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Putting Africa on a Sustainable, High Quality Growth Path

Address by Alassane D. Ouattara
Deputy Managing Director of the International Monetary Fund
at the IMF and Sustainable Development Seminar
sponsored by the Swiss Coalition of Development Organizations
Berne, Switzerland, August 25, 1997

I would like to thank you for giving me the honor of speaking to you today. It is always a pleasure for me to meet with NGOs. And in the case of the Swiss NGOs, it is a special privilege, in light of your high level of involvement in the Swiss government's relations with the IMF.

In 1987, the Brundtland Commission Report issued a call--considered a novel one at the time--for "sustainable development." This call was repeated in the Rio Earth Summit's Agenda 21 in 1992, and has been echoing in international declarations ever since. What does "sustainable development" mean? The term has been much debated in recent years. Initially, the focus was on the environment, but increasingly, the meaning of the term has been broadened to embrace the economic and social aspects of development as well. At the IMF, we strongly believe that "high quality growth" lies at the center of sustainable development. We define such growth as "economic growth that brings lasting employment gains and poverty reduction; provides greater equality of income through greater equality of opportunity, including for women; and protects the environment."

What is the record of recent years? Has the world moved any closer to sustainable development? Perhaps you will not be surprised if I choose to focus my remarks today on Africa, an area I know well, and an area where the challenge of high quality growth is the greatest. The verdict there is a mixed one. Certainly, Africa as a whole has made enormous strides in recent years, with growth picking up and per capita incomes on the rise. But poverty is still widespread, per capita incomes are far too low, and much remains to be done to improve health conditions and education, and reduce unemployment.

How can we help Africa catch up with Asia and Latin America, especially against a background of accelerating globalization--a trend that offers both great opportunities and risks? The answer lies in a new global partnership of Africa, the industrial countries, and the multilateral institutions. This partnership should have three key objectives: increased growth with equity and financial stability; improved social conditions, particularly in the areas of health and education; and environmental sustainability. I would like to discuss this partnership with you, including some thoughts on the role that the NGOs can play. But first, let me begin with a brief review of how the African economies are faring.

Recent Progress in Africa
For the first time in a generation, we are starting to see encouraging signs that Africa again is a continent on the move--that the prospects for sustainable development are the best in over two decades. If we look at sub-Saharan Africa, excluding Nigeria and South Africa, average real growth has increased from about 1 percent in 1992 to 5 percent in 1997, and conditions are ripe for this trend to continue. Average inflation is expected to decline from a peak of 45 percent in 1992 to 19 percent this year. Fiscal deficits and current account deficits have narrowed substantially, investment ratios have risen steadily, and per capita incomes are on the rise, expected to grow by 2 percent in this year, compared with the negative growth rates in the early 1990s. Of course, the experience across Africa has been diverse. Some countries have enjoyed strong growth recently and are attracting considerable foreign direct investment; others have embarked on reforms only recently, or not at all; and several are barely emerging from, or are still affected by, conflict.

So why the improvement for Africa as a whole? This progress has been achieved thanks to bold, far-reaching reforms in a steadily increasing number of countries, as well as improved terms-of-trade and good rainfalls. These reforms include liberalizing foreign exchange systems; liberalizing the pricing, production, and marketing of key goods, especially in agriculture; and beginning to open up the trade and payments systems.

Taking Advantage of Globalization
At the same time, however, Africa now needs to sharply accelerate reforms to fully integrate itself into the world economy and take full advantage of the opportunities of globalization. What exactly is globalization? In most basic terms, it is the integration of economies throughout the world through trade, financial flows, the exchange of technology and information, and the movement of people. Globalization offers new opportunities, in the form of higher productivity and living standards, access to a wider range of goods and services at lower costs, and the chance for nations to mobilize a larger volume of financial savings to restore and speed up economic growth and development and alleviate poverty. But it also poses new risks. And for many African countries, given their limited access to capital markets, perhaps the greatest risk is that of marginalization--a process that threatens to leave behind those countries that fail to harness the new forces at work in the world economy.

It is against this backdrop that Africa must now frame its economic policies. And it is against this backdrop that Africa, the industrial countries, and the multilateral institutions must form a new partnership. How can all of us, together, help place Africa on a higher and sustainable growth trajectory? And how can we help Africa integrate itself into the world economy and grasp the opportunities of globalization, while avoiding or at least minimizing the risks?

What Africa Needs to Do
Let me begin with what Africa needs to do. As you know, the IMF has a long history of working in Africa and, over the years, we have tried to forge a comprehensive approach to growth and poverty alleviation, drawing on lessons learned from Africa and elsewhere. We believe that there are two key areas where Africa should now concentrate its efforts.

  • The first area is maintaining macroeconomic stability. Despite recent progress, efforts must now be redoubled to reduce inflation and narrow fiscal and current account deficits. But it is clear that fiscal adjustment and the elimination of inflationary deficits will not be sufficient to lay the foundations for sustained growth. Policymakers must also focus on the quality of expenditure. Unproductive outlays, including military spending, must be reduced so that more resources can be devoted to essential investments in health, education, agriculture, social safety nets, and basic infrastructure.
  • The second area is accelerating structural reform. Looking across the African continent, countries have, by and large, been reasonably successful in implementing "first generation" structural reforms. But the record on the more difficult reforms--comprehensive trade reform, restructuring and privatizing public enterprises, reforming the financial sector, and improving generally the environment for private investment-- is much more uneven. What is needed now is a "second generation" of reforms.
On the trade front, Africa needs to decisively speed up trade liberalization to boost the efficiency and competitiveness of domestic producers. This would include the elimination of nontariff barriers and monopolies, and a major reduction in import and export duties, both of which raise the costs of doing business and hamper Africa's integration into the international economy.

Africa could also benefit greatly from much more determined efforts to develop efficient forms of regional economic cooperation and integration that facilitate progress toward nondiscriminatory, multilateral liberalization. After all, there are more than 20 countries in Africa with fewer than 10 million inhabitants, and 15 countries that are landlocked--yet a dominant share of Africa's foreign trade goes to the rest of the world. Recent moves toward regional integration have a better chance of success than earlier efforts because they are accompanied by market-oriented reforms and internal and external liberalization. Pragmatic initiatives include, notably, the Cross-Border Initiative (CBI), which has already achieved significant results, and also the West African Economic and Monetary Union (WAEMU), the Central African Economic and Monetary Community (CAEMC), and the Southern African Development Community (SADC).

On the privatization front, tackling public enterprise reform is of crucial importance, given the growing recognition that the private enterprise sector will have to serve as the engine of growth and new investment. While many countries have begun privatizing and liquidating small- and medium-sized enterprises, reform of large, strategic enterprises has been a protracted process. As a result, African parastatals still absorb a substantial proportion of available human and physical capital.

Of course, a major effort to increase the private sector will need to be complemented by a redefinition of the role of government, away from direct involvement in production and toward the provision of essential public services, particularly primary education, health, rural services, and infrastructure. Moreover, it is vital that all of the second generation reforms be carried out in an atmosphere of economic security, good governance, and a partnership with civil society.

  • Ensuring economic security involves removing the sense of uncertainty that still plagues economic decision-making in most of Africa. This requires the creation of a strong national capacity for policy formulation, implementation, and monitoring. Moreover, the transparency, predictability, and impartiality of the regulatory and legal systems must be guaranteed. This goes well beyond the respect of private property rights and the enforcement of commercial contracts. It also involves the elimination of arbitrariness, special privileges, and ad-hoc exemptions, even where these are intended to encourage investment.

  • Achieving good governance dictates that national authorities spare no efforts in tackling corruption and inefficiency, and enhancing accountability. This means reducing the scope of distortionary rent-seeking activities; eliminating wasteful or unproductive uses of public funds; and providing the necessary domestic security. For many African countries, a key step will be overhauling their civil services--after all, a lean, efficient, highly qualified, and well-paid civil service must surely lie at the heart of good governance.

  • Forging a partnership with civil society is a call to governments to actively encourage the participation of all segments of civil society in economic policy debates. This is essential, as the evidence increasingly shows that adjustment efforts work best when reforms enjoy the broad support of the population, especially the intended beneficiaries. With this in mind, policymakers need to do a much better job of explaining the short-term costs, as well as the medium- and long-term benefits of policy options.
These themes--good governance, an end to stop-and-go policies, and a better dialogue with civil society to build a social consensus on reforms--turned out to be among the key concerns of African policymakers at a seminar that the IMF, World Bank, and Japanese government organized in May 1996 to explore how structural reform could be deepened in Africa. These concerns coalesced particularly in the area of privatization, where several Africans noted that the remaining obstacles were largely political and social, not just technical. They pointed to the challenge of convincing unions, parliaments, and political parties to embrace privatization when the costs were immediate while the benefits were long term and diffuse. Besides better explaining the hoped for gains, they agreed, the costs and inefficiencies of inaction needed to be clearly spelled out.

What the Multilaterals Need to Do
Exactly how can the multilateral institutions help Africa? Here, I would like to stick with what the IMF can and plans to do.

First, the IMF is taking steps to put the ESAF, its concessional loan facility, on a permanent footing so that it can continue to support reform in low-income countries over the long term. This involves securing the necessary resources to ensure that ESAF, which was begun as a temporary facility some 10 years ago, will be self-sustaining by 2005. Besides being the centerpiece of the IMF's strategy to assist low-income countries, it is also the facility through which the IMF will participate in the debt initiative to help the poorest countries. Thus, if we seriously want the market to see Africa as a land of opportunity, it is imperative that ESAF programs be implemented steadfastly and financed credibly. And there is no question that the momentum for reform is building. As of end-June, 21 sub-Saharan Africa countries, out of a total of 40 ESAF-eligible ones, had embarked on reform programs supported by the IMF under the ESAF.

Second, as you well know, the IMF and World Bank are beginning to implement a debt initiative for the heavily indebted poor countries, most of which are in sub-Saharan Africa. The HIPC Initiative, which was endorsed by the two institutions in September 1996, is designed to ensure that all heavily indebted poor countries that pursue strong policies of adjustment and reform reach a sustainable external debt position and can thus exit from the debt rescheduling process. Four countries--Bolivia, Burkina Faso, Côte d'Ivoire, and Uganda--have already been considered under the Initiative, and Uganda has won commitments of assistance. Other countries are expected to be considered later in 1997.

Third, the IMF stands ready to provide emergency assistance in post-conflict cases, a policy aimed at helping countries whose reform process was interrupted by civil unrest or political turmoil. Rwanda is the first African country to benefit, with a loan of about $12 million approved in April 1997, in support of the government's new economic program. We have also initiated discussions with Angola on the possibility of emergency assistance.
Fourth, the IMF is considering a variety of measures that build on expanded international financial and technical support for bold reformers. These include defining a set of "best practices" to improve the business environment and foster growth; extending more technical assistance and helping to strengthen macroeconomic policy and management capacity; fostering civil service reform and trade liberalization; supporting regional initiatives such as the Cross Border Initiative; and helping to attract foreign investors--in part, by disseminating information to potential investors on macroeconomic and financial developments and the business environment.

As the IMF embarks on all of these efforts in support of high quality growth, rest assured that we will keep in mind the broader definition of sustainable development--that is, a better integration of economic, social, and environmental objectives.

In this regard, we see our main contribution as encouraging countries to adopt policies that foster a stable macroeconomic and financial environment, which is a minimum and necessary condition for furthering social objectives and preserving the environment.

At the same time, we remain mindful of social objectives. Indeed, social issues are increasingly entering into our policy dialogue with member countries. Too often, the criticism is voiced that structural adjustment is harming human development. But the evidence--even allowing for problems with the quality of the data, such as the failure to capture the efficiency of spending--speak for themselves. Available data in 27 countries that have had SAF- and ESAF-supported programs show that, on average, real spending on education and health increased by 5 percent per year and by 7 1/2 percent per year, respectively, although the range of experience across countries is considerable. Social indicators--such as illiteracy, primary and secondary school enrollments, infant mortality, life expectancy, and access to health care and safe water--have also shown gains.

So what can the IMF do to promote social development? We need to focus on social spending, including its composition, in a systematic manner, in close collaboration with the World Bank. We also need to establish the link between social spending and social indicators, such as school enrollment and illiteracy rates. Indeed, we should work towards the establishment of intermediate indicators consistent with the long-term targets for social indicators adopted in various UN fora and the Development Assistance Committee's 21st Century Strategy, with a view to incorporating them into our medium-term adjustment programs. I am pleased to note that the Fund--for its own part--is giving more attention to helping countries improve the availability and analysis of data on government spending on health and education. Under the HIPC initiative, for example, the aim is to incorporate such monitorable targets into Fund-supported programs.

Turning now to preserving the environment, as we all know, any strategy to preserve the environment would be undermined by macroeconomic instability. On the other hand, macroeconomic stability enhances growth prospects, increases employment and incomes, and ensures the right price incentives work to preserve the environment. IMF-supported programs often involve the adoption of "win-win" policies that benefit both the economy and the environment--for example, curbing environmentally damaging subsidies and stabilizing farm prices. Nonetheless, in certain countries, especially in the developing world, we realize that environmental issues--such as weak forestry management, poor management of coastal fisheries, inadequate mineral fiscal regimes, and severe air and water pollution--can have significant macroeconomic implications.

In such cases, drawing on our close links to our sister organization--the World Bank--we have increasingly tried to integrate environmental concerns and natural resource issues into our policy dialogues. Bank and Fund staff work together to help member countries prepare Policy Framework Papers that incorporate economic, social, and environmental concerns in a consistent manner. They also undertake studies in selected countries to analyze the links between macroeconomics and the environment and assess the scope for improving environmental conditions through appropriate policy and institutional reform. In fact, in our talks with some industrial countries of late, energy taxation and ecological tax reform have been key concerns.

Lastly, the IMF works closely with specialized NGOs, academics, professionals, and international organizations, whose primary focus is on sustainable development. We organized a seminar in May 1993 to exchange views with NGOs on the interrelationships between macroeconomic policies and the environment, and the dialogue--especially with those doing analytical work--has continued ever since.

During the past year, the Managing Director and I met with an ecumenical group of religious leaders and missionaries in Washington, and I recently participated in a meeting with Washington-based NGOs hosted by the U.S. Executive Director. We also encourage our resident representatives to meet regularly with members of civil society, and our missions to member countries increasingly include meetings with labor leaders, religious groups, and others. On my own travels abroad, I always make a point of trying to meet with the various segments of civil society. In fact, on a recent trip to Africa, I was able to meet with NGOs in Ghana, Tanzania, Togo, and Zimbabwe.

What Industrial Countries Need to Do
How about the more advanced economies? What can they do to help Africa?

First, industrial countries should do more to open their markets to products in which African countries have, or are likely to develop, a comparative advantage--including processed agricultural products, mineral products, and manufactures such as clothing and footwear. They also need to phase out the subsidization of agricultural exports more quickly than currently planned.

Second, donor countries must strengthen their bilateral assistance to countries that have demonstrated a commitment to reform--particularly in areas where a bold approach to reform might involve important, albeit transitional, revenue losses, such as comprehensive trade, civil service, and parastatal reform. A first step would be reversing the declining trend in Official Development Assistance, which dropped to 0.27 percent of the combined GNP of member countries of the OECD's Development Assistance Committee in 1995 from 0.34 percent in 1992--the lowest level recorded since the United Nations adopted the target of 0.7 percent of GNP in 1970.

Third, industrial countries should consider adopting measures to help diversify the risk of private investment in Africa, including the provision of guarantees for foreign direct investment.

Fourth, industrial and other economically more advanced countries must ensure that the multilateral institutions have the necessary resources to promote and support adjustment efforts and, in general, fulfill their increasingly complex tasks.

How the NGOs Can Help
This brings me to some final thoughts on where NGOs fit into the new global development partnership. It seems to me that NGOs are in a unique position to help the process.

  • At the international level, they can play an influential role in donor policy debates-- pushing for sound macroeconomic policies, an opening of industrial country markets to developing countries, a strengthening of bilateral assistance, sufficient resources for the multilateral institutions, and a guiding moral conscience.
  • At the grass-roots level, they can help mobilize civil society to have a voice in the economic policy debates, help explain the benefits and costs of various policy options, and offer first-hand experience and expertise in providing basic social services--such as primary education and health care--to the poor and disadvantaged.
In sum, international and local NGOs have the opportunity to play a particularly constructive role, one that can be integrated into a global partnership as we seek to help put Africa on a sustainable, high quality growth path.


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