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Investment

Transforming African Economies: Interconnectedness, Investment and Inclusiveness

 

 Remarks by Angel Gurría, OECD Secretary-General, delivered at the OECD-hosted Working Dinner


Davos, 22 January 2015

(As prepared for delivery)


Ladies and Gentlemen:


It is a pleasure to be back in Davos and to welcome you to this working dinner.

We convened this dinner to discuss how we – governments, international organisations and businesses – can contribute to the ongoing transformation of African economies. This is an opportunity to discuss our work, our projects, our plans; and to learn from each other’s experiences of working in and with different African countries.

Africa has made significant progress in recent years

Let me start on a positive note by highlighting some of the encouraging developments which we have seen in Africa in recent years. There is indeed much to celebrate. The economic dynamism of Africa over the past 15 years has been impressive.

The continent’s output has grown, on average, at over 5% per year since 2001 [i]. That’s twice the rate of the 1990s, and three times the average of OECD economies during the same period. Inward foreign investment to Africa has continued to rise, despite a global slowdown.

The economic performance of the past decade and a half has been underpinned by improved governance, sounder macroeconomic management and steady structural reforms in many countries. The World Bank’s annual “Doing Business” report showed that in 2013/14 sub-Saharan Africa did more to improve and streamline regulation than any other region. Rwanda, South Africa and Botswana are now ranked higher than Italy [ii].

Economic growth has also been accompanied by the emergence of new and dynamic economic sectors, and the rise of young and urban middle class consumers. Investors, African and international, are increasingly attracted by non-commodity industries, in particular in finance and other services. African bonds – the so-called high yield “frontier bonds” are in high demand. Resource-poor countries now attract a third of total FDI into the continent, up from 10% only 10 years ago [iii].

Africa also has great assets, including its 1.1 billion people. It is the youngest population in the world; a population that is increasingly urban, more educated, and better connected. The greater affluence of Africa’s citizens has been accompanied by rising expectations for higher quality jobs, better public services, a cleaner environment, and more accountable governments.

These are remarkable achievements. However African countries, despite their great diversity, still face many shared challenges.

Important challenges to African development remain

As I see it, we can break down these challenges into three linked areas. Let’s call them the “three i’s”: interconnectedness, investment, and inclusiveness.

First, I mentioned interconnectedness. We need to look more closely at African countries’ integration into global value chains. At the OECD, we have highlighted how splitting up the production of goods and services across countries offers opportunities for firms to specialise in specific tasks, to enhance productivity, and for countries to diversify their exports.

But Africa’s role in these global value chains remains limited. About 85% of trade in value added takes place in and around the three regional blocks of East Asia, Europe and North America. Africa’s share has increased only very slightly from 1.4% in 1995 to 2.2% in 2011 [iv].

So what can be done to help African economies move up these global value chains? Our estimates suggest that a comprehensive trade facilitation reform would lower trade costs by as much as 17% in sub-Saharan Africa [v]. We should also look more closely at how to make the most of the expanding regional integration of African markets.

Here, a vast improvement in Africa’s transport infrastructure is needed. The density of Africa’s network of paved roads is only one-third the level of that of South Asia [vi]. In Sierra Leone, for example, only 9% of trunk roads are paved [vii]. African countries that have invested in transport infrastructure have seen the rewards: our last African Economic Outlook, for example, cites improved infrastructure as one of the elements contributing to improved growth in Tanzania [viii].

This brings me to the second area I want to focus on this evening: investment. Tackling the infrastructure challenge I just mentioned, will require some public funding but also a more active participation of the private sector. This in turn requires efficient and corruption-free public procurement processes and public-private partnerships. A tall order for even developed countries, as we showed in our recent Foreign Bribery Report. It is no coincidence that some of the African countries with the lowest levels of (perceived) corruption, such as Botswana, also display a good infrastructure.

At the OECD, we are also working with the G20 to look at how institutional investors could play a greater role in financing infrastructure. Right now, only 1 per cent of the assets of insurers, pension funds and sovereign wealth funds worldwide are invested in infrastructure – and most of this is outside Africa [ix]. Also, Africa has some large pension funds of its own (such as the South African Government Employees Pension Fund, with assets equivalent to nearly 7% of the continent’s GDP!), as well as an increasing number of Sovereign Wealth Funds (courtesy of the commodities boom that is now coming to an end) which could become important infrastructure investors.

Africa also needs to look at how to exploit its huge potential in renewable energy. A sound policy and regulatory environment is essential to foster the large-scale development of modern renewable resources. Based on a projection to 2040 in the IEA World Energy Outlook 2014, power generation capacity in the Sub-Saharan region will quadruple by 2040 and almost half of the growth in generation will come from renewables [x].

But we also need to look beyond infrastructure to look at other challenges faced by entrepreneurs. Lack of access to finance is still the most commonly cited obstacle for African businesses wishing to expand or upgrade production [xii].

The third challenging area I flagged was inclusiveness. At the OECD, our economists are showing time and time again that reducing inequality and improving education, skills and health outcomes yields stronger, more resilient growth. For many African countries, gaps in education and skills hinder both employability and investment. This is a real problem for those of you with business operations in Africa. And it is also a tragedy for the 11 million or so young people in Africa who strive to enter the workforce every year [xii].

The OECD is working hard with partners in Africa and the international community to help address these challenges.

The OECD will continue to work hand in hand with Africa

Before handing over to my co-host tonight, Minister Nhlanhla Nene of South Africa, I would like to say a few words about the OECD’s vital cooperation with Africa.

We are working closely with African countries, and in particular South Africa – a key partner of the OECD –to support governments and stakeholders in a range of policy areas, from trade and investment, to tax, employment and education.

Our annual African Economic Outlook, the International Economic Forum on Africa held regularly in Paris, and the OECD-NEPAD Investment Initiative are just three projects that exemplify our growing engagement with Africa [xiii].

The OECD has been particularly active in understanding, measuring and promoting better investment in African countries. We have helped numerous countries from Morocco to Mauritius to review their investment policies using our Policy Framework on Investment (PFI), a multilaterally-backed tool to mobilise private investment that supports economic growth and sustainable development. We recently published our Investment Policy Review of Botswana, the ninth to be completed on the African continent. Our Investment Policy Review of Nigeria will be published in the coming months.

Ladies and Gentlemen:

The OECD is committed to deepening this mutually enriching relationship with many African countries. Especially as we all embark together on a collaborative year that will see a new global development agenda adopted.

There is a lot of wisdom in this room and I urge you to share it; please don’t hold back. The OECD is here to listen to your views; to the challenges you face; and to the lessons you can share with others. Together, as our motto at the OECD goes, we can provide Better Policies for Better Lives in Africa.

Minister Nene, thank you for your support. South Africa, a Key Partner of the OECD, has been a driver of our cooperation with the region. And we take great pride in this partnership. But without further ado, Minister, the floor is yours.

Thank you.

 

 

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[i] African Economic Outlook  2014, AfDB, OECD, UNDP

[ii] Doing Business 2014, World Bank and IFC

[iii] African Economic Outlook  2014, AfDB, OECD, UNDP

[iv] ibid.

[v] ibid.

[vi] Africa Progress Panel (2014), Grain, Fish, Money: Financing Africa’s Green and Blue Revolutions, Africa Progress Report 2014. p.125

[vii] African Economic Oulook 2014; Sierra Leone Country Note

[viii] African Economic Oulook 2014; Tanzania Country Note

[ix] Africa Progress Panel (2014), Grain, Fish, Money: Financing Africa’s Green and Blue Revolutions, Africa Progress Report 2014.

[x] World Energy Outlook 2014, p. 28

[xi] “Global Value Chains: Challenges, Opportunities and Implications for policy”, OECD, WTO and World Bank 2014

[xii] African Economic Outlook 2012

[xii] NEPAD: The New Partnership for Africa's Development, an African Union strategic framework for pan-African socio-economic development