10 Concluding Remarks

Laura Wallace
Published Date:
January 1999
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Evangelos Calamitsis

This has been a most useful seminar, the fourth in a series initiated in 1994, and I would like to thank all those who contributed to its success. In particular, I would like to express our appreciation to the Ministry of Finance of Japan for sponsoring this seminar, and for its continued encouragement and support in such events. I would also like to express our gratitude to all of you for participating over the past day and a half in a frank and fruitful exchange of views on how we can best help Africa in meeting the challenges of economic globalization and integrated financial markets.

We have had this discussion at a time when Africa’s economic performance and outlook have been improving. After some two decades of lost opportunities, real GDP is now growing on average at 4–5 percent, and per capita incomes are on the rise. Most important, although favorable external circumstances and weather conditions have helped in some cases, this progress has been due primarily to good economic policies—getting prices right, reducing internal and external imbalances, liberalizing exchange and trade systems, and proceeding with fundamental structural reforms.

Yet, Africa’s growth still lags behind that of many developing countries, and questions have been raised about whether recent economic gains are sustainable. This is particularly troubling, since Africa needs even faster growth to make up for the ground lost and to make a real dent in the pervasive poverty. While several factors are holding back a better growth performance, two stand out. First, the private sector response is still very cautious, as evidenced by the inadequate rates of private saving and investment, including foreign direct investment. Second, Africa has been relatively slow in integrating itself into the global marketplace. Thus, Africa has been missing out on the benefits of globalization that accrue to countries that open themselves to world markets, as well as risking the marginalization that faces those countries that fail to do so.

A basic question before us, therefore, was how to sustain and even accelerate Africa’s growth in a globalized world. There is little doubt that the answer lies in creating an environment that promotes better government and fosters private entrepreneurship. In this regard, a number of participants remarked that many African countries have already been doing a lot to promote this process through adjustment and reform measures. But as Kwesi Botchwey put it so well, the issue is how to establish reform priorities in the midst of limited capacities. Listening to the discussions and the panel on the reform priorities for Africa, I believe that several building blocks were highlighted—which are increasingly being referred to as the “second generation of reforms.” Apart from consolidating macroeconomic stability, which is essential, these include:

  • establishing a clear and equitable regulatory framework;
  • strengthening the financial sector and improving financial intermediation;
  • further liberalizing exchange and trade systems;
  • enhancing capacity to formulate and implement national reform programs; and
  • improving public resource management and delivery systems in support of basic social services.

An underlying theme, of course, was how to draw on the well-known success stories of Asia, as well as on the lessons of the recent crisis, to help Africa improve its growth and efficiency, and thus be competitive on world markets. Naturally, the precise list of priorities differed among participants, but with capacity building high on the list of virtually all. Allow me to comment briefly on the main issues.

Improving the Business Environment

All participants agreed that a business-friendly and predictable regulatory environment is needed to attract both domestic and foreign investment—especially much needed foreign direct investment. The regulatory framework should safeguard property and related rights through well-defined legislation; it should be transparent and easily enforceable, as well as free of any taint of arbitrariness or favoritism.

But the mere existence of a good legal framework is not enough. As Florian Alburo and others noted, the rules must be applied equally, impartially, and without exception. This underscores the need for an independent and efficient judiciary. In other words, regulatory reform must be supported by institutional reform.

Strengthening the Financial Sector

As to the financial sector, the message was clear. A sound financial sector is essential for fostering private saving and investment, and attracting private capital in a globalized world. This message—along with the need for full transparency and accountability—has been driven home most recently by events in Asia.

Despite some recent progress, however, Africa needs to accelerate reform in this area. What needs to be done was set out in Piero Ugolini’s presentation and Leonard Tsumba’s paper. The critical elements include an independent and accountable central bank with autonomy in the conduct of monetary policy to maintain price stability; a sound banking structure; an appropriate banking supervision framework, based on best international standards; and a well-functioning payments system.

A particularly important challenge for Africa is to foster competition among banks and to deepen financial intermediation with a view to channeling more effectively financial resources to the private sector. To this end, fiscal discipline is critical to reducing the crowding-out effect of government borrowing from the banking system.

In this process of strengthening the financial sector, the building of a class of qualified national financial managers, regulators, and supervisors—not to mention ensuring their independence from political interference—is indispensable. This will take time, but the task should not be delayed. It should be supported by well coordinated technical assistance and training from the Fund, the World Bank, and other institutions.

Further Liberalizing Trade Regimes

As for trade reform, there was broad agreement that Africa needs to step up the liberalization of its trade regime if it is to reverse a declining share of world trade and lay the foundation for higher growth of output and exports. Certainly, the experience of Asia—and more recently Latin America—shows clearly that an outward-oriented trade strategy delivers notable results in terms of efficiency, competitiveness, and superior growth performance. Moreover, trade liberalization and related improvements in the transparency of the trade regime are essential to enhancing the investment climate. Although much progress has been made in recent years, as Robert Sharer and others noted, Africa was starting from a highly restrictive position, and hence today most African trade regimes remain significantly more restrictive than those of other developing regions. Therefore, as participants agreed, the issue is not whether trade regimes should be liberalized, but rather how fast and how deeply.

Some African participants worried about the ability of their countries to compete effectively in international markets. In this connection, as elsewhere, capacity building was deemed essential, as highlighted by Tomás Salomão and Ibrahima Makanguilé. A number of speakers noted that social safety nets and fiscal concerns about possible revenue losses from trade taxes need to be factored into the design and timing of trade reform programs. However, it was recognized that the time frame for reducing tariff and non-tariff barriers needs to be credibly ambitious to have the desired impact. Many speakers emphasized the importance of regional arrangements in the process of trade liberalization. Such arrangements also play a useful role in harmonizing improvements in the regulatory and fiscal areas.

Several participants considered that other factors tended to prevent trade liberalization from boosting capital inflows. It was noted that time lags between the implementation of the right policy framework and the response of foreign direct investment seem to be unduly long in Africa. This suggested that, although Africa is now on the mend, it is still paying the price of its poor image.

Fostering Good Governance and Capacity Building

So the message coming through in all these areas—regulatory, financial, and trade reform—is that policies have to be consistent, credible, predictable, and transparent. In the language of today, what is needed is good governance. That, in turn, underscores the need for modern administrations with competent, motivated civil servants who will be able to deal with strong vested interests.

What can governments do to ensure that there is the needed human capital and institutional structures to carry out the required reforms? We all agreed on the critical importance of civil service reform, but the record to date in this area has not been impressive. Many of you spoke of the problems you encountered in your countries when you attempted to downsize the civil service and reduce the wage bill. Perhaps one solution lies in removing a number of government functions from the core civil service. Certainly, more thought needs to be given to the size and functions of the civil service in the context of the new and more limited role of government.

Of course, technical assistance should have been playing a key part in building up Africa’s capacity. But many of you noted that, despite the very large sums spent, technical assistance has not produced the desired results. It is still too supply-side driven and uncoordinated; and foreign experts often continue to do the job of nationals, leaving few trained local staff in their wake. How long do we have to keep going over the same ground? In my mind, one hopeful development is the capacity-building initiative recently developed by Africans themselves, which focuses on the definition of needs at the national level and the mobilization of external assistance to support these needs in a coherent and coordinated manner.

Improving Public Resource Management

Are there any steps governments can take to accelerate the formation of human and physical capital, using the limited resources that they have at their disposal? And what is their record on the use of these resources to date? A recent IMF study of 22 countries in Africa shows that there has been some progress since 1985 in allocating more resources for education, health, and basic infrastructure in relation to GDP—and these higher outlays have been accompanied by improvements in some social indicators. The share of social spending in the total also rose, suggesting that such spending has become a higher priority. Spending on basic infrastructure, notably on transport and communications, has also increased. But greater attention needs to be paid to the composition and efficiency of public expenditure, especially with a view to ensuring that the poor are those who benefit the most.

Concluding Thoughts

In closing, I wish to make two points.

First, I think we all agree that, even though Africa’s development partners have a vital role to play in supporting reform programs, efforts to develop effective institutions and regulations—and to remove any remaining official tolerance for corruption—must be home-grown. Such efforts cannot and should not be imposed from outside. This is consistent with one of the central findings of the IMF’s recent external ESAF evaluation.

Second, where there is successful reform, the countries and donors alike need to do a better job of conveying this message to foreign investors. In other words, we must help bridge the “image gap” between the old and the emerging Africa.

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