unctad.org | Launch of the Economic Development in Africa Report 2014
Statement by Mr. Mukhisa Kituyi, Secretary-General of UNCTAD
Launch of the Economic Development in Africa Report 2014
02 Jul 2014


"Catalyzing Investment for Transformative Growth in Africa"



Ladies and Gentlemen,

Today we launch UNCTAD's 2014 Economic Development in Africa Report. This year's Report shows that investment will be critical to the future development of the continent. The report, entitled "Catalyzing Investment for Transformative Growth in Africa," says that investment is a major driver of structural transformation, and will be critical for sustaining growth for employment and poverty reduction in Africa over the medium-to long-term. Of course, governance, policies and institutions that generate, utilize and catalyze investment matter enormously. These are key because investment rates in Africa are currently low relative to what will be required to achieve national development goals. The Economic Development in Africa Report finds that over the past two decades the average investment rate in Africa has hovered at around 18 per cent. This is well below the 25 per cent threshold deemed necessary to make significant progress in reducing poverty.

Low investment rates persist in Africa, despite the continent having enjoyed relatively high GDP growth rates from 2000 through 2010, which were on average 5.3 per cent. In fact, Africa's average growth rate since the turn of the millennium has been higher than the average growth rate of the world economy, as a whole. However, that economic progress did not translate into more employment or significant poverty reduction. Indeed, there are structural problems with Africa's recent growth from a sectoral perspective. Simply put, growth has not been transformative in Africa. Our Report finds that the share of manufacturing in total value added has declined over the past 20 years. It fell from an average of 14 per cent for the period 1990-1999 to 11 per cent for the period 2000-2011. In fact, African industrialization has lost ground since the mid-1970s, and not much of a recovery seems to have taken place in recent decades. Instead, the service sector is now the most dominant sector of African economies.

The pattern of structural change observed in Africa is quite different from the classic pattern that has produced high growth in Asia, especially given that Africa is still generally at an early stage of development. Usually, in the early stages of development, the service sector does not play as dominant a role in the economy, as we see in Africa today. Although labour is moving out of agriculture and rural areas, formal manufacturing industries are not the main beneficiary. Instead this labour has moved into services, which should be of concern because specifically these services tend to be low-productivity, informal and non-tradable. Most people employed in the informal service sector in Africa are self-employed and earn barely enough to survive. Vulnerable work is prevalent. Workers lack formal work arrangements, they don't have adequate social security, and they also lack adequate voice in their own affairs. It is also worth noting that historically the most positive employment and development growth experiences in Africa were accompanied by an expansion of wage employment, not of self-employed or family workers.

From UNCTAD's perspective, African countries will be more successful creating employment and reducing poverty, if they enhance the contribution of investment and manufacturing to growth. Investment -- whether domestic, foreign, public or private -- is one of the main drivers of long-run growth, and over the past decade, the continent has not made the level of investments required to achieve the structural transformation, which we need.

Ladies and gentlemen,

The new Economic Development in Africa Report is therefore very timely. My comments today will briefly address how Africa can increase the quantity of investment, and improve the productivity and quality of investment, whilst also ensuring that this investment goes to strategic and priority sectors to promote inclusive growth and to develop productive capacities.

First, the Report stresses that there is much African countries can do to boost the level and rate of investment. Achieving sustained and transformative growth requires broadening the sources of growth on the continent on both the demand and supply sides of the economy. On the demand side, this means balancing the contributions of consumption and investment to the growth process. On the supply side, it involves inducing a shift from low- to high-productivity activities both within and across the agriculture, manufacturing and service sectors.

The long-term trend of declining public investment in Africa needs to be reversed. The data show a dramatic decline in public investment since the beginning of the 1980s from 11.5 per cent to 5 per cent in 2012. Similarly, access to credit must be improved, especially for African SMEs, and their cost of finance reduced.

The Report also stresses that African Governments have to adopt a more coherent approach to promoting investment, in order to play an effective role in the economic transformation of Africa. In particular, the Report argues that macroeconomic policies should not result in prohibitive interest rates that hinder investment. In addition, interest rates on government securities should not be so high that they incentivize banks to hold excess reserves and reduce lending to the private sector. African Governments should also try to generate more resources for infrastructure investments through securitization of remittances and use of excess foreign exchange reserves.

Pan-African initiatives should also be supported. For example, the Priority Action Plan of the Programme for Infrastructure Development in Africa (PIDA) consists of 51 priority infrastructure projects and programmes on energy, water, transport, and ICTs. This creates both a financing challenge and a development opportunity for the African Union, which needs to be seized upon.

Another important message of the report is that it is imperative to further improve the productivity of investment in Africa. Increasing the productivity of investment capital in Africa is important because it is a key source of growth and a major determinant of competitiveness. An increase in the productivity of capital therefore enhances Africa's ability to compete and integrate into the global economy.

The Report finds that relative to the 1990s there has been an increase in the productivity of total investment in Africa. Indeed, this fact has remained a largely untold story of Africa's economic growth performance in the last decade. If we compare the period from 1990-1999 with the period from 2000- 2011, the Incremental Capital-Output Ratio, or ICOR, in Africa fell 45 percent. This ratio measures the degree of inefficiency in the use of capital, and it's sharp decline means that the cost of capital in producing an additional unit of output in Africa has fallen by nearly half. Some of the factors that have contributed to these productivity increases observed in Africa over the past decade include improvements in infrastructure, relatively better access to technology, and policy reforms that reduced the transactions costs associated with production, trade and investment.

Compared to other developing-country groups, over the period 2000-2011, the productivity of capital was much higher in Africa than in America and slightly higher than in Asia. This is a big change from the 1990s when the productivity of capital was lower in Africa than in other developing-country groups. The Report stresses that while there has been an improvement in the productivity of total investment in Africa, more should be done, particularly in the area of public investments to increase the impact of investment on growth.

Another important message of the Report is that countries need to ensure investment goes to strategic and priority sectors of the economy. There are certain activities and sectors that are critical to building productive capacities and achieving sustained and transformative growth. These include infrastructure and production activities in the agriculture and manufacturing sectors. However, commercial banks in African financial systems tend to focus their lending on high turnover activities, such as commerce, rather than infrastructure, agriculture and industry.

The Report argues that industrial policy has an important role to play in addressing the challenge of promoting investment in the strategic or priority sectors. It suggests that central banks can encourage lending to strategic sectors through credit guarantee schemes and also by encouraging financial institutions to use the flow of remittances as collateral for SMEs that seek finance for productive investments.

Ladies and gentlemen,

While my remarks have focused on how Africa can increase the quantity and quality of investment whilst also ensuring that it goes to priority sectors, allow me to emphasize that the Report also highlights the importance of strengthening linkages between local and foreign enterprises, stemming capital flight and using aid and trade to catalyze investment for transformative growth in Africa.

In this 50th anniversary year of UNCTAD, our work around the world remains committed to helping countries address the trade and development challenges they face. The Economic Development in Africa Report calls for a new set of priorities, and policies to boost investment rates in African countries based on inclusive growth and sustainable development.

We, at UNCTAD stand ready to provide Africa with any assistance that may be required towards these ends.

I thank you for your kind attention.


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