Speech

"Toward a Second Ivoirien Miracle" By Christine Lagarde, Managing Director, International Monetary Fund

January 7, 2013

As prepared for delivery

Honorable Mr. Speaker,

Honorable Prime Minister, Minister of Economy and Finance,

Honorable Ministers,

Honorable Members of the National Assembly,

Honorable Ambassadors and Representatives of International Organizations,

Honorable Justice of the Supreme Court and President of the Economic and Social Council

Mr. Chancellor

The President of the Truth, Dialogue, and Reconciliation Commission

Ladies and gentlemen,

It is a great honor to address this assembly—a core institution of democracy, an institution that embodies the hopes and aspirations of the Ivoirien people.

Let me first of all convey to each and every one of you my best wishes for a happy New Year. Through you, the representatives of the people, I extend my wishes to the entire Ivoirien population.

But I also want to express my deep condolences for the tragic loss of life that took place here in Abidjan during the New Year’s celebrations. What should have been an occasion of great joy instead became an occasion of deep sorrow. May the families find peace and comfort over time.

This morning, I want to talk about a brighter topic: hope.

Hope for Africa. Hope for Côte d’Ivoire. Hope for a bright future for the people of this country and this continent.

As you know too well, Africa has been held back for far too long—by weak institutions that failed to serve the people, by recurring conflict that made sustained and durable development elusive, by outmoded economic structures that barred the door of opportunity to millions.

But today, the winds blow differently. Change is coming. Over the past decade, Africa has been the world’s second-fastest-growing region, after emerging Asia. In some cases, the African lions even outpaced the Asian tigers in their first two decades. And in less than 30 years, Africa will have a labor force of more than a billion people. Africa has demographic destiny on its side.

Today, the time has come to turn the curse of history into the blessing of destiny.

I believe Côte d’Ivoire can be in the vanguard of change. After all, you have done it before. The Ivoirien economic miracle was once the toast of Africa, the boast of the developing world.

The time has come for a second Ivoirien miracle. You have passed through the squalls of civil war—moving from conflict and fragmentation to unity and reconciliation. And now, under the leadership of President Ouattara, you are striving to become an emerging market economy within the next decade.

With that in mind, let me talk about three things this morning:

1. Global economic developments and the destiny of Africa in the global economy.

2. Why Côte d’Ivoire can be at the vanguard of African success.

3. What Côte d’Ivoire needs to do to fulfill its destiny.

1. Global economic developments and the destiny of Africa in the global economy

Let me begin with global economic developments. We expect the global recovery to continue next year, but it remains weak and subject to great uncertainty. There are some signs that growth may be stabilizing, but global activity seems stuck in low gear.

People in this region are worried, and rightly so. All eyes are on the advanced economies right now, especially in the Euro Area and the United States.

The good news is that Africa is still in a relatively good place. Economic growth in sub-Saharan Africa is expected at around 5¼ percent in the coming year.

I am deeply impressed by the resilience of Africa—resilience in the face of the worst global economic turmoil since the Great Depression. We saw this right from the start, in 2008 and 2009.

African countries stayed strong because they had built strong foundations in the years leading up to the crisis. Since 2000, debt levels in the region fell from over 100 percent to under 40 percent of GDP, foreign exchange reserves more than doubled, and inflation halved. Comprehensive debt relief, including from the IMF, played an important role.

It also helped that growth in emerging markets held up, especially since nontraditional partners now account for half of sub-Saharan African exports and 60 percent of imports. China is now the region’s single largest trading partner.

Because of these developments, the storm was not as damaging as it might have been. Two-thirds of countries in the region were able to pursue expansionary policies during the crisis—letting deficits expand instead of slamming hard on the brakes. Two-thirds of countries were able to increase real spending on health and education, protecting the most vulnerable people.

But continued global uncertainty will also threaten Africa. The links are simply too strong. IMF research bears this out—a sustained global slowdown of 2 percentage points of GDP would reduce growth in sub-Saharan Africa by about 1¼ percentage points a year.

This comes on top of a variety of homegrown fragilities. Especially as global warming advances, the specter of drought and associated food shortages continues to raise its ugly head. This will disrupt growth and economic stability; but even worse, it will endanger livelihoods and even lives.

Security is also too fragile in too many countries, especially here in West Africa. Without the promise of peace, people will not have the courage to invest in their own futures. Conflict wreaks widespread economic havoc—not only in the country in question, but across neighboring countries too. It is the true enemy of development.

So it is imperative that Africa stays on the right path. In the first place, this means the right decisions must be taken in places thousands of miles away—in Europe and in the United States.

But Africa is not just a passive player in a global economic game. It must seize the initiative to create its own future—by taking the right decisions and sticking to them.

On his last visit to Africa as an IMF Deputy Managing Director, back in 1999, President Ouattara recognized this. He talked about a new light shining across the continent: “the light of hope and new opportunities…the light of lessons learned and wisdom gained…the light of courage to take the tough decisions”. How prophetic he proved to be.

The priority for Africa today is to keep this light burning brightly. How can it do that?

• By accelerating economic transformation, so that more people move from agriculture to sectors with higher value added, with more and better-paid jobs.
• By seeking growth that is more inclusive, benefiting more people, sharing the prosperity more widely.
• By investing in infrastructure, in health, in education; equipping the men and women of this continent for the promise of tomorrow.
• By regional integration and openness to your neighbors, understanding that trade is not a zero-sum game.
• By stronger institutions, better governance, better transparency, and a better environment for business—to entice foreign investment and reduce dependency on aid.

None of this will be easy. But the strong and resolute policies I see all across the continent are a powerful force for change.

And through this transition, the IMF will continue to support its African members—to help with any bumps on the road. I believe we have a good record here. A recent internal study found that low-income countries with Fund-supported programs score better on both growth and poverty reduction than their peers.

Looking ahead, our Poverty and Growth Trust is now on a sustainable footing, meaning we have enough concessional resources to meet our members’ needs in the years ahead. And we will keep charging zero interest on concessional loans through the end of 2014. The message is loud and clear: we will continue to stand with our low-income members.

2. Why Côte d’Ivoire can be at the vanguard of African success

Let me now turn to my second area this morning—why Côte d’Ivoire is well positioned to be in the vanguard of greater African prosperity. There is a famous Ivoirien proverb that says “the strength of the baobab is in its roots”. And the strength of the Ivoirien economy lies in its deep foundations.

This country has a great history of ingenuity, initiative, and innovation. You have overcome great obstacles to achieve great success.

Just look to your past, to the great Ivoirien economic miracle that transformed the country after independence. Between 1960 and 1980, the population doubled, but GDP quadrupled. This boom was driven largely by cocoa exports, and Côte d’Ivoire proved to be a wise steward of its resources.

But this miracle did not last. Ivoiriens have suffered from falling real incomes and declining living standards for almost 30 years. The purchasing power of the minimum wage fell to less than half of what it was in 1979. Today, income per capita is half what it was three decades ago and half the population lives below the poverty line.

Economic strains led to political strains and the social fabric was stretched to breaking point. The harmonious nation built by founding father Felix Houphouet-Boigny risked to unravel.

They say it is always darkest before dawn. You have just gone through a long and difficult period, capped by a harrowing post-election crisis. But the dawn has come, and it bears the promise of a new period of hope.

You understand that renewal springs from reconciliation, bringing people back together after a period of traumatic division. Felix Houphouet-Boigny put it well when he said that: “peace and national reconciliation will need to be pursued over time for the fruits of economic renewal to flourish”.

Today, the Ivoirien people are well on the way to restored prosperity, renewed optimism, and reinvigorated dynamism.

Just look at the evidence: after the economy shrunk by nearly 5 percent in 2011, it more than made up for lost ground in 2012, growing by an impressive 8½ percent.

This was not an accident. It was not luck. It was due to the sound policies that have been put in place over the past 18 months or so. And during this difficult transition, the IMF was happy to help Cote d’Ivoire—including with an interest-free loan of 100 billion francs a year to support the government’s reform program.

Let me give you just a few examples of what the government has done right:

• Boosting public investment from 3 percent of GDP during the long political crisis to more than 7 percent of GDP in the 2013 budget, and actively enticing foreign investment.
• Attacking rural poverty by reforming the cocoa sector in a way that puts an extra 80 billion francs in farmer’s pockets, while maintaining Côte d’Ivoire’s preeminent position in cocoa production.
• Reforming the energy sector by supplying the power needed for domestic growth and exporting to neighboring countries, while starting the arduous process of bringing financial discipline to the electricy sector. The government has also reformed the energy sector by taking courageous measures to maintain the financial viability of the mechanism to subsidize butane prices while, as much as possible, preserving the low-income houdeholds from the impact of price increases.
• Strengthening the business environment through the creation of commercial courts and a one-stop window for investment.
• • Completing the cancellation or restructuring of its external debt, qualifying for the Completion Point under the enhanced HIPC initiative.

So in just a year and a half, facing formidable obstacles, President Ouattara and his team have put Côte d’Ivoire back on the right path. This is just the first step in a long journey. We must now ask what comes next.

3. What Côte d’Ivoire needs to do to fulfill its destiny

This brings me to my third topic this morning—how Côte d’Ivoire can fulfill its destiny.

The government already has an ambitious plan to turn Côte d’Ivoire into a full-fledged emerging market by 2020. This is not just wishful thinking—it is based on concrete policies laid out in the National Development Plan and generous financial support promised by Côte d’Ivoire’s partners and friends at the Consultative Group meeting in Paris in December 2012. Your goal is to generate enough growth to double national income by 2020.

In reality, you are seeking a second Ivoirien miracle. It can be done—of that I have no doubt.

There is another great Ivoirien proverb that says: “the outsider doesn’t know the path through the calabash trees”. In other words, you know your own country better than anybody else. The future you create must be a future of your own making.

But having said that, I believe that the IMF can offer some advice, based on its extensive experience with 188 member countries over the past 70 years. I offer this advice in a spirit of humility and friendship.

The IMF certainly believes that growth will rise soon and rise fast, but it might take a while to reach a consistent cruising altitude. To get there, I believe that Côte d’Ivoire can push ahead in three broad areas—investment, inclusion, and governance.

Investment

First, investment. This is the first building block of growth and prosperity. It is fitting that capital investment and upgrading infrastructure feature heavily in the National Development Plan.

But by investment, I also mean investment in people, the people who hold the keys to Côte d’Ivoire’s future. After all, sustained growth comes from productivity, and productivity comes not just from machines, but even more so from productive people. Côte d’Ivoire needs better education and improved skills, focused on areas where there is a demand for workers. Young people are the future, but we must plan for this future.

A key goal of investment must be more jobs, especially for young people. Any development strategy must center on profitable areas that can hire a lot of people, such as cashew processing, as well as on job-training programs.

Inclusion

This brings me to my second area, inclusion. The principle is straightforward—growth and prosperity must lift everyone together and provide opportunities to all.

Why is this so important? For a start, if Côte d’Ivoire wants to become a vibrant emerging market, it needs a solid middle class, a consuming class. We also have evidence that less inequality is associated with more sustained spells of growth. So inclusion is not just about fairness and decency; it is also good economics.

But in a country like Côte d’Ivoire, inclusion is especially important—to support the delicate process of national reconciliation and to cement social peace. As the Ivoirien writer Jean-Marie Adiaffi once said: “there are scars that bleed even more than the wounds themselves”. Healing is made easier when all can advance together in a spirit of social solidarity.

Inclusion has many dimensions. It certainly encompasses the investment in people and jobs I talked about already. It also encompasses robust social spending, especially to reduce the hardships faced by Côte d’Ivoire’s most destitute citizens.

But this must go together with lower spending less in less-effective areas—such as trying to control energy prices. These kinds of subsidies are bad for the budget, bad for economic efficiency, bad for equity and inclusion, and bad for the environment.

Inclusion is also aided by making sure everybody can get access to credit, especially the small and medium-sized enterprises that are crucial for future growth and prosperity. In that regard, Côte d’Ivoire should seek a more competitive banking system. Improvements in the legal environment for lending, including the administration of land, will go a long way toward getting credit to where it is most needed.

Governance

Let me now turn to governance, my third area. Everything I have said so far depends on good governance and strong institutions. Without this foundation, striving for strong and inclusive growth is like planning to build a house on a bed of sand.

Côte d’Ivoire has already paid the price for poor governance. Poor governance bears a lot of the blame for falling living standards. It was a major source of distress, dissatisfaction, and disenfranchisement.

Governance weakened even further during the turmoil of the past decade. It left many Ivoiriens much poorer, with little trust in public institutions and little hope for their children’s futures.

This leaves behind a bitter legacy. Côte d’Ivoire ranks 46^th out of 52 African countries on the Mo Ibrahim governance index, and—most tellingly—48^th for the effectiveness of the rule of law.

Côte d’Ivoire can do much better and must do much better. I am confident that this government will chart a different course. I applaud the measures that the Prime Minister has already taken in this regard.

That begins with rooting out corruption from the body politic, and focusing and strengthening the role of the state in its core competencies. These include: promoting economic stability; guaranteeing minimal social services to all citizens; providing an enabling environment for a strong and thriving private sector based on clear rules of the game; and ensuring a social and political environment conducive to peace and social justice.

In key areas of the economy, the state must step back so the private sector can step forward. The job of the state is to regulate, not manage, key enterprises; to support, not supplant, business.

To sum up, the road to a better future passes through three main gates—higher investment, better inclusion, and stronger governance.
Conclusion

Let me conclude with some words by Bernard Dadie, one of your most renowned writers. Dadie once wrote a book in which he imagined Paris talking to Africa, saying the following:

“I was once at the stage you are now. I knew Attila the Hun. I've been destroyed several times, but each time the Parisians have rolled up their sleeves, taken pickaxes and trowels in hand, and, with sweat on their brows, seen the buildings appear once again, stone by stone.”

In other words, we need to step back from the turbulence of the moment and reflect on the broader arc of history—and that arc is tilting toward Africa’s destiny in the 21^st century.

This country has already seen the rise and fall of its first Ivoirien miracle. Now is the time to lift the pickaxes and trowels and rebuild your nation once again, to create that second Ivoirien miracle, to do again what your forefathers have done before—with patience and perseverance, with courage and confidence, with faith and fortitude.

Let me assure you that the IMF will continue to stand with you along the way.

May this beautiful country blossom, may its harvest prove bountiful, and may its people flourish.

Thank you.