Sixth Session of the Conference of African Ministers of Finance

Statement by K. Y. Amoako,
UN Under-secretary-general And Executive Secretary,
The Economic Commission for Africa

Addis Ababa

31 March 1997

 
Your Excellency, Dr. Kasu Ilala,

Deputy Prime Minister of the

Federal Democratic Republic of Ethiopia,

Honourable Ministers and

Governors of Central Banks,

Dr. Salim Ahmed Salim,

Secretary General of the

Organization of African Unity,

Mr. Ferhat Lounes, Vice President of the

African Development Bank,

Distinguished delegates,

Colleagues and friends,

Welcome to the Sixth Session of this Conference. It is an honour for me to address this distinguished group. I am also pleased to welcome you to the new UN Conference Centre, a fine regional facility built for important meetings such as this one.

The United Nations Economic Commission for Africa also welcomes you. Nearly 40 years old and in the midst of organizational renewal, it is now more than ever your commission, pursuing the issues that you have deemed high priority, and those which will bring Africa from the periphery of poverty to the heart of global commerce and finance.

On behalf of you, Honourable Ministers and Governors, and my own behalf, I would like to thank the Deputy Prime Minister of Ethiopia for his address this morning in which he so eloquently stated the key issues and major challenges facing our continent. I would also like to congratulate the government of Ethiopia for the role it has played in the exceptional performance of the Ethiopian economy. This country is already reaping the benefits of successful economic and political reforms. Many of our countries will, no doubt, derive useful lessons from this experience.

The presence today of so many finance ministers and governors of central banks is a source of encouragement to us. Central banks and finance ministries are two of the core agencies for Africa's development. So much of Africa's progress depends upon your wisdom and your decisions. You and your other cabinet colleagues are the decision makers that will lead Africa into becoming a dynamic emerging market and competitor within the global arena. Your experience, advice, and support are important to us all.

I believe that this conference will provide the fora for sharpening your policy perspectives and laying the groundwork for future decisions. We opted for a different and more productive meeting format so that you would derive maximum benefit from the substantive discussions and direct exchanges with your colleagues. And, we in turn receive well-deliberated policy guidance.

This meeting, as it has been structured, exemplifies the new ECA ? networking, showcasing African talent, facilitating substance, and helping Africa find new synergies across the board. The themes on your programme were identified through extensive consultations with Ministers, Governors, and other key officials. As a result, this meeting reflects our collective wishes, positions, and shared responsibilities.

In discussions with many of you and other leading citizens of your countries, there has been concern that Africa's traditional sources of development support are declining, while the new global motors of finance are bypassing Africa. This concern is warranted in many respects.

Net aid to developing countries has stagnated or declined over the past decade. Measured in constant 1994 dollars, net official development assistance received by developing countries remained in the range of $54-$61 billion during 1986-1994. During the same period, the share of net ODA in DAC members' combined GNP dropped from 0.33 percent to 0.29 percent, the lowest level since 1973.

However, we are depending on the part of external financial flows that are shrinking, i.e., official development assistance. In Sub-Saharan Africa official development assistance accounts for a higher proportion of external financial flows to this region than to any other developing region. Additionally, the composition of aid has shifted. A bigger share of ODA is being diverted to emergencies, disaster and refugee relief, and peace-keeping operations ? from two percent to 12 percent of the total in 1990. Consequently, less is being spent on long-term development and poverty alleviation.

On the other hand, while official development assistance is declining, record levels of private capital are flowing to developing countries. Overall, private capital flows to the developing world went from $44 billion in 1990 to about $244 billion in 1996. Of this amount, 73 percent went to 12 countries, mostly in Asia and Latin America. The flows to Africa are lower, as a percentage of GDP than all other developing regions. Only about 3 percent of all the flows of private capital go to Sub-Saharan Africa.

Why not Africa? Experience in other regions has shown that investors chose countries with stable political and economic environments. Our challenges therefore are to: deepen or restore macroeconomic stability to help improve the general investment climate; pursue regional cooperation and integration to expand domestic markets encouraging broader-based foreign direct investment; push for more outward-oriented and market-based investment regimes, particularly by eliminating excessive and discriminatory regulations; expand Africa's physical, financial, human, and institutional infrastructure; promote favourable labour market policies to reduce the overall costs of production, which are now generally higher than elsewhere ? almost double those prevailing in low-income Asian countries; and end civil strife and conflict, which feeds a perception of risk, to improve the attractiveness of Africa for investment and improve the overall image of the continent.

In view of the weakening of traditional sources of development support, financing additional investment to spur vigorous growth and to reduce poverty in Africa is likely to emerge as one conspicuous challenge facing our continent.

But, there is cause for optimism. A number of positive developments, including political changes, which have ushered in political pluralism in many African countries, have given impetus to increased activity in African capital markets. First, some African countries have opened up their stock markets to foreigners. The enthusiasm in stock market development in Africa is also evidenced by the surge of Wall Street interest in Africa, the increase in investment funds being traded in New York and Europe ? from zero in 1992 to over US$1 billion currently ? and, by the increased number of stock exchanges, now at 16.

Secondly, there are also encouraging signs of growing interest in portfolio investment. Since 1994, more than 12 Africa-oriented funds have been set up. Initially focused on the South African markets, the base has been broadened to include a number of other African countries, such as Botswana, Ivory Coast, Ghana, Kenya, Mauritius, Zambia, and Zimbabwe.

Thirdly, the rates of return on foreign direct investment have generally been much higher in this region. According to a recent World Bank document, How Can Sub-Saharan Africa Attract More Private Capital Flows?, during 1990-1994, rates of return on FDI in Sub-Saharan average 24-30 percent, compared to 16-18 percent for all developing countries.

Your Excellency, Deputy Prime Minister,

Honourable Ministers and Governors,

Ladies and Gentlemen,

We need to build upon these positive trends. The issues we will cover in this meeting ? financial sector reform, the development of capital markets, and Africa's debt problem ? will allow us to take better advantage of the global financial, investment, and trade markets.

Our economies are becoming more complex as development progresses, new infrastructure increases internal trade, and new information and communications systems allow faster knowledge of the market to take place. Yet often our financial systems, particularly our banking systems, are still big city and big enterprise centred, largely ignoring the huge potential savings and the investment finance needs of most our citizens and the promising small scale and informal economies.

Often the potential for developing organized capital markets is seen in terms of attracting foreign portfolio investment, but again, I see the attraction foremost in attracting domestic investment resources to our needed capital formations. If we attract capital out of our own pockets in an organized and upright way, money will come from other pockets.

If we can approach the topic of financial sector reform with imagination and reality, we will do ourselves a major service. Countries need to make intensified efforts to deepen the process of financial intermediation in Africa, develop efficient financial and capital markets, and improve linkages between informal and formal financial markets.

For example, the recent Microcredit Summit declaration makes the case that microcredit:

1) is a critical anti-poverty tool and a means for promoting self-employment in the world;

2) can increase the capacities of local organization; and

3) promote the growth and stability of small- and medium-sized enterprises. By ensuring the inclusion of microcredit components in the reform of financial sectors in Africa, governments can guarantee that the small- and medium-sized enterprises can actively participate in and benefit from the surge of economic activities underpinned by the reforms.

On the subject of capital markets, permit me to make three observations. First, capital markets should serve far broader functions. I see a time when our markets will trade debt instruments allowing us to issue bonds for state finance and for the development of specific industrial and social development projects.

We should also build upon the new experiences of the Abidjan market and create regional capital markets. If we anticipate these developments now, we can shape our legal frameworks and regulations to permit them to serve us more fully later on.

Third, we need to stay in touch as we develop these markets. Innovations within Africa and the global capital markets are occurring rapidly. None of our countries should be in the backwaters of knowledge. It is for this reason that at the ECA-sponsored conference of heads of state, CEOs, and investment experts held in Accra last June, a number of public and private institutions, with the support of ECA, announced the creation of an African Capital Markets Forum.

The Forum brings together expertise within Africa with leaders of major exchanges and financial experts from around the world to share information, provide training opportunities, and commission research. I hope it will provide a major service to you as you foster markets in your country. We will be briefed on the activities and proposed work programme of the Forum following the Interim Governing Council of the African Capital Markets Forum, which is meeting here now in this conference centre.

Mr. Chairman,

Ladies and Gentlemen,

No external financial issue has been of more concern than our international debt crisis. The issue has been addressed extensively by the experts meeting and will be discussed tomorrow morning. At the heart of this discussion will be the Fund/Bank Debt Initiative for Heavily Indebted Poor Countries, now known by the acronym HIPC. The leaders of the Fund and the Bank should be congratulated for moving ahead on this initiative.

In deference to the Fund/Bank effort, the final proposal is an improvement over the initial proposal and addresses comments and criticism made about the earlier version. Nonetheless, concerns remain. They are focused in the following areas:

• the seemingly restrictive country eligibility criteria, particularly the ranges of debt-to-exports and debt service-to-exports ratios;
• the failure to consider the fiscal burden of debt as a central variable in the debt sustainability analysis;
• the length of the work-out period, which could be as long as six years; and
• the commitment to adequate amounts of financing and appropriate timing, particularly on the part of key bilateral donors.

These issues underscore the importance of applying the HIPC initiative in a flexible manner. Maintaining the right perspective will be fundamental to the success of the initiative. Otherwise the initiative could look good on paper, but not benefit as many African countries as are genuinely burdened by debt and deserve assistance. There is a danger that if the HIPC is implemented without due flexibility, it would end up like, as one distinguished friend of mine in this room today has noted, "the mountain giving birth to a mouse."

Assuming that the initiative is implemented in such a way that it will achieve its objective, a final concern would be how to make sure Africa does not find herself in the same situation in the future. That's why the issue of debt management is also on the agenda.

The conclusions of our discussions on the debt problem and on the HIPC should not only inform our actions, but should also form the basis for further interaction between African countries, the donor community, and multilateral financial institutions. Accordingly, it is my sincere hope that our conclusions and recommendations will be conveyed to the Executive Heads of the World Bank and the International Monetary Fund, and to our African Heads of State and Government through the Organization of African Unity and the UN General Assembly.

In the same spirit of collaboration, the lead-off panel later this morning will bring us esteemed friends from the multilateral financial institutions who will provide their views on growth and development finance in Africa and the role of their institutions. Of course, we are all more than disinterested observers of these institutions: we have ideas and hopes to share which might well lead to new actions. We are concerned with having strong net flows for Africa's development. There are issues of evolving partnerships which bring into question evolving conditionality. It is not too much to state that the whole future of the World Bank's IDA window depends upon the productivity and results of evolving partnerships with Africa.

Distinguished colleagues and guests,

I come to you as an optimist for Africa: optimistic about our basic course, about the dividends I see which will accrue to state performance, the private sector and civil society as states become more democratic and as economies open; optimistic about the course of African enterprise which I see increasingly operating in cross-border arrangements; optimistic about our social future as we learn to live together and invest in our children; and optimistic that with insight and dedication we can become an increasingly active participant in the commercial, financial, technologic, and informatics trends which characterize much of world affairs today.

This is the spirit in which I welcome you to a renewed Commission, at your service. Welcome to your new regional conference centre. And welcome to this truly auspicious meeting. No one will enjoy your deliberations more than I will. I wish you great success.

And now, those of you who know me, know that I cannot end without tapping our cultural roots with a proverb. This one is from Ethiopia. It is this: "A too modest man goes hungry". So let us be bold and prepare a banquet table for the future.