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The Monterrey Consensus: Progress, The Monterrey Consensus: Progress, Challenges and Way ForwardChallenges and Way Forward

Patrick N. OsakwePatrick N. Osakwe

Trade, Finance and Economic Development DivisionTrade, Finance and Economic Development Division

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I. BackgroundI. Background

The most important challenge facing Africa is how to The most important challenge facing Africa is how to achieve sustained economic growth and eradicate povertyachieve sustained economic growth and eradicate poverty

The 2007 MDG Report indicates that Africa is the only The 2007 MDG Report indicates that Africa is the only region at risk of not meeting any of the MDGs.region at risk of not meeting any of the MDGs.

Mobilization of finance is crucial to reversing the current Mobilization of finance is crucial to reversing the current trend and increasing the likelihood of African countries trend and increasing the likelihood of African countries meeting the MDGs by the target date. meeting the MDGs by the target date.

World leaders recognized the importance of finance in World leaders recognized the importance of finance in meeting the MDGs when they adopted the Monterrey meeting the MDGs when they adopted the Monterrey Consensus in 2002Consensus in 2002

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The Monterrey Consensus has now emerged as the The Monterrey Consensus has now emerged as the key framework for development finance. It has six key framework for development finance. It has six core areas:core areas:

Mobilizing domestic financial resources for developmentMobilizing domestic financial resources for development

Mobilizing international resources for developmentMobilizing international resources for development

Promoting international trade as an engine of developmentPromoting international trade as an engine of development

Increasing international financial and technical cooperation for Increasing international financial and technical cooperation for developmentdevelopment

External debtExternal debt

Systemic issuesSystemic issues

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II. Tracking Performance and Progress II. Tracking Performance and Progress

A key question that the international community A key question that the international community has to answer is “to what extent have the has to answer is “to what extent have the objectives of the Monterrey Consensus been objectives of the Monterrey Consensus been achieved in the six core areas?”achieved in the six core areas?”

This presentation provides answers to this This presentation provides answers to this question using two methodsquestion using two methods

Published macroeconomic dataPublished macroeconomic data

ECA survey of African policymakersECA survey of African policymakers

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Evidence from Macroeconomic DataEvidence from Macroeconomic Data(annual average)(annual average)

IndicatorIndicator Pre-MonterreyPre-Monterrey Post-MonterreyPost-Monterrey

Growth rate (%)Growth rate (%) 3.33.3 4.04.0

Savings ratio (%)Savings ratio (%) 1919 2222

FDI-GDP ratioFDI-GDP ratio 2.12.1 2.42.4

Export-GDP ratioExport-GDP ratio 2929 3333

ODA (billion $)ODA (billion $) 1616 2828

Debt-GDP ratioDebt-GDP ratio 6262 4747

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ECA Survey of Policymakers: Key MessagesECA Survey of Policymakers: Key Messages

Overall, very limited progressOverall, very limited progress has been made in has been made in realizing the objectives of the Monterrey realizing the objectives of the Monterrey Consensus in the Africa regionConsensus in the Africa region

Significant progress has been made in the area of Significant progress has been made in the area of external debt relief.external debt relief.

But performance in the areas of international trade But performance in the areas of international trade as well as external and domestic resource as well as external and domestic resource mobilization has been either fair or disappointingmobilization has been either fair or disappointing

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Area Full sample LDCs Mobilization of domestic resources 17.3 14.0 Mobilization of international resource 17.3 14.0 International trade as an engine of development

34.6 34.0

Increasing international financial and technical cooperation

11.1 16.0

External debt 4.9 4.0 Systemic issues 14.8 18.0

Total 100.0 100

Area of least progress in the Monterrey ConsensusArea of least progress in the Monterrey Consensus(% of respondents)(% of respondents)

88

FDI inflowsFDI inflows have increased in recent years, but they are have increased in recent years, but they are still insufficient and too concentrated in the natural still insufficient and too concentrated in the natural resources sectorresources sector

African governments have made efforts to African governments have made efforts to mobilize mobilize domestic savingsdomestic savings, but savings ratio remain low relative to , but savings ratio remain low relative to investment requirementsinvestment requirements

41 percent of respondents rated as good the 41 percent of respondents rated as good the performance of domestic governments in mobilizing performance of domestic governments in mobilizing savingssavings

28 percent rated it as fair28 percent rated it as fair

25 percent rated it as poor. 25 percent rated it as poor.

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Others12.8%

Weak infrastructure30.8%

Corruption12.8%

Governance issues26.9%

Macroeconomic Instability

10.3%

Monetary Policy 6.4%

Obstacles to the mobilization of domestic resourcesObstacles to the mobilization of domestic resources

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ODAODA flows to Africa have increased since the adoption of flows to Africa have increased since the adoption of the Monterrey Consensus.the Monterrey Consensus.

But donors are still not on track to meet their But donors are still not on track to meet their commitments and recent aid flows tend to be commitments and recent aid flows tend to be concentrated in a few countries and social sectorsconcentrated in a few countries and social sectors

Although exports Although exports have increased in recent years, have increased in recent years, respondents believe that donors have not made much respondents believe that donors have not made much progress in supporting African countries in the area of progress in supporting African countries in the area of tradetrade

The main barriers to export promotion in the region are The main barriers to export promotion in the region are market access and supply constraintsmarket access and supply constraints

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Barriers to export promotion and developmentBarriers to export promotion and development

Rules of origin8.1%

Market access37.8%

Supply constraints

32.4%

Poor governance and institutions

16.2%

Others5.4%

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On On systemic issuessystemic issues, the international community has not , the international community has not done enough to increase Africa’s voice in the governance done enough to increase Africa’s voice in the governance of international monetary, financial and trading systems.of international monetary, financial and trading systems.

56 percent of respondents disagreed with the notion that the 56 percent of respondents disagreed with the notion that the current governance structures allow for effective participation of current governance structures allow for effective participation of African countries in the global economy.African countries in the global economy.

In the area of In the area of external debtexternal debt, majority of the respondents , majority of the respondents (over 70 percent) agree that there has been significant (over 70 percent) agree that there has been significant progress in reducing the external debt of African countries.progress in reducing the external debt of African countries.

However, 65 percent of the respondents do not believe that recent However, 65 percent of the respondents do not believe that recent debt relief initiatives will lead to a resolution of the debt problem in debt relief initiatives will lead to a resolution of the debt problem in Africa.Africa.

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Source of external debt problem in African countriesSource of external debt problem in African countries

Low growth rate27.4%

Extensive borrowing

31.5%

Others9.6%

High world interest rate

13.7%

Maturity mismatch4.1%

Volatile exchange rate

13.7%

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III. The Way ForwardIII. The Way Forward

Evidence from both macroeconomic data and ECA Evidence from both macroeconomic data and ECA survey of African policymakers suggest that very survey of African policymakers suggest that very limited progress has been made in achieving the limited progress has been made in achieving the goals of the Monterrey Consensusgoals of the Monterrey Consensus

Considerable efforts are required by both African Considerable efforts are required by both African governments and development partners to governments and development partners to mobilize the resources needed for development in mobilize the resources needed for development in the regionthe region

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Domestic and International Resource MobilizationDomestic and International Resource Mobilization

African countries African countries need to take concrete actions to boost need to take concrete actions to boost savings by exploiting the potential of micro-finance savings by exploiting the potential of micro-finance institutions, promoting regional integration of capital institutions, promoting regional integration of capital markets, and aligning trade reforms with fiscal policy markets, and aligning trade reforms with fiscal policy responses.responses.

They also need to improve the investment environment, They also need to improve the investment environment, develop financial infrastructure, and reduce transaction develop financial infrastructure, and reduce transaction costs of remitting money from abroad. costs of remitting money from abroad.

They should be selective in their choice of FDI flows with They should be selective in their choice of FDI flows with preference for sectors with high-value added. preference for sectors with high-value added.

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International TradeInternational Trade

African countries African countries have to move into the export of have to move into the export of new and dynamic products in world trade if they are new and dynamic products in world trade if they are to increase the region’s share in global exports.to increase the region’s share in global exports.

Diversification of the production and export Diversification of the production and export structure is necessary to achieve this objective.structure is necessary to achieve this objective.

Development partners should create a trading Development partners should create a trading environment that allows the region to unlock its environment that allows the region to unlock its export potential.export potential.

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Official Development AssistanceOfficial Development Assistance

AAfrica’s development partners must scale up efforts to meet frica’s development partners must scale up efforts to meet their pledges on aid quantity and quality.their pledges on aid quantity and quality.

They should also live up to their promise to untie aid flows They should also live up to their promise to untie aid flows and make them more predictable.and make them more predictable.

There is also the need for better allocation of aid across There is also the need for better allocation of aid across countries and sectorscountries and sectors to maximize impact to maximize impact

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External Debt and Systemic IssuesExternal Debt and Systemic Issues

Despite progress in debt relief, there is the need to Despite progress in debt relief, there is the need to extend eligibility for current debt relief programmes extend eligibility for current debt relief programmes to non-HIPC African countries.to non-HIPC African countries.

African countries should also put in place a African countries should also put in place a mechanism to ensure that loans from new creditors mechanism to ensure that loans from new creditors do not lead to a new cycle of indebtedness. do not lead to a new cycle of indebtedness.

The international community should begin to take The international community should begin to take more seriously the issue of more seriously the issue of increasing the voiceincreasing the voice of of African countries in decision making bodies of African countries in decision making bodies of international institutions.international institutions.

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THANK THANK YOUYOU