ECONOMIC OUTLOOK FOR AFRICA – PAST, PRESENT AND FUTURE

DELIVERED AT

THE DOING BUSINESS IN AFRICA CONFERENCE 2004, CAPE TOWN, SOUTH AFRICA

ON 25 SEPTEMBER 2004

Prof Wiseman L Nkuhlu Chairman: NEPAD Steering Committee

ECONOMIC OUTLOOK FOR AFRICA – PAST, PRESENT AND FUTURE DELIVERED AT THE DOING BUSINESS IN AFRICA CONFERENCE 2004, CAPE TOWN, SOUTH AFRICA ON 25 SEPTEMBER 2004

Post-colonial Africa has had a turbulent socio-economic development history. The promising take-off witnessed during the mid 1960s was short lived. It was disrupted by the 1973 oil crisis. The impact was more severe in Africa than in other developing regions. Almost half of the countries in Africa experienced negative per capital growth rates between 1973 and 1980. This period also marked the beginning of the debt crisis. New long-term borrowings by African countries south of the Sahara increased from US $3 billion in 1976 to US $11,5 billion in 1980.

The situation deteriorated very rapidly during the 1980s leading some commentators to refer to the 1980s as the lost decade. As reported in African Development, a Comparative Perspective published by UNCTAD in 1998 “Africa …. failed to adjust to a more hostile external environment characterized by terms-of-trade deterioration, sharp increases in international interest rates and stagnation and decline in net transfers of external resources, resulting from a turn-around in the policy stance in the major industrialised countries”

Declining terms of trade became a constant feature of the 1980s; prices for most African commodity exports reached historic lows. Coffee and Cocoa prices were down by 40 percent from their levels 2

of the 1950s and tea and cotton by more than 50 percent and copper and sugar by about one third (UNCTAD, 1998). This happened at a time when prices of manufactured goods produced by developed countries were increasing.

The net result was a significant economic weakening of the majority of African countries.

Investment levels declined, current account

deficits ballooned and the total external debt for African countries south of the Sahara grew from US $61 billion in 1980 to US $221 billion in 1994.

The remedy prescribed by Bretton Woods Institutions was the Structural Adjustment Programme (SAP).

According to Joseph

Stiglitz, Globalisation and its Discontents, 2002, the three pillars of the SAP also known as the Washington Consensus were fiscal austerity,

privatization

and

market

liberalization.

African

Governments were advised and coerced to reduce Government expenditure, to remove Government interference in financial and capital markets to do away with all support to agriculture and to rely on the private sector for the provision of transport, fertilizers and other support to small farmers.

As Stiglitz explains, the prescription was based on a wrong diagnoses and incorrect assumptions. Africa needed growth oriented policies, not growth constraining policies that were imposed. Growth comes from low interest rates and increased investment in human development. The structural adjustment programme had a negative 3

impact on both. Big bang liberalization destroys jobs and emerging businesses and is not good for promoting sustainable development. Experience in Asia and recently in China shows that the opening up to outside competition must be gradual and carefully sequenced. Start by building your export capacity before you fully expose your domestic industries to external competitors.

Africa emerged from the 1980’s bruised and in search of a new development paradigm. Actually the search started as early as 1979. The Heads of State and Government of the Organisation of African Unity adopted the Monrovia Declaration of Commitment in July. The declaration made a call for urgent action to achieve the goals of self-reliance, self-sustaining development, economic growth and subregional and continental economic integration.

It also called for

increased economic co-operation and collaboration among African countries.

The Monrovia Declaration was followed by the Lagos Plan of Action in April 1980. This was a very detailed plan. It covered a wide range of issues including agriculture, industry, natural resources, human resource

development,

communications,

energy,

science

and

technology,

trade

and

finance,

transport, environment

development and women development.

Unfortunately the plan could not be implemented for a number of reasons. First, African Countries and the OAU lacked capacity to implement the programme, secondly, the majority of African countries 4

were either under military rule or dictatorship.

This undermined

accountability and focus on socio-economic development. Instead, resources were diverted to military expenditure and other prestigious projects. community,

Thirdly, there was no support from the international especially

the

multilateral

development

finance

institutions.

As the crisis deepened and gains made during the period up to 1973 were being reversed by the structural adjustment programme, Africa responded with a new plan, The African Alternative Framework to Structural Adjustment Programme for Socio-Economic Recovery and Transformation. As the title indicates, this was a critique of the SAP as well as an articulation of an alternative.

The report was

prepared by the United Nations Economic Commission for Africa at the request of the African Ministers of Finance. It was endorsed by the African Ministers in 1989.

The third major plan was the Treaty Establishing the African Economic Community, known as the Abuja Treaty. The Treaty gives an outline of a plan and time table for the establishment of the African Economic Community. It envisages a process with six stages over a period of about 40 years. The final stage would be a single African market and a Pan-African-Economic and Monitory Union. Of course, the African Union has subsequently revised the time table for achieving Africa’s economic integration.

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The point to note about these developments is that since the late 1970s, the African countries have been in search of a policy framework to guide a continent-wide fundamental socio-economic transformation that would enable them to overcome the pervasive structural weaknesses.

The common thread in all the plans is the desire to achieve selfreliance,

sub-regional

and

continental

economic

integration,

economic growth and sustainable development. The four are stated as goals and strategies interchangeably as if to stress that they are mutually supportive.

Unfortunately one cannot say whether the policy frameworks proposed by the African countries would have been more successful than those imposed by the Bretton Woods Institutions. The reason we are not able to judge is that the policy frameworks proposed by African countries were never implemented.

The African people were not given a chance to determine their own development path. They were coerced to implement those preferred by the donors and creditors. This happened because Africans were too weak and divided to stand their ground. As mentioned earlier on, the successful economies of Asia determined their own development paths.

Sequenced their reforms, including the phasing of their

participation in globalisation in a manner dictated by national interest.

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On the other hand, the African countries tended to be opportunistic in implementing reforms and also to allow the nature and sequencing to be dictated by donors.

It is against the background described above that we must examine the recent developments and also the prospects for the next ten to twenty years.

The collapse of the socialist world is by far the most dramatic restructuring of the world order of our time. Its impact reverberated across the globe. The realignments it unleashed are continuing and are changing not only political alliances, but also the economic competitiveness of countries and regions.

The impact on Africa has been far reaching. Ideological divisions have disappeared. Liberal democracy, market oriented economies and globalisation have become very strong forces. Even socialist countries like China and Cuba have made adjustments in order not to be overwhelmed by these forces. The winds of change have not left Africa untouched.

The African people and the international

community have become less tolerant of dictatorship and military regimes. As a consequence, the number of countries holding multiparty elections increased from 8 in 1989 to 42 during the last few years.

Civil society organisations have become very strong and

active.

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In addition, with the successful transition from apartheid to democracy, South Africa joined the company of respectable nations in 1994. Soon thereafter democracy was restored in Nigeria. These developments created new opportunities for Africa as well as challenges. At last, every square inch of the African continent was free from colonialism and foreign domination. As a consequence, Africa could mobilise her full potential including the big economies of South Africa and Nigeria.

The challenges relate to the emergence of the former socialist countries as both contenders for development assistance from the developed countries as well as competitors in the manufacture of labour intensive goods. Actually, the former socialist countries are attracting more FDI than Africa because they have the skills. The people are better educated and the infrastructure is much better.

The African leaders realized that they had to be creative in responding to the new world order.

Responses were initiated at

national, sub-regional and continental levels, with individual countries introducing reforms to improve their competitiveness and sub-regions accelerating political and economic integration.

At

the

continental

level,

the

major

development

was

the

transformation of the Organisation of African Unity into the African Union.

The drafting of the constitution for the African Union

generated considerable discussion among the African experts and political leaders.

The usual tendencies and divisions between 8

conservatives, progressives and idealists were quite evident. The conservatives wanted very little change and resisted the incorporation of new principles and values that have become dominant in the post cold-war era; viz. promotion and protection of democracy and human rights, commitment to good political and corporate governance, gender equality, transparency and people-centred development.

The progressively inclined wanted Africa to embrace the values and priorities of the 21st century and to comply with and be judged by international standards.

On the other hand, the idealists wanted Africa to become a political federation and a single economic space within a very short time; ignoring the deep divisions between Arab, French and English speaking countries that continue to influence relationships and also to undermine trust.

What about ethnic, language and religious

differences behind the wars?

On balance, Africa opted for a progressive and pragmatic stance. The principles and values that have come to characterize the new world were embraced and enshrined in the Constitutive Act establishing the African Union. Now what is under discussion is a realistic plan and time frames for strengthening the capacity of AU organs thereby making the AU an effective institution.

While the negotiations on the Constitutive Act of the African Union were in progress, some African leaders realized that there was an 9

urgent need to launch something new and radical to address poverty and increasing marginalization of Africa from the globalisation process. Awareness about the urgency was made more acute by the process of negotiating the Constitutive Act and by the realisation that with the liberation of South Africa and restoration of democracy in Nigeria, there were no more excuses for failure. The whole African continent was now free. The other trigger was the adoption of the Millennium Development Goals (MDGs) by the united Nations in the year 2000. African leaders realized that they had to do something to lift themselves out of abject poverty and dependency on the generosity of others.

They accepted that it was time for Africans to take ownership and responsibility of their own development. This led to the initiation of the New Partnership for Africa’s Development (NEPAD) by Presidents’ Obasanjo, Mbeki and Bouteflika.

Later on they were

joined by President Wade of Senegal and President Mobarak of Egypt.

NEPAD is a successor to the Lagos Plan of Action and The Treaty Establishing The African Economic Community also known as the ABUJA Treaty. But it is also very different from its predecessors in that it is based on the dominant principles and values of the post Cold War era viz. promotion and protection of democracy and human rights, commitment to good political, economic and corporate governance, Governments

empowerment and

key

of

women,

stakeholders,

partnerships business,

between

professional 10

organisations and civil society. Above all, it calls for a change in the donor/recipient

relationship

between

the

highly

industrialised

countries and multilateral development institutions on the one hand and African countries on the other. It calls for the relationship to be transformed into a genuine partnership based on mutual respect, responsibility and accountability.

Remember, NEPAD is not a

comprehensive plan for the continent; it is a vision and a policy framework for the 21st century. Its objective is to inspire and energise socio-economic development across the continent and to foster adoption of policies that are in line with international best practice.

Through NEPAD, the African countries commit themselves to create conducive

conditions

for

economic

growth

and

sustainable

development and to mobilise the African people to become the main agents of development.

The call to the rest of the world is for

complementary action to support the African people in implementing their own programme of self-reliance and development.

Therefore, you should not be surprised when I say the economic outlook for Africa is better than it has ever been since the early years of independence. Yes, Africa is poised for a take-off. Signals are all around for all those who have eyes to see.

The economic recovery which began in 1994 and lasted for three years gave reason for optimism. However, the most encouraging statistics are the growth figures for 2003. The African Development Report, 2004 shows that the continent achieved an average growth 11

rate of 3,7 percent in 2003 and this was higher than the growth in world output of 3,2 percent.

More importantly, the number of

countries achieving growth of above 5 percent increased from 13 in 1999 to 21 in 2001 and 18 in 2003. in addition, the macro-economic fundamentals are improving.

Median inflation rate was only 5,6

percent with 40 countries recording single-digit inflation rates and fiscal deficit for the continent declined to 3,0 percent.

The statistics confirm that more and more African countries are taking macro-economic management seriously and are making progress. Linked to this is progress being made through NEPAD to address the structural weaknesses that are common to most African countries.

The NEPAD programme has launched a continent wide agricultural revolution.

The revolution is underpinned by a comprehensive

programme to harness advances in science and technology for enhancing productivity in Agriculture. The world Bank has committed US $500 million to kick-start the project.

Secondly, progress is being made with the provision of key energy, ICT, transport, water and sanitation infrastructure. The focus is on projects that interconnect countries as well as provide basic services to local businesses and communities.

Yes, governance and

corruption do matter, but they are not the only reason for the low rate of investments in Africa.

The other reason is the cost of doing

business in Africa. It is just too high, because of lack of access to

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basic services and poor connectivity; hence the NEPAD focus on infrastructure.

Investments by the private sector in infrastructure are on the increase. Major private sector financial institutions are partnering the multilateral development finance institutions to finance major projects in countries like Kenya, Mozambique, Senegal and Nigeria. Progress is being made with the installation of an optic fibre submarine cable on the Eat Coast from Durban to Djibouti and planning to connect the inland countries to the cable has commenced. The implementation of these projects will provide all African countries with broad band capabilities.

The other exciting development is the rate at which African countries are acceded to the African Peer Review Mechanism. To date, 23 countries have signed even before the completion of the first review. This is further confirmation that African countries are serious about reforms and transparency. It is also the culmination of a campaign that Presidents Obasanjo and Mbeki launched in 2001, putting good governance and the fight against corruption at the centre of the renewal agenda.

They are also ensuring that the principles of

governance and building of competent institutions are entrenched in the AU and its structures.

The major challenges that need to be addressed in order to accelerate the rate of progress include HIV and AIDS, capacity building, increased development assistance flows and foreign direct 13

investment and a break-through in WTO negotiations. The majority of African countries are ready to accelerate socio-economic reforms and implementation of key development programmes in education, science and technology, health, agriculture, etc, but they lack capacity and resources. These challenges must not be taken lightly. Africa will not be able to make progress unless they are addressed. But today my focus is on the changing policy environment across the continent.

The issue of agricultural subsidies by the high industrialised countries is a subject of negotiation at the WTO. Unfortunately progress is slow because of the reluctance of the developed countries to bite the bullet. They know that their policies are not compatible with positions they champion at international forums.

They also know that the

subsidies are hurting very poor countries, but they lack political courage to do what is right.

Of course, there is also the issue of intra-Africa trade that African countries must address.

Currently exports and imports between

African countries account for only 10 percent of total African trade. This is a shame. It is something that must change. The NEPAD initiative is giving high priority to the matter as it is crucial to enabling African countries to achieve self-sustainable development.

I am sure South African business needs no convincing about investing in Africa. The South African private sector has become the biggest investor in Africa. This is further facilitated by the special 14

dispensation granted by the Minister of Finance for investments in Africa. The other very important distinguishing feature between the three phases, mid 1960 – 1973, the decade after 1980 and progress of the last twenty years, is the attitude of African Governments towards the private sector. In the first phase, the private sector grew very fast in both agriculture and manufacturing. In the second phase, Governments tended to take centre stage. NEPAD is about placing the private sector at the centre, with government concentrating on creating a conducive environment and providing the public goods and services.

In conclusion, I believe that the outlook for Africa is much better than it has ever been since the early years of independence. The pace of reforms is accelerating and the NEPAD policy framework is consolidating democracy and sound economic management.

In

addition, inter connectivity between countries through infrastructure is being accelerated. African countries have taken centre stage in determining their own destiny. The African Union, with the support of major African countries, is leading the resolution of conflicts and is refusing to recognise unconstitutional changes of Government.

Above all, there is evidence of progress as confirmed by growth rates of above 5 percent achieved in many countries. The launch of the agricultural revolution with seed capital provided by the World Bank is another strong signal that Africa is on the move.

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Finally, there is strong political leadership that has emerged. It is this leadership that is strengthening the African institutions and transforming the relationship with developed countries.

The

challenge is sustaining this leadership for ten to twenty years.

Yes,

Africa’s time has come. The 21st century belongs to Africa.

I thank you.

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