Africa needs to accelerate its current period of strong growth so that it can start making real inroads into reducing poverty, said John Lipsky, on his first visit to Africa since taking over as the IMF’s First Deputy Managing Director in September. The IMF projects real GDP growth in sub-Saharan Africa to slow to 4.8 percent in 2006 from 5.6 percent in 2005, but to pick up to almost 6.0 percent the following year—its strongest performance in decades.
“I believe this is a moment of great opportunity for Africa, where many countries have taken advantage of solid global economic growth and of debt relief to successfully implement reforms,” Lipsky said at the end of his visit to Mali. “These reforms, in turn, are improving economic performance. The goal is to create a virtuous circle of reform and faster growth, paving the way for sustained poverty reduction.”
In an address on November 10 to ministers of the West African Economic and Monetary Union, meeting in Mali’s capital, Bamako, Lipsky said average inflation in the region was the lowest in a quarter century, and growth in the past two years has been the highest in a decade. “I do not mean to downplay the enormous problems still to be dealt with, but this is a significant achievement. It speaks volumes about the efforts governments, the private sector, and civil society organizations are making in so many African countries,” Lipsky said. “The real challenge now is to accelerate and sustain this growth. That is the only way we can make substantial progress toward reducing poverty.”
In a three-day visit, he had talks with President Amadou Toumani Toure, Prime Minister Ousmane Issoufi Mai’ga, President of the National Assembly Ibrahim Boubacar Kéïta, and Minister of Economy and Finance Abou-Bakar Traoré. During a trip to a cotton plant, Lipsky voiced support for fairer access to global markets for Africa’s farmers, saying liberalization was important for poverty reduction.
Bolstering the financial sector
Lipsky started his trip in South Africa, where he emphasized the importance of financial sector development in supporting African growth. He took part in a seminar on the challenges of deepening financial sectors in Africa, cosponsored by the IMF and the United Kingdom’s Department for International Development.
The experience of the emerging market countries, he emphasized, underlined the fundamental importance of deepening and broadening financial sectors as a precondition for growth. “A financial sector is not a luxury but a necessity,” he declared. “Yet in many African countries, financial sectors are not functioning well. Few businesses—and even fewer households—have access to formal bank financing. Small and medium-size enterprises are the source of employment and growth in many emerging market countries. But in most African countries they are largely excluded from the formal financial sector.”
He said that while some obstacles to developing the financial sector had been removed, other constraints remained. “For instance, too often there are still distortions in monetary and fiscal policy settings that discourage bank lending. This is particularly true where domestic borrowing by the government is high, allowing banks to earn sufficient returns from relatively less risky credit,” said Lipsky, who rejoined the IMF after several jobs on Wall Street.
Structural obstacles included the absence of adequate property rights, weaknesses in the business environment, and small and segmented markets that limited competition.
South Africa’s performance
Lipsky said that South Africa’s economy was expected to grow by some 4.2 percent this year and at a similar rate in 2007. While growth had been impressive by South Africa’s historical standards, it has not been enough to make significant inroads into unemployment, poverty, and underdevelopment. “The acute income and wealth disparities inherited from the apartheid era are still painfully evident, poverty is still widespread, and, as in many other African countries, the HIV/AIDS epidemic is extracting a heavy social and economic toll,” he stated.
The success of South Africa has important implications for the rest of Africa. South Africa is a major driving force in the region. It is by far the largest market and an increasingly important source of investment. Lipsky, who began his visit with a trip to Soweto, met with Finance Minister Trevor Manuel and South African Reserve Bank Governor Tito Mboweni, and held in-depth discussions with representatives of the private sector and civil society.