## Selected Issues Paper — Niger (1nerea2023002) ## Source details **Canonical URL:** [Selected Issues Paper — Niger (1nerea2023002)](https://www.imf.org/-/media/files/publications/cr/2023/english/1nerea2023002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2023/english/1nerea2023002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2023/english/1nerea2023002.pdf.json) --- ### Introduction and scope - Aim: provide analytical underpinning for the policy recommendations of the 2022 Article IV Consultation with Niger. - Focus: building resilience and addressing fragility across six analytical chapters covering social spending efficiency; gender and education; financial inclusion; effects of climate and conflict shocks on household welfare; economic effects of climate change and food insecurity; and policies to promote export diversification. - Government commitments emphasized: scale-up and preserve social spending; increase quantity and quality of education (including building durable classrooms and residential school facilities for girls); increase coverage of social safety nets and create a unified social registry. - IMF program support: on-budget floor on social spending; emphasis on revenue mobilization, quality of spending, and re-prioritization to scale up priority spending in education, health, and social protection. ### Key contextual indicators - GDP per capita remains below its 1980 level. - Human Development Index: ranked 189th out of 191 countries in 2022. - Under-five mortality rate: 78 per 1,000 live births. - Life expectancy at birth: 63 years. - Poverty incidence: 41.4 percent in 2021 (~10 million people below national poverty line); two thirds reside in Zinder, Maradi, and Dosso. - Population growth: more than 3 percent per year. ### Social spending, targeting, and social protection (SPL) Findings - Evidence of inefficiencies in education, health, and social protection spending; social programs often poorly targeted with significant coverage gaps. - Niger spends 0.42 percent of GDP on social assistance programs (2017). - Composition: Food and in-kind: 0.36 percent of GDP (84.8 percent of social assistance); Conditional cash transfers: 0.04 percent of GDP; School feeding: 0.02 percent of GDP; Public works: 0.01 percent of GDP. - SPL coverage in Niger: 21.3 percent of the population (2017); labor market and social insurance coverage: less than 1.5 percent. - Private transfers reach 46.1 percent of the population in Niger. - Adequacy of benefits in Niger: 3.4 percent of beneficiaries’ income (WAEMU median: 21.7 percent; SSA median: 39.1 percent; LIDC median: 33.4 percent). - SPL programs reduce poverty headcount in Niger by about 2 percent (SSA median: 2.7 percent; LIDC median: 7.3 percent; WAEMU median: 0.6 percent). - SPL reduces the poverty gap in Niger by close to 1.8 percent (SSA median: 5.07 percent; LIDC median: 14.06 percent; WAEMU median: 0.82 percent). - Inequality effects: SPL programs in Niger increase inequality by 0.07 percent (SSA median: reduction of 0.41 percent; LIDC median: reduction of 2.46 percent; WAEMU median: increase of 0.79 percent). Targeting analysis (EHCVM 2018–19; >6,000 households) - Access to programs (most recent year): - 12 percent of households reported benefiting from food programs in last 12 months. - 14.9 percent for households that experienced any kind of shocks. - 38 percent enrolled in a health program. - 0.71 percent reported receiving government cash transfers. - Regression findings (linear probability models): - Food and health programs show some geographic targeting; government cash transfers show weak targeting. - Poverty and food insecurity often are not significant determinants of access to food programs. - Conflict shocks increase likelihood of receiving food and government cash transfers; agricultural shocks do not reliably predict food program access. - Households in poorer regions (Zinder, Maradi) more likely to receive health programs; middle consumption groups more likely to receive health assistance (inverted U relationship). - Coverage by quintile: bottom quintile access to any SPL benefits: 17.2 percent; bottom quintile accounts for 16.1 percent of beneficiaries and receives 7 percent of total SPL benefits (regressive incidence). Policy recommendations - Move away from untargeted subsidies (e.g., distribution of food and fertilizers at moderate prices) toward well-targeted social safety nets. - Establish a unified social registry (USR) to consolidate beneficiary information and improve individual and geographic targeting; continue strengthening institutional, regulatory, and operational frameworks for the USR. - Reallocate benefits away from richer segments toward the bottom quartile to improve coverage and adequacy. - Better balance shock-response and long-term social assistance: shift funding toward long-term transfers that enhance productivity and resilience; orient cash transfers to promote lasting investments and income-generating activities. - Support education outcomes (particularly girls): expand conditional cash transfers for primary and secondary education; complementary activities to families; workshops to reduce early marriage incentives. - Create fiscal space to scale up social spending through reprioritization and improved spending efficiency. - Improve governance and public financial management, including transparency and competitive procurement and strengthening the Cour des Comptes. ### Education and health efficiency Education - Adult literacy rate: 35 percent (implying 6.5 adults over 10 are illiterate as presented). - Net enrollment: primary 65.1 percent; secondary 20.1 percent. - Education spending: 3.8 percent of GDP in 2020 (above SSA average but slightly below WAEMU average of 4 percent of GDP). - Spending per student in primary and secondary education is less than half that of SSA and LIC peers; tertiary spending per student is much higher relative to other levels. - Niger is well below the education efficiency frontier; countries spending less (e.g., Ethiopia, Rwanda, Madagascar, Malawi, Burundi) achieve higher net enrollment rates. Health - Niger averaged 7.4 percent of GDP in health spending over the last two decades (WAEMU average: 5.5 percent; LIDC average: 5.9 percent). - Expenditure per capita and HALE (health adjusted life expectancy) remain below peers. - Physician ratio: 0.019 per 1000 people. - Inefficiencies in health are less pronounced than in education (smaller distance to efficiency frontier). Policy implications - Scale up spending while improving efficiency, focusing on per-student spending at primary and secondary levels and quality of service delivery. - Reprioritize budget and improve absorptive and governance capacity to replace precarious classrooms and strengthen permanent teaching staff. ### Gender, education, and macroeconomic gains Model and calibration - Microfounded lifecycle dynamic general equilibrium model with heterogeneity by gender, skills, age, and financial access; benchmark year 2018 calibration. Key stylized facts (reported) - Mean years of schooling (adults 25+): female 1.7; male 2.8. - Sub-Saharan Africa averages: female 5.1; male 6.9. - WAEMU averages: female 2.5; male 4.6. - Primary school female drop-out rate: around 45 percent in Niger (20 percent in WAEMU; 22 percent in SSA). - Women first married by age 18: more than 75 percent in Niger (35 percent WAEMU; 41 percent SSA). - Share of wage and salaried female workers: At 1.8 percent in Niger. - Vulnerable female employment: around 98 percent in Niger (80 percent in SSA; 84 percent in WAEMU). Simulation results and impacts - Policy: equalize years of schooling of boys and girls within each income percentile. - Female labor force participation: increases by 85.6 percent. - Mean effective hours worked (population): increase by 30.1 percent. - Household mean labor income: increases by 8.6 percent. - GDP (total economic output): rises by 11.2 percent. - Public education spending: increases by 21.2 percent to implement the policy. - Total government spending: rises by 3 percent. - Tax revenue changes: taxes on labor income +15.3 percent; corporate income taxes +16.2 percent; consumption taxes +3 percent; total tax revenue +11.3 percent. - Fiscal balance: additional tax revenue implies a 9.3 percent reduction in the primary deficit. Policy recommendations - Accelerate implementation of projects to improve girls’ education: build boarding schools for girls (goal: 100 schools by 2025), replace 36,000 precarious classrooms with solid materials, strengthen permanent teaching staff. - Use cash transfers and targeted financial incentives to reduce opportunity costs, delay age at marriage, and facilitate re-entry of dropouts. - Expand economic opportunities and skills for women and girls; promote female entrepreneurship and strengthen legal/regulatory frameworks to prevent and respond to gender-based violence. - Implement gender-responsive budgeting to translate commitments into national budget allocations. ### Financial inclusion Current gaps and vulnerabilities - Service points in WAEMU increased from around 3 (per 1,000 km2) at end-2010 to 307 at end-2021; Niger had 18 service points at end-2021. - Bank credit to private sector in Niger: 13 percent of GDP (end-2021) vs regional average 24 percent. - Gross NPLs in Niger banking sector: 21 percent (end-2021) vs 10 percent regionally. - MFI sector in Niger shrank from 0.5 percent of GDP in 2015 to about 0.2 percent at end-2021; MFI NPLs: 40 percent (end-2021) vs 8 percent WAEMU. - Low financial literacy and literacy: adult literacy 35 percent (15+); female literacy 27 percent. - Agriculture receives 0.97 percent of bank credit in Niger vs 3 percent in other WAEMU countries. - Informality: informal sector ~40 percent of Niger GDP; ~65 percent of people under age 15 do not have a birth certificate. - Example: CFAF 150 billion financing mechanism during 2020 pandemic—only CFAF 17 billion (11 percent) was used due to informality. Policy recommendations - Finalize and implement national financial education strategy; improve collaboration among financial ecosystem actors. - Promote digitalization: accelerate roadmap for digitalization of government payments; implement BCEAO-led regional interoperability. - Close gender data gaps and design gender-focused inclusion policies; seek technical assistance and donor funding. - Strengthen supervision of banks and MFIs and implement MFI sector restructuring and recapitalization (ASUS, TANADI). - Operationalize the Financial Inclusion Fund (FDIF) and National Support Fund for SMEs and SMIs (FONAP); mobilize pledged donor resources. - Review Tax on financial activities (TAFI) and consider replacing with VAT after cost-benefit study. - Improve bankability of SME projects and reactivate regional support systems. ### Climate, conflict shocks, and household welfare Context and vulnerability - Triple crisis: security challenges, climate change, and COVID-19. - Key demographics: agriculture accounts for 36.4 percent of GDP (2021); ~73 percent of active population engaged in agriculture; annual population growth 3.7 percent; 20 percent of population in 15-24 age bracket (2021). - Over the last century average annual temperature increased by 0.7 degree Celsius nationally; national cumulative precipitation change -27.7 mm and temperature change 0.67 (1901-2020). - Floods and droughts occur at least annually; average losses due to droughts estimated over USD 70 million (0.6 percent of GDP). Empirical econometric results (EHCVM 2018–19; climate data CRU; conflict data ACLED) - Income elasticity to rainfall (current year): 0.33 (1% significant). - A one standard deviation decrease in rainfall → per capita income falls by 11 percent. - Precipitation elasticities for agricultural income per capita: current year 1.9 percent; previous year 2.4 percent. - Elasticities of agricultural production to precipitation: current year 2.3 percent; previous year 2.8 percent. - Heterogeneity: precipitation effects significant for households below median income, not for those above median. - Conflict effects: a 10 percent increase in conflict-related deaths → farm income decreases by 10 percent and value of production decreases by 8 percent (stated); econometric coefficients imply a 1 percent increase in fatalities → farm income decreases by 1 percent and value of production by 0.8 percent (both significant at 1%). - A one standard deviation decrease in annual rainfall reduces total consumption, food consumption, and non-food consumption by about 5, 2.2, and 6.6 percent, respectively. - A one standard deviation decrease in annual rainfall reduces the probability of school success (increase school failure) by around 2 percentage points; larger effect during growing season. Role of household adaptation - Agricultural Assets Welfare Index (AAWI) increases productivity and mitigates climate and conflict impacts. - Income diversification (HH-income Herfindahl-Hirschman Index average 0.70): households with multiple income sources are better able to cope with shocks. Policy recommendations to build resilience - Invest in irrigation expansion: less than one percent of agricultural land irrigated; tap underground water potential and create runoff reservoirs. - Improve access to renewable energy: >80 percent of population without electricity; only 1 percent of rural population has regular access. - Enhance weather information and extension services: weekly, monthly, seasonal forecasts; scale up agriculture extension and community-based disaster risk reduction. - Develop robust social protection framework: integrate climate-related vulnerabilities (e.g., subsidize climate insurance premiums), improve civil registry coverage, digitize and unify social registry. - Foster private sector development and financial inclusion: operationalize FDIF and FONAP; digitize enterprise creation; simplify tax code. - Access international climate funds: NDC 2021-2030 cost estimate USD 9.9 billion; Niger received USD 3.3 billion in climate funds over 2010-2022; government contribution to NDC 26.4 percent. - Strengthen governance, fight corruption, invest in roads, electricity, health, education; create transboundary institutions for land and water management. ### General equilibrium model simulations on food insecurity and policy responses Model setup and shock - Dynamic open-economy spatial multi-sector model with rural and urban locations; features subsistence food consumption, limited finance, high transport costs. - Climate shock modeled as one-period temporary 25 percent decline in agricultural productivity (equivalent to two standard deviations of agricultural output). Shock impacts (simulation of 25 percent decline) - Food consumption declines: rural 18 percent; urban 14 percent. - Food price increases: rural 27 percent; urban 24 percent. - Rural households’ capital erosion: 15 percent (only partially rebuilt 5 years later). - Calorie consumption falls and rural households approach 2100 kcal/day threshold. Policy comparisons (simulation) - Cash transfers (financed by taxing all households up to 15 percent of income; transfers targeted to rural households) outperform fertilizer subsidies and other options: - Cash transfers raise consumption and utility for rural households, enable some capital accumulation, raise farm productivity, lower food prices and migration, and narrow urban-rural wage gap. - Fertilizer subsidies: - Decrease domestic food prices but on net are costly and can reduce welfare for rural and urban households relative to no policy response; lead to lower agriculture capital as farmers substitute capital with cheaper fertilizer. - Reducing internal mobility costs (investing in roads/ICT) is more effective than lowering import tariffs at mitigating household-level food insecurity and reduces inequality; trade liberalization benefits urban households more and can increase urban-rural inequality. - Policy recommendation: prioritize cash transfers and investments that lower internal mobility costs; reform subsidized food sales and fertilizer systems with a unified social registry and target three-quarters of safety net spending to long-term predictable transfers to the chronically food insecure/poor. ### Export diversification: constraints, empirical determinants, and priorities Stylized facts - Exports concentrated in primary natural resource and agriculture; uranium and oil dominate; degree of export diversification lower than WAEMU and SSA averages. - Export partners (2016-20 average): France 26.3%; Nigeria 25.6%; Mali 11.3%; Burkina 5.6%; Benin 4.0%; USA 3.5%; UAE 3.4%; Ghana 3.3%; Togo 2.0%; Canada 1.3%. - Exports-to-GDP ratio expected to rise to around 25 percent in medium term with oil pipeline completion and oil exports (pipeline expected full operation in 2024). Empirical panel results (151 countries, 1980-2014) - Positive and significant determinants of export diversification and quality: - Trade-and-transport infrastructure quality; increasing Niger’s index from 2 (2018) to median 2.72 (2018) associated with export diversification +21 percent. - Financial sector development; increasing index from 0.1 (2020) to median 0.26 (2020) associated with export diversification +9.8 percent and export quality +1.2 percent. - Regulatory quality and control of corruption improvements associated with diversification gains (examples: regulatory quality 23 → 48.6 associated with diversification +12.1 percent; control of corruption 27.4 → 49 associated with diversification +9 percent). - Trade liberalization improvements (23.6 → median 58) associated with diversification +15.4 percent and quality +2 percent. - Human capital improvements (index 0.3 → median 0.6) associated with diversification +24.5 percent and quality +6.8 percent. - Digitalization (44 → median 75.7) associated with diversification +21.6 percent and quality +3 percent. - Reducing state fragility (19 → median 9) associated with diversification +22 percent. - Negative effect of natural resource dependence: reducing natural resource rents from 5.2 percent of GDP (2019) to median 1.7 percent of GDP (2019) associated with export diversification +7.7 percent. Policy priorities to promote export diversification - Upgrade human capital (education and health), promote girls’ education, and improve targeted spending. - Invest in infrastructure (transportation, transit, electricity, ICT) and reduce trade costs. - Strengthen governance, regulatory reform, competition (e.g., telecommunications), and anti-corruption measures. - Improve business environment: clear, transparent, and predictable regulations; ease trade across borders; effective insolvency regimes. - Advance digitalization and leverage AfCFTA by enhancing productive capacity and supporting SMEs to participate in regional value chains. - Manage natural resource dependence through value-added transformation and sectoral diversification. *Source: IMF staff analysis and tools as presented in the provided chapter (1nerea2023002).* ### INTRODUCTION _______________________________________________________________________________5 ### INTRODUCTION ### Purpose and scope of the Selected Issues Paper - Aim: provide an analytical underpinning for the policy recommendations of the 2022 Article IV Consultation with Niger. - Focus: key development challenges and policies to build resilience and address fragility. - Contents: six analytical chapters covering social spending efficiency; gender and education; financial inclusion; effects of climate and conflict shocks on household welfare; economic effects of climate change and food insecurity; and policies to promote export diversification. ### Key contextual findings on Niger’s development challenges - GDP per capita remains below its 1980 level. - Human Development Index: ranked at the bottom 189th out of 191 countries in 2022. - Under-five mortality rate: 78 per 1,000 live births. - Life expectancy at birth: 63 years. - Poverty incidence: 41.4 percent in 2021, about 10 million Nigeriens living below the national poverty line, of which two thirds live in three regions: Zinder, Maradi, and Dosso. - Population growth: more than 3 percent per year, generating significant pressures on social spending and hindering women’s empowerment through high fertility rates. ### Government priorities and IMF program support - Government commitments: - Scale-up and preserve social spending to support poor and vulnerable populations. - Education: increase quantity and quality of education by building durable classrooms, residential school facilities for girls, and revising teacher hiring and career prospects to attract skilled teachers. - Social safety nets: increase coverage, especially for the most vulnerable, with an objective to reduce gender inequality; create a unified social registry to improve targeting. - IMF support: - Program objective to improve the effectiveness of public spending, emphasizing social spending and poverty-reduction expenditure. - Program includes an on-budget floor on social spending. - Emphasis on revenue mobilization, the quality of spending, and re-prioritization to create fiscal space to scale-up priority spending in education, health, and social protection and improve their efficiency. ### Summary of main analytical findings in the paper - Social spending and targeting: - Evidence of inefficiencies in education, health, and social protection spending. - Social programs typically are not well targeted and there are significant coverage gaps. - Recommendation direction: move away from untargeted subsidies (e.g., distribution of food and fertilizers at moderate prices) toward targeted social safety nets and strengthen targeting mechanisms. - Education outcomes and spending: - Adult literacy rate: 35 percent (implying 6.5 adults over 10 are illiterate), compared to 45 percent in the WAEMU and 66.4 percent in SSA and LIDCs. - Net enrollment: primary 65.1 percent; secondary 20.1 percent. - Education spending: declined after increases in the 2000s, reaching 3.8 percent of GDP in 2020. - Benchmarking: 3.8 percent of GDP is above the SSA average but slightly below the WAEMU average of 4 percent of GDP. - Spending per student in primary and secondary education is less than half that of SSA and LIC peers; tertiary spending per student is much higher relative to other levels. - Implication: need to scale-up spending while improving efficiency and addressing population growth pressures. - Gender and long-term growth: - Using a micro-founded general equilibrium model, simulations suggest that closing gender gaps in education would boost long-term GDP by 11 percent. - Financial inclusion: - Niger lags other WAEMU countries in access to and use of financial services. - Key priorities: tackle low financial literacy, promote digitalization (including through increased competition in the telecommunications sector), and address informality. - Climate and conflict shocks on household welfare: - Rainfall shock: when rainfall decreases by one standard deviation, per capita income falls by 11 percent. - Conflict shock: when the number of conflict-related deaths increases by 10 percent, farm income and the value of production decrease by 10 percent and 8 percent respectively. - Climate change and food insecurity: - General equilibrium model simulations indicate cash transfers appear more effective than fertilizer subsidies at safeguarding household welfare, including nutritional status. - Policy implication: need to operationalize a better coordinated national social safety net system and reform agricultural fertilizer subsidy systems to improve targeting, efficiency, and sustainability. - Export diversification: - Panel regression results indicate reforms that enhance human capital and infrastructure quality, promote digitalization, remove barriers to trade, and improve governance are likely to yield the largest gains in terms of diversification for Niger. ### Structure of the paper (chapter map) - Chapter 1: The efficiency of social spending — analysis of education, health, and social protection spending and efficiency; targeting and coverage assessment; policy recommendations. - Chapter 2: Macroeconomic gains from closing gender educational gaps — stylized facts, model simulations, and policy recommendations. - Chapter 3: Financial inclusion in Niger — benchmarking, challenges, and policy options. - Chapter 4: The effects of climate and conflict shocks on household welfare — stylized facts, econometric estimates, and resilience policies. - Chapter 5: Economic effects of climate change and food insecurity — simulations from a multi-sector model and policy recommendations. - Chapter 6: Fostering export diversification — stylized facts, econometric determinants of diversification and quality, and policy implications. *Prepared by Jean-Marc Atsebi (FAD) and Paola Ganum (AFR) with contributions and comments from Maliki Amadou, Pantaleo Creti, Paolo Di Lorenzo, Patrick Hoang-Vu Eozenou, Thi Minh, Snjezana Plevko, and the authorities.* ### 8. There are several indicators pointing to stark inefficiencies in education spending both ### 8. There are several indicators pointing to stark inefficiencies in education spending both ### Education spending and efficiency - Niger is situated well below the efficiency frontier for different measures of education spending and education outcomes. - Several WAEMU, SSA, and LIDC countries spend less than Niger at both primary and secondary levels but have better net enrollment rates. - Example comparisons: - Ethiopia: similar expenditure per student ratio; net enrollment rate in primary education of 84.6 percent compared to 65.1 percent in Niger. - Other countries with lower spending but better outcomes: Rwanda, Madagascar, Malawi, Burundi. - Teacher-student ratios and outcomes: - Some LIDC and SSA countries with comparable teacher-student ratios achieve net enrollment closer to 80 percent in primary and close to 30 percent in secondary (compared to 65 percent and 20 percent respectively in Niger). - Niger has a lower teacher-student ratio in secondary education: 3.4 per 100 students, versus most peers around 4.1 per 100 students. - Note: A more granular analysis is required to identify areas for efficiency gains within education spending. ### Health outcomes and efficiency of health spending - Health spending: - Niger averaged 7.4 percent of GDP in health spending in the last two decades. - WAEMU countries averaged 5.5 percent of GDP. - LIDCs averaged 5.9 percent of GDP. - Despite comparable or higher health spending in percent of GDP, expenditure per capita remains below peers. - Outcomes and health resources: - LIDCs and SSA countries have fewer infant deaths, higher life expectancy, more hospital beds, nurses, and physicians. - Niger’s ratio of physicians: 0.019 per 1000 people. - Efficiency observations: - Spending per capita and health adjusted life expectancy (HALE) are lower than LIDC and SSA countries. - Some countries spend less per capita but have slightly better outcomes (e.g., Madagascar, Ethiopia, Malawi). - Inefficiencies in the health sector are less pronounced than in education, shown by a lower distance to the efficiency frontier. - Definition: - HALE: “average number of years that a person can expect to live in "full health" by taking into account years lived in less than full health due to disease and/or injury”. ### Overview of social protection programs in Niger - Main program types: social safety nets, social insurance, labor market programs, general subsidies. - Trends (World Bank (2019)): - Social insurance expenses more than doubled between 2008 and 2017. - Safety nets tripled. - General subsidies (particularly petrol) declined by 78 percent. - Main social safety net programs: - In-kind distributions: targeted food distribution and subsidized sales of cereals; uses household economy approach (HEA) for vulnerable households and geographic approach for transiently food insecure households; OPVN manages subsidized cereal sales. - Nutrition programs addressing chronic malnutrition. - Unconditional cash transfers: - National Safety Net Project (NSNP): geographic targeting then proxy means testing. - Adaptive Safety Net project (ASNP 2) launched in 2019: 120,000 households receiving a monthly transfer of 15,000 CFA for 24 months. - World Food Program (WFP) resilience approach: targets poorest crisis-affected households over three years using HEA. - Conditional cash transfers for education: largest share to university scholarships and allowances; programs to keep children in secondary and primary school; programs support girls’ continuation of education and reduction of early marriage via conditional cash transfers. - Cash for work: temporary public works to provide income and skills for food-insecure people affected by weather shocks. - School feeding programs: run in over 2000 primary schools; WFP supports school canteens in 7 out of 8 regions. - Targeted agricultural subsidies: free distribution of seeds and animal restocking; sales of livestock feed and fertilizers at subsidized prices; targeting has been an issue; FAO is leading partner. - Free health care for pregnant women and children under 5. - COVID-19 response: - Adaptive social protection scaled up; emergency cash transfers covered about 65 percent of individuals impacted by the crisis. - World Bank impact evaluation: cash transfers induced lasting investments in productive assets and activities and built resilience. - IMF staff analysis: cash transfers are more effective than fertilizer subsidies at safeguarding household welfare. ### Profile, impact and efficiency of Social Protection and Labor (SPL) - SPL-AT tool: - Used to profile social protection expenditures, impact, and efficiency in Niger. - Uses sources including World Bank PovcalNet and ASPIRE, ILO, and IMF WEO. - Analyzes coverage, adequacy, targeting, and efficiency; allows comparisons with country groups. - Social assistance spending and composition (2017): - Niger spends 0.42 percent of GDP on social assistance programs. - SSA median: 0.89 percent of GDP. - LIDC median: 1.15 percent of GDP. - Comparison: Niger’s spending is 2 times lower than Senegal and 4.4 times lower than Burkina Faso. - Composition of Niger’s social assistance spending: - Food and in-kind: 0.36 percent of GDP (84.8 percent of all social assistance expenditures). - Conditional cash transfers: 0.04 percent of GDP. - School feeding: 0.02 percent of GDP. - Public works: 0.01 percent of GDP. - Coverage of SPL programs (Most Recent Available Year): - SPL coverage in Niger: 21.3 percent of the population in 2017. - This is lower relative to WAEMU median, but similar to SSA and LIDC medians. - Implication: around 80 percent of Nigeriens are not covered by any kind of SPL. - Labor market and social insurance coverage: less than 1.5 percent. - Private transfers reach 46.1 percent of the population in Niger, higher than comparators. - Difficulties in reaching conflict-affected areas are not captured but important impediment. - Coverage by quintile: - Bottom (poorest) quintile access to any SPL benefits: 17.2 percent. - Other quintiles coverage between 19.5 and 27.3 percent (top quintile and third quintile respectively). - Richer segments are more likely to receive SPL benefits than the poorest. - Expenditure increases but low adequacy and impact: - Social protection expenditures more than doubled over 2008-2017; peaked in years of crises. - Adequacy of benefits: 3.4 percent of beneficiaries’ income in Niger. - WAEMU median: 21.7 percent. - SSA median: 39.1 percent. - LIDC median: 33.4 percent. - Poverty incidence: 40.8 percent in Niger. - Adequacy by program type: - Social assistance: 1.6 percent. - In-kind programs: 1.1 percent. - Social insurance: 13.1 percent. - Private transfers: 8.6 percent. - Adequacy by quintile: - Bottom quintile adequacy: 3.8 percent. - Top quintile adequacy: 4.2 percent. - Adequacy for bottom quintile is 7 and 19 times lower in Niger compared to SSA and LIDC medians, respectively. - Private transfers adequacy for bottom quintile: 13.3 percent (close to SSA median but more than 3 times lower than LIDC median). - Targeting and incidence: - Beneficiary incidence by quintile: - Bottom (poorest) quintile: 16.1 percent of all beneficiaries (lowest share). - Third quintile: 25.4 percent. - Fourth quintile: 20.9 percent. - Top (richest) quintile: 18.2 percent. - Benefit incidence (share of total transfer amount received): - Bottom quintile: 7 percent of total SPL benefits (lowest across quintiles). - Share received by bottom quintile is 7 times lower than that received by top quintile. - Programs tend to be regressive; richer segments receive a disproportionate share. - Regressivity is similar to WAEMU median; contrasts with pro-poor allocation in SSA and LIDC medians. - Findings confirmed across SPL program types and most acute for social insurance programs. - Efficiency and simulated impacts: - SPL programs reduce poverty headcount in Niger by about 2 percent. - SSA median reduction: 2.7 percent. - LIDC median reduction: 7.3 percent. - WAEMU median reduction: 0.6 percent. - SPL reduces the poverty gap in Niger by close to 1.8 percent. - SSA median reduction: 5.07 percent. - LIDC median reduction: 14.06 percent. - WAEMU median reduction: 0.82 percent. - Inequality effects: - Niger: SPL programs increase inequality by 0.07 percent. - WAEMU median: increase of 0.79 percent. - SSA median: reduction of 0.41 percent. - LIDC median: reduction of 2.46 percent. - Conclusion: SPL programs in Niger have lower impact and efficiency compared to SSA and LIDC medians; they are somewhat regressive. *Source: IMF staff analysis and FAD tools as presented in the provided chapter.* ### 22. For all social assistance programs, also for in-kind and public works programs, the ### 1nerea2023002 - 22. For all social assistance programs, also for in-kind and public works programs, the ### Impact and efficiency of social protection and labor (SPL) programs - All social assistance programs (including in-kind and public works) have low efficiency compared to SSA and LIDC medians. - Impacts on poverty and inequality (All social assistance programs): - Poverty headcount reduction: 1.71 percent - Poverty gap reduction: 1.56 percent - Inequality (Gini) reduction: 0.28 percent - Relative performance: - These impacts are lower than SSA and LIDC medians, but higher than WAEMU medians. - Contributory pensions impacts: - Poverty headcount reduction: 0.34 percent - Poverty gap reduction: 0.21 percent - These are lower than WAEMU medians (0.46 and 0.82 percent), SSA medians (1.36 and 1.92 percent), and LIDC medians (5.17 and 9.24 percent). - Inequality effect: contributory pensions increase inequality in Niger and WAEMU by 0.35 and 0.72 percent, respectively; by contrast, they are neutral or reduce it for SSA and LIDC medians by 0.01 and 1.76 percent, respectively. ### Data and methods for targeting and efficiency analysis - Data source: - Harmonized Survey on Households Living Standards 2018–19 (EHCVM), covering more than 6,000 households. - Analytical approach: - Linear probability models (OLS regressions) where dependent variables indicate whether the household received a specific type of social program in the last 12 months. - Targeting criteria examined include: - Poverty (absolute and relative) - Food insecurity - Exposure to shocks (family, natural, agriculture, conflict) - Household characteristics (household size, gender, disability status, education, age of household head) - Notes on simulated metrics (as used in the analysis): - Gini inequality reduction = (Gini coefficient pre-transfer - Gini coefficient post-transfer) / Gini coefficient pre-transfer. - Poverty headcount reduction = (poverty headcount pre-transfer - poverty headcount post-transfer) / poverty headcount pre-transfer. - Poverty gap reduction = (poverty gap pre-transfer - poverty gap post-transfer) / poverty gap pre-transfer. ### Access and coverage findings (from EHCVM 2018–19) - Program coverage levels: - 12 percent of households reported benefiting from food programs over the last 12 months. - 14.9 percent for households that experienced any kind of shocks. - 38 percent of households declared being enrolled in a health program (similar share for households experiencing any kind of shocks). - 0.71 percent of households reported receiving government cash transfers (conditional and unconditional). - 0.83 percent for households that suffered any kind of shocks. - General conclusion: access to social programs in Niger is low, particularly for conditional and unconditional government cash transfers. ### Targeting performance and determinants of access - Overall conclusion: results point to inefficiencies in targeting of social programs. - Geographic targeting: - Some evidence of geographical targeting for food and health programs but not for government cash transfers (regional dummy coefficients significant for food and health). - Determinants by program type: - Food programs: - Poverty and food insecurity indicators tend not to be significant determinants of access. - Household head with tertiary education are less likely to be included in social programs than households with a head with no education. - Households experiencing family shocks, natural disaster shocks, and conflict shocks have higher likelihood to participate; agricultural shocks do not significantly determine participation. - Geographical note: compared to Niamey, households in Diffa and Dosso (fewer poor) have higher likelihood to be selected; households in Zinder and Maradi (higher poverty) are less likely to receive food programs. - Health programs: - Households in poorer regions (Zinder and Maradi) are more likely to receive health programs. - Inverted U relationship between household consumption per adult equivalent and probability of selection: both the poorest and richest are less likely to receive health programs; middle of distribution more likely. - Food insecurity does not determine targeting of health programs. - Households with agricultural shocks and non-agricultural employment shocks are more likely to participate; households experiencing natural disaster shocks are less likely. - Government cash transfers: - Targeting issues most pronounced. - Neither poverty, food insecurity, nor household characteristics (except age of household head) determine access. - Only households experiencing conflict shocks have a higher likelihood to participate; other shocks are not significant. - Caveat: analysis cannot differentiate between conditional and unconditional government cash transfers; targeting issues discussed are relevant for unconditional transfers. ### Key policy recommendations and concluding remarks - Move away from untargeted subsidies (e.g., distribution of food and fertilizers at moderate prices) toward targeted social safety nets. - Social programs should aim at full coverage of the poorest and most vulnerable (starting with those at the bottom quartile) using means testing or proxy-means testing (PMT) in combination with geographic methods, as needed. - Improve individual and geographic targeting: - Establish a unified social registry (USR) with assistance from the World Bank to consolidate information of potential beneficiaries and improve efficiency and individual targeting. - Continue progress to strengthen institutional, regulatory, and operational framework for the USR. - Improve geographic targeting in food and government cash transfer programs toward regions with higher poverty. - Reallocate benefits away from richer segments: - Address regressive nature of several programs where adequacy, coverage, and beneficiary incidences tend to be better for the top quintile. - Reallocate benefits to improve coverage gaps among the most vulnerable and ensure benefits are more adequate. - Better balance shock-response and long-term social assistance: - Shift funding toward long-term assistance to reduce poverty and enhance productivity. - Social assistance should focus on enhancing productivity and resilience via cash transfers oriented to lasting investments and income-generating activities rather than only post-crisis needs. - Support better education outcomes, particularly for girls: - Increase coverage of existing conditional cash transfer programs and complementary activities to families. - Step up conditional cash transfers for primary and secondary education to reduce elevated dropout rates and extend programs supporting girls’ education. - Continue supplementary workshops to educate parents and reduce incentives for early marriage. - Create fiscal space to scale up social spending: - Reprioritization within total spending is needed given lower expenditure per capita in education and health and very low social assistance spending. - Address other sources of low outcomes in education and health by improving quality of service delivery; policies to reduce informality should help low coverage in social insurance. - Improve governance and public financial management: - Emphasize transparency and competitive bidding in public procurement. - Reinforce capacity of the Cour des Comptes to audit a large share of government expenditure and fight corruption. *Source: FAD EP SPL-AT tool, and IMF staff calculations.* ### Annex 1. Regression Tables ### Annex 1. Regression Tables ### Determinants of the Targeting of Food Programs (Table 1) - Dependent variable: Access to food programs (Yes = 1); linear probability model; Robust standard errors in parentheses. - Significant positive associations (selected coefficients as reported): - Family shocks (1 = Yes): 0.031*(0.013) in one specification and 0.029*(0.013) in the full model. - Natural shocks (1 = Yes): 0.037**(0.012) and 0.028*(0.012) in the full model. - Conflict shocks (1 = Yes): 0.089*(0.035) and 0.088*(0.036). - Other shocks (1 = Yes): 0.044**(0.017) and 0.048**(0.016). - Regional positive associations (selected): Agadez 0.099*** (0.014) / 0.108*** (0.013); Diffa 0.232*** (0.021) / 0.249*** (0.020); Dosso 0.214*** (0.019) / 0.235*** (0.018); Tahoua 0.080*** (0.013) / 0.104*** (0.011); Tillaberi 0.096*** (0.015) / 0.119*** (0.013); Zinder 0.056*** (0.015) / 0.081*** (0.012). - Significant negative associations (selected): - HH head level of education (3 = Tertiary): -0.079*** (0.019) and -0.060* (0.024). - Other notable reported estimates: - HH size: 0.004*(0.002) in one specification and 0.003(0.002) in the full model. - Log of consumption per adult eq.: -0.315(0.397) and -0.335(0.396) (not statistically significant as presented). - Notes: Columns isolate criteria sets: (1) poverty criteria only; (2) hunger/food insecurity; (3) shock criteria; (4) household characteristics; (5) all criteria. *10% significance, **5%, ***1%. ### Determinants of the Targeting of Health Programs (Table 2) - Dependent variable: Access to health programs (Yes = 1); linear probability model; Robust standard errors in parentheses. - Significant associations (selected coefficients as reported): - Log of consumption per adult eq.: 0.872*(0.385) in one specification; log consumption squared: -0.035* (0.014). - Family shocks (1 = Yes): 0.034(0.019) and 0.050**(0.018) in the full model. - Natural shocks (1 = Yes): -0.034*(0.017) and -0.041*(0.017) in full model. - Agriculture shocks (1 = Yes): 0.057**(0.018) and 0.044*(0.018). - Non-Agri employment shocks (1 = Yes): 0.149***(0.036) and 0.124*** (0.035). - Other shocks (1 = Yes): 0.057*(0.024) and 0.056*(0.024). - HH size: 0.024*** (0.003) and 0.022*** (0.003). - HH gender (1 = Female): -0.059** (0.022) and -0.066** (0.022). - HH head age: -0.015*** (0.004) and -0.014*** (0.004); HH head age squared: 0.000** (0.000) reported. - HH head level of education (3 = Tertiary): -0.165*** (0.038) in some specifications and -0.081(0.044) in the full model. - Regional effects (selected): - Agadez: -0.120*** (0.029) / -0.072** (0.027) / -0.089*** (0.026) / -0.105*** (0.027). - Maradi: 0.038(0.031) and 0.115*** (0.027) / 0.120*** (0.026) in some specifications. - Tahoua: 0.051(0.032) and 0.130*** (0.027) / 0.135*** (0.027) in some specifications. - Tillaberi: -0.195*** (0.029) / -0.121*** (0.024) / -0.115*** (0.024) / -0.165*** (0.025) / -0.131*** (0.024). - Zinder: 0.071*(0.030) and up to 0.161*** (0.024) in some specifications. - Notes: Columns isolate criteria sets as in Table 1. *10% significance, **5%, ***1%. ### Determinants of the Targeting of Government Transfers Programs (Table 3) - Dependent variable: Access to gov. transfers programs (Yes = 1); linear probability model; Robust standard errors in parentheses. - Significant associations (selected coefficients as reported): - Relative poverty: self-assessment (3 = Poor): 0.006* (0.003) in two specifications. - Entire day without food (1 = Yes): -0.007* (0.003) in one specification. - Conflict shocks (1 = Yes): 0.032** (0.011) and 0.034** (0.011). - HH head age: 0.001** (0.000) and 0.001* (0.000); HH head age squared: -0.000** (0.000) reported. - Regional effects (selected): - Diffa: 0.040*** (0.010) / 0.043*** (0.010) / 0.034*** (0.008) / 0.044*** (0.010) / 0.031*** (0.008). - Dosso: -0.008* (0.004) and -0.009** (0.003) in some specifications. - Tillaberi: -0.007* (0.003) and other negative but smaller estimates in some specifications. - Notes: Columns isolate criteria sets as in previous tables. *10% significance, **5%, ***1%. ### Common methodological notes across tables - Each table uses a linear probability model. - Columns report results focusing separately on: poverty criteria; hunger and food insecurity criteria; shock criteria; household characteristics; and an all-criteria specification. - Robust standard errors are reported in parentheses. - Significance notation: * 10% level, ** 5% level, *** 1% level. - Sample/household counts reported as repeating identifiers: 59985998599859985998 (as presented). ### Implications from regression results (in-text interpretation implied by coefficients) - Shocks (family, natural, conflict, other) are important predictors of access to food and health assistance and to government transfers; conflict shocks show a robust positive association with government transfers. - Household characteristics (HH size, HH head age, HH head education, HH gender) are significant determinants in several models, with tertiary education of HH head often associated with lower access to programs. - Spatial/region effects are large and heterogeneous across programs, with some regions showing consistently higher access (e.g., Diffa, Dosso for food programs) and others lower access (e.g., Tillaberi for health programs). --- ### Macroeconomic Gains from Closing Gender Educational Gaps (Summary of following section) - Main simulated macroeconomic impact: - Closing the gender gap in years of schooling in each income percentile would boost long-term GDP by 11 percent. - Policy context and targets: - Authorities plan to build 100 boarding schools for girls by 2025 and close gender gaps in primary and secondary education enrollment by 2026 (Programme de Développement Economique et Social (PDES) 2022-26). - Stylized facts on gender and education in Niger (reported values): - Mean years of schooling (adults 25+): female 1.7; male 2.8. - Mean years of schooling (sub-Saharan Africa averages): female 5.1; male 6.9. - Mean years of schooling (WAEMU averages): female 2.5; male 4.6. - Government spending on education: 3.8 percent of GDP in 2020. - Primary school female drop-out rate: around 45 percent in Niger; 20 percent in WAEMU; 22 percent in Sub-Saharan Africa. - Women first married by age 18: more than 75 percent in Niger; 35 percent WAEMU; 41 percent Sub-Saharan Africa. - Share of wage and salaried female workers: 1.8 percent in Niger (noted as “At 1.8 percent”). - Vulnerable female employment: around 98 percent in Niger; 80 percent in Sub-Saharan Africa; 84 percent in WAEMU. - GDI trends: Gender Development Index increased by over 15 percent between 2000 and 2021. - Gender Parity Index improvements over two decades: primary education enrollment up around 30 percent; secondary enrollment up around 24 percent; tertiary enrollment index up 65 percent (but tertiary parity remains very low). - Model-based conclusions (reported): - Closing gender gaps in education is projected to boost female labor participation, increase income earned by women, and improve fiscal outcomes. - The long-term GDP boost from closing gender gaps in years of schooling across income percentiles is quantified as 11 percent. ### Policy actions and priorities (as presented in the source) - National Gender Policy aims by 2027 to build an inclusive country without discrimination and equal opportunities for men and women; female education is a major priority. - PDES 2022-26 targets include building 100 boarding schools for girls by 2025 and closing gender gaps in primary and secondary enrollment by 2026. - The paper recommends implementing policies to promote gender equality, with emphasis on reducing education gaps to unlock macroeconomic, social, and fiscal benefits. *Source: Annex 1. Regression Tables and accompanying text in the provided IMF content unit.* ### 9. The aforementioned gender disparities in education undoubtedly pose significant ### 1nerea2023002 - 9. The aforementioned gender disparities in education undoubtedly pose significant ### Model and calibration - Framework: microfounded, lifecycle, dynamic general equilibrium model with heterogeneity by gender, skills, age, and access to financial markets. - Calibration targets (for Niger, benchmark year 2018): formal sector’s share of GDP; government expenditures as a percentage of GDP; government expenditures on education as a percentage of GDP; the Gini index of household income; female labor force participation rate, among others. - Household decision structure: - Households comprised of a man and a woman choose consumption of goods and services produced in formal and informal sectors. - Men choose hours in formal and/or informal sectors. - Women decide first whether to participate in the labor market and, if they do, how many hours in formal and/or informal sectors. - Households incur a utility cost when women participate in the labor market (coordination of household activities and compliance with laws and social norms). - Human capital: - Everyone has human capital determined by initial skills and years of education; it evolves endogenously through on-the-job experience. - The model assumes the initial stock of human capital is concave in years of education (see footnote discussion). - Production and taxation: - Formal sector production uses capital and labor; informal sector uses only labor. - Women face wage discrimination (lower wage per hour in any sector). - Taxes on formal consumption, formal labor income, and formal corporate revenues; government spends on public consumption, public education, and transfers. ### Simulation design - Policy simulated: increase education spending to include more girls so that the number of years of education of boys and girls within the same income percentile is equalized. - Motivation: men have more years of education than women at every income percentile in Niger (differences range from slightly more than 0.3 additional years for men at the lower end of the distribution to roughly 1.4 additional years at the upper end). The gender gap in educational attainment grows monotonically across the income spectrum. ### Key simulation findings (labor supply and income) - Female labor force participation: increase by 85.6 percent. - Mean effective hours worked (population): increase by 30.1 percent. - Note: Effective hours worked are regular hours worked adjusted for human capital levels. - Overall gender gap in mean effective hours (male-to-female ratio): falls by 59.5 percent. - Hours gender gaps by sector: - Formal labor market hours gap: shrinks by 62.8 percent. - Informal labor market hours gap: shrinks by 61.7 percent. - Household mean labor income: increases by 8.6 percent. - Overall gender gap in mean labor income (male-to-female ratio): falls by 53.3 percent. - Gender gap reductions by market for mean labor income: - Formal labor market gap: reduction of 62.8 percent. - Informal labor market gap: reduction of 54.9 percent. - Mechanism emphasized: women enter adulthood with more education → larger stock of human capital → higher labor-market returns to education and experience → stronger incentives to participate and to work more hours → higher wages and household income. ### Macroeconomic and fiscal impacts - GDP (total economic output): rises by 11.2 percent, driven primarily by increased effective hours worked. - Aggregate private consumption: increases by 3%. - Government spending: - Public education spending: increases by 21.2 percent to implement the policy. - Total government spending: rises by 3 percent. - Implementation would require budget reallocation and efficiency improvement. - Tax revenue changes: - Revenues from taxes on labor income: increase by 15.3 percent. - Revenues from corporate income taxes: increase by 16.2 percent. - Revenues from consumption taxes: increase by 3 percent. - Total tax revenue: increases by 11.3 percent. - Fiscal balance: the additional tax revenue provides more than enough resources to cover new education expenditures, implying a 9.3 percent reduction in the primary deficit. ### Model notes and interpretation - The sharp increase in female labor force participation is attributed to Niger's extremely low level of human capital combined with the model’s human capital theory: when human capital levels are low, additional years of education produce significantly greater human capital changes, creating large incentives for participation. - Effective hours worked = regular hours worked adjusted for human capital levels; this is the relevant labor input for assessing production changes. ### Policy recommendations (D. Policy Recommendations) - Accelerate implementation of ongoing and envisaged projects and strategies to improve educational attainment for girls, especially by: - Building adequate school infrastructure: - Major initiative: construction of boarding schools for girls, with the goal of building 100 schools by 2025. - Recommendation: enhance absorptive capacity through good governance and aid management capacity building measures to ensure timely disbursement of financial resources, given strong commitments from partners following pledges at the Education Summit in New York in September 2022. - Designing investments to improve the quality of education: - Major initiative: replace the 36,000 classrooms made of precarious materials with solid materials and strengthen permanent teaching staff. - Note: Given relatively high costs, an improvement in the efficiency of education spending and budget reallocation will be needed. - Putting in place programs to keep girls in school: - Boarding schools for girls aim to keep girls longer in school, but 100 schools will not enroll all school-age girls or cover the entire national territory. - Other interventions: reduce opportunity and out-of-pocket costs via cash transfers; provide targeted financial incentives to girls or families to delay age at marriage and enable girls who dropped out to return to school. - Expand economic opportunities for girls (under National Development Plan commitments): - Create decent and sustainable job opportunities for women and young girls. - Strengthen skills of women and young girls. - Provide support to improve working conditions in the informal sector. - Promote female entrepreneurship in all sectors. - Ensure compliance with elective and nominative quotas and improve regulatory and legal framework for preventing and responding to gender-based violence. - Increase accountability and effectiveness via gender-responsive budgeting: - Gender budgeting to ensure accountability in translating gender policy commitments into the national budget and to enable more evidence-based decision-making to bridge gaps and curb inequalities. *Source: IMF Staff Calculations and text from the Niger chapter in the provided IMF document.* ### 6. Geographical indicators of financial inclusion also point to a large divide between ### 6. Geographical indicators of financial inclusion also point to a large divide between ### Geographic divide and service points - Service points in the WAEMU increased from around 3 (per 1,000 km2) at end-2010 to 307 at end-2021, driven by a spike in e-money service points. - Niger had only 18 service points at end-2021, indicating a large gap with the rest of the WAEMU. - Sources cited: BCEAO financial inclusion reports, World Bank Global Findex, IMF staff calculations. - Note: In charts, “Use of DFS” means people who made or received a digital payment in the past year, based on the World Bank’s definition. ### Banking sector and MFI vulnerabilities - Bank credit to the private sector in Niger amounted to 13 percent of GDP as of end-2021, compared with a regional average of 24 percent. - Gross non-performing loans (NPLs) in the Niger banking sector were 21 percent at end-2021 versus 10 percent for the region. - MFI sector trends: - In other WAEMU countries, loans by MFIs rose from 1.1 percent of GDP in 2010 to 2 percent of GDP. - In Niger, the MFI sector shrank from 0.5 percent of GDP in 2015 to about 0.2 percent at end-2021 (almost a 50 percent decline). - MFI NPLs in Niger were about twice the regional average before Covid-19; the gap widened during the pandemic. - At end-2021, the MFI NPLs ratio in Niger stood at 40 percent, as opposed to 8 percent at the WAEMU level. - The weak portfolio quality of banks and MFIs in Niger threatens financial inclusion, particularly the availability of credit for SMEs. ### BCEAO actions during the pandemic (Box 2) - Measures taken to protect financial inclusion: - Reduced fees and commissions for various types of e-money transactions and relaxed conditions for opening e-money accounts to incentivize e-money use. - Launched a 2020 framework encouraging banks and MFIs to postpone debt repayments for customers affected by the pandemic (but evaluated as solvent) without reclassifying those claims as non-performing (regulatory forbearance). - Allowed bank loans granted to eligible MFIs to be eligible as collateral for a special BCEAO refinancing window to facilitate MFI access to bank financing. - Effectiveness: BCEAO measures helped MFIs in the region maintain a stable NPL ratio in 2020, but their effectiveness in Niger was limited; NPLs continued to increase rapidly. ### Challenges of financial inclusion in Niger - Main barriers reported by households to demand credit from formal institutions: (i) do not meet the requirements, (ii) not able to repay, (iii) absence of banks, (iv) do not know how to apply for credit, (v) do not have the capacity to repay (EHCVM Niger 2018/19). - Low financial literacy and general literacy: - Only 35 percent of adult Nigeriens are literate (15 and above), with female literacy at 27 percent. - Mismatch of financial products to population needs: - Large rural population dependent on agriculture; sector receives 0.97 percent of bank credit in Niger versus 3 percent in other WAEMU countries. - Potential for Islamic finance appears under-exploited. - Affordability constraints: - Poverty rate estimated in 2021 at 41.4 percent of the population (World Bank). - Informality: - Informal sector accounts for around 40 percent of Niger GDP. - SMEs often lack financial statements, up-to-date tax payment statements, or beneficial ownership information required for credit. - Non-recognized assets cannot be used as collateral; lack of land titles or birth certificates constrains access to credit (approximately 65 percent of people under the age of 15 do not have a birth certificate). - Example: CFAF 150 billion financing mechanism set up during 2020 pandemic; only CFAF 17 billion (11 percent) was used because SMEs operate informally. - Infrastructure gaps limiting digital uptake: - Inadequate mobile phone networks, broadband connections, electricity, mobile network, internet, and lower access to mobile devices constrain mobile banking and electronic payments. ### Policies to foster financial inclusion in Niger (main recommendations and actions) - Improve education to raise financial literacy: - Expedite finalization and implementation of the national financial education strategy currently being prepared by the authorities. - Strategy should identify and reduce structural, social, and behavioral obstacles; ensure effective collaboration among financial ecosystem actors and quality communication/awareness tools. - Promote digitalization of financial services: - Accelerate implementation of the roadmap (adopted in 2020) for complete digitalization of government payments to increase use of digital mobile money platforms. - Implement regional interoperability project led by BCEAO to allow payments between government and individuals across banks, MFIs, and non-bank electronic money issuers. - Close the gender gap: - Collect and harmonize gender-disaggregated data on supply and demand for financial services regionally (BCEAO could lead). - Measure gender gaps, identify drivers, and formulate national strategies; build on the Women’s Financial Inclusion Data Partnership approach and seek technical assistance and donor funding. - Strengthen supervision to preserve financial stability and consumer trust: - Strengthen regional framework for assessing banks’ credit risk (credit underwriting and portfolio monitoring). - Enhance national supervision mechanism for MFIs by strengthening operational capacities of the regulatory authority in line with the sector’s restructuring and consolidation plan. - Restructure the MFI sector: - Complete implementation of the restructuring and consolidation plan. - Adopt and implement a recapitalization plan for Niger’s two largest MFIs, ASUS and TANADI, which account for more than 50 percent of the sector’s deposits and outstanding credit and are currently under receivership. - Regional revision of the Law regulating MFI activities should strengthen governance safeguards. - Operationalize the Financial Inclusion Fund (FDIF): - FDIF created in 2020 as central pillar of the National Financial Inclusion Strategy remains not fully operational. - Governance bodies adopted and implemented, but operational procedures not yet adopted; financial resources not fully available. - 2021 donor round table produced sufficient pledges to cover provisional SNIF and FDIF budget, but significant resources have not been effectively mobilized; only two of four FDIF windows currently functional. - Review tax regime on financial activities: - Examine the Tax on financial activities (TAFI) because of its economically inefficient nature; its tax base is the value of transactions and it burdens inputs without deductions. - The relatively high rate of the TAFI (close to that of the VAT but without deductibility) likely harms demand for financial services and sector development. - Replacing TAFI with VAT could be an option to exempt inputs partially from indirect taxation, though practical difficulties exist in calculating value added for financial intermediation services; a cost-benefit study is necessary to assess gains and likely loss of tax revenue. - Improve bankability of projects to increase SME access to finance: - Reactivate the system set up in 2015 at the regional level; ensure support and supervision structures that help SMEs meet eligibility conditions and carry out ex post follow-up are functional. - National Support Fund for SMEs and SMIs (FONAP), created in 2020, could partially fill regional shortcomings but is not yet fully operational: funding remains to be secured and operational manual/procedures finalized. *Italic: IMF staff report content from the provided chapter/section.* ### 1. The coexistence of multiple and regular shocks constitutes a threat to the development ### 1. The coexistence of multiple and regular shocks constitutes a threat to the development of Niger ### A. Overview: triple crisis and development context - Niger faces a triple crisis from long-standing security challenges, climate change, and a health crisis associated with the coronavirus outbreak (COVID-19) in 2020. - Climate change and insecurity are linked: climate change can increase resource scarcity and competition, raising conflict risk. - Key socioeconomic indicators and demographics: - Close to 41 percent of population lives below the poverty line. - 83 percent of the population is located in rural areas. - Only 7 percent of Niamey population is considered poor; more than 45 percent of Dosso, Zinder, and Maradi populations are poor. - Agriculture accounts for 36.4 percent of GDP in 2021. - Around 73 percent of the total active population is engaged in the agricultural sector. - Annual population growth is estimated at 3.7 percent. - In 2021, 20 percent of the population was in the 15-24 age bracket. ### B. Vulnerability to climate shocks — observed trends and disasters - Rainfall volatility during the growing season is high and unpredictable, increasing exposure to climate hazards. - Over the last century: - Average annual temperature in Niger has increased by 0.7 degree Celsius. - Regional cumulative changes in precipitation and temperature (1901-2020) — cumulative variation of climate conditions: - Agadez: Precipitation 4.8 mm, Temperature 0.53 - Diffa: Precipitation 26.3 mm, Temperature 0.49 - Dosso: Precipitation -53.3 mm, Temperature 0.79 - Maradi: Precipitation -52.0 mm, Temperature 0.47 - Niamey: Precipitation -14.5 mm, Temperature 1.02 - Tahoua: Precipitation -34.3 mm, Temperature 0.62 - Tillabery: Precipitation -13.1 mm, Temperature 1.05 - Zinder: Precipitation -26.3 mm, Temperature 0.47 - Niger (national): Precipitation -27.7 mm, Temperature 0.67 - Floods and droughts are the most frequent natural disasters; at least one occurs in Niger every year. - Average losses due to droughts in Niger are estimated at over USD 70 million (0.6 percent of GDP). - Without mitigation, natural hazards in Niger are projected to increase in frequency. ### C. Insecurity profile and conflict geography - Conflict events and fatalities (cumulative since 2010): - Number of conflict events: 2,209 - Total fatalities: 6,140 - Violence against civilians is the most frequent form of conflict. - Conflict incidents are concentrated in southern and eastern regions, particularly in Diffa, Maradi, and Tillabery — regions important for agricultural production and cross-border trade. - Main conflict risk factors: - Access to resources: decreasing availability of land, water, and pastoral resources; governance weaknesses in resource management. - Rapid population growth: low education levels and limited labor market absorption increase vulnerability to armed recruitment. - Rise of religious intolerance and spillovers from Jihadist movements and Boko Haram. ### D. Economic consequences of climate and conflict shocks - Macro-level effects of weather shocks include: - Higher food inflation, food shortages, low GDP growth, increased displacement to urban areas, widening current account deficits, and constrained government budgets for response. - Cereal production reductions following droughts: reduced by 38 percent and 11 percent in 2021 and 2005, respectively. - GDP growth is, on average, reduced by 2.5 percentage points in times of conflict in SSA countries. - Micro-level effects include higher school dropout rates, farm abandonment in affected areas, and reductions in household income and consumption. ### E. Methodology for estimating shock effects on well-being - Cross-sectional econometric model linking commune-level climate and conflict measures to household welfare indicators from the EHCVM household survey (6,024 households; two waves covering seasonality). - Climate variables from Climate Research Unit (CRU); conflict variables from ACLED. - Outcome variables include income per capita, total consumption per capita, food consumption per capita, non-food consumption per capita, poverty status, food insecurity status, and school failure. - Climate shock measured as annual precipitation level and deviation from the average of the past five years (Z-score); conflict shock measured by total fatalities. - Equation estimated with controls for household characteristics (age, gender, education of household head), household size, and rural residence. Poverty status, food insecurity, and school failure estimated with a probit model. ### F. Empirical results — elasticities and welfare impacts - Income and precipitation elasticities: - Income elasticity to rainfall (current year): 0.33 (coefficient significant at one percent). - When rainfall decreases by one standard deviation, per capita income falls by 11 percent. - Income elasticity to precipitation in the previous agricultural calendar year: 0.39 percent (significant at one percent). - Agriculture-specific elasticities: - A one percent increase in cumulative annual precipitation during the current or previous agricultural season is associated with increases in agricultural income per capita of 1.9 and 2.4 percent, respectively. - Elasticities of agricultural production to precipitation: 2.3 and 2.8 percent for current and previous year, respectively. - Sensitivity by season: wet season elasticity 2.3; dry season elasticity 0.9. - Heterogeneity by income level: - The income elasticity to precipitation is significant for households below the median income but not significant for households above the median. - Interaction terms with median indicator (Mediane (=1) # Precipitation 2017: 0.898***; Mediane (=1) # Precipitation 2018: 1.191***). - Control variables: - Education level of household head is positively correlated with total household income per capita and negatively associated with probability of food insecurity and poverty. - Households living in rural areas and female-headed households have lower welfare than urban and male-headed households, respectively. - Effects of climate shocks measured as deviation from average rainfall (previous five years): - Climate shocks reduce per capita income and total household consumption. - Coefficients estimated at -0.05 (income) and -0.02 (consumption), significant at one percent. - Composition of consumption: food consumption reduced by 1 percent; non-food consumption reduced by 3 percent. - A one standard deviation decrease in annual precipitation reduces total consumption, food consumption, and non-food consumption by about 5, 2.2, and 6.6 percent, respectively. - Climate shocks increase the probability of being poor and food insecure. *Prepared by IMF staff (chapter content).* ### 19. When the number of conflict related deaths increases by 10 percent ### 19. When the number of conflict related deaths increases by 10 percent ### Effects of conflict on agricultural outcomes and household welfare - A 10 percent increase in the total number of fatalities corresponds on average to about one additional death in the sample. - Farm income and the value of production decrease by 10 and 8 percent respectively (initial statement). - A percent increase in conflict-related deaths is associated with a decrease in farm income and the value of production by 1 and 0.8 percent, respectively. These coefficients are both statistically significant at the one percent level. - Coefficients for other dependent variables—total consumption, poverty status, and food insecurity status—are not statistically significant, although they have the expected sign. ### Effects of climate shocks on human capital (school failure) - A one standard deviation decrease in annual rainfall reduces the probability of school failure by around 2 percentage points. - The marginal effect is larger when the climate shock is observed during the agricultural growing season rather than other months of the calendar year. - Conflict does not seem to have a significant effect on school failure, although the associated coefficient sign is positive. ### Role of household adaptation capacity - Agricultural Assets Welfare Index (AAWI): - Constructed using Principal Component Analysis (PCA) to identify households deprived of production materials (e.g., plows, axes, ploughing animals, irrigation schemes). - The AAWI distribution shows that the level of capital of a large proportion of farmers in Niger is very low. - Econometric results show that the AAWI increases agricultural productivity and mitigates the impact of climatic shocks and conflict incidents on agricultural production. - Income diversification (Herfindahl-Hirschman Index, HH-income): - The average of the index is estimated at 0.70, which means a higher concentration of income on a single activity (about 30 percent of households have only one source of income). - Households with more than one source of income are better able to cope with shocks compared to those with only one source of income. - Results are more significant for climate shocks than for the conflict variable. ### Key econometric/statistical findings (selected) - Climate shock main effects and interactions with HH-income (selected coefficients, robust SEs in parentheses): - Climate shock: -0.120 (0.257); -0.207*** (0.054); -0.137** (0.060); -0.333*** (0.058) - HH-income: 0.343** (0.136); 0.079*** (0.030); 0.053* (0.032); 0.095*** (0.036) - Climate shock#HH-income: -0.886*** (0.300); -0.163** (0.067); -0.130* (0.077); -0.191** (0.083) - Conflict: -0.101** (0.049); 0.049*** (0.011); 0.048*** (0.011); 0.049*** (0.013) - Conflict#HH-income: 0.186*** (0.053); -0.015 (0.011); -0.007 (0.013); -0.023* (0.013) - Agriculture-specific regressions (selected coefficients): - log(rainfall): 3.082*** (0.362); 3.645*** (0.429) - log(fatalities): -1.198*** (0.125); -1.436*** (0.145) - Median (AAWI)=28.939*** (2.851); 13.432*** (3.894); 2.288*** (0.180); 2.586*** (0.196) - Median (AAWI)=2#log(1+rainfall): -1.037** (0.455); -1.696*** (0.619) - Median (AAWI)=2#log(1+fatalities): 1.062*** (0.144); 1.336*** (0.160) ### Policy recommendations to build resilience and sustain livelihoods - Invest in expansion of irrigation: - Less than one percent of agricultural land in Niger is irrigated. - The country has a short rainy season of three months and large underground water potential; tapping this potential and creating runoff water reservoirs for irrigation would strengthen agricultural resilience. - Improve access to renewable energy to modernize agriculture: - More than 80 percent of the population has no access to electricity. - Only one percent of the rural population has regular access to electricity. - Niger's renewable energy potential (solar, hydropower, wind) could be tapped in partnership with the private sector; implementation of the national electricity access strategy remains critical. - Facilitate access and use of appropriate weather information: - Develop a weather forecasting system providing weekly, monthly, and seasonal forecasts to farmers. - Scale up agriculture extension services to transition from indigenous forecasting to modern climate information and support community-based disaster risk reduction programs. - Develop a robust social protection framework: - Integrate programs targeting climate-related vulnerabilities, e.g., subsidizing premiums for climate insurance services into existing social protection. - Improve access to basic infrastructure (education, health) to reduce vulnerability and prevent youth from joining armed groups. - Promote digitalization and create a single social registry to increase social protection effectiveness. - Foster private sector development and financial inclusion: - Diversify household income sources to reduce vulnerability from high exposure to agriculture. - Operationalize financial inclusion funds (FDIF and FONAP), digitize enterprise creation procedures, and simplify the tax code to create a favorable environment for private sector development. - Access international climate funds given limited fiscal space: - Implementation of Niger’s climate adaptation and mitigation strategy for 2021-2030 is estimated to cost USD 9.9 billion. - Over the 2010-2022 period, Niger has received a total of USD 3.3 billion in climate funds. - Strengthen governance and risk management frameworks to meet access criteria; develop a climate investment plan to advocate to donors. - Strengthen the social contract and governance: - Invest in essential infrastructure (roads, electricity, health) in urban and rural areas. - Continue fighting corruption and strengthen governance to protect property rights and facilitate natural resource management. - Create or extend transboundary institutions for land and water management to reduce resource-based conflict risks and facilitate dispute resolution during shocks. ### Government adaptation strategy (Box summary) - Niger submitted its National Determined Contribution (NDC) in 2016 and revised it in 2021 to define governance and institutions for implementation. - Main NDC pillars: encourage climate-smart agriculture (weather information, early warning system, index-based agriculture insurance, risk and disaster management) and expand use and access to modern and clean energy services for all by 2030. - Total cost of the NDC over 2021-2030 is estimated at US$9.9 billion; the government contribution is 26.4 percent and donors expected to fund the rest. *Source: EHCVM 2018/19, and IMF staff calculation* ### 2020. Widespread ### 1nerea2023002 - 2020. Widespread ### Context and Objectives - Niger faces widespread poverty, a narrow export base, remoteness, and landlocked status that impede access to lower cost imports and compound vulnerability to food crises. - Vulnerability is exacerbated by: - a large weight of food in household consumption basket, - low storage capacity, - spillovers of Russia’s war in Ukraine on rising costs of agricultural inputs (energy, fertilizers, etc.). - Climate shocks and ensuing food insecurity: - create ample volatility in agricultural production and GDP, - increase inflationary pressures, - lower income and raise food prices, putting large swaths of the population at risk of falling into precariousness and poverty, - widen fiscal and current account deficits through relief plans and increased demand for imported foodstuff, - reduce productivity of rural populations, eroding physical and human capital, and undermining long-term growth. - Objective of the paper: - (i) quantify the combined effects of climate shocks and food insecurity on key economic variables, - (ii) identify the most effective mitigation policy responses using a general equilibrium model of the Nigerien economy. ### Methodology - Model: dynamic quantitative open economy spatial multi-sector macroeconomic model with rural and urban locations. - Production and structure: - Food produced in rural areas on household farms using labor, imported fertilizer, and capital. - Urban areas specialize in non-farm activities, especially services and industry. - Economic agents can trade and migrate across regions subject to frictions and can import from abroad. - Three features included (prevalent in low-income countries): - (i) subsistence consumption of food (households spend relatively more on food when incomes fall), - (ii) limited access to finance (introduces a trade-off between consumption today and production later), - (iii) high transportation costs and import tariffs (results in limited internal mobility of labor and goods). - Calibration sources: national survey ECHVM 2018/19 database, FAO stats, and literature findings. - Climate shock specification: - modeled as a one-period temporary 25 percent decline in agricultural productivity—equivalent to two standard deviations of agricultural output. - Model links agricultural output to households’ food consumption and total calories and quantifies effects on: - rural households’ capital level, - migration, - urban/rural inequality, - food prices (domestic and imported). - Household behavior under shock: - may sell productive capital to meet minimum food consumption requirement, - small isolated shocks → temporary migration and quicker adjustment when frictions are small, - large shocks → substantial loss of productive capital, persistent effects, permanent decline in agricultural production, higher food prices, lower food consumption, migration to urban areas, increased regional inequality, lower economic growth and productivity. - Policy responses simulated: - Cash transfers: government taxes all households up to 15 percent of their income and redistributes revenue through cash transfers to rural households; transfers considered well-defined to reduce leakages. - Fertilizer subsidies: subsidize rural household purchases of fertilizer; financed same way as cash transfers. - Trade liberalization: eliminate import tariffs on staple food to support domestic food supply. - Reduction in internal mobility costs: remove mobility barriers between rural and urban areas to ease movement of households, goods, and services. ### Key Simulation Results - Impact of a 25 percent decrease in agricultural production (climate shock): - Food consumption decline: - rural households: 18 percent, - urban households: 14 percent. - Food price increase: - rural areas: 27 percent, - urban areas: 24 percent. - Calorie consumption fall for both groups; rural households approach the 2100 kcal/day threshold. - Rural households’ disposable capital erosion: 15 percent (only partially rebuilt 5 years later). - Urban households increase consumption of imported food in response to the shock. - Aggregate dynamics: nationwide food shortages and rising prices create a pecuniary externality increasing likelihood other households become food insecure. ### Comparative Effectiveness of Policies (simulation findings) - Cash transfers vs. Fertilizer subsidies: - Cash transfers: - raise consumption and utility for rural households, - some extra cash used to buy goods (food and non-food) and accumulate additional capital, - increased capital raises farm productivity, lowers food prices and migration, and narrows urban-rural wage gap. - Fertilizer subsidies: - decrease price of domestically produced food and share of imported food, - on net appear costly: result in reduction in welfare for both rural and urban households relative to baseline “no policy response”, - lead to lower level of agriculture capital relative to baseline as farmers substitute capital for relatively cheaper fertilizers. - Interpretation: marginal cost of reducing household cash-in-hand (to finance subsidies) is higher than marginal benefit from increased fertilizer usage; cash transfers give households broader options (consumption smoothing, capital accumulation). - Reducing internal mobility costs vs. Lowering import tariffs (trade liberalization): - Low internal mobility costs scenario: - larger distance between total calories consumed and critical requirement threshold (i.e., better outcomes), - reduces inequality because farmers access urban areas and additional income, consumption, capital, and welfare opportunities. - Trade liberalization: - expected to supplement domestic supply via increased imports, - gains not evenly distributed; urban households benefit slightly more (larger share of imported food in consumption basket), - leads to increased urban-rural inequality. - Result: reducing mobility costs appears more effective than lowering import tariffs in mitigating climate-related food insecurity shocks on households. ### Policy Recommendations - Operationalize a better coordinated national social safety net system at larger scale, given positive effects of cash transfers: - Strengthen technical and financial resources of the National Mechanism for the Management and Prevention of Food Crises (DNPGCA) to improve forecasting, management, and donor coordination. - Improve safety net programs coordination through a unified social registry and establishment of common monitoring schemes; improve coverage and security of existing civil registry scheme. - Increase safety net spending while improving the mix between long-term, predictable transfers and shock responses; direct three-quarters of safety net spending to long-term, predictable transfers to the chronically food insecure and/or chronically poor to smooth consumption, increase resilience, build human capital, and reduce need for shock response interventions. - Reform food sales at moderate (subsidized) price and agricultural fertilizer subsidy systems to improve targeting, efficiency, and sustainability: - Well-designed and targeted subsidies could decrease inequality and the price of domestically produced food and food imports. - Establishment of a unified social registry to enable reform of current subsidized food sales (which does not target the most affected and vulnerable populations). - Reform should extend to fertilizer subsidy system (CAIMA), including financing mechanism to ensure sustainability via establishment of a revolving fund replenished with sales profits. - Improve financial inclusion for most vulnerable populations, including women and youth: - Access to formal financial system helps smooth consumption and increase investments to reinforce physical and human capital and resilience to shocks. - Financial inclusion can play similar role to cash transfers but is not costly for urban households and could have positive long-run effects by allowing self-financing of resilience through credit. - Key areas of reform: - Improving financial literacy. - Promoting digital financial services. - Advancing the operationalizing of the Financial Inclusion Fund. - Re-establishing a healthy and solid microfinance sector. - Strengthening supervision to preserve stability of the financial system and build customer’s trust. *Source: IMF staff calculations and model simulations as presented in the chapter "2020. Widespread" (1nerea2023002).* ### 15. Increasing investment in road and information technology infrastructure to lower ### 15. Increasing investment in road and information technology infrastructure to lower ### Infrastructure and tariff policy: impacts and trade-offs - Increasing investment in road and information technology infrastructure to lower internal mobility costs and open up agricultural production areas will reduce the impact of climate shocks on rural populations. - Model simulations suggest these investments, along with tariff reductions on imported food staples, would yield large gains by furthering integration between rural and urban areas in goods and labor markets. - Expected additional benefits: - Facilitate rural populations' access to basic social services—health, education, and social protection—thereby strengthening human capital and resilience to shocks. - Reinforce functioning of agricultural markets and improve competitiveness in exports to neighboring countries. - Allow rural populations to access imported food substitutes at lower price in the event of a shortage of domestic production. - Policy time-horizon trade-off: - Gains from investments in road infrastructure are expected to materialize in the medium term. - Removal of import tariffs can be used as a short-term instrument to respond quickly to shocks. - Note: In response to this year's food crisis, the government reduced tariffs on some imported food products (e.g., vegetable oil, sugar, rice, etc.) to ease pressure on food prices. ### Model overview: spatial structure and agents - Economy comprised of two locations: rural (R) and urban (U). - Population: - LU urban households. - Continuum Ω of rural households of mass Lr. - Goods: two goods—agricultural (F) and non-agricultural (M). - Production and labor: - All domestic agricultural production is carried out by rural households; they may sell to urban households, export, or self-consume. - Urban households produce only non-agricultural goods. - Rural households allocate a fixed share ρ of labor to agricultural production and use remaining share to supply wage labor to a perfectly competitive non-farm firm. - Rural households can supply wage labor in rural or urban area; urban households only supply labor in urban area and cannot move outside urban area. - International trade: Both agricultural and non-agricultural goods can be imported from and exported to the rest of the World (ROW). ### Household preferences, consumption, and savings - Period utility: U_t = log(C_it − C̅) + β log B_it+1. - Per-period budget constraint: P_it C_it + B_it+1 = Y_it + (1 − δ) B_it, with 0 < δ < 1. - Net household income: Y_it = Y_gross (1 − tax_t) + cash_it. - Consumption requirement C̅ introduced to capture minimum consumption needs and generate consumption smoothing. - Optimal nominal spending X_it on goods consumption determined such that remaining wealth is saved; savings rate: - sav_it = [β/(1 + β)](1 − P_it C / W_it), where W_it ≡ Y_it + (1 − δ) B_it. - Final goods consumption bundle C_it composed of agricultural and non-agricultural goods with a food subsistence requirement C̅_F to capture non-homothetic preferences. - Preferences for final good given by Stone-Geary utility with 0 < α < 1. - Calorie consumption: kcal_it = a(C_it^F)^ζ, where 0 < ζ < 1 and r is a constant. - Assumption: households always spend enough to satisfy the food subsistence requirement, i.e. P_i C_i ≥ P_i^F C̅_F. ### Trade, sourcing, and iceberg transport costs - Armington aggregator with elasticity of substitution σ, with σ > 1. - Price and sourcing: - c_F^in denotes food goods imported into i = {U,R} from n = {U,R,ROW}; urban area produces only non-agricultural goods so c_F^U,in = 0 for all i = {U,R}. - Shipping goods from one location to another incurs an iceberg trade cost τ_in for any pair n,i with τ_in ≥ 1 and τ_ii = 1 for all i,n. - Price of importing goods from abroad p_jROW is exogenously determined. - Net price of goods imported into i from n equals factory gate prices in n plus transportation cost τ_in. - Import share equation: π_in^j gives share of expenditures X_i^jF spent on purchasing goods from origin n; π_in^j falls with farm-gate price p_j^n and shipping cost τ, and rises with CES price index P_i^j. ### Agricultural production and inputs - Individual rural household production function: Y = z_t k_t^γ f_t^θ h^(1−γ−θ), with 0 < γ < 1 and 0 < θ < 1 (h is plot size), where z_t is farm productivity, k_t is installed farm capital, f_t is fertilizer input. - All rural households supply the same fixed labor to farm production equal to 0 < ρ < 1. - Households allocate savings across productive factors such that marginal productivities are equalized; prices p_f and p_k are prices of fertilizer and capital. - Households cannot borrow; installed capital k_t and fertilizer f_t are financed exclusively through household savings. Rural households employ all savings B_it in farm capital and fertilizer, then decide to carry over net-of-depreciation capital or sell it to finance consumption. - Fertilizer depreciates fully each period; capital has standard depreciation (parameter δ earlier). All capital goods and fertilizer are imported from ROW (assumption to avoid adding an equilibrium block for capital goods). ### Non-agricultural sector and migration choice - Non-agricultural production in rural and urban areas produced by perfectly competitive firms hiring labor from households. - Rural production: Y_S^R = z_M ψ_t L_R (linear in labor), where ψ_t is share of rural households who decide to stay in rural area; (1 − ψ_t) migrate to urban area for wage work. - Urban production: analogous with local non-agricultural TFP z_M. - Firms set wage equal to marginal revenue product: MRPL = w_it for i = {R,U}, with p_Sit as price of local non-agricultural goods. - Migration/location choice for rural households: - Indirect utility V_t depends on migration-adjusted real wage and amenity values D_i with D_R > D_n for any n = {U,ROW} capturing moving costs. - Term κ_it(ω) captures idiosyncratic work location preference drawn i.i.d. from a Frechet distribution with scale parameter 1 and dispersion parameter λ. - λ → ∞ represents homogeneous preferences; lower λ implies more heterogeneity and smaller migration responses to wage changes. - Migration-adjusted price index P_it|R combines price indices of rural and destination locations with parameter 0 < Φ < 1; Φ set equal to share of migrating household members. - Remittances: migrants send remittances back to residence location to equalize real consumption across household members. - Probability of sending migrants to (or remaining in) location i, ξ_it, derived from Frechet distribution; with continuum of rural households, actual migration flows match ξ_it and ξ_Ut = ψ_t. - λ governs elasticity of migration flows with respect to seasonal migration-adjusted real wages; in extreme λ → ∞ elasticity is infinite and indirect utility V_t(ω) must be equalized across households. ### Market clearing and government budget - Exports to ROW, X_ROW,n^jF, given by constant elasticity function of prices with elasticity 1 − σ, where κ_j is a constant. - Goods market clearing: sales Y_ij for j = {A, S} must equal sum of sales across all destinations; this pins down vector of equilibrium farm-gate prices p_j^i for i = {R,U}. - Given trade shares π_ni (which depend on trade network characteristics and relative efficiencies) and exports X_ROW,i^F, equilibrium goods prices vector (p_S^U, p_F^R, p_S^R) is determined by market clearing conditions. - Government budget assumed balanced so that tax revenues R_t must equal spending S_t on cash transfers and fertilizer subsidies for all periods t = {1,2,...}. Rural households are sole recipients of government benefits. ### Key model parameters and inequalities (as stated) - 0 < δ < 1 - β/(1 + β) (ideal savings rate reference) - 0 < α < 1 - 0 < ζ < 1 - σ > 1 - τ_in ≥ 1 and τ_ii = 1 - 0 < ρ < 1 - 0 < γ < 1 - 0 < θ < 1 - ψ_t and ξ_it probabilities; Φ with 0 < Φ < 1 - Frechet dispersion parameter λ (λ → ∞ denotes homogeneous preferences) *Italic: IMF staff analysis as presented in chapter section 15 of the Niger report* ### 5. The remainder of the SIP is organized as follows. Section II presents stylized facts ### 1nerea2023002 - 5. The remainder of the SIP is organized as follows. Section II presents stylized facts ### B. Stylized Facts - Export structure and concentration - Niger’s exports have been concentrated on a few primary products in natural resource and agriculture sectors. - Historically, uranium was the largest export product; with the discovery of oil fields in the early 2010s, oil became a major export product and benefited from recent global price surges. - Other export goods include gold, and a few agriculture and livestock products. - The degree of export diversification remains lower compared to the average of other WAEMU and Sub-Saharan African (SSA) countries. - Among SSA, landlocked countries do not display a significantly different level of export diversification. - Concentration in export partners (2016-20 average) - France: 26.3% - Nigeria: 25.6% - Mali: 11.3% - Burkina: 5.6% - Benin: 4.0% - USA: 3.5% - UAE: 3.4% - Ghana: 3.3% - Togo: 2.0% - Canada: 1.3% - Note: Exports to WAEMU and other ECOWAS countries compose half of total exports, with Nigeria accounting for a quarter of total exports. - Export-to-GDP dynamics and oil pipeline - Exports-to-GDP ratio has been among the lowest in WAEMU and SSA countries and has been somewhat stable over past decades, though affected by global commodity prices. - Completion of a new oil pipeline through Benin is expected by late 2023, reaching full operation in 2024. - The onset of oil exports through the pipeline is expected to push the export-to-GDP ratio to around 25 percent in the medium term. - A higher degree of oil dependence would increase vulnerability to global oil price fluctuations. - Horizontal policy challenges (selected dimensions where Niger underperforms relative to WAEMU and SSA averages) - Human capital development: low level of human development partly attributable to shorter average schooling years. - Financial sector development: limited depth, access to financial intermediaries, and lack of developed financial markets. - Trade liberalization: degree of trade openness, trade regulations, taxes, tariffs, and trade agreements fall behind WAEMU and SSA averages. - Infrastructure and digitalization: internet access and informational development underdeveloped relative to peers. - Governance: regulatory quality and control of corruption lower than WAEMU regional average and similar to SSA average; sizable confidence intervals and cross-country variations noted. ### C. Empirical Analysis: Methodology - Scope and sample - Global sample of 151 countries covering 1980-2014. - Main econometric specification (panel fixed effects) - Export diversification index (lagged), vector of controls X (lagged by one year), time fixed effects, country fixed effects, and error term. - Controls include: natural resource rents (percent of GDP), size of informal sector (percent of GDP), indices of financial development, trade liberalization, control of corruption, human capital, quality of trade and transport infrastructure, quality of ICT and electricity infrastructure, investment profile, global competitiveness, state fragility, digitalization, foreign direct investment (percent of GDP), and domestic private investment (percent of GDP). - Reverse causality caveat: coefficients interpreted as correlations rather than causal effects. - Export quality equation - Same structure as diversification equation but with export quality index as dependent variable. ### C. Empirical Analysis: Results — Determinants of Export Diversification and Quality - Infrastructure - Quality of trade-and-transport-related infrastructure and quality of ICT and electricity infrastructure: positive and strongly significant predictors of both export diversification and quality. - Quantitative example: increasing Niger’s trade-and-transport-related infrastructure index from 2 (2018) to the sample median 2.72 (2018) is associated with an increase in the export diversification index by 21 percent. - Financial sector development - Index of financial sector development: positive and significant for export diversification and quality. - Quantitative example: increasing Niger’s financial development index from 0.1 (2020) to the sample median 0.26 (2020) is associated with an increase in the export diversification index by 9.8 percent and export quality by 1.2 percent. - Governance - Regulatory quality and control of corruption: positive and significant. - Quantitative examples: increasing Niger’s regulatory quality index from 23 (2020) to the median 48.6 (2020) increases export diversification by 12.1 percent; improving control of corruption from 27.4 (2020) to median 49 (2020) increases export diversification by 9 percent. - Trade liberalization - Trade liberalization index: positive and significant (except in some specifications), correlated with broader export base and higher export quality. - Quantitative example: moving Niger’s trade liberalization index from 23.6 (2019) to the median 58 (2019) increases export diversification by 15.4 percent and export quality by 2 percent. - Human capital - Human capital index: positive and significant in key specifications. - Quantitative example: increasing Niger’s human capital index from 0.3 to the median 0.6 increases export diversification by 24.5 percent and export quality by 6.8 percent. - Digitalization - Digitalization index: positive and significant; facilitates dissemination of knowledge, innovation, and trade. - Quantitative example: digitalizing Niger from 44 to the median 75.7 (2019) increases export diversification by 21.6 percent and export quality by 3 percent. - State fragility - Index of state fragility: positive coefficient (higher fragility associated with narrower export base). - Quantitative example: reducing Niger’s state fragility from 19 (2018) to the median 9 (2018) is associated with an increase in export diversification by 22 percent. - Natural resource dependence - Ratio of natural resource rents to GDP: negative and strongly significant at the 1 percent level; higher resource dependence associated with lower diversification and poorer export quality. - Quantitative example: reducing Niger’s natural resource rents from 5.2 percent of GDP (2019) to the median 1.7 percent of GDP (2019) increases export diversification by 7.7 percent. - Investment climate and competitiveness - Investment profile and global competitiveness indices: positive and significant in some specifications. - Quantitative example: improving Niger’s investment profile from 0.37 (2018) to the median 0.4 (2018) increases export diversification by 1 percent. - Foreign and domestic investment improvements can further contribute to diversification by tackling trade bottlenecks and reducing trade costs. - Informal sector - Size of the informal sector becomes insignificant once other factors are accounted for. - Discussion: despite conventional views that informality undermines diversification, the informal sector may also provide opportunities for entrepreneurship and employment that could support entrants into export activities. ### D. Policy Implications (summary points implied by findings) - Priorities to support export diversification and quality: - Improve quality of trade-and-transport-related infrastructure and ICT/electricity infrastructure. - Deepen financial sector development to ease financing for new exporters and manufacturing investment. - Strengthen governance: regulatory quality and anti-corruption measures. - Advance trade liberalization to reduce trade costs and broaden market access. - Invest in human capital to raise skills, innovation, and productivity. - Promote digitalization to disseminate knowledge and foster trade-related networks. - Reduce state fragility and strengthen institutional capacity to support private sector development. - Manage natural resource dependence by fostering value-added transformation and diversification into non-resource sectors. - Improve investment climate and competitiveness to attract foreign investment and stimulate domestic investment that lowers trade costs. *Source: IMF staff calculation.* ### 24. To diversify its economy and exports, Niger needs to embark on reforms and policies ### 24. To diversify its economy and exports, Niger needs to embark on reforms and policies ### Diversification challenge and approach - Multiple paths to successful diversification depend on the mix, sequencing, and timing of investments, policy reforms and institution building, and on their consistency with the underlying assets and related comparative advantages of the country. - Empirical analysis provides evidence of potential policies and reforms necessary to diversify the export basket. ### Human capital (education and health) - Niger consistently falls short in measures of education and health outcomes; human capital is a major constraint to structural transformation and export diversification. - Key policy directions: - Urgently upgrade the human capital of the workforce. - Continue school infrastructure building and recruitment of permanent teachers. - Promote girls’ education. - Targeted and better spending on education and health to narrow social inequalities and bring the country to at least regional standards. - Timing note: Results could take time to materialize, but the costs of not acting now is higher. ### Infrastructure - As a landlocked country, Niger faces geographic constraints that make infrastructure promoting trade a priority. - Priority investments: - Spending on transportation and transit to facilitate trade. - Reinforce connections within existing transportation networks and corridors, create new ones, and harmonize border procedures. - Construction and rehabilitation of the road network with Benin under the Millennium Challenge Corporation and ongoing rehabilitation of the trans-Saharan corridor Lagos-Alger via Zinder and Agadez are welcome. - Invest in electricity and ICT infrastructure to lower electricity and communications costs for firms, support competitiveness, and improve resilience and reliability of supply. - Enhance competition in electricity and ICT sectors. ### Regulatory reforms, governance, and market functioning - Government actions via well designed effective policy reforms and regulatory systems are needed to support diversification. - Suggested reforms include: - Regulatory reforms and institutional arrangements to reduce barriers to diversification and address market failures that limit resource movement to new activities. - Effective bankruptcy regimes that facilitate exit and encourage risk-taking. - Lifting of investment restrictions in some sectors (for instance, telecommunications). - Reforms to strengthen governance and actions to combat corruption to facilitate business creation and accelerate export diversification. ### Improving the business environment - Progress has been made on upgrading the business climate, but significant room for improvement remains. - Important reforms to encourage private investment and diversification: - Clear, transparent, and predictable business regulations providing a level playing field among investors (small and large, foreign and domestic). - Regulations governing the credit market, the labor market, quality standards, procedures and licenses required to start a business, contract enforcement and insolvency. - Making it easier to trade across borders. - Transparent and non-discriminatory regulatory environment, including appropriate investor protection laws, to promote investment in riskier activities with long-term payoffs. ### Regional integration: AfCFTA - The African Continental Free Trade Area (AfCFTA) can increase market opportunities for Nigerien exporters. - National measures to accompany AfCFTA to spur diversification: - Enhance productive capacity. - Support medium and small companies to be competitive and participate in regional and global value chains. - Improve access to financing. - Support innovation and product development. ### Digitalization - Promoting digitalization of processes will reduce cost of doing business and boost export diversification. - Current situation and initiatives: - Access to ICTs remains very low in Niger, but significant assets exist to strengthen connectivity efforts. - The Niger 2.0 Smart Villages Project aims to promote digital transformation in rural and remote parts of the country. - Priority actions: - Develop digital communications systems by expanding fiber-optic broadband cabling and reducing the cost of access to increase trade competitiveness and international integration. ### Peace, stability, and fragility - Promoting peace and stability and addressing sources of fragility are essential for diversification. - Political stability conditions are needed for policy reforms and a stable macroeconomic environment to attract investment. - Context and recent developments: - Niger is affected by terror attacks in recent years, but fair elections and democratic transition in 2021 demonstrate institutional strength and maturity. - Recent initiatives include reinforcement of the “Chef de file de l’opposition” position (a first since the introduction of this institution by the 2010 Constitution) and the resumption of dialogue under the National Council for Political Dialogue (CNDP). ### Vertical (sector-specific) policies - Vertical policies geared toward specific sectors can be useful if targeted, transparent, and minimizing budgetary costs. - Examples of envisaged initiatives: - Upgrade of the industrial zone in Niamey. - Creation of agro-business poles in all regions of Niger. *Source: 1nerea2023002 - 24. To diversify its economy and exports, Niger needs to embark on reforms and policies* --- _Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1nerea2023002.pdf_