Facing the Challenges Facing the Challenges of African Growthof African Growth

Opportunities, Constraints and Opportunities, Constraints and Strategic DirectionsStrategic Directions

Benno J. NduluBenno J. Ndulu

Poverty in Africa, is largely a Poverty in Africa, is largely a growth challengegrowth challenge

  

10 percent of the world’s population, but 30 10 percent of the world’s population, but 30 percent of the world’s poorpercent of the world’s poor. .

Extreme poverty in Africa has increased Extreme poverty in Africa has increased from 36% of the population in 1970 to from 36% of the population in 1970 to around 50% in 2000. around 50% in 2000.

Nearly one in two Africans (300 million Nearly one in two Africans (300 million people in total) is poor: spending less than people in total) is poor: spending less than 1$ a day on basic necessities of life.1$ a day on basic necessities of life.

Divergence in growth of incomes: Divergence in growth of incomes: from other regionsfrom other regions

1960-20041960-2004 Per capita incomePer capita income in in Africa grew at Africa grew at 0.5% in contrast to 0.5% in contrast to 2.5% for other 2.5% for other developing developing regions.regions.

Even after adjusting Even after adjusting for differences in for differences in purchasing power purchasing power – p.c. income, was p.c. income, was

about half that of about half that of EAP in 1960EAP in 1960

– by the end of the by the end of the 2020thth century, it century, it was less than was less than one-fifth of EAPone-fifth of EAP Data source: The World Bank WDI database.

Note: GDP per capita in 1996 international dollars

Sub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan AfricaSub-Saharan Africa

East Asia and PacificEast Asia and PacificEast Asia and PacificEast Asia and PacificEast Asia and PacificEast Asia and PacificEast Asia and PacificEast Asia and PacificEast Asia and PacificEast Asia and PacificEast Asia and PacificEast Asia and PacificEast Asia and Pacific

Other DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther DevelopingOther Developing

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African Countries – Missed out African Countries – Missed out on two decades of global growthon two decades of global growth

Growth Path 1960-2004Growth Path 1960-2004-2

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46

8

1960 1970 1980 1990 2000year

41 SSA 57 OtherSSA, pop-wt Other, pop-wt

Countries with full set of observations

Figure 2.1: Smoothed average growth in real GDP per capita

Same Endowments - Different Paths Same Endowments - Different Paths - Different Outcomes- Different Outcomes

Mauritius

15441

3084

Cote d'Ivoire1624

1606

050

0010

000

1500

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1960 1970 1980 1990 2000year

PPP adjusted, 1996 international $Income per capita

Botswana

8936

984 Zambia902

1167

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0040

0060

0080

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000

1960 1970 1980 1990 2000year

PPP adjusted, 1996 international $Income per capita

•Cote d’Ivoire and Mauritius are both coastal and resource poor countries• pursued very different development paths •with very different outcomes.

•Zambia and Botswana are both landlocked and resource rich•Pursued different approaches to managing resource rents•To very different results

Diverse Growth Experience and Diverse Growth Experience and Results: 1960-2004Results: 1960-2004

AGO

BDIBEN

BFA

BWA

CAF

CIVCMR

COG

COM

CPV

ETH

GAB

GHAGIN

GMB

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MWINAM

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0.00 2.00 4.00 6.00 8.00 10.00Ratio of per capita income in 2004 to per capita income in 1960

Figure 2.9: Growth experience of countries in SSA•Per Capita Income in Nine countries in 2004< that in 1960• 13 middle income countries have incomes in 2004 between 60% (SA) and 9 fold (Botswana) the levels in 1960

Three key questionsThree key questions (1) what are the opportunities and hence, (1) what are the opportunities and hence,

options, for growth available to the diverse options, for growth available to the diverse range of African countries? range of African countries?

(2) what are the major constraints to (2) what are the major constraints to exploiting these opportunities? andexploiting these opportunities? and

(3) what are the strategic choices to be (3) what are the strategic choices to be made by African governments and their made by African governments and their partners to exploit these opportunities?partners to exploit these opportunities?

Five Key Conclusions from 45 Years Five Key Conclusions from 45 Years of African Growth experienceof African Growth experience

(i)(i) slower productivity growth more sharply distinguishes slower productivity growth more sharply distinguishes African growth from other regionsAfrican growth from other regions

– Same level of investment generates 1/3 to ½ of growth in AsiaSame level of investment generates 1/3 to ½ of growth in Asia– Look beyond conditions for raising investment levelsLook beyond conditions for raising investment levels

((ii)ii) policy and governance accounts for policy and governance accounts for between 25% and 50% between 25% and 50% of growth difference with other regionsof growth difference with other regions

(iii) (iii) disadvantages from geography and resource curse disadvantages from geography and resource curse accounts for accounts for another one third of the growth gap another one third of the growth gap

(iv) trading partners’ growth important for African growth- (iv) trading partners’ growth important for African growth- suggests export-led growthsuggests export-led growth

(v) Age dependence a big drag on growth – (v) Age dependence a big drag on growth – speed up speed up demographic transitiondemographic transition

Comparative Investment Comparative Investment ProductivityProductivity

Decade AFR EAP ECA LAC MNA SAR 1960-69 0.326 0.301 0.263 0.259 0.540 0.314 1970-79 0.243 0.316 0.215 0.247 0.239 0.225 1980-89 0.151 0.146 0.109 0.085 0.106 0.235 1990-99 0.074 0.191 -0.229 0.143 0.214 0.220 2000-02 0.109 0.237 0.258 0.048 -0.022 0.175

Incremental Output from a Dollar of Investment

Breaking out of the low growth Breaking out of the low growth syndrome- Daunting but syndrome- Daunting but a real possibilitya real possibility Asia’s phenomenal growth experience instructiveAsia’s phenomenal growth experience instructive

Mauritius, Botswana and Seychelles, have done it Mauritius, Botswana and Seychelles, have done it and so have 10 other African middle income and so have 10 other African middle income countriescountries

Since 1995, more than a third of the countries in SSA Since 1995, more than a third of the countries in SSA are growing at rates over 5 percentare growing at rates over 5 percent

Can take advantage of being a late starter –lessons Can take advantage of being a late starter –lessons from success and ICTfrom success and ICT

But also face disadvantages - from steep competition But also face disadvantages - from steep competition from emerging economies from emerging economies

Distribution of OpportunitiesDistribution of Opportunities

Figure 3.1: Sub-Saharan Africa

Geographical Distribution

26%

6%

43%

26%

Coastal, resource rich

Landlocked, resource rich Coastal, resource poor

Landlocked, resource poor

Diverse endowments present Diverse endowments present different opportunities for export-led different opportunities for export-led

growthgrowth Manufactured Export-led growthManufactured Export-led growth

– the Asian model for coastal countriesthe Asian model for coastal countries

Natural resource-based equitable growthNatural resource-based equitable growth– the Botswana model for resource-rich exporting countries. the Botswana model for resource-rich exporting countries.

Natural resource-based agricultural export Natural resource-based agricultural export diversification and industrializationdiversification and industrialization– The Chilean model of agribusiness and the Malaysian modelThe Chilean model of agribusiness and the Malaysian model of agroof agro

industrialized exportindustrialized export Labor export and high value service sector Labor export and high value service sector

for landlocked for landlocked – the Indian model– the Indian model

Critical areas of actionCritical areas of actionThe Four Big “I”sThe Four Big “I”s

o Improving the investment climate Improving the investment climate

o Infrastructure: Embarking on a “Big Infrastructure: Embarking on a “Big Push” in investmentPush” in investment

o Innovation for increasing productivityInnovation for increasing productivity

o Institutional capacity Institutional capacity o Individual skills, organizational effectiveness, and Individual skills, organizational effectiveness, and

rules of the gamerules of the game

Investment Climate – Costs of Investment Climate – Costs of doing Business doing Business

Energy Costs and Power OutagesEnergy Costs and Power Outages

Figure 3.3

Energy costs and power outages

0

10

20

30

40

50

60

Kenya Uganda Tanzania Zambia Senegal Benin Morocco China

Energy, % of firm costs (average) Power outages, % output lost (average) Source: World Bank Enterprise Surveys, 2001-2005

Investment ClimateInvestment Climate – A Menu of – A Menu of ActionsActions

Mega focus on reducing indirect costs Mega focus on reducing indirect costs to firmsto firms– Mainly infrastructure related – with energy and Mainly infrastructure related – with energy and

transport topping the listtransport topping the list But also reducing and mitigating riskBut also reducing and mitigating risk

– particularly affecting particularly affecting security of propertysecurity of property – – related to crime, political instability, contract related to crime, political instability, contract enforcement & corruptionenforcement & corruption..

Development of cohesive investment Development of cohesive investment areasareas– regional collective good reputation (peer regional collective good reputation (peer

pressure), policy coordination and connectivitypressure), policy coordination and connectivity

Infrastructure: A Big Push Infrastructure: A Big Push necessary to make a differencenecessary to make a difference

Particular focus on LandlockedParticular focus on Landlocked countriescountries– which host nearly 40% of the African populationwhich host nearly 40% of the African population. .

A regional approach to coordinate cross-border A regional approach to coordinate cross-border infrastructureinfrastructure investment, management, and use e.g. power pooling investment, management, and use e.g. power pooling in Southern Africa; cross country pipeline in West Africain Southern Africa; cross country pipeline in West Africa– 48 small economies with small markets – average GDP $3 billion; 48 small economies with small markets – average GDP $3 billion; – each country sharing borders with four neighborseach country sharing borders with four neighbors

Enhanced regulatory capacityEnhanced regulatory capacity– efficient use and maintenance of assetsefficient use and maintenance of assets

Promote private-public partnershipsPromote private-public partnerships – – – combine public investment in infrastructure assets and combine public investment in infrastructure assets and – operational efficiency of private management operational efficiency of private management

Innovation Key for Productivity Innovation Key for Productivity Growth and CompetitivenessGrowth and Competitiveness

Opportunity to leap-frogOpportunity to leap-frog – – – technology a global public good technology a global public good – exploit the advantages of a late starter exploit the advantages of a late starter

ICT isICT is now the main technologicalnow the main technological driver for driver for productivity growthproductivity growth

Investment in ICTInvestment in ICT improves competitivenessimproves competitiveness Investment in higher educationInvestment in higher education boosts boosts

competitivenesscompetitiveness Hence Investment in Higher Education and Hence Investment in Higher Education and

in ICT are key parts of the growth agendain ICT are key parts of the growth agenda

Institutional CapacityInstitutional CapacityPriority AreasPriority Areas

Enforcement of ContractsEnforcement of Contracts e.g. e.g. commercial courtscommercial courts

Exercise of voice for scrutiny of public Exercise of voice for scrutiny of public policy and actionpolicy and action – civil society, media – civil society, media and parliamentand parliament

Enhancing Revenue TransparencyEnhancing Revenue Transparency in in resource rich countries – e.g. EITIresource rich countries – e.g. EITI

Prevention of corruption as a country-Prevention of corruption as a country-driven agendadriven agenda – incl. checks & balances – incl. checks & balances

5 Key messages to Africans 5 Key messages to Africans (i) (i) First a message of hopeFirst a message of hope: : the development the development

challenges Africa faces are daunting but not challenges Africa faces are daunting but not insurmountable. insurmountable. – Asia’s and even in African success instructive; Asia’s and even in African success instructive; – advantage of late starters advantage of late starters

(ii) Africans will have to shape their own (ii) Africans will have to shape their own destiny – and this includes all Africans destiny – and this includes all Africans wherever they are in the world. wherever they are in the world. – taking the lead but more importantly to be creative, bold and decisivetaking the lead but more importantly to be creative, bold and decisive– make this an inclusive undertaking across all stakeholders.make this an inclusive undertaking across all stakeholders.

(iii) Unorthodox approaches can engender (iii) Unorthodox approaches can engender results –See East Asian experiences. results –See East Asian experiences. – Greater focus on Greater focus on government errors of ommissiongovernment errors of ommission (what (what

governments have governments have notnot done to spur development) done to spur development)

Key Messages CONT’DKey Messages CONT’D (iv) Leadership has a defining role in (iv) Leadership has a defining role in

achieving success –achieving success – putting a huge putting a huge weight on how leaders are chosen and weight on how leaders are chosen and more importantly how they are held more importantly how they are held accountable for results.accountable for results.

(v) Need for collective action to spur (v) Need for collective action to spur good reputation, agglomeration good reputation, agglomeration economies and provide regional economies and provide regional public goodspublic goods

2 Key Messages to Development 2 Key Messages to Development PartnersPartners

(i) More and better aid (i) More and better aid Critical to close the widening Critical to close the widening

infrastructure gap and address most infrastructure gap and address most pressing human development needs. pressing human development needs.

Progress in fulfilling the Gleneagles Progress in fulfilling the Gleneagles promise has been slow and needs promise has been slow and needs new vitalitynew vitality

Look for innovative public-private Look for innovative public-private partnerships to leverage private partnerships to leverage private capital capital

Message to Dev Partners contdMessage to Dev Partners contd

(ii) a supportive global trading (ii) a supportive global trading environmentenvironment

Unsuccessful Doha Round Unsuccessful Doha Round disappointing disappointing

and suspension of the World Trade and suspension of the World Trade Organization talks will hit poor Sub-Organization talks will hit poor Sub-Saharan African countries hardestSaharan African countries hardest

Need to get both back on rails Need to get both back on rails

In Conclusion…In Conclusion… Each country situation is unique and Each country situation is unique and

requires specific analysis of constraints and requires specific analysis of constraints and opportunities. opportunities.

But can learn from similarities for But can learn from similarities for strategic strategic directionsdirections..

Emphasis is on Emphasis is on energizing private energizing private investmentinvestment in the short to medium run and in the short to medium run and

fostering efficiency and competitivenessfostering efficiency and competitiveness as as preconditions for export-led growth.preconditions for export-led growth.

International Support – ODA and conducive International Support – ODA and conducive trading environment key complements to trading environment key complements to African drive to growthAfrican drive to growth