Building on the Foundations of Growth, by Rodrigo de Rato, Managing Director, IMF

June 19, 2006

by Rodrigo de Rato
Managing Director
International Monetary Fund
Published in Noticias (Mozambique)
June 19, 2006

From many parts of Africa there is encouraging news of economic expansion and poverty reduction. The benefits of economic stabilization are becoming increasingly visible, with the last few years witnessing growth at its highest in 30 years, and inflation at its lowest in a quarter of a century.

But many countries are still far from meeting the UN Millennium Development Goals, which target a halving of key indicators of poverty by 2015. Even stronger growth will be needed across the continent before significant inroads into poverty can be made. Economic indicators may be encouraging, but much more has to be done before they can translate into discernible improvements in people's daily lives.

We, in the IMF, welcome the good progress that is occurring, and are continuing our work with member countries to achieve further gains. At the same time, we are considering how we can make our advice as effective as possible.

Various groups that I met with on a visit to sub-Saharan Africa last March—policy makers, legislators, civil society and business representatives, journalists—all spoke about the main challenges. They pointed to the shortages of infrastructure: the dire need for investment to modernize water, sanitation, and transportation facilities. They spoke of the paucity of adequate access to healthcare, to schools, and to markets. Many also talked about Africa's continued marginalization in global trade, perhaps one of the biggest deterrents to greater economic progress.

What can countries of the region do to have a concrete impact? For one, good performers must build upon their improved economic performance by seizing the opportunity provided by debt relief and the prospect of increased external assistance through the scaling up of aid.

To ensure improvements in human development, governments can use higher aid flows to increase spending on health and education, and for infrastructure investment. In this way, people will begin to see and feel tangible improvements. At the same time, to avoid a new debt burden, countries must borrow prudently and strengthen their ability to manage their debts.

Higher growth can only be sustained through a vibrant private sector. I have spent a lot of time talking to representatives of business communities on my various trips to Africa. It is encouraging to hear an increasing emphasis being placed on much-needed improvements in the regulatory framework and, indeed, the overall business climate in many African countries.

But entrepreneurs in Africa still face more obstacles than in any other region of the world—inadequate infrastructure, weak legal and financial systems, poor governance and, too often, armed conflicts. This is why private investment in Africa has increased only marginally in recent years. In 2004 the continent recorded the slowest pace in improving business climates in the world. Worse, for every three African countries that reduced regulations, one made them more burdensome. Entrepreneurs find that enforcing a commercial contract through the courts is still more difficult in sub-Saharan Africa than anywhere else. So more clearly needs to be done. Investors will naturally be attracted to countries where the rule of law and ownership rights are enforced and respected.

The development of the financial sector is also receiving well-deserved attention. But it is international trade that is crucial. It is not enough for countries in Africa to rely on concessions from the international community, important as these are. Lowering barriers to trade, including within the continent, is vital for Africa's development.

Another critical area is governance. Too often, the governance of countries does not inspire investor confidence, including, most importantly, citizens of those same countries. A significant level of corruption is a symptom of poor governance. Sound public expenditure management is essential for managing higher aid flows. It equally contributes to good governance by helping citizens ensure that public resources are used transparently and efficiently. Stamping out corruption, wherever it exists, is absolutely critical.

Overall, the most important contribution that the IMF can make to help African countries meet the challenges of development is through continued sound policy advice that supports economic growth, helps reduce poverty, and enables governments to make the best use of external aid. This is at the heart of the Fund's medium-term strategy, which I presented to our 184 member countries last September. Since then, I have consulted widely, including with governments and civil society, and I will meet with our members to consider how to implement the strategy.

Low-income countries need to have a greater say in the decision-making processes of the IMF, an organization that is so important for many of them. This is an important element of our discussions on the medium-term strategy.

Finally, others also have critical roles to play, including the World Bank and a host of other international development organizations. Donors must not only fulfill their increased aid commitments, but must also make aid more predictable and less burdensome on the recipients. The international community is already making impressive efforts to harmonize and enhance the coordination of assistance to low-income countries. We intend to keep working closely with other agencies to ensure that we put our collective efforts together in the interest of low-income countries.

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