Africa's Future: Responding to Today's Global Economic Challenges - Speech By Christine Lagarde, Managing Director, International Monetary Fund
IMF News, December 20, 2011
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- Authors: Christine Lagarde
- Published: December 20, 2011
Global Outlook and Policies
- Current assessment: world economy "poised in a dangerous phase."
- IMF last forecast saw global growth at 4 percent for this year and next; outlook "much dimmer" now with "severe downside risks."
- Core problem identified as a "collective crisis of confidence" linking adverse developments in the real economy and the financial sector.
- Advanced economies, especially the Euro Area, are "at the center of the crisis" and must lead the solution.
- Policy priorities:
- Strike an appropriate balance between fiscal and monetary policy to promote growth and stability.
- Forge ahead with structural policies to boost competitiveness, growth, and jobs.
- Strengthen financial sector regulation to ensure a safer and more stable financial sector that supports growth.
- Risk statement: without action, the world could be swept into a downward spiral of collapsing confidence, weaker growth, and fewer jobs; no country or region is immune in an interconnected global economy.
Implications for Nigeria and the Region
- Positive baseline:
- Growth across Sub-Saharan Africa averaged 5-6 percent or more over the past decade.
- Poverty rate declined from nearly 60 percent to just over 50 percent in the 10 years up to 2005.
- Past resilience: during the 2008 food and fuel crisis and the global financial crisis, most countries maintained critical spending on health, education, and infrastructure and recovered quickly.
- Nigeria-specific observations:
- Reforms initiated 6-7 years ago helped mitigate the impact of the global crisis.
- Nigeria’s economy continued to grow by 6 percent despite the crisis and "above the current regional average."
- Growth looks set to continue at a healthy pace into next year, but spillovers from advanced economies threaten that outlook.
- Channels of vulnerability:
- A sustained slowdown in advanced countries will dampen demand for Africa’s exports.
- Continued financial market uncertainty could inhibit private financing flows, remittances, and concessional financing.
- Greater volatility in commodity markets could produce winners and losers; "the risk of a drop in world oil prices" is a key watch point for Nigeria.
- Policy trade-off:
- Need to defend against the near-term global slowdown while preserving fiscal resources for infrastructure investment to promote employment and growth.
- Importance of restoring fiscal buffers that helped during the last downturn; many countries have less capacity to absorb shocks now than three years ago.
Nigeria’s Transformation Agenda
- Overall assessment: confidence that Nigeria is "on the right track"; government goals aim for a "more inclusive society" with equal access to economic and developmental opportunities.
- Key domestic challenges:
- Infrastructure gaps, particularly in power.
- Nigeria’s electricity generation capacity is just 10 percent that of South Africa’s, while Nigeria’s population is more than 3 times greater.
- High unemployment, especially among youth: unemployment rate over 35 percent for young people.
- Three crucial aspects of the agenda:
1. Better managing Nigeria’s natural resource wealth
- Establishing the Sovereign Wealth Fund and emphasizing the use of oil revenues for stabilization and investment.
- Rebuilding fiscal buffers and channeling resource revenues toward infrastructure and social safety nets (including maternal and child care) to meet Millennium Development Goals.
2. Structural transformation
- Promote a more diversified economy to better withstand shocks and deliver broad-based growth and jobs.
- Nigeria as a large market with "huge, untapped potential" (telecommunications example: mobile phone subscribers grew from 60,000 in 2000 to 125 million today).
- Improve business environment through investment in infrastructure, education, and agricultural development; provide more reliable policies for macroeconomic stability and investor confidence.
3. Financial sector reform
- Background: 2009 banking crisis left over one third of banks insolvent or seriously undercapitalized.
- Reforms have been "impressive" and actions to resolve the banking crisis are nearly complete.
- Continued refinements in regulatory and supervisory practices should focus on preserving financial stability and improving access to credit.
- Emphasis: the reform agenda is driven by Nigerians and is broad and challenging but essential to inclusive, lasting growth.
Role of the Fund
- IMF commitment: support Nigeria and be a better partner through deeper, more fruitful dialogue and listening more carefully to country needs.
- Institutional reforms: IMF governance reforms to give emerging market and developing countries a greater voice and be more representative.
- Lending and technical support:
- Boosted concessional lending capacity and more flexible lending instruments with greater protections for social spending.
- Redoubled efforts to provide quality technical advice and an active program of technical assistance with Nigerian public institutions.
- Facilitation of expertise sharing via IMF regional technical assistance centers in Africa: currently four, and soon to be five.
Conclusion
- Call to action: policymakers should "stand up" to the global economic storm clouds and act with African and Nigerian leadership to sustain and spread growth.
- Final message: with continued action, Nigeria can be a source of growth for itself, for the continent, and for the world.
Speech by Christine Lagarde, Managing Director, International Monetary Fund, Roundtable Discussion with Stakeholders, Eko Hotel, Lagos, Nigeria, December 20, 2011.