Speech

The IMF: A Reliable Partner for Africa
Horst Köhler
Managing Director of the International Monetary Fund
At the African Union Heads of State Meeting
Maputo, July 10, 2003

Your Excellencies, Ladies and Gentlemen:

1. I would first like to thank President Thabo Mbeki and President Joaquim Chissano for the opportunity to visit Maputo and address this meeting of the African Union on its very first anniversary. This is my sixth visit to Africa, and on this trip, before addressing you here in Mozambique, I had the opportunity of visiting Ethiopia, Kenya, and Madagascar. These visits deepened my understanding of developments in Africa. And I look forward particularly to hearing about your vision for Africa in the 21^st century, and how the IMF can help you realize it.

2. Our meeting takes place against the background of still considerable uncertainty for the world economy. But overall the balance of risks has improved. In the United States, there is substantial stimulus in the pipeline and forward looking indicators have strengthened. In Europe and Japan, while there are as yet few indications of an imminent recovery, I am encouraged by the new momentum for much-needed structural reform. Therefore, I expect a gradual recovery of the global economy in the second half of this year, with a strengthening of growth to about 4 percent in 2004. In Africa, average growth is likely to climb to over 5 percent in 2004.

3. Growth in Africa has been relatively resilient to the global economic slowdown. Indeed, since the mid-1990s economic growth in sub-Saharan Africa has averaged well above 3 percent per year, compared to some 1 percent in the first half of the 1990s. But the gains remain fragile. And the sober reality is that maintaining even this relatively good performance will not suffice to halve poverty by 2015, as envisaged in the Millennium Declaration. Indeed, NEPAD itself aims at raising growth to 7 percent per year. This is an ambitious goal. But, Africa has the potential for achieving it, if an effort is made on all sides: creating the domestic conditions for growth through sound national policies, and ensuring that the international environment is supportive of Africa's integration in the global economy.

4. I congratulate you on NEPAD, with which Africa assumes responsibility for its own transformation, renewal, and development. NEPAD is also promising because it reflects the broad international consensus reached in Monterrey and Johannesburg last year. I understand that partnership and peer review are integral parts of NEPAD, and I believe that they will foster a critical element of the development process: the ability to learn from each other. There is progress in Africa and even success stories, like Botswana. What is needed now is decisive implementation of proven good practice: in national policy agendas, and in regional and international cooperation. And, most importantly, the people of Africa, not just its leaders, must understand, accept, and be involved in NEPAD's implementation. That is why I believe the theme of this meeting "Towards Ensuring the Implementation of NEPAD" is exactly the right one.

5. There is ample evidence that countries with prudent macroeconomic policies attain higher growth rates. We can observe this in Benin, Botswana, Burkina Faso, Cameroon, The Gambia, Mali, Mauritius, Mozambique, Tanzania, Uganda and others. In most of these cases, the strong performance has been within the context of Fund-supported programs. Good economic performance has also sustained substantial progress on debt relief under the HIPC initiative. In the 23 African countries that have reached their decision points, debt service has halved from about 30 percent of government revenue in 1998 to 15 percent in 2002, while social spending now amounts to four times as much as debt service outlays.

6. But in parts of Africa, continued civil strife has placed a heavy toll on development. In the Great Lakes region, in Liberia, and also in Côte d'Ivoire, recent armed conflict has caused heavy human sacrifice, and its economic impact has stretched well beyond the countries immediately affected. No effort from International Financial Institutions can compensate for these economic, social, and humanitarian setbacks. I fully agree with President Mbeki in his address to your inaugural meeting in Durban last year, where he said "There can be no sustainable development without peace, without security and without stability." I do think that the African Union must provide critical momentum to end armed conflicts in Africa.

7. Sustained economic growth and poverty alleviation in Africa requires all development partners to work together to meet their commitments. In the spirit of Monterrey and NEPAD, African countries themselves face - in my view - four main challenges:

• First, I see much progress in recent years in the efforts to strengthen governance, build sound institutions, and fight corruption. But further ambitious work is needed. Research at the IMF has found that growth would be around 2 percentage points higher in sub-Saharan African countries if the quality of their institutions would be improved to the average of other regions.

• Second, there is a need to sustain the macroeconomic gains. As demonstrated so convincingly by African countries themselves in recent years, macroeconomic stability is a pre-requisite for sustained growth.

• Third, Africa needs investment and a climate in which the private sector can develop and prosper. As shown by the work of the Investors' Councils that the IMF and the World Bank are supporting in Ghana, Senegal, and Tanzania, there is a lot that governments can do to improve the investment climate: in public administration, legal and judicial systems, and - more generally - enforce the rule of law. The legal definition and use of land title would - in my view - boost private sector activity and job creation in many African countries. Land title can play a crucial role, at the very least as collateral for financing of investment. Government also plays an important direct investment role as well, especially in providing the necessary infrastructure for private investment and development. In this vein, I very much hope that NEPAD (in cooperation with the World Bank and the other regional development banks) will stimulate needed infrastructure investments.

• Fourth, I see considerable unexploited opportunities in Africa to promote growth through regional cooperation. Creating larger and more integrated markets, facilitating cross-border investment, and allowing the free movement of people and exchange of ideas, carries economic, as well as political benefits. From ECOWAS in the West to COMESA in the East and South, institutional frameworks exist. But allow me to urge you, Excellencies, to make better use of these regional arrangements, including by aggressively reducing significant tariff and non-tariff trade barriers between countries. Boosting South-South trade carries a dual benefit: it strengthens your local basis for generating growth and jobs, and it also gives you a stronger edge when urging advanced economies to reform their trade practices.

8. At the same time, as the second pillar of the development partnership, the international community must also live up fully to its commitments:

• There has been some progress in raising ODA levels since Monterrey. However, total aid commitments are still well below what is needed to reach the Millennium Development Goals, and I continue to urge the developed countries to live up to their pledges, and their long-standing target of 0.7 percent of GNP for development assistance. And this assistance should be given as far as possible on grant terms. I also support U.K. Chancellor Gordon Brown's proposal of an International Financing Facility to accelerate progress towards meeting the MDGs. But current aid flows are not only insufficient, they are also unpredictable, and often uncoordinated among donors. Better aid coordination and multi-year commitments are key steps in making development assistance more effective. The IMF is fully committed to participating in the donor harmonization process defined in Rome earlier this year.

• President Museveni of Uganda during his recent visit to Washington said, and I quote: "We have a long way to go as we seek to integrate ourselves into the global supply chain, but it is a road we have no choice but to travel. Our salvation lies through trade, not aid." I completely agree with him. It is critically important to reverse the declining trend of sub-Saharan Africa's share in world trade, which has fallen to below 1 percent, when we subtract out South Africa and Nigeria (otherwise at 2 percent). The first priority must be for developed economies to significantly reduce trade-distorting subsidies and improve market access for developing country exports. And President Museveni is again right when he asks in particular also to reduce the hurdles African countries face to develop value-adding processing industries as part of their export base. It is encouraging that the leaders of the G8 have personally pledged to make the Doha Trade Round a success. Agriculture is the key to ensure that it truly becomes a development round. I hope that the recent agreement within the European Union to begin to reform its Common Agricultural Policy will serve as a useful impetus to restart negotiations in this area. In September, the World Trade Organization will hold its Ministerial Meeting in Cancún. This will be the occasion for the advanced economies to match rhetoric with action. It is also the occasion for Africa to seize the initiative and articulate a common position, united with a well-prepared negotiating strategy.

9. The IMF remains fully engaged in Africa and is committed to helping its African members raise growth. The country-driven and participatory Poverty Reduction Strategy approach has become widely accepted as the operational framework at the country level. From my discussions over the last week, I sense that there is a need to better define the prioritization of policy measures proposed in PRSPs. In particular, priority needs to be put on rural development to raise productivity and income in rural areas. This needs to be coupled with efforts to modernize and diversify urban economies. The World Bank and IMF are your partners in implementing PRSPs. For its part, the IMF will continue to concentrate on its areas of competence: helping to establish a framework for sound macroeconomic policies and institutions. To this end, we have reduced our conditionality by focusing it on those areas that are central to achieving the macroeconomic objectives of the program. And we are working hard to ensure a better alignment between the PRSP, the national budget framework, and our own concessional lending facility, the PRGF. And the IMF and the World Bank will continue to review the debt sustainability of our African member countries. We know that more "topping-up" of debt relief may be needed. I am prepared to recommend this to the Executive Board of the IMF based on a careful country-by-country analysis. Moreover, in our current work program, we are considering ways to help low-income countries better manage the impact of economic shocks.

10. Over the long-term, the IMF will further tailor its assistance to the evolving challenges facing African countries. I fully agree with the objective of the African Union to establish the necessary conditions to enable the continent to play its rightful role in the global economy. In the economic and financial area, realizing this objective requires developing a long-term road map for increasing access to private sources of investment and finance. The IMF is committed to help Africa proceed down this road. We are working with countries to build stronger and diversified financial sectors to mobilize domestic investment, attract foreign direct investment, and pave the way for eventual access to foreign capital markets.

11. I know that lack of capacity to implement reforms constrain the progress in the fight against poverty. Africa is already the largest recipient of technical assistance from the IMF. But we will further increase our efforts. Our recently established regional capacity building centers in Dar es Salaam and Bamako (AFRITACs) have had a good start. We will evaluate their performance after 18 months, with a view to opening three more such centers in sub-Saharan Africa.

12. Overall, the IMF has given its African members significant attention in recent years in its policies and decisions. I will stay this course.

13. Your Excellencies: The vision of the African Union, of economic integration across the continent, must inspire us all. I am optimistic that, with persistence, the challenges facing Africa, great as they are, can be overcome. And you may rest assured that on your road, the IMF will be a reliable partner. We will stand by you, with our expertise and financial resources, to help you realize your aspirations.