Public Lecture by Mr. Gobind Nankani Vice President Africa Region, World Bank Nairobi, Kenya December 6, 2004 Introduction It is a particular pleasure to be in Kenya at this time of both celebration and renewed commitment. This visit comes amidst my own homecoming—after a boyhood and early education in Ghana, and, later, some years at the Bank working in the Africa Region, I have recently returned to Africa, in the role of the World Bank’s vice president for the Africa Region. I am proud to be part of a partnership that is, I believe, helping to move Africa towards a new future in a fast-changing world. Kenya’s extraordinary beauty, the caliber of her schools and universities, and the resourcefulness of her people all remind me of why I come to this position with such a sense of anticipation and hope. Reflecting on the fortieth anniversary of the World Bank’s partnership with Kenya, we are reminded of crucial transitions— to independence four decades back, but also the peaceful democratic transition to new government two years ago. And we recognize that we are still very much part of a longer-term and painstaking transition to economic structures that create many more job opportunities, that better connect Kenyans to global markets, and that help finance critical social services. This is very much Africa’s transition too—to structures that can really facilitate opportunity. Taking Note of Progress Made It is exciting to be in Kenya, and to see some of the manifestations of a changing economy taking hold, including: - steps to free up the agricultural sector, enabling a more open movement of agricultural produce across regions and an explosion of agricultural exports;
- a cell phone revolution that is measurably improving communications for ordinary Kenyans, among other things, making it possible for farmers to track price changes in key commodities and inputs on a real-time basis;
- freed-up foreign exchange controls facilitating commerce with the rest of the world.
Kenya isn’t alone in making important changes, and the results have begun to show: - 15 countries in Africa, including Uganda, Ethiopia, and Burkina Faso, have averaged growth of over 5% per year since the mid-1990s;
- Many countries have increased exports by more than 8% a year in the same period, despite falling prices in some of their primary commodities;
- Foreign Direct Investment in Africa rose to $8.5 billion last year, from $7.8 billion the previous year, and importantly, South Africa is becoming a significant investor in sub-Saharan Africa production, while China is leading a wave of interest from Asia;
- Debt burdens have eased in the last decade, with total external debt down by 30%, debt service down 60%.
Taking Stock of Challenges But as the world enters a year when Africa will be the focus of considerable global attention—with the U.K. Commission on Africa, the G-8 Summit, and progress reports on the Millennium Development Goals—we must recognize that significant obstacles remain. In particular, conflict, HIV/AIDS, and inadequate economic growth emerge as three major challenges. Conflict has left some 15 million Africans homeless in their own countries, and another 4.5 million seeking refuge in neighboring countries. AIDS, the second systemic threat to progress, undercuts income, contributes to food insecurity, forces families to exhaust savings and pull children out of school. AIDS destroys the skills base Africa will need to grow, and is stretching social systems to the breaking point. Without tackling the threats posed by the AIDS pandemic and by violent conflict, our efforts to create a new future for Africa will show few results. But today I’d like to address the third challenge—economic growth, which can be critical in avoiding or recovering from conflict, and can help generate resources to confront the HIV/AIDS crisis. More broadly, it is crucial to creating the Africa we all want to see in 10 years’ time. Historically, economic growth in Africa has been insufficient, inadequately shared, and short-lived. The result: Africans haven’t seen the poverty-reduction gains that faster-growing countries in other parts of the world have registered. Indeed, from 1981 till 2001, the number of Africans living in poverty doubled to 314 million from 164 million. It is far from inevitable that these trends continue on into the new century. The fact that a number of African countries are registering relatively healthy growth rates underscores the potential for an acceleration of economic growth throughout the Continent. But Africa doesn’t just need a higher percentage marker for growth: Africa needs growth—not in spurts of a year or two at a time-- but growth that is sustained over time and is broadly shared. What is shared growth? What do I mean by shared growth? It is growth that creates benefits throughout society, including the poor, including those living in more remote rural areas, including women and youth. This is not an automatic process, nor is it a process of “trickle down”. It is not enough simply to assume that everyone will eventually gain if the economy continues to grow. A farmer who lacks access to a navigable road will go on struggling—until decision-makers act to rehabilitate the feeder roads and provide access to market centers. A girl who spends her days fetching water rather than learning to read will have little to show for her country’s economic expansion—until a well-digging program reaches her community, assuring her family of a reliable source of safe water. What’s also important is the fact that once the isolated farmer and the unschooled girl gain the tools to participate in the economy, they can go on to contribute to and extend the country’s growth run. Lessons of the ‘90s and the need for Country-specific Solutions Africans are not alone in wrestling with the challenge of advancing shared economic growth. The 1990s provides a mosaic of often surprising experiences, in which some countries showed impressive growth that was broadly shared, while others’ performances were disappointing, despite their having embraced certain reforms. In short, the last decade really challenged some widely-held expectations about what would kindle economic growth that would make a difference in the fight against poverty. During the past year, we at the World Bank have worked to understand the development lessons of the 1990s. This process has involved both analysis and listening to those engaged in the design and implementation of public policy. That work has yielded some new insights. In all fields, knowledge grows over time through experience and innovation. Specifically, the economics profession and we may have focused too much on the efficient use of resources, and not enough on the expansion of productive capacity. We perhaps had unrealistic expectations about how much growth would flow from policy improvements alone. At the same time, many countries feel that they underestimated the value of prudence in undertaking certain macroeconomic shifts, such as the liberalization of capital flows. There was at times a mistaken tendency to translate sound principles into ironclad rules, which cut off opportunities for homegrown solutions and innovations. And in redefining the role of the state, and limiting government influence in the productive sector, we may have underplayed the importance of establishing credible decision-making mechanisms in government. Finally, there was an inclination to attempt to address all constraints at once rather than apply strategic selectivity in addressing those constraints that constitute the most critical impediments to growth. Analyzing the impressive growth records of China, India, Vietnam and Uganda, we must recognize that successful strategies are country-specific, taking into account particular institutional endowments and recognizing the potential for unorthodox approaches. But while the components of growth strategies will differ from one country to another, every country needs a strategy, one that takes into account individual endowments and constraints, and which addresses the constraints differently, while setting out a roadmap for unleashing higher growth and managing it so everyone sees the benefits. We have seen a significant shift in recent years to country-driven development. Governments, in consultation with the private sector and civil society, advance poverty-reduction strategies that international financial institutions and bilateral donors then support. The new paradigm emphasizes country-specific strategies—locally developed and locally owned-- as opposed to programs conceived and imposed by donors. Kenya’s program – known as the Economic Recovery Strategy for Wealth and Employment Creation (ERS), is a prominent example. Together, we must keep this country focus in the forefront, making sure that strategies for shared growth reflect the particular obstacles and opportunities we find in each country. Equally, we must work together to move from strategies to realities, making sure our plans lead to results. Implementation of national strategies—including the monitoring and evaluation of results—is critical to achieving the African transformation we all seek. The Elements of a Shared Growth Strategy Many would embrace the goal of creating country strategies for accelerating growth and ensuring that its benefits are shared by all segments of society, but how do such strategies actually materialize? To begin with, it’s crucial to put the growth agenda squarely at the center of the public debate over development and poverty reduction. National poverty reduction strategies can identify key constraints to growth and define appropriate policy responses to relieve them. Then, it’s important to understand much more fully the short-term and long-term consequences for the poor of policy reforms designed to accelerate growth. In the past, the development community – including my own institution – too often reasoned that because a reform is assumed to be good for growth, and growth in the long run is good for the poor, the reform itself must be good for the poor. Experience tells us that this chain of logic is subject to a number of flaws; in reality, there is no substitute for hard economic analysis of the distributional consequences of economic reform. Let me give you one example. In West Africa, governments, with the support of their development partners, have been supporting the freeing up of their cotton sectors from excessive government controls. While there is general agreement that in the long run, this liberalization will be good for growth, careful analysis of the reform program has highlighted a number of areas, such as supply of inputs, access to markets and competition among buyers, where the reforms will need to be designed carefully to avoid a harmful short-to medium-term impact on producers, many of whom are numbered among the poor. Finally, it is important to understand that expanded economic activity increases tax revenue, creating the basis for funding improved delivery of education, health and other services. These public investments can be aimed toward groups that are not yet benefiting from the expansion of the economy. Governments will need to develop monitoring systems that give them “real time” information on who gains and loses during the growth process. Equally important is monitoring public services and expenditures, and their impact. Organizing for shared growth: three areas to focus attention I believe that it is possible within ten years to envision an Africa with robust economic growth, expanded exports, more jobs, and higher incomes—especially for the poor and those in the rural areas. The question is just what will get us there? Clearly, we are not in the business of advancing formulae for all Africa. Given the great diversity within Africa, it is reasonable to expect that countries will devise a rich mosaic of plans for sustained and broadly shared growth. But I want to offer three areas of focus that together can help countries in setting out a path for shared growth. These would be a renewed emphasis on developing the private sector, building an export push in agriculture and managing the continent's growing natural resource revenues for development. I will begin with the private sector. Although people have long said that the private sector must be the motor for economic growth, Africa’s private firms have historically been marginalized, particularly in the policy process, and have fallen short of their potential for generating jobs and opportunity. The fact is that Africa remains a high-cost, high-risk place to do business. Legal and regulatory hurdles add to time and outlays for companies, and push investments and jobs to other parts of the world. Costly, unreliable energy sources and a limited, poorly maintained road network hobble production, slow distribution and limit trade opportunities. Creating an environment that enables business expansion rather than thwarts it will require political commitment at the highest levels. Meeting in recent months with private sector leaders in Africa, I find that they seek a constructive, practical partnership with government, not to curry special advantages for themselves, but to tackle problems that hold back growth and job creation throughout the economy. Consider these recent findings from the Bank’s study Doing Business 2005: today, of the ten countries in the world judged as having the most difficult environment for starting a business, seven are in Africa. It takes 153 days to start a business in Maputo and 2 days in Toronto; in France, an entrepreneur pays $368 in official fees to start a business, and in Niger the comparable cost is $1025. These are burdens that Africans can scarcely afford. We have conducted Investment Climate Assessments in about a dozen countries, pointing to specific changes governments can effect to encourage higher levels of investment and faster job growth. Too often, though, these studies aren’t translated into action plans that result in real changes. If there were more countries where a constructive, problem-solving approach characterized business-state interaction, there might well be more progress. Some hopeful models are emerging. The Investors’ Round Table (IRT) and the program for business environment strengthening in Tanzania (BEST) were instituted in 2002 through efforts of the World Bank and IMF. The objective was to provide a problem-solving forum, to seek investors’ views, and to provide a focus for the government’s efforts to create a conducive environment for private investment. In Mali, an investors’ council was launched in September, following on the heels of a similar group in Senegal. Another is being put together in Uganda. All these are signs that African leaders are working to peel away the label of the Continent as a high-cost, high-risk environment for business. When I speak about building the private sector, I want to stress that I am talking about the whole private sector—domestic and foreign, small and large. In many cases, the same changes that will encourage national investors will also benefit foreign investors. But there may also be a need for targeted initiatives to build an African-owned private sector, for example by creating the conditions that make it possible for networks of small and medium-sized firms to develop as suppliers of larger companies or to serve the global market. I am not calling for a return to the “hothouse” enterprise development policies of the past, shielding African firms from local and global competition. It is essential that African-owned firms meet global competition. Kenya’s myriad of small and medium-sized flower exporters are an excellent example of the “new” African private sector. But there is a role for governments, development partners and the larger-scale private companies to work together in new ways to promote African enterprise development. Currently, the Bank’s International Finance Corp. is providing capacity-building programs to small enterprises and farmers in southern Chad so that they can become suppliers to the oil consortium that operates the Chad-Cameroon Pipeline Project. The program is helping to create a skills base in the country, with a practical connection to the largest private-sector project in the region. While many of the regulatory obstacles can be removed without large outlays, the task of shoring up Africa’s infrastructure demands investment. If we are to build an environment where the private sector can generate more robust growth, we must tackle the constraints imposed on African enterprise by poor roads and uncertain electricity. In a survey of firms in Nigeria, 97% listed infrastructure as one of the top three constraints to their operations. Here in Kenya, if energy costs were to be brought down to the level of China’s, the savings would amount to 35% of the wage bill. Meanwhile power outages in this country add up to a 9% output loss. It is not just big companies that are troubled by poor infrastructure. Small manufacturing firms are even more severely impacted by problems such as sporadic power supply. Meeting the infrastructure needs in Africa demands both global attention and global innovation. It’s estimated that Africa will need $17 billion in additional infrastructure financing to achieve 7% economic growth, the level that is necessary to cut in half extreme poverty by the year 2015. There will be no single solution to the challenge. Increased overseas development assistance will help, but it won’t solve the problem. We will also need public-private partnerships and innovative financing approaches to support the renewal that’s necessary for higher growth levels. A good example of such innovation is the West Africa Gas Pipeline, where the World Bank Group agreed to provide guarantees for a project that has drawn $590 million in investment from a private energy consortium. The pipeline constitutes a flagship project of West African integration and will provide needed energy resources to Togo, Benin and Ghana. The international community can also support an improved business environment in Africa through capacity-building support, and more active partnership with African business associations as they claim a place at the table in shaping policies for growth. Here, there may be opportunities for innovative public-private partnerships to offset some of the non-recoverable costs to firms of building networks of subcontractors and suppliers. In Pretoria, for example, the Bank is working with the municipal government, private firms and the Department of Trade and Industry to support Black economic empowerment through building small and medium sized firms capable of supplying larger companies. The second area of focus I want to touch on is agricultural exports. Because 70% of he population in Africa lives in rural areas, an export push in the farm sector, and in processed agriculture-based products, could have a significant effect on the lives of millions of poor Africans. As Asian economies grow, especially those of China and India, and Asian ties to Africa increase, there is strong potential for increased agricultural exports to that vast region in a range of products for which demand rises as incomes rise. Indeed, throughout the 1990s, we saw a steady increase in food exports to Asia from sub-Saharan Africa. Europe and North America also represent an important market opportunity in such non-traditional agricultural exports as horticultural crops, cut flowers, and processed agricultural products. Kenya boasts an enormous success in flower and horticulture exports, which have generated over 100,000 jobs, and transformed the prospects of rural communities that might otherwise have been cut off and marginalized. There are also export surges in Senegalese vegetables, roses from Ethiopia and shrimp from Madagascar. These export breakthroughs should multiply across the Continent in the next ten years. Studies show that in Ghana and Uganda, an expansion of agricultural exports clearly benefited poor people. Poverty headcounts among those engaged in export agriculture declined significantly during the 1990’s in both countries, even though rural poverty and poverty among those engaged in food crop agriculture increased during the same time period.
But, we are also finding that increased agricultural exports may have positive spillover effects. As productivity improves in export crops, there are concurrent productivity gains in food-crops. The providers of inputs and services for cash crops, and the infrastructure improvements that help cash crops reach the marketplace, all help local farmers who of course make use of the same roads and buy some of the same inputs and services. Non- traditional exports may also offer benefits to the economy at large, beyond the generation of income. One element of the growth deficit in Africa has been a low rate of productivity growth. Non-traditional exports, including those from agriculture offer possibilities for African firms (and farms) to learn how to penetrate external markets, how to handle the complex logistics of international trade, and how to master new technologies, lessons which may be used and adapted to other lines of economic activity and which can help to raise productivity. To push agricultural exports will require a renewed focus on key constraints affecting the rural economy. -- Market access is crucial. Africa has 7 km of navigable roads per 100 square kilometers of land—that compares to 170 kilometers in Europe. Access to local markets and inputs is crucial. Studies show that when village women in Cameroon had access to a main road, they spent more time farming, and less time traveling, pulling their incomes up to twice those of women in isolated villages. Here in Kenya, the Mombasa Road expansion project cut transport time to and from that key port city and reduced wear and tear of the many vehicles that travel this road. The Bank-supported Northern Corridor Project will further develop this key highway that carries 70% of the country’s road transport. -- Resolving land tenure issues equitably will be important in many countries. Clarity of ownership and tenure can significantly increase levels of investment in agriculture, leading to real gains in productivity. -- Improved trade logistics will play a key role. Many of Africa’s agricultural exporters are landlocked or far from the coast. Typically, a land-locked country in Africa has 50 percent higher transport costs and 60 percent lower trade volumes than a typical coastal economy. A regional solution to facilitating trade is urgently needed. Customs delays, roadblocks, arbitrary costs at the borders all tax trade within Africa. Crossing a border in Africa can be the equivalent of more than 1000 miles of inland transport, compared to 100 miles equivalent in Europe. Sub-regional trading arrangements in Africa provide a real opportunity, if they can be strengthened and rationalized. Focusing these regional economic groupings on trade and transport facilitation, including investments in regional infrastructure, is an important first step. More generally these groupings can be oriented toward “open regionalism” helping to pave the way for Africa’s more beneficial engagement with the larger global economy. The global system, for its part, must be pried open—through the current Doha Round of international trade talks. African farmers now face a global trading system that is in many ways stacked against them. West Africans know all too well the damaging policies that surround the cotton sector. Subsidies in this sector, especially those extended in the U.S., are estimated to cost African economies $250 million a year. Cascading tariffs that penalize agricultural producers when they process or add value to African produce are harmful to Africans throughout the Continent. In Asia, tariffs for cocoa powder, for example, are nearly four times those for cocoa beans. Turn oil seeds into vegetable oil, and the penalty is even worse. The need to level the playing field globally, and build an international environment that supports broader development objectives will require a successful completion of the Doha Round. The industrialized nations must make this a high priority and be prepared to incorporate substantial liberalizing steps in the farm sector. The third area of focus is the management of revenues derived from natural resources. Over the next decade, sub Saharan governments will bring in over $200 billion in oil revenues alone. Just looking at the World Bank’s investments, we see $1.9 billion moving into projects in oil, gas and mining in 18 countries stretching from Mauritania to Madagascar. Sixty-five per cent of all the foreign direct investment in Africa during the 1990s was concentrated in oil, gas and mining. However, the record makes it clear that we need to devote much more attention to the management of these revenues from natural resources. Indeed, studies show that countries dependent on oil, gas and mining tend to have weaker political institutions, higher rates of poverty and higher inequality than non-oil economies at similar income levels. And resource-rich countries too often lag in overall development, with higher levels of child malnutrition, lower educational outcomes, even shorter life expectancy. How can we help change that? First, there must be transparency to ensure that everyone knows what revenues are flowing in from natural resource sales. Here, we applaud the momentum gathering around concepts of “publish what you pay” in natural resource revenues, and we see it as a significant step that Nigeria, Africa’s largest oil producer, has embraced the Extractive Industries Transparency Initiative. But knowing what is earned from oil extraction or mining is only the start. It’s equally important to have fiscal systems that will ensure that surpluses accumulated when commodity prices are surging are managed so that countries have a cushion when world prices dip, as they inevitably will. Moreover, it is important that in federal systems, state and district governments play their part in strategies to even out the ups and downs of natural resource revenues. The ability to translate natural resource wealth into broadly shared growth and poverty reduction rests on public expenditure programs through which countries establish priorities, and allocate available resources to support them. If Africa’s considerable natural resource wealth is to help finance recognized needs such as expanded access to health and education, safe water and transport, then we will have to work on the resource management structures to make sure that the priorities really get the funding. It is important to remember that natural resource wealth often has been the main source of growth for industrialized countries. Early in its economic evolution, the United States looked to mining as the major driver of growth, just as forestry has been for Finland and Sweden. In all three cases, technological innovation—brought to sectors where the countries had a natural advantage—helped generate significant growth. More recently, Chile, which has been the fastest growing Latin American country for the past 15 years relied almost entirely on exports of natural resource products. Nor does a strong reliance on natural resources go hand-in-hand with a low skills base and low levels of technology. Chile’s fresh fruit production involves high levels of technology application, with valuable knowledge generation and important spillover effects for the rest of the economy. Exploitation of natural resources has been most successful when it’s accompanied by an openness to trade and Foreign Direct Investment, since these can help countries diversify and attract technologies that increase productivity. But for African countries to see development progress arise from the exploitation of natural resources, the change must also come from industrialized nations. We need to see multinational companies, with the active encouragement of their home governments behaving ethically, investing in communities, also recognizing the necessity for community participation in mitigating environmental degradation, social disruption, and workplace hazards. And government and industry must work hand in hand not only to protect local communities from harmful effects of extractive projects, but to make sure that these communities are among the very first to benefit from projects made possible by increased natural resource revenue. More and Better Services for the Poor Finally, if we succeed in building the climate for accelerated growth, we must make sure poverty reduction really materializes. By financing, providing or regulating services that contribute to overall health and education levels in a country, there is much that governments can do. Governments need to know which segments of the population benefit from particular programmatic commitments, and which may be excluded. Allocations must be aligned with strategic priorities. From the standpoint of donors, well-harmonized support around strategic priorities is indispensable, but fragmented support remains a problem in many countries. We’re told that in Mali, 17 donors are engaged in the health sector—a complicating factor that makes it harder for countries to set a clear strategy and stick with it. At the forefront must be a strong commitment to making sure that poor communities see some tangible benefit from the economic growth that materializes as a result of private sector expansion, higher farm exports or natural resource revenue. Improving infrastructure can play a crucial role in both improving lives and livelihoods for poor people, but also enabling them to participate economically and to contribute to ongoing growth. Studies show that rehabilitated roads in rural areas make it easier for small farmers and rural enterprises to reach buyers, while helping pregnant women obtain medical care. Delivering improved services will demand innovation. Some governments have chosen to contract out certain services to local providers that may be better positioned than government agencies to actually deliver basic services. Others transfer both resources and responsibility to local government. What is crucial is that there be clear lines of responsibility, transparency and built-in accountability. A good example is the Free Primary Education program here in Kenya, which places major responsibility with local communities and the schools themselves. The results are enormously encouraging, with a jump in enrollments from 5.9 million in 2002 to 7.2 million in 2004 in public primary schools, and a massive increase in available textbooks. What is equally important is that Kenyan parents see every day that their children have access to improved education. In Ethiopia, the government’s determination to lessen citizens’ vulnerability to draught and climate change has led to a water-harvesting program that has created a meaningful safety net for rural communities. Again, when leaders focus on the need to spread the benefits of growth more evenly, innovative solutions like these emerge.
Conclusion Of course, Africa’s future rests on the realization of a true global partnership, one in which African governments take the lead in building country-by-country solutions to the chronic problems of low growth, inequity and poverty. Here we see significant strides, with Africans, through the African Union, NEPAD, and the sub-regional organizations—such as the East African Community—working collectively to reduce conflict, integrate economically and accelerate progress. But under a model of real partnership, Africa’s international partners must work to support these diverse strategies for growth and poverty reduction, honoring their promises to open up markets, particularly in agriculture, and to raise levels of development assistance as promised at Monterrey two years ago. We know what we want to see—higher growth, led by a more robust private sector, sustained over time and shared with all segments of society; better services delivered to even remote corners of the Continent; and as a result of these two trends, a steady reduction in the numbers of Africans living in poverty. These are ambitious goals, but they can be realized by African leaders, African societies, and the international community. --Endit-- |
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