Africa’s Voice on Development: Proposals for G20 Summit in Seoul

KOAFEC Ministerial Meeting, Seoul, September 15, 2010

Presentation by Prof. Mthuli NcubeChief Economist and Vice President

African Development Bank

Outline of the presentation

MotivationMain questions and messagesPro-growth macroeconomic policiesMajor issues for Africa’s developmentAfrica as a new source of global growthSummary

Africa’s Voice on Development: Motivation

• ‘We would like to see development challenges put much more firmly at the center of the agenda of reshaping the global economy.’

Communiqué of the Meeting of the Committee of Ten, Cape Town, February 2010

• ‘Strategies to foster development in the current era should focus on making the possible probable.’ Meles Zenawi, Prime Minister of Ethiopia at the 4th

African Economic Conference, Addis Ababa, November 2009

Main Questions and Messages

1. What should be Africa’s agenda for poverty reduction beyond the MDGs?

Given the continent’s vast economic potential, the focus should be on building a prosperous Africa

Prosperity in Africa can be achieved through growth that is strong, sustained and shared.

2. How can African countries best position themselves in the new global order to achieve such growth?

While Africa still faces enormous challenges, its economic potential is immense. How to turn this potential into achievements?

A lot has been achieved before the crisis, but more needs to be done to turn the potential into reality. Specific actions for Africa by G20 are suggested.

Africa also has – and increasingly so -- its own good policies and practices to share with others.The effective response to the crisis Innovative application of ICT (m-banking, m-agriculture)Leadership in policy making (C-10)

Main Questions and Messages (cont.)

Part I. Pro-growth Macroeconomic Policies:Crisis and Recovery

• Africa has been hit hard by the crisis, but it is staging a robust comeback.

Part I. Africa’s Recovery in 2010 and 2011 Needs to Be Supported by Appropriate Policies

Figure. Africa – Room to Grow and Room to Inflate

Source: African Development Bank Database.

Flexible, but credible macroeconomic frameworks. From overemphasizing stability to focusing on growth. Past procyclical policies replaced by rule-based counter-cyclical

frameworks with room for discretion.

A vibrant private sector and productive entrepreneurship Industrial policy should not pick winners, but remove obstacles in high-potential sectors and industries.

Social safety nets to protect the most vulnerable in the event of shocks. Social protection programs are needed to ensure shared growth in the medium term.

Part I. Beyond the Crisis: Pro-growth Macroeconomic Policies for the Next Decade

Part II. Major Issues for Africa’s Development Towards inclusive Finance

Inclusive financial systems with more access to credit, especially for small exporters, SMEs and smallholder farmers.

Actions: Trade finance: (i) improving data collections; (ii) developing national

guarantee systems and multilateral programs for trade finance; (iii) reducing capital intensity of trade finance in the Basel II

Agricultural finance: (i) utilizing modern technology (m-banking, biometric technology); (ii) supporting knowledge sharing

SME finance: (i) leveraging remittances for SME lending; (ii) raising competition in the financial sector; (iii) improving legal frameworks, strengthening property rights

Part II. Major Issues for Africa’s DevelopmentInternational Economic Linkages

Capital Flows: (i) Consider temporary capital controls, together with a timeframe for their removal; (iii) Opt for simple rules that are easy to implement.

Trade – Actions by African countries Advocating for an increased access to world markets; Calling for the conclusion of the Doha round and efficient

delivery of Aid for trade

Trade -- Actions by Developed countries - Discouraging protectionist practices in trade and finance - Putting an end to agricultural subsidies

Substantial mismatch between the demands of modern economies and skills of recent university graduates in most African countries needs to be reduced;

High unemployment of the educated, with shortages of skills, especially in ICT, high-level technical skills and foreign languages persist.

A comprehensive reform of Africa’s higher education systems is needed.

New sources of financing for higher education need to be identified, including from the private sector

Part II. Major Issues for Africa’s DevelopmentA stronger human capital base

Part II. Major Issues for Africa’s DevelopmentReducing the Productivity Gap

Figure. Labor Productivity, Index (1991 = 100), 1991 – 2008

Transformation to high value-added activities: – (i) Removing regulatory constraints to creation of new high-

productivity firms in industry and services; – (ii) Raising productivity in agriculture by access to credit, training,

adoption of modern technology, access to markets.

Implementing Effective Industrial Policy: – (i) providing incentives for technology development and

adoption in high-potential industries; – (ii) avoiding subsidizing energy-intensive and carbon-intensive

industries.

Green Growth Path – Give priority to projects that boost green industries, such as clean energy or green agriculture.

Part II. Major Issues for Africa’s DevelopmentAdvancing Structural Transformation

Africa faces large infrastructure financing needs (US$ 93 billion per year)

Traditional mechanisms: Increased efficiency in allocation and disbursement of public funds must be a priority.

Increased infrastructure financing by Africa’s emerging partners is a welcome development.

Innovative ways to mobilize private funds include: Issuance of domestic-currency infrastructure bonds (e.g., Kenya), Global instruments (e.g., Ghana’s Eurobond) Resource-based infrastructure funds (sovereign wealth fund) (e.g.,

Nigeria’s oil infrastructure fund).

Part II. Major Issues for Africa’s DevelopmentClosing the Infrastructure Deficit

Successful development experience in Asia shows the critical importance of policies and strategies being determined by the country’s circumstances, the country’s own priorities.

This lesson has to be reflected in the key policy and standard-setting organizations that impact African development.

Greater scope is needed for African-led institutions to engage on equal terms in global discussions, to put forward Africa’s perspectives, to draw attention to the implications of decisions by global bodies for Africa.

Africa’s institutionalized representation in the G20 is a priority.

Part II. Major Issues for Africa’s DevelopmentAdvancing Africa’s Voice

Part III. Africa as a New Source of Global Growth

The pre-crisis growth and the rebound have showed Africa’s capacity to become a new global growth pole.

If Africa grows for at least two decades at or above 7 percent a year, it would become a new source of dynamism in the global economy -- through exports and as a major consumer market.

Future growth in the world economy and in the developing world will depend on harnessing both the productive potential and the untapped consumer demand of the continent.

Summary of key messages

• The poverty agenda beyond the MDGs should focus on promoting strong, sustained and shared growth;

• Africa can be the next source of global growth;

• Structural challenges need to be addressed, especially in: infrastructure; acces to finance; human capital;

• The G20’s emphasis on the development agenda is much welcomed – Africa appreciates Korea as leader and champion of Africa’s voice