Trade and Development Board, 61st session (Item 6: Economic Development in Africa)
18 September 2014
Madam President,
Excellencies,
Ladies and Gentlemen,
It gives me great pleasure to welcome you to this session to discuss the main findings and policy recommendations of the Economic Development in Africa Report 2014: Catalyzing Investment for Transformative Growth in Africa.
The report addresses a major challenge facing African countries: how to increase investment and ensure that it fosters economic growth and productive capacity-building.
The Director of the Division for Africa, LDCs and Special Programmes, Mr. Taffere Tesfachew, will present the main findings and policy recommendations of the Report. Thus, I would like to focus my intervention on the rationale for addressing the investment challenge in Africa and the important role investment can play in transforming the African economies.
Excellencies,
Ladies and Gentlemen,
Over the last decade, many African countries have achieved impressive growth rates. Many grew above the 7 per cent threshold deemed necessary to meet the goal of reducing poverty by half by 2015.
This is very impressive by any standards.
Yet, an assessment of the impact that economic growth has had on poverty reduction, incomes and living standards in Africa is source of concern.
For example, out of 8 MDGs, the continent as a whole is on track to achieve only three of them by the 2015 deadline: universal primary education; promoting gender equality and empowering women; and combating HIV/AIDS, tuberculosis and other diseases.
The recent African experience has shown that economic growth is a means and not an end. Economic growth per se does not automatically translate into poverty reduction, job creation, reduced in equality or access to basic goods for everyone. Continued personal vulnerability, limited resilience and low access to sustainable jobs paint a depressing picture.
As noted in the latest Africa Progress Panel Report, "the ultimate measure of progress is not to be found in GDP numbers or growth rates, but in the well-being of people - and in prospects for enabling people to improve their lives".
One of the main problems is that Africa's recent growth has not led to the development of productive capacities and structural transformation- two vital elements for generating productive employment and sustained poverty reduction.
Central to the process of structural transformation is the scale of total investment in the economy - public and private, and the sectoral distribution of that investment. Investment should enable countries to move out of traditional and "dead-end" sectors into more dynamic activities that provide increasing returns over time.
In considering opportunities for boosting investment in Africa, there is often a tendency to focus on attracting FDI. To some extent, this is understandable given the low level of domestic savings in Africa and the fact that FDI brings other potential benefits, such as technology and knowledge transfer.
Nevertheless, in this year's Africa report, we focus on total investment in the economy to signal that all components of investment matter for growth and development. Therefore, the central thrust of policy consideration should be on how to exploit the complementarities among the various components of total investment, rather than promoting one component at the expense of the other.
Let me highlight two examples of the complementarities I am referring to.
The first example is the complementarity between public and private investment. The need and importance of public investment, especially in infrastructure development and education is not in doubt. For instance, no country that has moved up the development ladder has done so without extensive public investments in infrastructure and education.
Public and private investments are complementary. Investment in basic infrastructure increases the effectiveness of private investment, thus fostering economic growth. Therefore, government efforts aimed at stimulating investment should accord equal attention to both public and private investment.
The second example of complementarities I would like to mention refers to the potential role of Official Development Assistance (ODA) in boosting total investment - public and local private investment.
ODA can have some undesired negative effects. For instance, in small economies, increased inflows of aid can lead to appreciation of the exchange rate, reduce the competitiveness of local firms and create a dependency syndrome.
However, ODA can also have a positive impact on investment if, for example, it is used to improve the business environment and raise labour productivity through increased financing of health, education, and skills development.
Africa is a major recipient of ODA 1. It is therefore important that African countries use this aid to catalyze investment or to leverage it by gearing ODA towards enhancing the capacities of countries to mobilize domestic resources. Indeed, in economies with weak financial systems, as in many African countries, ODA can be used as a guarantee mechanism to reduce lending risks faced by banks and other financial institutions. Furthermore, the risks associated with investments in SMEs can be lowered by using ODA to leverage private finance for bankable projects. These and other potential policy actions on how to use aid to stimulate investment, identified in the report, are worth close examination by governments.
Madam President, Ladies and gentlemen,
To realize the development impact of investment requires purposeful action by the state. If African Governments wish investment to play an effective role in transforming their economies, the focus should not be solely on boosting the quantity of investment, but also the quality and the productivity of it. Likewise, it is crucial to direct this investment towards strategic areas, particularly infrastructure, rural development and manufacturing activities.
Madam President, Ladies and Gentlemen,
Before concluding, I would like to highlight one of the main contributions of this year's Economic Development in Africa Report. Contrary to conventional wisdom, the productivity of aggregate investment in Africa has increased significantly over the last two decades. Africa's productivity of capital was the lowest among developing regions in the 1990s and became one of the highest in the 2000s. Without any doubt a commendable achievement for the region.
I hope you will find both the analysis and policy recommendations useful as well as helpful in the formulation of policies towards investment.
Thank you for your attention.
