Policymakers Voice Hopes, Share Insights On Africa’s Growth
Challenge
What policies, which priorities, and what financial commitments will help African
countries accelerate economic growth, and share the benefits of that growth with the
broadest swathe of the population?
Around these questions, Gobind Nankani invited thirty-four policymakers and
researchers—within the Bank and outside—to gather in Dakar to spend a day in active
dialogue. The January 28 workshop, entitled “Facing the Challenges of African
Growth,” amounted to what one participant termed “a great cross-fertilizing experience
between policymakers, researchers and others.”
Throughout the program, which was facilitated by Hilary Bowker of Bowker Media,
presentations were kept brief to provide time for debate and discussion. Gobind Nankani,
while emphasizing the need for listening in his role as Vice President for the Africa
Region, provided a clear focus: Africa must generate higher, sustained economic growth.
“Growth is the biggest challenge for African countries,” he said as he opened the
workshop, noting the undeniable “link between sustained growth and sustained poverty
reduction.”
African countries have put into place important reforms over the last 15 years, but the
resulting economic growth has been broadly disappointing. Though about fifteen
countries have registered steady growth since the late 1990s, the levels fall short of the
7% annual growth needed to meet the Millennium Development Goal of halving the
number of Africans living in extreme poverty. Moreover, many countries aren’t yet on a
path to economic growth.
The growth workshop focused on four broad areas: lessons from the 1990s; increasing
competitiveness, productivity and diversification; managing shocks and reversing
financial and human capital flight. Following are highlights from each of those sessions:
Lessons from the 1990s
Bank officials, looking back on the past decade, noted some shortcomings in the
approaches often taken in Africa: structural adjustment reforms focused more on
correcting distortions than expanding productive capacity; the poverty reduction
strategies that followed emphasized critical social programs and human development, but
too often short-changed the growth component needed for those programs to become
sustainable.
Daniel Leipziger, vice president for Poverty Reduction and Economic Management,
provided an overview of the lessons to be drawn from both growth and growth failures in
the last decade. Looking at countries—particularly in Latin America and Africa—where
private sector growth fell far short of expectations, he concluded that “we
underemphasized the expansion of productive capacity.” Learning from the diverse
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growth experiences in India, China, Vietnam, Costa Rica and Chile, he also stressed the
need to jettison rigid formulae and instead build country- specific strategies that remove
binding constraints to economic expansion and exploit particular competitive advantages.
To accelerate growth in the current decade, Leipziger urged strategists to keep three
points in mind:
1. Globalization provides countries a significant opportunity, but it effectively
“raises the bar,” meaning that strategies that produced results for countries fifteen
years ago might not do so today;
2. Countries need a long-term vision—based on possible competitive advantages.
That vision should bring together elements of education, infrastructure and
investment climate. Governments play a critical role in building this vision.
3. Each country must attack binding constraints in infrastructure, regulation or
connectivity that block growth today or threaten to slow growth in the future.
As participants reflected on recent reforms, they often returned to the question of the role
of the state. Most agreed that efforts to pare back the state’s involvement in owning and
managing productive assets often had the undesirable consequence of hobbling
governments’ ability to define and project a development strategy. Louis Kasekende,
Deputy Governor of the bank of Uganda, remarked, “A number of countries went
through reforms fast and all but eliminated government, and some all but eliminated
vision. We thought we should get government out of things, but didn’t consider market
failures and credit gaps.”
Leonce Ndikumana, of the University of Massachusetts, urged policymakers to move
beyond a narrow state-versus-market framework. “We inherited a counter-productive
dichotomy: first, a fascination with government-led development, then the sense that
markets do all things. Instead we need government, the civil society and the private sector
working as partners.”
Noel Kabore, Secretary General of the Finance Ministry in Burkina Faso, underscored
the critical importance of a well-functioning state, “capable of coordinating policies, and
creating a space for wealth creation by the private sector.” He noted that by creating a
clear investment code, a sound business environment, and a greater openness to trade,
Tunisia and Morocco have succeeded in attracting higher levels of foreign investment.
Stephen O’Connell, professor of Swarthmore College and Augustin Fosu, chief
economist with UNECA, emphasized the need to avoid anti-growth syndromes, the most
serious being state failure. Providing a coherent means for redressing grievances and
creating economic opportunity for youth are crucial to avoiding that outcome, he added.
O’Connell also stressed that the reforms accomplished in the pas t 15 years are
substantial, and that if countries can avoid other failures, including harmful neighborhood
effects, higher returns on these reforms will materialize.
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Moses Banda, Special Assistant for Economic Development Affairs at State House in
Zambia, strongly reinforced the point. “The last fifteen years of reforms are just starting
bear fruit. We should forge ahead.”
Sushil K.C. Khushiram, Minister of Industry, Financial Services and Corporate Affairs
of Mauritius, outlined some of the ways his country avoided the social and economic
failure that some analysts predicted when it gained its independence in 1968. He argued
that export preferences, an environment to encourage and support entrepreneurs, along
with improved governance, underpinned a successful export-led expansion.
Mauritius: Sidestepping the Nightmare Scenario with Pro-Growth, Pro-Poor Vision
Sushil K.C. Khushiram noted with satisfaction the baleful predictions that accompanied
his country’s independence in 1968: “Mauritius was described as a nightmare Malthusian
case, where population growth was considerably higher than economic growth.” The
trend, according to the most pessimistic prognoses, was expected to play out in
worsening poverty and eventual starvation.
Development of natural resources and tourism, and later, services and manufactures,
turned the doomsday scenario on its head. “You have growth and create jobs—that in a
nutshell is how the Mauritian authorities ensured that there was an improvement in the
standard of living and a better distribution of income,” he said.
Specifically, “the state sees an opportunity in the export sectors and gives the incentives
and opportunities to the domestic entrepreneurs—or brings in foreign entrepreneurs to
exploit these opportunities—and jobs are created.”
The country’s growth agenda included investment in the banking system and in
infrastructure, particularly telecommunications that were vital to business expansion. But
the country also pushed education and social protection. “It was pro-growth and propoor,” said Mr. Khushiram. Income tax rates were low, and a Value-Added –Tax on
consumption supported the provision of health and education services to the population.
Governance was underpinned by democratic norms, including a free and functional press.
“We never had double-digit inflation, and we controlled inflation,” he said, adding that if
the government had failed in these respects, the economy would have wavered, and the
political leadership would have faced strong opposition.
Participants at the Dakar workshop strongly endorsed the renewed emphasis on
growth, underscoring the importance of making sure that the benefits of economic
expansion be broadly shared through improved delivery of social services, and
through strategies aimed at expanding the economic opportunities for rural
communities, for women and youth. Other lessons from the opening discussion:
 Governments play a critical role in both setting a vision and making mid-course
corrections.
 Countries present widely divergent opportunities, and obstacles. Development
strategies must be country-specific as well as country-driven.
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 Once growth kicks in, governments can strengthen their legitimacy and credibility
by delivering tangible benefits to the population in the form of expanded
education, health services, housing or jobs.
 Reforms accomplished by Africa are significant and, if coupled with tailored
strategies for shared growth, will begin to show measurable results.
 The country emphasis shouldn’t obscure the need for regional integration among
African economies, which remain small and fragmented.
Competitiveness, Productivity, Diversity
Private-sector expansion, critical to any growth strategy, faces real challenges in Africa,
where regulatory hurdles and infrastructure weaknesses impose high costs on businesses.
Vijaya Ramachandran, Bank consultant and Georgetown University professor, argued
that attitudes in Africa contribute to the problem—particularly the widespread
expectation that governments, not private firms, create economic opportunity and jobs.
She cited survey data generated by the Regional Program on Enterprise Development in
the Africa Private Sector Group of the World Bank. This shows that respondents in only
six countries feel that a relatively free market is preferable to a government-run economy.
She noted that even in Ghana, an active reformer, 66% of those surveyed said they
believed the state should retain ownership of factories and businesses.
One result of these widely held views: the private sector hasn’t often succeeded in
pushing for an improved policy environment or strengthened infrastructure. Indirect
costs—particularly in transport and power—remain exorbitantly high for African
companies. Indigenous firms, she said, “are small, unproductive and squeezed by high
costs,” and as a result, “it is much harder to grow from small to medium than in other
parts of the world.” As a percentage of sales, losses from power outages, crime, shipment
losses and delivery delays are twice as high in Kenya as in Bangladesh. More productive
firms tend to be large, owned by foreigners or local ethnic minorities, with the ability to
supply their own infrastructure and to create their own regulatory space through
privileged access to policymakers. Her research shows that, relative to large firms, small
and medium-sized companies also lack access to credit.
She called for policies that create a more hospitable and transparent business environment
for all firms, not only those with assured access to political leaders.
What would make firms more productive? Prof. Ramachandran listed four key elements:
expanded training, greater access to tertiary education, less risk and uncertainty, and
policies to encourage regional exports.
Olusanya Ajakaiye, Director of Research at the AERC, underscored the importance of
training in the private sector. “We have to build the capacity of other actors (outside the
state) in countries.” He also warned policymakers to avoid the “announcement
syndrome,” in which policies and new directions are officially unveiled, without
accompanying efforts to make sure that they take root in the economy.
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Kerfalla Yansane, former governor of the Bank of Guinea, argued that in most African
countries “the alliance for reform is missing.” He and others called for private firms to
become more engaged in policy debates and in pushing for an improved business climate.
Guillermo Perry, chief Bank economist for LAC, urged African policymakers to draw
on lessons from that region, which has generated a mixed growth record overall, within
which important successes have emerged. He stressed that country-specific strategies—
often built on agricultural and other natural resource wealth—are critical. In Chile, which
has posted high and stable growth since 1984, the government supported research efforts
in forestry, fishery and fruit production, which formed the basis for the country’s export
success. But he also noted that Chile had established both the strongest macroeconomic
management in the region as well as the best quality of institutions. For its part, Costa
Rica gained by diversifying into high-technology production and eco-tourism. Brazil has
scored recent success in pushing agricultural exports.
Chile: Strong Policies and Institutions, Public-Private Cooperation Boost Growth
Both Latin America and Africa are characterized by a high propensity to crisis, a high
level of economic inequality, and a disappointing level of growth.
But important lessons might also be drawn from successes in Latin America—
particularly Chile, who’s high and stable growth may provide clues to unleashing
Africa’s growth potential.
Said Guillermo Perry: “The key was in 1990 when democracy came back, a coalition of
left and center government leaders decided that pro-market policies should remain in
force and should be complimented with efficient social policies.”
Chile’s strong and stable growth gained from a solid foundation of policies and
institutions: Credible inflation targeting, low levels of debt, rule-based fiscal policies;
rule of law, independent judiciary, efficient public sector; and major push to expand
educational opportunities.
In addition Chile had a high level of government-private sector cooperation. Mr. Perry
stressed the importance of dialogue between government and an “enlightened private
sector.” He praised the collaboration in addressing “bottlenecks and binding constraints”
as well as training and research needs. “These aspects are all behind Chile’s
diversification: they didn’t have the salmon, they didn’t have the fresh fruits; they didn’t
have the forestry. These things were built up by realizing that there are potentialities. But
you then have to invest.”
Chile also moved to impose taxes on capital inflows when excessive liquidity threatened
to destabilize the economy. These “speed bumps,” together with the presence of an
independent central bank, and broad macroeconomic stability, insulated Chile from
aftershocks of crises that affected neighboring countries more traumatically.
The focus on tangible constraints and costs—such as stubbornly high indirect outlays for
doing business—and specific export successes was a welcome departure from overly
broad and prescriptive discussions of development strategy, said Alan Hirsch, Economic
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Advisor to the President in South Africa. “Often we limit the value of what we’re doing
by talking about negatives to avoid, and defining the positives so broadly as to be
unhelpful guidelines to policymakers.”
Paulo Gomes, executive director at the World Bank, argued that in the past the bulk of
private sector development projects “were about privatization, not creating comparative
and competitive advantage.” Today, private sector development projects should focus on
these aspects.
S.N. Kimaro, PA on Economic Affairs for the President in Tanzania, stressed the need
for specific analysis and action plans on obstacles to growth such as high transaction
costs, as well as competitive opportunities. “To move forward, we should benchmark
ourselves to strong performers like China.”
Participants agreed that it will be critical to identify specific entry points for improving
productivity and competitiveness. Other elements that emerged from the discussion on
productivity:
 Infrastructure limitations hold back private sector expansion in Africa and
infrastructure improvements can deliver measurable results. Public-private
partnerships in financing infrastructure changes represent a promising approach;
the African leadership, through Nepad, and Africa’s international partners must
become more involved in exploring such arrangements.
 Asia’s economic expansion is an opportunity for Africa: China and India may be
crucial sources of investment in the Continent. .
 A capable state is necessary—not as an employer for the nation—but to deliver
needed services for the private sector and the citizenry.
 Private sector development shouldn’t be limited to privatization policy but must
focus on building competitive and comparative advantage.
Managing the Impact of Temporary Shocks
Shocks have resulted in lasting setbacks to growth in Africa. Whether a shock stems from
economic, political or climatic causes, the impact is often traumatic: revenues fall, debt
levels increase, available investment capital shrinks, and unemployment worsens. A
shock-affected country’s GDP can contract by as much as 4.5%. And according to Benno
Ndulu, Research Manager in the World Bank’s Development Economics Department,
developing countries are likely to experience some sort of shock every year and a half.
William Lyakura, Executive Director of the AERC, made the point that because of the
frequency and severity of shocks in Africa, it is important to explore strategies for
insuring countries against the most damaging ripple effects. Louis Kasakende, speaking
as a central banker, said that at present, “we lack the capacity and the instruments” to deal
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with the aftershocks. He added that another challenge is discerning whether a particular
shock to the economy is temporary or permanent.
Sound and steady policies at the country level are helpful, but as
Alan Hirsch pointed out from the South African experience, lurches in currency values
can occur amidst a steady macroeconomic environment at home, requiring painful
adjustments at the government, firm and household levels. Neighbor country shocks are
equally hard to control. Noel Kabore, pointed to the profound effect of Cote d’Ivoire’s
crisis on Burkina Faso, its landlocked northern neighbor, 30% of whose external trade
passed through Abidjan.
While no country can insure themselves against all shocks to the economy, there are
strategies for containing the impact of some of the more predictable jolts. To limit the
impact of currency shocks, for example, international lenders might consider extending
credits in local currency rather than in dollars or SDRs—a possibility that will be
explored in greater detail at the Bank Spring Meetings.
Diversification is another practical strategy to manage the risks. “We know that
vulnerability to shocks does flow from dependence on one or two commodities,” pointed
out Africa Region chief economist John Page. Greater export diversification—assisted
by a significant lowering of OECD escalating tariffs—is perhaps the most critical longterm solution. He added that moves to solidify regional integration can help insulate
countries from the effects of a political or environmental crisis in one neighboring
country. Agreements to manage water resources—such as arrangements being negotiated
for the Nile River—can protect vulnerable populations from the effects of drought.
Moses Banda pointed out that some shocks are a matter of choice. In Zambia, he said,
macroeconomic discipline and reform usually come just after elections, with a relaxation
cycling in at the close of presidential terms and the run-up to new elections.
Some conclusions from the discussion:
 Shocks are important, varied and complex. But there are more practical strategies
for dealing with them than is sometimes assumed.
 Positive shocks—arising from a jump in the prices of a major export commodity
such as oil—must be managed so that countries can better protect their
populations from the negative shocks that will inevitably follow.
 Countries with strong financial institutions and steady macroeconomic policies
are less affected by shocks than their neighbors, as Chile’s experience
demonstrates.
 Diversification and progress in dismantling tariff escalation are central to any
shock-insurance strategy.
 Local currency lending—particularly for infrastructure finance—should be
actively explored.
Human, Financial Migration
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Capital and human migration from African countries has emerged as a significant
phenomenon. Statistics point to measurable setbacks for Africans: 60% of Ghana’s
trained doctors left the country in the 1980s. The exit of health professionals throughout
the Continent poses a real challenge to improving the delivery of health services. More
broadly, investment climate research shows that African firms report skills shortages as
a major reason for not expanding.
But the movement of health professionals, and other skilled Africans, must also be seen
as a source of remittances and a strategy for poverty reduction, pointed out John Page,
who went on to say that African leaders and their international partners must work on
strategies for managing migration.
Human Migration Ignites Impassioned Debate
Moving money from one country to another affects some of the world’s financial
systems, but it doesn’t spark the same passion as the migration of mothers, fathers, sons
and daughters.
Jean- Paul Azum, professor at the University of Toulouse, sharply criticized the
apparent bias against decisions to migrate as reflected in the negative terminology that
often describes it. “We have heavily loaded sentences as if it’s a sin and a big loss to the
country if they leave,” he protested, emphasizing that migration is itself a rational
economic strategy at the level of the family. “What happens if you prevent these people
from going out? The family has made an investment in education and they want a return
in the form of remittances.”
Kerfalla Yansane, former Governor of the Bank of Guinea, argued that the calculation
isn’t only financial. “In a place with no free expression, it’s dangerous to be highly
educated,” he said. The response is for the intellectuals to move.
Olusanya Ajakaiye remarked that a menacing outgrowth of global labor markets is the
rise in human trafficking, “which has become a big business.”
In an ironic note, Vajaya Ramachandran, pointed out that international financial
institutions, while discussing problems of brain-drain, are themselves “absorbing a lot of
the best people.”
Developing countries and their international partners, participants agreed, should seek
ways of reducing the transaction costs for remittances, which are more than double the
size of official aid flows. In addition, there was a strong consensus among participants
that countries can manage human migration to maximize potential benefits for the local
economies. Programs to assist the temporary return of Diaspora populations, or to help
Diaspora communities to function as economic networks show considerable promise.
With respect to capital held abroad, African countries might grant tax amnesties, or some
tax breaks, for repatriated assets.
Alan Hirsch, presidential adviser in South Africa, noted that it is important to
distinguish between illegally earned funds moved offshore, and legally earned funds that
have been illegally moved outside the country. Limited amnesty for repatriated assets in
South Africa, resulted in an inflow of the equivalent of about $11 billion, he said. But he
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also emphasized the need to create a policy and institutional environment that investors
can trust. “Without good domestic policies, forget it,” he said.
Indeed, conditions that would help retain, or recover, capital and human resources are
fully consistent with those that would support higher growth. High levels of corruption go
along with high levels of capital flight. Effective strategies of improve governance and
increase transparency not only benefit the business environment but create incentives for
capital to stay at home. A better developed financial sector, clear and enforceable
property rights, and an improved regulatory climate would mitigate brain-drain and
capital flight problems and help accelerate economic growth. Improved educational
opportunities in Africa would contribute to competitiveness and dissuade families from
relocating abroad. Other conclusions from the discussion:
 Temporary migration promises higher returns to developing countries, and is
likely to continue in light of demographics in Europe, which has a shortage of
semi-skilled labor.
 Looking at the funds OECD countries spend in sending consultants from their
countries to provide technical assistance in Africa, there might be an opportunity
to redirect financial support to top up salaries of certain African professionals,
particularly in the health sector.
 Tertiary education is fundamental to building an entrepreneurial base and
retaining skilled young people.
Take- away messages
Asked to identify memorable thoughts or messages from the workshop, participants
offered up an array of observations. Following are some highlights:
Steve O’Connell: “We need visions for shared growth that are country-specific and
opportunity-specific.”
Lemma Senbert, University of Maryland: “There is a need for a deep, well-functioning
financial system to retain capital and reverse capital flight, and to make remittances more
efficient.”
John Page: “We validated that the growth agenda needs to be brought back to the center
of the dialogue in Africa. To do that we need to think in new ways about energizing the
private sector.”
Kerfalla Yansane: “Capital flight has to do with weak institutions and bad policies.”
Michel Wormser: “The four key ideas for me are one, the importance of focusing on the
avoidance of shocks, the need to identify competitive sectors and diversify the economy;
the difficulty of functioning in a bad business environment; we must pay more attention
to the financial system.”
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Olusanya Ajakaiye: “In thee past we’d see the World Bank say, ‘I’ll tell you what to do
and then we fly out.’ This approach is good. Maybe we should bring the private sector
and the trade unions.”
Sushil K.C. Khushiram: “I’m surprised by the degree of consensus. It’s comforting.”
Prof. William Lyakurwa, AERC: “ “This is a reaffirmation of the conviction in the role
of research and policymaking.”
Vijaya Ramachandran: “I am struck by the persistence of high costs, market failures
and market distortion.”
Gobind Nankani: “For me the biggest takeaway was how rich the process was, how we
really had a dialogue between policymakers and researchers. And there are three specific
things to remember:
We should look at successes everywhere in trying to come up with country-specific
growth strategies, recognizing that regional issues are part of these.
We need to look much more seriously at local currency lending.
There is a need for us in a very conscious way to look at issues of human capital and
global labor markets, and understand that decisions are made by individuals and families
on a rational basis.”
Participants endorsed the idea of continuing yearly dialogues under the auspices of the
World Bank, the AfDB, the UNECA and the AERC. Future dialogues would focus on
topics that policymakers considered high-priority issues, such as trade, infrastructure
financing, Africa’s private sector, and social service delivery.
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