News Archive May 2014

Africa rising – Building to the future

Introduction

Good morning, bom dia.

It is my great pleasure to welcome you to this conference on Africa. I wish to thank President Guebuza and the government of Mozambique for hosting this event, and the many other partners who have made it possible.

It is indeed a great privilege to be here today, five years after the Tanzania Conference. Africa’s achievements are remarkable, and the overall outlook for the continent is optimistic. This is an exciting time for Africa. And the theme of the conference, Africa Rising, captures this excitement.

Mozambique’s Journey

In many ways, Mozambique epitomizes this positive spirit. Over the past two decades, Mozambique has posted one of the fastest growth rates in the Sub-Saharan region – an average of 7.4 percent per year.

Major steps have been taken to reduce poverty and raise life expectancy. These are the fruits of years of institution-building and sound economic management. The recent discovery of natural resources offers a unique opportunity to further build on these gains and make growth more inclusive.

An African proverb says: “If you want to go quickly, go alone. If you want to go far, go together.”

Mozambique has come far – and the journey continues; the IMF has been and will continue to be by its side. We have been working together providing both financial support and policy advice. We have also supported Mozambique’s reform agenda with stepped-up technical assistance and capacity building efforts, which continue today.

I would like to commend Mozambique – and indeed the region – on this impressive performance. Africa has taken its destiny into its own hands. Now is the time to build the future.

This conference offers a unique opportunity to reflect – together – on the lessons learned from Africa’s success and the challenges ahead. There is still much to be done. The continent is very diverse, and some countries risk being left behind, especially those faced with recurring conflict. In others, the rapid growth is yet to be widely shared across the population, with many Africans failing to see the fruits of economic success.

In that spirit, I would like to share with you three perspectives:
(i) Where we stand – taking stock of Africa’s achievements;
(ii) What near-term and longer-term challenges are emerging; and
(iii) What are the key policy priorities to address these challenges and help deliver on the promise of Africa’s future.

1. Where We Stand – Africa’s Takeoff

Let me start with where we stand. Sub-Saharan Africa is clearly taking off – growing strongly and steadily for nearly two decades and showing a remarkable resilience in the face of the global financial crisis.

Economic stability has paid off. More than two-thirds of the countries in the region have enjoyed ten or more years of uninterrupted growth.

This growth has delivered a more educated population, with significant declines in infant mortality. In Benin and Madagascar, for example, primary school enrolment has increased by more than 50 percentage points. This may be from low levels, but it is still a huge improvement.

And for good reasons, Africa is now a growing investment destination for both advanced and emerging economies – with a record $80 billion inflow expected this year.

Indeed, it is no surprise that ‘frontier economies’ such as Kenya, Uganda, and Botswana are challenging old stereotypes and roaring loud as Africa’s lions.

And yet, the tide of growth has not lifted all boats.

Poverty remains stuck at unacceptably high levels – still afflicting about 45 percent of the region’s households. Inequality remains high. And some countries, still facing recurring internal conflict, are struggling to exit from fragility.

Africa’s success journey has been truly remarkable. But if the global crisis has taught us anything, it is the importance of making the benefits of growth more broadly shared. When everyone benefits, growth is more durable.

Over the years, the IMF has been a close partner in Africa’s journey – including during the crisis. We have listened, we have learned, and we have responded.

We have reformed our lending instruments to increase access and flexibility to countries in need; extended our zero-interest policy; and streamlined conditionality.

We have tailored our policy advice to better address the very specific challenges facing the region. And we have supported this advice with five regional technical assistance centers – in Gabon, Ghana, Côte d’Ivoire, Mauritius, and Tanzania. Today, the largest share of the IMF’s capacity development services is devoted to Africa.

We look forward to continuing – and strengthening – this fruitful partnership.

2. Challenges Ahead – Near-term Worries and Longer-term Challenges

Africa’s future lies with itself and its people. True – the outlook for the region is very positive. Africa is expected to grow by about 5.5 percent this year and next, and the poorest countries even faster – close to 7 percent.

But it must keep a firm eye on what’s going on beyond its horizons. Globally, even as the world turns the corner of the Great Recession, the recovery remains weak and uneven. What does this mean for Africa?

Near-term worries

In the near term, the region’s outlook could be clouded by three main worries:
(i) slower growth in advanced economies, and in particular emerging market economies which are major trading partners for Africa;
(ii) lower prices for some commodities; and
(iii) tightening external financial conditions and potentially increased market volatility as monetary policy is normalized.

Policymakers will no doubt have their hands full. But they know what to do. The IMF stands ready to help with its policy advice, its technical assistance, and if needed, financial support.

Longer-term challenges

Beyond these more immediate worries, there are a number of longer-term challenges that can dramatically affect the outlook for Africa. Some for the better; others – not so much.

Demographic challenges: Africa is the youngest continent in the world. By 2040, the continent is projected to boast the largest labor force in the world – 1 billion workers strong – more than China and India combined. Channeling this increasing reservoir of human capital to productive sectors offers unrivalled economic and social opportunities. To take full advantage of them will require skillful management and vision.

Technological challenges: Technological innovation offers great possibilities. It can help support global integration, improve productivity, and foster inclusion. Harnessing its power effectively and efficiently is the challenge.

Environmental challenges: Climate change and sustained demand growth press on the sustainability of natural resources – further exacerbating inequality and exclusion. The challenge is to implement policies to foster growth that is, in turn, inclusive and environmentally sustainable.

3. Building to the Future – Three Policy Priorities

So what are the policy priorities to ensure that these challenges become opportunities?

I see three: build infrastructurebuild institutions, and build people.

Build infrastructure

First, build infrastructure – energy, roads, and technology grids. These are the foundations of any strong and durable edifice.

What does this mean in practice? Closing Africa’s infrastructure gap.

Over the past three decades, per capita output of electricity in Sub-Saharan Africa remained virtually flat. Only 16 percent of all roads are paved, compared with 58 percent in South Asia. These shortfalls represent huge costs to businesses – and to people.

Many countries in the region are taking encouraging steps to close this infrastructure gap. In Ethiopia and Mozambique, for example, investments in the energy sector are being scaled up, including through projects that promote cross-border trade in electricity. Kenya and Côte d’Ivoire are also initiating regional infrastructure projects in electricity, and road and railroad networks.

These investments are critical for growth to be sustained – and broadened. High quality infrastructure can be a magnet for foreign investment. It can accelerate diversification and employment creation, and support further regional integration.

Yet the costs of closing this infrastructure gap can be daunting. The investment needs for the region are estimated at about $93 billion – annually. In most cases, the investments are large and upfront. They need to be carefully selected, managed and implemented within a medium- to long-term budget perspective.

Here, the Fund can help. We are working with many of our member countries – through our capacity building centers and on-the-ground technical assistance – to strengthen public investment and debt management capacity. This helps to put these countries in a much better position to take advantage of increasing financing options.

Build institutions

Let me turn to the second policy priority: build institutions. This means governance, transparency, and sound economic frameworks.

We talked about the foundations for the building; now think of institutions as the systems that ensure that the building functions properly and lasts a long time – like the heating, cooling and water systems.

We all know that Africa has tremendous potential – it is home to more than 30 percent of the world’s mineral reserves. Properly managed, these endowments offer unparalleled opportunity for economic growth and development. Moreover, these resources can be instrumental in relieving the large constraints in infrastructure that I just talked about.

Yet – and let me be frank – in too many countries, the rents from extractive industries are captured by just a few. Mining can account for an important share of output and export earnings, but often contributes relatively little to budget revenues and job creation. This corrodes the fabric of the economy and its social cohesion.

What can be done? Strengthening the institutional and governance frameworks that manage these resources is a good place to start. Transparency can help increase accountability – and help ensure that these resources are harnessed for the benefit of all.

Many countries have taken steps in this direction. For example, Sierra Leone and Uganda are setting new fiscal rules in anticipation of large resource flows. Côte d’Ivoire has also implemented a new legal framework for the mining sector that would help attract higher foreign direct investment.

These are areas where the IMF has helped bring a wide range of cross-country experience to bear. And we look forward to helping even more.

Build people

So, we have the foundations of our building (infrastructure); we have set up the systems to ensure that it functions effectively and efficiently (institutions); now we need to let the people in.

This brings me to my third priority: build people – children, youth, workers, and in particular, women.

Let me be clear: Africa’s greatest potential is its people. They are the key for the region to fully capture the dividends from population growth. By some estimates, a one percentage point increase in the working age population can boost GDP growth by 0.5 percentage points. This is huge.

For this to happen, however, “good” jobs need to be created in the private sector. Today, only one in five people in Africa finds work in the formal sector. This must change. With wider access to quality education, healthcare and infrastructure services, it can change.

Similarly, technology can be tapped to extend the reach and access of financial services to millions of people. Here, Kenya’s experience offers valuable lessons to the rest of the world on how to empower the poor through financial access.

By combining mobile banking with financial services provision, 75 percent of Kenya’s population now has access to financial services. Crucially, it is the poor that have benefited the most from this expansion.

Which brings me to a topic that is close to my heart: women. I know that most of the women in Africa cannot afford not to work. But when they do, they are mostly employed in informal activities. We all know what this means: low productivity, low incomes, low prospects. We also know the constraints: access to education, credit, and markets.

The gains to be made by overcoming these constraints are immense – particularly through girls’ education. By some estimates, the economic loss in developing countries from the education gap between girls and boys could be as high as $90 billion a year – almost as much as the infrastructure gap for the whole of Sub-Saharan Africa!

As the old African adage goes: “If you educate a boy, you train a man. If you educate a girl, you train a village.

My bottom line: invest in women. It has a great rate of return – economically and socially for the future.

Conclusion

Let me conclude:

We are all witnessing a momentous transformation in Africa. Five years ago in Tanzania, Africa’s economies were under challenge as the global economy faced its most severe crisis since the Great Depression. We meet now in Mozambique with an outlook of optimism and high hopes.

The opportunities are vast and the challenges, while significant, can be overcome – through sustained strong policies, both economic and social. Now is the time to go further – to work together towards an inclusive, job-rich and sustainable growth strategy. Now is the time to extend the gains that many countries have enjoyed to those that have been left behind – by helping them overcome fragility and build strong institutions.

I want to end by quoting from the words of Mozambique’s national anthem: “Pedra a pedra construindo um novo dia.” Stone by stone, building a new tomorrow – that is what Africa Rising is all about.

Africa Rising will benefit the lives of people on the continent. Beyond that, Africa Rising will benefit the world. An Africa ever more integrated in the world – and the world learning from Africa.

Thank you – obrigada.

Keynote Address by Christine Lagarde
Managing Director, International Monetary Fund
Maputo, May 29, 2014

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Africa rising – Building to the future

30 May 2014
Introduction Good morning, bom dia. It is my great pleasure to welcome you to this conference on Africa. I wish to thank President Guebuza and the government of Mozambique for hosting this event, and the many other partners who...
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One billion people, one billion opportunities: AfDB approves its first Human Capital Strategy

The Board of Executive Directors of the African Development Bank Group (AfDB) approved on May 28, 2014 in Tunis the AfDB’s first Human Capital Strategy (HCS). The strategy paves the way for Bank investments in areas such as education, skills development, health, science, technology, innovation, social protection, safety nets and youth employment.

Investing in one billion people in Africa is at the heart of this four-year strategy. This vision is to build skills and make the most efficient use of new technologies to improve competitiveness and create jobs. As the operational framework for the Bank’s newly approved ten-year strategy, the HCS will serve as backbone to support the Bank’s investments in all sectors of development.  

“One billion people, one billion opportunities: Building Human Capital in Africa” is the result of a broad based consultation within and outside the Bank involving governments, private sector, NGOs, academia, and civil society.

While Africa is on the rise, the continent is faced with challenges of rapid economic growth, poverty, inequality and striking disadvantages for youth and women. Overcoming major problems such as low quality education, skills mismatch, poor service delivery, low productivity in the informal sector, unemployment and underemployment is critical to growth.  

“This strategy signals the African Development Bank’s commitment to invest in Africa’s greatest asset – its people. Without quick and decisive action to invest in human capital, African countries risk depriving a generation from opportunities to develop their potential, escape poverty and support the continent on a path of inclusive growth and economic transformation,” said Dr. Agnes Soucat, AfDB’s Director for Human Development.

As part of the HCS, the Bank proposes a New Education Model in Africa (NEMA) which presents a radical shift from the brick and mortar approach to education to a model that supports critical thinking, the application of cutting-edge education technologies, and public-private partnerships (PPPs).

“The HCS operationally consolidates and scales up the Bank’s interventions in building human capital in Africa. The success of the strategy rests in its implementation,” said Mr. Emmanuel-Ebot Mbi, AfDB’s first Vice President & Chief Operating Officer who chaired the Board of Executive Directors.

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Made in Africa: Is manufacturing taking off on the continent?

Several African countries have enjoyed economic growth in recent years – but there are fears that a failure to develop manufacturing could prove to be costly.

“Made in China” is a stamp that is ubiquitous and can be found on a wide range of objects – anything from T-shirts and shoes, to watches and televisions – worldwide.

The same is true of labels showing that an object originated in Taiwan or Vietnam.

But it is rare to find an object which has a mark that points to origins in African country – “Made in Nigeria” or “Made in Chad”, for example.

Despite experiencing regional economic growth in recent years, Africa commands a meagre 1.5% share of the world’s total manufacturing output, according to the United Nations Industrial Development Organisation.

That compares with a 21.7% share for the Asia Pacific region, 17.2% for East Asia and North America’s 22.4% share.

“Economies that have sustained high growth over the long term have typically gone through a process of economic diversification, the spread of new technologies, rising productivity in agriculture, the expansion of the manufacturing sector, and the development of a skilled workforce,” write the authors of a recently published Africa Progress Panel report.

“These have not been characteristics of growth in Africa, even in sectors that are attracting foreign investment. Put differently, there has been a lot of growth but little structural transformation,” they conclude.

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World manufacturing output

    • Europe: 24.7%
    • North America: 22.4%
    • Asia & Pacific: 21.7%
    • East Asia: 17.2%
    • Others: 6.7%
    • Latin America: 5.8%
    • Africa: 1.5%

Source: Unido

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A small wood factory in a town around 20km (12 miles) outside Mozambique’s capital, Maputo, is just one of the many manufacturing sites across the continent trying to buck that trend.

The company – Sociedade Comercial Colosso – employs 26 people and processes timber from 25 different species of Mozambican trees to make various wooden objects, such as furniture, flooring, beams and stairs.

Two of the employees – Bartomoeu Zandamela and Angela Macobela – say the jobs have improved their lives.

“The work helps me put food on the table at home. I’m the bread winner of eight children,” says Mr Zandamela , who works on the maintenance of timber-processing machines.

Ms Macobela, who is learning to make floorings and ceilings, says: “I’m a single mother. But the money I get helps me bring up my two children.

“My dream is to progress in my professional career.”

Mozambique has a thriving economy but the country has an unemployment rate of 20%

Despite having one of the fastest-growing economies in the world, more than 20% of Mozambique’s population remains unemployed.

That dichotomy, which can be found in other African countries, has led some economists to question whether the growth seen across the continent will ever be translated into more jobs and a greater distribution of wealth.

Asian economies have seen their economies grow in recent decades by becoming manufacturing hubs for the world. In countries like Taiwan, Bangladesh and China, factories have produced everyday goods – from clothing to furniture – on a large scale.

The benefit is that the, largely unskilled, work creates jobs – helping to spread wealth and bolstering the country’s economy.

Mozambique’s government says it is in the process of implementing policies of this variety.

“We introduced an initiative of bringing cement factories into the country. With this, we managed to stabilise the price levels of cement in Mozambique,” says Armando Inroga, the country’s trade and industry minister.

“We intend to have market competitive prices in the coming two years so that Mozambicans can have adequate low-cost housing using high-quality material produced in Mozambique.

“We also need to have a highly Mozambican food-processing industry which results from national produce.”

Traditionally, foreign investment has poured into Asia thanks to this model. But production costs in Asia are rising, as are salaries, encouraging firms to look elsewhere.

Some experts say the current dearth of vibrant manufacturing sectors in Africa is among the biggest factors preventing countries on the continent from cutting unemployment and spreading wealth.

The recent Africa Progress Panel report states that fewer than one in 10 African workers find jobs in manufacturing.

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Analysis: Hinh Dinh, World Bank economist

Light manufacturing represents a reliable way to create productive jobs in Africa. This is the right time – there is an opportunity due to the rising wages and labour costs in China and other Asian countries. Wages are still relatively low in African countries.

Job creation is very important for young people coming in to the labour force. Natural resources don’t generate jobs – that’s the dilemma facing a number of countries. There was always a tendency for foreign direct investment to follow natural resources because that is where you get the fastest results.

It is the responsibility of African governments to bring foreign direct investment to manufacturing to create jobs. The history of economic development is such that any country would need to start producing basic household goods. Over time they moved to higher value goods.

No country in the world has developed without producing light manufacturing. And no country can skip it.”

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It quotes Nkosazana Dlamini Zuma, chairwoman of the African Union Commission, as saying: “We believe we cannot achieve development unless we industrialise. We are looking at agriculture as one of the important drivers for industrialisation.

“We have the land, the people and the products. But we need to process more of our products in order to create jobs for the young people.”

Nigeria is a case in point.

Despite having Africa’s biggest economy, a large proportion of the country’s population is unemployed.

The problem of joblessness came to the fore earlier this year when a stampede among job-seekers taking a recruitment test in the national stadium in the capital, Abuja, left several people dead and injured.

High numbers of young, unemployed people means a cheap labour force is readily available in many African countries – not just Nigeria.

A man walks on rail track near the bauxite factory of Guinea's largest mining firm, Compagnie des Bauxites de Guinee.

Natural resources attract foreign investment, but firms increasingly see benefits in processing raw materials

Middle income goal

But a large part of the problem is the fact that African countries lack the industrial infrastructure that their Asian counterparts have refined in recent decades.

Despite this shortcoming, many experts argue that Africa has the potential to become the world’s low-cost manufacturing hub.

That, they say, allied with an abundance of raw materials and low-cost agricultural products means many African countries are well placed to replace south-east Asia as a low-cost global manufacturing hub.

Chart showing how Africa's economic growth compares  favourably with other regions

Analysts argue that foreign investment is likely to continue to rise and will be used to build factories.

World Bank economist Hinh Dinh – co-author of the organisation’s report Light Manufacturing in Africa – says East African countries, such as Tanzania and Uganda, are leading the way where manufacturing on the continent is concerned.

He singles Ethiopia out for particular praise.

The government has set a goal of reaching middle-income status by 2025. This goal would be unattainable through traditional farming alone.

The government hopes to meet its targets by investing in its manufacturing sector and higher education to help rural communities diversify their livelihoods.

Ethiopian Industry Minister Tadesse Haile says the government wants manufacturing to have a “dominant role” in the economy over the next decade.

And it is having an effect, with the country gaining a strong reputation as a hub for textile manufacturing, particularly where leather is concerned.

Huajian, a Chinese shoemaker has built an export factory just outside the capital, Addis Ababa.

Tesco, one of the world’s largest retailers, has announced plans to source more clothes from Ethiopia in the coming years.

And fashion retailer H&M has said it sees opportunities to produce clothing in the country, along with other sub-Saharan African countries.

People working on the assembly line at Huajian shoe factory in Dukem, Ethiopia - 2012

Is the factory-based line production model of manufacturing outdated?

Silicon saviour?

But is the factory-based line production model of manufacturing outdated? Could technological advances bring new approaches?

Kenya’s technology industry has been praised as one of the fastest growing on the economy.

Innovations such as M-Pesa, a hugely successful mobile phone banking platform, has given the technology industry to ability to change everyday lives.

Last year a $14.5bn (£9.1bn) project was unveiled in Kenya to build an IT business hub, known as Konza Technology City, about 60km from the capital, Nairobi.

The site, dubbed “Africa’s Silicon Savannah”, is expected to take 20 years to build.

Similarly, Rwanda is investing heavily in digital technology in the hope that this will speed up its transition from an agriculture-based economy to a services-oriented one.

So could IT provide a new manufacturing model? And, if so, when is that likely to happen?

“Young Kenyans have already proven themselves quite adept at innovation,” says John Ngumi, who chairs the Konza project.

“We, in Konza, estimate about 20,000 to 30,000 jobs in the first phase that ends in 2018. But we are looking at generating 200,000 jobs in total.

“More than that we are looking at having a strong multiplier effect that Konza becomes the forerunner of a generation of far more jobs.”

But not everyone is convinced.

Alex Mukaru, an aspiring entrepreneur, typifies the kind of young person needed to set up fledgling businesses that could provide jobs in years to come. And he believes much of the hype surrounding Nairobi’s technology scene is unlikely to make it capable of creating jobs on a large scale.

He argues that getting a technology company started is a struggle.

“Getting everything you need to help you compose your project into a working unit is a challenge. You find that you lack the money or resources to move to the next level,” he says.

It may take decades to answer the question of whether computing can become a mass employer in Africa.

Meanwhile, Mr Dinh urges African nations to move quickly. Otherwise, major companies may find opportunities in other parts of the world.

“This is the right time,” says the World Bank economist.

“If African countries miss this opportunity, it will take decades to catch up with the rest of the world.

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Made in Africa: Is manufacturing taking off on the continent?

30 May 2014
Several African countries have enjoyed economic growth in recent years – but there are fears that a failure to develop manufacturing could prove to be costly. “Made in China” is a stamp that is ubiquitous and can be found on a...
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Capacity building is critical to Africa’s emergence and industrialisation: Emmanuel Nnadozie

In recent years Africa has been making great strides in policy development and at present looks very prepared to move from principle into practice on this. Some leaders say now is the time to boost Africa's industrialisation efforts and that capacity building, which is critical to the continent's emergence, will play an essential role in this.

"Africa's economy is showing good signs and growth is taking root," says Emmanuel Nnadozie, Executive Secretary of the African Capacity Building Foundation (ACBF), which he says is the result of significant improvements to the macroeconomic environment in Africa, as well as more effective production of development policy.

Speaking during a series of meetings in Kigali, at which politicians and researchers discussed the future of Africa and best practices for achieving the continent’s economic transformation, Nnadozie continued his assessment on a positive note: "Africa now needs to move to the next important phase: industrialisation. This will require substantial capacity-building efforts. I am delighted to note that Africa has understood the importance of industrialisation to its development. In order to achieve this goal, we now need to strengthen our capacities."

Over the coming years, he said, Africa must undertake robust structural transformations. These will include the mechanisation of agriculture and, more importantly, mass industrialisation in order to create decent jobs for our young people. This industrialisation must be based on adding value to raw materials and building links between the primary sector and the rest of the economy.

"We must not seek to achieve added-value industrialisation through skills and institutions from outside Africa. Instead, we must strengthen the capacities of our own human and institutional resources," he said.

He also stressed the importance of improved leadership at all levels, the need for better institutions and the promotion of good governance. Substantial investment will also be required in two key areas: human capital and infrastructure. "This will ensure that new wealth is distributed fairly, in particular through the creation of an environment favourable to private-sector development," explained Nnadozie.

"I am optimistic that Africa will realise its full development potential and will become the key driver of global growth," he added.

To achieve these aims, he continued, Africa will need to focus on capacity building, and especially on the production, implementation, monitoring and evaluation of its development policies and strategies. It will also need to boost entrepreneurship and innovation capabilities to assist its industrialisation efforts.

The ACBF enjoys support from the AfDB. It is a key technical partner for African states and has been helping with capacity-building efforts across the continent for more than a decade. According to Nnadozie, the institution has "high hopes for Africa" and will continue working to support Africa’s economic transformation process, which he says could be achieved within the next 50 years.

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