, driven by With the expansion in petroleum production, the role declining marginal product of capital and increasing losses of the extractives sector is likely to expand in the due to capital depreciation. In these circumstances, it is near future (see chapter 4). The extractive industry has advisable to plan the future by implementing fiscal rules historically played an important role in Niger’s economy , to (i) smooth booms and bust, and (ii) invest in productive but its contribution is set to decline as a result of declining non-oil sectors.Although the oil windfall cannot boost 4 IMF, the macroeconomics of de-cashing, https://www.imf.org/-/media/Files/Publications/WP/2017/wp1771.ashx PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 15 Government oil revenue, Percent of GDP long-term growth per se and poses the “resource curse” and Appendix D). Moreover, the public sector has limited risk, it still represents a great opportunity to finance critical capacity to enforce regulations, owing to poor governance, investments in the short to medium-term. The oil boom is low human capital and scarce technical and financial projected to generate extra fiscal revenues of 3-4 percent resources. Boosting local content is a crucial way to of GDP for over a decade. This windfall could contribute to integrating the extractive sector with the wider agriculture- finance the large investment needs in infrastructure and based economy. Promoting sound local content policies is human capital provided they are managed well, to avoid a pathway to ensuring that the gains from the extractive the fiscal mismanagement, economic distortions and oil- sector are shared locally and used as a vehicle to increase related corruption observed in a number of resource-rich human capital, all while remaining attractive to foreign countries. capital. A comprehensive local content strategy that focuses on increasing the capabilities of the existing pool of Nigerien workers while attracting fresh capital is FOURTH PATHWAY: PROMOTE SOUND LOCAL therefore critical. CONTENT POLICIES IN THE EXTRACTIVE SECTOR; FIFTH PATHWAY: STRENGTHEN THE DISASTER Although the extractive sector’s potential for job creation RISK MANAGEMENT FRAMEWORK AND and growth is limited, its full economic benefits have not ESTABLISH A DISASTER RISK FINANCING yet been fully reaped. The expansion of the extractive STRATEGY sector carries significant institutional and fragility risks.. The extractive sector plays a large role in shaping conflict As a landlocked country with a mostly semi-arid climate, dynamics in the country, given the competition over Niger faces multiple climate threats, most prominent of rents among various stakeholders including regional which are recurrent droughts and floods. Several factors, armed groups, past grievances from inequitable sharing including dependence on rain-fed agriculture, rapid of gains from the sector, and corruption (see chapter 4 population growth, political instability, pervasive poverty, 16 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER and persistent food insecurity further compound the DRM at central and local level, the inadequate capacity country’s vulnerability to these climate threats. On average, for emergency preparedness and response at the national Niger experiences a drought year that lowers GDP per capita and local levels, including Early Warning Systems, weak by -1.5 percent at least once every 2.2 years, generating DRM at the local level, and limited capacity and budgetary yearly agricultural income loss of US$ 15 million from resources for disaster risk reduction are highlighted by this droughts (2019 World Bank GFDRR). Annual averages losses CEM as critical gaps that needed to be addressed in the from floods are estimated to be between US$ 20 million DRM framework. and US$ 70 million per year (2017 UN Global Assessment Report on Disaster Risk Reduction). Drought-related Simulation presented in this report show that shock- emergency costs are even higher, amounting to nearly US$ related food insecurity is a big liability for Niger. Drought- 100 million per year. The poor suffer disproportionally from related emergency costs to respond to food insecurity adverse natural events and are considered the main driver in Niger amount to nearly US$ 100 million per year. On of poverty. average, 1-in-5-year droughts cause liabilities of almost US$ 200 million. This number jumps to about US$ 250 Current challenges are only expected to be amplified in million for 1-in-25-year events. When considering a larger the face of climate change. Despite the limited capacity mix of causes of food insecurity (climate causes (drought, of climate models to represent complex regional patterns heatwaves, and flood) as well as conflict/violence, political and detect trends in extreme rainfall regimes, most instability, commodity price/trade shocks and unstable recent research points to more extreme rainfall events in markets, and forced migration), annual liabilities related to Niger. Climate change and adverse natural events might food-security costs amount to US$ 150 million on average. impact the rural-urban migration dynamics and increase However, the average costs of US$ 150 million can increase urbanization. In turn, the projected demographic and significantly when disasters arise. Niger faces emergency urbanization trends in Niger could lead to an increase response costs of over US$ 200 million every five years and of the negative effects of flood events, through higher of nearly US$ 300 million every 10 years on average. exposure and vulnerability. Besides short and medium- term social protection measures to support the population The Government of Niger faces a large financing gap. in coping with these events, investments in long-term Niger disposes overall of resources of US$ 66.02 million for solutions focused on integrated urban land-use policies all layers of risk (National Disaster Fund, Food Reserves, and plans, resilient infrastructure, early warning systems, Droughty Insurance ARC), and US$ 60.7 million for the and risk reduction strategies are critical. lower layers of risk (1-5 years, National Disaster Fund, Food Reserves). Compared to the mere cost of drought related Decreasing the human and economic impacts of disasters food insecurity (US$ 100 million per year) and overall would necessitate the strengthening of emergency food security (US$ 150 million per year), the funding gap preparedness and response capacities, as well as risk amounts to about US$ 40 to US$ 90 million per year. reduction investments and policies. However, even though The funding gap significantly increases when taking into disaster risk management (DRM) has been identified by consideration the modelled food production shocks. The the Government as a priority in its Strategic Development combined humanitarian and economic funding gap is of Plan, the DRM sector still faces several challenges linked US$ 768 million for 1-in-5-year food production shocks and to institutional and resources limitations. Notably the US$ 1.1 billion for 1-in-10 years food production shocks. lack of a DRM law clarifying roles and responsibilities for PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 17 Relying on humanitarian assistance following disasters, Against this background, Disaster Risk Financing (DRF) Niger faces uncertainty regarding the amount of funding strategy built around a risk layering approach could mobilized as well as delays in the provision of assistance. support the Government of Niger financially manage its Niger is heavily dependent on ad-hoc international risks more efficiently and reduce the economic, fiscal, humanitarian aid to finance its shock-response. From and human impact of disasters. Risk layering refers to 2012 to 2019, Niger received between US$ 200 and US$ 400 the combination of instruments to ensure cost-efficient million per year in external international humanitarian financing for emergency response and long-term recovery. assistance (OCHA Financial Tracking System) in total. The As no single instrument is optimal for responding to all country is currently not sufficiently prepared to deal with disaster events, the most cost-effective way of financing shocks, and finances its humanitarian shocks mostly ex- disaster response is through a range of tools to address post through external donor support as well as to a lesser different layers of risk, ranging from frequent small-scale degree through budget reallocations. With humanitarian events to rare catastrophic events. Relying on humanitarian assistance arriving on average 7 to 9 months after a assistance following disasters, Niger faces uncertainty disaster, this approach is slow and unreliable, leading to regarding the amount of funding mobilized as well as unnecessary loss of lives and livelihoods. Uncertainties over delays in the provision of assistance. A DRF strategy could amounts of funding available can undermine government allow the Government of Niger to further quantify its risks, planning of response efforts, and lead to shortages in the discuss what risks will be taken on by the Government at assistance provided to the affected population. In the case different levels (national/regional/local), what risks will of Niger, appeals between 2011 and 2019 were on average be shared with others such as households and firms, and funded at 63.9 percent. what risks will be shouldered by international partners. A DRF strategy could also help the Government of Niger by putting in place the right financing instruments and making available adequate financing to ensure that funds are available quickly when required. Financial Niger: available instruments instruments Low frequency/ RESIDUAL High intensity International Aid Around US$ 200 million provided annually TRANSFER RISK TRANSFER Parametric Insurance (ARC) Drought coverage: US$ 5.3 million GOVERNMENT Budget (re)allocation LOSSES RESOURCES National Disaster Fund 1. Fonds commun des Donateurs app. US$ 15 million RETENTION High frequency/ Low intensity Stocks: US$ 46 million Stock National Sécurité a. Fonds de Sécurité Alimentaire b. Réserve alimentaire stratégique 18 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Key policy options5 Policy recommendations Timeline for Fiscal implementation implications Making the registration/use of the technology simple and trouble-free for the consumer by Short term Low improving consumer protection reforms and adopting tiered Know Your Customer (KYC) measures Enhance the quality of the export products of Niger by providing training and technical assistance Long-term Low to the different value chain actors and strengthening certification processes Level the playing field to attract and retain FDI by ensuring rule-based decision making and Medium term Medium transparency in business regulation Invest in solar energy systems, irrigation, logistics, technologies such as precision agriculture and Medium term High drip irrigation, digital agri-platforms and blockchain Focus the strategy for commercial agriculture on target markets and products where Niger will Medium term High have sustainable competitive advantages taking into account climate changes and intra-regional collaboration/ rivalry Address the shortcomings of the microfinance industry and give it a fresh impulse, involving Medium term Medium FinTech solutions and new MFI players to the extent possible Design properly the Financial Inclusion Fund to provide medium- and long-term loans to Long term Medium strengthen MFIs, Fintechs and banks through a combination of equity, loans and grants for digital transformation Promote value chain financing (VCF) arrangements including the use of warehouse receipts Short term Medium Mandate an appropriate arm of government (e.g., Ministry of Industry or equivalent) to focus Short term Low specifically on local content needs and opportunities Provide incentives to multinationals operating in Niger to provide regular training workshops Medium term Low for instance, quarterly, on various technical/industry matters important to industry (e.g., road design, industrial safety, food hygiene etc.) Encourage or require that foreign investors in Niger put aside a certain fraction of salary (say 2-10 Medium term Low percent) to be spent on training of their own employees Implement revenue-sharing framework, clear arrears of pending payments and ensure funds are Short term Medium spent towards local development projects Develop revenue management legislation e.g., establishing a fiscal stabilization fund Medium term Medium Strengthen legislation enforcing fiscal discipline around usage of windfall resource rents Medium term Low Broaden access to ASM formalization by decentralizing essential process such as registration and Short term Low license issuance to local governments Adopt a DRM law clarifying roles and responsibilities for disaster risk management at central and Medium term Low local levels 5 Timeline for implementation: short-term (1 year); medium-term (2-3 years); long term (3+ years) Fiscal implications are estimated as low: affordable within current spending structure; medium: requires budget reallocation; high: need further reform, funding sources and domestic revenue mobilization. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 19 Policy recommendations Timeline for Fiscal implementation implications Strengthen capacities for emergency preparedness and response at the national and local levels, Medium term Medium including Early Warning Systems Use the National Platform to improve inter-ministerial and other stakeholders’ coordination Short term Low Enhance capacity and budgetary resources for disaster risk reduction, including investments in Medium term Medium resilience in key sectors, land-use planning and building code enforcement. Increase investment in disaster risk reduction and disaster risk management activities. Financing Long term High disaster risk reduction is often more cost-effective than the financing of post-disaster search, rescue, relief, rehabilitation, reconstruction, and recovery Develop a comprehensive Disaster Risk Financing strategy. As Niger faces high disaster-related Long term High contingent liabilities particularly caused by droughts and floods, there is a strong rationale to work towards a more systematic approach to finance these shocks Work on risk layering. Working towards a disaster risk finance strategy could further support the Long term High identification of optimal risk layering 20 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER COUNTRY CONTEXT Niger appears in two episodes of growth deceleration Unfavorable structural conditions, both exogenous and over the past 50 years and has yet to kick off a self- endogenous, have historically played a primary role in sustaining process of economic growth. Growth rates have holding back and conditioning the volatility of economic largely fluctuated in response to the shocks that Niger has growth in Niger. These include purely exogenous shocks, frequently experienced. As a result, GDP per capita growth such as unfavorable geographical and weather conditions, grew less than 1 percent from 1963 to 1978 and declined by 3 and the disruptive forces of climate change leading to percent on average during the 1980s and part of the 1990s. several years of drought in the early 1970s, as well as Trend growth has steadily accelerated only in the wake commodity price boom and bust cycles (Figure 1). On of the 1994 CFA devaluation that contributed to restoring top of this, persistent instability in the Sahel region and external sustainability. The improved macroeconomic the COVID-19 crisis represent additional bottlenecks and stability in recent years has led to somewhat less volatile sources of fragility. The primary sector, the main engine economic growth. Over the last decade (2010-2019), the of the economy, is subject to frequent climatic shocks, economy has performed better than the SSA average, with especially drought, which cause food insecurity. Other real GDP growth averaging 5.9 percent. However, Niger is not more endogenous elements are also at play, such as high cited in the 127 episodes of persistent growth acceleration 6 rates of population growth, low human capital (health and listed by the IMF (2017) between 1970 and 2014. It appears education), a large informal sector accounting for more instead in two episodes of growth deceleration (in 1971 and than half of the value added, underdeveloped private and 1982). financial sectors, and infrastructure gaps. Figure 1. Real and per capita growth rate (1970-2019) Exposure to climate, political and ToT shocks 20 WAEMU Climate and political Political stability 15 devaluation shocks 10 5 0 -5 -10 1970 1972 1974 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2002 2004 2006 2008 2010 20012 2014 2016 2018 -15 1976 2000 -20 -25 GDP growth (annual %) HP TREND GDP per capita growth Source: WB staff elaboration on World Development Indicators (WDI) data. 6 Persistent accelerations are associated with increases in real income per capita typically ranging from 15-40 percent above the starting level before the episode in a four-year time period. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 21 Weakinstitutions, poor governance, and other internal leaders, sheikhs, and religious leaders who balance each drivers of fragility exacerbate all the above and further other’s interests (and power) in a dynamic but relatively complicate the pursuance of a long-term stable equilibrium. This ‘political class’ is sustained by development strategy. a very poor, largely uneducated population who seek protection against poverty and shocks. The 2017 Systemic Post-independence political instability has hampered Country Diagnostic explains that as a result of this complex the capacity to formulate and implement consistent landscape, incentives in the public sector are not aligned policies to solve structural impediments. Reforms have with poverty reduction and the scope for change is limited. not produced sustained growth over the past decades Rent seeking, clientelism, and impunity are endemic, and due to a succession of coups and power struggles ensure a certain stability but also lead to a non-inclusive between elites. Since independence in 1960 and until development model geared towards generating benefits 2010, there have been five military-led coups d’état, and to insiders. It explains a preference for capital-intensive six different Constitution Charts have been adopted. investments by the public sector such as in main roads, This prolonged uncertainty has had a strong toll on dams, large irrigation schemes and oil refineries as income growth, by weakening governance, discouraging opposed to investments in agricultural extension, small private investments, and preventing the long time- scale irrigation or rural electrification and spurring financial horizon needed for proper planning, implementing and inclusion and private sector development. It also explains following-up of successful economic reforms. Neither the the large informal sector, as the economy is dominated expansionary and interventionist policies of the uranium by a small number of public and private monopolies who boom throughout the 1970s and the beginning of 1980s, prefer to restrict competition in their respective domains. nor the structural reforms and the liberalization policies It gives rise to an adverse business environment with high of the following adjustment era successfully influenced transaction costs which can be avoided by remaining the aforementioned structural constraints. The 2007 informal, or by becoming large and well-connected. It also Country Economic Memorandum (CEM) identifies three leads to an inefficient administration with many ministries possible explanations of why policies have had a limited and burdensome procurement procedures. Finally, it leads positive impact on the economy: (i) Much of the impact to economic exclusion and inefficiency, and very low- of government economic policies is felt by the modern quality service delivery in health and education. sector, which represents just a quarter of GDP; (ii) for years very few significant investments have been made to reduce Improving living standards remains impossible without bottlenecks to productive economic activities in sectors addressing the bottlenecks for higher and more stable like education and infrastructure; (iii) incapacity to reduce growth. Even before the Covid-19 crisis, Niger’s growth the drain represented by the high fertility rate on public lagged behind the levels needed to improve the living resources and on the saving capacity. standards of its citizens. The share of the Nigerien population living under the national poverty line was In the political arena, multiple actors dominate a 42 percent in 2019, according to the recently collected population living in survival mode and in need of household survey EHCVM 2018/19. Of these, 95 percent protection, while competing to extract rents from the (9 million) reside in rural areas. Nearly half of the rural limited resources of the country and the state. Among population are unable to meet their basic nutritional and the core power players are the military; a group of lifetime non-food needs, compared to 13 percent of the urban politicians; powerful traders; and selected traditional 22 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER population. The steady population growth has presented be a vehicle for private sector development? (iv) How a persistent wedge between overall GDP and per capita can the country’s large natural resource endowments be growth rates. For instance, one additional percentage point managed in a transparent way that benefits the whole of GDP growth is required to reach the same GDP per capita population? (v) How can the current disaster management growth of Burkina Faso, solely because of Niger’s current framework be strengthened to increase resilience to fertility rate of 6.8 children per woman and population natural shocks? growth rate (3.8 percent). Amidst competing development needs and priorities, Moreover, returning to the previous pace of growth will three main areas of analysis and policy reforms have been not be sufficient to overcome the development lags selected. The selection criteria were based on the lessons accumulated over the years, and even less to address drawn from other developing countries’ experiences, on the new challenges. The country has been ranking at the Niger specificities, and on the potential gains from moving bottom of the UN Human Development Index for over a to the frontier. For each area, long-standing bottlenecks decade, and the prospects for climbing some positions in that have held back growth are identified, and specific the future are at the moment very grim. In the next 30 years policy options presented, with a view at creating pathways the country will be facing the continuous deterioration of for 1) boosting long-term growth in a sustainable manner, climate conditions that will increase its exposure to shocks, 2) increasing economic diversification and, 3) supporting with enormous consequences for the population and preparedness to natural disasters. economic activity. It will also have to learn how to manage the potential wealth coming from the increase in oil In particular, five pathways are identified throughout the production without being exposed to the” resource curse” chapters: witnessed in other SSA countries. Finally, it will be facing a • Promote sound local content policies in the extractive steady increase in population driven by a high fertility rate. sector; Hence, the economy will have to provide jobs to a large • Manage oil revenues in a transparent and fiscally mass of new entrants into the labor market, but without responsible way; substantial change in the age structure, and consequently, • Leverage new technologies to promote agricultural little benefits from an elusive demographic transition. productivity and export orientation; • Foster the development of digital finance; This Country Economic Memorandum aims to support • Strengthen the disaster risk management framework Niger’s efforts to walk on a path conducive to a resilient and establish a disaster risk financing strategy and sustainable economic growth. It does so by attempting to answer the following five questions, each of which It is worth emphasizing that these pathways are not mutually constitutes a separate chapter: (i) What were the salient exclusive. Instead, overall growth performance will be structural characteristics of Niger’s growth performance in magnified by the implementation of overarching reforms the last 20 years? (ii) What are the margins to accelerate that exploit the significant existing complementarities growth in the medium to long term? (iii) How can technology between each of these areas. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 23 Box 1. Fragility, Conflict, and Violence Drivers in Niger The Niger World Bank’s Risk and Resilience Assessment (RRA) being finalized at the writing of this report, analyzes the structural factors and recent drivers of fragility, conflict and violence (FCV) in the country and explains the interlinkages between cycles of instability that have been brought about by both exogenous and endogenous factors as depicted in the figure below. Driver 1 shows how growing cross-border insecurity and inter-communal violence perpetuate cycles of violence and trauma; Driver 2 illustrates how competition over natural resources and lack of extractive revenue sharing aggravated by climate change and demographic pressures is leading to heightened intercommunal conflict levels; Driver 3 explains how exclusion, inter-group and territorial inequalities amidst decreasing economic opportunities generate grievances; Driver 4 describes how ungoverned spaces, territorial marginalization, and lack of decentralization limit the ability of the state to deliver services to its citizens, and Driver 5 focuses on the self-preserving elite that captures rents to hold on to power, thereby failing to generate a social contract between citizens and state. Figure 2. Drivers of FCV in Niger 24 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Figure 3. Niger reported fatalities Figure 4. Reported fatalities and violent incidents by type of violence & Protests and riots in Niger 2010-2020 Source: ACLED data analysis conducted for the Niger RRA, June 2021. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 25 Violence has been rising steadily since 2017, with 2020 marking a record both in the number of reported violent events and fatalities associated with them (Figure 3) Clashes between armed actors is the primary factor accounting for an average of 64 percent of fatalities. In parallel, the share of civilian deaths has risen to a decade-high record of 35 percent in 2020. Nine major attacks have been carried out between January and June 2021 by suspected elements of non-state armed groups targeting positions of the Defense and Security Forces respectively in Diffa, Mainé-Soroa and Bosso. Some of this violence is attributable to state security forces, as the Commission Nationale des Droits Humains (CNDH) reported in July 2020 that 102 men had been forcibly disappeared by security forces in Inates in Tillaberi. There has also been a steady rise in protest and riot activity, more than doubling in 2020 compared to 2019 (Figure 4). While recent surveys show Nigeriens have a moderate level of trust in public institutions; high levels of corruption, violent extremism, and lack of access to services are affecting levels of trust in the state as these recent events demonstrate. Between 2010 and 2020, 41 percent of protests and riot activities have been located in Niamey. The security situation in the three borders region (where terrorist groups have established bases) continues to deteriorate, with 2020 being the deadliest year since the crisis started. Over the first few months of 2021, some 300 people including women and children were killed in armed attacks by suspected Islamic State in the Greater Sahara (ISGS) militants. The attackers also injured many others, destroyed infrastructure and homes, and stole livestock. The Nigerien government has increased the presence of security personnel, and 1,200 Chadian soldiers under the G5 Sahel banner are also deployed. Nonetheless, some 30 soldiers were also killed in terrorist attacks. In the Southeast, the security situation remains precarious in the Diffa region, where militants from the Islamic State in West Africa Province (ISWAP) and the Boko Haram faction are conducting attacks on state security forces as well as harassing civilians. Farther west, in the Maradi region, the pace of attacks against villages bordering Nigeria, involving cattle rustling and kidnappings, remains high. Three of the country’s eight regions, namely Diffa, Tahoua, and Tillabery continue to be under a state of emergency. National security forces, with support from the G5 Sahel forces and the French Barkhane forces continue to deploy military operations. On June 10, 2021 French President Emmanuel Macron announced the end in its current form of the Barkhane military operation and the reduction of troops from 5,100 soldiers when it began in August 2014 to 3,000.[8] The remaining French troops will concentrate their efforts on the tri-border area between Niger, Burkina Faso, and Mali, and will continue to support Sahelian army forces as well as other European forces including the Takuba European Task Force whose command center is now being moved to Niger. This places Niger at the center- stage of counterterrorism efforts in the Sahel and as France’s new preferred security partner in the region. On top of it all, an increase in refugees and Internally Displaced Persons (IDPs) is straining government services and stressing the social fabric of host communities. Violence and insecurity in border areas have resulted in 300,000 IDPs, primarily in Diffa and Tillaberi, half of whom have been displaced since November 2019. Close to 35,000 Nigeriens have also returned from even more insecure parts of Nigeria. In addition, Niger is hosting 234,000 refugees, putting further pressure on natural and socioeconomic resources in hosting areas. The main refugee groups are from Nigeria (172,000) and Mali (60,000) and are settled in areas already experiencing conflict or that are at risk of conflict, primarily in Diffa and Tillaberi regions. A state of emergency declared in Diffa, Tahoua, Tillabery, and Maradi continues to add economic and social pressures to an already weak service delivery system in these fragile areas. 26 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER CHAPTER 1 Niger’s growth experience in the last 20 years: low income and labor productivity gains, many unresolved problems This chapter gives an overview of the main economic obstacles that have prevented a more sustained process of income convergence by exploring the evolution of labor productivity, widely considered the main contributor to economic development and raising living standards. The chapter starts by checking the contribution of labor productivity and other factors to per capita income growth in Niger from 2000 to 2019. Subsequently, output per worker is further decomposed in order to assess the extent to which productivity gains have been driven by structural change or by productivity dynamics at the sector level. This section also assesses how growth and productivity gains have translated into the creation of better jobs for more people, with a special focus on wage employment, and female labor force participation. The second section applies the conceptual framework of Chenery and Syrquin (1975), and Kuznets (1966), to explore the nature of structural change with respect to three, not mutually exclusive, processes. To identify areas in which Niger faces the greatest challenges to accelerate growth, three benchmarking groups have been identified. The first group, referred to as regional comparators, includes for every indicator the average values in Sub-Saharan Africa (SSA) and Low-Income Countries (LICs). In addition, a data-driven approach was used to identify structural and aspirational peers.7 This approach led to the selection of Burundi, Democratic Republic of Congo (DRC), and Burkina Faso as structural peers. Republic of Laos, Uzbekistan and Rwanda have been chosen as aspirational peers. 8 Some of those countries are grappling with similar conflict contexts, are resource intensive, or landlocked countries. 7 Structural peers are defined as countries which had similar economic characteristics as Niger in recent years (2011-2019), while aspirational peers share common economic and institutional features with Niger but have managed to evolve and perform better than Niger along a set of aspirational growth criteria from 2000 to 2019. 8 The same set of countries (plus Senegal) have been chosen as structural comparators in the recent World Bank Niger Public Expenditure Review. However, due to some data limitations, values for Laos sometimes are not reported in the figures. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 27 1. NIGER’S DEVELOPMENT PATTERN VIS-A-VIS hinting to nonsignificant changes in income levels and SUCCESSFUL DEVELOPMENT EXPERIENCES welfare. A well-known empirical regularity is that changes in the composition of production, trade, and employment would raise income, which in turn transforms the pattern The transformation of an underdeveloped to a developed of consumption. For instance, Engel’s law predicts that the economy can be defined “by the set of structural proportion of demand for some goods, especially food, changes required to sustain a continuing increase in can fall with the increase in income, even if absolute income and social welfare” (Chenery, 1982). Although expenditure rises. This usually happens to the benefit these requirements tend to vary according to country of other items such as housing or communications and characteristics – such as natural endowments and each transport. In the case of Niger, between 2011 and 2017 (the country’s social objectives – there exist factors that, first and the last years for which disaggregated data are hypothetically, produce a degree of uniformity in this available), the proportion of food consumed in the total transition. Such factors include the changes in consumer household final consumption has remained stable at 53- patterns with the level of income, the need to accumulate 54 percent. Moreover, the composition of food items that physical and human capital to increase output, access are consumed does not show either a pattern towards to common sources of technology, and development more sophisticated or higher nutritional items. Bread and of international trade. Following Kuznets (1966), the cereals have remained stable as the main item consumed principal dimensions of this transformation are measured at 45 percent while the weight of the consumption of meat by the change in the composition of aggregate demand, has even declined by 1.2 percentage points. production, international trade, and in the use of capital and labor as the level of income of a country rises. We However, capital accumulation has accelerated, will see that Niger has been able only partly to replicate compensating for a relative decline in the share of the pattern observed across these dimensions in other government consumption. Another empirical regularity countries that have successfully transitioned from a system in many developing countries is that as average income where economic structure was mainly characterized by increases, consumption’s share decreases and investments low income, informal, labor-intensive activities, to a o the opposite, helping the economy to rebalance away configuration where higher income has been associated from agriculture toward manufacturing and services. with a different use of this income, higher savings and then Merotto (2020) finds that in non-resource rich countries domestically financed investment. This transformation with faster per capita GDP growth compared to regional from a demand-side perspective cannot come from the averages over the last 30 years, growth was driven either by outside the country, as signaled by the slowdown in the an increase in physical investments (in largest countries, influx foreign fund is and the fact that trade specialization China, India, and Bangladesh), or by a combination of net is still at an embryonal stage. trade and investment (in smaller countries).9 The share of final consumption in total GDP in Niger dropped by Over the past 20 years the composition of private about 7 percentage points between 2000 and 2019, with consumption in Niger has shown a remarkable constancy, a more marked decline (5 percentage points) in public 9 Merotto, Dino (2020, March). In Low Income Countries It Is Factor Accumulation That Drives Transformative Growth, https://www.jobsanddevelopment. org/in-low-income-countries-it-is-factor-accumulation-that-drives-transformative-growth/ 28 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER consumption. In parallel, gross fixed capital formation The current level of domestic saving fails to accommodate dramatically increased from 14.4 percent of GDP in 2007 to the demand for investments in physical capital, increasing 21 percent in 2008, driven by a spike in private investment, the country’s need to access foreign capital. The FDI stock and has fluctuated around 24 percent of GDP over the last is in line with the average of the SSA region and in 2019 10 years. Niger still received more FDI inflows (as a share of GDP) than comparators. However, inflows have halved since The limited availability of savings is a major constraint 2010, moving from 10 percent of GDP to less than 5 percent, for investments to keep pace with the demographic and most employment in Niger remains in capital-thin growth. Domestically financed capital spending currently `traditional sectors’, marked by high degree of informality. plays a large role in investment composition, representing 85 percent of total capital spending in 2019, up from 68 The increasing role of investment in domestic demand has percent in 2010 (Table 1). This is due mainly to rising trends only partly been mirrored in the production structure. The in private investment, making up for the drop in the value change in domestic demand led to a deterioration in the of the stock of private capital observed between 2000 and trade balance driven by an increase of 8 percentage points 2008. Overall, the value of the total stock of public and of GDP of imports, mainly equipment for projects in the private capital (as share of GDP) in Niger is estimated as extractive industries and for public investments. This adds being far higher than in comparators, with a ratio to output to the continuously negative service and primary income of around 470 percent in 2019 (Figure 5). Also, the stock of 10 balance, with limited remittances inflows. Overall, while capital per person in 2019 is 90 percent higher in Burkina Niger was able to access foreign capital to help finance Faso and almost 4 times higher in Rwanda or Uzbekistan. growth-enhancing investments, it was not able in parallel However, the stock of capital in Niger is 86 percent of what to raise productivity through policies that could support it was in 2000. This may be explained in part by Niger’s comparative advantage in trade. Although the real effective continued rapid population growth. Sustained demographic exchange rate has generally been assessed by the IMF as trends like the one in Niger and generate growing demand in line with fundamentals, competitiveness problems were for services and infrastructure and require a high level of repeatedly highlighted. capital to ensure that labor productivity is high enough. 10 This is the value from the Peen World table, based on constant prices expressed in 2017 US$. It is considerably higher than what in recorded in most peer countries (340 percent of Burundi, 181 percent of DRC, 140 percent of Rwanda for instance). The IMF Investment and Capital Stock Dataset expressed in PPP, also gives similar very high values, that are hard to reconcile with the economic reality on the ground. One explanation can be that a too low-price deflator was used to transform current values in constant values. As the issue requires further scrutiny, we prefer to focus here on Niger’s specific trends, rather than in engaging in a cross-country comparison which can be methodologically flawed. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 29 Figure 5. FDI, investment and capital stock in Niger 25 20 15 % of GDP 10 5 0 2009 2011 2013 2015 2017 FDI Inflows Remittances ODA Received ODA Received 300 250 30 200 25 20 150 15 100 10 50 5 0 0 Niger Burundi DRC Burkina Rwanda Lao PDR Uzbekistan Faso 2001 2003 2005 2007 2009 2011 2013 2015 2017 Stock of public capital Stock of private capital Public Inv Private Inv Source: PWT, World Development Indicators (WDI), IMF; GDP and gross fixed capital formation are measured in constant LCU. 30 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Table 1. Niger’s Foreign vs. Domestic Investment (2010-2019, % of GDP) Niger SSA Total Domestic Total Domestic Year FDI FDI Investment Investment Investment Investment 2010 31.90 10.22 21.68 22.55 6.79 16.37 2011 31.59 12.26 19.32 22.63 7.49 15.59 2012 28.80 8.98 19.82 22.52 6.74 15.83 2013 29.58 7.08 22.49 22.49 5.75 16.70 2014 30.70 7.61 23.09 23.96 4.39 19.64 2015 32.43 5.48 26.95 23.26 4.90 18.48 2016 26.24 2.93 23.31 23.18 3.61 19.74 2017 28.10 3.03 25.07 21.67 4.22 17.63 2018 28.97 3.63 25.33 21.63 3.78 17.89 2019 30.19 4.59 25.61 23.45 3.29 20.14 Source: WDI Trade openness11 has grown over time, but it still trails in which the country shows a relative specialization average regional and country comparators, and the current are mainly in agriculture and extractives, but the weak trade specialization is hampering productivity growth. productivity level of the agriculture and livestock sectors This is strictly correlated with the lack of diversification prevents an increase in the total export share. On average from low productivity activities. International experience between 2011 and 2017, food and manufacturing accounted shows that productivity growth benefits from expertise in only for a quarter of the total merchandise export, while producing relatively complex and sophisticated exports, food goods comprise the main imports. At the same time, which is associated with international technology diffusion live animals—cows, sheep, and goats which are mostly sold (Hausmann, Hwang, and Rodrik 2007). Based on the to Nigeria and Chad – are largely unrecorded in the official data available for Niger for the indicators of economic exports data. The extractive sector plays a significant role complexity , the country shows a very low and decreasing 12 in Niger’s economy, with uranium and gold accounting for index of economic fitness, in line with average LICs, but a between 6 and 8 percent of GDP and approximately 50 level of export sophistication well below peers. The products percent of the country’s export receipts. 11 Calculated as total value of exports and imports of the country and dividing this by the country’s GDP. 12 Indicators of economic complexity measure the knowledge in a society that gets translated into the products that it makes (Hidalgo and Hausmann 2009). Complexity reflects diversification and production capabilities and may be linked with higher productivity or greater scope for future growth. The economic complexity index (ECI) is not available for Niger. Available indicators include i) economic fitness, a country-level metric based on the diversification and complexity of a country’s competitive exports where higher scores point to a more diversified and complex export basket and, ii) Export sophistication index (EXPY) that estimates the level of technological sophistication embodied in a country’s export portfolio. A high EXPY indicates a more sophisticated export portfolio. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 31 2. UNFAVORABLE DEMOGRAPHICS AND THE productivity of a country, the higher the living standards WEAK DYNAMIC OF LABOR PRODUCTIVITY DOES that it can afford, and the more it can improve the NOT SUPPORT SUBSTANTIAL INCOME GROWTH wellbeing of its citizens (e.g., healthcare, education, roads and telecommunications, security, and a stronger social support). At the economy-wide level, productivity also Productivity is a key driver of wealth and job creation. brings more jobs and better-quality jobs, paying higher Productivity is about how well people combine resources salaries. If labor force participation remains constant, to produce goods and services. Labor productivity, or the countries in which output-per-worker is declining face a amount of output produced per worker in an economy, is daunting prospect of decreasing quality of life, leading to a useful start for understanding the output productivity of more rent-seeking behavior. Declining living standards can an economy. For countries, it is about creating more from contribute to a perception of welfare being a zero-sum- available resources, such as raw materials, labor, skills, game through stresses on public trust and erosion of the capital equipment, land, intellectual property, managerial social contract Figure 6 represents how income growth can capability and financial capital. Higher productivity is be decomposed in its main drivers. Further elements and therefore synonymous with higher production, higher value definitions can be found in Appendix A. creation, and higher incomes. As a result, the higher the Figure 6. The main drivers of per capita growth GDP per capita growth Changes in Changes in Changes in Changes in the employment rate output per worker participation rate demographic structure of the population Sectoral pattern of Changes in productivity Changes from employment employment generation within sectors relocations between sectors Changes in capital labor ratio and TFP 32 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Over the last two decades, Niger’s per capita GDP growth acceleration happened in the decade following the crisis, has been lower than its peers and prospects for a catchup when yearly growth jumped from less than 1 percent to just are limited. From 2000 to 2019, per capita valued added below 3 percent. However, this performance lags behind has increased by US$ 130 in constant 2010 prices, 85 of all peers (except Burundi), the productivity of which have which came only from 2010. This flat change in per capita been growing at rate between 3.2 percent (Burkina Faso, GDP growth over time tracked the evolution of labor DRC) and 4.7 percent Laos) per annum (Table 2). A simple productivity: Niger’s productivity growth is disappointing extrapolation (Table 3) shows (that if value added and despite the acceleration in recent years (Figure 7). Labor employment will keep growing at the recent (2010-19) rates, productivity grew at around 2 percent per annum and was in 30 years the level of output per worker in Niger will still the main force behind Niger’s income growth in the 21st be only slightly more than 70 percent of what is observed century. In contrast to most countries (at all income levels), in the region, even though there will be a catchup process Niger did not experience a slowdown in productivity of the average productivity level in LICs. growth after the global financial crisis (GFC). Instead, an Figure 7. GDP per capita (left panel) and per person employed (right panel) compounding annual growth rates and levels in Niger and peer countries 2000-2010 2000-2010 NER NER 2010-2019 2010-2019 2000-2010 2000-2010 structural structural 2010-2019 2010-2019 aspirational aspirational 2000-2010 2000-2010 2010-2019 2010-2019 0 2 4 6 0 1 2 3 4 annualized growth in p.c. GDP in % annualized growth in value added per worker in % Source: Jobs Group JD Standard Code (JDSC) on the basis of WDI Source: Jobs Group JD Standard Code (JDSC) on the basis of WDI PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 33 High population growth has put enormous pressure on The marginalization of young people due to limited the job market. Slow labor productivity growth combined economic opportunities and social exclusion can fuel with an early demographic transition suggests that grievances and make them vulnerable to illicit activities Niger is not yet well positioned to take advantage of a or radicalization, specifically in areas that are also demographic dividend. After years of steady increase in the affected by conflict or where impunity is high. Given poor population, driven by the highest fertility rate in the world, quality of the education system and low attendance rates, Niger is giving signals of an early transition stage (or first many young people have little education and are largely demographic dividend), characterized by lowering mortality unskilled. Even youths who reach secondary and tertiary rate, increasing share of the working-age population, and education levels are offered few opportunities for work. lower child dependency ratio. However, the age structure 13 Other challenges to include difficult access to land or in Niger is expected to remain dominated by the youth assets and little voice in public fora leading to a sense (under 15 years old), with a low share of elderly people. of exclusion. Opportunities in areas at-risk or affected by In 2050 the share of Niger’s population under 15 years of conflict are even more limited given state of emergencies age would still be very elevated at 44.7 percent, due to the and curfews that have impacted sectors absorbing many projected slow decline in the fertility rate. As a result, in youth (e.g., banning of motos, petty or informal trade) Some 2050 Nigerien workers will have to support a large number youth resort to illegal sources of income or join violent of youths, around 30 million (Figure 8). extremist groups. However, areas with more economic opportunities offer youth a more viable transition to self- reliance via a more dynamic local economy. Figure 8. Demographic trends in Niger 70,000 60,000 50,000 Employment 15-64 40,000 1,000 people Unemployment 15-64 30,000 20,000 Outside Labor Force 15-64 10,000 Dependents <15 and 65> 0 -10,000 2000 2010 2020 (p) 2050 (p) Source: WBG staff estimations using “JobStructure Tool Demography”, WBG, 2020 13 Since 1985, under-5 mortality rate has been declining sharply from 333 to about 80 per 1,000 children in 2019, catching up with the West African Economic Monetary Union (WAEMU) and SSA’s average mortality rates. Consequently, life expectancy has improved by more than 20 years during that period going from 41.2 years in 1985 to 62 years in 2018. After decade where fertility rate has been close to 8 births per woman, it has turned below 7 for the first time in 2018. Still, this is more than the 2 children per woman above the average for LICs and SSA (excluding high income countries). The UN projects a gradual fertility decline in Niger but the rate would still remain at 5 children in 2040, while LICs will have brought down that value to 3.3 children per women. 34 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Table 2. Decomposition of growth in per capita value added (2000-19) Annual Change Niger Burkina Faso DRC Rwanda Lao PDR Uzbekistan LICs SSA (percentage points) Total 1.4 2.7 2.0 5.1 5.4 5.0 2.2 1.6 Productivity 2.1 3.7 2.8 4.8 4.5 3.6 2.1 1.6 Employment Rate 0.1 -0.2 -0.1 0.0 0.1 0.4 0.0 0.0 Participation Rate -0.5 -0.9 -0.7 -0.2 -0.1 0.2 -0.2 -0.2 Demographic Change -0.2 0.2 -0.1 0.5 1.0 0.8 0.3 0.3 Source: WB staff using Jobstructure tool Table 3. GDP per person employed, 2019/2050, Niger and comparators Total Productivity (constant 2010 US$ per person) 2019 2050 Niger 1,610 3,847 SSA (excluding high income countries) 4,740 5,246 LICs 2,260 2,877 Source: WBG staff estimations using “JobStructure Tool Demography”, WBG, 2020. For LICs the base value is 2018. Currently, employment is concentrated in small-scale, in 2014). This particularly reflects Nigeriens’ continued low-productivity activities, mostly in agriculture, and reliance on small-scale rural agriculture where on average hours worked per week have been declining. Household only 25 hours are worked per week, in contrast with the surveys in 2014 and 2018 found that three-quarters of the 37.2 hours worked in the service sector. Moreover, in the working age population were employed or self-employed. agriculture sector, 40.7 percent of work is unpaid, and a However, this measure incorporates all residents of further 51.6 percent is self-employed (Figure 10). As a result, working age who worked at least one hour in the week a third of working rural adults are unpaid, compared to preceding the survey, whether paid or unpaid, formal or just 8.7 percent in urban areas. Although urban residents informal. Approximately 30 percent of working Nigeriens are more likely to hold paid employment, and less likely to were unpaid employees, and almost all earning incomes rely on unpaid work, they are also more likely to be out of were self-employed, in 2018. Underemployment is high, 14 work altogether; almost half the working age population in with working Nigeriens working on average 25.8 hours per urban areas does not work – an outcome that has improved week in their main job (down from 33.2 hours per week little since 1995. 14 This may, in part, represent improved measurement of unpaid employment in household surveys. Unpaid employment most typically includes work on farms other than one’s own. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 35 Figure 9. evolution of the weekly worked hours in Niger 52.2 43.0 53.1 Hours worked in part 7 days (mean, employed population) Hours worked in part 7 days (mean, employed working age population) 50 50 47.0 45.5 45.1 43.5 42.5 40.7 40 39.6 40 38.2 37.5 38.5 37.1 37.2 34.0 34.6 32.0 30 30 28.3 26.8 25.0 23.8 20 18.5 20 10 10 0 0 2002 2007 2014 2018 2002 2007 2014 2018 2002 2002 2002 2002 2007 2007 2007 2007 2018 2018 2018 2018 2014 2014 2014 2014 Male Female Agriculture Industry Services Other Source: Niger National Statical Office Figure 10. Evolution of the employment structure 100 100 Share of working age population (15-64) Share of working age population (15-64) 11.3 12.7 20.0 18.8 21.9 34.5 80 39.3 24.0 19.8 37.8 80 50.5 45.2 45.0 9.1 49.2 45.6 0.6 53.1 59.4 71.3 31.4 0.9 7.9 26.5 60 60 16.0 8.0 8.7 5.4 0.2 29.2 25.4 0.2 4.6 0.7 10.4 6.4 1.9 3.5 14.7 40 65.2 48.2 40 0.9 0.7 0.3 56.6 12.1 2.5 0.2 1.6 27.4 25.0 0.1 0.1 27.1 28.9 39.9 47.5 20 34.6 32.7 20 34.8 48.8 43.3 27.5 25.0 17.9 11.1 17.5 4.1 5.0 7.2 11.5 1.2 1.5 10.9 1.2 0.8 0 0.9 2.5 0 1.0 3.6 1995 2005 2014 2018 1995 2005 2014 2018 1995 2005 2014 2018 1995 2005 2014 2018 Male Female Urban Rural Paid employee Self-employed Employer Paid employee Self-employed Employer Unpaid employee Not working Unpaid employee Not working Source: WB, using I2D2 data from Niger LSS, LFS, and ECVMA surveys. Note: In 2004-5, Niger was impacted by a severe crop failure and food crisis that depressed output and employment; changes from 2005 to 2014 should not be interpreted as a linear improvement. Indeed, WDI data shows a decrease in labor participation from 2010-2019. 36 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Wide gender gaps continue to be a serious roadblock address gender inequality with the second Economic and to sustained and inclusive growth. Niger has a Gender Social Development Plan of 2017-2021 (PDES II) where the Inequality Index value of 0.647, ranking last at 189 in the government recognizes the disparities between men and 2018 index15. Gender inequality is prevalent in inequality women. of economic opportunities, access to financial services, labor force participation, and education attainment. Weak human capital exacerbates Niger’s low labor Underemployment is more acute among women, as they productivity and demographic challenges. Education work only 18.5 hours on average per week, less than 60 is a strong predictor of labor market outcomes in Niger: percent of the hours worked by men. In 2018, a woman 82.3 percent of adults who completed upper secondary was twice as likely to not be earning an income, compared school were in paid work or education in 2018, compared to a man: 63.2 percent of women were either out of the to less than 58 percent of those with only lower secondary, labor force or in unpaid employment, compared to 32.5 primary, or no education. Unfortunately, the vast majority percent of men. Moreover, only 2.5 percent of the women of working age Nigeriens – 96.9 percent of women and 94.2 have a waged job, in contrast with 11 percent of men. percent of men – lack education above the lower secondary Women face more complexities in accessing formal credit level. Nigeriens with lower secondary or primary education related to restrictive collateral requirements, shorter are not substantially more likely to be in paid work or maturity of loans, and higher interest rates than men. education than Nigeriens with no education – hence Laws governing opening of bank accounts, property and reflecting both the poor quality of education available, and land rights discriminate against women. Although the 2010 the dominance of low-skilled employment opportunities. Constitution covers equality by law, women are confronting norms and cultural barriers that extend beyond the purview of formal legislation. 3. THE SCOPE OF STRUCTURAL CHANGE HAS Women face stark gender inequality which has a high BEEN TOO LIMITED cost in terms of economic impact and social exclusion, increasing their vulnerability in an FCV context. Despite Cross-country experience shows that the pattern of efforts the primary completion rate for girls aged structural transformation tends to be associated with between 15-18 reached 26.5 percent compared to that of a hump-shaped curve for manufacturing output as a boys which reached 41.4 percent and young women face share of GDP (World bank, 2017). However, the turning especially daunting challenges related to early marriage point seems to be occurring at much lower levels of and childbearing, low access to education and labor force income for developing countries, such that their decline participation, and limited representation in local and in manufacturing begins at levels of income that are a national governance structures, particularly traditional fraction of those at which advanced economies start to ones. Social norms and some legal barriers lead to de-industrialize. Thus, developing countries transition gender inequality that result in women having fewer into service economies earlier than developed ones, opportunities in the labor market than men, receiving less a phenomenon that is referred to as premature de- pay and being less productive. Niger has taken steps to industrialization (Rodrik, 2016). This is the case of 15 United Nations, Gender Inequality Index 2018 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 37 many SSA countries that have experienced a decline in (Figure 11). Despite having a higher productivity level than manufacturing shares in both employment and real value agriculture, due to a negative productivity growth within added since the 1980s. International evidence shows that services from 2000-2010, real output per worker in 2019 without sustained structural change (high across-sector in the sector was still at the same level as 2000. Services productivity growth), within-sector growth is not sufficient have been important in urban areas, where they account to sustainably generate higher quality jobs. for 88.3 percent of paid employment and 62.8 percent of all work, and have supported better employment for women. Structural change is happening very slowly, and does not However, in rural areas where the majority of Nigeriens still involve manufacturing. Structural change in Niger over the reside, a shift towards off-farm service-sector work (such as last 20 years has been very limited, amounting to 12 percent commerce and transport services, not to mention finance of the total increase in productivity, and contributing only and business services) – which has been critical to poverty 0.25 percentage points to yearly per capita valued added reduction in aspirational peers like Rwanda – has not taken growth (Table 4). However, that contribution rose from 0.16 place. Hence, 83.8 percent of the rural working population percent in the first decade to 0.4 percent in the second. remain in agriculture, with 9.8 percent in services and 6.5 This contribution comes entirely from the services sector, percent in industry. but because of its limited size, the impact on the overall economy was much lower than in comparator countries Table 4. Decomposition of GDP per worker, Niger % Yearly Contribution to Growth 2000-2019 2000-2009 2010-2019 Total per capita Value Added 1.43 0.46 2.05 Productivity 2.07 0.70 3.17 Within-sector productivity 1.82 0.54 2.74 Across-sector productivity 16 0.25 0.16 0.41 Participation rate -0.41 0.14 -1.04 Employment rate -0.04 -0.01 -0.07 Demographic change -0.19 -0.37 -0.01 16 Across-sector productivity gain captures two elements, 1) labor relocation to sectors with high productivity level and, 2) dynamic-type across- sector movements, as highlighted in the charts (workers’ relocation to sectors with increasing (or decreasing) productivity levels) (McMillan, et al., 2017). However, this second term alone can be difficult to interpret when, for example, reductions in the employment share are accompanied by increases in productivity. This is because the term becomes negative, seemingly acting as a drag on productivity, when in fact it could be viewed as a positive development in such sectors as agriculture. 38 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Figure 11. Productivity decomposition (upper panels) and sectoral evolution (lower panels) Niger, 2000-2019 agriculture Niger, 2000-2010 NER NER Niger, 2010-2019 industry Burundi, 2000-2019 services Burundi, 2000-2010 Burundi, 2010-2019 Burkina Faso, 2000-2019 agriculture structural structural Burkina Faso, 2000-2010 Burkina Faso, 2010-2019 Congo, Dem Rep, 2000-2019 industry Congo, Dem Rep, 2000-2010 services Congo, Dem Rep, 2010-2019 Rwanda, 2000-2019 agriculture aspirational aspirational Rwanda, 2000-2010 Rwanda, 2010-2019 Uzbekistan, 2000-2019 industry Uzbekistan, 2000-2010 services Uzbekistan, 2010-2019 -5 0 5 10 -1 0 1 2 3 annualized growth in value added per worker in % annualized growth in value added per worker in % within-sector across-sector dynamic within-sector across-sector dynamic Source: Jobs Group JD Standard Code (JDSC) on the basis of WDI Source: Jobs Group JD Standard Code (JDSC) on the basis of WDI 100 100 13.5 15.4 17.7 share in total employment, in percent share in total value added, in percent 80 40.2 80 8.6 44.2 36.8 7.5 7.2 60 60 22.6 19.5 17.1 40 40 77.9 77.1 75.1 20 38.7 38.7 40.3 20 0 0 2000 2010 2019 2000 2010 2019 within-sector across-sector dynamic within-sector across-sector dynamic Source: Jobs Group JD Standard Code (JDSC) on the basis of WDI Source: Jobs Group JD Standard Code (JDSC) on the basis of WDI PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 39 Figure 12. Productivity levels (Value added per worker) econ.-wide agriculture NER industry services econ.-wide structural agriculture industry services econ.-wide aspirational agriculture industry services 0 5,000 10,000 15,000 20,000 25,000 value added per worker in current USD, PPP adjusted (2019) Source: Jobs Group JD Standard Code (JDSC) on the basis of WDI The dominance of within-sector growth is indicative Resource-rich countries tend to have highly capitalized of deeper problems in the business environment enclave mining and extraction industries. The average constraining allocative efficiency of the economy. productivity gains of moving one person from agriculture Given the weak structural transformation, within-sector into industry are actually 30 percent higher in resource-rich productivity gains have driven productivity growth, led than in resource-poor LICs ( (Eberhard-Ruiz & Pela, 2020). by increased productivity within agriculture and industry. This would imply that resource-rich countries can afford Within-sector productivity growth has been faster in Niger to have lower movement from agriculture into industry than in any other comparator country except Uzbekistan without negatively affecting overall productivity growth. (5.2 percent) (Figure 11, left panel). However, the level of productivity (Figure 12) is still very low and lower than The low level of productivity per worker might be comparators for each sector, even in the agriculture sector hiding underemployment and underuse of productive where structural peers show a weak performance too. On a potential. This is particularly true in agriculture where brighter note, empirical evidence shows that in resource- the number of worked hours is significantly below other rich countries a lower rate of structural change does sectors, but it can also be true for many other sectors not necessarily imply lower overall productivity growth. of the economy, where even the existing human capital 40 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER and technologies are underutilized. It might be related to in term of food access and poverty, including frequent unavailability of input (water, electricity) or inaccessibility episodes where households lose their assets (See chapter to markets (costly transportation), and the few available 5). Households who have access to irrigation are less are not used in an efficient way. Estimates from the exposed to weather shocks while other farmers opt for growth-accounting decomposition framework reveals that relatively safe but low-return crops, such as millet and while the contribution of total factor productivity (TFP) in sorghum (World Bank, 2017). Niger between 2000 and 2010 to labor productivity growth has been negative, it is also the only factor explaining Competition for grazing lands, global warming, and the acceleration after 2010. The low level of TFP growth insecurity can have an impact on internal mobility and the strong contribution of capital deepening are and labor allocation across sectors. Given the lack of consistent with what happened in SSA and other low- opportunities in cities, the proportion of the population income countries, where public infrastructure investment living in urban areas has remained constant for over 20 supported post-GFC output and productivity growth. years at the low level of 16 percent, (despite increasing by almost 2 million people in absolute value). However, Low agricultural productivity and high population growth this is expected to change as increasingly challenging hold back structural change and affect food availability. conditions in rural areas might offer little alternative to The World Bank Systemic Country Diagnostic (SCD) the rural, often underemployed, population (especially suggests that permanently shifting labor from a relatively youth). It is projected, under conservative estimates, that unproductive agricultural sector with high levels of the urbanization rate will accelerate in the coming decades seasonal underemployment to economic activities where (i.e., to 21 percent by 2035 and 28 percent by 2050). See one can be productive year-round is a potential source Appendix A for a discussion on the impact of structural of growth. But to sustain a transition of workers out of change on urbanization in Niger. Such a dynamic will agriculture, agricultural production must increase faster create challenges for the provision of public services for than the demand for food per head . From 2000 to 2018 17 those living in those areas.18 cereal yields have grown at 3.8 percent. This is almost the exact same pace as population growth while the level of An increase in agricultural productivity would stabilize value added per agricultural worker remains much lower food prices and availability and support urban migration, than in comparators due to the lack of access to modern provided that productivity bottlenecks in both informal technologies. Accelerating agricultural productivity and and formal sectors are addressed. Productivity per person develop and integrate food markets critical to save employed in agriculture could be increased through a lives, improve livelihoods and it is a precondition for more extensive use of the labor input by removing the creating better jobs with structural change (see Chapter bottlenecks in market structure and accessibility that are 3). Agricultural productivity in Niger is heavily correlated impeding the use of labor productive capacity (see chapter with an exogenous variable such rainfall, which is severely 3). This will allow the increase of production while sustaining affected by weather shocks, with large consequences urbanization and non-agricultural production. On the other 17 In China, both in the period 1991-2017 and in the preceding three decades from 1961-1991, growth in cereals yields was almost twice the population growth rate. 18 At current and expected future rates of growth, the total number of people residing in urban areas will increase from 3.5 million at present to close to 20 million by 2050 (World Bank, 2021). PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 41 hand, the creation of formal, wage employment in sectors competitiveness are not cut off at the source by the real amenable to generating widespread productivity gains is appreciation of the exchange rate usually observed in required to both generate income, and accumulate enough economies experiencing an oil boom. savings for further investments in the country’s productive capacity. So far, the small share of Niger’s labor force that left agriculture predominantly moved into public services 4. CONCLUSIONS (such as education and health), and only to a lesser extent Despite recent progress and reform-oriented policies, into manufacturing and transport services that saw small Niger’s economy today has fundamentally remained productivity improvements (World bank, 2017)19. These the same as two decades ago: undiversified, fragile, and trends are consistent with surveys indicating that most of extremely vulnerable to exogenous shocks. A suitable the population aspire to a job in the public sector, even metaphor to represent this situation might be one showing when they have no education (World Bank, 2021). In 2018, an athlete trying to run as fast as he can, but he cannot the public sector and state-owned enterprises accounted advance given that he is actually running on a treadmill. for approximately a third of paid jobs (formal and informal) In this sense, Niger is as far as it gets from the “automatic nationally, and four in ten paid jobs in urban areas (figures escalator” mechanism of economic growth associated not including self-employment). Despite their higher levels with the expansion of manufacturing (McMillan, Rodrik, of productivity, experience from other countries (especially & and Sepúlveda, 2017).20 Two structural characteristics in the MENA region) show how excessive reliance for limit Niger’s capacity to experience an industrialization- employment on rent-seeking activities, like government driven growth based on the increase of waged jobs. First, services and extractives industries, could hamper long countries at an early stage of demographic transition like term growth potential, reduce the scope for private sector- Niger face particular difficulties in accelerating the process led growth, discourage innovation, and exacerbate of structural change. Ceteris paribus, youthful countries fiscal vulnerabilities. must grow faster to create better, higher-productivity jobs because their labor force is growing faster. Second, Niger Increasing agricultural productivity has a particular is replicating the same experience of many resource- importance in the context of the coming on stream of oil. dependent economies where the limited structural change Oil rents will certainly be a driver of private demand growth taking place reflects shifts from self-employed agricultural (investment but also consumption if the local content follow work to self-employed work in low productivity services up) and tax revenue. If gains in agricultural productivity with few links to the rest of the economy and that produce are obtained, food production can accommodate demand, little diversification. thus avoiding an increase in imports. An adequate supply- side response is required also in non-tradable sectors to ensure that reform efforts to strengthen the economy’s 19 The study of cross-country sectoral data (World Bank 2020) establishes that increased role of employment in some services sectors, where productivity tends to be lower than in the industrial sector, has played a major role in the slowdown in productivity growth after the 2007-09 global financial crisis. 20 A manufacturing-based growth strategy has two distinct advantages. First, a great deal of manufacturing is labor intensive, so it can absorb large amounts of relatively unskilled workers from other sectors at a substantial productivity premium. Second, for developing countries, where lagging manufacturing sectors are the norm, labor productivity tends to catch up with the productivity of developed countries, where technologies are the most advanced, at a rate of 2–3 percent per year. 42 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER In this context, gains in labor productivity within the including access to finance, entrepreneurship and private sectors are critical. There is ample room to enhance sector development. This would attract underemployed growth by reforming the fundamentals of the economy and labor input away from agriculture and create conditions by removing bottlenecks to the development of the private from more waged jobs. In Niger’s case, this hinges upon sector. This will also make the economy better positioned taking steps to foster the adaptation to climate shocks to take full advantage of the substantial income gains in order to sustain agricultural productivity, increase coming from oil exports, without jeopardizing its fiscal resilience, and reduce poverty, while improving governance and external position. The priority for resource-rich, low- and institutions to also ensure that revenue from natural income countries like Niger should be to keep investing resources is used in a transparent way that benefits the in skills and physical capital (especially digital and whole country. energy networks) while removing regulatory bottlenecks, PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 43 CHAPTER 2 Policies for income growth and poverty reduction in Niger: Alternative scenarios up to 2050 This chapter explores the consequences of government actions aimed at addressing the interlocking constraints that stand in the way of income growth, job creation, and reduced poverty. As illustrated in Chapter 1, Niger is confronted with a web of constraints: weaknesses in human capital, governance, security, infrastructure, the consequences of climate change, and one of the world highest fertility rates. This chapter focuses on those that primarily are domestic in nature: infrastructure, human capital, and fertility. In the process, the analysis underlines the importance of improved governance. This chapter applies two economic models to assess Niger’s economic growth over the next 30 years under different demographic and economic scenarios. To increase the richness of the analysis and the robustness of the results, we have chosen to use two different economic tools. The two models presented here are the World Banks’s Long-Term Growth Model21 (LTGM) and the Sustainable Development Goal Simulation model (SDGSIM).22 The LGTM used the Solow-Swan growth model to generates different simulations on income growth, based on the different parameters in the Cobb- Douglas production function, in primis the quality and the quantity of inputs (labor, capital, and total factor productivity). The SDGSIM is a recursive dynamic computable general equilibrium (CGE) model designed for country-level medium- to long-term policy analysis. For this analysis, both models were adapted and calibrated to the Nigerien context with a new dataset. A new social accounting matrix (SAM) for 2019, the most recent year with sufficiently detailed information, was built expressly for the purposes of this chapter and used to run the simulations under the SDGSIM model. 21 For more information visit the Long-Term Growth Model website: www.worldbank.org/LTGM 22 SDGSIM is documented in detail in Lofgren and Cicowiez (2019). The starting point for SDGSIM was MAMS, a model designed for analysis of strategies related to the MDG agenda. See Lofgren et al. (2013) for documentation that also is relevant to SDGSIM. 44 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER While the two models are calibrated in a way that mirrors structure of the SAM, we decided to present the full set of the trends and the characteristics of the Niger’s economy, scenarios in a separate working paper associated to this they are built around different economic logics (a purely main report while more details on the methodology and macro vis-a-vis a micro-funded with optimizing rational the results are presented in Appendix B. agents). Both models start from a baseline scenario and then illustrate the welfare and growth consequences of a series of positive economic shocks. The two models 1. THE LONG-TERM GROWTH MODEL present some complementarity, as the first model is The LTGM takes assumptions about growth fundamentals— composed by only two economic sectors (oil and non- the drivers of growth—, such as investment and oil) while the second offers a breakdown of the economic productivity, to generate a trajectory for economic sectors that allows to analyze structural change trends, growth over the next three decades.24 This chapter uses while incorporating different demographic scenarios. In the Natural Resource Extension (NR) of the LTGM. Niger this way they can provide a full array of simulations on is expected to become a large oil exporter in the near different economic, social and demographic scenarios, that future. The NR extension allows for a disaggregation of the it would have been hard to obtain from a single model. economy into oil and non-oil sectors. This decomposition The chapter is organized as follows: the two models are is important because the dynamics of growth are highly presented in two separate sections. In the first section, heterogeneous across these two sectors. The non-oil after a brief presentation of the LGTM model, we start sector takes assumptions on “standard” drivers of growth, with presentation of the base scenario and then a set such as total factor productivity (TFP), human capital, of alternative policy scenarios presenting reforms in key investment, and demographics (population growth, age growth drivers such as infrastructure, human capital, and structure, and labor force participation). In addition to the productivity are simulated to assess the long-term effects standard drivers, growth in the oil sector depends on the on income, including by presenting an estimation of the level of proven oil reserves and, hence, on the profile of oil growth rate needed to close the development gap with LMI discoveries and extraction.25 countries by 20050.23 The second section presents some of 1.1. Baseline (business-as-usual) scenario the results from the SDGSIM model, in particular 1) how different demographic scenarios could impact poverty and 1.1.1. Recent trends in Niger and baseline assumptions income; 2) the effects of different package of the reforms, combined with different assumptions on how these reforms Below is provided a brief discussion of the key economic can be funded. Given the richness of the analysis and also trends in Niger and how they are extrapolated until 2050 in the originality in the construction of the model and in the the LTGM simulations. 23 Appendix B provides additional information about the LGTM model, tables with complementary simulation results, and a summary of a systematic sensitivity analysis of the simulations of the body text and their results. 24 The LTGM and its extensions are a suite of Excel-based tools to analyze future long-term growth scenarios, building on the celebrated Solow- Swan Growth Model (1956). The tools are designed to be simple, transparent, and to have low data requirements. The LTGM and its extensions are designed for long-run simulation exercises over the next 5-30 years, but not for short-run forecasting. The models only run at an annual frequency, do not include a Keynesian demand-side, and are too simple to capture the multitude of shocks to short-run growth. 25 For example, to produce petroleum, a country needs technology, physical capital, and reserves of crude oil. As reserves become increasingly scarce via extraction, more capital and technology are required to produce one barrel of petroleum since firms are forced to drill further underground or in less accessible locations. The production function draws from the work of Arezki et al. (2017) and Hansen and Gross (2018). PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 45 First, investment was low in the nineties but has risen Figure 13 and Appendix Figure 14). The baseline simulation sharply since 2000. The average investment rate in Niger incorporates the forecasts from the UN International Labor raised from 10 percent of GDP in the nineties to 23 percent Organization (ILO). The UN forecasts that from 2020 to 2050, in 2000-2017. This shift in investment has been driven Niger’s population growth will slow down to 3 percent, and mainly by private investment, which rose from very low the share of the working-age population will rise to levels in the 1990s to an average of 15 percent of GDP in 55 percent.27 2000-2017 (see Appendix Figure 8). On the other hand, public investment was on a smooth upwards trend since Fourth, labor force participation has declined over the past 2000, reaching 12 percent of GDP in 2016 (Appendix Figure decade. The labor force participation rate remained stable 9). The baseline assumes that, after some short-term at 80 percent (around 90 for males and 70 for females) volatility, private and public investment will stabilize at 15 until 2011, after which it declined to 73 and remained stable and 10 percent of GDP until 2050, respectively. since 2014 (see Appendix Figure 15). Despite this recent fall, Niger’s participation rate is relatively high compared to Second, productivity growth has been very volatile but regional peers and low-income countries, such as Nigeria, picked up since 2000, while human capital has been Mali, and, more generally, the average of Sub-Saharan growing at moderate rates but off a low base. As measured Africa. The baseline assumes that the participation rate by TFP, average productivity growth accelerated from 0.5 remains constant at 73 percent until 2050. percent in the nineties to 1 percent in 2000-2019 (see Appendix Figure 10).26 Human capital, which for the LTGM Niger has a high capital-to-output ratio and an estimated is measured based on average years of schooling, has two billion barrels of oil reserves. The initial capital- been more stable, growing 0.5 percent on average since to-output ratio in the baseline is set to 4 to match the 1990. However, Niger still reports one of the World’s lowest estimate for Niger in 2019 (Penn World Table 10).28 This schooling rates (see Appendix Figure 11). Based on these value is unusually high for low-income countries and leads trends, the baseline assumes that non-oil TFP and human to a low initial effectiveness of investment (see Appendix capital will grow at 1 and 0.5 percent from 2024 to 2050. Figure 16). In addition, the baseline assumes that reserves of oil stand at two billion barrels in 2020, and there are Third, Niger has exceptionally high population growth and no further discoveries until 2050. This is a conservative the lowest share of working-age population in LIC and assumption based on data from China National Petroleum LMCs. Population growth was very high in the early nineties Corporation (CNPC). The CNPC estimates one billion barrels and kept accelerating until it stabilized at just below 4 in the Agadem block and, at least, another billion in the percent after 2010 (see Appendix Figure 12). On the other Tenere block. Alternative simulations with more optimistic hand, the working-age population (share of the population assumptions on future discoveries have a small impact on between the ages 15 and 64) has been stable just below overall growth (see Appendix B). 50 percent since the 1990s. In 2019, Niger had the lowest working-age population of LIC and LMCs (see Appendix 26 Recall that as TFP is calculated as a residual (growth less factor accumulation), it oscillates with the economic cycle and is very volatile. 27 More specifically, we use the high variant estimate of population growth for Niger from 2020 to 2050 provided by the UN’s World Population Prospects, 2019. 28 In the LTGM, stock variables are usually set to the most recently observed data rather than the historical trend. 46 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 1.1.2. The Niger-Benin pipeline and baseline projections of depleting oil reserves, which are projected to halve by 2050 oil production (see Figure 16).29 In addition, investments in the oil sector fall sharply after 2030 (see Figure 15). The depletion of With the conclusion of the oil export pipeline, oil reserves reduces output per se and disincentive investment production is expected to increase from 15,000 to around in the sector, reinforcing the initial contraction. 100,000 barrels per day (b/d) by 2024. Currently, oil production in Niger is constrained by a limited capacity As a result of the fall in production, the extra income to transport crude oil from the oil fields to the coast. The generated in the oil sector is not sustainable in the long Niger-Benin oil pipeline, constructed by the CNPC, will term. Before the pipeline’s completion, the oil sector is increase Niger’s export capacity to 180,000b/d. According small, accounting for only 2 percent of GDP in 2022. With to experts, the pipeline becomes fully operational in 2023, the boom projected for 2023-2024, the oil sector expands and oil production is expected to increase from the current to 12 percent of GDP (see Figure 15). In per capita terms, 15,000b/d to 100,000b/d by 2024 (IMF 2019). oil income increases from US$13 to US$84 (2010 prices), which represents about 15 percent of the GDP per capita of Production of oil is projected to reach a plateau at 2020. However, this extra income is not sustainable, slowly 120,000b/d but to start declining in the mid-2030s. The plummeting to US$25 by 2050. Although the oil shock is LTGM-NR projects that the oil industry will keep growing unlikely to boost long-term growth per se, it provides Niger until production hits 120,000b/d, remaining at that plateau with a unique development opportunity. As discussed until the mid-2030s (see Figure 13). After that, oil production below, the fiscal revenues generated by the oil boom is projected to decline slowly over time, hitting 80,000b/d can be used to support key macroeconomic reforms with by 2050. The decline in production is partially driven by substantial potential to generate sustained growth. Figure 13. Baseline production of oil, Barrels per day Figure 14. Baseline reserves of oil, Billions of barrels 29 The LTGM assumes that first reserves are relatively easier to extract—for example, being close to the surface—but later reserves require more capital and technology to generate the same output, as firms are forced to drill further underground or in less accessible locations. In this case, holding other inputs constant, oil output falls as oil reserves deplete. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 47 Figure 15. Baseline investment, Percent of GDP Figure 16. Baseline oil income 1.1.3. Baseline projections of GDP growth for Niger 2026, GDP growth is projected at 4.3 percent, gradually picking up over the years until it reaches 5.4 percent in The business-as-usual baseline measures the growth 2050 (see Figure 17). potential of the economy in the absence of future shocks or economic reforms. The first contribution of this chapter However, due to high population growth, GDP per capita is to simulate the future economic growth path for Niger, growth is projected to be slow in the medium term, assuming that recent historical trends continue—that is, especially if compared to peer countries. Population the “business-as-usual” baseline. The simulation runs growth slashes average GDP per capita growth to 0.5 percent at an annual frequency from 2024 to 2050. The previous in the medium term. This growth rate is comparable to the period, 2020-2023, is not simulated, and the model takes 25th lowest percentile of the growth distribution in LIC and as inputs official forecasts for 2020-2023 (see World Bank LMICs over the last decade (see Figure 18). As a result, real 2021). Indeed, the LTGM is not suited to account for the GDP per capita would increase by just US$14 in four years: short-term volatility induced in 2020-2023 by the COVID-19 from US$698 in 2025 to US$712 in 2029. pandemic and the completion of the Niger-Benin oil export pipeline.30 Nonetheless, Niger’s GDP per capita growth is expected to accelerate substantially in the longer term. The A key assumption of the baseline simulation is that recent acceleration is gradual, with average GDP per capita growth trends of the drivers of growth will continue until 2050. rising to 1 percent in the 2030s and stepping up to 2 percent in the 2040s. This spur of growth is not trivial. A growth rate The LTGM projects that Niger’s trend GDP growth will of 2 percent lies above the 75th (95th) percentile of the stabilize around 4 percent in the medium term (2026- growth distribution in LIC and LMICs (Sub-Saharan Africa) 2029), trending upwards to 5.5 percent in the long term over the last decade (see Figure 18). However, the trajectory (2030-2050). After the effects of COVID-19 and the oil boom of GDP per capita is still unsatisfactory, remaining below taper off, the economy returns to its potential trend. In US$1,000 by 2050 (see Figure 17). 30 The LTGM is designed to analyze long-term trends of the economy’s production potential but is not suitable for short-term forecasting. 48 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Figure 17. Baseline GDP growth in Niger Figure 18. Distribution of GDP per capita growth in LIC and Annual growth rate, Percentage LMICs, Average over 2009-2019 Source: World Bank’s staff estimates based on the LTGM. Source: World Bank’s World Development Indicators. 1.2. Decomposition of baseline GDP per In the medium-term, the demographics is the main capita growth headwind to GDP per capita growth. Population growth cuts average GDP per capita growth by 2.1 percentage points in A decomposition of GDP per capita provides insights into the medium term. Although a higher population increases the sources of low growth and subsequent acceleration the labor force—and hence total GDP—, due to diminishing (see Figure 19). The average growth rate of GDP per capita marginal returns to labor, each extra worker generates a falls from 4.5 percent in the short term to 0.5 percent in the lower increment to output (holding constant other factors medium term. In the medium term, the main force behind of production). In this case, GDP per capita growth slows the slowdown is the normalization of the investment down with population growth. In a counterfactual with rate, which converges from a historic high in 2021-2025 to no population growth, GDP per capita would grow at 2.6 its long-term trend of 25 percent of GDP. The oil sector is percent on average in 2026-2029.31 relatively more affected by the decline in investment. The contribution of oil investment to medium-term growth In the long term, growth accelerates due to a switch of drops to 0.6 percentage points (down from 4.2 in the short the economy towards the non-oil sector and improved term), while the contribution of non-oil investment drops demographic trends. A key factor to explaining the to 1 percent (down from 1.6 percent). acceleration of GDP per capita growth is the reallocation of physical capital away from the oil sector. The depletion of oil reserves and lack of productivity gains lead investment 31 The slowdown of growth in the medium term is also related to the higher participation of the oil sector in the economy. First, due to depleting reserves and a lack of productivity gains (TFP and human capital), the oil sector does not generate sustained growth. Second, because the non-oil sector shrinks as a share of total GDP, human capital and TFP gains apply to a lower base, having a smaller effect on overall growth. The same logic applies to demographics. Since the non-oil sector is more labor-intensive, an increase in the labor force (driven by population growth) has a lower impact on growth when the non-oil sector has a lower share of total GDP. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 49 Figure 19. Decomposition of baseline GDP per capita growth, 2021-2050 Percentage points of growth due to each growth driver Source: World Bank’s staff estimates based on the LTGM in the oil sector to collapse to nearly zero in the long term. 1.3. Reforms to individual growth drivers: non-oil As a result, investment in the non-oil sector increases from TFP growth, human capital, investment 20 percent of GDP in the short-term to 25 percent in the long term (see Figure 15). Moreover, due to substantial Despite the increase in oil income, baseline GDP per capita productivity gains in the non-oil sector—mainly through is projected to remain below US$1,000 by 2050, limiting TFP but also human capital—the efficiency of investment social and economic development in Niger. In response to (i.e., the marginal product of capital) increases over time. this challenging outlook, this section provides a guide for As a result, the contribution of non-oil investment to policymakers to assess options to boost growth in Niger. growth accelerates from 1 percentage point in the medium These reforms would involve substantial improvements term to 1.7 in the 2030s and 2.2 in the 2040s. In terms of in critical areas such as education, infrastructure, and demographics, population growth declines, mitigating the market efficiency. Implementing these reforms is no negative impact on per capita growth to -1.6 percentage trivial task and would require not only high institutional points. Finally, Niger starts collecting some small but capacity and pollical stability but also substantial financial positive demographic dividends as the working-age resources (due to public investment needs, changes in tax population rises from 47 to 54 percent, contributing 0.3 and subsidies policies and so on). In this context, the oil percentage points to growth in the 2040s. windfall poses to Niger a challenge to avoid the “resource curse” but also a great opportunity to implement the needed reforms. As discussed in Chapter 4, the oil boom is projected to generate extra fiscal revenues of 3-4 percent 50 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER of GDP for over a decade. This windfall should not lead is to the specific growth driver and (ii) how far Niger lags to fiscal mismanagement, economic distortions or political behind peer countries. Specifically, the section analyzes corruption but rather to provide a cushion for the financial reforms to three growth drivers: (A) non-oil TFP growth, needs associated with the implementation of the economic (B) human capital growth, and (C) investment (private and reforms discussed below. public). It considers two variants of reform - moderate and ambitious - for each driver (A)-(C). Typically, a moderate More specifically, this section analyzes how Niger could (ambitious) reform boosts a driver up to the 75th (90th) increase its growth potential with reforms to boost each percentile of the distribution in LIC and LMICs. The focus of driver of growth. A weak baseline GDP per capita growth the section is in the medium- (2026-2029) and long-terms would limit social and economic developments in Niger. In (2030-2050). Table 5 summarizes the key assumptions terms of reform, the target for each growth driver is based under the baseline and reform scenarios (Panel A) as well on regional or income peers. The effect of each reform on as the results for GDP level and growth (Panel B). For further growth will depend on (i) how sensitive growth in Niger details, see Appendix Figure 18 and Appendix Table 2. Table 5. Summary of LTGM simulations under baseline and reforms scenarios Source: World Bank’s staff estimates based on the LTGM calibrated to Niger. * All reforms phase-in 2025-2030. ** Sub-Saharan African excludes Seychelles & Mauritius. The 2050 GDP level for peers is computed assuming that GDP growth in 2021-2050 is equal the average growth in 2000-2019. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 51 A moderate reform that increases non-oil TFP growth incremental growth generated by the reform reaches 1.5 from 1 to 2 percent would boost GDP per capita growth percent on average in the 2040s. Under this scenario, GDP by 1.2 percentage points on average until 2050 (see Figure per capita growth hits 4 percent by 2050 (vis-à-vis baseline 21). Reforms to TFP could be driven by policy changes in of 2.3 percent). innovation, education, market efficiency, infrastructure, and institutions (see Kim and Loayza 2019). The moderate An ambitious reform that increases non-oil TFP growth reforms scenario assumes that non-oil TFP growth will to 3 percent would boost GDP per capita growth by 2.4 accelerate to 2 percent by 2030, which is the 75th percentile percentage points on average until 2050 (Figure 21). The of the TFP growth distribution in LIC and LMCs over 2000- ambitious reform assumes a very optimistic scenario in 2019 (see Figure 20). On impact, a one percentage point which non-oil TFP growth picks up to 3 percent by 2030, increase in non-oil TFP growth boosts non-oil GDP by which is the 90th percentile of the distribution in LIC and exactly one percent. The effect on overall growth increases LMIC. A growth at such a high rate for many years, requires over time as the non-oil sector expands. Moreover, higher not only deep pro-market reforms but also a continued TFP leads to (i) more investments, which is assumed to be process of structural transformation and urbanization. a fixed share of income; and (ii) better investments, as TFP Under this scenario, average GDP per capita growth would increases the marginal product of capital. As a result, the reach 4.8 percent in the 2040s, and 5.8 percent in 2050. Figure 20. Distribution of TFP growth in LIC & LMICs Figure 21. The effects of reforms to non-oil TFP on GDP per Average TFP growth over 2000-2019 capita growth, Annual growth rate, % Source: Penn World Table 10. Outliers Tajikistan and Armenia dropped. Source: World Bank’s staff estimates based on the LTGM. 52 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER A moderate reform to increase schooling in Niger can boost would take Niger to the 75th percentile of the distribution human capital growth to 1.5 percent by 2030. Countries of human capital growth in countries with less than four can accelerate human capital growth by increasing the years of average schooling. average years of schooling of their populations (see World Bank 2019). A comparison with peers suggests that A moderate reform to human capital would boost GDP there is significant potential to accelerate human capital per capita growth by +0.6 percentage points on average growth in Niger through reforms targeting schooling. In until 2050. Human capital increases the effectiveness of 2019, Niger’s adult population had on average 1.5 years of the workforce in the production process, increasing output schooling (PWT10), one of the lowest rates in the world. In per unit of labor. Quantitatively, an extra percentage point addition, it is relatively easy to rapidly increase schooling of human capital growth generates, on impact, extra +0.5 off a low base (see Figure 22). For example, countries percentage points of non-oil GDP growth (where β=0.5 is the with less than four years of schooling in 1979 or 1999 had labor intensity of the production technology). The impact human capital growth ranging from zero to 3 percent over on total GDP per capita growth amplifies over time as (i) the next 20 years (1979-99 or 1999-19). On the other hand, the non-oil sector expands, and (ii) higher human capital countries with more than ten years of schooling reported leads to more and more effective investment. As a result, average human capital growth below one percent in the the moderate educational reform would boost growth to same periods. Thus, the scenario assumes that a moderate 3.2 percent in 2050, an increment of 0.9 percentage points educational reform in 2021 would reach its full impact relative to baseline (see Figure 22). by 2050, raising average schooling rate to 7 years. This Figure 22. Human capital growth is faster in countries with Figure 23. The effects of reforms to human capital on GDP low schooling rates per capita growth, Annual growth rate, % Notes: Three outliers dropped. Years of schooling predates the 20 years Source: World Bank’s staff estimates based on the LTGM average. Samples are 1979-99 and 1999-19. Source: Penn World Table 10 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 53 An ambitious reform that increases human capital growth the LIC and LMICs distribution (see Figure 24). This would to 2.5 percent by 2030 would boost GDP per capita growth lead to an increase in private investment from 15 to 20 by +1.2 percentage points on average until 2050. It is also percent of GDP. The ambitious scenario assumes that, considered a very ambitious reform that takes Niger to the in addition to private-sector reforms, public investment 95th percentile of the human capital growth distribution would raise from 10 to 12 percent of GDP, which is the top of countries with less than four years of schooling. This rate among low-income countries (see panel D of Appendix ambitious reform would have a much larger effect on the Figure 17). economy, boosting GDP per capita growth to 4.1 percent by 2050, an increment of 1.8 percentage points relative to Moderate reforms to investment could boost GDP per baseline (see Figure 23). capita growth by +0.4 percentage points on average until 2050. The simulated revival in investment has a strong Moderate reforms focusing on the private sector could impact on growth in the early years (+0.6 percentage points boost Niger’s investment rate from 25 to 30 percent of on average in the 2030s), but the effect tapers off over time. GDP, while ambitious reforms that also involves the public In the absence of complementary reforms to enhance sector could boost the investment rate to 32 percent of productivity, the effectiveness of investment falls sharply GDP. Niger has a broad set of available economic reforms in the late years—driven by declining marginal product of to strengthen private and public investment. On the capital and increasing losses due to capital depreciation. As private side, reforms could expand access to financing and a result, the extra average growth generated by the reforms infrastructure, reduce burdensome regulation, promote drops to +0.4 in the 2040s. The ambitious reforms provide entrepreneurship and skills development. On the public a small extra boost to investment but also weakens over sector, fiscal reforms could improve revenue mobilization time. These simulations highlight that investment alone and prioritize capital spending over consumption. The does not yield sustainable growth in the long term. moderate scenario assumes that reforms would bring the private investment rate in Niger to the 90th percentile of Figure 24. Distribution of private investment in LIC and Figure 25. The effects of reforms to investment on GDP per LMICs, Average over 2000-2019 Average over 2000-2019 capita growth, Annual growth rate, % Source: IMF-FAD, Investment and Capital Stock Dataset Source: World Bank’s staff estimates based on the LTGM. 54 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 1.4. Reform packages driven by reforms to non-oil TFP and human capital. Combined they account for 2.4 of the 2.8 percentage points Reforms to individual drivers would boost growth of incremental growth in the 2040s. Also, the effects of the substantially, but a combination of reforms would benefit reforms package fall almost entirely on the non-oil sector from complementarity and result in the strongest growth and have only weak spillovers to the oil economy. trajectory.32 This subsection considers packages of reforms that simultaneously increase (A) non-oil TFP, (B) human Under the ambitious reform package, reforms would capital, and (C) investment. The reforms are equal to those reinforce each other, hence putting Niger on the discussed individually in subsection ‎1.3. In particular, the strongest growth trajectory and boosting GDP per capita moderate reforms package is based on increasing (A) and growth by 4.5 percentage points on average until 2050. (B) to the 75th percentiles of distribution in LIC and LMICs, When all reforms become fully effective in 2030, GDP per and (C) to the 90th percentile. The ambitious reforms capita growth would reach 4.3 percent, an increment of 3.7 package increases all drivers of growth (A)-(C) to the 90th percentage points vis-à-vis baseline (see Figure 26). This or higher percentile (see Appendix Figure 18). incremental growth would reach 4.5 percentage points on average in the 2030s and 5.5 in the 2040s. The ambitious A moderate package of reforms would boost GDP per reforms are strong enough to generate substantial capita growth by 2.3 percentage points on average until complementarity, with the incremental growth under the 2050. When all reforms become fully effective in 2030, GDP ambitious reforms package is noticeably larger than the per capita growth would reach 2.6 percent, an increment sum of individual reforms. Similar to moderate reforms, a of 2 percentage points vis-à-vis baseline (see Figure 25). decomposition of growth shows that reforms to investment This incremental growth would then increase over time, lose momentum (although less sharply than individual reaching 2.4 percentage points on average in the 2030s reforms to investment), and only TFP and human capital and 2.8 in the 2040s. A decomposition of growth shows reforms can yield sustainable incremental growth in the that reforms to private investment generate significant long term. Finally, the ambitious reforms would generate a extra growth in the medium term but wears out over time net negative effect on the oil sector, due to a reallocation (similar to individual reforms to investment) (see Panel A of investment to the more prosperous non-oil sector. of Figure 28). In the long-run, incremental growth is mostly 32 An example is a complementarity between TFP and investment. Reforms to investment benefit greatly from higher non-oil TFP growth, as it increases the marginal product of capital, preventing the efficiency of investment from declining too sharply over time. Conversely, reforms to non-oil TFP also benefit from higher investment, as the higher productivity applies to a larger base (stock of capital). PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 55 Figure 26. The effects of reform packages on GDP per capita Figure 27. The effects of reform packages on GDP per capita. growth, Annual growth rate, % Real 2010 U.S. Dollars Source: IMF-FAD, Investment and Capital Stock Dataset Source: IMF-FAD, Investment and Capital Stock Dataset Figure 28. Decomposition of Incremental Growth, Percentage points of extra growth due to each reform A. Moderate Reforms B. Ambitious Reforms Source: World Bank’s staff estimates based on the LTGM 56 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 1.5. Prospects for income convergence at a level of GDP per capita of USD 5,337. Instead, if Niger will grow at the trend observed under the baseline, the As a final simulation the LGTM model was used to calculate convergence is expected to happen only in year 2170. The the average growth rate needed for Niger to catch up in reforms included in the ambitious reforms package will 2050 with GDP per capita in the group of Lower Middle- sensibly support income convergence, reducing the time Income countries, under the assumption that this group needed for a complete convergence by 110 years, to 2060. of countries will grow at the same rate observed between If the reforms under the moderate reforms package will be 200 and 2019 (2.7 percent). Niger’s GDP per capita would implemented, Niger economy will still need until 2080 for need to grow at 9 percent until 2050 in order to catch up a complete catchup. Table 6. Closing the gap with today’s Lower-Middle Income Countries GDP PC in 2050 Average GDP PC growth in Year when GDP PC reaches 2026-2050 $5,337* Level Gap to LMCs % Gap to LMCs A. Catch-up with LMCs 5,337 9.05% 2050 B. Baseline 976 4,361 1.4% 7.6% 2170 C. Moderate reforms 1,720 3,617 3.7% 5.3% 2080 D. Ambitious reforms 2,888 2,449 5.9% 3.1% 2060 * The year when GDP per capita reaches $5,337 is computed assuming that the average growth in 2026-2050 continues indefinitely. Figure 29. Closing the gap with today’s Lower-Middle Income Countries Panel A. GDP per capita in lower-middle income countries, Panel B. Simulated GDP per capita: lower-middle income Average annual growth rate in 2000-2019 (Y-axis) versus GDP countries versus Niger’s baseline and reform scenarios, per capita level (X-axis) Real 2010 U.S. Dollars PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 57 2. SUSTAINABLE DEVELOPMENT GOAL capital accumulation, technological change, and links SIMULATION MODEL between international trade and the domestic economy, in an integrated manner. a. Results for different demographic scenarios The simulations consist of a base scenario and a set of counterfactual scenarios over the period 2021-2050. SDGSIM is a CGE model designed for country-level SDGISM simulations analyze the impact on growth of a analysis of medium- and long-run development policies reduced total fertility rate, a gradual improvement in the with a focus on the SDG agenda and structural change. educational level of the labor force, and investments in Technically, the model is made up of a set of simultaneous infrastructure designed to increase factor productivity in linear and non-linear equations. It is economy-wide, targeted sectors. Moreover, it allows to compare the results providing a comprehensive and consistent view of the for the different scenarios on household welfare, poverty, economy, including linkages between disaggregated the labor market, different sectors, and trade balance. production sectors and the incomes they generate, households, the government (its budget and fiscal The detailed assumptions for the base and a variety of policies), and the balance of payments. It is an appropriate reform scenarios and the results of the simulations are tool for analyzing structural change issues (like the ones presented in a separate Working Paper. In this chapter faced by Niger’s economy) given the fact that it captures we will focus rather on some results more directly linked household welfare, fiscal issues, and differences between to the impact of the demographic trends on income and sectors in terms of household preferences, labor intensity, welfare indicators. Name Description Set 1 Scenarios with shocks in selected areas pop- Same as base except for population projection switch from UN medium to UN low fertility variant pop+ Same as base except for population projection switch from UN medium to UN high fertility variant pop-s+ Same as pop- except for the household saving rate increase from 20 to 25 percent of GDP pop-edu+ Same as pop- except for stronger increase in labor share with completed primary education or more combined with increased government spending on education 58 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER The base scenario is designed to provide a central, percent in 2050 comparing to the base scenario. However, if business-as-usual case for the evolution of Niger’s the pace of the reduction in fertility rate should slowdown economy up to 2050. This is a scenario without changes so that the number of live births per woman in will still be in economic policy and without the emergence of major 4.8 (UN high variant), the level of income per capita will be macroeconomic imbalances. It provides a yardstick against sensible lower, to XOF 573,000 (2015 values). which the results for non-base scenarios are measured. For 2020 and 2021, the World Bank’s estimated or projected The first scenario, pop, addresses population in isolation growth in GDP at factor cost are imposed (World Bank from other changes. It assumes that, starting from 2022, 2021a). For the period 2022-2050, the model is set up so that, the growth in the different population age groups switches thanks to the anticipated oil expansion, it generates an from the UN medium variant to the UN low fertility variant expansion of 0.5 percentage points relative to the observed (UN 2019). As a result, by 2050, the total fertility rate annual rate for 2000-2019 of 5.2 percent.33 Beyond GDP, decreases to 3.8 and total population reaches around 61 starting from 2020, payments related to the government, million as opposed to 4.3 and 65 million, respectively, for the balance of payments, savings, and investment, defined the medium variant while the dependency ratio decreases as shares of GDP are set to make sure that the path of the from 78 to 72 percent, something that creates a potential economy is sustainable. Moreover, it assumes that, starting demographic dividend insofar as the addition to the labor from 2022, the growth in the different population age force can be productively employed. Further discussion groups follows the UN medium fertility variant (UN 2019) on the impact of this and other scenarios can be found in which projects that the diminution in the total fertility Appendix B.2. rate will follow the same linear trend observed since 2000, moving from 6.95 live births per woman in 2015-2020 to 4.32 Such a demographic change is likely to come hand in in 2045-2050. hand with improvements in educational outcomes and in the saving ratio. Accordingly, the third scenario, pop-edu+, The level of income per capita and the extent of poverty combines the demographic assumption of the scenario in Niger can change radically according to future pop with increased government spending on education, demographic trends. The first two alternative scenario and an increase in the share of the labor force with pop- and pop+ differ from the basis only for the population completed primary education or more. In the model, the trajectory. In the first and more favorable scenario (the gain from this change in shares is due to the assumption UN low fertility variant), the trend in the reduction of the that the more educated labor group has a higher marginal total fertility rate observed since the begin of the 2000s productivity and, as a result, receives higher wages. Finally, will accelerate, moving to 3.82 live births per woman in the fiscal space that is needed for this spending expansion 2045-2050. As consequence, the average rate of population is generated via scaled-up domestic taxes (direct and growth will drop from 3.8 in 2020 to 3.1 in 2050. This alone indirect, not including trade taxes). More details are will allow some benefit in terms of poverty reduction covered in Appendix B.2. and income per capita, which will increase of around 4.3 33 Technically, the base scenario was constructed in two steps: (1) It was assumed that the oil sector was stagnant and growth in GDP at factor cost exogenous while, at the same time, the model has an endogenous variable that, in each year, scales TFP in selected production activities so that the exogenous GDP level is generated; and (2) The scenario was rerun with endogenous GDP growth, without endogenous TFP scaling (but imposing the scaling results from step 1), and an expanding oil sector (due to expanding access to the natural resource). The analysis uses the results from step 2, which is what is referred to as the base scenario. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 59 Table 7. Selected data for demographic analysis (values in 2021 and by scenario in 2050) 2021 Base pop- pop+ pop-edu+ pop-s+ Headcount poverty rate (%) 47.5 34.4 32.8 37.7 25.9 282.2 GDP per capita (CFA fr, constant 2019 prices) 314,303 616,030 643,069 575,326 693,661 720,871 Household savings (% of GDP) 12.1 11.9 11.9 12.0 12.0 16.0 Dependency ratio (%) 110.3 78.0 72.0 84.4 72.0 72.0 Working age population (% total population) 47.6 56.1 58.6 54.2 58.1 58.1 Source: SDGSIM Finally, the highest level of GDP will be reached in a (reduced government spending on public administration scenario such as pop-s+, where the saving-investment without any negative impacts) sufficient to create the fiscal channel is fully at work. The lower fertility allow household space needed to increase spending on education and to increase the share of their revenue which is saved and infrastructure. A detailed discussion of each scenario can used to fund domestic investment. This is fundamental be found in the Appendix. element through which the demographic dividend materializes. In this case, even by keeping unchanged the demographic variables, the level of GDP per capita deviate 3. CONCLUSIONS from the baseline. A series of economic simulations were performed with b. Reform packages the purpose to illustrate potential scenarios for the economy growth and poverty reduction until 2050. The A more elaborate set of reforms scenarios combines LTGM baseline growth scenario suggests a slow transition elements of the simulations in the first set with reform towards the lower-middle-income level, with Niger’s trend aiming at expanding public investment and tests the GDP per capita growth is projected to stabilize around 0.5 role of selected assumptions on fiscal space. The first percent in the medium-term, trending upwards to 2 percent simulation, combi, combines changes toward lower in the long term. The acceleration of growth is due to a population growth, a better educated labor force, and the switch of the economy towards the non-oil sector (which provision of infrastructure that raises the productivity of has better fundamentals) and improved demographic the widest range of sectors. The remaining simulations test trends. Under this baseline projection, Niger’s GDP per the impacts of alternative assumptions in the context of the capita will remain just below US$1,000 (real of 2010) by combi scenario: (a) combi-0 assumes the same increases 2050. This weak economic growth would limit poverty in government spending as for combi but without gains reduction and social development in the country. However, in education or productivity – this reflects the impact of moderate reforms to investment, human capital, and non- deficient governance; (b) combi-fg assumes that instead oil TFP growth can boost long-term GDP per capita growth of higher taxes, the need for increased government to around 5 percent, even with unchanged population funding is covered by foreign grants; and (c) combi-eff growth. In this case, GDP per capita would surpass US$1,700 introduces a parallel increase in government efficiency by 2050. Under a scenario with a package of ambitious 60 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER reforms, long-run GDP per capita growth would reach 8 productivity-raising investments in infrastructure, may percent, leading to a GDP per capita close to US$3,000 by raise annual growth in household consumption per capita 2050. In all simulations, the non-oil sector is the engine of by 0.6 percentage points (from 1.9 to 2.5 percent) and growth, and there are no large spillovers from one sector reduce the 2050 poverty rate by 12 percentage points (from to the other. 34 to 22 percent). The gains from such a policy package are not highly dependent on the specifics of Niger’s oil This chapter also explores the impacts of alternative expansion even though the latter may deliver substantial actions aimed at promoting development in Niger, benefits and contribute fiscal space for policy packages. using a CGE model built around a new Niger SAM for However, the success of the envisaged program depends 2019. Here, we find that packages of policy interventions critically on good governance. Expanded foreign grants that address Niger’s core challenges in the areas of may play a positive role by reducing the need for higher demography, education, and infrastructure, promise to taxes on a population with a high poverty rate. deliver substantial if not dramatic gains compared to a base scenario that follows current trends. More specifically, Closing on a note of modesty, while simulations with a comparison between results for the most successful economic models imposes rigor and logic on the analysis, policy package and the base scenario suggests that, during it is nevertheless only exploratory considering limited the period 2021-2050, a combination of reduced population knowledge about the details of the workings of Niger’s growth (a switch from the UN medium to low population economy, and given the fact that future developments are projection) combined with education expansion and subject to many uncertainties, both domestic and external. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 61 CHAPTER 3 Leapfrogging private sector-led growth with New Technologies Several bottlenecks prevent the private sector in Niger from becoming the main driver for economic growth. Among the main challenges is the pervasive economic informality and weak access to finance which contributes to the low level of labor productivity evidenced in chapter 1, thereby limiting tax revenue and thus development spending. The business climate, market landscape, and governance system rather than support private sector development and job creation hamper Niger’s attractiveness to foreign investment. Against this background, this chapter analyzes the potential for new technologies to radically transform the country’s development trajectory. After providing a brief description of the main characteristics of the private sector, the chapter points to agri-business and finance as the sectors best positioned to benefit the most from a rapid expansion of digital technologies. By channeling more resources to rural areas, digital technologies also allow to exploit the significant complementarities between the two sectors, thus exceeding the gains obtainable by the digital transformation of the individual sectors. 1. NIGER PRIVATE SECTOR DEVELOPMENT 1.1. Niger private sector profile Private sector development in Niger is crippled by pervasive informality. Compared to peer and aspirational countries, Niger is the country where unfair competition from the informal sector is the biggest constraint to firms’ development (Figure 31). The formal private sector, which accounts for less than 10 percent of GDP, remains among the smallest in Sub-Saharan Africa (SSA). Private companies outside of the two main towns of Niamey and Maradi are very limited. On the other hand, the informal sector has been growing very fast, representing between 40 to 50 percent of GDP during the last five years. It employs about 91 percent of the population, including 96 percent of women, and 87 percent of men.34 The informal economy’s greatest contribution to Gross Value Added (GVA) comes from trade (31.4 percent), followed by manufacturing (15.2 percent), construction (13.4 percent), repair and personal services (11.2 percent), 34 IMF (2019). Article IV, IMF Country Report No. 19/239, July. 62 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER and food and beverage preparation and trade services and income generating activities. However, although (8.9 percent).35 women dominate the informal economy in Niger, they account for only 28.7 percent of the informal economy’s Women’s participation in the private sector is limited contribution to GVA, in contrast to the men’s share of 71.3 to the informal and agriculture sectors, and their percent. To address the negative impact of the household contribution to the economy is small. Almost all of the dependency ratio on women’s activity in Niger, there should economically active working women in Niger (95 percent) be a strong focus on reducing fertility and exploring policy work informally, and 91 percent are self-employed. In fact, options such as community-based childcare, and technical only the lucky few (4 percent) have found work in the support to the self-employed. This would not only allow formal sector. With high fertility rates, at over six babies per women to spend more time on productive activities and woman, limited access to training, and no family support on supervising farm labor but would also allow women system, it is very difficult for women to conduct productive to participate in groups such as producer organizations, which can be an important source of technical information and learning. Figure 30. Sectoral contributes to Niger’s real GDP growth, Figure 31. Widespread informality creates unfair 2013-2018 competition with the formal private sector 120 8 100 7 80 90 60 6 60 40 5 20 30 4 0 Burkina Faso (2009) Burundi (2014) DRC (2013) Malawi (2014) Niger (2017) Rwanda (2019) 0 Tajikistan (2019) 3 -30 2 2013 2014 2015 2016 2017 2018 Percent of firms competing against unregistered or informal firms Informal sector Government Percent of firms for registered when they started operations in the country Extractive Non-extractive formal Other Real GDP growth rate (RHS) Percent of firms identifying practices of competitors in the informal sector as a major constraint Source: IMF, article IV, 2019 Source: World Bank Enterprise Surveys 35 IMF (2017). “Shadow Economies Around the World: What Did We Learn Over the Last 20 Years”, IMF Working Paper WP/18/17. On average over the period 1991-2015, the IMF estimates the size of the shadow economy at 51.5 percent using the predictive mean matching and 39.7 percent using the multiple indicators multiple causes (MIMIC). The MIMC, which uses the night lights intensity approach, estimates that the ratio of the shadow economy over GDP has decreased from 43 percent in 2004 to 34 percent in 2015. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 63 Productivity of the private sector is low, as structural lack of capacity or simply due to a lack of political will. transformation has been very limited and most Consistent misapplication of official policy and legal productivity gains occur within sectors. Productivity is frameworks has colored the business environment with stifled by low levels of education as around 70 percent the perception of corruption. Various foreign firms operate of Nigeriens have not completed any level of schooling, in the nascent gold and oil sectors, but several businesses although this number is decreasing rapidly in younger have been turned off by the outdated and opaque generations. Productivity is even lower for women, and bureaucratic investment framework. the agriculture sector. It is estimated that 34 percent of Nigerien women are out of the labor force at some point The framework for market competition is very weak and due to family reasons. Productivity gains in agriculture driven by informal rules. The failure to develop a level have been limited over the past decade. Over 80 percent playing field over the years had a negative effect on the of Niger’s labor force is working in low skill agricultural private sector. Continued lack of transparency at all levels activities, depending on rain-fed agriculture and livestock. has undermined trust in Niger’s institutions.37 According to While productivity is much higher in industry, boosted by the Economist Intelligence Unit’s operational risk model the extractive sector, workers have not relocated to sectors as of June 2021, investors in Niger perceive that the risks where productivity grows above average. in doing business related to competitive conditions are driven by vested interests. In the absence of effective 1.2. What will it take to change Niger’s private sector contract enforcement, economic operators tend to remain development trajectory? within their family or social networks. These types of arrangements could harm productivity and incentives to Recent progress in the investment climate is a good innovate as they grant a comparative advantage only to start, but a lot remains to be done to create fundamental certain firms, which is not necessarily associated with their conditions to support private investment. The National efficiency.38 Another big constraint is the state and elite Development Plan (PDES) for the period 2017-21 clearly capture. Interviews across donors’ projects have shown focuses on the private sector as one of the main drivers that grants of publicly financed projects supporting the for accelerating economic growth in the medium to long agriculture sector tend to be captured by elites or to go term. The Government of Niger (GoN) has taken good steps farmers who were themselves civil servants. An example to improve the investment environment, implementing of state capture mechanism that has been observed in 15 reforms from 2017 and 2020.36 Unfortunately, many of Niger relates to the use of taxation to maintain or influence these improvements to the business environment do not competitive advantages of politically connected firms. translate to material improvements. While many reforms are taken, most of them are unknown by Nigeriens. It is unclear if they are not effectively implemented due to 36 For instance, Niger has reduced the cost of registry and the capital requirements to start a business, which is expected to facilitate the formalization of businesses. In addition, in 2018, Niger made registering property faster by decreasing the time needed to transfer and register property. It now takes 13 days and 4 procedures to register a property (down from 35 days and four procedures). The GoN also removed restrictions on women’s employment in mining, construction and manufacturing, which is a welcome step to harness the untapped potential from a better integration of women in the labor force (Women, Business and Law (WBL), 2021). 37 Dollar, David. 2000. “Governance and Social Justice in Caribbean States.” Development Research Group, The World Bank. May. Discussion draft 38 Fiebelkorn, Andreas Henrik. 2019. State Capture Analysis: How to Quantitatively Analyze the Regulatory Abuse by Business-State Relationships (English). Governance Discussion Paper; No. 2. Washington, D.C.: World Bank Group. 64 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER The business climate does not support private sector Going forward, considerable efforts will be needed to development and job creation. Nigerien firms spend an attract and retain private companies and FDI. In addition average of 21 percent of their time dealing with regulatory to high levels of corruption, the small size and high requirements, against an average of 7 percent in Sub- disparity of the Nigerian market, and unattractive returns Saharan African, based on the results of the World Bank have contributed to reducing Niger’s capacity to attract and Enterprise Surveys. With little accreditation services, difficult retain large companies. In recent years, three international contract enforcement, and limited access to credit among companies such as Unilever, Orange, BraNiger (Subsidiary several constraints, there are few incentives for firms to be of Castel) have abruptly left the country. Although two of formally established even in the formal sector. Both costs these companies have been acquired by local investors, and benefits need to be tilted to encourage businesses to this situation left a negative perception of Niger‘s market enter the formal sector. In particular, getting electricity and and business environment. Interviews across private paying taxes are areas with major obstacles for business formal and informal companies reveal that worries operations. While Niger has made the enforcement of all about possible state capture remain important. Private contracts easier by creating a specialized court in Niamey, investment has contributed to a relatively high capital this does not help affected parties outside of the capital endowment driven by the availability of external financing. where an effective legal enforcement mechanism remains Although at a decreasing rate, FDI has been flowing into absent. Property disputes are common in rural areas the country, with inflows stabilizing at around 5 percent of subject to customary land titles. GDP in 2016-2017. Over the past five years, in preparation for the African Unit Summit, Niger has attracted large- Governance and control of corruption need to be scale private investments in hotels, and the construction reinforced. Corruption ranks fourth among obstacles for sector, aiming to make the country a regional conference businesses in Niger (World Bank Enterprise Survey, 2017) hub. Nonetheless, investment has not contributed to and the IMF’s analysis finds a large negative effect of bribery lifting labor productivity from its low level and capital per on sales and productivity growth, especially for young labor hour remains low, constraining productivity gains. firms and exporters. Customs and tax administrations are The mining sector could represent a steppingstone to perceived as the worst offenders, followed by the police developing a formal private economic ecosystem. Linkages and public procurement. Niger has over 160 state-owned between the large companies and local MSMEs barely exist. enterprises (SOEs) and parastatal companies, that are Building such linkages will be important to create new important economic actors, particularly in the oil, gas and opportunities for them, as discussed in Chapter 4. mining sectors, and in the provision of public services. Difficulties in controlling corruption in these SOEs, and Niger’s chronically high exposure to natural disaster lack of transparency in procurement aspects are hindering risks challenge private sector development and calls for private companies’ access to opportunities.39 a new approach. Droughts and flood risk are the most prominent, with the likelihood to adversely impact both the agricultural and non-agricultural sectors. Firms in the western part of Niger are exposed to significant flood risk that could affect buildings and access to infrastructure, 39 World Bank Group (2019, December). “Niger Integrated State-Owned Enterprise Framework”. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 65 with the potential to disrupt trade. The World Bank Group’s experienced a decrease in hours worked relative to the same disaster risk modelling shows that over US$ 500 million period in the previous year, while 85 percent saw their cash of damage to the building stock may occur in at least one flow availability reduced. To deal with cash flow shortage, flood in a person’s lifetime and that on average, flooding over 60 percent of them delayed payments to suppliers, each year is expected to cause exposure of 200 kilometers landlords or tax authorities for more than a week while 18 of transport infrastructure.40 The insurance sector is poorly percent of businesses used loans from commercial banks, developed, with limited options to offer protection to the 22 percent used equity, and 11 percent delayed payments private sector against the risks it faces due to climate to suppliers or workers. During the same period, 60 change and other reasons. With no insurance support 41 percent of large firms reported receiving COVID-19-related system and a limited disaster risk approach as discussed government support against 4 percent of small firms and 12 in chapter 5, advances might not last long. percent of medium firms. The Government recently began some initiatives to facilitate access to credit and assist in The COVID-19 pandemic has added to the existing the recovery of firms affected by the pandemic, but they challenges. During the first three months of the pandemic, have been inefficient thus far. The guarantee program of monthly sales by firms in Niger declined by 56 percent with CFAF 150 billion (US$ 300 million equivalent to 2 percent of small and medium firms and those operating in services GDP) to backstop credit to enterprises hit by the COVID-19 being the most affected.42 Around 95 percent of firms pandemic had very little results.43 Figure 32. Average change in monthly sales of Nigerien firms Figure 33. Share of Nigerien firms that have experienced between June 2019 and June 2020 changes in liquidity and cash management between COVID-19 outbreak and June 2020 Niger Small Medium Large Manuf. Serv. 0 100% -10 80% % Change in sales -20 60% -30 40% -40 20% -50 0% Liquidity Sales on credit Purchases on credit -49 -60 -53 -56 -57 -57 -56 Don’t know Increase -70 Remain the same Decrease Source: World Bank 2020 Enterprise Survey Follow-up on COVID-19 40 WBG 2019. “Niger disaster risk profile”. https://documents1.worldbank.org/curated/en/720421574234645191/pdf/Disaster-Risk-Profile-Niger.pdf 41 Two life insurance companies, with cumulative assets of less than 1 percent of GDP, and six non-life insurance companies share the market. 42 World Bank 2020, Niger Enterprise Survey Follow-up on COVID-19. 43 The program, which provides a 25% guarantee for large enterprises and 50% guarantee for SMEs, is accessible to all commercial banks in Niger. So far, the results are far below the expectations. In January 2020, the program had provided guarantee of only FCFA 4 billion to cover a total of FCFA 11 billion equivalent loans. 66 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Very limited efforts have been made to build a stronger thereby making use of the partial credit guarantees and more competitive financial sector where private provided by donors, these experiences have in some enterprises can flourish. As many countries in SSA, Niger cases resulted in losses for the participating entities, thus has created several state-owned banks to serve the diminishing their willingness to lend to agriculture. BAGRI, unbanked populations. Although this model has been Niger’s public bank dedicated to agriculture, is playing a key disappointing in terms of financial performance and social role by continuing to increase its lending to this sector, and impact, it continues to attract Niger’s policymakers. For remarkably fine-tuning its approach. Despite these positive instance, a new housing bank was created in recent years. developments, the size and quality of the agricultural loan Despite difficult attempts to revamp some state-owned portfolio remains limited, in the absence of adequate risk banks, a lot of consideration is given to using public mitigation policies and instruments. agencies to deliver financial services, or nationalizing some private microfinance institutions. This has led to a low level More space needs to be given to commercial credit over of competition which in turn contributes to keeping the subsidies. Persisting pouring of direct subsidies to MSMEs market shallow and immature. The microfinance sector, and farmers by donors over the decades contributed to which in peer countries strives to serve rural populations, the crowding out of commercial credit, and inhibited the has been very inefficient in Niger, totaling only about 296,000 development of a financial culture. Experiences in Niger clients – the weakest outreach of the WAEMU region. As of show that providing direct concessional funding/ subsidies 2020, Niger was among the countries with the lowest levels to MSMEs are generally ineffective. Beneficiaries of these of financial inclusion in the world, with 84 percent of the programs, even when they become creditworthy, tend to adult population lacking a formal transaction account. 68 wait for a second round of subsidies instead of turning percent of adults were saving through informal rotation to commercial banks. The Government’s recent effort to savings associations or by investing in livestock. boost financial inclusion and allow the financial sector to support access to finance is starting to create a new and Failure to provide the private and agriculture sectors growing interest in credit. This much-welcomed attention with sustainable access to finance continues to be highly will need to be realized as soon as possible in order to detrimental to growth. Firms in Niger have been – for the provide a sustainable supply of funds for MSMEs, which will past three decades and counting – continue to be severely allow for Niger’s private sector to grow. credit constrained. Domestic credit to the private sector as a percentage of GDP was one of the lowest in Africa hovering The limited focus on youth employment and training around 11.2 percent in 2019, lower than both the average of policies is alarming because it inhibits all efforts to boost 13.8 percent in fragile countries in Africa, and the WAEMU private sector development, and it creates a vicious circle region’s average of 23.2 percent. The potential demand – those who remain excluded from the job market or for MSME finance was estimated at US$3.4bn compared entrepreneurship are more vulnerable in the context of to an actual supply of US$329m. 44 Public and private fragility and violence. The formal labor market is poorly banks together dedicated only 0.8 percent of their total developed, making it difficult for private enterprises to portfolio to agriculture in 2017. 45 While few private banks find trained staff and to attract new enterprises in the have undertaken efforts to lend to agricultural production, country. Recognizing this key constraint should call for 44 World Bank. Feasibility Study of the Financial Inclusion Fund for Niger, 2019 45 Ibid. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 67 new approaches. Opportunities are emerging, empowered unemployment, family, retirement, etc. can be a potential by wider digital connectivity and the use of WhatsApp, way forward. Training, access to finance, access to markets and other mobile-based apps. E-commerce on WhatsApp and linkages to opportunities will be key as well. is increasingly trusted and growing—despite tremendous challenges—across urban communities and, surprisingly, across age groups, education levels, and genders. However, 2. SECTORS WHERE TECHNOLOGY CAN HELP these opportunities will not be enough given the low CREATE A STRATEGIC AND DYNAMIC SHIFT level of literacy, the large proportion of untrained people, the frequent crisis situations, and the social and cultural norms tolerating or sometimes promoting unemployment 2.1. Brief overview of penetration of digital of women or discriminating certain castes. Real and well technology in Niger calibrated policies will have to be put in place by the Government to provide decent training in key sectors The technology shift in Niger is gaining momentum even if such as agriculture production, food processing, mining it is happening slower than in most countries in the WAEMU and construction. Recent reforms supported by the region. The market structure in telecommunications is World Bank are going in the right direction, by giving reasonably competitive, with four players competing for the training institutions the necessary institutional and the market, including three private companies and a state- financial autonomy, and granting apprentices with a small owned one. As of late 2019, Airtel was the market leader scholarship in order to make sure that the poorest students with around 42 percent of the market, followed by Moov (26 can also attend the classes. percent), Orange (24 percent), and Niger Telecom trailing with just 7 percent. However, Niger Telecom benefits from Entrepreneurship can be an efficient way to facilitate an effective monopoly in backbone fiber as it has legal economic inclusion of youth if a conducive ecosystem protection which prevents other operators from laying is created. Very few initiatives have been carried out by fiber on routes where it already has capacity available. the Government to promote entrepreneurship over the Investor confidence in the market received a jolt with the last three decades. Reforms have been done on paper to decision of Orange Group to sell its entire share in Orange facilitate opening of a business, but all the foundations Niger to Zamani Com, which is owned by local business to create an entrepreneurship ecosystem have not been interests, effectively withdrawing from the Niger telecom put in place. Aspiring entrepreneurs face lack of access to market. In terms of coverage, the gap is still important. training, finance, and social support in general. Further, the Even though 81 percent of Niger’s dispersed population is education system in Niger focuses on encouraging a culture now covered by a mobile network, the quality of coverage that socializes and prepares people to depend on seeking needs to be improved. Around half of the population is government employment in the state-owned sectors of not covered by mobile broadband. 3G is available to less the economy rather than starting a new business. Most than 50 percent of the population. Awareness of mobile entrepreneurs thus operate in informality. Encouraging the internet was increasing thanks to the growing interest of formalization of activities and developing social protection the population in using social media such as WhatsApp, mechanisms to reinforce the application of labor laws and but it was far from ubiquitous. enable workers, including the self-employed, to receive the benefits they may eligible for with regards to health, 68 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Significant efforts are currently in place to reduce the To fully reap the benefits of a digital economy, more rural-urban and gender digital divide and allow Niger to efforts are needed to ensure the affordability of internet leapfrog. Since the adoption of the Niger 2.0 strategy, the enabled devices and encourage the adoption of digital country has taken concrete actions to launch its digital services. Smartphones are progressively becoming transformation. The digital transition is expected to be more affordable thanks to a growing secondhand device boosted thanks to: a) recent large investments in digital market, and increasing adoption of smart feature phones46 infrastructure (such as fiber optic and connectivity) with , but affordability remains the main barrier to mobile the support of the World Bank and other donors, to ownership, especially for at least the 40 percent lowest improve mobile and internet network in rural areas, and, income earners. The total cost of mobile ownership (TCMO) b) investments to improve digital skills and mobile finance is very high in Niger, representing more than 30 percent of services for about 1.4 million people through the Smart monthly incomes for the bottom 40 percent income group Villages initiative and the fiber optic project. The recent compared to 6 percent in Ghana. Value added tax (VAT) launch of an app to offer public services online such as on handsets, for example, is still at about 20 percent and the renewal of birth certificates, and other administrative considered a key constraint to improving the affordability of forms, will contribute to facilitating the adoption of digital devices. Taxation represents about 23 percent of the TCMO services. While these efforts will not solve all the issues, which includes the cost of purchasing a handset, cost of they will create strong foundations for Niger’s digital activation, and cost of usage (voice, data, and SMS). Gender revolution and will open possibilities for rolling out of gaps in device ownership will need to be addressed with a innovative mobile-based services in the health, education, stronger support of the Government While the upcoming and agriculture sectors. 150 digital centers are expected to boost digital skills, it will be crucial to scale up digital campaigns to reach more women, rural populations and businesses. Access to electricity to charge the devices will also be key. 46 These are usually more affordable than smartphones. While they do not share the full capabilities of a smartphone, they typically allow for the installation of popular apps, such as Facebook, YouTube, WhatsApp and Google Assistant. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 69 Figure 34. Mobile penetration rate for voice (2G) and Figure 35. Percentage of offline people broadband (3G, 4G), % pop., 2018 Mauritania Mali Burkina Faso Chad Niger Africa Western Africa Middle Africa 0% 20% 40% 60% 80% 100% 120% Mobile BB (3G/4G) Mobile BB (2G only) Source: GSMA Intelligence Note: Penetration based on number of SIM cards Figure 36. Average cost of digital services per capita Figure 37. Low adoption of digital services compared to the rest of the world 180 160 140 120 100 Share of GNI 80 60 40 20 0 Fixed broadband Mobile cellular Data only mobile High usage voice basket 5GB basket low usage broadband and data basket (70 min + 20 SMS) basket 1.5GB (140 min + 70 SMS + 1.5GB) Niger Africa Source: ITU, 2018 Source: WBG and ITU, 2018 70 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 2.2. Opportunities to use technology to boost considering the specific situation of the crop or herd, commercial agriculture in Niger thus significantly reducing costs while ensuring high productivity. In the case of drip irrigation, water Promising technologies offer opportunities to improve is delivered just to the plants to be irrigated and is productivity and competitiveness of agriculture value turned on or off considering the time of the day, and chains. New technologies can help Niger develop a the humidity of the soil. Some of these technologies commercial agricultural sector and address some of the can even determine the doses to be used depending challenges it faces. The performance of agri-products could on the situation of each individual plant or animal be expanded with better technologies, better knowledge of using sensors that scan the color and other factors of export procedures, and streamlined regulatory provisions. each plant. In addition to increasing efficiency, these For a sustainable growth of commercial agriculture in innovations, together with more resilient varieties of general, it will be key to have a strategy much more focused crops and animals, can also contribute to managing on products and technologies that could generate higher better with the impacts of climate change. revenues per liter of water used. • Similarly, new technologies ensure that products are While there is a wide variety of technological innovations properly stored and managed as they move along being tested and implemented globally, Niger would the value chain, so they can be used as collateral especially benefit from promoting the following: in the financing of the value chain. Sensors that monitor humidity and temperature, for example, • Niger has abundant solar energy that could can help to ensure that produce is stored and significantly contribute to expanding the availability transported adequately to maintain their quality. of electric energy generated by solar panels at a In addition, Blockchain technologies can help trace reasonable cost. In agriculture, such energy can the movements of agricultural produce from farm to for example be used to power irrigation schemes market, recording compliance with quality standards (e.g., through pay-as-you-go solar services to pump and ensuring the traceability of produce. This water, cooling of produce, or milling of grains such technology makes it possible to generate information, as those that have been successfully implemented allowing the use of smart contracts (self-executing commercially in India and Kenya),47 to cool storage contracts) that issue payments once certain steps are warehouses, or to power communications equipment. satisfactorily complied with. This type of blockchain- based value chain financing, plus the availability • Precision agriculture and drip irrigation have of 3rd Party Logistic (3PL) service providers, allows emerged in many places as a profitable way to small farmers to keep the ownership of their products increase the efficiency in the use of agricultural until the product is sold at the final destination, water and inputs and are already being tested in capturing higher margins. It also assures consumers Niger.48 Under such schemes, the doses of inputs and and governments that the food is safely produced, water applied to plants and animals are determined 47 See: https://www.oorjasolutions.org/ and https://spectrum.ieee.org/energy/renewables/offgrid-solars-killer-app 48 The Niger – Agricultural and Livestock Transformation project will be implementing 65 such schemes using both diesel pumps and solar pumps. IFC has already implemented a project to pilot in Niger climate smart irrigation techniques and solar pump fed drip irrigation systems with support from the Climate Investment Funds, CIF. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 71 processed and transported in a way that it complies the upcoming platforms under the Smart villages with applicable social and environmental standards. project will connect a wide variety of stakeholders, including smallholder farmers, input suppliers, buyers • Technology could be used to improve the performance and processors of agricultural goods, financial service and transparency of SMEs and of Farmer Organizations providers, and providers of information, helping them (FOs): Several countries have implemented projects to transact with one another. to strengthen the management capacity of SMEs and FOs engaged in agricultural value chains though Significant funding will be necessary to finance the training and supporting updates to their management introduction of infrastructure that is adapted to the information systems (MIS). This allows them to obtain conditions and resources available in Niger and that timely information and make informed decisions that leverage the country’s access to solar energy. The enhance their performance. Further to enhance the introduction of the needed technological improvements in efficiency and management capacity of these entities, irrigation, logistics and digital infrastructure will make it it is advisable to promote adequate external oversight necessary to substantially increase the available resources and/or audit mechanisms. This would provide an and to extend the terms of financing from short-term independent assessment of their operations and financing that allows for a cycle of crop production, to performance, thus increasing the transparency and medium-term and long-term financing. reliability of the information they provide, and with it their creditworthiness. Such external oversight Niger’s efforts in this space are recent, and it will be mechanisms can include independent auditors, as important to leverage the experiences of other countries well as qualified private entities and associations of to bring together private firms, government ministries SMEs and FOs and agencies, and agriculture value chain stakeholders to develop a joint approach. India’s Aadhar system, and • Lastly, Niger should continue the launch of models Kenya’s experience with setting up the “Million Farmer that leverage the potential of multi-function digital Platform” could provide valuable lessons to learn from.49 agri-platforms (DAPs) to increase access to markets High potential risks related to lack of data protection, and finance. While relatively new and diverse, the cybersecurity, and consumer abuse are to be taken into DAPs have attracted much attention because of their account while implementing all of these technologies for potential to reach large numbers of geographically Niger. Finally, high availability of physical access points to dispersed actors as long as they have access to the help the population’s use of the DAPs and in general all internet and to a mobile device. It is expected that digital solutions, should be prioritized. 49 Kenya launched in 2019 with international support a challenge competition that has brought together the country’s most promising agri-tech innovators to implement a multi-purpose digital platform to facilitate access to extension, finance, markets and data driven applications. The platform is already serving 100,000 farmers. See: https://kenyaomf.webdev.comunity.me/ 72 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 2.3. Going beyond the Intra-African/ Sahel regional c. Investing in irrigation, logistics and digital trade and using technology to become the future infrastructure for the next 20 years – The investments ‘garden’ need to start now to build the production, logistics and information systems for the future Niger needs to go beyond the Intra-African/Sahel regional trade to use agriculture to transform its economy. It a) Understanding the limitations of the present trading could adopt the strategies of extractive-based economies patterns like Chile or Peru that have now become agricultural The absence of Temperature Controlled Logistics (TCL) powerhouses by focusing on exporting high value-added technology automatically limits the trade capabilities of products to high-income markets such as the US and Niger to the natural shelf life of its products: “stockables” Europe. This structural transformation needs to start by: such as sesame can reach far ways countries like China; a. Understanding the limitations of the present trading resistant perishables, like onions are limited to neighboring patterns – Where products are defined by logistical countries in 2–3-day trips by non-refrigerated truck, handicaps on the supply side and distorted markets whereas “walkables”, like livestock can be taken just across on the demand side the border. By staying only within a local/ regional level of trade, Niger’s benefits from its comparative advantages b. Redefining target markets where Niger will have remain limited. sustainable competitive advantages – Using counter seasonality and estimates of climate change impact on the main competitors Figure 38. Market limits without Temperature-Controlled Logistics PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 73 Figure 39. Market with Temperature-Controlled Logistics In the example above (Figure 38), Niger can serve the distorted markets, to be served only by regional players. West African market for onions without having a TCL The “import-substitution trap” may hit the region with a value chain, since onions can withstand a few days’ triple negative effect: i) harming consumers through higher high temperatures. With TCL and Controlled Atmosphere, prices; ii) harming the environment, by producing water and the onions could last up to 4 months. That could open fodder intensive products such as commercial livestock; access to new markets but would also open the West iii) crowding out the evolution towards high value export African market to global cost competitors, like China, markets in products with a real competitive advantage and prompting the Nigerien producers to focus on quality and a high return on water. differentiation, for example in organic markets in Europe that appreciate the Violet de Galmi variety. However, once The most obvious advantages of intra-regional trade the TCL value chain is made available, other products not – specialization and complementarity – may not be so considered today could become more attractive, especially evident for the countries in the Sahel region. For example, when the competition is not global, and seasonal aspects specialization, such as combining economies of scale can give Niger an edge. In the case below (Figure 39), using or learning activities in certain countries, while moving grape tomatoes as an example, the market area with TCL labor intensive operations to lower cost neighboring can reach the EU market, competing counter-seasonally. countries, may not be applicable in this region, since these differences are more evident within country. Similarly, the The detrimental effect of the present trading patterns complementarity in agricultural production requires the extends to other sectors: it makes import difficult, countries to be in different climate zones, specializing creating “protected” markets that divert private sector in certain products. The North-South Regional Trade attention towards uncompetitive products. Intra-Sahel Agreement allows Spain to focus on oranges and Denmark trade opportunities and technology could act as a deterrent on dairy. The Sahel countries, even though they do have to those “protected” markets if neighbor countries opened strong North-South differences within their own borders, to lower cost imported alternatives but could have the may be too similar to be complementary across countries. opposite effect if they end up ring-fencing these regional 74 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER b) Redefining target markets where Niger will have in less than 25 years, it will no longer be producing sustainable competitive advantages horticultural products, while today it supplies 85 percent of the fresh products in the US. Niger could be in a privileged position to enjoy comparative advantages in agriculture but requires a radical change ii. “Niger’s landlocked position limits its export in strategy and mindset. Climate change and agricultural capacity”. Niger has a strategic position in the Trans- water depletion are changing Global Value Chains (GVC) Saharan Road to Algiers that can become the lifeline for food. Markets, products, production systems, logistics of fresh products flowing to Europe. While access routes, and the new technologies to support them need to to seaports is important for agricultural commodity be redefined. Niger has the potential to build a sustainable exporters that require bulk shipments of stockable competitive advantage against European, Middle Eastern products to reduce costs, most shipments of fresh and South African producers, that will suffer more from products are done by truck, since it offers more water scarcity, or the Latin American ones, that have a flexibility, smaller sizes, and higher frequency. The much higher carbon footprint. Competitive advantage in distances between Niger and Rotterdam by truck are horticulture does not mean that the conditions in Niger similar to the ones between Southern Mexico and will be ideal, but that Niger can be better placed than its New York, transited daily by refrigerated trucks that competitors to serve those markets within the shelf life transport more than US$ 12 billion in fresh products of the products. But firstly, a mindset change needs to per year. The equivalent amount from West Africa to address two conventional wisdom constraints: i) “Niger Europe is insignificant, while Europe sources most of doesn’t have enough water for agriculture”; and ii) “Niger’s its tropical products from Latin America. landlocked position limits its export capacity” Intra-regional rivalry can be more important than intra- i. “Niger does not have enough water for agriculture”. regional cooperation and could help market control. For Paradoxically Niger and the Sahel region in general example, the rivalry between Peru and Chile in avocados has seen an increase in their underground water, has improved the competitiveness of both, with a constant according to the GRACE satellite mission which has fight for innovation and quality. Within that rivalry, seasonal been measuring changes in water levels since 2002. complementarity is an important reason for collaboration, This does not mean that the region is water rich50, as these two countries cover slightly different seasons that but the trend shows that while underground water can complement each other. Peru covers April-September availability is increasing in the Sahel, it is decreasing in and Chile October-March, responding to market needs and the countries that today are feeding the European and keeping shipping routes viable all year around. In the Sahel Middle East countries. This can present an opportunity region this may be more complex given the more similar to supplant Spain, Italy, Greece, Morocco, and Turkey growing patterns, but the different windows for fresh as the main suppliers of horticultural products to products needs to be studied further, looking for products European markets. The timing requires an analysis with seasonal complementarities to cover the needs of beyond this study, but in the case of California, which destination markets. is undergoing a similar depletion, the estimate is that 50 For further explanation on the multiple causes and effects see M. Rodelli, J. S. Famiglietti et al. (May 2018) “Emerging trends in global freshwater availability”, Nature. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 75 c) Invest in irrigation, logistics and digital infrastructure To take advantage of the new business models in for the next 20 years agriculture that use blockchain technology, Niger should invest in telecommunication networks. Blockchain and Niger should use its extractive value chains capabilities IOT technologies allow 3PL service providers to follow to help its water transformation. Recent work by the Standard Operating Procedures51 that allow the farmers to World Bank is looking at how to apply the organizational sell directly to final destinations, capturing higher values and technical skills of the extractive industries to water for and obtaining supply chain financing, using the products agriculture. For example, a recent study for the Chad Oil and registered in the blockchain as collateral. Gas (O&G) sectors, has identified three areas of knowledge from O&G that could be used for other purposes: i) the All these technologies and infrastructures are already analysis of big data for geological research can be used to available; however, putting them into place will require analyze the localization of underground water; ii) drilling local capacity building, investments, and time. In countries and extraction capabilities can be turned into water drilling that have undergone similar transformations such as Peru and management for agriculture; iii) pipeline capabilities and Chile, a strong coalition between public, private sector can be turned in shared infrastructure management (e.g. and scientific institutions has been key. Niger should water, electricity and fiber optics), and creating oases in pursue this coalition building to carry such an ambitious lagging regions along the routes. Niger could benefit from transformation program. a similar study looking at the specific capabilities of the uranium and gold mining and see how they can contribute to the transformation required in agriculture. Figure 40. New Blockchain based Agri Value Chain Financing model 51 The World Bank is implementing this model in several countries, including in West Africa. 76 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 2.4. Will the use of technology be enough to seize facilitating access to business services and inputs. As the these opportunities? experience in Niger and other countries shows, activities to strengthen and professionalize the operation of FOs While technology can help to seize some opportunities, need to take a long-term perspective, as they have to additional actions must be undertaken to address the address several shortcomings, including: poor or weak challenges faced in advancing commercial agriculture.52 business and management skills, lack of transparency, These actions should take the following into account: insufficient participation of members in the decisions of their organization, and poor access to financial services, The atomized structure of the sector is a significant markets and market information. Measures to strengthen obstacle for the generation of a larger supply of such organizations should include, on the one hand, homogeneous high-quality agricultural products that can direct support and capacity building, and on the other, satisfy the demand of promising urban and international the establishment of suitable control and oversight markets, which in most cases require a minimum volume mechanisms that foster transparent operations. The of production to be viable. Larger volumes can be either impact of projects that have not been given sufficient produced by larger units or aggregated by value chain time and resources to address these issues is significantly firms, which in turn can be either private or cooperative in diminished, resulting in producer unions that are not able nature. Three options that are not mutually exclusive but to take over the management of their organizations upon rather complementary will be much needed in Niger: project completion. a. Strengthening of existing firms (of which there Government oil revenue, Percent of GDP are few), An additional significant area for improvement is the b. Setting up of new firms by local or international weak market performance of Niger’s agriculture, which entrepreneurs (including local FOs), which would has led to a significant decline in the value of exports of require risk capital provided ideally by firms already live cattle and onions from 2013 onwards. The situation operating in similar markets in Niger or abroad (at of the onion value chain, which has been losing ground this stage there do not seem to exist any potential to competitors such as Senegal, illustrates the issues providers of equity for such firms), that must be addressed to enhance the competitiveness and profitability of agricultural production in Niger. c. Opening of branches of existing international firms According to the aforementioned World Bank report on entering the market in Niger. the diversification of exports, “… processors are continuing If adequately supported and overseen, Farmer to use the traditional large jute bags which contribute Organizations can play a significant role in aggregating to crop loss during transport and lower value. Exporters the produce of smallholder farmers. In addition to prefer using the larger bags to lower export tariffs which facilitating the aggregation of produce, they can also are calculated based on the number of bags and not on contribute to enhancing its quality and, more importantly, weight.” In addition, the competitiveness of this product is increasing the bargaining power of their members, while reduced due to: “low quality and availability of inputs and 52 See Appendix for more details. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 77 Figure 41. Dry onion exports quantity and value, Niger and Senegal 15k 125k 12.5k 100k Share of GNI 10k 75k tonnes 7.5k 50k 5k 25k 2.5k 0 2014 2015 2016 2017 2018 2019 Niger Export Quantity Niger Export Value Senegal Export Quantity Senegal Export Value Onions, dry Onions, dry Onions, dry Onions, dry Source: equipment; lack of access to certified seeds; the limited Niger (US$ 9.18 million).55 The main difference is that Niger financial capacity of producers; lack of certification and exported that year a total of 79,500 tons, while Senegal only traceability; inadequate storage infrastructure; low value exported 6,300 tons, reflecting the significantly higher price processing; lack of bargaining power of producers vis-à-vis that Senegal could achieve due to the high quality of its traders; oversupply during onion main season; competition produce. As Figure 41 shows, the total value of exports from from regional and European markets; and lack of innovation Senegal has increased continuously in recent years, while and private sector investment.” As a consequence, Niger is the value of onion exports from Niger has stagnated at a not taking advantage of existing market opportunities for low level. onions. In contrast, Senegal has been able to significantly grow the value of its dry onion exports by improving the The introduction of new digital technologies entails new quality of its production, storage and transport systems, risks that should be addressed. One of them is the risk allowing it to target European markets,53 while Niger has of exclusion of large segments of the population along continued serving its traditional markets in West Africa a “digital divide”, which can accentuate the exclusion of with only slightly improved processes. In 2019, the exports 54 people who already have limited access to many goods of dry onions generated a total income of about US$ 9.26 and services. While some of these constraints are being million for Senegal, which is similar to the exports from addressed by the Smart Villages project that is being implemented with support from the World Bank, it will be 53 See: https://www.selinawamucii.com/insights/market/senegal/onions/ 54 See: https://www.selinawamucii.com/insights/market/niger/onions/ 55 See FAOSTAT agricultural trade data, available at: http://www.fao.org/faostat/en/#data/TCL 78 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER important to also monitor their effects on the labor market, despite the risk that this could create a leaky pipeline for as “digital technologies increase the demand for skilled expenditure and tax revenue and can enable corruption. It labor while decreasing it for unskilled labor, meaning was a missed opportunity to boost financial inclusion which that they can exacerbate and perpetuate labor market could have opened doors for the poorest households and inequalities and further widen the gender gap in rural farmers, allowing them to be more resilient, smooth out areas. Women and girls face barriers to digital inclusion that consumption, and invest in productive activities. It would reflect their inequalities in access to education, careers, also have enabled formal businesses – but also informal and other opportunities.” Lastly, it should be noted that 56 ones through credit – to increase investment in activities digital platforms may require regulations to deal with the with high value added, thereby increasing observed tendency to concentrate their market power given economic growth. high fixed costs, strong network effects, and low marginal costs to their expansion.57 Such regulations should, among The undermining of the link between a well-developed other things, enforce privacy controls, provide data usage financial sector and increased financial inclusion by protocols, and define inter-operability standards. Nigerien policymakers over the past 20 years has contributed to keeping segments of the country’s population financially excluded. Niger’s banking system, although robust, is the least efficient in the region. This 3. BOOSTING FINANCIAL INCLUSION TO is due to its outreach being limited to high income SUPPORT THIS STRATEGIC SHIFT populations, its high reliance on deposits coming from donors and parastatal companies, and its risk aversion. 3.1. Digital finance: Drivers and perspectives With a high proportion of domestic savings not going into the Nigerien formal financial system, it will take In Niger, recurrent floods and droughts, as well as the time for macroeconomic efficiency gains from financial COVID-19 crisis, have underscored the importance of intermediation to be realized. Niger has the lowest level of efficient digital financial systems to deliver rapid, reliable, deposits in the region despite having the highest level of and transparent financial aid to vulnerable populations deposit interest rate (5.7 percent). Lending is concentrated; and MSMEs. While most countries in the world were able there is a lot of competition to lend to three main to rapidly deliver monetary support to their populations groups – the parastatal companies given the perceived and MSMEs during the COVID crisis, Niger was unable to state guarantee, to politically linked or well-connected do so because of the precarity of its financial system, businesses, and to formal employees. During the last the underdevelopment of digital finance, and the low decade, the percentage of the adult population that was level of financial inclusion. Millions of dollars of financial able to access a loan from banks oscillated between 2 to aid poured out to individuals were distributed in cash 4.5 percent. 56 Schroeder, Kateryna; Lampietti, Julian; Elabed, Ghada. 2021. What’s Cooking : Digital Transformation of the Agrifood System. Agriculture and Food Series;. Washington, DC: World Bank. https://openknowledge.worldbank.org/handle/10986/35216 . 57 See: George J. Stigler Center for the Study of the Economy and the State, University of Chicago, 2019, Draft Report of the Committee for the Study of Digital Platforms, Market Structure and Antitrust Subcommittee, available at: https://research.chicagobooth.edu/-/media/research/stigler/pdfs/market- structure---report-as-of-15-may-2019.pdf?la=en&hash=B2F11FB118904F2AD701B78FA24F08CFF1C0F58F PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 79 Figure 42. Number of P2P payments in WAEMU compared to peer countries Togo Senegal Niger Mali Côte d’Ivoire Burkina Faso Benin Source: BCEAO, 2020 The fact that financial service providers lack presence in The penetration of mobile finance has improved but usage rural areas and do not rely on digital finance to expand rates have been disappointing even during the COVID-19 rural finance, further exacerbates financial exclusion. pandemic. While countries worldwide have registered In 2018, banks had a total of 169 branches and 183 ATM / unprecedented growth of mobile money, the number of POS devices. This translates into about 1.6 bank branches mobile money users has stalled in Niger between 2017 and and 1.8 ATM/POS devices per 100,000 adult inhabitants 2019 at 9 percent, after increasing from 3.5 to 9 percent respectively, a level of coverage well below that of Niger’s between 2014 and 2017. Data collected from the telecom peer countries. Since 56 percent of Niger’s bank branches regulator in 2020 indicate a rise of mobile money account and 65 percent of the ATMs are in Niamey, which hosts holders from 2.7 to 3. 4 million, but the usage was extremely less than 10% percent of the country’s population, these low. Only 4 percent of the accounts were active compared ratios decrease outside the country’s capital to about to the average of 33 percent of active accounts in the 0.41 bank branches and 0.36 ATMs per 100,000 inhabitants WAEMU region. Competition is considered decent between respectively, and down to a negligible presence in rural the three mobile money operators59 and one bank, but the areas.58 In addition to banks, MFIs were operating 125 offering is undiversified and inadequate. It only includes branches. In contrast, mobile network operators (MNOs) first generation services such as person-to-person (P2P) and money transfer companies (MTCs) have large networks payments, bulk payments, bill payments and mobile with about 830 and 9,300 service points respectively. While wallets. The number of P2P payment transactions – which MNOs and MTCs have a stronger presence than the other are the most basic services – was extremely low, reflecting providers, their service offering is very limited. the lack of adoption of mobile money in the country (see Figure 42). It amounted to 356,000 in 2019, compared to 29 58 See Fadika and Varcando Consulting. 2020. “Financial Inclusion Fund in Niger Feasibility Study” EFI Insight-Finance. Washington, DC: World Bank 59 All the telecom companies are working with banks to offer mobile money as the underlying funds are typically held by a bank in a dedicated stored value account or a linked current account. 80 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER million in Mali and an average of 30 million in the WAEMU and by 335 percent from 14 to 71 percent, respectively. More region. High competition of cash transfer solutions, lack of than two-thirds of the growth in each case is attributed to liquidity of mobile money agents, lack of digital literacy, mobile money. The value of mobile money transactions to and lack of awareness are the main reasons for this low GDP was at 2.90 percent in Niger compared to 33.90 percent level of P2P payments. Second level services such as in Mali and 51.92 percent in Burkina Faso. In most WAEMU savings, loans, and insurance via mobile are not available. countries, mobile finance uptake was linked to the vast network of liquid access points, digitization of Government Experiences of countries with structural similarity to payments, alleged Know Your Customer (KYC) measures for Niger have confirmed that mobile technology could drive opening of mobile money accounts, acceptance of mobile financial inclusion even in fragile environments. Indeed, money payments by merchants, micro-credit, and savings mobile finance has changed the landscape of the financial via mobile. markets in six out of eight countries in the WAEMU region by doubling or even tripling in some countries, the The future seems promising if the Government decides to percentage of adults with transaction accounts. In Mali effectively digitize all its payments, and ensure that the and Burkina Faso, the percentage of adult population with Smart Villages and other digital initiatives are properly formal accounts grew by 115 percent from 20 to 43 percent, implemented. Policymakers in Niger have shown a growing Figure 43. Growth of percentage of adult population with a Figure 44. Value of mobile money transactions/ GDP formal transaction account (bank microfinance and mobile Value of mobile money transactions/GDP money) 90% 80 80% 60 70% 60% 40 50% 20 40% 30% 0 2015 2016 2017 2018 2019 20% Niger Mali Burkina Faso Senegal 10% 0% 2014 2017 2019 2014 2017 2019 2014 2017 2019 2014 2017 2019 2014 2017 2019 2014 2017 2019 2014 2017 2019 Benin Burkina Côte Mali Niger Senegal Togo Faso d’Ivoire Source: WBG Findex and BCEAO Source: IMF Financial Access Survey PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 81 interest in the last four years for financial inclusion in US$2.7 to US$3.7 per month.60,61 The researchers posit general. However, it is only recently that this interest is that mobile money could give women in male-headed being converted to concrete actions such as the adoption households, who are also usually secondary income of the revision of national financial inclusion strategy earners, more financial independence. with a better focus on digital finance, and the launch of the Smart villages project for digital inclusion. Structural b. Hindering informality and improving transparency. challenges, including limited financial literacy and Mobile payments can help reduce cash payments awareness, low connectivity in rural areas, limited presence which not only contribute to reinforcing informal of active mobile money agents, limited numbers of use economies that hinder competition, but also deprive cases, and the lack of a more conducive environment for governments of tax revenue and deter business mobile payments are expected to be addressed in the next investments. While no data were available to confirm five years through this project. This will require concerted this in Niger, experiences of other countries show efforts between the Government and the private sector that mobile money could help the GoN save millions including MNOs, banks, and others. A stronger commitment annually through reduction of leakage in public from the Government to digitize its payments will be expenditure and tax revenue. crucial. As of now, it is unclear if it is due to the change of c. Increased mobilization of deposits for better regimes or limited political will, that the reforms prepared financial intermediation. Mobile finance could in the past two years on the digitalization of Government facilitate the collection of deposits. For that, banks payments via mobile have stalled. should either partner with MNOs or launch their own It will be crucial to create much more momentum around digital transformation programs. digital finance by also involving traditional and religious d. Opening doors for better financing for MSMEs, authorities along with the public and private sector, given including informal ones. The data trail these the benefits for the Nigerien population and economy’s technologies leave could enable lenders to assess the growth, which include: creditworthiness of borrowers, and help businesses a. Safety, empowerment, and financial independence better manage their finance. Mobile finance records for individuals. With insecurity in many regions in all transactions electronically, which improves the Niger, mobile money provides an opportunity for security of payments as well as their transparency, the farmers and herders to store money in more efficient consequences of which could be far-reaching on and secure ways and to facilitate their access to the economy. opportunities. Studies of the Kenyan market show e. Boosting economic growth. McKinsey’s proprietary that mobile money use led households to save more. general equilibrium macroeconomic model shows that Households with mobile money accounts were 16–22 digital finance could raise the level of GDP of emerging percent more likely to save and their average household economies by about 6 percent. Two-thirds of this GDP savings increased by 15–21 percent, the equivalent of 60 Parekh, Nidhi & Aimee Hare (2020, October 22) “The rise of mobile money in Sub-Saharan Africa: Has this digital technology lived up to its promise?” Innovations for Poverty Action (IPA). https://www.povertyactionlab.org/es/node/2955386 61 Bill & Melinda Gates Foundation (2021, April). “The Impact of Mobile Money on Poverty”. https://docs.gatesfoundation.org/Documents/ ImpactofMobileMoneyonPoverty_ResearchBrief.pdf 82 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER growth would likely come from improved productivity nearly 100 percent of the adult population. NADRA enabled by digital payments. About a-third would be data are used for ID verification of individuals relating from the additional investment that broader financial to both bank account opening and mandatory mobile inclusion of people and micro, small, and medium- SIM card registration. Where a user holds a SIM card sized businesses would bring. The small remainder that is already verified, an financial service provider would come from time savings by individuals enabling may remotely open a basic account for that person better intermediation.[5] 62 (SBP 2016).63 3.2. Lessons from peer and aspirational countries c. Togo, through its Novissi platform, was able to deliver contactless, emergency cash transfers based The COVID-19 crisis has highlighted the need for many on national identification (election cards), machine countries to adapt their regulatory and policy frameworks learning techniques and mobile money. The system regarding the provision of digital payments and financial allowed for the financial inclusion of about 500,000 services by nonbanks, especially on KYC and AML/CFT people after the first six months of operation. issues, questions related to taxation or data privacy, as well as requirements on interoperability in the realm of Payments applications based on mobile interfaces and digital financial services. quick responses (QR) codes have paved the way for a whole spectrum of financial services ranging from not only a. Ghana: Ghana has removed fees for low-value digital payments, but also small loans for merchants based remittances, relaxed transaction and wallet size on traceability of digital payments they received, and small limits for mobile money, made KYC transferable from loans for health expenses. SIM registrations to allow for remote mobile money account openings, and zero-rated all interoperable d. Ghana launched a digital financial policy requesting transactions made through the interbank switch all merchants in the country to accept payments through QR codes and reduce transaction fees. The Digital or national IDs have been leveraged to facilitate GSMA Connected Women program found that this financial inclusion even more during the COVID-19 payment service catalyzed digital payments especially pandemic: among women’s businesses. It empowered women microentrepreneurs in markets through the digitization b. Pakistan’s biometric-based digital ID system. of their transactions, and deepened their financial Pakistan’s biometric-based national digital ID system inclusion. It is also driving greater mobile money use developed and managed by the National Database and engagement among female customers.64 and Registration Authority (NADRA) has been used for more than 10 years to support account opening e. In India, the Central Bank permitted the use of by poor people. According to NADRA, Pakistan’s alternative credit data to make credit decisions, and Computerized National Identity Card (CNIC)—a smart structure financial products that can unlock financing card that stores demographic and biometric data of for health expenses. Arogya Finance offers unsecured a citizen and has a unique 13-digit ID number—covers medical loans targeted at low-income borrowers in the 62 McKinsey Global Institute (2016, September). “Digital finance for all: Powering inclusive growth in emerging economies.” 63 World Bank, COVID Briefing rapid account opening 64 GSMA (2020). “MTN MoMo Pay Merchant Payments: Expanding Female Mobile Money Usage in Ghana.” https://www.gsma.com/mobilefordevelopment/ wp-content/uploads/2020/05/MTN-MoMo-Pay-Merchant-Payments-Expanding-Female-Mobile-Money-Usage-in-Ghana.pdf PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 83 informal sector, using alternative credit data to make • The under-development of the financial infrastructure assessments. Customers can take out loans ranging (paper-based collateral registries, etc.), which make from $300 to $7,000 for a variety of medical needs, for use of movable assets as collateral difficult tenures up to four years, at lower interest rates than are often available with other types of loans. • The constraints resulting from insecurity and conflict in parts of the country 3.3. Building a financial system that could support Niger’s digital and strategic shift into commercial The supply of financing through larger value chain firms farming to become a future ‘garden’ such as input providers and processors of agricultural goods is also very limited; the scarce financing available Overall, the business case for lending to agriculture in is provided mostly informally by large traders or by some Niger is weak as substantial demand side challenges of the agricultural cooperatives.65 In contrast to other generate high costs while several factors constrain countries, in which the financing of agriculture through lending income. The main issues are: larger value chain firms is important, in Niger this type of financing is limited by the informal nature of most value • The poor market performance of the main agricultural chains, and by the small number of larger enterprises value chains that could channel and manage such financing to their suppliers or buyers. • The limited capacity of firms and FOs engaged in agricultural value chains to provide relevant and The Government of Niger and its international partners reliable financial and performance information have already undertaken important steps that will strengthen the supply and demand of financial services • The high costs for the acquisition and servicing of for agriculture, yet more remains to be done. It is individual customers in rural areas, many of whom do important to note that the implementation of reforms and not have an official identification, and about whom programs to facilitate a sustainable supply of financing there are only scant records of any sort for commercial agricultural investments needs to take a long-term perspective, and include specific efforts to • The legal uncertainties that limit the capacity of firms increase the available information about agriculture and and individuals to provide land and real estate as rural areas. Many of the suggested reforms will require collateral, and that affect especially women farmers time to design and implement. At the same time, their and entrepreneurs implementation will also require that important efforts • The limited use of potentially cost-saving digital are undertaken to enhance the availability of data, for technologies by banks and MFIs instance, about different agricultural value chains and the flow of funds. This will facilitate the formulation of public • The prevailing interest rate caps that limit the capacity policies and private market strategies as well as provide of banks and MFIs to cover the high administrative and a way to monitor the progress of the reforms themselves. risk costs of lending to some borrowers engaged in agriculture 65 See Fadika et al. (2020). “Note de politique sur le développement du crédit agricole au Niger” EFI Insight-Finance. Washington, DC: World Bank. 84 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Critical measures to be put in place by the GoN Timeline for Fiscal implementation implications Remove the obstacles for the growth of the country’s private sector Strengthen investment climate reforms Medium term Medium Reinforce the governance of SOEs and the control of corruption Medium term Medium Strengthen the public private dialogue mechanisms Short term Low Level the playing field to attract and retain FDI by ensuring rule-based decision Medium term Medium making and transparency in business regulation Support entrepreneurs and women in the digital and commercial agriculture sectors Medium term Medium Improve linkages between FDI and local entrepreneurs Medium term Medium Leverage technology to commercial agriculture and enter global value chain, and focus other policies as well. Invest in solar energy systems, irrigation, logistics, technologies such as precision Medium term High agriculture and drip irrigation, digital agri-platforms and blockchain Focus the strategy for commercial agriculture on target markets and products where Medium term High Niger will have sustainable competitive advantages taken into account climate changes and intra-regional collaboration/ rivalry Create better conditions to encourage the opening of new firms by international Medium term Medium businesses and local groups (including farmer organizations and entrepreneurs) in agriculture value chains Foster the adoption of digital finance Implement reforms around the digitalization of government payments to improve Short term Medium transparency and traceability, and raise awareness on digital finance Foster the legislation and regulation for digital finance to allow partnerships Short term Medium between mobile money operators and traditional financial institutions to launch second generation digital services PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 85 Critical measures to be put in place by the GoN Timeline for Fiscal implementation implications Learn from peer countries to revise policies around digital finance to increase its Short term Low adoption Ensure effective implementation of the Smart Villages Initiative to improve Short term Medium coverage, digital skills, and adoption of digital services Improve the framework for consumer protection and digital literacy to make use of Short term Medium technology simple and trouble free for the population Promote women and vulnerable groups’ access to digital services through revision Medium term Medium of taxes on handsets and digital services, and through creation of learning centers Foster the supply of finance to shift to commercial agriculture and enter global value chains Reinforce policies around the digitalization of the financial sector through shared Short term Low digital platforms Strengthen the design and governance of the Financial Inclusion Fund so that it can Short term High attract further private financing in time Streamline the policies around subsidies to smallholders Short term Medium Promote the use of blended finance to crowd in private sources of finance Medium term Medium Notes: short-term (1 year); medium-term (2-3 years); long term is +3 years; fiscal implications are estimated as low: affordable within current spending structure; medium: requires budget reallocation; high: need further reform, funding sources and domestic revenue mobilization. 4. CONCLUSIONS Leverage technology to commercial agriculture and enter global value chain, and focus on other policies as well. Niger should focus its strategy for commercial agriculture on The obstacles to the growth of the country’s private target markets and products where it will have sustainable sector must be removed. These efforts should focus on competitive advantages, taking into account the impact of strengthening investment climate reforms, reinforcing climate change and potential intra-regional collaboration / the governance of SOEs, and controlling corruption and rivalry. To increase the efficiency of agricultural production improving the private sector’s access to credit. This is and agricultural markets, the Government should invest critical as greater transparency in business regulations in digital agri-platforms, precision agriculture and drip and rule-based decision-making will expand the irrigation, solar energy systems, and new technologies country’s capacity to attract and retain FDI. Further, the such as Blockchain to ensure transparency along the Government should improve linkages between FDI and entire value chain. The Government should also create local entrepreneurs, for instance, by strengthening private- better investment conditions to encourage the opening public dialogue mechanisms. Lastly, concerted efforts of new firms by international businesses and local groups to support entrepreneurs and women in the digital and (including farmer organizations and entrepreneurs) in commercial agriculture sectors, for instance by expanding agriculture value chains. digital connectivity, providing resources to improve their financial and digital literacy, and increasing their access to digital finance, should be prioritized. 86 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Better gains could be made to advance private sector Foster the supply of finance to shift to commercial and commercial agriculture by leveraging digital finance agriculture and enter global value chains will be key. to increase access to finance. This will require concerted This can be done through reinforcing policies around the efforts of all players including the Government which digitalization of the financial sector through shared digital could set the tone for digital finance by digitalizing platforms; strengthening the design and governance its own payments. To ensure that the use of digital of the Financial Inclusion Fund so that, with time, it can technology is safe, simple and trouble-free for the public, attract further private financing; streamlining the policies the Government should improve the regulatory framework around subsidies to smallholders, and promoting the use for digital finance and the related consumer protection of blended finance to crowd in private sources of finance. framework. Efforts should be maintained to ensure effective implementation of all digital economies related initiatives. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 87 CHAPTER 4 The Extractive Sector in Niger: Impact on Jobs, Governance and Fragility Chapter 4 discusses the importance of Niger’s extractive sector on economic growth, job creation, governance, and fragility. The extractives sector has historically played an important role in Niger’s economy. With the expansion in petroleum production, it is likely to play an even bigger role in the near future. This is particularly welcome against the backdrop of declining uranium revenues due to mine closures and depressed global market prices. The chapter begins with a brief overview of the country’s resource endowments of uranium, gold, and petroleum; and the risks associated with the extractive sector. Subsection 2 applies the World Bank’s Long-Term Growth Model (LTGM) to assess (i) the impact of the expansion of the oil sector on economic growth and government revenues, and (ii) how it depends on different price scenarios and fiscal frameworks. This subsection finishes with a brief discussion of short-term spillover effects of oil prices, Dutch disease, and the pre-resource curse in the context of Niger. Analyzed the fiscal-macro consequences of the extractive boom, subsection 3 turns to the potential for local content policy to integrate the extractive sector with the wider agriculture-based economy. Finally, this chapter discusses the risks posed by the expansion of the extractive sector on Niger’s institutions, governance, and fragility. Overall, the chapter concludes that even in a scenario of high oil prices and an appropriate fiscal framework, the expansion in the oil sector would not alone support Niger’s long-term economic growth and development. On the other hand, the economic literature suggests that the oil boom can have substantial short-term spillovers to the local economy but also represents a risk to the macroeconomic stability in Niger. In terms of job creation, the chapter concludes that the expansion of the oil industry would be good opportunity for local content policy. A good target for Niger would be a local content policy that promotes foreign capital and new technologies but also targets increasing Nigerien employment. Finally, the chapter concludes that strengthening governance systems is critical for Niger to translate its extractive resource into drivers for growth and inclusive broad-based development, rather than fragility. 88 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 1. OVERVIEW OF NIGER’S RESOURCE 1.1. Uranium ENDOWMENT Niger has historically been a significant uranium supplier The economy of Niger is heavily dependent on agriculture at the international level. Uranium mining in Niger which accounts for 28.5 percent of GDP as of 2018 and began in 1971, and has been largely dominated since is the main source of income for over 80 percent of the then, by entities under the control of the state of France population. The extractives industry is another important (principally, Orano, formerly known as Areva). Uranium sector but its contribution to GDP has been relatively low, resources are located relatively close to the town of Arlit estimated at 4.4 percent as of 2018. The main minerals in the Agadez region. Of these resources, three major produced include uranium, of which Niger is the world’s deposits are, or have been developed/operated by Orano. 7th largest producer as of 2020, oil and gold (OECD/NEA & These are SOMAIR (producing), COMINAK (closed March 31, IAEA, 2020). 70 percent of extractives revenue come from oil 2021), and Imouraren (potentially to open based on market whereas uranium accounts for 28.5 percent. Most of Niger’s conditions). An additional resource is SOMINA, which was gold – about 10 tonnes – is produced through artisanal operated by China National Nuclear Corporation (CNNC) and small-scale mining (ASM), with the country’s only but closed in 2015. The Nigerien state has held an equity industrial gold mine at Samira Hill producing 1.3 tonnes a position via state entities in each of these mines, typically year (EITI, 2021). Additionally, there is artisanal and small- in the region of 1/3 of the equity in question. Following the scale mining (ASM) production of lower-value commodities mining code of Niger, the state issues mining permits on like gypsum (in Tahoua), salt (in Dosso and Agadez), and condition of receiving 10 percent of the equity of a mining natron (in Diffa, Dosso and Zinder) (World Bank, 2020). The company as ‘free shares’ and is then entitled to purchase ASM sector has profound economic and social implications additional shares for consideration, either in cash or kind, as it employs about 450,000 people, with 20 percent of the up to a maximum of 40 percent of the equity of population depending on it as a single or supplementary the company. source of income (UNECA, n.d). Figure 45. Location of industrial-scale extractive industry in Niger PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 89 Global demand for uranium has declined in recent years, The limited production volumes arise from two negatively impacting Niger’s production. In principle, characteristics of Nigerien petroleum. Firstly, the Niger may be in a position to benefit should there be a landlocked nature of Niger makes export challenging. This resurgence of demand for nuclear power. However, it is not may be ameliorated by the planned Niger-Benin pipeline, clear that the spot price of uranium provides good market which has an estimated 150,000 - 185,000 bbl/d capacity. signals for the startup of mines, considering that (a) Secondly, proven reserves in Niger are limited, with the uranium demand is very lumpy (that is, tied to new nuclear US Energy Information Administration (EIA) estimating power station plant-ups), (b) the cost of fuel is a small them at 150 million bbl, equivalent to 20 years production fraction of the overall cost of nuclear power and, (c) there at current rates. It is possible that proven reserves may are various stockpiles of strategic and commercial uranium rise significantly if oil prices, and transportation options in the world. Hence, the major international nuclear become more attractive. Indeed, there are some indications power companies, like Orano, are a critical intermediary that CNPC may estimate the true oil reserves in Niger to be to the uranium supply chain. They appear to have been more than 1 billion bbl, contrary to the US EIA estimates. historically willing to pay quite a high price for Nigerien However, the actual quantum of proven reserves is not uranium, indeed well above production cost. certain at this stage. 1.2. Gold While oil was discovered in Niger in 1975, it was only in 2012 that production began on a commercial scale. Between Niger has one commercial, industrial-scale gold mine those two periods, various International Oil Companies at Samira Hill in the Tillaberi region, which has been in (IOCs) attempted to develop Nigerien petroleum but operation since 2004. It was formerly operated by Canadian pulled out for different reasons. Among the reasons for concerns (80 percent), with a 20 percent equity stake by these earlier IOCs pulling out was that they were unable, the Government of Niger. However, Samira Hill mine is at or unwilling, to comply with the Government of Niger’s the end-of-life. In fact, it had been handed over to local stipulation to build a refinery as part of the overall Nigerien concerns, who were attempting to undertake development of Nigerien petroleum. This was likely because new prospecting. It appears that these efforts have been it is extremely challenging for very small refineries to meet unsuccessful. Other attempts at new prospecting are typical IOC investment hurdle rates, with, the capacity of currently underway with new international junior miners. a ‘world scale’ refinery today set at around 300,000 bbl/d. However, for practical purposes, these would be new Thus, the Zinder refinery is much smaller than expected deposits rather than existing Samira Hill reserves. for a new build in the current environment, with attendant implications for operational efficiency. Nevertheless, the 1.3. Petroleum existence of the 20,000 bbl Zinder refinery can be taken as an example of where CNPC was willing to extend itself in Petroleum production is around 13,500 barrels per day the area of local content as specific to Niger. (bbl/d) and occurs in the Diffa region. It is thereafter transported by pipeline to a 20,000 bbl/d refinery at Zinder. Both production and refining are managed by the China National Petroleum Corporation (CNPC). 90 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 1.4. The economic value of the extractive sector We start from an assumption that the maximum reasonable cost of a ‘local content policy’, (beyond what The aggregate value of extractives production in Niger industry might do in their own commercial interest) might swings from year-to-year and is fairly variable given be in the region of 1-10 percent of profits, depending the concentration in a limited number of resources. on assessment of the long-term attractiveness of the Nevertheless, certain observations can be made, based investment. In principle, the interests of the government on public estimates of annual production and reasonable and private sector should be aligned on the point of estimates of commodity pricing. Nonetheless, these should project profitability, that is, both parties wish the extractive be taken as ‘order of magnitude’ estimates in order to industry to be viable and commercially attractive in the frame the discussion on local content. long term. Given a rough estimate of overall annual profits of the An additional point of consideration is the potential for formal extractives sector in Niger at approximately US$ 90 future growth. For instance, should oil production in Niger million a year (sum of 16.6 M, 26 M and 48 M, see Table 4), expand to 150,000 bbl/d (based on CNPC aspirations), this we then have a starting point for considering the kinds of would imply petroleum industry revenues in the region of local content policies which could be applied. In principle, US$ 3 billion, with an attendant increase in the potential they must (a) meet the basic objectives of a local content funds available for local content. policy and (b) be viable within the context of the revenues and hence ‘reasonable’ cost structure of the industry. This Particular consideration should be given on managing is because while a non-existent local ccontent policy may the relationship between the Government of Niger (GoN) risk missing opportunities for capabilities development and CNPC, with a view to enhancing local content. This is and economic diversification over time, an excessively because of the three main extractive resources in Niger, tight one may risk either dissuading capital investment or petroleum is the one expected to grow in the medium negatively impacting the state’s fiscal revenues. term. Additionally, CNPC is the only IOC currently operating in Niger. Table 8. Estimated value of extractives in Niger66 Resource Uranium Gold* Petroleum^ Annual Production 1,700 tonnes 100,000 oz 5.3 M bbl Price US$ 66,000/tonne (US$ 30/lb) US$ 1750 /oz US$ 60/bbl Annual Gross Revenue to industry US$ 110 million US$ 175 million US$ 320 million Annual Profit to Industry (~15%) US$ 17 million US$ 26 million US$ 48 million Source: Order-of-magnitude estimate based on public data 66 Note: Gold production appears to be in decline in Niger. Nevertheless, for the purposes of ‘Local Content, an assumption has been made that, subject to new mines being developed, an industry with revenues of similar order of magnitude to historical ones may be possible. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 91 2. THE IMPACT OF THE EXTRACTIVE SECTOR ON 2.1. Baseline projection of oil production, income, and GROWTH (LTGM) fiscal revenues This section applies the World Bank’s Long-Term Growth Niger will soon become a large oil exporter, but the oil Model (LTGM) to assess how the expansion in the windfall is not permanent. With the completion of the petroleum sector could affect Niger’s economic growth Niger-Benin pipeline, oil production is expected to rise and fiscal revenues, and how it depends on different price from 15,000 to around 100,000 barrels per day by 2024. scenarios and fiscal frameworks. More specifically, this Assuming oil prices at US$60/barrel in 2010 constant section uses the Natural Resource (NR) Extension of the prices67, the production boom will lead the oil sector to LTGM, which allows for the disaggregation of the economy account for 13 percent of Niger’s GDP (up from 2 in 2020). into oil and non-oil sectors, as well as the evaluation of However, in the absence of future discoveries, the baseline the effects of oil prices on medium- to long-term growth projects that depleting oil reserves will set oil production under different fiscal rules. In the model, oil price shocks on a steady decline after 2030. By 2050, the oil sector is generate a fiscal oil revenue windfall, and a simple fiscal expected to contract back to 2 percent of GDP (see Figures rule determines the share of the windfall to be invested 13-16 in Chapter 2). in physical capital. Rules that invest a high share of the Recent data suggests that the government captures about windfall lead to faster economic growth than rules that 40 percent of the income generated in Niger’s oil sector. prioritize other types of spending. Fiscal oil revenues include all oil-related government This section also discusses other channels outside the revenues, such as royalties from exploration concessions, framework of the LTGM-NR. It is important to note that, tax-receipts from private extractive enterprise (e.g., China as an extended neoclassical growth model, the LTGM-NR National Petroleum Corporation, CNPC) and profits from does not account for all potential channels through which state-owned companies. The 40 percent share is based the resource sector could affect growth. Most importantly, on two observations. First, the IMF reports that Niger’s the model lacks an aggregate demand side, which means fiscal oil revenues accounted for 40-60 percent of total oil there is no stimulatory effect of extra commodity-related income over 2011-2013. Second, typical production sharing spending on the local economy in the short run. For that agreements tend to increase the government share in times reason, at the end of the section, it is provided a brief of high commodity prices, such as 2011-2013 (see Figure 46). discussion of mechanisms connecting the extractive sector The second observation generates a concern that the 2011- and growth that are not captured by the LTGM-NR, such 2013 data would overestimate the true government share as short-term spillover effects, Dutch disease, and the in the long-term (when the oil prices would be US$70 or resource curse. US$40). As a compromise, the LTGM-NR sets Niger’s future share in oil income to 40 percent, which is the lower- end of the observed values in 2011-2013. Moreover, this share is consistent with the cross-country evidence that 67 As the cumulate US CPI inflation from 2010 to 2020 was 18 percent, the corresponding value in current US dollars would be US$70. However, the World Bank’s Pink Sheet deflates prices using the Manufactures Unit Value (MUV) Index. The MUV index was flat from 2010 to 2020 so the current price of oil would also be US$60. 92 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Figure 46. Government resource revenues in large African Figure 47. Government oil revenues, Percent of total govern- oil exporters*, Percent of resource GDP ment revenues Data Source: Resource GDP from the IMF-WCE; resource revenue from Source: Resource revenue data from UN-WIDER GRD is only available for UN-WIDER Government Revenue Dataset (GRD). Dropped outliers: NER the years 2000-2003 and 2006-2013. 2008 and AGO 1993. UN-Comtrade data: Average oil exports over 2008- 12 (percent of GDP): NER=1%, NGA=21%, AGO=59%, DZA=22%, COG=57%, GAB=46%. governments retain on average 65-85 percent of rents in regional peers like Nigeria, Angola, and Congo have oil the hydrocarbons sector (see IMF 2012). 68 revenues that account for over 70 percent of total revenues (See Appendix Figure 23). The oil boom is expected to generate substantial fiscal oil revenues for Niger. Nevertheless, Niger’s dependence 2.2. The impact of oil prices on long-term economic on oil revenues would remain moderate compared to growth in Niger other commodity-exporting countries. Oil revenues were slim before the boom, accounting for less than one In the LTGM-NR, oil price shocks generate a fiscal oil percent of GDP or ten percent of total fiscal revenues. revenue windfall, and a simple fiscal rule determines the Under the baseline growth path, oil revenues are expected share of the windfall to be invested in physical capital. to climb to five percent of GDP or nearly one-fourth of The impact of oil prices on growth depends crucially on the total fiscal revenues (see Figure 47). Although Niger would fiscal framework. The impact of an increase in oil prices on be much more exposed to oil-price shocks, it would be income is evident, as it mechanically increases the dollar only moderately dependent on oil revenues relative to value of each barrel of oil exported. However, economic other large commodity-exporting countries. For instance, growth, as measured by GDP, is not directly affected by price 68 Oil rents are defined as the total revenue that can be generated from the extraction of oil reserves, less the cost of extraction (including the return to capital). The LTGM-NR assumes oil rents close to 50 percent, which is the median value for Sub-Saharan Africa (GTAP data). In this case, a 40 percent share in total oil income would correspond to about 80 percent of oil rents. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 93 movements.69 The literature discusses several channels (subsection ‎2.2.3). Subsection ‎2.2.4 provides a robustness through which commodity prices may affect economic simulation with a higher government share in the oil sector. growth. The LTGM-NR focuses on a simple but important 70 mechanism: higher oil prices generate windfall fiscal oil The main finding is that oil price fluctuations are unlikely revenues that could finance public investment in physical to have a large impact on Niger’s long-term economic capital, boosting GDP growth.71 Fiscal rules are key as they growth, even under a fiscal rule that invests all oil windfall. determine the share of the windfall to be invested in For instance, a permanent ten-dollar increase in oil prices physical capital (versus saved or consumed). An important would generate a modest fiscal windfall (less than one caveat of the LTGM-NR is that, as a growth model, it analyzes percent of GDP) and yield only an extra 0.1-0.4 percentage only the long-term trends of the economy’s production point of growth in the medium term. Furthermore, this potential and abstracts from any potential short-term extra growth would vanish in the long term as oil reserves “Keynesian” effects of oil prices on growth.72 deplete, the fiscal windfall dries up, and public investment returns to normal levels. This section analyzes alternative price scenarios for Niger’s potential economic growth over the next three 2.2.1. Simple fiscal rules for public investment decades. Assuming that the price of oil would remain In the LTGM-NR, simple fiscal rules determine how public constant at US$60/barrel until 2050, the LTGM-NR baseline investment responds to fluctuations in oil prices. In the projects that Niger’s trend GDP per capita growth would two simulations for oil prices (US$70/barrel or US$40/ stabilize around 0.5 percent in the medium term (2026- barrel), public investment is determined as the sum of 2029), trending upwards to 2 percent in the long term baseline public investment plus a term that responds to (2030-2050). This section assesses two alternative price windfall fiscal oil revenues (i.e., the deviation of fiscal oil scenarios—a permanent increase to US$70/barrel and a revenues from baseline): permanent drop to US$40/barrel—, and two simple fiscal rules. Subsection (‎2.2.1) describes in detail the fiscal rules considered. Next, it is analyzed how the oil boom (expected for 2023-2034) could impact Niger’s fiscal revenues Where π is the fraction of the windfall that is spent on (subsection ‎2.2.2) and public investment (subsection ‎2.2.3). public investment. Also, fiscal oil revenues are assumed Finally, we present the model’s projections for economic to be a fixed share (µ) of the income generated in the growth in Niger under two alternative price scenarios oil sector, which, in turn, depends on the oil production 69 In an open economy with a large oil sector, it is important to distinguish the effects of oil prices on real GDP and real domestic income (GDI). GDI, as a measure of income, is directly affected by a change in commodity prices. Real GDP, as a measure of production, is only affected indirectly as the initial price shock propagates into further economic activity. See Kehoe and Ruhl (2008) for a comprehensive discussion on the methodological differences between GDP and GDI in an open economy and their relation with commodity prices. 70 The literature on natural resources and economic growth is still inconclusive and under the scrutiny of academic debate. Theoretically, a country’s natural wealth can be reinvested in human and physical capital, new technologies, and infrastructure, boosting social and economic development. On the other hand, the Dutch disease literature argues that natural resources can appreciate the terms of trade, making other industries less competitive. The resource curse hypothesis suggests that natural resources lead to corruption, socially inefficient rent-seeking activities, and fiscal mismanagement, becoming a drag on long-term growth. Empirically, the international experience is mixed. Some countries have greatly benefited from their natural wealth. Others seem to be led to economic vulnerability (see Terry Lynn 1999 and Wood 1999, Cust and Mihalyi 2017, Richmond et al. 2013, and Medina and Soto 2007). 71 For example, Suescún (2007) argues that fiscal policy can boost long-term growth with public investment in infrastructure and spending targeting the accumulation of human capital. 72 Commodity prices can affect growth at the business cycle frequency through several “Keynesian” channels. These channels work through the demand side of the economy. They involve the impact of commodity prices on the country’s interest rate (the policy rate or spread), exchange rate, government spending and so on (for a comprehensive discussion, see Fernández et al. 2007 and 2020). 94 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER (barrels per year, Q) and the oil price (US$ per barrel, P). The strong procyclical rule resembles a Hartwick rule. That is: Oil_Rev= µPQ. To discipline the management of resource windfall, some countries adopted fiscal rules based on the “Hartwick” For each price scenario, two fiscal rules are considered: a principle that all resource revenue must be invested in strong procyclical rule that invests all windfall oil revenue financial, human or capital assets. A celebrated application (π=1), and a moderate procyclical rule that invests only of the Hartwick principle was Botswana, one of the very half of the windfall (π=0.5). A procyclical fiscal rule is few African countries that managed its natural resources defined as one that increases spending when oil prices appropriately and avoided adverse consequences of are high and cuts back when prices fall. Under the strong resource abundance (the so-called “resource curse”, see procyclical rule (π=1), each extra dollar of oil revenues Arezki et al. 2011). The strong procyclical rule could be generated by an increase in oil prices (relative to baseline) viewed as a simplification of the Hartwick principle in leads to an exact one-dollar increase in public investment. which all oil windfall is invested in physical capital (π=1).73 Note that the rule is symmetric, so investment falls by the same amount when oil revenues fall relative to baseline The LTGM-NR focuses on public investment and abstracts (a negative windfall). The moderate procyclical rule sets from other aspects of natural resource management. The (π=0.5). In this case, a one-dollar increase (fall) in oil LTGM-NR focuses on the effects of public investment on revenues leads to a 50 cents increase (fall) in long-term growth. In the model, only the invested share public investment. π of the windfall affects growth, and the model fully abstracts from the allocation of the remaining 1-π share, or The moderate procyclical rule would resemble the its potential effects on growth. The LTGM-NR also abstracts adoption of a balanced budget rule (BBR) in Niger. BBRs from the well-known adverse consequences of procyclical are popular fiscal rules in the developing world. They fiscal policy on macroeconomic stability (see Gavin and usually impose limits on the primary fiscal balance, possibly Perotti 1997; and Frankel et al. 2013). excluding some expenditure or revenues items. Although BBRs are very effective in fostering debt sustainability, 2.2.2. The impact of oil prices on fiscal oil revenues they usually lead to a procyclical fiscal stance. Under a High oil prices would generate extra fiscal revenues of BBR, each extra dollar of windfall oil revenue would be about one percent of GDP by 2030, but that windfall is spent, with a share of that extra spending falling on public not permanent. Under the optimistic scenario, the oil investment. In this case, if it is set to match the share of price would increase from US$60/barrel to US$70 by 2030 public investment in total government expenditure, the (see Figure 48). This increase would boost oil income by 17 simple fiscal rule (Equation 1) and a BBR would generate percent (10/60), equivalent to just above 2 percent of GDP the same path for public investment. The moderate (as the oil sector accounts for about 13 percent of GDP). procyclical rule sets π=0.5 which is Niger’s average share Since the government captures 40 percent of oil income, the of public investment in total government expenditure price shock would generate extra fiscal revenues of almost over 1995-2017 (IMF WEO). In this case, in terms of public one percent of GDP vis-à-vis baseline by 2030. However, investment, the moderate procyclical rule could be viewed this windfall would narrow over time as oil reserves and as an approximation of a BBR. oil output decline. By 2050, windfall fiscal oil revenues fall below 0.25 percent of GPD (see Figure 49). 73 A caveat is that Hartwick rules are not necessarily procyclical as resource revenues could be saved in financial assets during periods of high commodity prices. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 95 Figure 48. Oil price, Real 2010 U.S. Dollars per barrel Figure 49. Government oil revenue, Percent of GDP On the other hand, low oil prices would imply a loss of its highest point in 2030 at 0.2 percentage points. Under the fiscal revenues of about 1.5 percent of GDP by 2030. Under moderate procyclical fiscal rule, public investment would the pessimistic scenario, the price of oil would fall from increase less than half a percent of GDP, and incremental US$60/barrel to US$40 by 2030. This shock would depress growth would remain below 0.15 percentage points (see oil income by 33 percent (-20/60), which amounts to an Figure 51). overall income loss of about 4 percent of GDP. Relative to baseline, fiscal oil revenues would shrink by about 1.6 The impact of high oil prices would vanish in the long percent of GDP by 2030. As in the other scenarios, fiscal oil term. Under either rule, incremental growth would peak revenues fall over time, hitting less than one percent of around 2030 and then fall slowly, hitting zero by 2045. GDP by 2050. Three factors explain the slump. First, incremental public investment plummets as oil reserves deplete and the 2.2.3. The impact of oil prices on public investment and oil sector generates fewer fiscal revenues. Second, the long-term GDP growth effectiveness of investment falls sharply in the late years—driven by declining marginal product of capital Under the optimistic price scenario, public investment and increasing losses due to capital depreciation. Third, would increase somewhat, but the impact on medium- higher oil prices would attract more investments to the oil term growth would be small. Under the strong procyclical sector. This would accelerate the depletion of oil reserves fiscal rule, the government invests all windfall oil revenues and slowdown aggregate productivity (as the oil sector generated by higher prices. In this case, public investment experiences low productivity gains relative to non-oil). To would increase by almost one percent of GDP vis-à-vis summarize, average incremental growth over 2026-2050 baseline by 2030 (see Figure 50). The extra investment would reach 0.1 percentage points under the strong fiscal would accelerate capital accumulation, but the quantitative rule but remain close to zero under the moderate fiscal impact on growth would be limited. Incremental growth— rule (see Appendix Table 5). i.e., growth above the baseline growth path—would reach 96 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Figure 50. Incremental public investment, Percent of GDP, Figure 51. Incremental GDP growth, Percentage points (In- (Incremental = scenario - baseline) cremental = scenario – baseline) Under the pessimistic price scenario, public investment In the medium-term, oil prices have a substantial and medium-term growth would fall moderately, but impact on gross domestic income (GDI). The fact that oil they would gradually recover over the long term. Under price shocks have a small impact on GDP growth does the strong procyclical rule, the government would cut not necessarily mean they are irrelevant for welfare. public investment to cover the fall in oil revenues. In Naturally, the terms of trade do affect real income and this case, public investment would drop by 1.5 percent of consumption in Niger. More specifically, the impact of GDP by 2030. Consequently, growth would slow down by oil prices on income can be decomposed into the effect 0.4 percentage points vis-à-vis the baseline growth path. on production—the GDP effect—plus the terms-of-trade The moderate procyclical rule would have a weaker effect, effect on the consumer’s purchasing power. The size of the with public investment dropping less than one percent of terms-of-trade effect is simply the percentage change in GDP and growth slowing down by around 0.25 percentage oil prices scaled by the share of oil in total income. Under points by 2030. For either rule, growth would gradually the optimistic scenario, the cumulative terms-of-trade recover, catching up with the baseline by 2045. Incremental effect is substantial, reaching nearly 2.5 percent over 2026- growth would average -0.1 and -0.2 percentage points over 2030. On the other hand, the depreciation of the terms 2026-2050 under the moderate and strong procyclical fiscal of trade in the pessimistic scenario leads to a 5 percent rules, respectively. The implication is that the gains from loss of income. Similar to the GDP effect, the terms-of- improved infrastructure investments are not very sensitive trade effect weakens over time as the oil sector shrinks as to the level of oil prices. 74 a share of GDP. As a result, in 2050, GDI per capita under the optimistic scenario would reach US$990, only about 5 percentage points higher than baseline (US$968), and 10 percentage points higher than the pessimistic scenario (US$930) (see Figure 53). i. The impact of oil prices on domestic income 74 Very similar results are obtained by using the SDGSIM model PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 97 Figure 52. Gross domestic income incremental growth, Per- Figure 53. Gross domestic income per capita, Real 2010 U.S. centage points (Incremental = scenario - baseline) Dollars/barrel Figure 54. Government oil revenue, Percent of GDP Figure 55. Incremental GDP growth, Percentage points (Incremental = scenario - baseline) 98 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 2.2.4. Robustness to high fiscal oil revenues The economic literature suggests that oil price shocks can have substantial short-term spillovers to the local A higher government share of the oil income would economy in large oil-exporting countries.76 The rationale is strengthen the impact of oil prices on growth. If compared well known and involves the household’s rational response to regional peers, the government of Niger captures only a to changing economic environment. For example, when oil moderate share of the income generated in the oil sector prices rise, households revise upwards their expected future (see Figure 46). As a robustness test, the LTGM-NR simulates income (as high oil prices increase purchasing power). the optimistic price scenario again but this time, assuming Anticipating tomorrow’s windfall, households increase that fiscal reforms raised the government share in the oil today’s consumption, which partially falls on local goods sector to 60 percent (versus a default of 40 percent). The 75 and services. To meet the higher demand, local firms may simulation shows that the higher share would lead to a hire additional workers and increase the hours of existing substantially larger windfall and incremental growth. By employees. In turn, the owners and workers of these firms 2030, fiscal oil revenues would reach 8 percent of GDP, spend a portion of their additional incomes and further versus 4.5 percent in the baseline (see Figure 54). Under stimulate demand in the local economy. As this process a strong procyclical rule, all windfalls would be invested, continues, additional income accrues to segments of the generating an extra 0.5 percentage points of growth. population that may differ from the original beneficiaries This extra growth would be significant given that Niger’s of the oil price shock. baseline GDP per capita growth ranges between 0.5 and 1 percent until the late 2030s (see Figure 55). However, the Although there is an active debate on the size of the boost to growth is only transitory, declining smoothly after spillovers, Niger has several characteristics that implies a 2030 and hitting zero by 2045. strong effect. First, the size of the spillover depends on the fraction of the extra income spent on local goods, which 2.3. Mechanisms outside the LTGM-NR framework: tends to be high in Niger. This is due to (i) a large share short-term spillovers, Dutch disease, and the pre- of poor individuals consuming hand-to-mouth, (ii) given resource curse that oil price shocks are typically highly persistent, even non-financially constrained households tend to spend a The LTGM-NR is a simple extended neoclassical growth large fraction of their additional income; (iii) as a relatively model which does not account for several channels closed economy to trade, when household spend their through which oil prices can affect Niger’s economic extra income, they will do so mostly on local goods and growth. This sub-section provides a brief discussion of services; (iv) the peg to the Euro will prevent the nominal three mechanisms emphasized in the literature that are exchange rate from appreciate, driving the additional potentially quantitatively important for the Nigerien local demand away from local goods. Second, the size of context: spillovers from price shocks to the local economy, the spillover also depends on the ability of firms to hire Dutch disease and the pre-resource curse. additional workers without incurring substantial wage inflation. This is likely not the case for Niger, as the country suffers from high unemployment rates and structural slack in the labor markets. 75 Note that to reach a 60 percent share, the government of Niger would need to capture a large share of oil rents plus a share of the returns to capital in the sector. This is because the LTGM-NR assumes that oil rents in Niger account only for 50 percent of oil income 76 See, for example, Kumhof and Laxton (2013), Pieschacon (2012), and Mendes and Pennings (2021) PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 99 Another important branch of the literature focuses being affected by it, such as Nigeria and South Africa. As on the so-called “Dutch disease” (or resource curse), fiscal and institutional risks associated with large resource which refers to the observed negative relationship windfalls seem to represent a significant danger to Niger, between natural resources and growth. This literature we discuss it in more detail in subsection 4. emphasizes some theoretical channels through which natural resources may slow down economic growth. The main concern is that commodity price shocks can trigger a reallocation of resources in the economy, with capital 3. THE IMPACT OF THE EXTRACTIVE SECTOR ON and labor moving away from the non-resource sectors. JOBS (LOCAL CONTENT) Over time, this movement can slow down aggregate 3.1. Local content in the Nigerien extractive industry productivity as the process of absorbing and creating new technologies tends to be more intense in the non-resource As each extractive industry in Niger is identified with a sector. This reallocation can be particularly strong when specific multinational, it is unsurprising that Nigerien commodity prices and the real exchange rate move in the society may have developed distinct perspectives on the same direction (Sachs and Warne 2001, Alexeev and Conrad companies/industries. Part of these perspectives may 2009). However, given the widespread low productivity be attributed to their in-country history, part their local across the economy, the Dutch disease channel may be of content approaches and part perhaps to second order of magnitude to Niger. cultural differences. However, more recent literature has extended the The uranium and gold industries are viewed as being concept of resource curse to “pre-resource curse”, which positive participants in the Local content space. They can represent a more considerable risk for Niger. The have long histories in country, employ a high fraction of pre-source curse is a phenomenon of countries with weak local staff and appear to have ‘integrated’ into the society institutions where the discoveries of natural resources lead as corporate citizens. Additionally, as French / Canadian to fiscal mismanagement and become a drag on growth concerns, they have no language barrier in Niger, which even before the production of the natural resource begins may have made local content issues easier to manage. (Cust and Mihalyi 2017). Ghana is a notable example of pre-resource curse in Sub-Saharan Africa. The discovery of Conversely, it appears that their high operational Ghana’s Jubilee oil fields in 2007 changed the orientation standards may provide natural barriers to entry. of economic policy from fiscal and monetary discipline For example, Orano (anecdotally) imports food from towards overspending and monetary accommodation. The outside Niger as local produce does not meet their over-optimistic expectation that the oil sector would boost required standards, lab testing for minerals is conducted growth and solve eventual imbalances led the country internationally due to lack of certification of Nigerien to increase external financing to levels far above the labs, etc. additional savings generated through the new oil activity (Bawumia and Halland 2017). As a result, domestic and Public opinion on CNPC and its participation in the external debt has increased dramatically since 2007 and is petroleum industry is somewhat more complex. There now assessed as unsustainable. The pre-resource curse is is concern, though not yet resentment, on the part of particularly present in Africa, with several other countries Nigerien society that CNPC prefers the services of Chinese companies and subcontractors for ‘everything’. However, 100 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Table 9. Current level of extractives operational activity and relative local content activity Oil^ Gold* (formal Uranium* sector) Expenses on primary materials — US$ 2.5 million US$ 34.6 million Of which, fraction expended in Niger — 17% 77% Expenses on goods and services — US$ 22.2 million US$ 98 million Of which, fraction expended in Niger — 65% 55% Employment 749 299 1,165 Of which Nigerien staff 462 295 1,157 Management staff 33 7 Of which, Nigeriens 16 All Nigerien 6 *Note: Gold and Uranium figures are drawn from 2014 USAID data, which we have been advised are still current; these do not, however, factor in the potential impact of mine closures. ^ Note: Oil figures are drawn from 2014 to highlight the breakdown of staff. In 2020, the entirety of oil industry employment (CNPC and direct contractors) was estimated to be 2,396 staff. Breakdowns by staff nationality as well as breakdowns of expenses were not readily available. this may not be the full picture, as CNPC was prepared to As can be seen on Table 9, uranium and gold industries set up a refinery in Niger which no one else was willing to in Niger exhibit a high level of ‘localization’ in their undertake, and according to anecdotal reports, purchases operations. The petroleum industry is somewhat lower, food from local markets. and the data is not as clear. However, it would appear that the total employment for all industries is high relative to Other factors are also at play with regard to public what one might expect internationally. perception of CNPC and the petroleum industry. CNPC (a) has a much more recent history in Niger, (b) is in an Note that vendors incorporated in Niger can legally infrastructure build-out phase, thus necessarily requiring be foreign-owned. For instance, of the main suppliers more capital goods, (c) is not subject to various transparency to the uranium industry, apparently 78 percent are pressures, as a Chinese State-Owned Enterprise (SOE), and primarily controlled by French concerns, 18 percent by (d), faces a potentially significant language barrier. Within Belgian concerns, and 4 percent by Nigerien principals. this context, CNPC probably feels it is doing as much, or This is presumably reflective of the reality of Niger’s perhaps more even than what is appropriate in the local capital scarcity. Hence the observation of ‘multinational content space. companies supplying to the industry’ in Niger is to be expected, and may in fact be a positive, i.e., by making It Finally, while there are various artisanal mines, artisanal possible to attract foreign capital into the industry in Niger. mining is not a likely starting point for good local content Similar observations can be made at the sub-contractor policy. level, where the majority of the subcontractors are foreign- owned, sometimes by concerns from other African states such as Ghana, Morocco, and Togo. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 101 3.2. Existing local content policy in Niger (Codes) content, rather the related topic of local beneficiation, so that the communities on whose land the petroleum resides Local content policy in Niger, as specific to extractives, acquire some benefit from the development. is encoded in: a) The Petroleum Code, being Law 2017- 63 (Provisions for Petroleum Operations) and Decree The implementation of the PPDC/PPDR can legally be 2018-659/PRN/MPe (which specifies the modalities for encoded in municipal regulation. The funding quantum of application of the above Law 2017-623, established in 2017 such beneficiation is defined by law and would currently and 2018 respectively; b) The Mining Code Ordinance 93- be US$ 500,000 per year to be ‘shared equitably’ among 16, established in 1993. The effects of these codes on local the communities and regions involved. This may increase content, in their respective industries, are discussed below. to US$ 1.5 million per year should petroleum production exceed 50,000 bbl/day. 3.2.1. The Petroleum Code 3.2.2. The Mining Code The Petroleum Code taken collectively, is well intentioned, specifying that Nigerien enterprises must have preference The Mining Code, having been developed much earlier in contracting of all types, subject to equivalent (1993) is more general in nature, specifying preference quality and delivery terms, provided that the Nigerien to be given to (a) Nigerien companies, (b) Nigerien firm is priced no higher than 10% above the (foreign) employees, (c) Training and Technology Transfer, all in competition. Although the law does not specifically define general terms. what constitutes a ‘Nigerien firm’, its spirit is clear. In practice, local content development is significantly Additionally, Nigerien nationals are to have preferential higher in uranium and gold mining than it is in petroleum, employment, both at the principal and sub-contractor perhaps partly due to the much longer experience of level. To this end, the petroleum principal is to establish uranium and gold miners in Niger. This will be discussed and finance programs of training for Nigeriens at all levels further below. of qualification/staffing. 3.2.3. General observations on the Codes By law, the Hydrocarbon Ministry is to make available a list of Nigerien enterprises capable of operating in In general, the combined body of law represented by relevant petroleum industry sub-segments. This list is to the Petroleum Code and the Mining Code can be viewed be updated regularly. as reflecting a practical approach to local content, given Niger’s level of economic development and thus capacity As part of the application process for a petroleum project, to monitor local content implementation. the principal would also have to provide a Petroleum Program for Community Development (PPDC) and a It should be noted that the Mining and Petroleum Codes in Petroleum Program for Regional Development (PPDR). Niger do not specify a fraction of ownership of ‘Nigerien’ The specifics of these are not encoded in national law, enterprise required to be owned by/reserved for Nigerien but would have been part of the negotiation process, and nationals. Rather, enterprises operating in this space must would presumably be more granular in regard to what a be legally established under Nigerien law. principal commits to undertake. These are not strictly local 102 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER In theory, this may retard the development of local 3.3. Degree of complexity of the Nigerien economy content, by reducing opportunities for local business and implications for local content participation. In practice, however, the current law may reflect a pragmatic accommodation of business Niger can be viewed as a ‘low complexity’ economy. It has a reality. Given that Niger is not likely to be a country with relatively low income of GDP per capita of US$ 553 in 2019, excess financial capital in the near-to-medium term, as well as low levels of formal employment and literacy setting a requirement for Nigerien ownership of a given (35.5 percent). As at 2014, total formal employment was enterprise or sector may risk retarding the development estimated at around 170,000 individuals, of whom 60,000 of the sector in question (by reducing available financial were in public service, with the rest in the private sector capital). Conversely, if companies incorporated in Niger are and parastatals. At the time, the working age population accepted as ‘Nigerien’, whatever their sources of capital, was estimated at 7.4 million. this will, all things being equal, increase the financial capital available in-country. This increased financial Within this context, extractives, while being a small capital should then allow all domestic market participants fraction of total Nigerien employment, is a much larger (especially potential employees) to acquire valuable fraction of formal employment. In fact, the extractives incomes, skills and, in general, capabilities development. industry as a whole – including employment beyond The challenge may therefore be to balance a practical uranium, gold and oil – is estimated to be the second- approach to local content with the need to ensure that a largest private sector employer in Niger (the first being foreign funded ‘Nigerien company’ is incentivized to act as social services, which we assume to be primarily donor- a good corporate citizen to the maximum extent possible. funded). As Niger develops, and technical and commercial This leads to important considerations in framing local competencies are deepened, there may be opportunities content in the extractives industry in Niger. Firstly, the to increase the level of granularity of the Codes industry is economically far more important to Niger than with regards to local content. If so, these should be it is to a potential investor. designed with a specific eye to how the broader business Secondly, the country as a whole is short of financial environment develops over time. This ‘broader business capital to fund new enterprises in sub-contracting or environment’, would include fiscal/royalty regimes, quality other spaces. In the cases of uranium, gold and oil, there of resources, labor productivity, depth of infrastructure are monopoly foreign operators in the country, each and security of tenure, among factors. Pragmatic design of operating a single site. This, combined with histories of local content regulation, taking into account the broader extensive project development times, plus logistics issues business environment, can then be used to incentivize arising from Niger’s landlocked position, suggest that Niger investor behavior with regards to both local content and is a price taker for capital, whereas foreign investors have good corporate citizenship, over time. to consider whether or not to allocate capital to Niger relative to other potential investments. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 103 Furthermore, skilled human capital is in relatively c) attracting foreign capital to achieve both these goals. short supply, which means that multinationals seeking It is important to note that expanding employability and to employ Nigeriens must factor in the cost and time skills of the surrounding population is unlikely to increase required for training and development. The uranium, gold overall employment and activity in industry unless and oil industries in Niger appear already fully staffed, if additional capital comes in and new projects flourish in not perhaps fairly overstaffed by international standards, Niger. Hence, a sound local content strategy would focus given their level of operations. Hence the potential for on (a) increasing the capabilities of the existing pool of increasing staffing will largely depend on the ability to Nigerien workers and subcontractors while (b) creating expand operations, i.e., the attractiveness of Niger to new a sufficient foundation so that this pool can scale up if capital in these industries. new projects start up while (c) attracting fresh capital (and hence technology, skills etc.) to the industries. Within this context, the planned expansion of the petroleum industry in Niger (based on new fields and Based on the above, a good objective for Niger would most export pipelines), if successful, would be an important likely be a local content policy that uses fit for purpose avenue for additional local content spend in Niger. technology, welcomes foreign capital at most levels, Conversely, the share of total petroleum activity constituted targets increasing Nigerien employment, and focuses by local content should, in principle, be independent of the on training and development at all levels. Additionally, level of activity, but should rather be related to the overall the aforementioned high staffing levels of the extractive level of Nigerien economic vibrancy and sophistication. industry and the general lack of domestic Nigerien financial capital, suggest that the opportunity is not to increase Industries in Niger may not be using ‘state of the art’ the volume of activity by Nigerien companies/individuals technology; however, such technology may be fit for in the industry value chain, but rather to increase their purpose. Indeed, ‘dated technology’ may be an important value-add. element in allowing Nigerien employees and sub- contractors to get onto the ‘growth escalator’. Higher The ‘increase employment’ element is an important technology would not necessarily be the best outcome for win-win. It is in the commercial interest of international Niger at this stage, since higher technology operations are companies to increase local employment over time if (a) by their nature less labor intensive (less employment) and they believe they are going to be resident in Niger for the deflationary (lower revenues for the broader economy). long term and (b) such employment is value-adding to Conversely, they tend to increase returns to capital, the enterprise. which is not supplied from Niger. Nevertheless, raising standards (for engineering, operations, safety etc.) may Lastly, early-stage local content policies can create be a very important element in positioning Niger on the path-dependency for future policies. The initial policy ‘growth escalator’. framework should therefore allow and encourage competition between Nigerien companies, as a matter of Niger therefore faces a multi-layered challenge of principle, even while realizing that such competition is a) maintaining ‘entry level’ positions for Nigerien unlikely to materialize in the short-to-medium term since subcontractors/individuals, so as to grow the relative the industries in question are small and likely to size of the formal economy, b) expanding the complexity be concentrated. and sophistication of the formal economy over time, and 104 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 4. THE IMPACT OF THE EXTRACTIVE SECTOR ON hopes that oil will serve as a catalyst for development, INSTITUTIONS AND FRAGILITY as reflected in the new petroleum policy adopted by the government in 2019. The policy projects that the The extractive sector presents a risk to Niger’s institutions oil sector’s contribution to GDP will increase from through different channels: it may erode the fiscal contract 4 percent in 2017 to 25 percent by 2025, employing between citizens and the government, jeopardize fiscal between 8-12 percent of the workforce (up from 5-8 stability by exposing the country to multiple commodity percent in 2012), and account for 45 percent of state price shocks, and threaten political stability by exacerbating revenue (up from 19 percent in 2017) (Berenger, 2019). existing social divisions and grievances. 3. Increased exposure to volatile global commodity 4.1. Fiscal risks markets would further threaten Niger’s already precarious fiscal position. Increased social and 1. 1The extractive sector accounts for 6.9 percent of GDP healthcare spending due to the Covid-19 pandemic, and 23 percent of government revenue, making Niger and rising security expenditure due to an uptick in is especially vulnerability to commodity price shocks terrorist activity, have added additional strains to the (World Bank, 2020; EITI, 2021). The recent plummeting government’s fiscal resources. These fiscal pressures of uranium prices and the contraction in uranium are compounded by the needs of a growing population: output due to oil depletion and high operating costs, Niger’s population growth rate of 3.8 percent is the contributed to government revenue contracting by 2 second highest in the world (World Bank, 2019b). percent of GDP between 2014-2018 (IMF, 2019). Consequently, public spending in recent years has increasingly been financed by debt. Between 2012 and 2. Increased oil production may offset the gap left by 2017, public spending increased from 22.5-26.8 percent declining uranium but further amplifies the fiscal risk of GDP, with public debt rising from 26.1-49.7 percent posed by commodity price volatility. There are high of GDP. . Box 2. Equatorial Guinea - mismanaged oil windfall Equatorial Guinea’s economic growth has largely failed to translate into equitable development. Equatorial Guinea discovered large oil reserves in the 1990s and has since then become Africa’s third largest oil producer, after Nigeria and Angola. As a result of large resource windfalls and investments in the hydrocarbon industry, it quickly became one of the fastest growing economies in Africa. Although the country’s GDP per capita at the height of its growth was on par with that of South Korea, its Human Development Index (HDI) placed it closer to Republic of Congo, making EQG the country with the largest difference between income per capita and HDI (Diamond & Mosbacher, 2013; UNDP, 2020; UN, 2015). The paradox has persisted: according to the most recently available data, the country performs worse than the Sub-Saharan African average on several development measures, including life expectancy, primary school enrolment and infant mortality, while still outstripping it in terms of income per capita (World Bank, 2019). PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 105 EQG is known for its authoritarian government, weak institutions, high corruption and clientelism. The country is infamous for its corrupt, authoritarian leadership which maintains an iron grip on virtually all aspects of public life through a combination of repression and patronage (McSherry, 2006; Wenar, 2008). It is ranked in the bottom five of the 2020 Transparency International Corruption Index, the 2019 Ibrahim Index of Governance and the 2019 Worldwide Governance of Indicators (where it ranks second to last above South Sudan in control of corruption specifically). Resource rents granted the state fiscal autonomy, thus insulating it from public accountability and democratic pressures from below, as is generally the case in a state reliant on tax revenue (Ross, 1999, 2001; Auty, 2001). EQG was heavily impacted by the drop in commodity price, forcing it to seek donor assistance. Between 2014 and 2016, the Central African Economic and Monetary Community (CEMAC) faced a macroeconomic crisis triggered by a sharp drop in oil prices combined with increasing insecurity. Equatorial Guinea, heavily reliant on oil, was especially hit hard (World Bank, 2020, AfDB, 2018; IMF, 2017). Between 2013 and 2017, GDP contracted by 57 percent and public revenue by 45 percent (AfDB, 2018). As fiscal and external imbalances deepened, CEMAC countries resorted to their deposits at the regional central bank, Bank of the Central African States (BEAC). Foreign exchange reserves diminished, and domestic government arrears accumulated. As the liquidity crisis continued, there were fears that the CFA franc would have to be devalued. With dwindling fiscal resources, EQG entered into a Staff Monitoring Program (SMP) with the IMF in January 2018. Finally, in December 2019, the IMF approved a three-year arrangement for an Extended Fund Facility (EFF) of about $282.8 million (IMF, 2019a). IMF support is conditional on improving extractive sector transparency, strengthening anti-corruption policies and diversifying the economy. Among other conditions, EFF stipulates that Equatorial Guinea increase transparency in the hydrocarbon sector. This entails joining the EITI, making data on contracts, production, and revenue public, as well as publishing the audit reports of the state-owned enterprises for oil and gas, GEPetrol and SONAGAS respectively (IMF, 2019). Yet, since 2010, EQG is still not yet compliant. These sector- specific efforts would be complemented by broader reforms centered on strengthening anticorruption frameworks, diversifying the economy, increasing social protection and improving public financial management. A separate critical problem of Equatorial Guinea is the paucity of reliable statistical data that further exacerbates the lack of transparency. To counter this, the World Bank is engaged in providing technical assistance to a recently formed institute of national statistics (World Bank, 2020). It is yet too early to assess the effectiveness of these loan conditionalities and their impact on institutions and pro-poor development policy. As the country can no longer comfortably rely on its hydrocarbon income, it is possible that this crisis heralds the start of a new era in Equatorial Guinea’s political culture. However, whether this will be sufficient incentive for the political elite to commit to true reform and better manage its natural resources, or whether it will simply opt for superficial changes to merely comply with loan conditionalities, remains to be seen (EIU, 2019). 106 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 4.2. Institutional risks Corruption and lack of transparency is rife in the Nigerien extractives sector. Mining agreements including exploration The literature on natural resources and institutional and exploitation licenses are rarely available to the public, development indicates that governments that derive their despite such disclosure being a constitutional requirement revenue from natural resource rents have diminished (EITI, 2021). There is also a lack of information on beneficial need for taxes from their citizenry. With low taxes, the ownership disclosures, and on revenue flows among the public is itself less motivated to demand representation myriad state-owned enterprises in the sector (EITI, 2017). and accountability from the government. Thus, income Beyond the resource sector, the country has made a mixed from natural resources inhibit downward democratic record in terms of governance indicators: while rule of law pressures by weakening the taxation-representation and control of corruption have been increasing since 2014, nexus, the mutually beneficial relationship that forms the voice and accountability and governance effectiveness have basis of democracy. Windfall revenues may also enable been in a downward trend. Except for political stability and the financing of extensive patronage systems that stifle absence of violence, Niger also performs relatively well democratic pressures and reduce dissent. Current or compared to both high resource countries and fragile and would-be beneficiaries of these systems develop a vested conflict-affected countries in Sub-Saharan Africa. However, interest in maintaining the status quo, further impeding it trails the WAEMU average in all indicators but one – rule social pressure for democracy. of law (World Bank, 2019a). Box 3. Nigeria – oil and corruption The Nigerian oil sector is composed of multiple poorly found that NNPC has the worst record on transparency of the coordinated agencies, with functions that frequently overlap 44 national and global energy companies it examined, especially or are not clearly delineated (OECD/ AfDB, 2014; IMF, 2019). The for both organizational disclosure and anti-corruption reporting. Nigerian National Petroleum Corporation (NNPC), a vertically- (Transparency International/ Revenue Watch Institute, 2011). integrated state-owned enterprise (SOE), is the representative Further evidence of its longstanding governance challenges lies of the government in all petroleum activities, ranging from in NNPC facing recurrent allegations of corruption to the tune of exploration, production, marketing of petroleum products, billions of dollars. This includes a 2016 case in which the NNPC refining and provision of engineering and data support services. was alleged to have failed to pay the government $16 billion in The NNPC engages in commercial and non-commercial roles revenue (BBC, 2016). A similar case involving the disappearance that are not clearly defined: it collects revenue, participates of$20 billion of oil revenue occurred in 2014 (BBC, 2014). in regulation and acts a commercial agent that buys and sells crude oil and refined petroleum products. However, new regulatory reforms underway point to the willingness to turn a new page in Nigeria’s oil story. The This intertwining of commercial and non-commercial functions comprehensive Petroleum Industry Bill (PIB), currently being that are ill-defined in one entity is one of the principal flaws debated, represents the government’s attempt to overhaul the of the NNPC as it creates significant conflicts of interest (IMF, legal, regulatory and institutional framework governing the oil 2019b; Toledano et al, 2020; OECD/AfDB, 2004). A joint report and gas industry. by Revenue Watch Institute and Transparency International PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 107 Public sector capacity to oversee the extractives sector is 2019). Low state presence and corruption at ASM sites also limited, owing to poor governance, low human capital and contributes to environmental degradation, with bribes paid scarce technical and financial resources. Public resources to bypass regulations restricting the use of explosives and are heavily concentrated in Niamey which adversely mercury for gold extraction, as well as mining during the impacts service delivery in the rest of the country, and adds rainy season thereby increasing the risks of drowning and to citizens’ grievances regarding resource management landslides (Hilson et al, 2016). Niger has made considerable (World Bank, 2018, 2020). Although the government has progress in preventing the use of child labor in ASM, but the adopted decentralization and extractive sector reforms threat of regressing remains, and may be more pronounced to reduce technical and human capital constraints, their in the wake of the recent gold rush (ILO, 2007). implementation has been slow. Poor financial management, resulting in low budget execution rates (estimated at 6-41 Further, while there is a revenue-sharing framework which percent for the Ministry of Energy and Oil and 27-82 percent requires 15 percent of mining revenue to be retroceded for the Ministry of Mines and Industry between 2013-2017) to the communities where mining operations take place, and over-allocation of resources to Niamey (e.g., over 95 in practice this seldom occurs. Taxes are duly paid to the percent of the Ministry of Mines spending in 2017) affect the national government, but the latter rarely devolves the performance of the ministries involved in the extractives income to local governments, in part due to the limited sector. Moreover, public expenditure on mining and capacity of local governments. Retrocession payments fell petroleum is low – less than 1 percent of the government’s into arrears between 2012 and 2016. The government has spending between 2013-2017 – despite extractive revenues since issued a clearance plan for 2018-2022 to cover these accounting for over 20 percent of government revenue arrears (World Bank, 2020). See Appendix D.1 for a broader (World Bank, 2020). Niger performs poorly in terms of discussion of the impact of natural resources budget transparency, ranking 101 out of 118 countries on institutions. profiled in the 2019 Open Budget Index. Its index is also lower than the average of both high resource countries 4.3. Fragility risks and fragile and conflict-affected countries in Sub-Saharan The extractive sector plays a large role in shaping conflict Africa as well as WAEMU (Open Budget Survey, 2019). dynamics in the country. Agadez, Diffa, Tillaberi and Zinder, Public administration deficiencies also limit the main extractive regions that contribute to at least a environmental governance. Uranium mining has caused quarter of government revenues, are also among the considerable radioactive pollution accompanied by reports most fragile. These regions have highly porous vulnerable of adverse health effects, the contamination of soil and borders e.g., Tillaberi with Mali and Burkina Faso, Diffa with water bodies as well as additional stress on scarce water Chad and Nigeria, Zinder with Nigeria and Agadez with resources, fueling tensions between local communities Libya. Due to the severity of these security challenges, the and large mining companies (Larsen & Mamosso, 2013). regions of Diffa, Tahoua and Tillaberi are currently under a The closure of the Cominak mine has led to lingering state of emergency. concerns over the adequacy of mine remediation plans Despite its benefits to the local economy, the ASM gold offered by mining companies, especially in terms of long- sector carries significant fragility risks. Gold is a ‘lootable’ term health monitoring of mine workers. Oil rights granted point-source high value commodity and in the context of to CNPC threaten the Termit and Tin Toumma nature Niger’s weak state presence, the risk of capture by criminal reserves which extend over Agadez, Diffa and Zinder, and groups is especially high. Indeed, such capture has already are home to several endangered wildlife species (France24, 108 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER occurred: in spring 2014, new ASM gold sites were seized Oil installations could therefore become potential new by armed Chadian groups believed to be linked to rebel terrorist targets. See Appendix D.2. for a discussion on the groups from Libya. They controlled these sites until 2016, link between conflict and natural resources. extending their illegal trade into Libyan territory. In 2017, Nigerian authorities closed the Djado ASM site in order to clamp down on the growing security threats from these and 5. CONCLUSIONS myriad armed groups, including terrorist groups, traffickers, Although Niger has significant resource endowments, bandits and rebel groups (International Crisis Group (ICG), growth in the extractive sector is impeded by several 2019). The risk of appropriation by terrorist groups is structural factors, notably, the scarcity of financial capital also increased by ASM sites being situated in areas with and domestic skilled human capital. Promoting sound elevated terrorist group activity. For instance, Tera in the local content policies is a pathway to ensuring that the gold abundant Liptako region is a major area of operation gains from the extractive sector are shared locally and for Malian terrorist groups. Such conflict spillovers from used as a vehicle to increase human capital, all while neighboring fragile states, including Mali, Nigeria and Libya, remaining attractive to foreign capital. highlight the transnational character of Niger’s security threats (Pellerin, 2017; Grégoire & Gagnol,2017). Niger’s extractive sector has significant development potential. However, it also comes with significant risks Decades of rebellions by Tuareg separatists contribute that have the potential to exacerbate existing sociopolitical to the precarious security situation in the north of the and environmental challenges. This highlights the country, where uranium is mined. The reasons for this importance of strengthening governance systems, both protracted conflict are complex but revolve around the within and outside of the natural resource sector, to evade marginalization and economic exclusion of the Tuareg. the resource curse. Although the region is home to the uranium mines that long formed the economic lifeline of the country, it Finally, this chapter also applies the LTGM-NR to assess remains underdeveloped. local communities thus feel the impact of oil prices on Niger’s economic growth excluded from the benefits of the extractives sector over the next 30 years. In the LTGM-NR, oil price shocks while being left to bear the burden of mining-induced generate windfall fiscal oil revenues that can be invested environmental damage (Keenan,2008; Baudais et al, 2021). in physical capital to boost economic growth. However, the These interlinked issues of marginalization and inequitable windfalls generated under the analyzed price scenarios revenue sharing, particularly of uranium, have given rise to are not large or persistent enough to yield a substantial militant activity, such as that of the Nigerien Movement for boost to investment and growth in the long term, even Justice (Mouvement des Nigériens pour la Justice – MNJ) under procyclical fiscal rules. Moreover, even a permanent (Emerson, 2011). increase in oil prices would not be able to finance a higher level of public investment in the long term. This is because The risks intrinsic to oil, a high-rent commodity that is Niger’s oil sector is expected to contract sharply over time prone to capture and is associated with conflict outbreaks, due to depleting oil reserves. As a result, oil price changes are exacerbated by the activity of terrorist groups in oil- have a small effect on medium-term growth and almost no producing regions such as Zinder and Diffa. The high effect in the long term. rents at stake may induce rogue actors, terrorists included, to begin or intensify insurgent activity against the state. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 109 Options for better management of the extractive sector in Niger Highly critical measures to be put in place by the GoN Timeline for Fiscal implementation implications Reduce fiscal vulnerability Develop revenue management legislation e.g., establishing a fiscal Medium term Medium stabilization fund Strengthen legislation enforcing fiscal discipline around usage of windfall Medium term Low resource rents Consider implementing direct cash transfers to share revenue windfall with Long term Medium the population Improve domestic revenue mobilization to diversify sources of government revenue Medium term Medium Invest in ASM formalization Decentralize essential processes for ASM formalization e.g., registration Short term Low and licensing Adopt a graduated approach (e.g., differentiated licenses) to meet the needs of Short term Low different miners at different income levels and reduce barriers to formalization Provide incentives for formalization e.g., access to processing centers and technical Short term Medium knowledge conditional on being formally licensed Strengthen governance systems Implement digitized systems for tax and customs to reduce leakage of revenue Medium term Medium through illicit flows of commodities like ASM gold Enforce environmental standards through partnerships with civil society, EITI and Medium term Medium local communities Implement revenue-sharing framework, clear arrears of pending payments and Short term Medium ensuring funds are spent towards local development projects Promote local content development Create a specific entity to focus on Local Content needs and opportunities Short term Low Develop training and vocational skills programs to increase technical knowledge of Medium term Medium the population Strengthen the Niamey Data Center by mandating sharing of geological data and Short term Low making it available to the GoN Improve standards of local laboratories and consider obtaining Long term High international accreditation Notes: short-term (1 year); medium-term (2-3 years); long term is +3 years; fiscal implications are estimated as low: affordable within current spending structure; medium: requires budget reallocation; high: need further reform, funding sources and domestic revenue mobilization. 110 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER CHAPTER 5 Disaster and Climate-Related Risks in Niger As a landlocked country with a mostly semi-arid climate, Niger faces multiple climate threats, most prominently recurrent droughts. Several factors, including dependence on rain-fed agriculture, rapid population growth, political instability, pervasive poverty, and persistent food insecurity further compound the country’s vulnerability to these climate threats. Given that these challenges are only expected to be amplified in the face of climate change, a comprehensive DRM framework is crucial for Niger. This chapter discusses the risk profile of Niger, with It then analyses existing institutional and policy frameworks to address climate risks and options for sustainable disaster risk financing. Besides short and medium-term social protection measures to support the population in coping with adverse natural events, investments in long-term solutions focused on integrated urban land-use policies and plans, resilient infrastructure, early warning systems, and risk reduction strategies are critical. 1. HISTORICAL DISASTER AND CLIMATE-RELATED RISK CONTEXT IN NIGER A landlocked western African country, Niger is mostly exposed to hydrometeorological disasters with flood and drought events being recurrent. 35 percent of the population (northern area) lives in a hot arid desertic climate, with sunny and dry conditions all year-round. The other 65 percent of the population (southern area including Niamey), lives in a hot semi-arid climate, with hot summers and warm to cool winters, and some to minimal precipitation. Mean annual rainfall varies geographically, but is generally lower in the north (0-150 mm) than in the south (500–600 mm) and is limited to the summer months of June–September. Between 1986 and 2020, 56 events were reported in Niger. Most of these events were droughts, floods, and epidemics, that caused 10,384 deaths and affected 28.2 million people. While droughts account for most—89 percent—of the population affected by disasters (Figure 56), epidemics are responsible for the majority—94 percent—of deaths in the country (Figure 57). On the other hand, despite affecting a smaller share of PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 111 the population and being less lethal, floods have been a Changing transhumance dynamics due to climate change, relevant threat to Niger in recent years with large floods increased population and cattle pressures are causing reported in 2017, 2018, and 2020. growing conflicts between farmers and herders over natural resources.78 Crop farmers are moving into livestock Renewable and extractive resources are highly important raising which further reduces grazing land available for for livelihood development in Niger; however, conflict is cattle and increases pressures on land.79 Furthermore, on the rise around these sectors. Renewable resources border closures in regions with spillover of conflicts has are under pressure from population growth, insecurity, limited pastoral travel dynamics and pushed pastoralists migration, climate change, and poor land and natural to rethink their mobility and grazing area, at the risk of resource management, leading to land degradation, fueling new local land conflicts.80 reduced agricultural productivity, and food insecurity.77 Figure 56. Total population affected by type of disaster Figure 57. Total deaths by type of disaster 10 6 8 4 Thousands 6 Millions 4 2 2 0 0 1985-1990 1991-1995 1996-2000 2001-2005 2006-2010 2011-2015 2016-2020 1985-1990 1991-1995 1996-2000 2001-2005 2006-2010 2011-2015 2016-2020 Drought Epidemic Flood Drought Epidemic Flood Source: Authors with data from EM-DAT (CRED, 2021). Source: Authors with data from EM-DAT (CRED, 2021). 77 https://opendocs.ids.ac.uk/opendocs/bitstream/handle/20.500.12413/14277/453_Natural_Resources_Management_Strategies_in_the_Sahel. pdf?sequence=90&isAllowed=y 78 FAO, Le Niger Programme de résilience, page 1 http://www.fao.org/emergencies/resources/documents/resources-detail/en/c/1414150/ 79 ICG, South-western Niger: Preventing a New Insurrection, Africa Report N301, page 4, https://www.crisisgroup.org/africa/sahel/niger/301-sud- ouest-du-niger-prevenir-un-nouveau-front-insurrectionnel 80 Resilac, Etude régionale de recherce Bassin du lac Tchad: Soutenir la cohésion sociale par l’appui aux me1canismes endogènes de prévention, médiation et resolution de conflits?, page 19 , https://reliefweb.int/sites/reliefweb.int/files/resources/Rapport_RESILAC_CohesionSociale_Bassin-du-lac- Tchad.pdf 112 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 2. NIGER COUNTRY RISK PROFILE A severe, continuous period of hardship took place from 1995–1997 following a combination of drought and 2.1. Drought risk political uncertainty. The cumulative impact of multiple successive shocks such as these can be devastating for As the country largely relies on agriculture, droughts an economy like Niger’s where agriculture represents 40 have a significant economic impact in Niger. While data on percent of GDP (World Bank, 2017). Besides the impact on actual losses due to historical events is limited, indicative agricultural production, adverse events—and particularly losses have been estimated by the World Bank (2013) to droughts—can affect foreign exchange earnings, reduce understand the frequency and magnitude of adverse GDP growth rate and per capita income, result in a loss events on the agricultural sector. Measured in terms of 81 of government revenue, and require substantial financial gross agricultural value, crop production was significantly resources for emergency response and recovery. Figure 58 reduced seven times by adverse events between 1991 and demonstrates the volatility of national GDP growth rate 2010 (Table 10). In some of these years, Niger experienced a and GDP per capita growth rate in Niger over a period of 10 to 20 percent fall from underlying production trends and 26 years (1984 – 2010). A strong correlation between a drop caused losses of more than US$ 100 million. Drought was in GDP growth rates and the occurrence of adverse events the main cause of larger shocks, sometimes in combination can be observed. GDP growth rate was negative in 8 out of with other events.82 the 26 years analyzed; for 6 of these years, the drops can be partly explained by drought events (World Bank, 2013). Table 10. Indicative losses of adverse events for crop production (1991 – 2010) Year Percent deviation of production Indicative loss Loss as percentage Context from trend value (2010 of agricultural GDP million US$ ) 1995 -23.2% -122.1 -24.1% Drought, localized locust attacks, political uncertainty 1996 -13.6% -35.0 -6.2% Political uncertainty 1997 -23.1% -135.8 -23.7% Drought 2000 -9.1% -10.8 -1.4% Drought 2004 -17.2% -125.3 -11.6% Drought, locusts 2005 -7.0% -4.2 -0.3% Low rainfall 2009 -10.4% -55.6 -3.1% Drought, floods Note: Losses are calculated as the value of actual minus trend production, less the threshold for normal losses from trend. Source: Reproduced from World Bank (2013), based on data from FAOSTAT. 81 Indicative losses for each event were calculated by estimating the difference between the actual and historical trend values of each relevant crop using real producer prices. The proportion of this total loss value below a threshold (0.33 standard deviations below the production trend) was deemed to represent the loss attributable to the adverse event. This measure reflects the combined impact of interannual changes in both production and price. Production risks were analyzed only for crops as the available livestock data was considered inadequate. 82 An analysis conducted by AGRHYMET (a specialized agency of the Permanent Inter-State Committee against Drought in the Sahel (CILSS), of which Niger is a member), reveals that long dry spells (number of consecutive days without rainfall) and late onset of rains are the two biggest factors responsible for yield losses and crop failure in Niger. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 113 Figure 58. Annual GDP growth and GDP per capita 10 5 percent 0 -5 drought drought political drought+ drought+ 1987 1990 instability locust 2009 -10 political 1999* 2004 drought instability 2000 1992* -15 -20 drought 1984 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 GDP growth (annual %) GDP per capita growth (annual %) Note: * 1992 political instability (transitional government November 1991 – April 1993) and 1999 political instability. Source: World Bank (2013), based on the World Development Indicators Database. Niger is severely exposed to agricultural production including locust swarms are increasing. Climate change is shocks. An upcoming World Bank report models food crop expected to intensify these hazards. Looking at the five main production and production losses for the most important food crops (maize, millet, rice, sorghum, and cow peas), the food crops in West Africa as well as the costs to respond to Loss at Risk (LaR) analysis indicates that Niger may face these risks (World Bank, 2021d). The report finds that food food production losses equivalent to 24.2 percent of the crop production losses in Burkina Faso, Chad, Mali, Niger, exposure once every 10 years and even 41.9 percent of the Sierra Leone, and Togo could amount on average to more exposure (or US$ 1.32 billion) once every 100 years (see than US$ 700 million per year and increase to more than Table 11). In addition to the modelled economic losses, the US$ 1 billion every 5 years. Main drivers of those losses are report models food-security humanitarian costs. In Niger, weather-related risks, especially droughts and flooding, these amount to US$ 304 million for 1-in-5-year events and and agricultural pests and diseases. Insect infestations US$ 391 million for 1-in-10-year events. 114 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Table 11. Expected LaR values in Niger Return (years) AAL 10 25 50 100 150 200 250 500 LaR (% 8.98% 24.2% 32.0% 37.1% 41.9% 44.2% 45.9% 46.9% 50.6% Exposure) LaR (US$ 284 765 1,012 1,175 1,325 1,399 1,452 1,482 1,599 million) Source: World Bank (2021d). Drought risk is assessed as particularly high in Niger. 2.2. Flood risk The Global Facility for Disaster Reduction and Recovery (GFDRR) estimated the agricultural income loss caused by Flooding is mainly a threat in the River Niger basin, agricultural drought.83 The results indicate that, on average, affecting on average well over 100,000 people a year. Niger suffers from yearly agricultural income loss of US$ 15 Figure 59 illustrates that the number of people affected by million. Losses of at least US$ 60 million could be expected catastrophic floods in the Niger River Basin has significantly once in a decade, on average; while losses greater than US$ increased in recent years. This is due to several reasons, 150 million would occur once every 50 years, on average. including an increase in heavy precipitation, increasing river Maradi, Tahoua and Zinder are the regions with the higher discharges due to adverse land-use change and crusting risk of crop loss. Considering the historical indicative of soils that have led to an increase in surface runoff as losses estimated by World Bank (2013 and 2021d), GFDRR the overall climate in the region continues to become estimates seem rather conservative. drier. Particularly, in Niger it is estimated that about 92,000 houses have been destroyed and 41,000 houses have been These production shocks could lead to a severe damaged due to flooding since 1986 (UNISDR, n.d.). increase in food insecurity in Niger. Translating losses in agricultural production following shocks into reduced Annual Average Losses (AAL) from riverine floods are food consumption by households, the analysis finds that estimated between US$ 20 million and US$ 70 million numbers of people who get thrown into food insecurity in Niger. Floods have a recurrent negative impact on is especially high in Niger, as undernourishment and the population and the economy, predominantly in the exposure to food production shocks are particularly high: southwestern part of Niger. The 2017 Global Assessment even low-severity shocks can lead to a significant number Report (GAR) on Disaster Risk Reduction (DRR) estimates of undernourished people, and severe shocks can lead to the AAL to capital stock from riverine flood risk in Niger undernourishment of almost the entire at US$ 21.4 million, or about 0.2 percent of the 2017 Nigerien population. GDP. Because there is considerable uncertainty on risk estimates when limited data is available for calibration—as is the case of Niger—, it is a good practice to contrast the 83 Agricultural income loss refers to the value of crops lost due to agricultural drought, based on long-term crop prices and estimated yield loss. Agricultural drought is assessed by estimating the potential for lack of rainfall and its impact on rainfed crops. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 115 Figure 59. People affected by catastrophic floods in the Niger River Basin from 1980 to 2014 from 3 different data sources Note: Scale of the y-axis is logarithmic. Source: Aich et al. (2016). results of different studies. The 2019 GFDRR Niger Disaster 3. IMPACT OF DISASTERS ON POVERTY AND Risk Profile for instance estimates riverine flood risk to be FOOD SECURITY significantly larger than GAR’s estimates. GFDRR suggests that the AAL of the housing sector alone from riverine 3.1. Relationship between disasters and poverty floods amount up to US$ 70 million (0.6 percent of GDP), and that riverine floods causing losses of more than US$ In Niger, the poor suffer disproportionally from adverse 300 million are expected to occur relatively frequently, on natural events, which are considered as the main driver average once every 10 years. Historical information from of poverty. Insights on the impact of adverse natural recent large floods (2012, 2020) suggest that the level of events on poverty levels and the wellbeing of Nigeriens riverine flood risk is between the results of both studies. can be drawn from an analysis of the 2011 and 2014 Living In that sense, GAR’s estimates could be considered as a Standards Measurement Study — Integrated Surveys on lower bound for flood risk, and GFDRR’s estimates an Agriculture (LSMS-ISA).85 Based on these surveys, the upper bound. It is worth noting that these estimates are World Bank (2017) shows that households who consider based on current conditions—with climate change and themselves poor report droughts and floods as the main increased population, these numbers will likely increase causes of widespread poverty (33 percent, Figure 60), substantially in coming years. For example, the Damage followed by the lack of employment (28 percent) and the and Loss Assessment (DALA) made by Niger’s Government high cost of living (16 percent). The high dependency of following the 2020 floods estimates total damages and the population on agriculture implies that disaster events losses at US$ 261.7 million (US$ 153.7 million in direct can limit poverty reduction efforts and push the vulnerable damages and US$ 108 million in indirect losses). 84 back into poverty. 84 Rapid damage assessment losses and needs - post-flood recovery strategy 2020 in Niger, February 2021. 85 These are standard household surveys that include modules on the shocks experienced, negative consequences of the shocks (loss of assets, income, food production, and food stocks), as well as the coping mechanisms that households adopt in the wake of an income shock. 116 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Figure 60. Principal causes of poverty (percentage of households, 2011) Droughts/floods Lack of employment Cost of living Corruption Lack of land No education Lack of land Lack of water/grazing Laziness Other % 5% 10% 15% 20% 25% 30% 35% Source: Reproduced from World Bank (2017). Computations based on LSMS-ISA data. In Niger, most of the households surveyed reported 3.2. Food insecurity in Niger sudden losses in income and assets—78 percent of the households reported experiencing a drop in income as In a country where farming and animal breeding are the the result of a shock, while 57 percent of households main livelihood means for more than 80 percent of the reported asset losses (World Bank, 2018a). Price shocks population, and agriculture contributes to 40 percent of are the most recurrent followed by weather shocks, with the GDP, climate-related shocks have a large potential for the former occurring 1.3 times more frequently than the adversely impacting poverty and food security. As most latter. Besides being often affected by price shocks, urban cultivated land is not irrigated, most farmers depend on Nigeriens already pay an 11 percent premium on food rainfall. Agriculture is thus highly vulnerable to external prices compared to countries at similar income levels, with shocks, particularly to droughts common in the Sahel, but the bottom 20 percent of the income distribution spending also to floods mainly in the southwestern part of Niger. up to 59 percent of their income on food (Nakamura et The Nigerien population is highly exposed to droughts and al., 2016). In general, shocks —particularly those related to floods and has suffered from recurrent food insecurity drought and flood risks— are also more frequently reported episodes in recent years with several million people by rural households, highlighting their higher exposure requiring food assistance.86 The Cadre Harmonisé and the and vulnerability to adverse natural events (Figure 61). Food Security Cluster estimated in March 2021 that 2.343 million people (-or ca. 9 percent of the entire population) -were to be food insecure over the lean season (June– August 2021), of which 1.3 million persons are being prioritized (WFP, 2021), with 218,000 in emergency need. 86 Besides food insecurity, malnutrition and stunting are serious issues in Niger. It is estimated that 15 percent of children under five years old suffer from acute malnutrition and 48 percent of children suffer from stunting (UNICEF, n.d.). PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 117 Figure 61. Shocks are more frequent in rural areas 14 13 Share of rural households experiencing a 12 shock relative to urban households 11 10 9 8 7 6 5 4 3 2 1 0 Crop disease Climate risk (drought and flood) Input price rise Conflict Other Output price fall Food price rise Death Theft Business or employment shocks Illness Livestock disease Other loss or damage of assets Note: The graph depicts the ratio of the percentage of rural households that have experienced shocks to the percentage of urban households that have experienced shocks. Blue bars denote that the ratio is significantly higher than 1; green bars denote that the ratio is significantly lower than 1; orange bars denote no significant difference between rural and urban areas. This analysis does not capture the impact of these shocks, so it does not provide information on whether shocks experienced by rural households have a larger or smaller effect on welfare than shocks experienced by urban households. Source: Reproduced from World Bank (2017). Computations based on LSMS-ISA data. The number of people affected by food insecurity is dominated by agropastoral activities exposed to climate- high, but highly diverges across sources. Depending on related hazards, basic production techniques that have the source and the methodology employed, the numbers not evolved quickly enough, and rapid population growth can significantly diverge. Building on the analysis of seven resulting in new farming in marginal lands unsuitable different sources, Figure 62 illustrates how (i) different for rain-fed agriculture. Access to land is also a problem datasets show different estimations of food insecure and cultivated areas have been experiencing continuous people in Niger; and (ii) that the number of people affected fragmentation. Low level of education, lack of health and by food insecurity is persistently high, not just during times road infrastructure, poor access to drinking water, and of adverse natural events and conflict, but throughout. cultural factors are also often cited as factors limiting agricultural development (WFP, 2010). As in other Sahelian countries, in Niger the drivers of chronic and transitory food insecurity are diverse. On the While adverse natural events can diminish food security one hand, climate variability leads to recurring production levels, chronic food insecurity issues are also prominent. shocks that push many agropastoral households into The prevalence and magnitude of chronic food insecurity short-term food insecurity during drought years. This were estimated in 2019 in 24 areas that included 13 different compounds with the deterioration of security conditions livelihood zones of Niger. The population was classified across the country which also affects local productive in four different categories based on the Integrated Food activities. On the other hand, structural factors leading Security Phase Classification (IPC) Framework, considering to permanent food insecurity include an economy 118 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Figure 62. Number of food insecure people and humanitarian response in Niger according to multiple sources 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 2005 Source: Authors based on data from: Cadre Harmonise, Système d’Alerte Précoce (SAP), Villages Déficitaires, UN OCHA Financial Tracking System (FTS), Plans de Soutien, Plan de Réponse Humanitaire, and ARC. three areas of food security: the quality of food consumed, 4. MACRO-ECONOMIC IMPACT OF DISASTERS the quantity of food consumed and chronic malnutrition (IPC, 2019).87 At the national level, one out of three Nigeriens Droughts and floods are the most prominent natural were assessed to be in moderate or severe chronic food events affecting Niger’s households and the economy. insecurity, with recurrent seasonal food deficiencies two to Though data is still scarce, recent studies and assessments four months per year, and an undiversified diet. An analysis suggest a limited yet significant growth impact from floods at the regional level shows that chronic food insecurity is and droughts, with different dynamics depending on widespread in Nigerien territory (Figure 63 USAID, 2019). The disaster characteristics. While floods are fast-onset events high degree of chronic food insecurity, high vulnerability usually limited in time and location and foremost produce of the population, and low resilience capacity to shocks losses and damage to assets, droughts as slow-onset implies that climate-related hazard as droughts or floods events can last over long periods of time and impact the can seriously strain food security of Nigeriens. wider economy through various channels. 87 Chronic Food Insecurity (CFI) is defined as “food insecurity that persists over time, especially for structural reasons”. This means that food insecurity exists even during periods other than exceptional periods (i.e., periods when no atypical events occur). Four categories of CFI are distinguished in the IPC framework: (i) No/Minimal CFI: Households are continuously able to access and consume a diet of acceptable quantity and quality for an active and healthy life. Household livelihoods are sustainable and resilient to shocks. (ii) Mild CFI: Households can access a diet of adequate quantity but not always adequate quality. Household livelihoods are borderline sustainable, although resilience to shocks is limited. (iii) Moderate CFI: Households have ongoing mild deficits in food quantity and/or seasonal food quantity deficits for 2 to 4 months of the year, and consistently do not consume a diet of adequate quality. Household livelihoods are marginally sustainable, and their resilience to shocks is very limited. Households are likely to have moderately stunted children; and (iv) Severe CFI: Households have seasonal deficits in quantity of food for more than 4 months of the year and consistently do not consume a diet of adequate quality. Household livelihoods are very marginal and are not resilient. Households are likely to have severely stunted children (IPC, 2019). PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 119 Figure 63. Classification of regional population by Chronic Food Insecurity (CFI) level Tahoua Zinder Maradi Tillaberi Dosso Diffa Agadez - 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 Population No/Minimal CFI Mild CFI Moderate CFI Severe CFI Source: Authors based on USAID (2019). 4.1. Macro-economic impact of droughts hydropower generation plants or irrigation infrastructure) which lowers average productivity and prompts a fall of Drought is a complex phenomenon with multiple output. Over time, this tends to reduce human capital channels of impact. A wide variety of definitions exist, but accumulation through reduced employment opportunities drought is generally categorized as either meteorological, in rural areas, adverse coping mechanisms (e.g., hydrological, agricultural, or socio-economic. While malnutrition, schooling disruption) or even death, further the first two categories focus exclusively on physical impacting long-term growth.88 Drought-related shocks characteristics, the fourth looks at supply and demand can compound existing shocks, generate a complex set mismatches. The impacts of meteorological rainfall of interactions and trigger feedback loops with instability, generally become apparent after a long period of lower- violence or transnational conflicts, further worsening their than-normal precipitation and its impacts on natural economic impacts. and socio-economic systems depends on a wide range of additional factors, such as local temperature and other A recent World Bank study (Van der Borght, 2021) climate conditions, land-use prevalence or irrigation and assessed the impact of droughts on growth in G5 Sahel agricultural practices. Its economic impacts generally first countries. The study uses drought indices to examine the materialize through damages to agricultural production, statistical effect on the growth rate of real GDP as well as livestock, and water-related physical capital (e.g., on the level of GDP.89 The growth impact of drought has 88 Although in the short run, this negative impact can be offset to some degree by aid influxes or counter-cyclical fiscal policies, these require appropriate institutions, adequate fiscal space and financing conditions as well as capacity to absorb expansive shocks to ensure a catching-up process. 89 The complexity inherent to an objective quantification of drought events led to the development of two drought indexes based on meteorological and hydrological information derived from remote sensing sources: A first measure of drought was built through the occurrence of long-lasting and significant rain deficit episodes—a rain-based index. A second measure of droughts was developed through the incorporation of temperature and evapotranspiration as factors influencing the severity of droughts—a Standard Precipitation and Evapotranspiration Index (SPEI-based index). The results reported correspond to the estimates obtained with the SPEI-based index, which provided results with higher statistical significance. 120 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER been estimated at the G5 Sahel regional level through two From a probabilistic standpoint, the model predicts that, complementary models: on average, Niger experiences a drought year that lowers GDP per capita by -1.5 percent at least once every 2.2 years (1/0.45).91 Figure 64 shows the growth effect of drought at different levels of the drought index percentiles depicting drought severity.92 It highlights that for the 50 percent of smaller drought values, the expected growth reduction is where is the growth rate of real below -1.5 percent whereas the 5 percent of most extreme GDP per capita; is the lagged log of GDP per droughts effect substantial GDP per capita loss of at least capita; is the drought index; is a vector of -3.6 percent.93 It is important to bear in mind that the control variables in lagged form that includes structural estimated losses are not to be interpreted as capital stock factors; are country-specific fixed effects; are losses or damages but rather as output flow losses. fixed effects; and is the level of GDP (in US$ 2010 constant). The study tested two types of indices, one rain-based and one that also accounts for evapotranspiration (SPEI- For Niger, the study estimates that during the period of based). Results with a higher statistical significance were 1981-2018, the mean drought event has lowered the GDP obtained using the SPEI-based index, suggesting that per capita growth rate by -1.49 percentage points (p.p.) evapotranspiration plays a relevant role in explaining the whereas severe droughts90 triggered a GDP per capita impact of drought events in the Sahel. Looking ahead, mean growth cut of -2.75 p.p. With an average GDP per capita temperature is expected to increase 1.5 times more rapidly growth rate of 0.63 percent for the same period, this over the Sahel region than the global mean. Through implies substantial losses as the mean drought event has increased evapotranspiration and rising water needs of the potential to undo approximately 2 years of average crops, climate change is thus likely to further exacerbate GDP per capita gains. Concerning GDP levels, a mean drought intensity in Niger, even in the absence of change drought event is expected to reduce GDP by -4.46 percent to rainfall patterns. This calls for quick action aimed at and a severe drought may lead to a GDP reduction of -8.20 increasing resilience to disasters to ensure climate percent (Table 12). Again, with an average GDP growth rate change adaptation. of 3.01 percent per year during the period 1981-2018, these impacts imply a heavy toll on Niger’s growth trajectory. 90 Severe droughts are defined by a drought index that is one standard deviation above the mean of the sample. 91 GDP per capita losses of -1.5 percent are reached at the 55th percentile of the drought index, which implies that a GDP per capita reduction of 1.5 percent has an annual probability of 45 percent to be exceeded (1 - 0.55). This probability of exceedance was estimated by computing the loss in terms of GDP per capita reduction (in percentage) as a function of different realizations of the drought-index. Estimates are based on the marginal impact of droughts. 92 The index reflects a situation where water deficits represent significant and long-lasting deviations from long-term averages, accounting for spatiotemporal heterogeneity of water balance patterns. Extreme values were detected using traditional Z-scores. Further details can be found in Van der Borght (2021). 93 The non-linear relationship between drought index realizations and output losses is due to the very skewed distribution of the index values and is consistent with theoretical modelling results (Hallegatte et al., 2007). PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 121 Table 12. Growth impact of drought in Niger, 1981-2018 Average drought year Severe drought year (i.e., mean index value) (i.e., mean + 1 sd index) GDP per capita growth rate reduction (p.p.) -1.49 -2.75 GDP reduction (%) -4.46 -8.20 Source: Reproduced from Van der Borght et al. (draft 2021). Figure 64. Growth impact of drought as a function of drought indexes percentiles Note: The figure plots the estimated loss in terms of GDP per capita reduction (in percentage) as a function of different realizations of the drought index. Source: Van der Borght et al. (draft 2021). 122 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 4.2. Macro-economic impact of floods losses and damages.94 However, the estimated costs of reconstruction are significantly higher than what notional Niger has a history of flooding with significant events figures may suggest, as many of the lost or severely in 2010, 2012, 2017 and 2020 that have rendered large damaged habitations or schools were built with very amounts of damage and losses—often particularly severe poor materials at the time of the disaster. The cost of in the housing sector—resulting in sizeable economic replacement with higher construction standards to reduce impacts (World Bank, 2020a). The most recent nationwide the vulnerability of physical assets to future disasters—in flood event took place in mid-2020 and led to catastrophic line with the Building Back Better approach—would largely damages in Niamey. Starting from July and continuing exceed the value of the existing houses. A preliminary intermittently until early to mid-September, heavy estimation of the cost for the new houses is US$ 470 rainfall compounded with the silting of the Niger river million. The same is valid for the waterways sector that led to riverine flooding and to a lesser extent, localized has sustained damages of ca. US$ 14.6 million, but with flashfloods. All regions of the country were hit, with the reconstruction needs 8 times higher, equivalent to US$ 117 population affected totaling over half a million, a number million. Overall, the financing need for the reconstruction comparable to those of the extensive flooding events in amounts to ca. US$ 755 million or about 6 percent of GDP 2010 and 2012. Records indicate that about 50,000 houses (World Bank 2020a, 2021c). and huts were fully destroyed. The most severely affected province in terms of population was Maradi with over Nevertheless, the economic implications of the 2020 153,000 affected and 17,000 fully damaged houses and huts, floods will likely be limited, as only losses related to followed by Niamey with over 96,000 affected and over productive sectors (e.g., agriculture, livestock, water 8,700 fully damaged houses and huts (World Bank, 2020a). management, industry, and commerce) are usually used In Niamey, all the neighborhoods bordering the Niger to estimate the impact on GDP. Notably, losses and River, the country’s main public university, the university damages in agriculture and infrastructure exclusively hospital center, as well as several neighborhoods on the accounted for ca. 1.4 percent of GDP, which is lower than city’s outskirts, were flooded. for other comparable flood events. Most other sectors like manufacturing, trade, utilities, and transport have An assessment of the impact of the 2020 flood event been only indirectly affected by the floods but have been estimates the total direct damages and indirect losses severely hit by the COVID-19 pandemic. The combination of at US$ 261.7 million, equivalent to 2.1 percent of the 2019 different shocks makes it hard to assess with confidence GDP. The Agriculture and Livestock (ca. US$ 125 million) the economic repercussions, and it is particularly difficult and the Housing (ca. US$ 66 million) sectors were hit the to disentangle the idiosyncratic effects of the shocks on hardest with ca. US$ 191 million or 73 percent of the total GDP growth (World Bank, 2021c). 94 Further affected are Fisheries and Aquaculture sector (US $23.5 million, or 9 percent of total damages and losses); and Water and Sanitation infrastructure (US$ 22 million, or 8.5 percent of total damages and losses). PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 123 5. FUTURE DRIVERS OF DISASTER RISK: attributed to the conjunction of cooling of the North CLIMATIC CONDITIONS AND URBANIZATION Atlantic (potentially because of sulphate aerosol TRENDS emissions), the main source of moisture of the WAM, and the global increase in ocean sea surface temperatures 5.1. Recent climate trends and future conditions (Giannini, 2015). Niger is a Sahelian country presenting in large part However, In the past three to four decades, summer a hot arid desertic climate, with a small part in the rainfall has increased in Niger, leading to a return to south being classified as hot semi-arid (Kottek et al., yearly rainfall close to the levels of the 1960’s, while 2006). Temperatures are elevated year-round, with temperature has risen at about 0.15°C per decade, with annual averages ranging from 21.9 to 36.4°C , with cooler 95 higher numbers of warm days, and lower numbers of temperatures in the mountainous regions (World Bank, cold days and nights, overall amplifying the impacts of 2021a). Below an altitude of 500m, recorded monthly meteorological droughts (FEWSNET, 2012). This yearly means of diurnal temperature are consistently above 30°C precipitation recovery has manifested in the form of and nocturnal temperature above 15°C (World Data, n.d.). extended tails of short-term (e.g., daily and multi-daily) rainfall distributions which has happened throughout the Precipitation is concentrated in the boreal summer Sahel (Tschakert et al., 2010), and is generally associated months, with the south receiving more than the north with floods (Panthou, 2013; Descroix et al., 2015; Panthou (up to 500-600 mm per year), as Niger is located in the et al., 2018). This has been related to both warming of the northernmost latitudes impacted by the West African northern Atlantic Ocean (whether this is due to the Atlantic Monsoon (WAM) jump and the Intertropical Convergence Meridional Overturning Circulation, decrease in aerosol Zone (ITCZ) migration. The Sahel is characterized by high loadings thanks to regulations, or global ocean warming), interannual and interdecadal climate variability, influenced contrary to what had happened in the 1970’s and 1980’s, by climate cycles related to sea-surface temperatures and increases in land surface temperatures (Hoerling et al., anomalies in the Atlantic, east Pacific, Indian Ocean, and 2006; Giannini et al., 2008; Giannini et al., 2013; Taylor et al., the Mediterranean, with long-lasting drought periods 2017). Satellite observations also confirm that the number alternating with wetter ones (Buontempo et al., 2010; UNDP, of extreme events as been steadily increasing (Figure 65).96 2021). The long droughts of the 1970s and 1980s, were 95 Although temperatures during the day can be significantly higher. 96 In Niger, the African Monsoon Multidisciplinary Analysis–Couplage de l’Atmosphère Tropicale et du Cycle eco‐Hydrologique AMMA-CATCH (Galle et al., 2018), station network provides sub-hourly precipitation data since 1990, extremely useful to study precipitation regimes. Intensity Duration Area- Frequency curves have been developed (Panthou et al., 2015), and might be available to deepen the analysis of impacts presented above. 124 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Figure 65. Contribution of extremes to annual precipitation since 1982 according to satellite observations Source: Taylor et al. (2017). Upward trends in land surface temperatures are expected not capture very well the relationship between observed to continue, with the potential for +4°C warming by the Sea Surface Temperatures and the East/West precipitation end of the century. Given the mechanisms described change dipole, and have trouble reproducing mesoscale earlier to explain recent trends in precipitations, there convective rainfall patterns (Kendon et al., 2014; O’Gorman, are reasons to expect increased spatial and inter-annual 2015), which are critical to capture the spatial organization variability in Sahelian rainfall. However, there is still of rainfall events, although changes in rainfall distribution considerable uncertainty regarding the overall sign and the throughout the year have already been evoked (Biasutti exact location of the changes, as multiple processes could & Sobel, 2009; Sultan et al., 2014). However, while future influence rainfall variability evolution—such as a potential consequences at the country scale remain uncertain, recent strengthening of the Saharan Heat Low and its impacts on research improving the ability to model relevant mesoscale the East / West difference in Sahel precipitation change convective processes does point towards the potential and the exact location of this boundary—and none of the for more extreme rainfall events in Niger specifically, and modalities of these phenomena and their interactions are within the greater Sahelian region (Fitzpatrick et al., 2020). fully understood yet. These changes in rainfall across the region can have Despite the limited capacity of climate models to complex impacts on land cover, which might in turn affect represent complex regional patterns and to detect trends rainfall patterns (Saley et al., 2019). These dynamics may in extreme rainfall regimes97, most recent research points lead to unintuitive consequences on surface hydrology to more extreme rainfall events in Niger. The models do (Descroix et al., 2018), such as the “paradox of the Sahel” 97 Panthou et al. (2014) state that “This is even more true for West Africa where recent studies (e.g., Biasutti (2013); Monerie et al. (2012)) establish that the most recent ensemble climate simulations of Coupled Model Intercomparison Project (CMIP) Phase 5 behave similar to the previous CMIP Phase 3 simulations, known for their weakness in reproducing correctly the spatial patterns and multi‐decadal variability of the West African rainfall”. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 125 Figure 66. Time series of annual maximum discharge of the gauging station of Garbey Kourou Source: Tamagnone et al. (2019) and Massazza et al. (2019). in the 1980’s, where the meteorological drying was will reach 20 million—growing at an average of about accompanied by increased riverine flooding (see Figure 66), half a million new urban dwellers per year (Figure 67).98 a trend that has now amplified with the return of rainfall In Niger, 33 percent of the urban growth is explained by (Descroix et al., 2013). At present, both extrapolating 20th migration (World Bank, 2021b). Climate change and adverse century trends and using current climate projections as natural events might impact the rural-urban migration they exist seem like an ill-fitted approach. Coming up with dynamics and increase urbanization. In turn, the projected a flexible decision-making project design and management demographic and urbanization trends in Niger could lead frameworks that are able to incorporate new information to an increase of the negative effects of flood events as research progresses is therefore critical. through higher exposure and vulnerability. 5.2. Urbanization context and projections in Niger While short- and medium-term social protection measures are required to support the population in Projections points to a very steep increase in urbanization coping with adverse natural events, long-term solutions levels. Currently only 4 million people live in areas are critical. On the one hand, investments in irrigation classified as ‘urban’ (estimated as close to 17 percent of and water management infrastructure are key to reducing total population; UN DESA, 2018). This number is expected the country’s vulnerability to droughts and increasing the to increase significantly by 2050 when urban population welfare of the population. On the other hand, to avoid even 98 Although due to projected demographic patterns, this will only represent 28 percent of the total population at the time. Population is and will continue to be primarily rural for the foreseeable future (World Bank, 2021b). 126 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Figure 67. Urbanization projections in Niger 25 100% Urbanization (%) 20 80% Urban population (millions) 15 60% 10 40% 5 20% 0 0% 1950 1970 1990 2010 2030 2050 Source: Authors with data from UN DESA (2018). more negative consequences of future floods, developing newly elected government informed by the Third Program integrated urban land-use policies and plans, resilient of Renaissance, which identifies the strengthening of infrastructure, and risk reduction strategies is needed. This Disaster Risk Management as a key priority area100, as well shift requires a strong investment in local Government as (iii) the Country Partnership Framework with the World capacity to implement a comprehensive disaster risk Bank Group for the period 2018-2022 (World Bank, 2018b). management agenda and strengthen institutional Various institutions are involved in and responsible for arrangements for the coordination between ministries and DRM functions. However, the country does not have a DRM local governments. law, meaning that institutional mandates often overlap, and their application is often limited by human and financial resources. 6. INSTITUTIONAL AND POLICY FRAMEWORK FOR DISASTER RISK MANAGEMENT 6.2. Disaster risk management policies, strategies, and tools 6.1. National institutions The different national structures (described in the Niger has progressively developed a disaster risk Appendix) interact based on various disaster risk management framework. This framework has informed management policies, strategies, and tools. Niger’s overarching development planning strategies, including (i) the Niger Economic and Social Development From the available data it can be noted that DRM-related Plan 2017 - 2021 (PDES 2017-2021)99, which intends to expenditure has a limited scope and relevance with a “strengthen the resilience of the economic and social staggering underperformance. Following an initial review development system”; (ii) the 2021 policy declaration of the of FY 2018 data, approximately 7 percent of the total 99 https://www.undp.org/content/dam/niger/docs/UNDP-NE-PDES%202017-2021.pdf 100 http://www.gouv.ne/index.php/1359-comprendre-les-axes-de-la-declaration-de-politique-generale-dpg PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 127 portfolio of governmental programmatic actions (37 lines principle of making the most of feedback. Thus, the strategy in total) can be considered DRM-related (Appendix E). The takes into account the achievements of pre-existing share of these aggregated DRM-related expenditure lines institutions such as the Ministry of Humanitarian Action over total public expenditure is close to 2 percent, which and Disaster Management (MAH-GC), the High Authority contrasts with the initially planned allocations to DRM for the Consolidation of Peace (HACP), the Civil Protection of close to 4 percent of the budget. In terms of budget General Directorate (DGPC), the National Mechanism for deviation, the level of underperformance in the sector is the Prevention and Management of Food and Nutritional larger than the overall public expenditure: the aggregated Crises (DNPGCCA), and its branches, as well as the DRM-related budget lines have an execution rate barely regional, departmental and communal committees that over 35 percent. Additional information is needed to have work in the field of disaster management in general and a more comprehensive understanding of the nature of recovery in particular. This strategy also takes into account resource underutilization. In general, the disparities in the guidelines resulting from the Sendai conference, in budget execution and the challenge of obtaining reliable particular, the 2015-2030 Disaster Risk Reduction Action information limit the correct measurement of the Framework and the guide for the preparation of the post- sectorial expenditure. disaster recovery framework (Sendai conference version, March 2015). Niger’s National Disaster Risk Reduction Strategy (SN- RRC), 2019-2030: In line with the Sendai Framework for The Early Warning System (EWS): The National Early Disaster Risk Reduction 2015-2030, the strategy is based on Warning System101 provides measures to alert and inform four areas, as follows: (i) Strategic Axis 1: Understanding the public, in all circumstances, including threats, disaster risks; (ii) Strategic Axis 2: Strengthening disaster accidents, and adverse climate events. The warning aims risk governance to better manage disaster risks; (iii) to allow the public to prepare and act appropriately in Strategic Axis 3: Investing in DRR for resilience; and (iv) a timely manner to reduce the risk of damage or loss. Strategic Axis 4: Strengthening disaster preparedness to According to the law, the responsibility for alerting a given respond effectively and “build back better” during the population, in connection with the implementation of recovery, rehabilitation and reconstruction phases. The an Organizational Plan for emergency response (ORSEC), action plan linked to this strategy, which covers the period rests with the mayors at the local level, the prefects for 2019-2023 aims to contribute to reducing disaster-related the departments and the Governors for the regions. As for damages and losses by addressing the underlying factors the national level, the decision to activate the alert resides of risk and vulnerability, strengthening the resilience of within the Prime Minister who can delegate this decision to populations, and of socio-economic infrastructure. the Minister of Interior in charge of Civil Protection, or any other Minister appointed to manage the event.102 The National Strategy for Sustainable Recovery (SNRD) aims to be a participatory, constructive, and integrative Emergency Preparedness and Response Plans framework of actions and actors focused on supporting (Organizational Plan for emergency response - ORSEC; resilient post-disaster recovery. It is based on the existing Municipal Safeguards Plans): The country, relying on institutional and political framework and is founded on the the technical support from the DGPC, aims to develop 101 Established by Decree No. 2018-538/PRN/MISP/D/ACR dated July 27, 2018. 102 Article 5 of Decree No.2018-538/PRN/MISP/D/ACR of 27 July 2018. 128 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER emergency preparedness and response plans at the 7.1. Costs of food insecurity and, emergency response national and territorial levels. The ORSEC Plan organizes the mobilization, implementation, and coordination of the Drought-related food insecurity is a major liability for actions of any public and private person contributing to Niger. As part of this study, an actuarial analysis was the general protection of the populations. The Municipal developed, fitting frequently used distribution curves for Safeguards Plan defines, under the authority of the mayor, drought, and applying them to historical data from the the organization planned by the municipality to ensure African Risk Capacity from 2005 to 2020, adjusted to 2021. the dissemination of warnings, sharing of information, Assumptions between the fitting (e.g., type of distribution, and protection and support of the population in view of detrending) appear to not have a major impact on the known risks. It is complementary and aligned with the estimates, so the major source of uncertainty is the ORSEC plan. historical reference data for this assessment. The cost of the emergency response is modeled by estimating a cost Harmonized Framework for Food and Nutrition Security per person of US$ 40 as Average Annual Loss (AAL), which analysis (ISAN): The Harmonized Framework (HF) 103 is is based on global experience, that is, not specific to the a unifying tool that allows for a relevant, consensual, food insecurity situations faced per capita from year to rigorous, and transparent analysis of current and projected year which are highly volatile. food and nutrition situations. It provides a classification of the severity of food and nutrition insecurity according The results show that drought-related emergency costs to the international classification scale and refers to well- in Niger amount to nearly US$ 100 million per year. Figure defined functions and protocols. The results of the HF are 68 provides further details on drought-related emergency communicated in a clear, coherent, and effective manner costs to respond to food insecurity, as well as people to support decision-making by linking information to affected by drought-related food insecurity. On average, action. The HF provides a platform to facilitate planning for 1-in-5-year droughts cause liabilities of almost US$ 200 response to food and nutrition crises. million. This number jumps to about US$ 250 million for 1-in-25-year events. 7. DISASTER RISK FINANCING IN NIGER Overall shock-related food insecurity is an even bigger liability for Niger. Figure 69 takes into consideration a mix Adverse natural events affect millions of Nigeriens and of Humanitarian Response Plan data and EWS estimates are an important challenge for fiscal sustainability and and considers climate causes (drought, heatwaves, and economic development of Niger. In order to allow Niger flood) as well as conflict/violence, political instability, to adequately budget for disaster response, the country commodity price/trade shocks and unstable markets, and needs to know its disaster-related costs. This section forced migration. When considering this mix of causes of seeks to quantify these costs, namely food insecurity costs food insecurity, annual liabilities related to food-security related to droughts and other perils as well as agricultural costs amount to US$ 150 million on average. However, the shocks. It then details the known available instruments for average costs of US$ 150 million can increase significantly disaster response and their funding, allowing to quantify when disasters arise. As Figure 70 shows, Niger faces the current funding gap for disaster response in Niger. emergency response costs of over US$ 200 million every five years and of nearly US$ 300 million every 10 years on average. 103 Harmonized Framework: Manual Version 2.0 Analysis and Identification of Areas at Risk and Food and Nutritionally Insecure Populations, CRA. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 129 Figure 68. Drought-related food insecurity Figure 69. Overall costs related to food insecurity Source: Authors based on the ARC dataset adjusted to 2021. Source: Authors based on data from the Humanitarian Response Plan and SAP datasets adjusted to 2021. 7.2. Disaster Risk Financing (DRF) in Niger between 2011 and 2019 were on average funded at 63.9 percent, as shown in Figure 72. Niger is heavily dependent on ad-hoc international humanitarian aid to finance its shock-response. From DRF can reduce the economic, fiscal, and human impact 2012 to 2019, Niger received between US$ 200 and US$ 400 of disasters. Developing a DRF strategy could allow the million per year in external international humanitarian Government of Niger to further quantify its risks, discuss assistance (OCHA Financial Tracking System) in total. The what risks will be taken on by the Government at different country is currently not sufficiently prepared to deal with levels (national/regional/local), what risks will be shared shocks, and finances its humanitarian shocks mostly ex- with others such as households and firms, and what risks post through external donor support as well as to a lesser will be shouldered by international partners. Based on core degree through budget reallocations. principles for effective DRF, a DRF strategy could help the Government of Niger by putting in place the right financing Relying on humanitarian assistance following disasters, instruments and making available adequate financing to Niger faces uncertainty regarding the amount of funding ensure that funds are available quickly when – and only mobilized as well as delays in the provision of assistance. when – they are required. In addition, the strategy would While humanitarian assistance is free from the point of view bind all stakeholders involved in disaster response to pre- of governments, in many cases there are funding shortfalls, agreed objective and transparent objectives, decision- leading to a gap between the amount of the appeal and processes, and implementation modalities to guarantee funding provided. With humanitarian assistance arriving that resources reach the people who need them the on average 7 to 9 months after a disaster, this approach is most, when they need them most.104 In view of developing slow and unreliable, leading to unnecessary loss of lives such a strategy, the Government of Niger has appointed and livelihoods. Uncertainties over amounts of funding an inter-ministerial committee (decree 0126, “Comité available can undermine government planning of response Interministériel en charge de l’élaboration d’une Stratégie efforts, and lead to shortages in the assistance provided Nationale de Financement de Risques des Catastrophes to the affected population. In the case of Niger, appeals au Niger”. 104 An Introduction to the principles of disaster risk finance can be found on the World Bank’s Financial Protection Forum website: https://www. financialprotectionforum.org/ 130 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Figure 70. Niger appeal amounts and coverage 2011 – 2019 600 100% Percent of appeal coverage 81.1% 500 80.0% 80% 55.8% 61.5% 59.8% 400 63.9% US$ million 68.0% 50.9% 60% 300 53.8% 40% 100 100 20% 0 0 2011 2012 2013 2014 2015 2016 2017 2018 2018 Funded through this plan Unmet requirements Coverage (percent) Source: Authors based on OCHA FTS. Figure 71. Financial instruments for disaster response – a framework Low frequency/ High severity MARKET-BASED INSTRUMENTS International Assistance (uncertain) Sovereign Risk Transfer Insurance of public assets Insurance of private sector FINANCING Contingent Credit Post-disaster Credit INSTRUMENTs BUDGETARY Budget Provisions / Reserves High frequency/ EMERGENY FUNDING RECONSTRUCTION Low severity Source: Adapted from Mahul et al., 2014. A disaster risk layering approach could support the disaster response is cost-effective.105 Figure 71 provides a Government of Niger financially manage its risks more general overview of financial tools for disaster response efficiently. Risk layering refers to the combination for different risk layers and response phases. Frequent of instruments to ensure cost-efficient financing for risks with low impacts could be reduced through either risk emergency response and long-term recovery. Governments mitigation or budgeting/reserves, depending on the losses can reduce the economic and fiscal impact of disasters by and the related costs. For medium-sized events, contingent combining instruments which cover different identified financing can complement reserves if needed, and post- risks. Events of different magnitude are covered by disaster credit can finance long-term reconstruction. For different types of instruments. The relevant literature more extreme but rare shocks, risk transfer instruments can suggests that the combination of financial instruments for typically provide additional protection to the government 105 See for example Clarke et al, 2016. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 131 Figure 72. Financial instruments in Niger Financial Niger: available instruments instruments Low frequency/ RESIDUAL High intensity International Aid Around US$ 200 million provided annually TRANSFER RISK TRANSFER Parametric Insurance (ARC) Drought coverage: US$ 5.3 million GOVERNMENT Budget (re)allocation LOSSES RESOURCES National Disaster Fund 1. Fonds commun des Donateurs app. US$ 15 million RETENTION High frequency/ Low intensity Stocks: US$ 46 million Stock National Sécurité a. Fonds de Sécurité Alimentaire b. Réserve alimentaire stratégique Source: Authors. and private sector (business, households, farmers, etc.) 1. Risk Transfer most cost-effectively. Some of the mentioned tools are ex-ante instruments put in place by the government prior African Risk Capacity — US$ 5.3 million coverage to the disaster, while others are ex-post instruments Niger is a member of the African Risk Capacity (ARC) mobilized after a disaster (e.g., post-disaster credit). and has been intermittently purchasing ARC’s drought 7.3. Available DRF instruments including insurance insurance. Founded in 2014 as a specialized agency of the African Union, ARC has been offering parametric insurance Niger has some disaster risk financing instruments in for drought-related emergency relief expenditure. As place. As outlined above, no single instrument is optimal a regional risk pool for African countries, ARC aims at for responding to all disaster events. The most cost- offering insurance at a lower price compared to commercial effective way of financing disaster response is through a insurance. In order to participate in ARC, countries need range of tools to address different layers of risk, ranging to sign a Memorandum of Understanding (MoU) with ARC from frequent small-scale events to rare catastrophic and to develop a contingency plan and operations plans to events. Figure 72 shows the availability of these tools detail the use of potential future insurance pay-outs. Niger in Niger. signed its MoU in 2016 and has been purchasing drought insurance between 2014 and 2017 and since 2019. The 132 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER maximum cover is US$ 5.3 million. In 2016, the Government b. Food Reserves — US$ 45.9 million. Niger operates two of Niger received a US$ 3.5 million pay-out which it used to national strategic food reserves: finance cash for work and targeted food • The ‘Stock National de Sécurité’ (SNS), created at distribution activities.106 the end of the 1980s, is managed by GoN together Several programmes are currently working towards with donors. Food stocks are disbursed after an expanding ARC coverage, and Niger is participating in early warning system alert and with the agreement some of them. Whilst traditionally targeting farmers, ARC of both the government and the donors group. The has developed an alternative product for pastoralists strategic food reserve (SFR) consists of a physical and which is currently being tested in Niger. (ARC 2020a). ARC is a financial reserve, the Fonds de Sécurité Alimentaire also testing a flood index insurance pilot in four countries (FSA) aiming to hold 60,000 tons of cereal. (not in Niger), which it is hoping to officially introduce later • The ‘Réserve Alimentaire Stratégique’ (or Stock in 2021.107 In 2018, the African Development Bank (AfDB) d’Intervention) was created after the food crisis in launched the Africa Disaster Risk Financing Programme 2005 and is solely manged by GoN (Office des Produits (ADRiFi), which co-finances ARC premium payments of Vivriers -OPVN). As many other SFRs in the region, recipient governments as well capacity-building measures stocking targets of Niger’s SFRs have been missed. (national institutional strengthening, policy development, Between 2002 and 2010, the SNS was only stocked risk profiling, and contingency planning). Five ADRiFi at 41 percent, or 62,000 tonnes. On the local level, country projects have so far been approved, including a local stocks are community stocks and managed by EUR 4.8 million grant to the government of Niger. communities themselves. 2. Risk Retention 3. External Finance a. Fonds Commun des Donateurs (FCD)/National Disaster Additional external finance is in place to support disaster Fund — US$ 14.8 million coverage. risk financing in Niger. (i) The World Bank Sahel Adaptive The FCD is a central relief fund though which the Social Safety Nets Program supports the Government Government of Niger (Dispositif, DNPGCA) finances food of Niger in the development of an adaptive social safety security interventions. Funded through annual donor nets program which can immediately protect poor and contributions, donors channel and coordinate their vulnerable populations in the case of natural disasters humanitarian food relief funding. Funding is approximately (drought thus far). US$ 8.5 million are in place to develop US$ 14.8 million per year [as per 2008-2017 data, further a shock-responsive pilot (total funding for the whole Niger data is needed from the GoN to corroborate this]. It is Adaptive Social Protection Project 2 is US$ 210 million). unclear how much of this funding can be categorized as In the future, financing arrangements will need to ensure ex-ante disaster risk financing and how much of it is ad- sustainable financing. (ii) A Regional Food Security Reserve hoc or ex-post funding (Achirou, 2017). (RRSA) was founded in 2013, with a target size is 411,554 MT, 106 ARC (2017): Lessons Learned Summary Report: 2014/2015 ARC payouts: Senegal, Niger, Mauritania, ARC-2015-Payout-Lessons-Learned-Summary- Report.pdf (africanriskcapacity.org) 107 African Risk Capacity (2020): Updates. https://www.africanriskcapacity.org/updates/ PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 133 with 140,000 MT held in a physical reserve and 271,554 MT food security (US$ 150 million per year), the funding gap in a financial reserve, but by the end of 2020, the physical amounts to about US$ 40 to US$ 90 million per year. reserve only amounted to 32,000 MT and no funds had The funding gap significantly increases when taking into been committed to the financial reserve. (iii) External consideration the modelled food production shocks. The humanitarian financing accounts for the largest amount combined humanitarian and economic funding gap is of of external finance. Niger has been receiving between US$ 768 million for 1-in-5-year food production shocks and US$ 200 and 400 million per year in external international US$ 1.1 billion for 1-in-10 years food production shocks. humanitarian assistance, according to the OCHA Financial Tracking System. Options for disaster risk management and financing in Niger Financing gap Decreasing human and economic impacts of disasters The Government of Niger faces a large financing gap. in Niger requires significant investments and policy as Niger disposes overall resources of US$ 66.02 million for well as capacity building efforts in risk reduction and all layers of risk (National Disaster Fund, Food Reserves, planning, risk management and response as well as risk Droughty Insurance ARC), and US$ 60.7 million for the financing. Even though DRM has been identified by the lower layers of risk (1-5 years, National Disaster Fund, Food Government as a priority in its Strategic Development Plan, Reserves). Compared to the mere cost of drought related the DRM sector still faces the following challenges linked food insecurity (US$ 100 million per year) and overall to institutional and resources limitations: Critical measures to be put in place by the GoN Timeline for Fiscal implementation implications Strengthening of emergency preparedness and response capacities Adopt a DRM law clarifying roles and responsibilities for disaster risk management Medium term Low at central and local levels Strengthen capacities for emergency preparedness and response at the national and Medium term Medium local levels, including Early Warning Systems Use the National Platform to improve inter-ministerial and other Short term Low stakeholders’ coordination Strengthen DRM at the local level, within municipal planning and management Medium term Low Enhance capacity and budgetary resources for disaster risk reduction, including Medium term Medium investments in resilience in key sectors, integrated land-use planning building code enforcement and resilient infrastructure and services Need for Integrated DRM-FCV approaches to better capture the nexus linkages Long term Medium and interoperability (in terms of impacts to communities, resilience needs and programmatic approaches) 134 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Critical measures to be put in place by the GoN Timeline for Fiscal implementation implications Increase investment in disaster risk reduction and disaster risk management activities Limit disaster-related liabilities by investing in ways to prevent and mitigate the Medium term Medium effects of disasters Implementing existing disaster risk financing strategy and investing in pre-arranged Medium term Medium disaster risk financing instruments Develop a comprehensive Disaster Risk Financing strategy Develop systematic approach to financing different types of shocks Medium term Low Identify gaps and opportunities for improving current funding framework to Short term Low increase efficiency and effectiveness Improving data collection on both disaster risk and disaster response financing Medium term Medium Work on risk layering Identify optimal risk layering Short term Low Notes: short-term (1 year); medium-term (2-3 years); long term is +3 years; fiscal implications are estimated as low: affordable within current spending structure; medium: requires budget reallocation; high: need further reform, funding sources and domestic revenue mobilization. 8. CONCLUSIONS Disaster risk Financing capacity. With the increasing threat of climate-change, investments in long-term solutions While a DRM institutional framework exists, supported focused on integrated urban land-use policies and by various policies and tools, the DRM sector still plans, resilient infrastructure, early warning systems, risk faces the several challenges linked to institutional and reduction strategies and risk financing strategies and tools resources limitations. Decreasing human and economic are critical. In the short-term, this would allow the country impacts of disasters would necessitate both short-term to manage potential shocks to public finances, avoiding and long-term interventions to strengthen (i) the DRM costly ad-hoc budget shifts and dependence on slow and governance structure, (ii) emergency preparedness and unreliable humanitarian financing; and in the long-term, response capacities, (iii) risk reduction investments and ensure a more resilient development process. policies both at the national and municipal levels; and (iv) PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 135 CHAPTER 6 Key policy options Timeline for implementation: short-term (1 year); medium-term (2-3 years); long term (3+ years) Fiscal implications are estimated as low: affordable within current spending structure; medium: requires budget reallocation; high: need further reform, funding sources and domestic revenue mobilization. 136 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 1. PRIVATE SECTOR DEVELOPMENT Options to improve productivity and export orientations in the agri-business sector High Criticality Timeline for Fiscal implementation implications Enhance the quality of the export products of Niger by providing training and technical Long term Low assistance to the different value chain actors and strengthening certification processes. While the monitoring and tracing technologies such as blockchain can play a significant role in ensuring compliance with market-relevant standards (e.g., the standards of importing countries, international standards for organic produce, fair trade, etc.), it is important that such compliance is certified by relevant entities of the destination countries. Although the process to turn around the quality of agricultural products from Niger will take time, the benefits of a credible quality seal for Nigerien agricultural exports for the value chains and the country are well worth it. Development of infrastructure. As a landlocked country, access to international markets is costly, Long term High but with adequate reforms Niger could export to large neighboring markets. Lowering transport costs would require investments in roads maintenance, removal of frequent roadblocks, and increasing competition in the trucking sector, as burdensome regulations are revised and streamlined. Developing advanced sustainable logistics infrastructure to transport securely across the Sahara into Europe should go beyond completing the non-asphalted part of the A1 highway, but developing renewable energy sources along the road, to allow electric truck convoys to cross the Sahara with zero carbon footprint. This cross-Saharan routes and power generation facilities would create inclusive jobs in lagging regions, helping reduce conflict and sharing the goals of economic development brought by the trade routes. Medium Criticality Timeline for Fiscal implementation implications Strengthen Farmers Organizations. The measures should include on the one side direct support Medium term Low and capacity building, and the establishment of suitable control and oversight mechanisms that foster a transparent operation on the other. The impact of projects that have not been given sufficient time and resources to address these issues has been significantly diminished, resulting in producer unions that were not able to take over the management of their organization upon project completion. Building linkages between PPPs, SOEs and micro, small and medium enterprises (MSMEs). The Medium term Medium public-private partnership (PPP) law of May 2018 is expected to pave the way for more PPPs which could improve the governance of the SOEs, while having much more spillover effects on the economy. For instance, the Niamey Airport was recently fully privately financed in exchange for a 30-year concession. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 137 Options to facilitate better adoption of digital finance and boosting financial inclusion in Niger High Criticality Timeline for Fiscal implementation implications Making the registration/use of the technology simple and trouble-free for the consumer by Short term Low improving consumer protection reforms, and adopting tiered KYC measures such as using the equivalent of birth certificates instead of a formal ID to open formal account for women and other populations presenting low risk of AML/CFT. Developing digital payments in rural areas. As 71 percent of Niger’s population lives in rural areas, Medium term Medium this will be key. The Smart Villages project is a strong catalyst in this respect, as it is partnering with mobile money operators to improve connectivity in 2,100 villages, providing access to digital payments and finance to about 1 million individuals in rural areas. Digitalization of Government payments. If implemented, the strategy and roadmap for the Short term Low digitalization of Government payments such as scholarships, safety nets, salary of contractual workers, and payments of taxes, will allow for the inclusion of about 800,000 individuals. It will also send a strong signal and build awareness on mobile finance. For instance, the Government of Togo was able to financially include 2 million people in few months during the COVID-19 pandemic, thanks to the digitalization of public financial aid through its NOVISSI system. Partnerships between mobile money operators, Fintechs and traditional financial institutions Medium term Medium to encourage micro-credit and savings via mobile. As regulations do not allow MNOs to directly provide credit and savings, it will be key for them to partner with banks, Fintechs, and MFIs. This will be also to the advantage of banks as they need to digitize their services to expand their outreach and remain relevant. The leading example is M-Shwari in Kenya, a partnership between Safaricom (Kenya’s leading telco, with a customer market share of nearly 70 percent) and CBA (a mid-sized bank in Kenya). This partnership reached 10 million customers within 18 months of launching, in part because it managed to cross-sell to users of Safaricom’s M-Pesa. Other financial institutions – such as microfinance institutions, payment service providers and post offices – which have a large presence in rural areas should not be overlooked in that process. Promoting women’s access to digital accounts. It will be key to put in place enabling laws and Medium term Low policies, and spurring innovative gender inclusive products to facilitate women’s adoption of digital payments. Digital payments can facilitate transactions and reduce the risk of carrying cash on market day. Local markets can also be good places for providers to build awareness of digital innovations and onboard women over time. Special reforms to facilitate women’s access to mobile handsets and management of mobile agent centers will also help. The experience of SEWA ICT and Community Learning Centers in India is a valuable experience that Niger can replicate. These centers serve women micro entrepreneurs and also operate as a learning center focused on digital finance. Following this, Niger could, for instance, add digital financial skills to all its existing learning centers. 138 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Medium Criticality Timeline for Fiscal implementation implications Linking the national biometric identification system with the banking sector to facilitate Medium term Low onboarding of new clients. A number of initiatives are underway in Niger that would allow for the financial inclusion of millions of people. These include ongoing efforts to connect the biometric system under the West Africa Unique Identification for Regional Integration and Inclusion (WURI) program, and the e-KYC system under the Smart Villages project, along with the creation of an adequate data protection legislation. Developing a strong and liquid network of mobile finance agents across the country to deliver Long term Low mobile money including cash-out services. This could be done through partnerships between mobile money operators and over the counter service providers. AIRTEL for example partners with Money gram in 40 countries. Special incentives will also be necessary for MNOs to develop a network of agents in unprofitable low-density areas. Options to facilitate better adoption of digital finance and boosting financial inclusion in Niger High Criticality Timeline for Fiscal implementation implications Address the shortcomings of the microfinance industry and give it a fresh impulse, involving Medium term Medium FinTech solutions and new MFI players to the extent possible. Given its orientation and experience in serving smallholder farms and rural MSMEs, the microfinance industry will continue being an important player serving smallholder farms and rural MSMEs. To strengthen this industry, it is advised to a) advance and complete the process carried out by the Regulatory Authority of the Microfinance Sector (Autorité de Régulation du Secteur de la Microfinance, ARSM) to strengthen and clean up the sector, b) invite foreign MFIs successfully serving farms and rural MSMEs in other countries to set up shop in Niger, and c) foster the establishment of linkages between MFIs on the one side and FinTech companies providing payment and other services on the other. Design properly the Financial Inclusion Fund that is being set up to provide medium- and long- Long term Medium term loans to strengthen MFIs, Fintechs and banks through a combination of equity, loans and grants for digital transformation. A technically sound governance and decision-making structure, as well as adequate pricing policies and efficient procedures will be decisive to achieve the desired impact of this fund, which can become in time a crucial instrument to mobilize part of the large amounts of public and private resources required to facilitate the digitization of the financial sector. To be able to attract further medium to long-term funding, the fund must be itself operated in a sound and transparent manner. Promote value chain financing (VCF) arrangements including the use of warehouse receipts. In Short term Medium Niger, such arrangements should be promoted as part of a strategy to enhance the performance of value chains. It should involve, to the extent useful, the use of contractual farming arrangements that provide certainty to buyers and sellers. Additionally, it should involve the use of cold and normal storages to strengthen a system in which stored crops can be used as collateral. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 139 Promote the use of blended finance. In addition to further streamlining the use of matching Long term Medium grants, it seems advisable to promote the use of blended finance arrangements. These could crowd in private sources of finance, be it from financial institutions or from investors, by temporarily reducing the cost of funding, and/or by absorbing part of the risk of commercially viable investments, and/or by providing incentives and capacity building to interested stakeholders. Such blended finance arrangements usually combine commercially priced funding with ‘soft’ funding from donors or from public entities, and are especially useful to finance the medium to large investment projects that are required to build the production, processing, logistics and information systems for the future mentioned above. In recent years, several facilities have been set up to promote blended finance for agriculture, specifically to benefit smallholder farmers, the largest being the Global Agriculture and Food Security Program, GAFSP, and the IDH Farmfit Fund. See Appendix for examples of blended finance arrangements that may be useful for similar undertakings in Niger. Medium Criticality Timeline for Fiscal implementation implications Establish a proper framework and policies to promote the digital transformation of the banking Short term Low system to better serve rural and agricultural clients. Building on previous work in Niger, as well as on relevant international experiences, this effort should help in the design and implementation of a strategy to digitize the provision of financial services by leveraging the digital infrastructure that is being built. Digitalization of financial services should be combined with the development of networks of non-bank agents in rural areas. In addition, it should leverage the opportunities offered by shared digital platforms of the financial sector such as the e-KYC and credit scoring registry implemented under the Smart Villages initiative. This platform could then be linked to the national biometric ID system, similar to the Pakistan model to allow for centralization of KYC and credit scoring data on clients of banks, MFIs, and MNOs. It would also allow for the streamlining of anti-money laundering processes. Additionally, Niger should consider using these platforms to promote better production techniques by facilitating farmers’ access to agricultural extension services. Further streamline the policies for the use of subsidies to finance agriculture. FISAN, the Short term Low Investment Fund for Food Security and Nutrition (Fonds d’Investissement pour la Sécurité Alimentaire et Nutritionnelle), has already undertaken important steps to harmonize the use of matching grants in financing agricultural projects of smallholders, promoting the use of financing arrangements in which beneficiaries contribute 10 percent of the required amount, financial entities provide 50 percent, and the remaining 40 percent are funded by grants. These important efforts should be continued and deepened, aiming to reduce and eliminate in time the subsidies for commercially viable undertakings. 140 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 2. NATURAL RESOURCE MANAGEMENT Options for local content development High Criticality Timeline for Fiscal implementation implications Mandate an appropriate arm of government (e.g., Ministry of Industry or equivalent) to focus Short term Low specifically on local content needs and opportunities. The objective should be to (a) maintain a continuous dialogue, (b) understand the needs of industry, c) build relationships, (d) attract investment and (e) act as a clearing house for information to Nigerien companies/citizens as to the standards, skills etc. required for roles. Timeline 0-1 years. Impact is initially small and grows over time. Ultimate impact can be significant. Provide incentives to multinationals operating in Niger to provide regular training workshops Medium term Low for instance, quarterly, on various technical/industry matters important to industry (e.g., road design, industrial safety, food hygiene etc.). This should be training by the foreign investor to Nigerien companies. The training could be done on-site and at low cost (i.e., just the time of the specific corporate staff). This should be undertaken with no expectation of contracts arising for the Nigerien parties attending the training, but rather to build competency in the wider commercial ecosystem. Timeline 1-2 years. Impact is small-to-medium, but fiscal cost is also low. Encourage or require that foreign investors in Niger put aside a certain fraction of salary (say 2-10 Medium term Low percent) to be spent on training of their own employees. This will have the effect of depressing Nigerien salaries, and will not be targeted at non-employees. However, the objective is to build the ‘next generation’ of Nigerien corporate leaders, who may operate in or beyond Niger. In principle, this could include international training (e.g., at the training centers of the foreign entities be they in France, China or other countries). Timeline 1-2 years. Impact is potentially significant over time. Medium Criticality Timeline for Fiscal implementation implications For unskilled-to-moderately skilled labor, consider the possibility of setting up labor providers Short term Low who would maintain a pool of labor trained to a certain level, for which they would take a fraction of labor income. The advantage of this is that a larger cohort of workers becomes ‘linked’ to formal employment. The disadvantage is that the labor provider would need to take a portion of salaries to fund their own costs. There may be some controversy on this, but it is a way of streamlining the market, while providing certain basic benefits (e.g., healthcare, assurance of a minimum annual income) to the laborers. Timeline 0-1 years. Impact is initially significant in terms of organizing labor. Over time the benefit of having such an entity dissipates, but hopefully by having a cohort of ‘formal’ labor normalizes societal expectations around formal employment. Strengthen the ‘Niamey Data Centre’ into a full-blown ‘geology department’ by mandating the Medium term Low sharing of all geological data from foreign companies and storing said data in appropriate databases under the control of the Nigerien government. Capabilities should be built up over time so that, eventually, it will have a deep understanding of the geological patrimony of Niger. The ultimate goal would be to position such a department as the competent regulator for upstream licensing/regulation of minerals and petroleum. Timeline 1-2 years. Impact is initially small and grows over time. Ultimate impact can be significant. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 141 As specific to attracting foreign investment and creating opportunities for Nigerien staff to Long term Low progress, strong competencies in the language of the investing company can be an advantage, particularly for investors who may not be competent in French. Consideration can be given to embedding appropriate ‘language institutes’ in a premier Nigerien university and/or polytechnic, with the intent of building up cohorts of individuals who are able to communicate in foreign languages. The ideal would be that the university/polytechnic produces competent technical individuals who are also competent (say to a B1/B2 level on the CEFR framework) in languages of potential investors. Such competent staff might find it significantly advantageous to their careers. Over time, this would increase the likelihood of investors deciding to act as long-term corporate citizens, while also building up the ‘Local Content’ component of such companies/industries. Timeline 5 years (for creating initial cohorts of language speakers). Impact can grow over time and ultimately be significant. Adopt a ‘more specialized approach’ as the country grows and Local Content policy becomes Aspirational more specialized. This could include a licensing regime where only licensed subcontractors can operate in a certain (foreign dominated) industry, licensing only to Nigerien-incorporated subcontractors etc. However, this is unlikely to be possible now, as the market is neither mature nor ‘thick’ enough. allow for this. Timeline is Aspirational. Dependent on future development and policy pathways. Options for extractive sector management High Criticality Timeline for Fiscal implementation implications To reduce its vulnerability to commodity price volatility, Niger could develop revenue Medium term High management legislation to create a fiscal stabilization fund. The legislation would specify a baseline revenue level that reflects average revenues at sustainable production levels or, alternatively, targeting the non-resource primary balance as fiscal anchor. The excess profits above this threshold that accumulate during boom times would be directed into a stabilization fund for use during slumps. Moreover, it is suggested that in the first years when oil revenues are used to create a fiscal buffer, by reducing the current stock of public debt, until the frameworks regulating the governance of the fund and the use of the resources for productive investments in human and physical capital are robust enough. Given the estimated limited impact of oil prices shocks, the size of the fiscal buffer can be of a limited size (equivalent of 1 or 2 years or revenues). For such funds to be successful, fiscal discipline is imperative. Strict legislation governing the Medium term High use of the funds helps enforce fiscal discipline by keeping them out of the normal budgetary process that is often influenced by short-term political motivations (Brown et al, 2008). This will encourage counter-cyclical fiscal policy and expenditure smoothing. On the other hand, while saving all the cyclical revenues in good times and use them to fund spending in bad times may support countercyclical stabilization, it can be difficult in term of political economy in Niger context. To mitigate these risks, it may be prudent to use to invest all the resource revenues in financial assets; consumption out of resource wealth will thus be equivalent to the interest earned on accumulated financial wealth. 142 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Besides smoothing spending, revenue funds can also be for broader economic objectives Medium term High such as funding diversification and competitiveness initiatives. One such example is Chile’s Competitiveness and Innovation Fund (Fondo de Innovación para la Competitividad – FIC), funded by royalties from the country’s main commodity, copper. FIC supports entrepreneurial innovation, human capital formation and promotes science and technology, particularly in mining regions (Brown et al, 2008). Stabilization funds of this nature have been useful in other resource- abundant countries like Mongolia and Chile. Both the level of effort and impact of designing and implementing a fiscal stabilization fund is high. Broaden access to ASM formalization by decentralizing essential process such as registration Short term Low and license issuance to local governments. To further increase incentives for formalization, the government could make access to value-adding support services, equipment or processing centers conditional on having a license (IGF, 2018b). Medium Criticality Timeline for Fiscal implementation implications To reduce the risk of rent capture, increase public scrutiny of the resource sector, and resolve Medium term High longstanding grievances regarding resource revenue allocation, Niger could establish direct cash transfers funded by its natural resource rents. Direct cash transfers would also reduce household poverty, which in turn could help resolve other related challenges, such as food insecurity, the effects of climate change, and risk of radicalization due to poverty especially amongst unemployed poor youth. To prevent some of the negative outcomes seen in Mongolia’s experiment with a similar resource-to-cash scheme, the payments would need to be aligned to the performance of the resource sector and independent of political influence (Devarajan, et al 2011; Moss et al, 2015). However, it is critical to note that sudden changes in the size and/ or frequency of the payments, if not well-communicated and managed, may end up aggravating grievances and potentially increase the risk of conflict. The level of effort required to design a direct cash transfer system is high and its impact would also be high. The government could also adopt progressive levels of ASM formalization to allow both miners Short term Low and local governments to incrementally work towards compliance with technical, environmental, and labor requirements in the face of significant resource constraints. Providing different categories of licenses for the different needs and resources of the miners would help ensure that formalization is an achievable goal even for the poorest miners (IGF, 2018b). This type of graduated approach has proven successful in ASM formalization in Colombia (Singo, & Seguin, 2018). The level of effort required for successful ASM formalization is high, but this is exceeded by its socioeconomic and environmental benefits. To reduce the risk of rent capture, increase public scrutiny of the resource sector, and resolve Medium term High longstanding grievances regarding resource revenue allocation, Niger could establish direct cash transfers funded by its natural resource rents. Direct cash transfers would also reduce household poverty, which in turn could help resolve other related challenges, such as food insecurity, the effects of climate change, and risk of radicalization due to poverty especially amongst unemployed poor youth. To prevent some of the negative outcomes seen in Mongolia’s experiment with a similar resource-to-cash scheme, the payments would need to be aligned to the performance of the resource sector and independent of political influence (Devarajan, et al 2011; Moss et al, 2015). However, it is critical to note that sudden changes in the size and/ or frequency of the payments, if not well-communicated and managed, may end up aggravating grievances and potentially increase the risk of conflict. The level of effort required to design a direct cash transfer system is high and its impact would also be high. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 143 3. DISASTER RISK MANAGEMENT AND FINANCING Options to strengthen the DRM High Criticality Timeline for Fiscal implementation implications Adopt a DRM law clarifying roles and responsibilities for disaster risk management at central and Medium term Low local levels. A DRM law would clarify legal and institutional mandates, coordination mechanisms, financing instruments, operational protocols, stakeholders’ participation mechanisms, role of CSOs, CBOs (including Women and Youths) and the Private Sector engagement, etc. Strengthen capacities for emergency preparedness and response at the national and local levels, Medium term Medium including Early Warning Systems. With Niger highly vulnerable to floods and other weather and climate threats, accurate forecasting, and systems to warn vulnerable populations effectively are essential and becoming more vital as climate change effects increase. Use the National Platform to improve inter-ministerial and other stakeholders’ coordination. The Short term Low National Platform has remained inactive for a long time and overlapping responsibilities and mandates among DRM actors have negatively impacted coordination. Enhance capacity and budgetary resources for disaster risk reduction, including investments Medium term Medium in resilience in key sectors, land-use planning and building code enforcement. In most sectors, limited budgetary resources are assigned for maintenance of infrastructure and enforcement of building standards, and limited investment is made in increasing the resilience of vulnerable assets Medium Criticality Timeline for Fiscal implementation implications Need for Integrated DRM-FCV approaches to better capture the nexus linkages and Long term Medium interoperability (in terms of impacts to communities, resilience needs and programmatic approaches). The context of security fragility and natural hazards vulnerability necessitates addressing both challenges in consistent and complementary ways. Strengthen DRM at the local level, within municipal planning and management. No funds are Short term Medium assigned by the national government to municipalities specifically for DRM purposes, and many municipalities do not possess urban and investment planning capacities and tools to adequately address resilience needs and land-use planning for disaster risk reduction. 144 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Options to strengthen the DRF High Criticality Timeline for Fiscal implementation implications Increase investment in disaster risk reduction and disaster risk management activities. Financing Long term High disaster risk reduction is often more cost-effective than the financing of post-disaster search, rescue, relief, rehabilitation, reconstruction, and recovery. However, residual risk will remain and should be complemented with pre-arranged finance. Despite the fact that disaster events cannot be fully prevented, the extent of damage can be minimized by adopting disaster risk reduction measures. Alongside implementing its disaster risk financing strategy and investing in pre- arranged disaster risk financing instruments, the Government of Niger should continue to limit its disaster-related liabilities by investing in ways to prevent and mitigate the effects of disasters, an action underlined in the draft National Disaster Risk Financing (DRF) Strategy. Develop a comprehensive Disaster Risk Financing strategy. As Niger faces high disaster-related Long term High contingent liabilities particularly caused by droughts and floods, there is a strong rationale to work towards a more systematic approach to finance these shocks. A comprehensive disaster risk financing strategy could detail the most suitable sources of financing and instruments to finance the different types of shocks. It also helps identify gaps and opportunities for improving the current funding framework to increase the efficiency, timeliness, coherence of different financial mechanisms and the transparency of disaster response interventions. Working on such a strategy could also open up discussions on reference data used for the elaboration of this report as well as on missing data that could help further refine the assessment of disaster risk financing in Niger, including details on available instruments and related funding. Work on risk layering. Working towards a disaster risk finance strategy could further support Long term High the identification of optimal risk layering. Initial analysis shows that there is substantial room for saving costs by introducing ex-ante financing instruments that are in place before a disaster happens and guarantee that adequate financing is in place for immediate disaster relief. The process of working towards a DRF strategy could allow the Government of Niger and other development partners to collect further data towards optimal risk finance layering. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 145 APPENDIX CHAPTER 1: APPENDIX A level, particularly in EMDEs with high shares of informal employment (Fajnzylber, Maloney, & Montes-Rojas, 2011). Productivity Definitions The effectiveness of labor input may be influenced by the level of education, training, and health of workers. This appendix reviews definitions, and different techniques Besides, labor contribution in the context of Niger follows and challenges of different productivity measures, and a per capita counting rather than a full-time equivalent explains how they are tackled in this study, especially in definition so that it does not consider the actual number of chapter 1. 108 hours worked; household survey data suggests that among the working population, the number of hours worked per Throughout this chapter, productivity is defined as output week (in a person’s main job) has declined, by as much (GDP or sectoral value added) per input of a unit of labor as 39 percent for men and 53 percent for women between (number of people engaged rather than the number 2002 and 2018. of hours worked, as measure of labor input). A second measure, total factor productivity (TFP), is also featured, GDP per capita and its dynamic can be decomposed which measures the efficiency with which factor inputs into four main channels. First, employed people become are combined and is often used to proxy technological more productive in doing their jobs because of different progress. TFP may also incorporate wider factors such as reasons (such as learning by doing, capital deepening, organizational and institutional characteristics. Output per better education), so that output per worker increases. worker is then a more general concept that incorporates Second, even if the output per worker stays constant, TFP, as well as the differences in physical and human output can still grow if the growth in the number of people capital per worker. with a job is higher than the growth in the workforce, thus expanding the production basis of the economy. Third, Defining labor productivity as output per worker, with the the number of people willing to work may expand faster number of employees used as the unit of labor input, than the working age population (people aged between has the advantage of wide availability across countries. 15 and 64 years), increasing the participation rate. Finally, Labor input is intended to capture all of those involved a demographic effect is linked to the expansion of the in the production process. Thus, total employment working age population as a share of population, the so- figures include self-employment, which accounts for a called demographic transition. In summary: large proportion of informal employment in Emerging and Developing Market Economies (EMDEs) (World Bank, 2019). However, difficulties in measurement of the informal sector creates uncertainty and increases the potential for Where Y is output, N the population, E the labor input, inconsistency across countries around the productivity L is the workforce (employees, self-employees and 108 This box partly draws from World Bank, 2020., Global Productivity. Trends, Drivers, Policies. Washington DC: World Bank. 146 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER unemployed), WAP is the working age population (people technology adoption, for instance, then it is likely that aged between 15 and 64 years old). higher schooling leads to a higher level of A. In another case, growth in physical capital could be attributed to rising Productivity (Y/E) can then be analyzed through the productivity, since the higher rate of return stimulates Shapley decomposition, which allows a decomposition additional capital accumulation (Klenow and Rodriguez- of its changes into: i) changes in sector-level productivity Clare 1997). (‘within’ component) and ii) changes from labor re- allocation between sectors (‘across’ or “between” Appendix A Box 1: Urbanization: the spatial corollary component). The latter gives us a measure of the speed of of structural change in Niger? ‘structural change’ in the economy. The following text is adapted from the World Bank’s 2021 Finally, following the growth accounting methodology first Niger Urbanization Review. introduced by (Solow, 1957), labor productivity growth can be decomposed into the contribution from different factors, In many contexts around the world, urbanization has been using the log differences of a Cobb-Douglas production the spatial corollary of positive structural transformation. function with constant returns to scale: More productive service and industrial sector jobs tend to cluster in urban areas, due to the productivity benefits of urban agglomeration economies; as a result, the transition of labor out of agriculture is often accompanied by the Where is the output per worker (labor physical movement of workers (and their families) from productivity) is the ratio of capital equipment rural to urban areas. In Niger, from 2001-2012, 4 out of 5 per person employed, is the human capital level, of all new nonfarm jobs were created in urban areas, and is the log of the TFP, calculated as a residual of suggesting most of Niger’s positive structural change has labor productivity growth after subtracting the change in taken place in urban areas. Niger’s slow rate of structural capital deepening and human capital, weighted by their transformation is similarly consistent with its lackluster respective shares in the production function, . urbanization rate, which has remained around 16 percent Being the residual, everything not captured by changes in for twenty years. labor or capital is picked up by TFP growth. This includes measurement errors and changes in utilization rates of Pressures on rural livelihoods in Niger are expected to factor inputs. intensify over the next decade, which may accelerate rural- to-urban migration, as rural residents seek opportunities A concise way to rearrange this formula is where and survival in cities as rural prospects dwindle. On the A represents the TFP and X the inputs. The two factors are other hand, in some low-income contexts, intense rural interconnected: there are variations of k and h generated pressures appear to have depressed rural-urban migration, by differences of A (because of the nonrival nature of by depriving rural households the liquidity to technology creation and adoption), and A itself may finance migration.109 be affected by capital intensity X. If A is determined by 109 Peri, G., & Sasahara, A. (2019). The impact of global warming on rural-urban migrations: Evidence from global big data. NBER Working Paper, (25728). PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 147 The World Bank’s Niger Urbanization Review (2021) used GDP does not rise as fast as its urban population, leading to a Computerized General Equilibrium (CGE) model to lower urban welfare by 2035 compared to the BAU scenario. explore how alternative urbanization scenarios may This reflects an ‘urbanization of poverty’, in which urban impact structural change and welfare in Niger until 2035. areas do not generate sufficient growth to uphold today’s The model’s Business-as-Usual (BAU) scenario assumes level of urban welfare as new poor rural migrants arrive. that rural-urban migration continues according to recent trends, rising almost imperceptibly to 16.6 percent by 2035. Governments may attempt to invest more urban areas to In this scenario, agricultural growth slows due to falling prevent the decline in urban welfare. An important insight farm sizes and increasing rural land pressures. Average from the model is that raising public urban investment at household welfare grows at 3.3 percent per year, though the expense of rural investment is liable to reduce both inequality widens, with poor households’ 110 per capita urban and rural welfare. This is because of the importance welfare growing by only 2.6 percent per year. of food prices to urban welfare and productivity: lower rural investment reduces agricultural productivity, raising The model then considers a ‘Faster Migration’ scenario, in food prices, which are a major share of poor urban which rural-to-urban migration accelerates above historical households’ consumption baskets. Urban investment rates, with the urban population share rising to 19.6 is necessary to stem the decline in urban welfare, but percent by 2035. Under this scenario, the economy in 2035 this exercise suggests urban investment should be ‘self- is about five percent larger than under Business-As-Usual, financed’ by improved taxation of urban enterprises and with this positive growth-effect entirely due to the elevated households, not by diverting fixed public resources from rural-urban migration. As expected, Faster Migration brings rural agriculture. positive structural transformation, as workers transition to more productive urban nonagricultural sectors. New A final insight from the CGE model is that even with urban residents also demand more manufactured goods, urban-based financing of urban investment, cities will resulting in more employment in Niger’s industrial sectors, still be unable to accommodate Faster Migration without and urban GDP growth generates further demand for a loss of urban welfare. Niger’s rural population is growing investment and construction. Despite the outflow of rural so rapidly that even small shifts in urbanization rates labor, agricultural GDP under Faster Migration is higher (by flood urban centers with job seekers, most of whom are 0.7 percent by 2035) than under the BAU scenario: initially, unskilled. At the same time, urban labor markets are the reduced rural labor supply slows agricultural GDP dominated by non-tradable services, which have limited growth; however, urban incomes and productivity rise as opportunities to achieve scale economies and expand urban producers benefit from the increased urban labor production. There are deep structural constraints to urban supply, lower wages, and lower food prices, which in turn and off-farm job creation in Niger, beyond urban financing, raises urban demand for agricultural products from Niger’s – including human capital, dependency ratios, and private rural areas. Overall, these backwards linkages in demand sector bottlenecks – that must be addressed if Niger is to offset the loss of rural labor. prepare itself for the increased urbanization expected in the coming decades, and to secure the linkage between More concerningly, under Faster Migration, Niger’s urban faster urbanization and positive structural transformation. 110 Defined as the bottom three income quintiles. 148 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER CHAPTER 2: APPENDIX B.1 2). Under this scenario, the block would amount to 3 billion barrels of oil until 2050, which is at the upper-end Robustness to oil discoveries of the CNPC estimates. Under this scenario, production of oil would hit 180,000b/d (the pipeline capacity) by 2030, The baseline assumes that reserves of oil stand at two remaining at that level until 2040, and then slowly declining billion barrels in 2020, and there are no further discoveries over time (see Appendix Figure 3). This extra oil production until 2050. An optimistic simulation assuming discoveries would boost GDP per capita growth by 1 percentage point of extra 2 billion barrels of oil from 2020 to 2050 yields in 2025. But this boost to growth would be transitory, a substantial boost to oil production and growth in the vanishing by 2035 (see Appendix Figure 4). The long-term medium-term. However, the long-term effect on overall effect on Niger’s income would be small: a GDP per capita growth is small. The scenario considers a more optimistic of around US$1,000 in 2050 vs baseline 976. simulation with discoveries of extra two billion barrels of oil from the Tenere block until 2050 (see Appendix Figure Robustness to discoveries of oil Appendix Figure 1. Oil discoveries, MM of barrels/year Appendix Figure 2. Production of oil, Barrels/day PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 149 Appendix Figure 3. GDP per capita growth, Appendix Figure 4. GDP per capita, Incremental annual growth rate, percentual points Real 2010 U.S. Dollars Source: World Bank’s staff estimates based on the LTGM. B2. Appendix tables Appendix Table 1. Summary of Baseline Assumptions for Niger (LTGM-NR) (Selected Initial Conditions, Main Parameters, and Exogenous Variables) A. Main parameters Value Source C. Trajectory of exogenous variables, 2021-2050 Labor share 52% of non-R GDP PWT 10 Price of oil US$60/barrel WB-CMO Resource rents 45% of oil GDP GTAP Investment: Government share 40% of oil GDP IMF-WCE Private 30%→15% GDP IMF-FAD B. Initial conditions Value Source Public 15%→10% GDP IMF-FAD Productivity: Per capita GDP US$563 (real 2010) UN-WDI Non-oil TFP 1% growth PWT 10 Non-oil 98% of GDP NER-SNA Human capital 0.5% growth PWT 10 Oil 2% of GDP NER-SNA Demographics: 2021→2050 Capital-to-GDP ratio 4 PWT 10 Population growth 4%→3% UN-ILO Non-energy 3.9 Eq. MPK Working-age pop. 48%→55% UN-ILO Oil 0.1 Eq. MPK Participation rate 74% constant WB-WDI Reserves of oil 2Bn barrels BP-Energy 150 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Appendix Table 2. Summary of Growth Simulations (LTGM-NR) Average growth rate, Percentage Real 2010 U.S. Dollars 2026-50 2026-29 2030s 2040s 2020 2030 2030 I. GDP per capita Baseline 1.4 0.5 1.0 2.0 563 716 976 Moderate reforms (one-by-one): A. Non-energy TFP growth 2.6 0.9 2.2 3.5 736 1,312 B. Human capital growth 2.0 0.7 1.6 2.8 727 1.139 C. Investment 1.8 0.7 1.6 2.3 726 1,084 Reforms package (A-C) 3.7 1.4 3.4 4.8 756 1,720 Ambitious reforms (one-by-one): A. Non-energy TFP growth 3.8 1.4 3.4 5.0 756 1,772 B. Human capital growth 2.6 1.0 2.2 3.5 737 1,330 C. Investment 1.9 0.8 1.8 2.4 730 1,126 Reforms package (A-C) 5.9 2.1 5.5 7.4 792 2,888 II. Non-energy GDP per capita Baseline 1.9 0.8 1.8 2.4 552 616 943 Moderate reforms (one-by-one): A. Non-energy TFP growth 3.2 1.4 3.0 3.9 636 1,280 B. Human capital growth 2.6 1.1 2.5 3.2 626 1,107 C. Investment 2.3 1.0 2.4 2.8 624 1,048 Reforms package (A-C) 4.3 1.8 4.3 5.2 655 1,688 Ambitious reforms (one-by-one): A. Non-energy TFP growth 4.5 1.9 4.3 5.5 656 1,741 B. Human capital growth 3.2 1.4 3.1 4.0 637 1,298 C. Investment 2.5 1.1 2.6 2.9 627 1,090 Reforms package (A-C) 6.5 2.7 6.6 7.8 691 2,857 III. Oil GDP per capita Baseline -4.7 -1.3 -4.9 -5.7 11 101 33 Moderate reforms (one-by-one): A. Non-energy TFP growth -4.8 -1.4 -5.1 -5.8 100 32 B. Human capital growth -4.8 -1.4 -5.0 -5.8 100 32 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 151 Average growth rate, Percentage Real 2010 U.S. Dollars 2026-50 2026-29 2030s 2040s 2020 2030 2030 C. Investment -4.4 -1.1 -4.6 -5.5 102 35 Reforms package (A-C) -4.7 -1.2 -4.9 -5.8 101 33 Ambitious reforms (one-by-one): A. Non-energy TFP growth -5.0 1-.5 -5.3 -6.0 100 31 B. Human capital growth -4.9 -1.4 -5.1 -5.8 100 32 C. Investment -4.4 -1.0 -4.4 -5.5 103 36 Reforms package (A-C) -4.9 -1.2 -5.1 -5.9 101 32 A3. Appendix figures Appendix Figure 5. Gross domestic product, Appendix Figure 6. Gross national income per capita Annual growth rate, Percentage Real 2010 U.S. Dollars Source: World Bank’s World Development Indicators Source: World Bank’s World Development Indicators 152 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Appendix Figure 7. Investment, Appendix Figure 8. Public and private investment, Percent of GDP Percent of GDP Source: IMF’s Investment and Capital Stock Dataset Source: IMF’s Investment and Capital Stock Dataset Appendix Figure 9. Total Factor Productivity, Appendix Figure 10. Human Capital Index, Three-year growth moving average, Percentage Annual growth rate, Percentage Source: Penn World Table 10.0 Source: Penn World Table 10.0 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 153 Appendix Figure 11. Population growth, Appendix Figure 12. Working-age population (ages 15-64), Percent of GDP Percent of population Source: International Labor Organization Source: World Bank’s World Development Indicators Appendix Figure 13. Working-age population in low and Appendix Figure 14. Labor force participation rate lower-middle income countries in 2019, Percentage of working-age population Percent of working-age population (ages 15-64) Source: International Labor Organization Source: International Labor Organization 154 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Appendix Figure 15. Physical capital-to-GDP ratio Source: Penn World Table 10. Notes: Dropped outliers VEN, UKR, YEM, and BRB. Appendix Figure 16. The Drivers of Growth: Cross-country Experience Panel A. Total factor productivity growth Panel B. Human capital growth Average growth rate over 2000-2019, Percentage Average growth rate over 2000-2019, Percentage Source: Penn World Table 10. Notes: Three outliers dropped. Years of schooling predates the 20 years Notes: Dropped outliers TJK and ARM. average. Samples are 1979-1999 and 1999-2019. Data source: Penn World Table 10 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 155 Panel C. Private investment Panel D. Public investment Average over 2000-2017, Percent of GDP Average over 2000-2017, Percent of GDP Source: IMF-FAD, Investment and Capital Stock Dataset Source: IMF-FAD, Investment and Capital Stock Dataset Appendix Figure 17. The drivers of growth under the baseline and reforms scenarios Total factor productivity, Panel B. Human capital growth Annual growth rate, Percentage Annual growth rate, Percentage 156 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Panel C. Private investment Panel D. Public investment Percent of GDP Percent of GDP CHAPTER 2: APPENDIX B.2 captures household welfare, fiscal issues, and differences between sectors in terms of household preferences, labor Structure of SDGSIM intensity, capital accumulation, technological change, and links between international trade and the domestic This appendix provides additional detail on SDGSIM as economy. In each period, the different agents (producers, applied to Niger. Table 2.1 presents the Niger SAM, Figure households, government, and the nation in its dealings A.1 summarizes the payment flows that the model captures with the outside world) are subject to budget constraints: in in any year while Figure A.2 describes the labor market. receipts and spending are fully accounted for and by construction equal (as they are in the real world). The SDGSIM is a CGE model designed for country-level analysis decisions of each agent – for producers and households, of medium- and long-run development policies with a the objective is to maximize profits and utility, respectively – focus on the SDG agenda and structural change. Technically, are made subject to these budget constraints: for example, the model is made up of a set of simultaneous linear households set aside parts of their incomes to direct taxes and non-linear equations. It is economy-wide, providing and savings, allocating what is left to consumption with a comprehensive and consistent view of the economy, a utility-maximizing composition. For the nation, the real including linkages between disaggregated production exchange rate adjusts to ensure that the external accounts sectors and the incomes they generate, households, are in balance – in the application to Niger, which is part the government (its budget and fiscal policies), and the of the West African CFA zone and thus operates with a balance of payments. It is an appropriate tool for analyzing fixed nominal exchange rate, it is assumed that the real structural change issues (like the ones faced by Niger’s exchange rate adjusts via changes in the domestic price economy) given the fact that it, in an integrated manner, PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 157 level in a setting with exogenous foreign borrowing and The unemployment rate for labor is endogenous. TFP reserve changes.111 Wages, rents and prices play a crucial growth is made up of two components, one that responds role by clearing markets for factors and commodities positively to growth in government infrastructure capital (goods and services). For commodities that are traded stocks and one that, unless otherwise noted, is exogenous. internationally (exported and/or imported), domestic prices are influenced by international price developments. The basic accounting structure and much of the data Given that Niger is a small country, it is assumed that required to implement SDGSIM is derived from a SAM. The international markets demand and supply the country’s model also relies on complementary stock, elasticity, and exports and imports at given world prices. base-year employment data. In this study, the base year for the SDGSIM database is 2019, the most recent year Over time, production growth is determined by growth in for which sufficient data for the construction of a SAM is factor employment and changes in total factor productivity available. The SAM and the model database have a total (TFP). Growth in private capital stocks is endogenous, of 36 sectors (production activities each of which produces depending on investment and depreciation. Public a commodity or output): 14 for agriculture, 2 for mining investment and capital stock changes are determined (petroleum and other mining), by policy. For other factors, the growth in employable stocks is exogenous. For labor and natural resources Most features of a SAM for SDGSIM are familiar from SAMs (with sector-specific factors for natural-resource-based used for other CGE models. However, a SDGSIM SAM has sectors), the projected supplies in each time period are some non-standard features to provide data needed exogenous. For natural resources, they are closely linked for its explicit treatment of financial flows and different to production projections. For labor, the projections reflect investment types. Table 2.1 shows the accounts in the SAM, the evolution of the population in labor-force age, labor which define the disaggregation of the model. force participation rates, and educational attainment. 111 To be more precise, the model variables are net financing (net borrowing minus interest payments) received by domestic institutions (government and households) from the rest of the world and by the government from the other domestic institutions. In post-calculations, the implications for debt stocks are extracted given exogenous interest rates. This treatment has the advantage of not requiring debt accumulation inside the model. 158 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Table 2.1. Disaggregation of Niger SAM and SDGSIM application Group Account name Description Group Account name Description Sectors a-/c-cer Cereals Margins marg-d Domestic distribution (activities/ a-/c-puls Pulses marg-m Import distribution commodities) a-/c-gnut Groundnuts & other oils marg-e Export distribution a-/c-leaf Leafy vegetables Factors f-labl Labor - Less than completed primary educ. a-/c-vege Other vegetables f-labh Labor - Completed primary a-/c- frui Other fruits educ. or more a-/c-crop Other crops f-land Land a-/c-catt Cattle f-capprv Capital - private a-/c-milk Raw milk f-coil Crude oil a-/c-poul Poultry f-omin Natural resource for other a-/c-smlr Small ruminants mining a-/c-oliv Other livestock Institutions hhd-rur Households - rural a-/c-fore Forestry (current) hhd-urb Households - urban a-/c-fish Capture fisheries ent Enterprises a-/c-petr Petroleum products gov Government a-/c-omin Other mining row Rest of the world a-/c-food Food processing Taxes tax-act Tax - activities a-/c-text Textiles - Clothing - Leather tax-va Tax -value added a-/c-wood Wood products tax-imp Tax - imports a-/c-metl Metals and metal products tax-exp Tax -exports a-/c-oman Other manufacturing tax-com Tax - commodity/sales c-ncimp Non-competitive imports tax-dir Tax -income a-/c-elec Electricity, gas and steam Institutions cap-ngov Aggregate non-government a-/c-watr Water supply and sewage (capital) cap-gov Government a-/c-cons Construction cap-row Rest of the world a-/c-trad Wholesale and retail trade cap-fin Financial institution (foreign a-/c-tran Transportation and storage reserves) a-/c-rest Restaurants - food services Investment inv-priv Private - hotels inv-inf Government infrastructure a-/c-comm Information and inv-gov Government other communication dstk Change in inventories (or a-/c-fsrv Finance and insurance stocks) a-/c-real Real estate activities Each sector has an activity and a commodity (output). The commodity a-/c-bsrv Business services c-ncimp (non competitive imports is the only exception. a-c-gov Public administration a-/c-educ Education a-/c-heal Health and social work a-/c-osrv Other services PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 159 Activities produce, selling their output at home or The rest of the world (which appears in the balance of abroad, and using their revenues to cover their costs payments) generates inflows that may be classified (of intermediate inputs, factor hiring and taxes). Activity into transfers to government and households, FDI, decisions about factor hiring, which determine the output loans, and export payments. Niger uses these inflows level, are driven by profit maximization. The shares to finance its imports and adjust its foreign reserves. exported and sold domestically depend on the relative The balance of payments clears (inflows and outflows prices of their output in world and domestic markets. are equalized) via adjustments in the real exchange rate (through changes in the domestic price level, SDGSIM includes three core institutions: households, changing the ratio between the international and government, and the rest of the world. domestic price levels in CFA francs) which take place when the balance is in surplus or deficit. • Households, split into rural and urban, earn incomes from factors, transfers from the government, and Private investment financing is provided from domestic transfers from the rest of the world. These are household savings (net of lending to the government) used for direct taxes, savings, and consumption. and foreign investment. It is assumed that household The savings share is exogenous or endogenous investment spending will adjust in response to changes depending on the mechanism for achieving balance in available funding or that household savings will adjust between private investment and available financing. to finance a predetermined investment level. Their consumption decisions change in response to income and price changes. By construction (and as In domestic commodity markets, flexible prices ensure required by the household budget constraints), the balance between demands for domestic output from consumption value of the households equals their domestic demanders and supplies to the domestic market income net of direct taxes and savings. from domestic suppliers. The part of domestic demands that is for imports faces exogenous world prices – Niger • The government gets its receipts from taxes and is viewed as a small country in world markets without transfers from abroad; it uses these for consumption, any impact on the import and export prices that it faces. transfers to households, and investments (providing Domestic demanders decide on import and domestic capital stocks used in the production of government shares in their demands on the basis of the relative services), drawing on domestic and foreign borrowing prices of commodities from these two sources. Similarly, for supplementary funding. To remain within its domestic suppliers (the activities) decide on the shares budget constraint, it either adjusts some part(s) of for exports and domestic supplies on the basis of the its spending on the basis of available receipts or relative prices received in these two markets.112 mobilizes additional receipts of one or more types in order to finance its spending. 112 An individual production activity does not respond to changes in relative prices for exports and domestic sales if its output only has one destination, either exported in full or sold domestically in full. By the same token, domestic demanders do not have a choice between imports and domestic output for commodities if only one source is available. 160 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Factor markets reach balance between demands and is endogenous. The economy grows due to accumulation supplies via wage (or rent) adjustments. Across all factors, of labor and capital, and the use of natural resources. the factor demand curves are downward sloping, reflecting For labor, the stocks, here disaggregated by educational the responses of production activities to changes in attainment, grow over time due to growth in the population factor wages. On the supply side of the labor market, in working age and/or their labor force participation rates. unemployment is endogenous – the model includes a Improvements in education, reflected here in a growing wage curve (a supply curve) that is upward-sloping until labor force share for those with more education, raises the full employment is reached, at which point it becomes productivity of labor and its wages. The accumulation of vertical (see Figure A1.2). For non-labor factors, the supply capital, split into private and infrastructure, is determined curves are vertical in any single year (the supply is fixed). by investment and depreciation. For natural resources, the stocks available for utilization change over time on The above discussion explains the functioning of model the basis of exogenous projections that, if depleted, economy in a single year. In SDGSIM, growth over time decline over time. Figure A1. Aggregate payment flows in SDGSIM Factor domestic wages and rents private savings Households Markets trnsfr+interest private consumption dir taxes lending factor demand trnsfr-interest indir taxes gov cons and inv Government Private interm input demand Investment trnsfr-interest Financing lending Activities lending Domestic FDI Commodity Rest of Markets imports World domestic demand exports foreign wages and rents private investment PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 161 Figure A2. The labor market in SDGSIM Figure A.2. The labor market in SDGSIM 5 4 3 Wage Wage curve Demand 2 1 0 85 90 95 100 - unemployment rate (% ) In a post-calculation module, information on poverty rates Appendix B.3: Description of model database and Gini coefficients for an initial year, and the evolution of real consumption per capita from the simulations This appendix documents the database that was built for are used to generate one or more synthetic household SDGSIM Niger. Its main component is a SAM (presented surveys, assuming a lognormal distribution within each in the above section), complemented by various other household group (here rural and urban) for which poverty data, including elasticities, and physical quantities of results are generated. Post calculations are also used to labor employment and stocks (the section below). The extract the evolution of net debt stocks – foreign debt additional information needed to define the dynamic stocks for government (data on non-government foreign base run and the non-base simulations is presented in debt were not available and are most likely negligible) the main body of the text. and domestic debt stocks owed by government to non- B.3.1 SAM for 2019 government – from the net financing flows from the simulation results (for ease of reading referred to as The main data sources were the International Food Policy borrowing), and exogenous data on interest rates and Research Institute (IFPRI) SAM for 2018, based on an initial debt stocks.113 updated version of an IFPRI 2015 SAM, and complementary data for 2019 from the IMF, the UN, and the World Bank (IFPRI 2020; Randriamamonjy and Thurlow 2018; IMF 2020; UN 2020; and World Bank 2020). The complementary data were used to update the SAM to 2019 and disaggregate its treatment of capital and investment accounts. 113 The following procedure was followed in the computation of foreign financing and debt (in foreign currency): Using the definitions (1) and (2) where and stand for borrowing, net financing, end-of-year debt, and real interest rate, respectively, borrowing was defined by first using (2) to substitute for in (1) and rearranging: . Solving for and (3) . Starting from the base year and using (3) and (1), it is straightforward to compute the evolution of the debt stock over time. For domestic government financing, there was one deviation from this procedure: only a fraction of is treated as borrowing. The rest is treated as financing from the monetary system, which does not add to domestic government debt. 162 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER In terms of procedure, the first step was to assemble Given the fact that the 2018 and 2019 structure of the relevant data in an Excel file, construct a 2019 macro SAM economy were relatively similar (judging from the 2019 inside this file (primarily drawing on IMF fiscal, balance data that were accessed), the updating aspect of this was of payment, and monetary sector data), and make the relatively straightforward. The only main issue was related data GAMS readable. After this, a proto SAM (a “raw” to the fact that government consumption according to the 2019 SAM) was constructed in GAMS. Compared to the IMF 2019 data (which only cover the central government) IFPRI SAM, the key changes were the following: (a) the was much lower than for other sources, which show IFPRI SAM was scled to replicate 2019 GDP at purchasers’ consumption for the general government. This lower prices; (b) households were aggregated into rural and level of government consumption was associated with a urban;114 (c) the aggregate savings-investment account higher level of non-government consumption, reflecting of the IFPRI SAM was replaced by institutional capital the fact that data for 2019 GDP, investment, and trade accounts (split into government, non-government, rest were very close across the different sources (IMF and of world, and financial sector) as well as accounts for other). In the 2018 IFPRI SAM, the values for government private investment, government investment, and stock and household consumption were consistent with (or inventory) change, populated with data from the IFPRI the non-IMF sources. To keep the overall structure of SAM and the macro SAM; and (d) a cross-entropy program household and government consumption in the new SAM (Robinson et al. 2001) was applied to generate a matrix relatively intact while drawing on the rich IMF dataset that was balanced and replicated the information in the for updating to 2091, a decision was made to use both macro SAM as well as 2019 data for sectoral aggregates for sources, reconciling the difference between the two via value added, exports, and imports. adjustments in transfers between the government and the domestic non-government institutions (households and enterprise). 114 While the finer IFPRI disaggregation – households are split into rural farm, rural non-farm, and urban, with each group disaggregated by quintile – may be relevant for some purposes such as comparative-static analysis, it is less so in the context of dynamic analysis, which needs to consider demographic change, migration, and changing relative household incomes (invalidating quintile-based household classifications). PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 163 Table C.1. Real macro indicators in 2021 and by scenario (% annual growth 2022-2050) 2021 base pop- pop- ag agman agmanser base-p combi combi-0 combi-fg combi-ef edu+ Absorption 8,710.6 5.5 5.4 5.7 5.7 5.7 5.7 5.3 5.9 5.4 6.0 5.9 Consumption - 5,281.5 5.3 5.1 5.3 5.5 5.5 5.5 5.0 5.6 5.0 5.7 5.7 private Consumption - 1,323.2 6.6 6.5 7.2 6.6 6.6 6.6 6.5 7.3 7.0 7.3 7.0 government Fixed 1,238.5 5.6 5.5 5.8 5.6 5.6 5.7 5.3 5.9 5.3 6.0 6.0 investment - private Fixed 867.3 5.1 5.1 5.1 5.3 5.3 5.3 5.1 5.3 5.3 5.3 5.3 investment - government Exports 1,004.7 7.6 7.5 7.7 7.7 7.8 7.8 7.5 8.0 7.3 8.0 8.1 Imports 1,816.6 5.8 5.8 6.0 5.9 6.0 6.0 5.6 6.2 5.7 6.3 6.2 GDP at factor 7,170.6 5.7 5.6 5.9 5.8 5.8 5.9 5.5 6.1 5.6 6.2 6.1 cost Total factor 4.4 4.4 4.1 4.5 4.5 4.5 4.4 4.2 4.4 4.3 4.3 employment (index) Total factor 1.2 1.2 1.7 1.3 1.3 1.3 1.2 1.9 1.2 1.9 1.91 productivity (index) GNI 7,748.6 5.6 5.4 5.7 5.7 5.7 5.7 5.4 6.0 5.4 6.1 6.0 GNDI 8,396.9 5.6 5.5 5.7 5.7 5.7 5.7 5.4 6.0 5.4 6.0 6.0 GNI per capita 0.3 2.1 2.3 2.6 2.3 2.3 2.3 2.0 2.8 2.0 2.9 2.8 GNDI per capita 0.3 2.1 2.3 2.5 2.2 2.3 2.3 2.0 2.8 2.0 2.8 2.8 Real exchange 0.04 0.00 0.09 0.16 0.12 0.13 0.19 0.19 0.01 0.18 0.19 rate (index) Unemployment 20.5 18.7 18.8 19.2 18.4 18.1 17.9 19.5 18.0 20.1 17.6 17.6 rate (%) Headcount 47.5 34.4 32.8 25.9 31.9 31.8 31.6 38.8 22.6 38.8 21.7 21.5 poverty rate (%) Note: 1. Unless otherwise noted, column for initial year shows data in bn 2015 dinars. 2. For the unemployment and povert rates, the base-year and simulation columns show base-year rates and simulation-specific final-year rates, respectively. 164 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Table C.3. Government receipts and spending in 2021 and by scenario in 2050 (% of nominal GDP) Indicator 2021 base pop- pop- ag agman agmanser base-p combi combi-0 combi-fg combi-ef edu+ Receipts Direct taxes 3.1 1.5 1.6 1.8 1.5 1.5 1.5 2.0 1.7 2.3 1.6 1.4 Import tariffs 2.5 2.7 2.7 2.8 2.7 2.7 2.7 2.6 2.8 2.7 2.8 2.8 Other indirect 9.1 5.3 5.6 6.3 5.5 5.5 5.2 6.5 6.0 8.8 5.3 4.8 taxes Private 8.4 10.7 10.6 11.1 10.7 10.6 10.7 10.1 11.1 10.1 11.3 11.3 transfers Foreign 5.9 5.9 6.0 5.8 5.9 5.8 5.8 6.5 5.6 6.3 6.0 5.5 transfers Domestic 0.3 0.5 0.5 0.5 0.5 0.5 0.5 0.6 0.5 0.6 0.5 0.5 financing Foreign 1.8 1.1 1.1 1.1 1.1 1.1 1.0 1.2 1.0 1.1 1.0 1.0 financing Total 31.5 28.4 28.9 30.2 28.8 28.6 28.2 30.2 29.6 32.4 29.2 28.2 Spending Consumption 16.1 14.9 15.2 16.3 14.9 14.8 14.7 15.6 16.0 17.5 15.8 14.8 Fixed 11.6 9.6 9.9 9.4 10.2 10.1 9.9 10.4 9.5 10.9 9.3 9.4 investment Private 3.8 3.9 3.7 4.5 3.6 3.6 3.6 4.1 4.1 4.1 4.1 4.1 transfers Total 31.5 28.4 28.9 30.2 28.8 28.6 28.2 30.2 29.6 32.4 29.2 28.2 Table C.4. Balance of payments in 2021 and by scenario in 2050 (% of nominal GDP) Indicator 2021 base pop- pop- ag agman agmanser base-p combi combi-0 combi-fg combi-ef edu+ Outflows Imports 25.9 27.2 27.2 28.0 27.9 27.6 27.6 27.5 28.3 27.1 28.4 28.4 Factor 2.5 9.9 10.0 9.8 10.4 10.2 10.1 10.6 10.0 10.0 9.7 10.0 payments Change 0.5 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 in foreign reserves Total 28.9 37.4 37.5 38.1 38.7 38.1 38.0 38.4 38.6 37.4 38.4 38.7 Inflows Exports 14.3 23.6 23.5 24.2 24.8 24.5 24.5 23.2 25.3 23.0 24.8 25.5 Private 3.4 3.1 3.0 3.3 3.1 3.1 3.0 3.4 3.2 3.2 3.1 3.1 transfers Government 5.9 5.9 6.0 5.8 5.9 5.8 5.8 6.5 5.6 6.2 6.0 5.5 transfers Government 1.8 1.1 1.1 1.1 1.1 1.1 1.0 1.2 1.0 1.1 1.0 1.0 borrowing FDI 3.5 3.7 3.8 3.7 3.7 3.7 3.6 4.1 3.5 3.9 3.5 3.5 Total 28.9 37.4 37.5 38.1 38.7 38.1 38.0 38.4 38.6 37.4 38.4 38.7 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 165 Table C.5. Real GDP at factor cost by sector - level in 2021 (bn 2019 CFA francs) and annual growth by scenario 2022-2050 (%) 2021 base pop- pop- ag agman agmanser base-p combi combi-0 combi-fg combi-ef edu+ Aggregate sectors Agriculture 2,552.9 4.2 4.0 4.2 4.5 4.5 4.5 4.1 4.5 4.0 4.5 4.5 Industry 1,132.0 6.6 6.6 6.8 6.8 6.8 6.8 6.5 7.0 6.4 7.2 7.1 Mining 444.9 7.6 7.6 7.7 7.6 7.6 7.7 7.4 7.7 7.5 7.7 7.8 Manufacturing 366.4 5.6 5.4 6.0 6.0 6.1 6.1 5.6 6.5 5.4 6.6 6.6 Other 320.7 6.2 6.1 6.3 6.3 6.3 6.4 6.0 6.6 5.9 6.7 6.7 Services 2,515.0 6.3 6.2 6.7 6.5 6.5 6.5 6.2 6.9 6.3 7.0 6.9 Private 1,675.5 6.2 6.1 6.4 6.3 6.3 6.4 6.0 6.7 5.9 6.8 6.8 Government 839.5 6.6 6.6 7.2 6.7 6.7 6.7 6.6 7.3 7.0 7.3 7.1 Total 6,199.9 5.7 5.6 5.9 5.8 5.8 5.9 5.5 6.1 5.6 6.2 6.1 Table C.6. Sector structure in 2021 and 2050 (%) Value added Production Employment Exports Imports Export/output Import/demand 2021 Agriculture 41.2 27.3 73.8 7.3 1.1 2.8 1.0 Industry 18.3 30.2 8.3 69.8 66.2 15.4 31.0 Mining 7.2 7.4 1.7 24.3 3.4 24.5 19.4 Manufacturing 5.9 12.0 4.0 45.5 59.8 23.6 49.7 Other 5.2 12.0 4.0 45.5 59.8 23.6 49.7 Services 40.6 42.5 17.9 23.0 32.8 4.4 10.6 Private 32.0 36.4 16.0 21.3 32.4 4.8 12.1 Government 8.5 6.1 1.9 1.7 0.3 2.2 0.8 Total 100.0 100.0 100.0 100.0 100.0 7.8 16.9 2050 Agriculture 33.9 21.2 63.5 2.4 1.0 1.6 1.0 Industry 25.6 35.1 12.0 79.3 66.6 23.3 30.7 Mining 13.3 11.8 3.9 51.7 4.1 46.1 11.4 Manufacturing 6.0 11.9 4.5 27.6 59.5 23.1 50.9 Other 6.2 11.4 3.7 3.0 4.6 Services 40.6 43.6 24.5 18.3 32.5 5.4 10.6 Private 33.5 38.2 21.6 16.6 32.2 5.7 11.9 Government 7.1 5.4 3.0 1.6 0.3 3.8 0.8 Total 7.1 5.4 3.0 1.6 0.3 3.8 0.8 166 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Value added Production Employment Exports Imports Export/output Import/demand △ (2050-2021) Agriculture -7.3 -6.1 -10.3 -4.8 -0.1 -1.2 0.0 Industry 7.3 4.9 3.7 9.5 0.4 7.9 -0.2 Mining 6.1 4.4 2.1 27.4 0.8 21.5 1.0 Manufacturing 0.1 -0.1 0.5 -17.9 -0.3 -0.6 1.2 Other 1.0 0.6 1.0 0.0 -0.2 Services 0.0 1.2 6.6 -4.7 -0.3 1.1 0.0 Private 1.4 1.8 5.6 -4.7 -0.3 0.9 -0.1 Government -1.4 -0.6 1.0 0.0 -0.1 1.6 0.0 Total 0.0 0.0 0.0 0.0 0.0 3.7 0.4 Appendix B.5 medium fertility variant (UN 2019) which projects that the diminution in the total fertility rate will follow the same The base scenario is designed to provide a central, linear trend observed since 2000, moving from 6.95 live business-as-usual case for the evolution of Niger’s births per woman in 2015-2020 to 4.32 in 2045-2050. economy up to 2050. This is a scenario without changes in economic policy and without the emergence of major The level of income per capita and the extent of poverty in macroeconomic imbalances. It provides a yardstick Niger can change radically according to future demographic against which the results for non-base scenarios are trends. The first two alternative scenario pop- and pop+ measured. For 2020 and 2021, the World Bank’s estimated differ from the basis only for the population trajectory. In or projected growth in GDP at factor cost are imposed the first and more favorable scenario (the UN low fertility (World Bank 2021a). For the period 2022-2050, the model variant), the trend in the reduction of the total fertility is set up so that, thanks to the anticipated oil expansion, rate observed since the begin of the 2000s will accelerate, it generates an expansion of 0.5 percentage points moving to 3.82 live births per woman in 2045-2050. As relative to the observed annual rate for 2000-2019 of consequence, the average rate of population growth will 5.2 percent.115 Beyond GDP, starting from 2020, payments drop from 3.8 in 2020 to 3.1 in 2050. This alone will allow related to the government, the balance of payments, some benefit in terms of poverty reduction and income savings, and investment, defined as shares of GDP are set per capita, which will increase of around 4.3 percent in to make sure that the path of the economy is sustainable. 2050 comparing to the base scenario. However, if the pace Moreover, it assumes that, starting from 2022, the growth of the reduction in fertility rate should slowdown so that in the different population age groups follows the UN the number of live births per woman in will still be 4.8 115 Technically, the base scenario was constructed in two steps: (1) It was assumed that the oil sector was stagnant and growth in GDP at factor cost exogenous while, at the same time, the model has an endogenous variable that, in each year, scales TFP in selected production activities so that the exogenous GDP level is generated; and (2) The scenario was rerun with endogenous GDP growth, without endogenous TFP scaling (but imposing the scaling results from step 1), and an expanding oil sector (due to expanding access to the natural resource). The analysis uses the results from step 2, which is what is referred to as the base scenario. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 167 (UN high variant), the level of income per capita will be and an increase in the share of the labor force with sensible lower, to XOF 573,000 (2015 values). completed primary education or more. More specifically, between 2021 and 2024, government education spending The first scenario, pop, addresses population in isolation increases gradually from 3.8 percent of GDP to 5.8 percent, from other changes. It assumes that, starting from 2022, a share that is maintained throughout the simulation the growth in the different population age groups switches period.116 With regard to the labor force, it is assumed from the UN medium variant to the UN low fertility variant that the share with completed primary or more starts (UN 2019). As a result, by 2050, the total fertility rate to grow more rapidly while growth for those with while decreases to 3.8 and total population reaches around 61 growth for those with less than completed primary slows million as opposed to 4.3 and 65 million, respectively, for down, raising the share for those with completed primary the medium variant while the dependency ratio decreases or more from 11 percent in 2021 to 55 percent in 2050, as from 78 to 72 percent, something that creates a potential opposed to a share of 39 percent for the base in 2050.117 In demographic dividend insofar as the addition to the labor the model, the gain from this change in shares is due to force can be productively employed. This alone will allow the assumption that the more educated labor group has some benefit in terms of poverty reduction and income a higher marginal productivity and, as a result, receives per capita, which will increase by around 4.3 percent in higher wages. Finally, the fiscal space that is needed 2050 comparing to the base scenario. However, if the pace for this spending expansion is generated via scaled-up of the reduction in fertility rate should slowdown, pop+, domestic taxes (direct and indirect, not including trade so that the number of live births per woman will still be taxes). 4.8 (UN high variant), the level of income per capita will be sensible lower, to XOF 573,000 (2015 values), as the Finally, the highest level of GDP will be reached in a population reaches 70 million and the dependency ratio scenario such as pop-s+, where the saving-investment will increase to 78 percent of the population. channel is fully at work. The lower fertility allow household to increase the share of their revenue which Such a demographic change is likely to come hand in is saved and used to fund domestic investment. This is hand with improvements in educational outcomes and in fundamental element through which the demographic the saving ratio. Accordingly, the third scenario, pop-edu+, dividend materializes. In this case, even by keeping combines the demographic assumption of the scenario unchanged the demographic variables, the level of GDP pop with increased government spending on education, per capita deviate from the baseline 116 Judging from data for the period 2012-2016 for all low-income countries with data, this change in government education spending would move Niger from below the mean to midway between the mean of 4.2 percent and a maximum of 7.4 percent (Andrews et al. 2019, p. 11). 117 The changes in the educational make-up of the labor force were generated drawing on simulated changes in Goujon et al. (2019, 2020a, 2020b). 168 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Appendix Table 3. Selected data for demographic analysis (values in 2021 and by scenario in 2050) 2021 base pop- pop+ pop-edu+ pop-s+ Headcount poverty rate (%) 47.5 34.4 32.8 37.7 25.9 28.2 GDP per capita (CFA fr, constant 2019 prices) 314,303 616,030 643,069 575,326 693,661 720,871 Household savings (% of GDP) 12.1 11.9 11.9 12.0 12.0 16.0 Dependency ratio (%) 110.3 78.0 72.0 84.4 72.0 72.0 Working age population (% total population) 47.6 56.1 58.6 54.2 58.1 58.1 Source: SDGSIM Appendix B.6: Reform packages in SDGSIM For combi and most of the other scenarios, the growth deviations are slightly stronger than the sum of the A more elaborate set of reforms scenarios combines individual effects of the two “input” scenarios, pop-edu+ elements of the simulations in the first set with reform and agmanser, indicating the presence of synergies.118 The aiming at expanding public investment and tests the results for combi-0 show the cost of a serious governance role of selected assumptions on fiscal space. The first failure: for example, instead of a growth increase of around simulation, combi, combines changes toward lower 0.4 percentage points, absorption growth shrinks 0.1 population growth, a better educated labor force, and the points. Economically, this is due to the fact that allocation provision of infrastructure that raises the productivity of of resources to government consumption and investment the widest range of sectors. The remaining simulations without any gains comes at the cost of household test the impacts of alternative assumptions in the context consumption and private investment that together and of the combi scenario: (a) combi-0 assumes the same improve a wider range of economic outcomes. increases in government spending as for combi but without gains in education or productivity – this reflects In terms of sectoral GDP growth, the patterns of the two the impact of deficient governance; (b) combi-fg assumes input scenarios are reflected in the outcomes for combi that instead of higher taxes, the need for increased (Appendix Figure 20) with some synergy added (i.e., the government funding is covered by foreign grants; and (c) sectoral growth gains for the two are slightly larger than combi-eff introduces a parallel increase in government the sum of those of the individual input scenarios). efficiency (reduced government spending on public administration without any negative impacts) sufficient to Finally, Appendix Figure 22 presents the implications of create the fiscal space needed to increase spending on these 2050 levels of household per-capita consumption education and infrastructure. for headcount poverty. The three more successful scenarios bring poverty down to around 22-23 percent, i.e., below the lowest level in set 1 of around 26 percent. 118 For example, the sum of the absorption growth deviations for pop-edu+ and agmanser are 0.35 percentage points while the gain for combi is 0.39 points. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 169 Appendix Figure 18. Absorption, GDP, and trade growth by Appendix Figure 19. Household consumption and private scenario (%-age pt. deviation from base) investment growth by scenario (%-age pt. deviation from base) 0.60 0.50 0.50 0.40 0.40 0.30 0.30 0.20 0.20 0.10 0.10 0.00 0.00 -0.10 -0.10 -0.20 -0.20 -0.30 -0.30 -0.40 combi combi-0 combi-fg combi-ef combi combi-0 combi-fg combi-ef Absorption Exports Household consumption Imports GDP at factor cost Private investment Source: SDGSIM Appendix Figure 20. Sector GDP growth by scenario Appendix Figure 21. Household consumption per capita by (%-age pt. deviation from base) year (index 2021=100) 1.0 220 0.8 210 200 0.6 190 180 0.4 170 160 0.2 150 140 0.0 130 120 -0.2 110 100 90 -0.4 2 02 1 2 02 5 2 02 9 2 03 3 2 03 7 2 04 1 2 04 5 2 04 9 -0.6 base combi combi -0 combi combi-0 combi-fg combi-ef combi -fg combi -ef Agriculture Mining Manufacturing Other industry Private services Government services Source: SDGSIM 170 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Appendix Figure 22. Headcount poverty rate in 2021 and by scenario in 2050 (%) 50 47.5 45 38.8 40 34.4 35 30 25 22.6 21.7 21.5 20 15 10 5 0 2021 base combi combi-0 combi-fg combi-ef Source: SDGSIM CHAPTER 3: APPENDIX C IFC is complementing these activities with support for a local agribusiness firm, BoViMa, which is developing the Examples of blended finance - BoViMa Madagascar country’s first modern feedlot and abattoir. With support and FinGAP Ghana119,120 from the Global Agriculture and Food Security Program (GAFSP), advisory services are provided to help BoViMa BoViMa, Madagascar: Three-quarters of Madagascar’s improve animal husbandry and strengthen the company’s population lives in extreme poverty, and 80 percent are supply chain for both breeders and local farmers who dependent on agriculture. Although Madagascar has produce animal feed. IFC and GAFSP are also providing a excellent conditions for cattle and goat production, $7 million subordinated debt investment in the company inadequate veterinary services and infrastructure limit to make the project viable and crowd-in other investors. economic opportunities and exports. The government of The blended concessional finance will allow the BoViMa Madagascar, with World Bank support, has been helping project to help support the livelihoods and operations of rural herders and farmers improve incomes by expanding more than 20,000 local herders and farmers. veterinary services, developing new road infrastructure, addressing agriculture value chain policy and governance This project illustrates how a comprehensive approach issues, and building related technical capacity. involving advice to government and suppliers, development institution financing, private sector 119 IFC (2021). “Using Blended Concessional Finance to Invest in Challenging Markets - Economic Considerations, Transparency, Governance, and Lessons of Experience”, available at: https://www.ifc.org/wps/wcm/connect/1decef29-1fe6-43c3-86c7-842d11398859/IFC-BlendedFinanceReport_Feb+2021_ web.pdf?MOD=AJPERES&CVID=ntFHkEh 120 Source: SAFIN / IDB Lab: “Filling a financing gap in Ghana: Blended finance case study,” available at: https://5724c05e-8e16-4a51-a320-65710d75ed23. filesusr.com/ugd/f6ddfc_8802e17a260a4836a9f33acc8c201bb6.pdf PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 171 sponsorship, and donor-funded concessional co- significantly, Palladium helped create a market where investment can help create markets. The project required financial institutions now compete, in the absence of extensive effort to develop but could revive the country’s donor funding, for market position in agricultural finance. former export market for beef and goat meat. The project also illustrates the importance of higher risk-bearing Appendix C.1 instruments such as subordinated loans in Opportunities for commercial agriculture in Niger high-risk environments. Several studies find that agriculture can be an important FinGAP, Ghana: An innovative program implemented engine for Niger’s economic growth, and a suitable option by Palladium and financed by the U.S government to diversify its exports. Agriculture in Niger is perceived to transformed Ghana’s agricultural finance market by have a large potential for development and to contribute realigning incentives to motivate behavior change among to reducing poverty that affects large groups of people, local private sector actors. The incentives stimulated including women and youth, in rural areas. The main commercial lending to “missing middle” borrowers in the sources for growth are seen in long-overlooked segment of agriculture that focuses on the staple crops of maize, rice and soy. • Vast aquifer resources, which offer opportunities to develop diversified and productive agriculture Over the course of five years (from 2013 to 2018), systems. Palladium invested $5 million—out of a $22 million USAID program known as the Financing Ghanaian Agriculture • Several plant varieties and animal breeds recognized Project (FinGAP)—to create “smart incentives” that for their adaptive and productive potential in their would encourage business advisory service providers agro-climatic environments that can be competitively and financial institutions to participate in this sector. produced and exported, and Ultimately, FinGAP unlocked $260 million in financing and benefited nearly 3,000 small, medium and large • The traditional know-how and good experience of agribusiness enterprises, more than 40 percent of them producers in certain specialized production areas owned by women. typical of the region and landscape, such as flood recession cultivation. The incentives, which included subgrants or subcontracts, were accompanied by demand-driven training and The expansion of irrigated land is clearly one of the most technical assistance on how to lend to agricultural promising paths to increase production of high-value supply chains and how to mitigate risk. Palladium also products. Although three-fourths of Niger is classified as encouraged the use of blended finance at the project hyper-arid desert, the country’s overall potential water level, using strategies such as packaging financing from resources are significant, estimated at 32 billion cubic multiple sources, creating new financial products and meters per year. Most of it is external – coming through layering risk mitigation instruments such as guarantees or the Niger river and its tributaries. However, most of those subsidies to the private sector. The combination of these resources have not been adequately harnessed. To date, blended finance strategies led to significantly expanded less than 1 percent (2,000 ha) of Niger’s surface water agricultural lending—by both local and international and less than 20 percent of its groundwater are utilized, financial institutions—that continues today. More and less than 1 percent of the total cultivated area (of 172 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 15 million ha) is irrigated.121 There is increasing interest large number of small farms with an average area of in the installation of small-scale irrigation facilities that 0.5 hectares. rely on small water retention infrastructure or through pumping of ground water, that could be managed locally The performance of the agricultural sector is highly by communities instead of relying on the larger surface variable due to high exposure to agronomic, climatic, and distribution schemes.122 Expanding irrigation would allow security risks with few mitigation options, particularly for Niger to exploit its potential to produce a variety of frequent climatic shocks, notably drought, which cause exportable agricultural products. food insecurity. On top of this, persistent instability in the Sahel region, the disruptive forces of climate change, Commercial agriculture, understood as a market-oriented and the ongoing COVID-19 pandemic, complicate the agriculture serving local and international demand, is pursuance of a long-term development strategy, present still in the early stages of development in Niger. While key bottlenecks, and additional sources of fragility. agriculture plays a large role in the local economy, and as Environmental degradation, extensive flooding, overuse a source of nourishment and employment, most farming of land, soil erosion, and desertification represent the is undertaken at small to very small-scale units with main land use risks, compounded by a weak dynamic of low levels of productivity with most of the production mitigation and adaptation. The exposure to these risks is dedicated to the farmers’ own consumption and only accentuated by the very low level of capital investment in small surpluses left for sale. Except for rice, average the sector, and the lack of resources to apply technology yields per hectare of agricultural products such as millet, to improve productivity and resilience in the face of sorghum and groundnuts are well below the Sahelian disruption in production cycles. The main challenges for average, and still much lower than that achieved, for the development of productive commercial agribusiness example, by Egypt. As most of the production also uses include (i) limited access to markets due to the lack of little or no external inputs, agriculture is, as a matter of market information, weak transport infrastructure, and fact, not well integrated into markets. the absence of commercial relationships; (ii) the lack of access to finance which is reflected in the lack of access As of 2019,123 the agribusiness sector was highly atomized to modern equipment, storage, processing, and logistics; with very few medium sized enterprises and modern and (iii) poor access to energy. Farmers often look for facilities on the one side, and very large numbers of support to acquire modern equipment, receive training informal farms and microenterprises on the other. The on techniques to improve agricultural productivity, and inventory includes a small number of formal value chain improve the control and monitoring of their production. firms124, several producer organizations,125 an unknown number of enterprises providing support services to farmers and the small and medium enterprises (SMEs) in the agri-food sector operating in urban areas, and a very 121 Source: WB 2021 Project Appraisal Document of the NIGER INTEGRATED WATER SECURITY PLATFORM PROJECT 122 See: National Strategy for Small Scale Irrigation Development; SPIN, March 2015 123 Source: 2019 Project Appraisal Document for the AGRICULTURAL AND LIVESTOCK TRANSFORMATION PROJECT 124 9 medium sized enterprises operating in commercial farming, the trade of onions, horticulture products, poultry, and the processing of wheat and dairy products, 4 large slaughterhouses, one of which is privately operated, one large dairy processor, “Niger Lait”, and a small number of semi-modern dairy operators 125 There are about 8,500 farmer cooperatives who sell the surplus of their production in the market and more recently started to be involved in processing, as well as 50 women associations involved in grinding and processing of fruit, cereals, and dairy products. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 173 CHAPTER 4: APPENDIX D Appendix Table 4. Summary of Baseline Assumptions for Niger (LTGM-NR) (Selected Initial Conditions, Main Parameters, and Exogenous Variables) A. Main parameters Value Source C. Trajectory of exogenous variables, 2021-2050 Labor share 52% of non-R GDP PWT 10 Price of oil US$60/barrel WB-CMO Resource rents 45% of oil GDP GTAP Investment: Government share 40% of oil GDP IMF-WCE Private 30%→15% GDP IMF-FAD B. Initial conditions Value Source Public 15%→10% GDP IMF-FAD Productivity: Per capita GDP US$563 (real 2010) UN-WDI Non-oil TFP 1% growth PWT 10 Non-oil 98% of GDP NER-SNA Human capital 0.5% growth PWT 10 Oil 2% of GDP NER-SNA Demographics: 2021→2050 Capital-to-GDP ratio 4 PWT 10 Population growth 4%→3% UN-ILO Non-energy 3.9 Eq. MPK Working-age pop. 48%→55% UN-ILO Oil 0.1 Eq. MPK Participation rate 74% constant WB-WDI Reserves of oil 2Bn barrels BP-Energy Appendix Table 5. Summary of Growth Simulations (LTGM-NR) Average growth rate, Percentage Index (2010=100) 2026-50 2026-29 2030s 2040s 2020 2030 2030 I. Gross domestic product per capita Baseline growth rate, % 1.4% 0.5% 1.0% 2.0% 100 127 173 Incremental growth vis-à-vis baseline, p.p.: High oil price ($70): Moderate response ~0 +0.1 +0.1 ~0 128 175 Strong response +0.1 +0.1 +0.1 ~0 128 177 High Govt. share in oil income +0.2 +0.4 +0.3 ~0 130 182 Low oil price ($40): Moderate response -0.1 -0.1 -0.2 ~0 126 170 Strong response -0.2 -0.2 -0.3 ~0 126 167 174 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER Average growth rate, Percentage Index (2010=100) 2026-50 2026-29 2030s 2040s 2020 2030 2030 II. Non-energy GDP per capita Baseline growth rate, % 1.5% 0.6% 1.2% 2.1% 100 124 173 Incremental growth vis-à-vis baseline, p.p.: High oil price ($70): Moderate response +0.1 +0.4 ~0 ~0 126 175 Strong response +0.1 +0.5 +0.1 -0.1 126 177 High Govt. share in oil income +0.2 +0.8 +0.3 -0.1 128 183 Low oil price ($40): Moderate response -0.1 -0.8 ~0 +0.1 119 168 Strong response -0.2 -0.9 -0.1 +0.1 118 166 Appendix Figure 23. General Government resource revenue, Percent of total revenue, average over 2000-2016* (Sub-Saharan Africa in blue) Source: Resource revenue data from UN-WIDER and total revenue data from IMF-WEO. * Data for Niger runs from 2000 to 2013. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 175 Appendix D.1: Literature on institutions and the The type of natural resource – point source or diffuse – natural resource curse matters too in determining governance outcomes. Point source resources, which are geographically concentrated There is a rich literature in the disciplines of economics and include minerals, oil and plantation crops, are and politics that studies the paradox of many resource- associated with weaker institutional quality and hence rich developing countries failing to use their resource poorer economic and political outcomes. Authors find a wealth as a catalyst for growth and development, positive link between oil rents in particular and corruption a phenomenon known as the resource curse. Early (Mehlum et al, 2006; Arzeki and Bruckner, 2009). Diffuse economic explanations for the resource curse focused on resources on the other hand are those that are dispersed the Dutch disease, in which a resource boom leads to the across a wider geographic area and economic base appreciation of a country’s real exchange, and the shift (such as non-plantation agriculture), making them less of labour and capital away from manufacturing, a sector amenable to appropriation. that is conducive to long-term growth. This crowds out the production of growth-enhancing traded goods leading The state of the country’s institutions at the time of to economic stagnation. Many later theories place more resource discovery is also crucial; where institutions emphasis on institutional explanations for the lacklustre are weak, the impact of natural resources is likely to be development outcomes, with some such as Easterly and negative (Arzeki and Van der Ploeg, 2010). Levine (2003) arguing that the only channel through which natural resources (NR) impact economic development is Appendix D.2: Literature on natural resources through their impact on institutions. Different authors cite and conflict different transmission channels, and indeed the chain The literature on the singular effects that natural of causality is debated – do natural endowments affect resources have on conflict is extensive. It draws from the the kind of institutions that develop which then impacts broader literature on the causes of war, which emphasises development broadly or do institutions shape the impact two mechanisms: grievance and greed. The former of natural resources on development? argues that conflicts arise out of grievances related to One strand of the institutions-resource-curse literature socioeconomic disparities, limited political rights, lack argues that natural resource endowments influence of access to the payoffs from natural resources whilst regime type, in particular, leading to the development bearing their environmental costs, as well as broader of undemocratic regimes. Simply put, natural resources divisions stemming from ethnic fractionalisation and generate large rents that undermine the fiscal contract religious diversity (Ross, 2001 and Regan, 2003). The greed between a government and its people. Such a state mechanism on the other hand is driven by economic is therefore fiscally autonomous, meaning that it is incentives – rents obtained from the control of resource essentially free from the accountability associated with sites or the extortion of resource extractors, may be used relying on tax revenues for fiscal resources, leading to to fund rebel recruitment and other start-up costs of war. poor governance. This finding is drawn from a cross-country analysis of civil wars in 161 countries since 1961, wherein the authors, Collier and Hoeffler (2000), find the extent of primary commodity exports to be the most important factor in determining the risk of conflict. 176 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER The link between NR rents and funding the startup 2001). The geographic location of natural resources (close costs of war is disputed. Other authors such as Fearon to power centres such as the capital or in more remote (2005) argue that this relationship is weak, and if there areas) and the nature of the resource itself (diffuse is indeed a link between primary commodities and vs. point source), may also influence the nature of the conflict, it is because of the inclusion of fuel exports in conflict that emerges (e.g., warlordism, riots, secessionist the primary commodities data. This ties into his finding movements or violent state control). that oil is in particular associated with a heightened risk of conflict. A different mechanism is also proposed. The type of resource base an armed group has access Unlike Collier and Hoeffler (2000) who suggest NR rents to determines the characteristics of its members, their increase conflict risk due to the ease of financing to strategies and internal organisation, and how they use meet the start-up costs of war, Fearon (2005) argues violence (Weinstein, 2005, 2007). Natural resource wealth that the risk is driven by oil exporters having weak state is likely to attract opportunistic recruits motivated by apparatus given their income per capita. This occurs short-term gains and are therefore harder to organise, because easy access to large revenues reduces incentives with worse outcomes both for the civilian population (e.g., for bureaucratic development and the deepening of the the use of indiscriminate violence) and the armed group state’s administrative apparatus as would be the case in itself (due to lack of discipline or structure), in contrast to non-oil exporters. Ross (2004) likewise finds that there is recruits driven by long-term interests. little evidence of NR rents being used a funding source by emerging rebel groups. However, he finds evidence of a CHAPTER 5: APPENDIX E ‘separatist mechanism’, in which grievances related to the Appendix E.1: Actors involved in the field of disaster allocation of NR rents drive separatist movements. Blair, risk management Christensen and Rudkin (2021) on the other hand find that natural resources in general do not affect the likelihood of 1. The National Platform for Risk Reduction and Natural conflict. However, when the results are disaggregated by Disasters (PFN-RRC) is a multi-sector consultative commodity type, important distinctions emerge. Notably, committee created in 2012126, which aims to promote price increases of agricultural commodities reduce the disaster risk reduction at various levels. The likelihood of armed conflict, whereas price increases in National Platform has remained lethargic for a long oil and gas as well as lootable minerals such as alluvial time due to the non-finalization of its Action Plan, diamonds and gold increase the likelihood of conflict. In the inadequacy of some of its missions which are this respect it is commodity price changes and not NR more operational than consultative, and the lack of abundance itself that determines conflict outcomes. resources for its functionality. The platform is headed by the Prime Minister’s Cabinet, and the Ministry Beyond influencing the probability of the onset of conflict, of the Interior, Public Security, Decentralization NR may also play a role in the intensity and nature of and Customary and Religious Affairs (MI/SP/D/ conflict. Natural resources may reduce the intensity of ACR) ensures the vice-presidency, through the Civil conflict where neither belligerent can secure sole rights Protection General Directorate (DGPC). The Early to the resource (Ballantine, 2003; Ross, 2004; Le Billion, Warning System Coordination Unit (CC/SAP) had the 126 Decree No. 0030/PM, dated February 9, 2012. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 177 function of secretariat. This function has now been issued to organize the MAH/GC addresses some of transferred to the Ministry of Humanitarian Action the overlapping responsibilities experienced in the and Disaster Management (MAH/GC). The platform’s 127 past with certain structures active in the DRM agenda, main mission is the definition of a national DRM such as DNPGCCA, and DGPC. In particular, it is in this framework, which includes policies, and programs, context that the responsibility for the secretariat of known as the National Plan for the Prevention and the PFN-RRC was recently transferred to the Ministry Reduction of Natural Disaster Risks (PN-PRRC). as mentioned above. It is also responsible for the coordination and harmonization of the activities of all stakeholders 3. The 3N Initiative “Nigeriens Nourishing Nigeriens”, involved in DRR processes. The PFN-RRC also created in 2012 stems from a strong political will includes regional representations and has plans for to combat hunger and poverty. It is a large-scale, the installation of department and municipal level cross-sectoral initiative headed by the President’s representations. office that aims to increase livestock, agricultural and forest productivity, while augmenting the resilience 2. The Ministry of Humanitarian Action and Disaster of farmers and herders to climate change and food Management (MAH/GC). The creation of the MAH/GC insecurity. The 3N Initiative is based on five strategic in 2016 resulted from a strong political willingness axes128, including Axis 3, which aims to improving the to prevent and manage climate change, disaster, resilience of populations to climate change, crises, and humanitarian crises, and improve the coping and disasters, through (i) improving the effectiveness capacity of households and communities. The of mechanisms for anticipating and coordinating mission of this ministry was recently refocused in interventions in emergency situations; (ii) providing terms of both strategic and operational roles in the appropriate and adapted responses in emergency field of humanitarian action and risk management, situations; and (iii) promoting and strengthening risk through three important programs that aim to: management mechanisms by providing appropriate (i) strengthen the institutional framework and solutions according to the types of risks faced by coordination of humanitarian interventions and producers, households and communities. disaster management, (ii) improve the effectiveness of the system and responses to humanitarian 4. The National Mechanism for the Prevention and emergencies, and (iii) strengthen mechanisms for Management of Food and Nutritional Crises prevention, disaster warning and risk transfer. To (DNPGCCA) was set up nearly three decades ago implement its mandate, the MAH/GC relies on a and is headed by the Prime Minister’s office. It was central administration including four technical created to guarantee food and nutritional security directorates and six support directorates. It also relies for vulnerable households in the country via the on the relevant tools of the National Mechanism prevention, timely warning and effective management for the Prevention and Management of Food and of disasters and food crises. It has undergone several Nutritional Crises (DNPGCCA). The recent decree changes including that of December 2016, which 127 Decree 2021-319/PM, dated 2021. 128 Initiative 3N | Mission. 178 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER reduced it to a tool for managing food, nutritional functions, including the development of emergency and pastoral crises. Other changes also enabled the preparedness and response measures and tools. establishment of mechanisms and strategic guidelines It also participates in the development of national to strengthen early warning systems to better DRM strategies and policies, including post-disaster prevent and respond to threats and emergencies. The recovery strategies. The DGPC also coordinates DNPGCCA is composed of a Permanent Secretariat, with national and international actors, including an Early Warning System (EWS) Coordination Unit government institutions, international organizations, (CC/SAP) 129 , a Food Crises Unit (CCA) and a Social and NGOs. It is also in charge of the operational Safety Net Unit (CFS). It is based on state-donor coordination in response to adverse events, consultation frameworks, interdisciplinary working including flooding, fires, industrial and technological groups, and other operational technical structures disasters, and evaluates humanitarian impacts, and at the decentralized level. Since 2017, the EWS is needs for assistance to affected populations. The being supported by the Niger Early Warning Services DGPC also coordinates with affected sectors the Modernization Technical Assistance (CREWS) from evaluation of damages, losses and recovery and the World Bank and the World Meteorological reconstruction needs. It is comprised of a General Organization (WMO) to strengthen capacities in early Directorate; Territorial directorates acting at the warning linked to hydrometeorological events. regional and municipal levels; an operational crisis center, activated at the national and territorial levels; 5. The National Council of the Environment for four technical directorates covering emergency Sustainable Development (CNEDD) was created in preparedness, and disaster management functions; 1996.130 Under the supervision of the Office of the Prime and an administrative directorate. Minister, the CNEDD is composed of representatives of the State (1/3) and civil society (2/3) and is 7. The General Directorate of Water resources (DGRE/ responsible for coordinating and monitoring the DHL) of the Ministry of Hydraulics and Sanitation national policy on the environment and sustainable (MAH), provides hydrological information services on development, in particular the implementation of a decadal and monthly basis, based on a network of the National Environmental Plan for Sustainable automatic hydrological stations. DHRE also produces Development (PNEDD). It supports the integration of early warnings and hydrological bulletins. Special climate change considerations in national policies, information notes are also elaborated in case of strategies, and development programs. specific hydrological situations. Since December 2017, DGRE has been testing the Local Early Warning 6. The Civil Protection General Directorate (DGPC) is System against the Floods of Sirba (SLAPIS) model part of the Ministry of the Interior, Public Security, to develop an operational early warning system Decentralization and Customary and Religious in the Sirba watershed. The Directorate does not Affairs (MI/SP/D/ACR). It oversees various DRM develop seasonal forecasts but actively participates 129 It was created by Decree No. 89/003/PM of September 23, 1989 and amended by Decree No. 95-081/PM of 31 May 1995, then by Order No. 0070/ PM of September 3, 2002, and amended by Order No. 0012/PM of 19 January 2012. 130 It was created by Decree No. 96-004/PM of January 9, 1996; amended and supplemented by Decrees No. 2000-272/PRN/PM of August 4, 2000 and 2011-57/PCSRD/PM of January 27, 2011. PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 179 in the Seasonal Climate Prediction in Africa Sudan- broken down into investment plans (PIA), from which Sahelian Countries (PRESASS) forum, co-organized their annual budget is derived. The Government has by the African Center for Meteorological Application recently started supporting these entities to integrate for Development (ACMAD), AGRHYMET and other into their budget the financing of activities related to partners. The Climate Prediction Tool (CPT) software early warning system risk reduction, and emergency is used to produce seasonal forecasts and climate response. However, technical capacities in DRM and change projection. resilient planning at the local level remain low, and no specific, and reliable funding is assigned to DRM 8. The National Meteorology Directorate (DMN) of functions. the Ministry of Transport, created in 1962.131 The DMN’s mission is to: (i) collect, process, validate, 10. The Regional AGRHYMET Center (RAC) is a specialized store and secure meteorological, climatological agency of the Permanent Inter-State Committee and agrometeorological data; (ii) develop and against Drought in the Sahel (CILSS). Member disseminate weather forecasts (including season countries are Benin, Burkina Faso, Cabo Verde, forecasts) for the needs of users in all development Chad, Cote d’Ivoire, Gambia, Guinea, Guinea Bissau, sectors (agriculture, livestock, water resources, Mali, Mauritania, Niger, Senegal, and Togo. It was forestry, civil protection, energy, transport, health, created in 1974 and has an international status with wildlife, fisheries, trade, industry, tourism, public headquarters in Niamey, Niger. AGRHYMET’s main works, etc.); and (iii) provide the necessary data objectives are to (i) contribute to food security for the development of alerts on adverse climate and increased agricultural production in member events including rainfall, extreme temperatures, and countries of CILSS and the Economic Community of drought conditions that may cause damage to people West African States (ECOWAS); and (ii) help improve and their assets. As other national meteorological the management of natural resources of the Sahel services in the sub-region, DMN participates in the and West Africa. PRESASS forum. 11. The African Centre of Meteorological Applications 9. Regions and municipalities. Municipalities are for Development (ACMAD)’s mission is the provision responsible for (i) developing preparedness of weather and climate information and the and response plans at the local level, (ii) the promotion of sustainable development of Africa dissemination of warnings, as part of the Early (notably within the context of national strategies Warning System, and (iii) community awareness for poverty eradication) in the fields of agriculture, and information sharing to the population. Regions water resources, health, public safety and renewable and municipalities are also responsible for the energy. ACMAD carries out its mission through; elaboration of their development plans, which take capacity-building for the 53 National Meteorological into account in an integrated manner, aspects related Services (NMSs) of its Member States in weather to climate change and fragility. These development prediction, climate monitoring (including extreme plans, covering a period of four years, are annually events), transfer of technology (telecommunications, 131 Decree No. 62-056/MTP of March 1, 1962 180 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER computing, and rural communication) and in research. including one for Early Recovery, provide technical Moreover, ACMAD encourages the NMSs to prepare and financial support to the government and other strategic development plans, which integrate new NGOs in the implementation of disaster prevention African initiatives (the New Partnership for Africa’s and management. Development - NEPAD, and other regional integration initiatives) and the socio-economic conditions 13. Civil Society Organizations (CSOs), such as the Niger related to the changing global environment (post Rio Red Cross Society, national and international NGOs, Conventions, Kyoto Protocol). and Community-Based Organizations (CBOs) are also part of the DRR and DRM processes. 12. UN Agencies, through the Humanitarian Country Team (EHP/HCT), and its Clusters and Working Groups, Appendix E.2. Identified DRM-related programs and actions 100 Management and administration of the Prime Minister’s Office 10003 Management of special health center 103 Support for the implementation of sectoral programs 10302 Monitoring of environmental and multilateral agreements (AEM) 10310 Support for the reduction of vulnerability to food and nutritional insecurity (DNPGCA) 106 Coordination of specific programs with technical and financial partners (PTF) 10605 Construction of the Kandadji dam 172 Coordination of humanitarian and disaster management interventions/responses 17201 Coordination, monitoring and evaluation of humanitarian action and disaster management activities 17202 Establishment and creation of structures destined to humanitarian aid and disaster management 17203 Strengthening advocacy for better mobilization of national partners and insurance companies 17204 Coordination of responses at the national level in relation to the ministries and structures concerned 17205 Development of policies and strategy for humanitarian action and disaster management as well as their action plans 17206 Development and implementation of communication plans on humanitarian action and disaster prevention 17207 Sensitization of stakeholders on the construction ban in flood-prone and non-constructible areas 17208 Provision of information and awareness tools on humanitarian action and disaster management 17209 Capitalization of achievements and good practices in humanitarian and disaster management 17210 Strengthening of the technical, operational, and infrastructural capacities of the Ministry 173 Improving effectiveness of the system and the responses provided before humanitarian emergencies 17301 Internalization and monitoring of the single humanitarian response plan 17302 Creation of a database on humanitarian emergencies and disasters PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER 181 17303 Monitoring and evaluation of the management of camps for refugees and displaced persons on the national territory 17304 Mobilization and sensitization of people in distress for emergency relief 17305 Organization and provision of emergency responses in post-crisis situations 17306 Establishment and operationalization of emergency humanitarian relief tools 174 Strengthening mechanisms for prevention, disaster warning, and risk transfer 17401 Capacity building of the MAH / GC and regional and local structures in disaster risk reduction 17402 Promotion of disaster risk reduction 17403 Knowledge dissemination for better governance of disaster risks 17404 Establishment and operationalization of financial instruments for risk transfer 175 Support for early recovery and strengthening the resilience of communities affected by crises 17501 Support for early recovery of populations affected by disaster crises 17502 Promotion and capacity building on technological innovations 179 Planning and modernization of cities 17904 Construction and rehabilitation of urban infrastructure 180 Improvement of the citizen’s quality of life 18002 Update and harmonization of the regulatory and institutional framework for sanitation and landscaping 18005 Reinforcement of the water drainage system 189 Reducing the adverse effects of climate variability and change 18904 Capacity building of staff and other actors 207 Steering and administration of environmental policy 20701 Human resources and career management 20702 Financial and material management 208 Sustainable land and water management 20801 Recovery of degraded land 209 Environment and improvement of the living environment 20901 Dissemination of tools for adaptation and mitigation to climate change 20902 Improvement of the living environment 20903 Program operation 182 PATHWAYS TO A RESILIENT AND SELF-SUSTAINED GROWTH IN NIGER APPENDIX F References (by chapter) Chapter 1 Chenery, H., 1982. 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