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  World Economic Forum on Africa
    Cape Town, 31 May 2 June 2006
World Economic Forum on Africa Home   

Boosting African Growth Printer friendly versionSend to a friend
"We can't have sustained poverty reduction and employment without growth." Charles Soludo Governor of the Central Bank of Nigeria; Co-Chair, World Economic Forum on Africa
While many countries in Africa are enjoying record growth, the challenge is to sustain the expansion and reduce poverty.
•  Growth in sub-Saharan Africa climbed to 5% in 2005, with inflation dropping to its lowest point in more than two decades.
•  Capital flows are now outpacing aid.
•  This offers Africa the opportunity to address persistent impediments to sustainability such as the skills shortage and the lack of infrastructure.
•  But 300 million Africans continue to live in dire poverty.

Africa is experiencing record growth rates in many countries in a new era of peace, political stability and macroeconomic reform. But the challenge is to ensure that this growth is sustainable and reduces poverty, and is not only driven by high oil and commodity prices and windfall investments from China. Increased revenues must be used to address problems in the business environment, build infrastructure, increase access to finance for entrepreneurs and improve health and education. These measures will help to unlock growth right down to the bottom of the pyramid the rural poor.

Growth in sub-Saharan Africa reached an eight-year high of 5% in 2005, while average inflation fell to its lowest rate in 25 years. About 20 countries achieved growth of more than 5%. Coupled with surging commodity prices, improved governance and reduced conflict, Africa's fortunes seem to have changed for the better, with experts noting that the outlook is the best it has been for decades.

Growth has become Africa's new development strategy, which can be sustained through political stability and sound macroeconomic policies.

Yet, with an estimated 300 million Africans still living in dire poverty, Africa is by no means out of the woods yet and many questions remain. What is driving this growth and who is benefiting? Is it sustainable? Is it creating jobs? Is it reducing poverty? What is holding back even greater growth?

South African President Thabo Mbeki said, "Without growth we simply cannot deal sustainably with the issues of poverty and underdevelopment."

While the Commission for Africa has called for massive increases in aid, some believe Africa is receiving too much, propping up otherwise unviable states and reducing governments' willingness to deal with problems. There is little evidence to suggest that aid is linked to growth. "The current foreign aid system works very well for everyone except poor people," declared William Easterly, Professor, Economics Department, New York University, USA. But President Jakaya M. Kikwete of Tanzania, said that, in reality, many countries simply do not have the resources to survive without aid, even when they have good policies.

Nonetheless, capital flows to Africa have increased to the point where they now outpace the US$ 25 billion in aid. Remittances flowing into Africa dramatically increase such flows by more than US$ 10 billion and are seen as an important catalyst for increased economic activity.

However, many challenges remain. There are predictions that Africa will be the only region that is unable to meet the Millennium Development Goals (MDGs) despite claims that the goals are overambitious for Africa and were developed without input from Africans because the growth Africa is experiencing is not necessarily reducing poverty.

Skills shortages are a major constraint to sustainable growth. Greater investment in quality education and skills training is required to address the problem.

Addressing the business and investment climate is crucial for increased growth. Areas needing to be addressed include removing excessive bureaucracy and regulation, improving customs and tax administration, providing viable microfinance institutions, addressing crime and corruption, deepening financial markets and addressing property rights and contract enforcement, among others.

"Us, buoyant and bullish?" Meeting co-chairs sharing a light moment during a press conference on African growth prospects
Countries can sustain growth in their revenue base only by increasing private sector activity and bringing more businesses into the tax net.

The Investment Climate Facility, launched at the World Economic Forum on Africa in 2006, aims to tackle many of the problems that keep investors at bay and that compromise the private sector's ability to stimulate economic activity and revenue generation. Removing the obstacles to doing business would also have the effect of reducing investor risk.

The issue of competitiveness of African products, as well as increasing the levels of intra-African trade need to be tackled with the same vigour given to the problems in the international trade agenda. Companies must be competitive in their own regions before they can effectively compete in the global arena. Business should become more engaged in trade issues, since it is companies that trade, not governments.

Africans believe the continent needs to develop a strategy to deal with the overwhelming wave of trade and investment from China, notably in extractive industries. The continent should not be left worse off once the boom ends; deals must be made more sustainable through, for example, downstream linkages and local partnerships.

Infrastructure is crucial to development and Africa needs to develop stronger public-private partnerships to address the backlogs, as well as reducing the risk to investors in large projects. Rural infrastructure has been identified as a priority because of the potential to unlock growth in poorer and marginalized areas. Technology should be used to promote health, education and trade in rural areas.

Africa's current growth rates are being driven in part by record oil and commodity prices. African countries need to find ways to allow the positive economic growth they are experiencing to trickle down to the people who need to benefit the most the poor.

This is not only the responsibility of government, but must also involve business and civil society. Former President of Mozambique Joaquim Chissano summarized, "In the past it was just state, state, state. Now we say we have the state, the private sector and civil society it is a partnership."

"China is diversifying the monopoly of investors in Africa." Phumzile Mlambo-Ngcuka Deputy President of South Africa

"In the past it was just state, state, state. Now we say we have the state, the private sector and civil society it is a partnership." Joaquim Alberto Chissano Director, African Rainbow Minerals (ARM), South Africa; President of Mozambique (1986-2004)

"Growth in Africa is not going to come about as a result of actors outside Africa." William Easterly Professor, Economics Department, New York University USA