At the Opening of the Thirty-third Session of the UN Economic Commission for Africa/Twenty-fourth Meeting of the Conference of Ministers/Seventh Session of African Ministers of Finance

Your Excellency Ato Meles Zenawi,
Prime Minister of the Federal Democratic Republic
of Ethiopia

Honourable Ministers

Your Excellency Mr. K.Y. Amoako
UN Under-Secretary-General and Executive Secretary
of the United Nations Economic Commission for Africa

Your Excellencies, Members of the Diplomatic Corps

Distinguished Representatives of International and African organizations

Ladies and Gentlemen,

It is my singular honour and privilege today to share with you the perspective of the OAU/African Economic Community on the theme of this gathering - The Challenges of Financing Development in Africa. I do so also on behalf of the Secretary General, Dr. Salim Ahmed Salim who is out of station on urgent official duty. Allow me also to acknowledge the presence in our midst of H.E. Prime Minister Meles Zenawi. This is of special significance, as it demonstrates his continued personal commitment to and interest in the critical issues of development facing our continent. Let me also address special thanks to the Executive Secretary, my good friend K.Y. Amoako for inviting the OAU/African Economic Community to address this opening session.

Mr. Chairman,

Honourable Ministers,

Excellencies,

The theme of this meeting underscores the fact that finance is the lifeblood of economic development. To be sure, there are other important prerequisites and preconditions for development to be sustainable. These include investment in the human resource base; the build-up of physical infrastructure; and the maintenance of institutions of governance that are responsive and accountable with policy-making and implementation capacity. But no one can deny the important role of finance. An importance, moreover, that is highlighted by the current context in which African governments find themselves. This is a context of declining export receipts as a result of weak demand for Africa's commodity exports, falling terms of trade, little capacity to generate internal savings, and --- the mother of all our economic difficulties: the debt overhang. These factors have combined to make African countries, especially those south of the Sahara, increasingly dependent on foreign aid or official development assistance (ODA).

Yet, it is also a context in which the region as a whole has experienced four years of positive growth rates following two decades of almost continuous dismal economic performance. Modest as this recovery is, the evidence does suggest that it is underpinned by increasingly sound macroeconomic fundamentals in most countries. Yet again, at precisely the time when a new window of opportunity has been opened through the sacrifices of difficult political and economic reforms, levels of ODA to our countries have been cut back sharply. Indeed, by the mid-1990s, the policy environment in most African countries had generally become very favourable for foreign aid to be used to intensify policy reforms and direct efforts towards addressing the human, institutional, infrastructure and other structural constraints. ODA, however, has fallen for six consecutive years, from 0.33 per cent of the combined GNP of the OECD - Development Assistance Committee (DAC) donors in 1992 to 0.22 per cent in 1998, its lowest ever level. This, moreover, is now less than one third of the agreed UN target of 0.7 per cent of GNP. Foreign Direct Investment inflows to Africa have remained stagnant, hovering at around 3 to 4 percent of global flows throughout the 1 990s, concentrated in just a few countries and in the extractive sector, notwithstanding the overwhelming evidence suggesting a higher than average rate of return for investment in Africa. Equity flows to Africa have been relatively insignificant and other private flows including net bank lending have shown a declining trend for a number of years. Even as we welcome recent initiatives to address the problem of debt overhang in Africa, the meaningful reduction of the stock of debt must remain the objective if internally generated resources are to be directed towards our pressing development needs.

Meanwhile, the implementation of economic reform programmes continues to improve national resource and factor allocation in our economies. But the financial flows required to support the improved conditions for strong growth have not been forthcoming. So far as our continent is concerned, this is a context that can aptly be described as economic recovery and a paradox of resource flows.

A good policy environment now exists in much of Africa. However, as the useful documentation that has been provided by the ECA points out, more needs to be done to deepen financial sector reforms and capacity for financial intermediation through capital market development, the introduction of flexible savings instruments, appropriate interest rate policy management, innovations in the public sector to generate public savings, suitable measures to curb capital flight, and the fostering of greater transparency in financial markets through the widening of the participation of African countries in the General Data Dissemination System (GODS) and the Special Data Dissemination System (SDDS).

Clearly, these issues are among the next generation of reforms that will require the full attention of our governments in the coming years. But we must also not lose sight of the fact that these reforms are not ends in themselves. Nor should they be seen simply as the changes needed to bring African countries into the global mainstream. They are rather the means to achieve such objectives as: reducing the unacceptably high levels of poverty among our people and generating growth leading to sustainable development. We must also not lose sight of the fact that the capacity of our economies to increase savings significantly in the foreseeable future is inherently limited. To this extent, sustaining the gains that have already been made and the good policy environment that has largely been achieved requires external resource flows to address the long-standing structural weaknesses and supply side constraints in our countries. Sustaining these gains further requires increasing levels of investment in sectors, products and services where value-added is greater, productivity growth is faster and demand elasticities in world markets are higher. Indeed, the analysis that has been presented by the ECA suggests that to achieve the internationally-agreed goal of reducing poverty by half by the year 2015, an annual growth rate of 7 percent will be required in Africa as a whole. The ECA projections show that the quantum of external resources that is needed to achieve this target in Africa south of the Sahara amounts to 47 per cent of GDP during 1999 and 2000; 32 per cent of GDP during 2001 to 2005; and 10 per cent of GDP during 2006 to 2010. Well, I leave it to our collective imagination as to how this can be attained. On current levels of external financial inflows, it therefore follows that our countries are facing a massive financing gap.

As we ponder over this predicament in which we find ourselves - economic recovery and the paradox of resource flows - we must also recognise that the distribution of benefits from the ongoing globalisation of the world economy is profoundly inequitable. This underscores the need for more meaningful cooperation between developed and developing countries in shaping a global economy in which the gains from liberalisation are more equitably shared. This is an issue, a farreaching analysis of which would greatly enhance our deliberations at this meeting. On our part, we at the OAU/African Economic Community are advocating that this issue of enhanced coherence in global economic management and the need for the international community to take a systemic approach in addressing global economic imbalances is clearly the way forward. Forthcoming fora such as the 3rd WTO Ministerial Conference, the proposed OAU/European Union Summit, the UN Conference on Financing for Development, the UN Millennium Summit, UNCTAD X, the South-South Summit, and the Third UN Conference on Least Developed Countries provide an opportunity for meaningful progress to be made in addressing the general issue of the management of global economic imbalances and the specific issue of external resource flows. In the current ACP/EU negotiations for a successor to the Lome IV Convention and in our preparations for the new round of trade negotiations that is expected to be launched at the WTO Ministerial Conference in Seattle later this year, we are making every effort to ensure that this issue of the imbalances of globalisation are adequately addressed. To this end, with the collaboration of the ECA and the African Development Bank, we have put in place a panel of experts to assist African negotiators in these very important negotiations.

Mr. Chairman,

Distinguished Ladies and Gentlemen,

As much as the importance we attach to enhanced coherence in global economic management is justified, globalisation also calls for a higher level of competitiveness as a response. To this end, regional economic integration within the framework of the Treaty Establishing the African Economic Community (the Abuja Treaty) is the cornerstone of our strategy of fuller integration into the world economy and of achieving global competitiveness. The high incidence of small country markets and land-locked states as well as underdeveloped intra-regional transport and communications infrastructure are among the constraining elements that underscore the importance that our governments have attached to economic integration and the creation over the next three decades of a continental economic space. Our vision at the OAU/AEC on this subject is that the regionalisation of economic activity will enable our national economies to build-up capacities in all critical areas, from the absorption and generation of new technology to production and marketing, as a springboard for more meaningful participation in the world economy. As our entrepreneurs - in partnership with foreign investors and corporations from the North as well as from the more advanced countries of the South - respond to the freer flow of factors, goods and services within the regions of our continent and build-up their supply capacity in terms of productivity, scale and scope of production and marketing, they will become more and more able to exploit global opportunities in a gradual, step-by-step, process of integration into the world economy.

Indeed, this month marks the fifth anniversary of the coming into force of the Abuja Treaty. I am gratified that the last five years have seen the gradual strengthening of the regional economic communities and the beginning of the process of policy coordination and integration in the continent. Clearly, we have a long way to go. The forthcoming Third Ordinary Session of the Economic and Social Commission of the African Economic Community that is now scheduled to take place here in Addis Ababa at ministerial level on 17-18 June will be an occasion to review this progress, assess the state of play and map out the way forward.

Mr. Chairman,

I cannot conclude these remarks on the perspective of the OAU/African Economic Community on the theme of this meeting without making reference to the incidences of conflict that continue to rage in certain - albeit a few - areas of our continent.

So much resources have been directed by humanity against humanity in wanton destruction and senseless killings - resources that could have been positively attributed to alleviate the plight and lot of the poorest of the poor. As we also look beyond Africa, and consider the resources that have been mobilised and are being expended in post Cold War militarism, this end of century has once again demonstrated and upheld the adage that history repeats itself - as one considers the capacity of the human race to self-destruct. If only such resources and the political will behind them could be mobilised to cut global poverty by half by 2015!

Mr. Chairman Distinguished Ladies and Gentlemen

This conference will be deliberating on the challenges of financing development, and there are important lessons to be drawn. Among these is the need to continue our reform efforts and, in particular, to embark upon a new generation of financial sector reforms aimed at deepening and achieving greater transparency in African financial markets. Regional economic integration is also the cornerstone of our strategy of transformation and of achieving competitiveness in the wider global context. It is therefore imperative that the implementation of our reform programmes should increasingly reflect the commitments that are being made at both the levels of the regional economic communities and of the AEC. However, we also find ourselves in a strange predicament of what I have described as economic recovery and the paradox of resource flows. The magnitude of financial resources required for Africa's socio-economic transformation and sustained development are far beyond the capacity of our economies to generate. Urgent international support by way of official and private flows as well as an effective resolution of the debt crisis is needed if the current recovery is to be translated into vigorous growth and rising living standards. In this context, it is imperative for our governments to take the lend and initiative to press the case for greater coherence in global economic management and for addressing the imbalances of globalisation.

Assembled here today are policy makers of our continent, on whom much will depend, and from whom much is expected as Africa, with its teeming millions, faces its destiny in the third millennium. I have no doubt whatsoever that we shall all rise to this challenge.

Thank you.