TRANSFORMING

AFRICA TOWARDSSUSTAINABLE AND

INCLUSIVE GROWTHJonathan Aremu Ph.DLead ConsultantECOWAS Common Investment Market

STRUCTURE OF MY DISCUSSION Introduction Challenges Facing the Continent’s Rising Pursuing Sustainable and Inclusive Growth

Principles ,Architecture and Barriers of Sustainable Growth Basis and Pillars of Inclusive Growth

Actions at Regional and Continental Levels to Enhance Growth Regional Payment and Settlement System Regional Capital Market Integration and Development Investment Guarantee and Re-insurance Institutions Deeper Economic Integration

Negotiation of Foreign Investment Conclusion

Addressing Inequalities Pursue Structural Transformation Recognize the Participatory Voice of the People in Governance

INTRODUCTION “Africa rising” is one of the most cogent expressions of the day Africa’s economic pulse has quickened, infusing the continent with a new

commercial vibrancy. Africa’s growth trajectory is projected to remain above 5 per cent in 2014,

according to World Economic Forum (WEF), and West Africa is the fastest growing sub-region on the continent, with Nigeria accounting for 65 percent of the sub region’s economic size.

The continent that was classified as “hopeless” barely a decade ago, but with the highest return on investment (ROI), is now rebranded as “hopeful” (by the same The Economist)

With the growth boom, investments are now moving into the continent from both the “South” and the “North”

Private equity is therefore set to grow by 8 percent a year between now and 2018 (McKinsey Quarterly, Feb.2014)

Africans themselves are beginning to believe that it is “finally” their turn around even in the midst of continued social and political challenges

A. CHALLENGES FACING THE CONTINENT’S RISING

Impressive as Africa’s recent strong economic growth has been, this may not call for celebration when most of Africa’s people do not benefit from them. Why?

1.The high gross domestic product(GDP) growth rates, increased trade volumes and bigger foreign investments over the past decade have not led to deep cuts in poverty and unemployment as a by-product, nor has high the growth led to a boost in key quality of life indicators of human needs such as food, clean water, shelter, health, education for the majority of their populations(e .g lack of sustainability).

2.The advancements made in macroeconomic performance are being undermined by a lack of ‘inclusiveness’ in the pattern of growth as too much of Africa’s enormous resources wealth remain in the hands of narrow elites and foreign investors. 

3. Substantial percentage of its population remain trapped in poverty, insecurity and isolation, and in cities and towns a growing ‘urban divide’ leaves many urban dwellers excluded from the benefits of modernization and city life.

4. Nearly half the population of Sub-Saharan Africa continues to live on less than US$1.25 a day

CHALLENGES FACING THE CONTINENT (CONT..)

4. Rising commodity prices have boosted economic growth and exports in many countries and new countries are joining the ranks of natural resource exporters; yet, enormous challenges remain in managing these flows because of weak institutional and governance environments, poor transparency and accountability, and strong vested interests (NNPC issue)

5. Infrastructure investment, rehabilitation and maintenance needs remain massive in most countries, while limited availability and quality of transport, energy, and water infrastructure poses obstacles for productivity, business development and external competitiveness.

6. Financial markets in many African markets lack depth, and therefore offer limited financing opportunities for small and medium-sized enterprises, as well as financial exclusion to a large percentage of the population

7. Whether African growth is inclusive or not depended in many countries to a large degree on developments in the agricultural sector, which are often neglected and social safety nets not available to the sector

8. Despite high growth, structural transformation remains limited in many African countries , as manufacturing sectors remain small, while the public sector remains the most important sources of formal sector employment against the global experience that the key to long-term growth is the boosting private sector activity

B. PURSUING SUSTAINABLE AND INCLUSIVE GROWTH IN AFRICA

As we conclude this 2 day conference (on 6th May 2014), the 24th World Economic Forum (WEF) on Africa, starts the next day(7th May 2014) in Abuja to consider the theme, Forging Inclusive Growth, Creating Jobs in Africa

This coincidence of similar activity between Covenant University and the WEF, that brings together regional and global leaders from business and politics to discuss how to integrate and structurally reform the rising continent to deliver benefits for all its citizens should not be seen as ordinary (it has spiritual and secular signals)

The continent’s capability to face the current global economic challenges depends on transforming its increasing growth through inclusiveness and sustainability

1. SUSTAINABLE GROWTH Sustainable growth is related to the society’s growth whose costs are

not placed on future generations, or at least efforts are made to compensate for such costs

This ethical necessity not to make the growth a burden for future generations and to guarantee these generations’ possibilities analogous to those available to previous generations should be seen as a normative basis of sustainable growth

It is noteworthy that in different academic subjects, sustainable growth is defined differently:

in economics it is the growth that ensures that the per capita income of future generations is not lower than that of the present generation but in fact better;

in sociology it is growth that preserves the community, i.e. maintains close social relationships in communities as it has been; and

in ecology it is growth that preserves the diversity of biological species, essential ecosystems, and ecological processes for future generations.

Sustainable growth is therefore the growth that meets the needs of the present generation without compromising the ability of future generations to meet theirs

A) FIVE PRINCIPLES OF SUSTAINABLE GROWTH

1. Living within environmental limits

Respecting the limits of the planet’s environment,

resources and biodiversity – to improve our environment

and ensure that the natural resources needed for life are

unimpaired and remain so for future generations.

2. Ensuring a strong, healthy and just society

Meeting the diverse needs of all people in existing and future communities, promoting personal wellbeing, social cohesion and inclusion, and creating equal opportunity.

3. Achieving a sustainable economy

Building a strong, stable and sustainable economy which provides prosperity and opportunities for all, and in which environmental and social costs fall on those who impose them (polluter pays), and efficient resource use is incentivized.

4. Using sound science responsibly

Ensuring policy is developed and implemented on the basis of strong scientific evidence, whilst taking into account scientific uncertainty (through the precautionary principle) as well as public attitudes and values.

5 .Promoting good governance

Actively promoting effective,Participative systems of governance in all levels of society – engaging people’s creativity, energy and diversity.

G o v e r n a n c e A r r a n g e m e n t s

O utc

omes

Monitoring and Reporting

Delivery Plans and Tools

Performance Management Frameworks

Operations and Procur

People

Poli

Enablers

Security and D e m o c r a t IicAccountability

Strategy and Vision

Leadershipand

Governance structures

Mechanisms

B) SUSTAINABLE GROWTH ARCHITECTURE

C) BARRIERS TO SUSTAINABLE GROWTH IN GOVERNMENT

2. INCLUSIVE GROWTH Economic growth that broadens access to sustainable socio‐economic

opportunities for more people, while protecting the vulnerable is referred to as “inclusive”

If Africa and its people are to realize their full development potential, deliberate policies to reduce inequalities and promote inclusion in the growth process are needed now more than ever.

The concept of inclusive growth is broader in that it wants growth to benefit all segments of society including the poor, the near poor with meagre incomes, the middle class and even the rich.

It is growth that reduces the disadvantages of the vulnerable and most disadvantaged while benefiting everyone based on the understanding that in addition to sharing the benefits of growth, people must actively participate in the growth process.

Accordingly, inclusive growth can be thought of as entailing the expansion of opportunities for participation, which can include both engagement in productive economic activities and having a say on the orientation of the growth process.

It should respond to what people want and aspire to in order to improve their lives and livelihoods: decent, productive and properly-paid jobs; access to basic services; governments committed to balanced development, good governance and accountability, and how each of these elements relate to growth.

A). WHY MUST GROWTH BE INCLUSIVE?

Inclusive growth is important for 3 salient reasons: For ethical considerations of equity and fairness, growth must be shared and should be inclusive across different segments of populations and regions because economic and other shocks hurt the poor and the vulnerable most;Growth with persisting inequalities within a country may endanger social peace, force poor and unemployed people into criminal activities, make women more vulnerable to prostitution, force children into undesirable labor, and further weaken other disadvantaged and vulnerable sections of population; andContinued inequalities may result in civil/political unrest and violent backlash from people who are continually deprived, derailing a sustainable growth process.

B). PILLARS OF INCLUSIVE GROWTH

Pillars of Inclusive Growth

Governance and Institutions

Expansion of economic opportunities – in terms of better access to education and health services, infrastructure, social protection and safety nets for the poor and the vulnerable, and protection against transitory livelihood shocks.

Social inclusion that will ensure that all sections of the population, including those disadvantaged due to their individual circumstances, have equal opportunities. Thus, providing access to education, basic health facilities to all, and infrastructure to facilitate access to these services

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Social safety nets - to protect the chronically poor and to mitigate the risks and vulnerabilities associated with livelihood shocks, caused for example by ill health or economic crisis; and who cannot participate in and benefit from the opportunities created due to circumstances beyond their control.

C). IN PURSUIT OF INCLUSIVE GROWTH IN AFRICA

Typically for contemporary African economies, the pursuit of inclusiveness growth should entail:boosting and modernizing agriculture which provides a livelihood for the majority of the population;improving the investment and business climate and providing support, in particular for indigenous micro and small businesses; providing and facilitating access to better quality and relevant education and training;broadening participation in the development process and giving a voice and a hand to marginalized and disadvantaged groups; andreducing disparities in development attributes and opportunities between regions, classes of people and communities.

C. ACTIONS AT REGIONAL AND CONTINENTAL LEVELS TO ENHANCE GROWTH IN AFRICA

a) Regional Payment SystemSound and robust domestic/regional payment system is a necessary condition for an inclusive and efficient cross border payment and settlement system for trade and investment flows. South African Development Community(SADC) Member countries established their regional payment and settlement system to reduce settlement risks, enhance public confidence, promote trade and investment flow in July 2013On February 28, 2014, the Common Market for Eastern and Southern Africa (COMESA) regional payment and settlement system was established as an electronic platform that facilitates cross-border payments within the COMESA regionUnder the ECOWAS Common Investment Market (ECIM), ECOWAS Commission is deepening the financial sector, through the establishment of a regional payment system to facilitate the flow of trade, funds and investment flows among Member StatesThere is a continental payment and settlement system conference going on in Algeria as we are here,(some of us were to be there)

 ACTIONS AT REGIONAL AND CONTINENTAL LEVELS(CONT..)

b)Regional Capital Market Integration and DevelopmentTo allow capital to move freely across the national boundaries of Member States, ECOWAS Commission is partnering with relevant stakeholders towards the establishment of regional capital market The West African Capital Market Integration Council (WACMIC) has been inaugurated by the President of ECOWAS Commission on the 18th of January 2013. At WACMIC Meeting held in Abidjan in April 2014, Phase I of the capital integration process commencesThis same development is simultaneously taking place in other regional economic communities (RECs) in Africa

ACTIONS AT REGIONAL AND CONTINENTAL LEVELS(CONT..) c) Investment Guarantee/Re-insurance While Africa offers great opportunity to global investors many prospective investors still perceive the continent as unpredictable due to a variety of political risks beyond an investor’s control. Insurance against political risks affecting international investments and trade transactions was established by African Trade Institute (ATI), Kenya, in COMESA region about 10 years ago.European Union (EU) sponsored a study to consider and facilitate a feasibility study on the Establishment of an ECOWAS Investment Guarantee and Reinsurance Agency, similar to ATIThe study has been validated and Council of Ministers in the Community has given the Commission a go ahead to partner with ATI in the establishment of the Agency for the region.

ACTIONS AT REGIONAL AND CONTINENTAL LEVELS(CONT..)d) Deeper Economic IntegrationECOWAS/ Free Trade Area (FTA) also known as ECOWAS Trade Liberalization Scheme (ETLS), was launched in 1990; similar agreements abound elsewhere in the continent Despite some implementation challenges, the various FTAs in the continent have achieved some degrees of successTo resolve the possibility of trade deflection under the ETLS/FTA, the various Communities in the continent are moving or have moved their FTA to Customs Union (CU) phase with the creation of a common external tariff (CET) to implement this next phase (eg ECOWAS/ CET to start on 1st January, 2015In fact some RECs are already operating at Common Market (CM) level with the hope of moving towards Economic UnionThere is in fact a move towards a continental FTA as well as continental CM (on-going continental payment system in Algeria, and the continental investment code at African Union )

D. NEGOTIATION OF FOREIGN INVESTMENT

No one goes to an examination hall without studying, so should the negotiation process be with the foreign investors coming into the continent 1. Why Negotiation?The most attractive offers TNCs give may not always be the most advantageous to the prospective host economy. That is why the true costs (opportunity cost) and benefits of their agreement terms must be thoroughly weighed before concluded and signed by both parties. Essentially, conflicts of interest do arose when establishing investment relationship with TNCs For instance: while TNCs want sales in the local market (host economy) and in the regional market, recipient economies would prefer that TNC products are exported to all over the world; while the TNCs would want to transfer their entire profits to their parent company abroad, the recipient economies would want such profits to be re-invested;

WHY NEGOTIATION(CONT..) while TNCs would prefer to control the joint venture

enterprises, recipient economies would want them (the enterprises) to be under their own control;

while TNCs would prefer the supply of spare parts, the recipient countries would favour domestic production of them or at worst freedom to order from any part of the world;

while TNCs would want the joint venture to be their subsidiary, the recipient economies would advocate for greater share of the equity;

while TNCs would like to enjoy access to local financial institutions resources, the recipient economies would prefer foreign financing of the joint venture for fear of crowding out domestic entrepreneurs;

while TNCs would want their research and development (R& D) to be performed at the parent company sites or selected affiliates of the TNCs, recipient economies would want them performed at host economies; and

The structure of TNCs System allows for fraudulent practices

2. STRUCTURE OF A TNC SYSTEM Transnational Strategy of TNCs

STRUCTURE OF A TNC SYSTEM(CONT..)For a better understanding of the above, see the analysis below including the Figure that follow Company A is a subsidiary of N. Company B is a subsidiary of A and thus a subsidiary of N even though only 33 percent of B is indirectly attributable to N (i.e. 60% of 55%). Provided that B has an effective voice in the management of company C, Company C is an associate of B and thus an associate of N, as N through its subsidiary B control 12 percent of the voting power of C and has an effective voice in the management of C, even though only 4 percent (i.e. 60% of 55% of 12%) of C is indirectly attributable to N. Company D is an associate of N because if N has an effective voice in the management of D, it should also be able to exercise an effective voice in the management of E, even though only 6 percent (10% of 60%) of E is indirectly attributable to N. Company F is an associate of N and G is an associate of F, but G is not an associate of N unless N through its participation in the management of F is able to exercise an effective voice in the management of G. Company H is a subsidiary of N and Company J is an associate of H and thus an associate of N. Company K is a subsidiary of N; and L is a branch of K; and thus branch of N.

STRUCTURE OF A TNC SYSTEM(CONT..)

E. CONCLUSION The challenges facing the continent is how to ensure that the

impressive growth rates translate consistently into sustainable inclusive growth.

Other developing regions of the world experiencing comparable rates of economic growth in recent decades have had more poverty reduction resulting from that growth.

Doing so will require the various issues in sustainable and inclusive growth discussed above in addition to pursuing the various economic integration programmes at regional and continental levels,

It will also involve taking action which goes well beyond business as usual to spur transformational change.

Such a change will deliver positive human development results at scale, which can be sustained over time through plans and policies in the following areas: addressing inequalities, pursuing structural transformation, and making the voice of the people to count

CONCLUSION (CONT..)1. Addressing Inequalities and Inclusion – By reducing inequalities, African countries can lift human development further and harness the full potential of those currently marginalized groups (eg women, youth, the poor and etc )to contribute to development2. Structural Transformation – Pursuing the structural transformation of the economic activities of Member States so that they are more inclusive and diverse, and add more value to commodities; this should include negotiation with TNCsBuilding up employment and output to be in a wider range of industries and services to achieve this. Investing more in the health, education, and training of people, develop

their infrastructure, and strengthen their institutional capacities. 3. Voice and Participation –Around the world today, people are seeking a greater say in the decisions which have an impact on them, and greater accountability from those who govern. People want their governments to deliver improved services and to manage public and natural resources fairly and transparently.Governments which welcome wider and deeper participation by citizens will build greater trust in governance and thus better functioning political systems.

THANK YOU

Yemi Aremu 26