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The IMF’s Role in the Unfolding African RenaissanceAlassane D. Ouattara
Deputy Managing Director
International Monetary Fund
Africa-U.S. Economic Conference
Arlington, Virginia, June 11, 1998
Good Morning, Ladies and Gentlemen. It is a pleasure to be here at the Africa-U.S. economic conference, which comes at a critical juncture not only in the IMF’s work on Africa but also at a time of a renewed U.S. commitment to the continent. As you know, only just recently, President Clinton visited Africa to work on creating a new partnership for growth with African countries, and as he put it so well, "It is time to put the new Africa on our map."
Africa’s Economic Renaissance
So let me turn to the topic of my talk today—the African renaissance. After nearly two decades of stagnation, economic performance in sub-Saharan Africa has improved markedly in the last few years. The most encouraging aspect of the recent turnaround in growth performance is that it is, to a large extent, the result of good economic policies—getting prices right, liberalizing the foreign exchange and trade systems, reining in fiscal deficits, tightening monetary policies, and beginning the difficult process of deeper and more fundamental structural reform.
The results have been enormously encouraging. Average real growth in sub-Saharan Africa has increased from about 1 percent in 1992 to about 5 percent in 1997, and conditions are ripe for this trend to continue. The strengthening of growth has been increasingly widespread. While in 1992 only 18 of the 47 countries recorded growth of 3 percent or more, by 1997 the number had increased to 32. Real per capita incomes of about 40 out of 47 countries are on the rise. There has also been critical success in bringing down inflation. Average inflation fell from a peak of about 45 per cent in 1994 to an estimated 13 per cent in 1997. These improvements have been accompanied by an upturn in the ratio of investment to GDP, and a strengthening savings performance.
This positive performance in recent years has been pronounced as more and more African countries have adopted comprehensive programs of adjustment and reform—supported by the IMF through policy advice, technical assistance, and concessional loans from the Enhanced Structural Adjustment Facility (ESAF). Today, 23 sub-Saharan African countries are implementing such programs; and commitments to these countries under ESAF arrangements total about US$3.6 billion. The IMF also provides emergency post conflict assistance for countries (e.g., Rwanda) experiencing political turmoil, civil unrest, or international armed conflict. In most of these cases, the IMF’s assistance has helped countries to catalyze larger amounts of concessional assistance from the international donor community. Indeed, total commitments to these 23 countries for the period 1997-99—which include project finance, debt relief, and bilateral and multilateral assistance—come to about US$62.5 billion.
In addition, the IMF and the World Bank have made substantial progress in implementing a collaborative framework for action to address the external debt burden of the heavily indebted poor countries (HIPC). Already, among the African countries, Uganda, Burkina Faso, Cote d’Ivoire and Mozambique have won commitments of assistance. The total amount of debt relief expected for these four countries from the international community is almost US$4.5 billion in nominal terms. Now, preliminary discussions are being held for Mali and Guinea-Bissau.
Need for Faster Growth
While Africa is clearly on the right track, the principal question for policymakers is how to transform the recent rise in growth rates in Africa into a permanent phenomenon. Ladies and Gentlemen, let us pause for a moment, and consider the African situation. At this juncture, the macroeconomic and structural successes of recent years are creating an opportunity that is too good to miss. As Africa turns the corner now—meeting the new challenges of integration into the world economy—it needs to build on these gains to put itself permanently on a higher growth path and make a real dent on pervasive poverty in the years ahead. Most people will agree that this will have to be based on substantial efforts to mobilize domestic savings and adequate amounts of official and private foreign support. And there will also need to be efforts to establish a secure economic environment that fosters private sector development. This requires sustaining, even accelerating, the reform efforts.
Let me now turn to some of the specific, and immediate, tasks ahead of economic reform. As the continent enters a new phase, the first emphasis must be to build upon and strengthen the progress made thus far in promoting financial and macroeconomic stability. This will continue to be the primary area of IMF involvement. But beyond the macroeconomic fundamentals, a critical element that will surely influence the success of future reform efforts is capacity building. This encompasses a range of areas, not least the establishment of an efficient, independent judiciary, accompanied by reforms of the legal system, and strengthening of processes for policy analysis and monitoring.
African countries have already accomplished a good deal in restructuring their economy. However, they will need to deepen their reform agenda with what have been called the "second generation" of structural reforms that are already part of many IMF-supported adjustment programs. In my view, particular attention will have to be paid to the following areas:
• Reinforcing and accelerating economic liberalization. Structural reforms should include, for example, a more rapid privatization process to expand the scope of private investment and production; a faster pace of trade liberalization that would enhance the competitiveness of domestic producers and exporters, and speed up Africa’s integration into the world economy; a further improvement in tax systems to foster incentives to save and invest; greater labor market flexibility to reduce structural employment; and expenditure policies geared to providing essential public and social services and the necessary economic infrastructure.
• Strengthening the financial sector. If there is one clear lesson that has emerged from the Asian crisis, it is the importance of having a sound banking system that is properly supervised. What does this mean? This means having a strong, independent-minded, and accountable central bank. This means also having a sound banking structure and an appropriate banking supervision framework based on international best practices in bank management. This means an improvement in the framework for banking activity that will address the problems of distressed banks and loan recovery. And this means having a class of qualified national financial managers, regulators, and supervisors—all free from political interference. True, all this takes time to develop. The IMF is assisting African countries in these areas through policy advice and technical assistance, while collaborating with the World Bank and other relevant institutions on these issues.
• Achieving good governance. All of the various policy measures, however, depend on an issue that may well be the most important, and perhaps the most difficult to grapple with: the quality of governance. Foreign and domestic private investors seek, above everything else, consistency and clarity about policy. Good governance is key here. This entails greater transparency and accountability in the management of public resources, and a stable economic and regulatory environment. A predictable regulatory environment is also needed to attract both domestic and foreign investment. Thus, regulations have to be transparent and must promote competition; at the same time, they must be enforceable and applied in an even-handed manner and property rights must be secure and protected.
• Forging a partnership with civil society. To build a consensus for reforms, African governments need to actively encourage the participation of all segments of civil society in economic policy debates, especially the intended beneficiaries, and to seek the broad support of the population for the adjustment efforts. The Asian crisis has amply demonstrated that economic development can be undermined by lack of progress toward democracy and the absence of adequate checks and balances. Indeed, a number of African countries are now in the process of redefining the role of the state; and it is critical that this continue, not only to gain public support for reforms, but also to avoid a collusion of special interests.
• Stepping up regional integration. Given that more than 20 African countries have fewer than 10 million inhabitants and that 15 countries are landlocked, regional initiatives can be a stepping stone towards better integration into the world economy and enhanced policy credibility. Throughout the continent, African governments are coming together to coordinate components of their policies, and virtually all countries are now members of regional organizations. The challenge lies in ensuring that these regional organizations are perceived as effective vehicles for the integration of African countries into the world economy, providing mutual support to their members in their reform effort. The IMF supports regional initiatives by providing technical assistance, including in the context of the Cross-Border Initiative (CBI), the Southern African Development Community (SADC), the West African Economic and Monetary Union (WAEMU), and the Central African Economic and Monetary Community (CAEMC).
An International Partnership
Too bold an agenda? I think not. Of course, it goes without saying that Africa cannot take on these huge tasks alone. The IMF can help—and is helping—through advice and technical assistance designed to strengthen administrative capacity and institutions. Furthermore, I am pleased to note that the IMF has put the ESAF, our concessional lending facility, on a permanent footing, so that it can continue to support the reform efforts in low-income countries, especially in Africa.
Let us now reflect on the role for Africa’s other international partners. This is a role that is both important and significant to continuing the African renaissance. In addition to extending concessional financing, Africa’s partners must provide appropriate and targeted technical assistance, and assist in the transfer of the necessary technical and managerial skills.
Let me suggest a few more specific initiatives. First, industrialized countries should do more to open their economies to products and services in which African countries have a comparative advantage. Second, donor countries must strengthen their bilateral assistance to African countries that have demonstrated a commitment to reform; reversing the declining trend in official development assistance could be an important first step in this regard. Finally, industrial countries must ensure that multilateral agencies have the necessary resources to support, strengthen, and keep the African renaissance on the move. These efforts will help support Africa’s endeavor to accelerate integration into the global economy.
In closing, let me emphasize again that recent successes in initiating reforms provide a foundation for Africa to build upon. At the same time, global economic integration is a process that requires speedy responses to changing situations. There is a coincidence of great opportunity for Africa, the international community’s new commitment, and Africa’s own renaissance based on improved policy performance. We have discussed what Africa needs to do, what its bilateral partners can do, and what the international community can do. Many of you are probably aware of and may even have been discussing the Africa Growth and Opportunity Act (now under consideration by the U.S. Senate). To you, and to Africa I say: Let us seize both the moment and the opportunity. Thank You.
IMF EXTERNAL RELATIONS DEPARTMENT