Fifty years after Africa's Independence, debates about the best strategy for economic development are still exercising policymakers. In the past few years, the 'Africa Rising' narrative has been paramount, but is it warranted? Wallace Kantai spoke to the World Bank vice president for Africa , Makhtar Diop on the continent's growth and resilience. ------------------------------------------- What has the African story been in terms of economic development over the past five decades? When you look at Africa , Kenya has been a very interesting case. It is one of those countries, which have embraced private sector-led growth. If you look at the history of Africa's economic development, there was a lot of debate about the role of the state. But Kenya , from the very beginning, embraced the role of the private sector. That makes Kenya very special, and it is not by chance that the business community — the domestic private sector — is one of the strongest in Africa . It's because there has been that tradition for a long time. For the rest of the continent, we have seen a convergence for the last two decades around the need to have some macroeconomic policies, such as cutting inflation and the fiscal deficit, unifying the exchange rate, and the like. Those were the policies inherited in the late 1970s and countries have been working on embracing. As a consequence, you see a different picture now of African economies. You see economies that are much more resilient to external shocks. Let's compare two periods — 1998 when you had the big crisis, where economies in Africa were still fragile and not very robust; and the crisis of 2008, where in spite of a global slowdown, you have enough resilience in the African economies to keep growing while the rest of the world was slowing down. So I think there is an important story to tell, that what is happening in Africa in the 2000s is a combination of good external conditions, with increasing commodity prices; but most importantly, the result of sound economic policies. Some people will say that Africa's economies are not as sophisticated as other economies, and that is why we don't get hit by the shocks. Could that be the reason why Africa is 'resilient'? You're right. It's not just Africa , by the way, but it's also the story of Brazil . One of the reasons why Brazil was less affected by the crisis through the banking sector channel is that there was less linkage between some of the instruments and products that were used in the financial markets that led to the crisis of 2008. So it's not just the story of Africa – it's the story of countries, which in 1998 did not have such a solid banking and financial sector. We have been creating an environment where countries increase the level of capitalisation of the banks; we have revisited the regulatory environment and we have been very prudent in how the financial sector has been growing. So we have a generation of countries that will use progressively more sophisticated financial instruments, particularly on the mortgage side. One of the big questions is how the yield curve has evolved in some countries. Some countries in Latin America and in Africa do not have a long-enough yield curve to allow them to trade in the kind of instruments available in Organisation for Economic Co-operation and Development countries that led to the crisis. So you are right in that it is the level of maturity of the financial sector that has had a positive effect at a time of crisis. ALSO READ: Mixed bag for East African economies in the new year There has been some criticism levelled — partly at the countries and partly at the World Bank — that governments concentrate on marketing themselves as good investment destinations, but the people themselves are left behind. I think it is a matter of sequencing. In the 1980s, the macroeconomic situation in a lot of countries was not good. You had a low level of reserves, high fiscal deficits, high inflation, a level of government involvement in the economy that was far too high. The priority at the time was to put the house back in order. African countries worked to redress these imbalances, because this is the basis of all resilient growth. By doing that, the countries were focused on where you had the fastest supply response to the economy. You then had sectors, which had the capacity to react very quickly. READ: Aid to EA does not fulfil its citizens' needs It happens that most of those sectors were in capital-intensive areas, such as the extractive industry, services and utilities. Take the case of telecoms, which a pronounced effects of secondary job creation. It is the same case with the extractive industries. The challenge now is to continue thinking about having the right re-distributive fiscal policies that allow you to tackle those income inequalities. So we had an episode of growth in Africa that was unfortunately not as inequality-reducing as it should have been. Now in my conversations with policymakers, this is something that is at the centre of the discussion. What can we do now to have policies that reduce inequality in Africa ? Let us focus on jobs, and sectors that are creating more jobs. If you look at both the budgets of countries and the attention paid, there was not a lot of investment in sectors that created jobs. I'm not just talking about the input side – I'm talking about creating the conditions around it, such as feeder roads that link small producers to the market. There is not enough investment in that area. There is also an equation between education and the labour market and all the agenda around skills. If you look at countries that were able, in the manufacturing sector, to create a lot of jobs, they were able to find a better balance between the education sector — formal and informal — and to link it to these needs. Third is the doing business environment, where you still have a lot of bureaucracy. There is a lot that has been done on this in Africa , but a lot more needs to be done. Lastly is the infrastructure gap. I would like to particularly emphasise energy. Energy is one of the biggest factors in production in our countries, and we have a huge deficit, particularly in the western part of the continent, in both generation and distribution. Infrastructure is very expensive. Who is going to finance it? The financing will be from different sources. If you look, in general, Africa has a relatively low level of savings and investment compared with Asia , although that is changing. We're now seeing countries where the level of public and private investment is reaching 30 per cent of GDP. But those investments need to be well appraised, investments that are helping the productive sector. I see the private sector being a large part of the solution in financing the infrastructure gap, which will in turn see a rise in productivity. The third is institutional investors. All countries have been intermediating the resources mobilised by institutional investors in long-term investment. So there is a match between the duration and maturity of savings and a return on investments. What has been happening in recent times is that people have been financing investments with short-term resources, which makes the cost much higher for investment in African infrastructure. Could PPPs lead to an access problem? I don't think so. My own country Senegal has recently developed a PPP on a toll road. It was one of the first countries in Africa to do so. It has reduced transit times by two-thirds between a suburb of Dakar and the city centre, including for the poor. Who pays and how? When it happened in Dakar , the question you are asking was asked — is it benefiting only the people who can afford it? It happened that the secondary roads, have also seen transit times reduce. The government still has the duty to maintain these roads, and money can be freed up for other purposes. Obviously, traffic on a non-toll road will be slightly greater, but everything being equal, people severally will be able to travel much faster. There has been lots of investment in infrastructure and other things. Are we trying to do too much in East Africa too fast? That is a legitimate question. When the needs are so great, there is the temptation to try and address everything at the same time. There is a need for prioritisation, but also to improve the implementation capacity. READ: EAC sets its calendar for 2014 projects, policies In a lot of countries in Africa , even as you speak of the need to increase investment, you can see that the execution of the development or capital budget is not following. There are some issues linked to implementation. The World Bank is putting a lot of emphasis on implementation, on countries being able to implement and monitor their projects and also to find solutions. For instance, in New York recently, at the margins of the UN General Assembly , the World Bank President got a group of heads of state to discuss what their priorities are on some of the projects, and it was very interesting to see the dynamics between the heads of state on their own country experience and what they were learning from each other some tips on how to accelerate it. So there is a need to plan and be better organised on implementation, and to be better able to set priorities. More and more African leaders are telling me that that's one of their concerns. They want things to move fast, they try to allocate resources in their budgets, but sometimes the implementation doesn't follow. Looking forward, is there the possibility of an African bust? I do not have a crystal ball. What I can say is that it is important to take reforms in the good times. As the external conditions become more difficult, the harder it is to have reforms. I think the experience that the richer countries are facing today is a good example of that. I am encouraging countries to take the big reforms and the difficult decisions.
Most Popular Stories
- Crimean Referendum Violates International Law: Obama
- Florida Insurers Reach Out to Hispanics
- Where Are the World's Most Expensive Cities?
- BP Tripled CEO's Pay Despite Deepwater Horizon
- House OKs $1 Billion for Ukraine
- EU Breaks Off Talks With Russia
- Putin Gets Thumbs-up From Assad
- 2 Million Long-term Jobless Have No Benefits
- Nakamoto 'No Longer Involved' in Bitcoin
- Cuba Accepts Invite for Talks With EU