Speech

Keynote Address at the G20 Compact with Africa Side Event On the occasion of the 7th Tokyo International Conference on African Development (TICAD7)

August 29, 2019

Good afternoon.

It is a pleasure to be here today at TICAD 7 for this gathering to discuss the Compact with Africa (CWA) and ways of “ Enhancing partnership for investment in Africa.”

I want to thank the Japanese authorities and Co-Chairs of the G20 Africa Advisory Group for the invitation to make this address.

As you all know, over the years, there have been many international initiatives to support Africa. When it was launched two and a half years ago, there were two main factors that made the Compact different.

First, it is a partnership that puts African countries in the driver’s seat, while providing them with opportunities to learn from peers, engage with would-be investors, and benefit from the extensive operational experience of international financial institutions and bilateral partners to unlock more opportunities for economic growth.

Second is the focus on promoting private investment in the region.

Over the last 20-30 years, many countries in the region have made tremendous economic and social progress. Since 2000, GDP per capita has more than doubled in 28 countries in sub-Saharan Africa. Poverty is declining in many countries. Perhaps more impressive still, strong strides have been made in non-income dimensions of well-being—for example, life expectancy is improving rapidly, infant and maternal mortality rates are declining swiftly in most countries, and education levels are improving, to mention just a few. Overall, the opportunity set for a generation of Africans has improved greatly.

It goes without saying of course that there are still many challenges in the region. Poverty, even after declining, remains unbearably high. The progress I noted above is also far from uniform. There are quite a few countries that have not been able to sustain growth and where armed conflict and poor governance continue to exact a heavy human toll.

Also, even where progress has been made, in many cases, it has come with an increased burden on sovereign balance sheets.

An observation made by Rwanda’s current Minister of Infrastructure and former Minister of Finance, Claver Gatete, at one of the earliest Compact events a couple of years ago best illustrates this point. Rwanda has enjoyed uninterrupted economic growth for close to 25 years, maintained a sound macroeconomic environment over this period, and has one of the best business environments among developing countries. But, all too frequently, he noted, investors seeking opportunities in Rwanda make their financing conditional on government guarantees of some kind or another, even for purely or substantially commercial endeavors.

This is why the emphasis of the Compact with Africa on country-specific partnerships to identify reform requirements, on the one hand, and promoting private investment to the region, on the other hand, is important.

While the Compact’s aim is to help support investment in Africa, against the current global economic backdrop, I cannot help but also think that should it succeed in engendering significant private flows to the region, it would serve to contribute, albeit in a limited way, as an outlet for the increasing amounts of savings in advanced economies unable to secure any returns. In one corner of the global economy, we have a significant shortfall in demand. In another, there is much unmet investment demand and projects with incredibly high rates of return. To an extent, this has always been true. But the juxtaposition, I don’t think, has ever been this stark.

All this is to reiterate that the raison d’être for the Compact very much remains in place, perhaps even more strongly so, two and a half years after it was launched.

Against this backdrop, today I want to talk aboutwhere we stand,what the IMF has been doing and what remains to be done.

• First, let me briefly discuss where we stand in terms of the economic outlook for Africa and the CWA countries.

• Let me begin with an important caveat. There are now 12 African countries participating in the CWA. They vary markedly in terms of per capita income (Tunisia vs. Ethiopia), population (Egypt vs. Benin), and extent of export diversification (Morocco vs. Guinea), pointing to the pitfalls in drawing generalizations across a very diverse grouping.
• While the three North African Compact countries have achieved significantly higher levels of economic development than their counterparts in sub-Saharan Africa, output growth has been more muted in the recent past, reflecting political uncertainties and stabilization challenges (in Egypt and Tunisia). However, IMF staff projections envisage a slight pick-up in growth in the coming years with real GDP in Tunisia growing at 2.7 percent, Morocco at 3.2 percent and Egypt at 5.5 percent.
• Most sub-Saharan CWA countries have recorded growth rates among the top quartile of low-income developing countries in recent years with real GDP growth ranging from 8.6 and 7.7 percent in Rwanda and Ethiopia, to 5.8 and 5.6 percent of GDP in Ghana and Guinea in 2018.
• Growth momentum across all CWA countries is expected to stabilize over the medium-term at around 5.7 percent (2019). This contrasts with growth only of the order of 3.6 percent for Africa as a whole.
• In per capita terms this is still well below the ambitious objectives that Compact countries have set themselves, not least on account of the need to create the 20 million jobs per year over the medium-term in sub-Saharan Africa as a whole.

Structural reforms

• There is no question, Compact countries have deepened their commitment to structural reforms that improve the business climate. In the past few years, nearly all the Compact countries have featured in the group of top ten reformers in the Doing Business survey results.
• Just to provide some examples: Rwanda performs as number two in the region behind Mauritius and ranks among the best globally in the areas of registering property (2) and getting credit (3). It has an efficient land registry where it takes seven days to transfer property at costs of 0.1 per cent of the property value, the same as in New Zealand! Together with Rwanda, Togo, and Côte d'Ivoire, made it to the list of global top 10 improvers this year, and also Guinea was among the notable reformers.

• Yet private investment has to show up and we must also ask what do private investors have to say about the Compact countries ’ economic prospects and recent reform efforts?

• As you know, investors typically vote with their checkbooks and their views are decidedly mixed. I am looking forward to hearing more about this today.
• The IFC’s most recent analysis of cross-border investment flows showed that in 2018, 7 of the 12 Compact countries (Burkina Faso, Côte d’Ivoire, Ethiopia, Guinea, Morocco, Rwanda, and Togo) sharply increased the amount of announced cross-border investment compared to 2017. However, the other Compact countries saw a decline, although in the case of Egypt and Ghana this was partially due to one-off factors related to energy sector investment.

• Rightfully, you will be asking what the IMF is doing. I can assure you that we remain committed to working with Compact countries to strengthen macroeconomic and financial policy frameworks.

• 10 of the 12 CWA countries currently have in place an IMF-supported program. We provide policy advice on key issues relevant to the investment compacts to all CWA countries through program discussions or Article IV consultations.
• Support for Compact countries accounted for 8 percent of the IMF’s capacity development budget in FY 2018 – which included 67 TA missions, 334 country visits by short-term and long-term experts, and training of over 1,700 country officials.
• IMF staff participates as a full member of all Compact country teams, typically with Resident Representatives being supported by HQ-based country teams.
• The Fund also sought to promote the initiative, through HQ-based events like the 2018 Spring Meetings flagship seminar on “Attracting Private Investment in sub-Saharan Africa” and peer-learning events, such as events on “Making the African Miracle: Diversification and Growth Policies” held in Dakar, “Promoting Growth, Jobs, and Inclusiveness in the Arab World” in Marrakesh, and most recently “Private Sector-led Diversification and Growth” in Addis Ababa. Here I would like to remark that this event was organized jointly with the Ethiopian Investment Commission, - whose chair Abebe Abebayehu is here with us today.
• Our staff is also actively involved in the monitoring and coordination of the Compact and maintain the CWA website; these activities foster transparency and provide relevant information to policymakers and investors, for example through the policy toolboxes which include policy measures and support instruments for private sector development by international organizations and its partners.

And finally, what more do Compact countries and their G20 partners need to do? There are a few things at the top of that to-do list:

• Compact countries need to accelerate implementation of reforms to promote private investment. First, delivering on their structural reform commitments in their investment compacts would be key to enhance competitiveness and attractiveness for private investors. Second, with a revenue gap of 3-5 percent of GDP in Africa there seems to be significant room to raise revenues. Third, enhancing transparency of public financial management will help to reduce corruption and prevent rent-seeking.
• Catalyzing investment is key for the success of the Compact . There have been several notable investments that have happened as a result of the initiative. But not enough given the scale of the challenge. It would be very helpful if more progress was made in the coming months. International development finance institutions have their work cut out for them in this regard. This includes efforts to identify bankable projects, mobilize investors, and provide technical expertise and/or targeted financial support as needed. Where policy-induced constraints are preventing projects from moving forward, highlighting these so governments can address them quickly would be important.
• Stepped-up G20 engagement. Initiatives such as the US OPIC Africa, the German Africa Grow/Africa Connect, and the French Choose Africa are good signs of deepening commitment to Africa by G20 members. But I would also like to call on G20 members to join forces, engage in the already established business-to-business and business-to-government fora and most importantly seek synergies with the processes already underway through the Compact with Africa. This would also enable the Compact countries to deploy their somewhat limited capacity more effectively.

To conclude, I strongly believe that there has been good progress under the Compact with Africa, but challenges remain ahead of us. As I noted at the outset, the endeavor is a partnership and so we all need to do our utmost to engender the private investment flows that the region needs. The time to act is now and I am very much looking forward to hearing more from our distinguished panelists.