Transcript characteristics of african economies

WBG COOPERATION IN
ACCELERATING NEPAD
IMPLEMENTATION: REGIONAL
CONSIDERATIONS
Mark Tomlinson Cape Town 24 February 2005
CHARACTERISTICS OF AFRICAN
ECONOMIES

African economies mostly very small. Average $2bn.

15 economies growing at > 5%pa in 2004

But more than 30 economies growing at < 5%pa

Average across continent about 3% pa

Net of population increases, per capita growth only 1-2% pa in
most countries

Much too slow to reverse rising poverty in many countries
GROWTH, POVERTY AND MDG
PROSPECTS

Conclusion: Problem with level and quality of growth. Too slow
and not sufficiently broadly based for poverty reduction.

Conclusion: Africa will miss most MDGs by wide margin. Africa
marginalization increasing not diminishing in many areas.

Conclusion: If countries continue present development track and
if we (WBG) continue ‘business as usual’ little prospect of
dramatic increases in growth.

Do we understand the reasons?

Are we focusing on these in our business models? What are we
doing about this?
NEEDED: PRIVATE SECTOR
DEVELOPMENT

Accelerated growth will be driven by additional private
business activity (much less so by additional public
consumption and investment.) This requires additional trade
(domestic markets mostly small) and once productive slack is
taken-up, additional investment - domestic and FDI.

(NB: Over last 20 years Africa’s share of world markets has
slipped from 3.5% to about 1%. Loss is equivalent to 25% of
Africa’s present GDP.)

Additional private sector activity requires:
(i) removal of restrictive trade barriers to enlarge
demand at existing competitiveness; and
(ii) improvements in competitiveness.
CAPITAL OUPUT RATIOS AT COMPARABLE
STAGES OF DEVELOPMENT
Country
GDP range
Time period
Average Capital
Output Ratio
Thailand
China
Indonesia
$520-$609
$440-$603
$500-$600
1963-1966
1993-1996
1980-1985
0.45
0.32
0.28
SS Africa (w/o SA)
$540-$590
1990-2003
0.14
FOUR DIMENSIONS TO
COMPETITIVENESS

Better country business conditions

Improved trade facilitation

Cheaper products

Better products
FOUR DIMENSIONS TO IMPROVED
COMPETITIVENESS
1.
BETTER COUNTRY BUSINESS COUNDITIONS

Peace and security, macro stability, governance, fiscal
predictability, simpler business registration and regulation, better
national infrastructure, deeper financial sector.

Conclusion: Most acted upon nationally. Regional co-ordination
important.
FOUR DIMENSIONS TO IMPROVED
COMPETITIVENESS
2.
IMPROVED TRADE FACILITATION

Better transport and communications infrastructure, trade policy
reform and harmonization, customs reform, international financial
instruments.

Conclusion: Mixture of national and regional actions required.
FOUR DIMENSIONS TO IMPROVED
COMPETITIVENESS
3.
CHEAPER PRODUCTS

Economies of scale through market integration to rationalize
supply, production and distribution, cheaper and more reliable
power, better communications, better trade logistics, more skilled
and healthier labour force. More competitive financial sector.

Conclusion: some acted upon nationally, but most regionally.
FOUR DIMENSIONS TO IMPROVED
COMPETITIVENESS
4.
BETTER PRODUCTS

Improved access to knowledge - improved tertiary education,
world class research and commercialization, improved
application of technology, more reliable input supply and power,
fuller range of financial instruments.

Conclusion: Mixture of national and regional actions.
OVERALL CONCLUSION 1

Bank Group work on competitiveness and growth must have two
dimensions: national and regional.

Work on either is not likely to be fully effective without the other.

Regional dimension especially relevant when dealing with mostly
very small economies, lacking much international comparative
advantage in their own right (outside petroleum and other mineral
resources.)

Working mostly nationally (‘business as usual’) is working with
one hand tied behind our back.
OVERALL CONCLUSION 2

Bank Group national approaches well developed; regional
approaches much less so.

Need Country Teams to focus on complementary regional
approaches to deliver additional CAS growth impact.

Professional families in Bank, IFC and MIGA have key role in
delivering this innovation – don’t expect it to develop unaided
within all Bank CMUs.
REGIONAL OPPORTUNITIES
Larger markets
 technical economies of scale
 more intensive utilization of plant, structures and equipment
 hedging of supply chain risks
Diversification of political risk
 internal peer country pressure
Improved consumer credit risk
 broader, more diversifies base of manufacturing consumers
 hedging of risks posed by natural vulnerabilities
Enlarged pool of skilled human resources
= better returns, more impact, more growth
REGIONAL CHALLENGES

Creating and maintaining political alignment
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Creating impartial, effective regulatory structures
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Trade issues. Financial reporting and fiscal arrangements more
complex
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Project financing structure likely to be more complex
= more difficult, WBG uniquely placed, special role, special
responsibility
WAY FORWARD

Identify small number of flagship projects which enjoy a political
constituency

'Hands-on' capacity building of concerned regional bodies to
deliver political alignment on specific project issues.

Funding to expedite project preparation

Present flagships to emerging investor groups when developed
sufficiently for risk mitigation strategies to be clearly set out.