Obiageli Ezekwesili at Harvard University African Law and Development Conference, April 17, 2010

Obiageli Ezekwesili

Vice President
World Bank Africa Region

Harvard University African Law and Development Conference

April 17, 2010

I would like to use the first keynote at this event to sort of base on broader context. I understand that the real issue here is how the law interfaces with the development process in order to enable improved quality of life for citizens and for people in continents and, in this particular case, Africa. But I will also start by establishing that, indeed, the law has to be the framework upon which any society that will make progress needs to be established. Africa is not a different place from the rest of the world, you know, the whole Africa exceptionality is a myth. African societies need legal frameworks in order to predictably be societies that attract the interest of both citizens and non-citizens alike to do with anything without social activity or economic activity making part of the law. The import of the legislative environment, the import of the legal environment cannot in any way be disregarded, thank you.

So, in effect, I start with a notion that Africa, I start with the notion that the rule of law for Africa is not simply a legal term. If you’re talking about Africa’s development, you know that many of the African countries had many decades of aberrant military rule. With such political systems, the import of the law got lost. And yet as Africa began to embrace the nuances of democratic tradition, the import of the law came back as a major issue in social contract and the relationship between citizens and the nation-state, as well as the relationship between the nation-state and the economic sphere. Therefore, not being just a legal term, it is a factor that affects business as well as economic development in general. What we have seen, as a matter of empirical evidence, is that sectors where Africa has experienced the most rapid growth in recent years have been those in which Africa clarified the rules of doing business, updated legislative and institutional frameworks underpinning those businesses, amended the rules to help enforce as well as to uphold contracts, and basically expanded on the predictability of the business environment through established rules of the game.

What we have seen in our work across Africa is that even the lack of law those does not seem to deter, it does not seem sufficient enough to deter investors who see and seize the opportunities in the extractive industries, and so we would see that in places like Sudan, in DRC, in Somalia, in a lot of the other countries where the issues of war and conflict have basically created social dislocation, business still strives in the extractive industries. As important as the rule of law is, therefore, when these investors in the extractive industries make their decisions, they are more often driven by the humongous untapped opportunities that are available in those sectors, much more than they are deterred by the uncertainty that the legal environments shape in those environments. Although this is more or less an exception, but it is not a good basis for Africa’s deep economic development, because we know that the extractive industries desire unity, it is an active industry. It does not form the basis for Africa’s growth, it does not present the basis for Africa’s inclusive broad and shared growth. So, even if because of the issues of governments' lack of transparency and the basic arbitrariness that is within that sector, mixing elegantly the minds of those investors with the risk premium that they override against all the other predictabilities, it still does not serve the African continent must root to stay stock in the fortunes of the extractive industries. What this therefore means is that Africa needs to diversify its growth opportunities. To diversify Africa’s growth opportunities would therefore mean that Africa would have to be competitive. The competitiveness of Africa is shaped by the business environment that Africa offers investors who have a choice between Africa and the next best place to Africa. What we know for a truth is that when Africa fails to attract investment in areas of comparative advantage like agricultural and agri-business because of the failure to have legal frameworks that enhance a sense of property rights, the possibilities of poverty reduction get even much more reduced.

Investing therefore in the reform of laws to ensure that business can thrive without too much of transaction cost and too much of unpredictability is the next most important thing for a continent that over time survived the volatility of macroeconomic instability, but which has in recent times been able to rigorously pursue sound macroeconomic stabilization programs that have led to much more stability in the economic environment.

Besides South Asia, which is growing, which is expected to grow consistently at levels above 7 percent following financial crisis, Africa is the only other region that is estimated to be capable of posting the higher levels of economic growth, an estimated six percent per annum until 2015. Africa is in fact already, was in fact already growing at interesting levels better than the way that it grew in the past. Before the financial crisis, Africa was beginning to grow at an average of 5.7 percent per annum, and as of 2008 our estimate was that Africa was going to grow at 6.4 percent in 2009, but then came the financial crisis. This dipped Africa’s growth to 1.7 percent. Now that is a phenomenal setback for a continent, because for every digit of growth that Africa loses, it is not just a statistical economic number, as Jeff will probably tell you when he speaks, it has huge human material impact on the continent when there is a short form in growth.

For the financial crisis, an additional 7 to 10 million African’s were thrown into poverty as a result of that crisis. Because of the financial crisis, an additional 30,000 to 50,000 children were estimated to possibly not celebrate their fifth birthday, and so these are real issues, these are not mere economic issues.

It is clear that the global financial crisis has also rewritten the way investment opportunities and investment risks will be assessed going forward. As you all know, it was not the so called riskiest markets that tanked. After all, the Lehman Brothers and AIGs are located on Wall Street, not on any street in Africa. And so Africa is not the address for risk, risk is a global phenomenon, and what would happen more and more is that investors would integrate risk in a much more embracive way than hitherto was the case. In fact the World Bank President only recently put starkly it that a new world has emerged, and we cannot continue to see the new world to the prism of the old. One has to forget the notion that some belong to the First World and others to the Third World, gone is the world in which some are donors and others are mere recipients of aid. The old prism is the one that wants us to seek aid as an act of charity. Our experience, however, at the World Bank teaches us that aid is merely a catalyst for transformative reform and growth, but as I have often been made to speak boldly to by African leaders, they don’t want to be aid dependent. African leaders see the opportunities that their economies offer, and they want to do business. They always want me to say that Africa is open for business.

Africa, as we speak, is actually rewriting the development theory in a way that the paradigms that led to the growth that we have seen in India and China may be completely be different in the case of Africa, for Africa’s growth is coming at a time when growth is linked exponentially to technology, and the transformative impact of information and communication technology to every source of growth. In Africa, for instance, 400 million people now have access to the telephone handsets. These were people who were often considered to be completely excluded from global activities, and yet today for every single African with access to a telephone, this is a major asset. Support is social, first becoming a political and mostly now an economic asset for the poor on the continent. It took $60 billion in investment, not charity, not free phones, but phones paid for by the poor for those who could not access economic opportunities to now have the opportunity to do so. It is about the farmer in Kenya, who uses the cell phone as a source of information on the markets. It is the story of the fisherman in Sierra Leone, who uses the cell phone as the platform for pricing their stock. It is also the villager in Kenya who, through this cell phone, now has banking services that were hitherto unavailable. What does this mean? It means that a sector different from the extractive industries where, as I said, despite the chaotic, the chaotic state of legal environment, still thrive. The ICT sector has shown a signpost to where Africa could go with its many other sectors. So it is important to study what role the law played in the process of development of this revolutionary sector in the continent of Africa. The ICT sector did not just open up in Africa. It took many decades of the reform of that sector for it to happen. The heartbeat of the reforms of the ICT sector on the continent was really the deregulation activities, the divestiture by government from being the dominant player in the provision of telephone, telecommunication services to citizens and to business, and all of this was constructed within the ambit of the law. Legislation, the right kinds of legislation, the right kinds of regulatory assistance, and the right kinds of institutions and the basic distribution of risk and the development of risk guarantees enabled the telecom sector in Africa to take off. $60 billion in investment over a period of less than a decade is significant for any economy, and so what this tells you, as the scholars of law or as law practitioners, is that environments where rigorous investment in establishing the constructs for interaction in the economic sphere do make a big difference in the fortune of the poor.

What was once considered Africa’s dashboard of economic misery is really a dashboard of opportunities. While it is true that only one in four Africans currently have access to energy, that is, to electricity, the real story is actually one of opportunities that the power sector would offer. What that means is that a power sector will present the next big agenda for investment in Africa. Africa’s economic prospects are currently limited by the insufficiency of energy to power production and productivity. It is not Africa’s fate to be war-ravaged; it is not Africa’s fate to be a violent continent, trapped in diseases and in tyranny.

Increasingly, the progress that Africa is making through the involvement of its civil society, the process of governance show and indicate that the law must be at the foundation of every social contract in the continent. Young adults in Sudan, who were born into and have not seen anything but war, only the last couple of days have been engaged in an election that is supposed to enable a definition of the pathway to be a national reconciliation, reconstruction and development.

Rwanda has risen from the ashes of one of the worst genocides of the last century and its growth has been dramatic. The kind of leadership being provided by Africa’s first female president in Liberia emphasizes the point that progress is possible for countries emerging from violent conflicts or wrestling with fragile transition arrangements in Africa. All of these kinds of political and fragile environments need a building of the systems of the law as a basic foundation for economic progress, economic development.

In DRC, Democratic Republic of Congo, that is, and in places like Sierra Leone, and I was pleased to be introduced to the justice from Sierra Leone, we are seeing the determination to give democracy under rule of law a chance by the citizens. The commitment to combat corruption and to expand transparency, accountability and good governance, especially in that sector that has always been bedeviled by a lot of fear – the natural resources sector.

The world may have looked away, but it has no choice but to look again at Africa, because countries like Mozambique, in their recovery, demonstrate that people heal from war, and that when people heal from war, they seek the best dividends of peace, they seek to move their society away from the path of self-destruction and what it do is that they try to build national consensus around and they support the process of development objectives, and usually it is the legal and constitutional system that brings the people together toward redefining the scope of their habitation.

The country of Mozambique, for instance, has shown that African countries can grow from a base of diversified economy that is not over-reliant on commodities as they pursue a multipronged approach to development, looking at agriculture, agri-business, looking at tourism, looking at opportunities in housing, looking at regional integration as a basis for growth, they move away from the narrow scope and definition of opportunities.

Thanks to the kind of progress that we have seen therefore in these countries of Rwanda, Mozambique, Liberia, Botswana, Burkina Faso and others, the risks associated with lending to projects on the continent are abated. We see many more mistakes in important sectors, whether it's the oil pipeline across many countries in the West African gas pipeline project, those risks appear to be dissipating in the face of sheer abundance of opportunities that the continent offers. Even more so is the fact that Africa, as a continent, now has a billion population. One billion people, presents significant opportunity in the size of the market. But that size of the market is only made even more interesting through the appropriate investment in human development. The kind of investment that Africa must make in its health sector, in its education sector will be the kind that is capable of transforming its population to a huge market opportunity ultimately.

The reality is that a reading of the continent has been truly open for business and a less risk adverse posture that was adopted by investors around the world would be what I call Africa’s golden moment. Bond issues are springing up on the continent from Ghana to Kenya, from Gabon to Tanzania, we have seen confirmation that investors were actually becoming bullish about Africa until the financial crisis set in. The rise in private capital flows, they surged to 53 billion in 2007 in one year, 53 billion in 2007. Following the financial crisis, we’ve seen this fall by as much as 40 percent, and another show of confidence is the fact that it is back on the path to recovery as the global economy recovers, though located in fragile, though still in a fragile state.

The African Diaspora is an important source of news of resources to the continent. It already contributes between $32 to $40 billion in remittances each year to Africa. Now the significance of this is that it is higher, much, much higher than the total bilateral and multilateral aid put together that flows into Africa. What we see is that these Diaspora flows are beginning to be entrusting source of development of innovative financing instruments for Africa’s development through bond offers, the first of which takes some 200 billion pounds for a railway construction in Ghana, Togo, Niger and Libya.

A lot has also been written about the East Asian Tigers, and it is all very well deserved, because they worked for it. The time has also come for Africa to work for it and to show that it can also attract investors in the way that the Asian Tigers did for their time. What we have for technology gone may be the days when Africa would miss out on the manufacturer revolution similar to the one that has lifted up millions of East Asians out of poverty. The internet is been getting easier for entrepreneurs in Africa to reach markets in rich countries, which once were difficult to access due to the limitations in doing business during the pre-Internet, pre-Twitter, pre-Facebook era. A commodities stock exchange in Ethiopia has now made it possible for farmers across the land of Ethiopia to sell their products to a global market, to a global marketplace that was previously unavailable. I actually only a few months ago was in that commodity exchange, and as I watched these farmers really tap into the global marketplace, you could see that it is about exponential leap that Africa’s economic growth paradigm would angle.

I do not want Africa’s failure to be obscured by the boom that I have described, because it is only if Africa addresses its failures that it can actually do better than it currently does. The prosperous Africa that is available is only available to a few, and the few, the rich and the powerful have defined systems of poor governance in some cases where it has been impossible for inclusive growth, shared growth to be of any benefit to the larger population. It is the outcome of the combination of sustained policy reforms, the pursuit of good governance and the development of frameworks of transparency made possible through the law that will expand the opportunities for economic participation by Africa’s citizens. None of this will be possible without adequate reforms to the legal, institutional and governance environments, and, of course, the reforms to the regulatory systems. One of the challenges that we see even already in a sector like the telecom sector, which has witnessed great boom on the continent of Africa, are the issues of transferring the power of monopoly that states' utilities have to private sector. That needs to be rushed by four, and so it’s the enforcement of the legal environment, the regulation environment, the capacity to regulate the market appropriately that would matter as important ways of indicating that even though private sector because the driver of growth on the continent that it does not get the field wide open to abuse the confidence of the citizens. So let me say that the real Africa is an Africa that will shift a lot of its relationship, not on the basis of mere development assistance, but on the basis of what it does to ready itself to a greet of capital and to ready itself not just to admit a capital but to admit a quality capital. It is not every investment in Africa that is a good investment. I have had many instances where broadly governed companies from the countries often not have taken advantage of the loose and weak regulatory and legal environments of Africa to shortchange the citizens, actually dealing in billions with a corrupt elite to override the public interest of the citizens. So the real Africa has to be an Africa that has all the capacity to be able to engage in negotiations and in transactions and to cut deals that will be beneficial to its citizens, not to a few elite.

We at the World Bank provide a lot of support services in the area of capacity development, in legal frameworks and legal systems, and in institutional capacity building. For example, in the ICT sector, while not taking any kind of credit for the revolution that happened in that sector, but we were Africa’s very strong partners in the process of redefining obsolete laws and rebuilding systems and constructs that provide a incentive for private sector. We also, through our finances, supported the investment in the basic backbone to enable open access and the infrastructure that propelled the presence of the private sector in the telecom sector in Africa. With about two-thirds of African farmers being women, it is obvious that special attention must be paid not just to property rights but property rights as it concerns women. Women are an important group for Africa’s development. Sometimes property rights reform have excluded particular attention being paid to the needs of women. So more would need to be done to protect their rights to inheritance, to ensure legal protection from gender-based abuse and violence, and to ensure that girls and women have equal access to education, to skills development, to entrepreneurship training and to credit. The World Bank President, speaking, the other day, said: For Africa to grow further, Africans need the things that Europe and Japan needed after World War II. Africans need infrastructure, energy, integrated markets linked to the global economy, and they need improved conditions for growing a vibrant private sector when you can see that Africa’s population is 50% women, and it becomes obvious, becomes really obvious that investing in Africa’s women can only be smart economics. We believe that boosting investment in energy alone, for instance, will foster an expansion in local manufacturing in Africa as countries like India and China begin to move up the value chain of production, away from just building, say, toys in China, for example, but also as countries like the US and the rest of, and Europe find it more profitable to add source to a more technology wired African continent we believe that opportunities like that for absolute use of Africa’s women, but besides the women, Africa’s youth can both be a lesser problem as it can be a great benefit, and so the investment in education, the investment in human development activities helps education, social protection, are going to achieve to transform Africa’s huge population of youth into a vibrant work force that would determine economic opportunities for itself and not be totally reliant on very limited private sector opportunities.

Because Africa has changed so dramatically and risen in importance as a potential global economic growth pole, we at the World Bank have also been completely rethinking the way in which we partner with the continent. We recognize that it cannot be only the relation of donor and aid recipient. We recognize that Africa wants the world to work with Africa, not to work for Africa. Africa seeks partnership. Africa does not seek to be a charity destination.

Next week when the ministers of finance of the world gather in Washington DC for the annual Aqua Spring Meetings with our sister institution, the International Monetary Fund, Africa will be taking up an unprecedented 10th seat on the Board of Executive Directors of the World Bank. It is a statement not only by the management of the World Bank but also by our 198 nation shareholders that Africa deserves to be taken more seriously and considered more carefully and treated with great respect.

We at the World Bank lent money to some of the military regimes in Africa in the past. We were once the Bank whose lending was provided with policy prescriptions and a long line of what people called conditionalities. We were once the Bank that funded Structural Adjustment Programs, for which lending of African countries, African citizens only associate the work of the Bank, and yet there are greater success stories like the story of Africa’s information and communication technology. It is not associated with the World Bank, but the World Bank was a significant player in the evolution of this sector.

We have learned from the mistakes and the failures of the past. We are sure that the successes we see being made by Africans themselves present the best opportunity for African partners to work with Africa. Fifty years after the International Development Association, which is the concessional window of the World Bank, provided its first credit to an African country, my staff and I, in Washington, DC, will meet with African finance ministers and governors of central banks to begin consultations aimed at helping us rethink our current strategy for services in Africa. We want a consultation in the margins of the Spring Meetings to reaffirm in the minds of governments across Africa, not just donors or development partners, that the continent is in the driver's seat, leading in the choice, in the design, in the implementation, and in the monetary of development outcomes. There is a tendency to think that the World Bank wields the financial power and authority needed to fund our development programs. My dear friend and Professor Jeff will tell you that that is not true. Bank funding and financing as from other donors is very small, when you compare it to the government budgets, to the private sector investments, to the entrepreneurial spirit of the African people themselves, and they are the ones finding solutions to their problems. We are only supporting that which they have already chosen to do. As a matter of fact, in countries where that real strength, strength of ownership of the development agenda has been demonstrated, there is greater tendency of economic growth than those that are completely dependent on outsiders for support.

Next week, when the ministers of finance from around the world consider the request to capitalize the International Bank for Reconstruction and Development, that’s our Bank, the capital increase proposed, the first in 20 years, is for $58 billion, of which 6 percent ($3.5 billion) will be paid-in capital. It is important that this capitalization is successful, because IBRD is an important source of funding to Africa through IDA. The important thing is that a number of our countries in Africa are emerging into middle-income country status, and so countries like Botswana, like Mauritius, like Gabon are countries that do not have to depend on concessional lending. They actually begin to mirror emerging economies like Brazil and Mexico. So covering the sources of financing to support development is an important aspect of the Bank capital increase drive.

The IDA countries in Africa cannot only benefit from IBRD window through enclave populations, and we also, in addition to the capital increase, we will be backing the 16th replenishment of our IDA, which is International Development Association window, and this is coming up sometime in July 2011, and it is an important period for Africa because the funding from the World Bank couples itself with knowledge. It is the knowledge side of the business of the World Bank that matters a lot. It is through this coupling of the knowledge and the best practices and the best ideas and policy choices that the Bank could offer a range of policy solutions to countries like China that enabled the kind of growth that we have seen in a place like China. I was a clear witness when recently as a guest of the Chinese government, all I got was gratitude for the role that the Bank had played in the 20 years following the launch of economic reforms in China by the then-leader Ping. So it is clear that there is no exceptionalism to Africa. If that is clear, what you’re gathered to do is to find what the roadblocks continue to be that keep Africa from mirroring the success that it has found in sectors where it has proven itself to be capable of growing, and my desire is that as we go through this process that you will see the Africa that I see. I see an Africa that does not conform to the old stereotypes. I see an Africa that will be a surprise to the rest of the world and the fact that it can really write a different script for itself. And that will start with those young ones in the Harvard Law School who are of African heritage who will be the brave of Africa’s next move as it matures its democratic traditions, and in its democracy lies the possibilities of incredible economic growth development, for the law matters, and it matters very much so in societies that advantages and opportunities were not often defined on the basis of the rules of the game. Thank you very much.