economic transformation, industrialization and extractives: at the core of agenda 2030?

At the core of Agenda 2030?

Roundtable for Enhancing Inter-Regional Cooperation on Agenda 2030

Presentation made at the ACP House

Isabelle RamdooDeputy Head,

Economic Transformation ProgrammeBrussels, 30 – 31 March 2016

Economic transformation, industrialization and

extractives

1. Agenda 2030: extractive sector, economic transformation and industrialization

2. SDG9: Special focus on regional infrastructure

3. Challenges and Policy prospects

4. Conclusion

Structure of Presentation

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1. Agenda 2030

Extractive sector, economic transformation and industrialization

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SDGs and the extractive sector: Where do they intersect?

Focus on Infrastructure: Why it matters? Visualizing the deficits

Source: African Union

Energy Railways

Lack of infrastructure a significant barrier to mobility (people, goods and services), productivity and economic development

World will require US$ 57 trillion in infrastructure investment from now to 2030.

Energy and transport infrastructure are particularly important;

Regional cooperation and integration matters: Scope to leverage use of (regional) infrastructure for broader economic development:

Africa’s geography is particularly challenging (biggest no. of landlocked countries)

Essential benefit is to provide larger and more competitive markets, reduce transport costs and establish connectivity across countries.

ACP (and Africa in particular) infrastructure needs are enormous…

By 2030, Africa alone needs US$93 billion per year to bridge infrastructure deficits (current spending is only about $45 billion per year and the gap is therefore US$ 48 billion). More than half funded by public sector.

Poor infrastructure and market fragmentation estimated to shave off at least 2% of Africa’s GDP annually; High transport costs inflate the price of goods by up to 75%; and reduce firm’s productivity by about 40%.

Underdeveloped infrastructures skim off at least 2% of Africa’s annual growth.

Access to electricity: 30% of the population compared to 70 - 90% elsewhere in the developing world (Asia, Central America and the Caribbean, Middle-East and Latin America)

Road access rate: 34% compared to 50% elsewhere Access to water and sanitation: 65% of the population compared to 80 -

90% in other developing regions. Telecommunications penetration rate: ~ 3% compared to ~ 40% in other

developing regions (very low penetration rate for broadband services)

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2. What potential synergies?

Extractive sector provide an important leverage

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Extractive industries are particularly large consumers, producers and contractors of infrastructures

Extractives are expected to invest up to $ 2 trillion in resource-rich countries by 2030

Capex in infrastructure in bulk ore minerals can go up to 40% (mostly in transport)

But infrastructure is not sufficient in itself: it cannot be transformative: If not well connected and integrated in spatial development; If it does not stimulate trade, investment and business development

Therefore, a strong case to be made to leverage, share and optimise the use of mineral based infrastructure at national, but most importantly, at the regional level

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(Too) few examples in the extractive sector. Where they exist, partial successes (MDC – scope is narrow, roads only, short corridor; SAPP, South Africa driven, low trade (7% of energy needs)

Lessons can be learnt from elsewhere (non-extractives, but regional focus) (Europe connectivity; Baltics; Central America)

Reasons for success:1.Political leadership;2.Proper planning and coordination;3.Strong institutions;4.Clear regulatory frameworks, implemented, monitored and evaluated; 5.Incentives (Fiscal incentives for companies; industrial zones and business prospects for the private sector etc)

But it is (really) happening? ….Yes but not enough….

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3. Key challenges and policy prospectsMeans of implementation

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1. Funding requirements and deficits in Africa

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As a benchmark, it is estimated that developing countries need to invest 5 - 6% of their GDP in infrastructure to sustain their economic growth;

Excluding IFIs, Govt budget spending is quite high: estimated to be 63% of spending on infrastructure (IMF: 2012)

Other instruments at disposal of govt include:(i) Financial markets;(ii) Bonds (iii) SWF(iv) Sukuk finance

Who is currently financing Africa’s infrastructure?(a) Govt finance: main single source of infrastructure finance

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(b) external sources

ECDPM Page 14Source: The Infrastructure Consortium for Africa Report, Dec 2014.

(i) Official Development Finance (ODA + IFC + AfDB)

ECDPM Page 15Source: Brookings, 2015

(ii) Private participation in Infrastructure

ECDPM Page 16Source: Brookings, 2015

(c): Non-OECD Financing: Eg. Chinese Finance

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Source: Brookings, 2015

Chinese infrastructure investment commitments in SSA by sector, 2007 - 2012

Sector v/s finance matrix

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Source: Brookings, 2015

2. Synergies and project coordination at the regional level: can the tripartite serve as a model?

Tripartite cooperation a good business case

Three pillars if implemented can be a game changer

• Market integration - establish a FTA to bolster intra-regional trade through a wider market and value chain development, increased investment flows, enhanced competitiveness and development of cross-regional infrastructure

• Infrastructure development - to enhance connectivity and reduce costs of doing business  and

• Industrial development to address productivity constraints

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Underscore the importance of the ACP as a facilitator and hub for cross-regional and cross-continental infrastructure.

A niche, in particular:1) Given the its geographical composition (second largest

organization by size in the world; majority of sea-locked countries; spans across all continents);

2) One common asset (relevant for maritime transport or ICT), which is the ocean (not to underestimate its geopolitical importance);

3) The capacity of the ACP to leverage financing at a macro-level, and hence can help put forward innovative mechanisms to access large-scale funds; and

4) The only institution capable to federate inter-regional cooperation to discuss common goods.

To conclude..

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Thank youwww.ecdpm.org

www.slideshare.net/ecdpm

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