financing africa’s sustainable development

1

Financing Africa’s Sustainable Development

• Amadou Sy, Saturday, April 15, 2023

2

Outline

1. The Common African 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

Outline





5. Conclusions

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

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

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

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

Common African Position (CAP) on the Post-2015 Development Agenda: ODA < 0.7% of GNI

Source: OECD

9

Outline





5. Conclusions

10

Growth convergence

• Africa has 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

A closer look at 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

A closer look at 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

Africa’s Structural Economic TransformationTypology of growth processes

Source: Rodrik (2014)

14

Africa’s Structural Economic Transformation

• 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

Challenges for Economic Transformation

• 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

The Agenda for Africa’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

Outline





5. Conclusions

18

Building on the Monterrey 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

Building on the Monterrey 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

Building on the Monterrey 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)

-5.0-3.0-1.01.03.05.07.0

ODA

Private capital

Governmentrevenue

Remittances

MICs Oil Exporting NRRHG SSA Fragile/LICs

Source: Sy and Rakotondrazaka (2015)

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

Outline





5. Conclusions

23

Financing African Infrastructure

http://www.brookings.edu/research/reports/2015/03/financing-african-infrastrastructure-gutman-sy-chattopadhyay

24

Surge in external financing to Infrastructure

0

5000

10000

15000

20000

25000

30000

3500019

90

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


25

External financing concentration (2009-12)


17%

11%

10%

8%7%

47%

South Africa

Nigeria

Ghana

Kenya

Ethiopia

Other (46)

26

Energy expanding, telecom maturing

0

5000

10000

15000

20000

25000

30000

35000US$ millions

Energy Telecom Transport Water Supply & Sanitation


27

PPI dominant in telecom (2005-2013)

19%

2%

64%

0%

4%1%

10%

0% 0%Electricity

Natural Gas

Telecom

Airports

Railroads

Roads

Seaports

Water Treatment

Water Utility


28

ODF particularly relevant in non-ICT

0

2000

4000

6000

8000

10000

12000

14000US$ millions



29

Chinese financing growing significantly

0

2000

4000

6000

8000

10000US$ millions



30

Chinese financing favoring stable economies

0%

25%

50%

75%

100%

2005-2008 2009-2012

Fragile Low Income Non-Fragile Low Income


31

Traditional financing matrix now in flux


Sectors Government ODF China PPIEnergy Telecommunication Transport Water

Transport Government ODF China PPI Airports Railroads Roads Seaports

32

Concerns:

• Sub-national/urban infrastructure ignored (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

Recommendations:

Build on existing institutional 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

Outline





5. Conclusions

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

Conclusions

• Domestic resources mobilization 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

A Busy Agenda in 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.

financing africa’s sustainable development

Economy & Finance

sustainable development

development consensus

development programs

common african position

sustainable growth

monterrey financing

common priorities

peoplecentered development