Speech

Address by Mr. Alassane D. Ouattara
Deputy Managing Director of the International Monetary Fund
to a Meeting of the Africa Studies Program of the
Council on Foreign Relations
New York, March 25, 1999

Ladies and Gentlemen:

Thank you for inviting me to join you for this meeting of the Africa Studies Program of the Council on Foreign Relations. The topic you have chosen for today's discussion--Africa's economic development in the context of an increasingly globalized world economy--is particularly relevant in view of the recent upheavals in the world economy.

The experience of the last thirty years has clearly demonstrated the potential opportunities and benefits of globalization to the developing countries. Open and liberal trade regimes have allowed these countries to develop their comparative advantages and gain access to newer, more appropriate technology, while financial liberalization has increased their access to international private capital, permitting them to realize much higher rates of investment and growth. While the recent international crisis has demonstrated some of the risks inherent in globalization, we are now in a better position to understand what is needed to minimize these risks. The key elements are macroeconomic stability and a transparent, predictable and consistent policy framework; open and liberal trade and payments systems; prudently managed and supervised financial sectors; a conducive environment for private sector development; and good governance and transparency in the management of the public and corporate sectors. These elements are well known, and there is no need to dwell on them further here.

Overall, economic performance in sub-Saharan Africa has improved steadily over the last five years as better macroeconomic and structural policies have begun to bear fruit. Africa's economic performance is expected to continue improving because greater efforts are being made to strengthen the policies that are crucial for boosting economic growth. I wish to concentrate my remarks on two specific policy areas where Africa is redoubling its efforts. These are trade and investment.

Expanding Africa's trade with the rest of the world

Throughout Africa we see an increasing number of countries opening up to the opportunities of global trade. Recognizing that sub-Saharan Africa's share in global trade has fallen from some 3 percent in 1960 to 1.6 percent in 1997, there is today a decisive effort to reverse this trend and allow foreign trade to play a lead role in the growth process. Thus, since the beginning of the 1990s, most African countries have made significant progress in liberalizing their exchange and trade regimes, often in the context of IMF-supported programs or regional arrangements. They have substantially lowered quantitative restrictions on trade, reduced maximum tariffs and the dispersion of tariff rates, and lifted restrictions on payments and transfers for current international transactions. Ghana and Uganda are two good examples of countries that have made great strides in this process.

Given the improvement in growth performance that has accompanied the opening of their trade regimes, many African countries are seeking to press ahead with further tariff reductions. To this end, clear and firm timetables for tariff reform are being established with the help of the Fund to bring African tariff regimes in line with best practices in other developing regions. Tariff reductions are also being accompanied by the elimination of exemptions, the broadening of the tax base, and measures to develop alternative sources of revenue and to improve administrative efficiency, so as to minimize net revenue losses.

To facilitate such policies, which, of course, reduce the scope for rent-seeking behavior and corruption, many African countries are trying to enhance the credibility of their reform efforts by incorporating them into regional or multilateral arrangements. There are already several examples of this in Africa, including the West African Economic and Monetary Union (WAEMU) and, to a somewhat lesser extent, among the member countries of the Central African Economic and Monetary Community (CAEMAC), of the East African Community, and of the Common Market of Eastern and Southern African States (COMESA). The critical supporting policies are also being put in place, including, of course, the maintenance of appropriate exchange and interest rate policies, and equitable taxation systems. In addition, structural measures are being implemented to reduce the relatively high transaction costs weighing on African producers, through investment in the physical infrastructure, rationalizing the frameworks for transportation and communication networks; and simplifying bureaucratic procedures.

Raising investment in Africa

Let me turn now to investment. While per capita growth has turned positive for sub-Saharan Africa as a whole, much higher average growth rates, sustained over a long period, are necessary to substantially reduce poverty and this requires much higher investment. Investment ratios in sub-Saharan Africa have gradually increased over the past few years, but are still far lower than in other regions, as is the relative share of private investment in total investment. We all know that a more efficient strategy would be to generate growth through much higher levels of private investment, supported by the necessary public investment in basic infrastructure.

Unfortunately, in the face of a compelling need to increase investment, there has been a steady decline in official development assistance (ODA). For these reasons, African countries are making greater efforts to raise domestic savings rates and mobilize private capital. They are making progress toward meeting these challenges through appropriate policies. The policies for strengthening domestic savings include pursuing macroeconomic stability through appropriate, market-determined interest and exchange rates, prudent fiscal policies, and reforms of the domestic financial sector. The perceived risk of investment is being reduced by: (i) legal reforms to simplify commercial jurisprudence and improve the functioning of the courts, enforce contracts fairly and impartially, and protect property rights; (ii) regulatory reforms that provide an efficient structure of incentives, including through rationalized investment codes; (iii) targeted government spending to ensure that the necessary human capital and physical infrastructure is created and extended; and (iv) consistent, credible policy formulation that minimizes the likelihood of policy reversal and maximizes its predictability. To ensure the successful implementation of these policies, greater attention is being given to civil service reform.

The political risk that is still too often associated with many African countries is itself being addressed by administrative reforms that improve the efficiency of the provision of necessary public services, raise professional standards, and actively promote ethical behavior by public servants; and by a proven commitment to transparency and accountability in the management of public resources. Some countries are also relying on subscription to public insurance schemes for investment, such as the MIGA, to help mitigate the perception of risk.

These policies and reforms, taken together, are what the Managing Director of the Fund has called the "second-generation" of structural reforms. Most sub-Saharan African countries are implementing these reforms. It is essential that they maintain this effort, with the support of the international community. In addition, it is essential in this context that the many conflicts raging on the continent are resolved quickly and peacefully, and effective conflict prevention mechanisms are put in place, both on the international and the regional level.

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I am confident that Africa will enjoy the support of the international community in these endeavors. The Africa Growth and Opportunity Act of the U.S. Administration, which stresses trade and private sector investment, is an example of the widespread recognition of the importance of trade and investment for Africa's future. Industrial countries should do their part in helping Africa by providing open access to their markets, and supporting efforts to improve administrative efficiency, combat corruption, and promote transparency. A key aspect is the removal of tariff and nontariff barriers to imports of goods in which developing countries have the greatest comparative advantage, such as agricultural products or textiles. Technical and financial support for the trade liberalization process can also contribute to maintaining the momentum for trade reform in Africa. Here, I would note that the Fund and five other international agencies are working together to strengthen our trade-related technical assistance to LDCs. I am also very encouraged by the wide consensus in the international community on the need to deal with the problem of Africa's external debt overhang, and the many constructive proposals made recently to extend the existing HIPC Initiative. All this augurs well for enhancing Africa's prospects for successful development on the eve of the new millennium. Thank you.