OPPORTUNITIES FOR GROWTH AND DEVELOPMENT IN AFRICA

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OPPORTUNITIES FOR GROWTH AND DEVELOPMENT IN
AFRICA

• Presentation to the
• African Economic Conference 2007
• Addis Ababa, Ethiopia
• Prof. Njuguna Ndungu
• Governor, Central Bank of Kenya
• November 15 - 17, 2007

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Presentation Outline

• What wisdom have we gained so far to explain
  growth in Africa?
• Several explanations have been documented
• The survey papers form the 1960s to 1990s
• Trade and growth debate The evidence so far
• Africa in the 21st Century
• The set of conditions necessary for Africa to
  claim the 21st Century

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Presentation Outline (cont.)

• Current emerging growth experience evidence and
  regularity of Africas economic opportunities
• Addressing the binding constraints The growth
  diagnostic literature The software issues
  (policy directions) have been solved, but now the
  hardware the physical constraints remain

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The Survey of Issues

• Azam, Fosu and Ndungu (2001) summarises the
  issues up to 1990s
• Macroeconomic policy environment
• Macroeconomic uncertainty
• Human capital and regional effects
• External shocks and
• Trade, openness and growth
• Institutional and political uncertainty.

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Trade and Growth Debate

• But the trade, openness and growth debate still
  lingers and is important
• Enhances development permits exploitation of
  comparative advantage. This enhances
  productivity and hence growth
• The larger international market allows for
  economies of scale to be realised in the export
  sector
• International competition leads to reduced
  inefficiencies in exports production and results
  in adoption of more efficient techniques in the
  tradable goods sector
• An expanding exports sector makes available more
  resources and expands the productive sector.

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Eight Years into the 21st Century

• Can Africa claim the 21st Century? This question
  was asked in 2000 by a group of eminent African
  scholars in very important institutions. The
  answer was conditioned on
• Improving governance, managing conflict and
  rebuilding states
• Investing in people
• Diversifying exports, reorienting trade policies
  and pursuing regional integration

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Eight Years into the 21st Century (cont.)

• Reducing aid dependence and strengthening
  partnership
• Addressing poverty and inequality
• Lowering transactions cost through investments in
  infrastructure and information and
• Spurring agriculture and rural development.
• But, where are we now?

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What is emerging evidence in Africa8 years into
the 21st Century?

• There is emerging evidence in Africa that shows
  optimism for the future
• Growth and stability is slowly returning to SSA
• Export growth is similarly rebounding after
  decline between mid-1970s and mid-1980s
• Stability, likewise, is returning to many parts
  of Africa with reduced inflation and
• Political and social stability is also gaining
  ground as the number of cases of civil unrest is
  declining and more open political regimes are
  being established.

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Africas economic opportunities

• Collier (2007) highlights Africas economic
  opportunities premised on policy management and
  taking advantage of global markets
• Underscores the fact that growth opportunities
  are determined by geography and resource
  endowments and identifies four categories of
  countries
• Resource rich and land-locked
• Resource rich and coastal
• Resource scarce and land-locked
• Resource scarce and coastal.

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Africas economic opportunities (cont.)

• Best performing globally are coastal and resource
  scarce e.g. in Asia
• African population is skewed towards the globally
  slow growing category of land-locked and resource
  scarce
• Resource rich countries need a form of democracy
  with unusually strong checks and balances and
• Resource rich countries are increasingly
  important in Africa.

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But, there is still a lot to do!

• Addressing the binding constraints
• Low physical capital accumulation
• Low social return to factors of production
• Poorly maintained and cost infrastructure high
  transactions costs
• Poor private appropriability returns to
  investment is low, why?
• High taxation
• Macroeconomic risks instability and political
  uncertainty
• Institutional risks poor property rights,
  corruption, crime, etc.
• Labour-capital conflicts and rigid labour market
• Learning and coordination failure product
  diversification as evident in exports in most
  countries.

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Addressing the binding constraints (cont.)

• Financing capital accumulation a major
  constraints
• Low savings rate and high lending rates-
  ineffiency in the financial market or
  dysfunctional markets?
• Lack of innovative instruments to attract and
  channel savings at affordable rates and
• Constraints and distortions in the money and
  capital markets.

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THANK YOU