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Financing Africa’s Sustainable Development
The document discusses financing sustainable development in Africa. It outlines the Common African Position (CAP) on the post-2015 development agenda, which calls for improving domestic resource mobilization, innovative financing, and quality external financing partnerships. The document also examines Africa's economic transformation needs, including increasing agricultural productivity and revitalizing manufacturing. It analyzes trends in infrastructure financing from public-private partnerships, China, and other sources. Overall, the document emphasizes that domestic resource mobilization should be the priority and financial flows must consider broader development strategies and impacts.
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Financing Africa’s Sustainable Development
- 1. 1 Financing Africa’s Sustainable Development •Amadou Sy, Tuesday, May 12, 2015
- 2. 2 Outline 1. The CommonAfrican Position on the post-2015 sustainable development agenda 2. Africa’s structural economic transformation 3. Building on the Monterrey financing for development consensus 4. Case study: Financing Africa’s Infrastructure 5. Conclusions
- 3. 3 Outline 1. The CommonAfrican Position on the post-2015 sustainable development agenda 2. Africa’s structural economic transformation 3. Building on the Monterrey financing for development consensus 4. Case study: Financing Africa’s Infrastructure 5. Conclusions
- 4. 4 Common African Position(CAP) on the Post-2015 Development Agenda: Ownership & common interests • “…we come as 54 countries in unison, determined to represent a broad spectrum of stakeholders…” • “…unique opportunity for Africa to articulate its common priorities, opportunities, and challenges…we affirm our collective interests… • “…we stress that the post-2015 Development Agenda should also reflect Africa’s priorities and development programs…”
- 5. 5 Common African Position(CAP) on the Post- 2015 Development Agenda: Six Pillars 1. Structural economic transformation and inclusive growth. 2. Science, technology, and innovation. 3. People-centered development. 4. Environmental sustainability, natural resources management, and disaster risk management. 5. Peace and security 6. Finance and partnerships
- 6. 6 Common African Position(CAP) on the Post- 2015 Development Agenda: Pillar Six Pillar 6 of the CAP is to be linked with the first 5 pillars. • Improving domestic resource mobilization; • Maximizing innovative financing; • Implementing existing commitments and promoting quality and predictability of external financing; • Promoting mutually beneficial partnerships; Strengthening partnerships for trade; • Establish partnerships for managing global commons
- 7. 7 Common African Position(CAP) on the Post-2015 Development Agenda: Uneven progress toward MDGs • Advances in areas but uneven progress in others: Source: World Bank
- 8. 8 Common African Position(CAP) on the Post-2015 Development Agenda: ODA < 0.7% of GNI Source: OECD
- 9. 9 Outline 1. The CommonAfrican Position on the post-2015 sustainable development agenda 2. Africa’s structural economic transformation 3. Building on the Monterrey financing for development consensus 4. Case study: Financing Africa’s Infrastructure 5. Conclusions
- 10. 10 Growth convergence • Africahas made progress in lowering some of the country- specific obstacles that was holding it back. There is of course room for improvement in levels of investment, human capital, and quality of policies (“growth fundamentals”) and it is important that policymakers not only continue improving economic and political governance but accelerate the pace of reforms. • But as noted by Rodrik (2014), investment in “growth fundamentals” alone has not been shown to lead to rapid and sustainable growth. As a result, the focus is on the role of structural transformation in the growth process of the continent.
- 11. 11 A closer lookat Africa’s growth performance Trend component in GDP growth (%), 1980-2019p 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Africa EMDEV Advanced Source: IMF WEO, April 2014 and HP filter used for trend and cyclical components.
- 12. 12 A closer lookat Africa’s growth performance GDP per capita, 1970 =100 Source: ACET (2014); Earlier transformers countries include Brazil, Chile, Indonesia, Malaysia, Singapore, South Korea, Thailand, and Vietnam.
- 13. 13 Africa’s Structural EconomicTransformation Typology of growth processes Source: Rodrik (2014)
- 14. 14 Africa’s Structural EconomicTransformation • The structure of African economies has not changed much since the 1980s and most countries remain dependent on extractive industries and low-yield agriculture. • The contribution of manufacturing—mostly dominated by small and informal firms—to output is negligible and the services sector includes a large share of informal activities in urban areas. • Industrialization in Africa is now lower than in the 1970s. Manufacturing industries’ share of employment is now below 8 percent and their share in GDP has fallen to 10 percent from about 15 percent in 1975 (selected 11 countries data).
- 15. 15 Challenges for EconomicTransformation • African agriculture is its least productive sector and has the lowest income and consumption levels. McMillan and Harttgen (2014) estimates that the share of the labor force engaged in agriculture fell by about 10 percent during 2000-2010 while services and manufacturing employment grew by 8 and 2 percent, respectively. • The problem as noted by Rodrik (2014) is that African labor is migrating from agriculture and rural areas, but instead of moving to formal manufacturing industries, it is being absorbed largely in the services sector, which is not particularly productive and dominated by informal activities.
- 16. 16 The Agenda forAfrica’s transformation 1. Increase productivity in the agriculture sector 2. Revitalize manufacturing (agribusines, role of China and South-South cooperation, global value chains) 3. Services sector (build on the ICT sector, mobile banking) 4. Better management and use of natural resources wealth 5. Address Africa’s infrastructure deficit
- 17. 17 Outline 1. The CommonAfrican Position on the post-2015 sustainable development agenda 2. Africa’s structural economic transformation 3. Building on the Monterrey financing for development consensus 4. Case study: Financing Africa’s Infrastructure 5. Conclusions
- 18. 18 Building on theMonterrey Financing for Development Consensus • Monterrey Consensus covers key elements » Domestic Resource Mobilization, national financing plans and country-led development » Private capital flows » Trade as an engine of growth » International financial and technical cooperation » External Debt » Global monetary, financial and trading systems
- 19. 19 Building on theMonterrey Financing for Development Consensus 1. Domestic Revenue Mobilization & national financing plans » Public finance (< 1% of ODA goes to DRM) » DSA and Domestic and external debt management » Financial and capital markets development 2. External Finance: » Spillover effects of financial crises, changes in global monetary policy » Capital account liberalization and management » Unintended consequences of global regulation (Basel III, AML/CFT) 3. Financing Infrastructure
- 20. 20 Building on theMonterrey Financing for Development Consensus: a Tailored approach Sub-Saharan Africa: External Flows by Income Level (Deviations from SSA 1990-2012 average, in percent of GDP) -5.0 -3.0 -1.0 1.0 3.0 5.0 7.0 ODA Private capital Government revenue Remittances MICs Oil Exporting NRRHG SSA Fragile/LICs Source: Sy and Rakotondrazaka (2015)
- 21. 21 Domestic fiscal space(Revenue/GDP) 0% 5% 10% 15% 20% 25% 30% 35% Oil Exporting Countries Non-Oil Exporting Countries Source: Gutman, Sy, and Chattopadhyay (2015).
- 22. 22 Outline 1. The CommonAfrican Position on the post-2015 sustainable development agenda 2. Africa’s structural economic transformation 3. Building on the Monterrey financing for development consensus 4. Case study: Financing Africa’s Infrastructure 5. Conclusions
- 23.
- 24. 24 Surge in externalfinancing to Infrastructure 0 5000 10000 15000 20000 25000 30000 35000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 US$ millions PPI China ODF Source: Gutman, Sy, and Chattopadhyay (2015).
- 25. 25 External financing concentration(2009-12) Source: Gutman, Sy, and Chattopadhyay (2015). 17% 11% 10% 8% 7% 47% South Africa Nigeria Ghana Kenya Ethiopia Other (46)
- 26. 26 Energy expanding, telecommaturing 0 5000 10000 15000 20000 25000 30000 35000 US$ millions Energy Telecom Transport Water Supply & Sanitation Source: Gutman, Sy, and Chattopadhyay (2015).
- 27. 27 PPI dominant intelecom (2005-2013) 19% 2% 64% 0% 4% 1% 10% 0% 0% Electricity Natural Gas Telecom Airports Railroads Roads Seaports Water Treatment Water Utility Source: Gutman, Sy, and Chattopadhyay (2015).
- 28. 28 ODF particularly relevantin non-ICT 0 2000 4000 6000 8000 10000 12000 14000 US$ millions Energy Telecom Transport Water Supply & Sanitation Source: Gutman, Sy, and Chattopadhyay (2015).
- 29. 29 Chinese financing growingsignificantly 0 2000 4000 6000 8000 10000 US$ millions Energy Telecom Transport Water Supply & Sanitation Source: Gutman, Sy, and Chattopadhyay (2015).
- 30. 30 Chinese financing favoringstable economies 0% 25% 50% 75% 100% 2005-2008 2009-2012 Fragile Low Income Non-Fragile Low Income Source: Gutman, Sy, and Chattopadhyay (2015).
- 31. 31 Traditional financing matrixnow in flux Source: Gutman, Sy, and Chattopadhyay (2015). Sectors Government ODF China PPI Energy Telecommunication Transport Water Transport Government ODF China PPI Airports Railroads Roads Seaports
- 32. 32 Concerns: • Sub-national/urban infrastructureignored (both in assessing needs and in financing) • Emphasis on facilitating projects have ignored governance, coordination, and efficiency gains • Complementarity in financing across sources, countries, sectors is purely serendipitous • Traditional coordination mechanisms ill-suited in new economic environment with new and multiple stakeholders • PPI, outside telecom, has had limited distribution
- 33. 33 Recommendations: Build on existinginstitutional structures and functions, rather than invent new institutions • Enhance collaboration and coordination across traditional and non-traditional sources of finance • Regional guidance of investment practices for economic, social, environmental sustainability (sustainable infrastructure) • Extend opportunities for private investment • Improve public financing support including sub- national/urban finance and investment • Focus on broader sectoral governance reform opportunities
- 34. 34 Outline 1. The CommonAfrican Position on the post-2015 sustainable development agenda 2. Africa’s structural economic transformation 3. Building on the Monterrey financing for development consensus 4. Case study: Financing Africa’s Infrastructure 5. Conclusions
- 35. 35 Common African Position(CAP) on the Post- 2015 Development Agenda: Six Pillars Pillar 6 of the CAP is to be linked with the first 5 pillars. • Improving domestic resource mobilization; • Maximizing innovative financing; • Implementing existing commitments and promoting quality and predictability of external financing; • Promoting mutually beneficial partnerships; • Strengthening partnerships for trade; • Establish partnerships for managing global commons
- 36. 36 Conclusions • Domestic resourcesmobilization should be the priority » Public finance: transparency, public financial management. » Capital markets development: local institutional base, debt sustainability, debt management. • It is not just about the money: » what exactly are we financing? what is the broader strategy? (e.g. the $93 infrastructure gap can be reduced by $17bn through productivity gains) » consider the non financial benefit of the financial flows (technology transfer, local content regulation)
- 37. 37 A Busy Agendain 2015 • Third International Conference on Financing for Development, 13-16 July, 2015, Addis Ababa. • United Nations Summit to adopt the post- 2015 development agenda, 25-27 September 2015, New York. • United Nations Climate Change Conference, COP21, 30 November-11 December 2015, Paris.