Typical street scene in Santa Ana, El Salvador. (Photo: iStock)
IMF Survey : Rising Africa’s Task Is to Share Wealth, Invest in People
May 30, 2014
- Conference hails drive to transform, diversify African economies
- A rising Africa should also be a watching and a partnering Africa
- Cooperation, regional integration can help boost inclusive growth
Bridging the infrastructure gap, sharing the wealth, and investing natural resource revenues in people are Africa’s top policy priorities, African policymakers declared at a conference in Maputo, Mozambique.
(l-r) IMF chief Christine Lagarde, Mozambican Finance Minister Manuel Chang, IMF Resident Representative Alex Segura-Ubiergo (photo: Stephen Jaffe/IMF)
AFRICA RISING CONFERENCE
Concluding the two-day Africa Rising conference organized by the government of Mozambique and the IMF in the Mozambican capital, policymakers also hailed African countries’ drive to transform and diversify their economies.
IMF Managing Director Christine Lagarde, noting that Africa is rising in terms of its economic growth, added that the continent’s challenge now is to make that growth more sustainable and more inclusive. She told a news briefing after the conference that
• A rising Africa should ensure that everyone benefits from growth, particularly those in the rural economy;
• A watching Africa should maintain sound macroeconomic policies to guard against internal and external risks; and
• A partnering Africa can benefit from working together with development partners such as the IMF to strive jointly toward development goals.
Five years after a conference focused on Africa’s changes in Dar es Salaam, Tanzania, finance ministers, governors, and civil society and private sector representatives from sub-Saharan Africa met in Maputo May 29–30 to take stock of their region’s achievements over the past two decades, its increased resilience to shocks, and economic policy challenges for sustaining growth and development.
A joint declaration issued after the Maputo conference by African finance ministers and governors and the IMF noted strong economic performance in an increasing number of African countries, reflecting good macroeconomic policymaking, stronger institutions, and higher investment in both human and physical capital. But in many countries, the benefits of this growth have not been well shared across the population. Moreover, there remain wide infrastructure gaps, and job creation falls short of expectations.
Transformation is key
Lagarde noted Africa’s solid phase of growth over the past two decades, but added that there are significant issues still to be addressed. “Structural transformation remains key: build infrastructure, build institutions, build people. These themes have come through loud and clear,” Lagarde said, alluding to major takeaways of the conference.
The event saw more than 500 participants discuss topics crucial to the continent, including how to harness the wealth stemming from Africa’s natural resources; how to tackle the region’s infrastructure gap; what is needed to create an enabling environment for a dynamic business sector and job creation; how to deepen financial markets and broaden access to finance in the region; how to strengthen economic stability and overcome sociopolitical and institutional weaknesses in fragile states; and how to translate economic growth into poverty reduction.
The conference heard that sub-Saharan African countries could improve their record on inclusive growth. Income inequality is still rife in the continent and is threatening to worsen.
Share the wealth
Panelists discussed ways to share the continent’s wealth more equally, and to create jobs including by promoting education at all levels. They identified policies to improve girls’ access to schools, deploy technology to boost inclusiveness, use carefully designed and well targeted social transfers to help the poorest, and increase productivity in the agricultural sector while also moving up the value chain.
Participants also discussed the importance of financial literacy to spur financial inclusion, which in turn can help stem inequality.
The conference also discussed how to lay the ground for the region’s structural transformation. Creating an enabling environment for the private sector to generate jobs and sustain growth, and developing deeper financial markets are the building blocks of this transformation, participants heard.
Infrastructure investment
Conference delegates discussed increased public investment in infrastructure, notably in transport and energy, while noting also the importance of avoiding the trap of overindebtedness. They heard that enhancements in infrastructure should be linked with sectoral policies—for example in building roads while also liberalizing the transportation sector.
The conference also saw discussion on the potential benefits of natural resources. In many sub-Saharan African countries, extractive industries—forestry, mining—account for a significant share of output and a major proportion of export earnings. Rising commodity prices have boosted economic growth and exports in these countries and new countries are joining the ranks of natural resource exporters. But managing resource revenue flows can pose difficulties in often weak institutional and governance environments.
Panelists discussed the importance of transparency of contracts, and accountability of natural resource revenue collection and spending—through broad information sharing—to address such capacity constraints. Other issues raised included the challenge of transfer pricing for tax collectors and the scope for international cooperation on this issue; investors’ need for legal stability; the growing importance of respect for the environment and of providing economic alternatives for local communities affected by natural resource development; and governments’ growing capacity-building requirements in natural resources management.
Access to finance
The conference heard that access to finance is still relatively low in sub-Saharan Africa, with around 85 percent of the population excluded from the formal financial system. Despite having capital inflows equivalent to 11 percent of the world’s GDP, access to credit in Africa is weak and concentrated in a few sectors and among a few large companies. Almost two-thirds of micro enterprises lack access to credit.
The magnitude of the region’s development challenges, the extent of its infrastructure gap, and the impact of its demographics on social investment needs call for reliable financing sources, participants noted. Drawing on the successful example of Kenya, participants agreed that fostering mobile banking is way to include the many who are currently excluded from the financial system.
Participants also discussed promoting the creation of development banks to help finance projects for small and medium-sized enterprises, and developing capital markets to allow trading of securities in the secondary market so as to allow companies to finance themselves in the capital market as a complement to bank financing.
Regional integration
The conference saw opportunities to intensify financial education and literacy for small business, and to increase regional integration—which can help address the problem of access to finance by allowing provision of cross-border financial services.
The conference also discussed the problems faced by fragile countries. Conflict and violence still represent important barriers to development in some countries in sub-Saharan Africa, participants heard, noting that this creates significant human and economic costs. Panelists underlined the importance of protecting the most vulnerable in fragile states, and also discussed developing and improving inclusive governance structures and institutions.