Transcript Presentation Chapter 4

THE ECONOMIC DEVELOPMENT IN AFRICA
REPORT 2014
Chapter 4
Policies for Accelerating Investment in Africa:
National and Regional Aspects
21st January 2014
• For stimulating domestic investment to
achieve high, sustained and transformative
growth in Africa requires
 boosting the quantity of investment,
ensuring that it goes to priority sectors of an
economy, and
 improving the productivity or quality of
investment.
I. Boosting the level and rate of domestic
investment
 A flexible approach to macroeconomic policy is
needed
 Adopt a discriminating treatment of domestic demand
that distinguishes between consumption and
investment expenditures and gives priority to the
latter.
 Strong public investment is a prerequisite for strong
private investment. Boosting public investment is
therefore a central element of the strategy for
stimulating domestic investment.
 The priority in expenditures must be to fill the
gap in public infrastructure in key areas such as
power generation and transmission,
transportation, water and telecommunications.
 On the revenue side, fiscal policy needs to
become more innovative. Development of
domestic-currency infrastructure bonds, which
can among other advantages, help reduce
African countries dependency on foreign
currency-denominated public debt.
• Improving financial intermediation to enhance access
to affordable credit
 provision of partial guarantees by the State to
commercial banks to encourage them to lend to
entrepreneurs for investment financing.
 Strengthening support for the establishment of private
credit bureaux, public credit registries, and movable
collateral registries.
 promote intra-African investment in the banking sector
in order to create larger consumer markets for African
banks
• Reversing the policy bias against public investment• The policy bias against public investment is largely
responsible for the secular decline of public capital
formation over the past decades, which accounts for most
of the decline in domestic investment.
• Strengthening infrastructure development
• Reducing inequality in income and asset distribution
• Improving governance for investment
• Promoting the development of regional value chains
II.
Ensuring that investment goes to
priority sectors
 Agriculture and manufacturing are identified as priority sectors
which are crucial for job creation and promoting inclusive and
sustained growth. Role of industrial policy in redirecting
investments in these sectors is very important.
 central banks can adopt a refinancing (discount) policy that
favors lending for investment by setting a differentiated discount
rate that is lower for bank advances dedicated to financing
investment in strategic sectors or activities.
 asset reserve requirement formula can be used whereby banks
can choose to satisfy their reserve requirement by either lending
to finance investment in priority sectors or hold sterile cash as
reserves at the central bank.
 Assessment of bankability for SMEs must be
more flexible with regard to guarantee and
collateral requirements and focus more on
prospects for income generation.
 Direct government involvement may also be
necessary in some activities, such as
infrastructure, to encourage the private sector
to invest in these areas.
III. Improving the productivity or quality
of investment
 Improve productivity of private investments
by easing binding constraints that affect
competitiveness of enterprises which include
skills shortages, poor infrastructure, low
access to finance, and high costs of factor
inputs.
 Improve the quality and efficiency of public
investments
• Better project selection and delivery for reducing
inefficiencies
• Getting more value out of existing
infrastructure- improving asset utilization and
better maintenance of assets
• More targeted public investment is neededallocate more to public investments which are
productivity-enhancing (e.g., infrastructure)
rather than utility-enhancing (e.g., expenditures
on national defense and parks).
Open for Discussions