Building a Better Future in Africa, Address by IMF Managing Director Horst Köhler
May 3, 2002Address by Horst Köhler
Managing Director of the International Monetary Fund
May 3, 2002
1. It is a pleasure to be here today. This is my first visit to this wonderful country, and I have really appreciated the hospitality of the Ghanaian government and people. I have also appreciated how hard President Kufuor and his government are working to overcome the difficult issues the country is facing. I am sure that this will pay off for the Ghanaian people.
2. Two developments, in particular, have given the efforts to fight poverty in Africa new momentum. First, the recent United Nations Conference on Financing for Development in Monterrey, Mexico, produced an unprecedented consensus about what it will take to fight world poverty. This is what I call a two pillar approach for a concerted effort by the international community. The first pillar is the recognition by developing nations that they themselves have the primary responsibility to tackle poverty-and that crucial for this is good governance. Second, the international community has recognized that it must provide stronger, faster, and more comprehensive support. As a first concrete result, the United States and the European Union have already made important commitments to increase their development assistance for countries with strong policies.
3. Even more important, African leaders themselves have formulated a concept to end the marginalization of Africa, the New Partnership for Africa's Development (NEPAD).
· First, they have stressed that there can be no hope of reducing poverty without peace, democracy, and respect for the rule of law.
· Second, African leaders want to create the conditions for rapid economic growth. They know that to deliver this, they have to concentrate on education for African girls and boys, better and more accessible health care, better infrastructure, and development in the rural areas. They see the need to build a strong private sector, and a good climate for domestic and foreign investment.
· Third, African leaders want to make sure that Africa can participate fully in international trade. They have seen that, around the world, the opening up of trading opportunities and expansion of exports is a powerful way to create economic growth, new jobs, and higher incomes.
4. What is most important about NEPAD is that it is an African agenda, designed and carried out by African leaders and people. I trust this includes awareness of the need to persevere in this agenda and make tough choices. On this basis, I think the elements of NEPAD add up to a consistent strategy and define the right priorities. The IMF-and I know also the World Bank-is committed to support NEPAD wholeheartedly.
5. During my first year at the IMF, I traveled twice to Africa, to learn how we could work better with African countries. Heads of state, public officials, business and labor representatives, and civil society, all told me that the IMF needed to do many things differently. But they also said they wanted us to stay engaged in Africa, because they understood that, whatever its faults, the IMF is truly dedicated to helping all its member countries achieve sustained growth and fight poverty.
6. Since then, the IMF has been in a process of change. Listening and dialogue defines, more and more, our relations with member countries and civil society. We recognize that good economic advice cannot be separated from an understanding of national political processes and the social dimension. We are working hard for true national ownership of reform programs. And increasingly, we are seeing that progress in African countries themselves can show the way forward.
· Mozambique and Uganda, once devastated by war, are now among the most rapidly-growing countries in Africa.
· In Botswana and Cameroon, revenues from the extraction of diamonds and oil are being used to help build up more diversified economies.
· Mauritius and Tanzania have already had noteworthy success in promoting stronger private sectors and attracting foreign investment.
· And in Burkina Faso, policies to increase agricultural production and cotton exports are raising growth performance and improving the incomes of the rural poor.
7. In fact, Benin, Botswana, Burkina Faso, Cameroon, Ethiopia, The Gambia, Mauritius, Mozambique, Senegal, Tanzania, and Uganda, are all countries that have recently achieved sustained real GDP growth rates of 5 percent a year or more. Their governments have curtailed the domestic financing of budget deficits and reduced inflation, while trying to do a better job of meeting the needs of their poorest citizens. At the same time, in their different ways, they are carrying out structural reforms to boost private savings and investment, growth potential, and employment.
8. Last week I began a third visit, which has taken me to Tanzania, the Democratic Republic of the Congo, Côte d'Ivoire, Burkina Faso, and Ghana. What I have seen reinforces my conviction that the African approach is heading in the right direction.
9. I have been encouraged by the determination to build on the achievements so far, and create the conditions for more decisive progress in fighting poverty. There can be no doubt that Africa needs growth-in fact, sustained growth of about 7 percent a year will be required to achieve the United Nations Millennium Development Goal for poverty reduction. But Africa needs, in particular, job-creating growth. This requires paying attention to the grass roots, and supporting the emergence of a middle class.
10. In Tanzania and Burkina Faso, as in many other African countries, there is a need to bring development and job-creating growth, in particular, to rural areas. This will take better roads and other basic infrastructure, and better access to education, health, and financial services. Start-ups and small and medium-sized enterprises have proved to be major sources of new jobs and incomes, and a good way to develop an entrepreneurial spirit. Governments should therefore help the SME sector to flourish, not least by removing unnecessary red tape. They should help make it possible for small businesses to get working capital through financial institutions, including microfinance. They should put in place systems for recognizing land tenure. And they should ensure that stronger attention is paid to the needs of women, who show so much determination and energy despite the fact that they typically suffer the most from poverty.
11. Here in Ghana, I have been struck by the impressive turnaround in economic performance over the past year. By bringing the budget deficit and money creation under control, President Kufuor's government has put an end to severe foreign exchange shortages, rapid currency depreciation, and surging inflation. He has successfully steered the economy out of a crisis, and he is trying to engage all parts of society in defining an ambitious strategy for growth and poverty reduction. This approach has made it possible for the IMF and World Bank to provide Ghana with debt relief under the enhanced HIPC Initiative, which will eventually total about $3½ billion. And it gives me encouragement that Ghana's democratic transition and subsequent experience will serve as another good example for other countries in the region.
12. In Côte d'Ivoire, conditions are looking up after a period of political and economic instability. I was pleased that President Gbagbo told me his government's policy is based on good governance. It is clear that decisive action is needed in Côte d'Ivoire to root out corruption and deepen national reconciliation. Stability and good governance are also crucial for ensuring post-war recovery in the Democratic Republic of the Congo. There I met with a government that has made remarkable progress in stabilizing the economy and formulated a medium-term program to restart growth. If all goes well, the IMF's Executive Board could soon consider financial support for this program under our Poverty Reduction and Growth facility, which would also pave the way for debt relief. The early and active engagement of the IMF and World Bank should demonstrate that the international community wants to support the DRC. Further progress in implementing the Lusaka peace accords will be essential. And I would urge all the parties to the inter-Congolese dialogue to continue working for an inclusive agreement which brings all Congolese together, and provides the platform for democracy, social reform, and economic progress.
13. While most of the steps needed to eliminate armed conflicts have to be taken here in Africa, the international community too needs to make a greater contribution. Supporting efforts to reduce poverty and inequality is, of course, a crucial element. But the international community should also contribute more effectively to conflict prevention by curbing arms trade, scrutinizing the activities of soldiers of fortune, and implementing the OECD code of good conduct for multinational corporations.
14. A generation ago, it was fashionable to debate whether the state or the private sector should lead the way for economic development. Today we know that development requires both an honest, well-functioning state, and a dynamic private sector. I am therefore encouraged that Ghana, which was the first country in sub-Saharan Africa to attain independence after the Second World War, has also become a leader in trying to build what President Kufuor has called a "golden age for business." I congratulate the President on the establishment of Ghana's Investment Advisory Council, a group of senior domestic and foreign business executives who will provide their perspective to Ghana's economic development strategy. I had the pleasure of joining their first meeting today, and heard many good ideas for improving the investment climate and creating new economic opportunities. Later today, President Kufuor will inform us all of the results of that meeting and the Council's plans for follow-up action.
15. The centerpiece of IMF and World Bank engagement with African countries is their cooperation in the design and monitoring of their poverty reduction strategies-the so-called PRSP process. The Bank and Fund recently completed a thorough review of the PRSP process, in consultation with governments, donors, and civil society around the world. And I was encouraged to receive confirmation that this process is widely accepted as a promising way to tackle poverty. Why?
- · First, because the countries themselves are in charge.
· Second, because it takes a long-term view, paying attention both to social realities and to the need for hard economic choices.· Third, because it is a participatory process, that brings on board the views of all parts of society.
And fourth, because it provides a natural way to coordinate support by external donors. This is sorely needed, because there is too much unpredictability, duplication, and inefficiency in donor assistance programs.
16. More than 40 countries around the world are now engaged in the preparation of PRSPs, with the assistance of the IMF and World Bank, including more than two dozen countries in sub-Saharan Africa. I am gratified by the mounting evidence that the PRSP approach is helping to set the stage for stronger growth and faster economic development. We heard this in our worldwide outreach for the PRSP review, and I have heard it again during my discussions in Africa over the past week. Governments are becoming more transparent and accountable, and listening more to the views of their citizens. Within the decisions that governments must make in using limited public resources, they are spending more on health and primary and secondary education, and spending it more effectively. And an increasing number of donors are using the PRSP in planning their own support for African countries.
17. While the progress so far has been encouraging, a lot more work needs to be done. We must do a better job of identifying the potential sources of sustained growth. We must be prepared to discuss alternative ways to achieve agreed goals. Donors need to avoid unnecessary complications and delays in aid flows, and give more weight to the needs and priorities of African countries in place of their own domestic political and commercial interests.
18. The IMF itself is in a process of change and reform. We, too, have become more transparent and accountable. We have also become more focused on the IMF's core responsibility for macroeconomic and financial stability, and on cooperating closely with the institutions who are responsible for other dimensions of economic development. This is not because we see stability as a goal in itself, but because it is necessary for sustained growth. And we have enough evidence that disorder in public finances and higher inflation, in the end, hurts the poor the most.
19. At the end of this third visit to Africa, I am more convinced than ever that successful implementation of reform programs requires national ownership. Countries have to have room to select measures that they believe are in their best interest. The IMF is therefore working to streamline and focus the policy conditions included in its lending. I am encouraged that NEPAD is emphasizing regional surveillance and "peer review," because I hope that the time is coming when African countries will learn mainly from African success stories.
20. The IMF and World Bank have helped 23 African countries qualify for $33 billion of debt relief under the enhanced HIPC Initiative. And we will keep working to extend the benefits to other low-income countries. But in our work on debt relief, we should not forget that the ability to borrow-and especially, to borrow from private investors-is crucial for financing economic development. This requires the creation of a credit culture, in which borrowers understand they need to repay and creditors have trust that this obligation will be honored.
21. This is also why we are intensifying our efforts to help African countries develop sound financial sectors and, over time, obtain access to international investment capital. For the maximum contribution to sustained growth and poverty reduction, it will be important to respond creatively to the needs of small and medium-sized enterprises and the rural sector, including through soundly-managed microfinance institutions.
22. This visit has once again confirmed to me that often it is not lack of political will, but lack of capacity that blocks progress in economic reform. Responding to the request made by African heads of state last year, the IMF has been working to enhance its assistance for capacity-building in Africa. As part of this effort, we plan to establish 5 regional centers in Africa, to provide locally-based technical assistance and training. This effort is being carried out in close cooperation with the World Bank and other donors, and will concentrate in the IMF's core areas of expertise-including macroeconomic policy, tax policy and revenue administration, public expenditure management, macroeconomic statistics, and building sound financial sectors. This week I signed memoranda of understanding with President Benjamin Mkapa of Tanzania and President Laurent Gbagbo of Côte d'Ivoire, to open our first two technical assistance centers in Dar es Salaam and Abidjan. And I expect that these centers will be up and running later this year.
23. The IMF will also continue to be an advocate for more official development assistance for Africa. I am pleased with the plans that were recently announced by the EU, the Unites States, and others to increase their assistance for countries with sound policies. But I believe that the international community should stick to the target of 0.7 percent of GNP for official development assistance, and ensure that a larger share is devoted to the world's poorest countries. I am not pessimistic about the prospects for stronger support, provided that recipient countries in Africa and elsewhere demonstrate that they are making the best use of official development assistance. And the international community should help them with technical assistance to increase their absorptive capacity.
24. But I also want to be very clear: while more aid is needed, we need to work first and foremost on trade. Providing better opportunities for African countries to expand and diversify their exports is the best form of help for self-help. This requires greater ambition to open markets and phase out trade-distorting subsidies in the industrial countries, beginning with agriculture, textiles, and labor-intensive manufactures. And it should also include the re-thinking of tariff structures in industrial nations that push African countries to concentrate on raw materials, by discouraging exports of processed goods. To make Africa less vulnerable to declines in world commodity prices and diversify their economies, it is paramount that tariffs on poor countries' processed products in the industrial countries are reduced. Progress here should be, in particular, a benchmark for the objective of making the Doha round of international trade negotiations a true "development round." There have been welcome initiatives-including the "All but Arms" initiative in the European Union and the African Growth and Opportunity Act in the United States-to improve market access for low-income countries. But these clearly do not go far enough, or fast enough.
25. The evident case for market opening in the industrial countries would become even more powerful if African countries and other developing nations demonstrate their ambition to reduce their own barriers to trade. This is why the IMF strongly supports stronger implementation of African regional initiatives like the Economic Community of West African States (ECOWAS), as a way to improve competitiveness, increase access to markets inside and outside of Africa, and promote stronger economic growth. I urge African leaders to demonstrate the political will use regional integration as a means to fight poverty. I am confident that this goal is shared in Ghana, which was the first country to include African unity in its constitution.
26. In conclusion, ladies and gentlemen, what I have seen and heard during this visit gives me optimism for the future of Africa. The people of Africa want to help themselves, and they have shown that they can persevere despite all obstacles. But they have also shown that they are no longer willing to tolerate bad governance and corruption. I trust that this is demonstrated now by strong and sustained action. African leaders have defined a comprehensive concept for fighting poverty. And the PRSP is recognized as promising opportunity to have an inclusive process for engaging all parts of society in this effort. I see this also as a good chance to strengthen the democratic process in Africa. The international community should be able to trust African countries to establish the right direction and priorities, and to learn from one another. And it should support them in standing up for their own responsibilities. This is the approach that will guide the IMF, as an advocate and partner in the effort to build a better future in Africa.