Annex 11A: Country Selection and Benchmarking

Those experiences may prove helpful to policy makers in countries that still face very large shares of nonrenewable natural capital in their total wealth. On average, countries that have achieved higher economic growth have also seen rapid accumulation of human capital.

However, countries need to manage their natural capital portfolio rather than simply deplete or degrade it in the diversification process. Higher-income countries and those with rising wealth per capita have achieved this alongside rising natural capital values per capita. Protecting and enhancing renewable natural capital while investing in other assets could help countries achieve a more sustainable growth path.

Several countries have struggled to use their natural resource wealth to strengthen their public finances. Nonrenewable natural resources, and the associated commodity price volatility, have proven challenging for resource-dependent countries. Therefore, it is important to design mechanisms that enable countercyclical contingencies and consider rents and resource depletion in macrofiscal management. Indicators such as ANS can serve as early warning signals of unsustainable asset accumulation and natural capital depletion. Effective natural resource management also depends on strong institutions that can secure savings in good times and stabilize the economy during bad times. This institutional capital if protected and strengthened could be the ingredient that will guarantee sustained prosperity.

To compare the macroeconomic performance and evolution of wealth in different economies with distinct levels of income and capital endowments, this chapter centers the analysis on 25 countries divided into four groups: case study countries, countries with similar GDP per capita, countries with higher GDP per capita, and countries with declining or stagnant wealth per capita (table 11A.1). The first group corresponds to a selection of five countries with a large population and natural capital equivalent to at least 10 percent of the member’s total wealth: Brazil, the Democratic Republic of Congo, Ghana, Indonesia, and the Russian Federation. These are referred to as “case study countries” and used as reference in several parts of the analysis. The second group of countries with GDP per capita similar to the case study countries includes Colombia and Peru in the Latin America and the Caribbean region, Nigeria and Kenya in the SubSaharan Africa region, Pakistan and Bangladesh in the South Asia region, the Arab Republic of Egypt and Morocco in the Middle East and North Africa region, and Thailand and Vietnam in the East Asia and Pacific region. The selection of countries was based on the following criteria: (1) being a lower-middle-income or upper-middle-income country, (2) having a population of more than 10 million people, (3) having had GDP per capita between US$1,000 and US$10,000 in 2018, and (4) having had average natural resource rents greater than zero between 1995 and 2018. The third group of higher GDP per capita comparators includes Chile and Mexico in the Latin America and the Caribbean region, South Africa in

TABLE 11A.1 Countries Selected for Analysis

Case study countries Similar GDP per capita comparators Higher GDP per capita comparators Declining or stagnant wealth per capita countries

East Asia and Pacific: indonesia (idn) Europe and Central Asia: russian Federation (ruS) latin America and the Caribbean: brazil (brA) Sub-Saharan Africa: Congo, dem. rep. (Cod) and ghana (ghA) East Asia and Pacific: thailand (thA) and vietnam (vnM) latin America and the Caribbean: Colombia (Col) and Peru (PEr) Middle East and north Africa: Egypt, Arab rep. (Egy) and Morocco (MAr) South Asia: bangladesh (bgd) and Pakistan (PAk) Sub-Saharan Africa: kenya (kEn) and nigeria (ngA)

Source: World Bank. Note: GDP = gross domestic product. East Asia and Pacific: Malaysia (MyS) Europe and Central Asia: turkey (tur) latin America and the Caribbean: Chile (Chl) and Mexico (MEX) Sub-Saharan Africa: South Africa (ZAF) Sub-Saharan Africa: benin (bEn), burundi (bdi), gabon (gAb), liberia (lbr), and Madagascar (Mdg)

the Sub-Saharan Africa region, Malaysia in the East Asia and Pacific region, and Turkey in the Europe and Central Asia region. The selection of the countries in this group follows the similar GDP per capita comparators criteria except that GDP per capita in countries of this group exceeds US$10,000. The fourth group of countries with declining or stagnant wealth per capita includes Burundi, Benin, Gabon, Liberia, and Madagascar. These five countries were selected from the list of 26 countries that did not significantly improve or experienced a decline of their wealth per capita between 1995 and 2018 and had declining renewable natural capital per capita (figure 11A.1).

Total Wealth per Capita Growth Is Correlated with GDP per Capita Growth

Between 1995 and 2018, total wealth per capita and GDP per capita increased in the same proportion. On average, a 1 percentage point increase in total wealth per capita from 1995 to 2018 was associated with a 1.07 percentage point increase in GDP per capita (constant 2010 US$) during the same period, at 95 percent confidence level using the sample of 142 countries with no missing data for GDP and total wealth per capita (table 11A.2):

Δ GDP pcap1995−2018 = β0 + Δ Wealth pcap1995−2018 + ε, (11A.1)

where Δ GDPpcap1995−2018 corresponds to the percentage change in GDP per capita from 1995 to 2018 and Δ Wealth pcap1995−2018 corresponds to the percentage change in total wealth per capita for the same years.

FIGURE 11A.1 Countries where total wealth per Capita declined or Stagnated between 1995 and 2018

10

% change in wealth per capita, 1995–2018

0

–10

–20

–30

–40

–50 Tajikistan United Arab EmiratesBurundiBelizeLebanonZimbabwe Congo, Dem. Rep.ComorosGabon Gambia, TheNigerLiberiaBahrainJamaicaOmanJordanGuyana Central African RepublicMadagascarUkraineSaudi Arabia Papua New GuineaSolomon IslandsBeninMoldovaGreece

Source: World Bank staff calculations.

TABLE 11A.2 Correlation between total wealth per Capita Change and gdP per Capita Change, 1995–2018

total wealth per capita change t-statistic Constant t-statistic N

GDP per capita change 1.07*a

(5.69) 0.22b

(0.83) 142c

Source: World Bank staff calculations. a. Correlation coefficient. b. The y-intercept where the regression line intersects the y axis. c. The number of countries included in the regression. The t-statistics are presented in parentheses * p-value <0.001. Regression uses robust standard errors.

Therefore, the countries with the highest increase in total wealth per capita are also the countries that on average had the highest increase in GDP per capita over these 23 years. Cambodia and Lithuania are examples of this growth, where wealth and GDP per capita have increased more than 150 percent (figure 11A.2).