Harnessing the Potential of a Continent, Commentary by Rodrigo de Rato, Managing Director, International Monetary Fund, Published in Business Day, South Africa
March 22, 2007Commentary by Rodrigo de Rato
Managing Director, International Monetary Fund
Published in Business Day (South Africa)
March 16, 2007
CHANGE is taking place on the African continent, and that change is increasingly positive. Over the past five years, more and more African countries have strengthened their economies. Average incomes have risen 2%-3% a year, after taking account of population growth. This is more than double what it was five years earlier. But it is still not enough to reduce poverty decisively and to improve the lives of ordinary Africans. Vigorous global growth and buoyant primary commodity markets clearly have helped spur recent improvements. But home-grown efforts have played an equally important role. The continued efforts of African policy makers to propel their countries toward higher growth and living standards are often overlooked. That same resolve that informed the creation of the New Partnership for Africa's Development six years ago is still strong. Africans across the length and breadth of the continent are aspiring to more vibrant economies, improved infrastructure, and better opportunities in international trade. This theme of self-reliance is at the centre of this week's meeting in Cape Town of the Parliamentary Network on the World Bank, where 200 parliamentarians from 100 countries around the world gather to discuss development issues.
An increasing number of African countries are recognising the benefits of macroeconomic stability. Double-digit inflation is now the exception rather than the rule. The region is also becoming politically more stable.
Last year, 12 African countries held elections, including the first general elections in the Democratic Republic of the Congo in more than 40 years.
This year, another 17 countries will do the same, including the continent's most populous nation, Nigeria, which goes to the polls next month.
It is important for these welcome developments to be sustained to make growth sustainable. The favourable combination of robust growth in Africa's trading partners and high prices for its traditional exports is unlikely to last forever. Collectively, African nations must ensure that their domestic policies are conducive to durable, long-term growth when the global economic environment is less supportive.
African policy makers know that this requires action on two fronts. First, they must ensure that when government spends, resources are used effectively and transparently — at all levels, including local government. This will help to build confidence, and it will also encourage donors to follow through with their development assistance commitments to the continent.
But it is also important to ensure value for money from Africa's own resources. Oil exporters are a good example of this. Many African oil producers have seen government revenues rise dramatically in recent years. Facing huge needs and impatient electorates, the challenge is to ensure that these revenues are used wisely both by raising savings and bolstering priority spending. In doing so, strengthening the management of public resources will be critical to boost development, whether it is through building physical infrastructure or enhancing the delivery of health and education services. And strengthening public sector accountability can play a key role, as shown by the success of the Extractive Industries Transparency Initiative.
Another key task is to give a sharper focus to private sector development. In the long term, it is private investment that will drive economic growth and create jobs in Africa, as it does elsewhere. The recent report by the World Bank Group's International Finance Corporation, Doing Business 2007: How to Reform, ranked 175 countries on the ease of doing business. The average rank of a country in sub-Saharan Africa was 131.
There are many obstacles to private sector activity, including excessive reliance on licences, restrictive employment rules, and opaque transactions with the government. Improving the investment climate is critical, not only to attract foreign investors but also to encourage domestic entrepreneurship in Africa.
Moreover, for this entrepreneurial spirit to thrive on the continent, financial sector development needs to be made a priority because access to credit is often a binding constraint for new businesses.
The international community can help. Comprehensive debt forgiveness has relieved many African countries from a significant fiscal burden. The International Monetary Fund (IMF) has already granted 100% debt relief to countries that qualified for debt forgiveness under the Multilateral Debt Relief Initiative last year. It will be crucial to use the fiscal space freed up by debt relief for poverty and growth-oriented spending.
Aid will continue to be critical for the continent's development, and efforts to make this assistance more flexible, predictable and transparent would be good for Africa. Most important, though, trade as well as aid should be the guiding principle of the international community's policies. African leaders have been saying this for years, and it is now time for us to listen and to act on this call. This means a rapid conclusion of the Doha trade talks, including an agreement to eliminate the agricultural subsidies that have been so harmful to Africa's farming sector.
The IMF has renewed its commitment to low-income countries. Through its medium-term strategy, it is sharpening its focus in its core areas of macroeconomic and financial policy. We are supporting our low-income-country members — most notably those of sub-Saharan Africa — through continued policy advice and the provision of limited concessional financing. We are also stepping up our capacity building and training efforts, and are now operating three technical assistance centres in Mali, Tanzania, and Gabon.
Moreover, we are committed to drawing upon in-house and outside critiques of our programmes in order to improve our work in the future.
Africa has enormous potential. Harnessing this potential will require enlightened policies, both on behalf of the international community and especially on behalf of Africans themselves. The agenda is daunting but we know what needs to be done. Now is the time.