High Level Ministerial Segment of the Conference of Ministers - Africa Development Week - Statement by Mr. Carlos Lopes
HIGH LEVEL MINISTERIAL SEGMENT OF THE CONFERENCE OF MINISTERS - AFRICA DEVELOPMENT WEEK
Statement by Carlos Lopes
UN Under-Secretary-General and
Executive Secretary of the ECA
4 April 2016
ECA Conference Centre, Addis Ababa
His Excellency, Mr. Hailemariam Desalgen, Prime Minister of the Federal Democratic Republic of Ethiopian,
His Excellency Mr. Nickey Iyambo, Vice President of the Republic of Namibia,
His Excellency Mr. Augustin Matata Ponyo Mapon, Prime Minister of Democratic Republic of Congo,
Her Excellency Dr. Nkosazana Dlamini Zuma, Chairperson of African Union Commission,
Ministers, Heads of delegation, guests
Ladies and gentlemen,
About a year ago we were still celebrating the good news about Africa economic performance. In so doing we were not alone. The African prospects were certainly admitted by specialists, investors and expert media, even though the skeptics were not far. Many indulge in the usual amalgamation. A continent as vast as Africa was supposed to get a 30 billion plus hit by Ebola, when in effect only three counties with a tiny percentage of the continent’s combined GDP were affected. But overall the news were still upbeat. 2015 was, after all, a great year for the continent assertion of a new way of dealing with international issues. Africa led the way in the discussions regarding the new universal goals, illicit financial flows, domestic resource mobilization, data adjustments, assessment of demographic shifts, or return to industrialization policy.
What a difference one year makes. Despite Ebola no longer being a threat, similar or more worrying headwinds are well present and spreading like a virus. I believe it is important to understand the issues that define the current moment.
Ladies and gentlemen,
Let me pick on headline number one: the slump in commodity prices is having large negative impacts on African countries.
In 2015, developing countries worldwide grew at the slowest rate (4.3%) since 2009. Among the drivers of such slow growth were China’s slowdown, the recession in big emerging economies such as Brazil and Russia and low commodity prices. Low commodity prices in particular are causing lower export revenues, fiscal imbalances and current account deficits across several African countries. In 2015, Africa had the highest negative current account balance over the past ten years. In 2015, 42 of the 46 commodities tracked by the World Bank traded at their lowest level since the early 1980s.
As a result of its dependency on imports and its reliance on commodity and natural resources exports and on a small number of buyers for its exports, African countries are highly exposed to volatility and trade shocks. The impact of these shocks are often aggravated by Africa’s underdeveloped domestic financial systems and low institutional quality. However the current volatility of most commodities (oil excluded) is not out of the ordinary when compared to past trends.
Most African countries are net importers of commodities and are, therefore, set to gain from lower prices. In the long run, it is difficult to predict how the current downturn in commodity prices will affect Africa’s development trajectory: the situation is certainly difficult, but is providing powerful incentives to relocate economic resources away from commodity production and into more sustainable activities. Moreover, it is difficult to say whether the gain in consumers’ purchasing power from lower commodity prices may provide a growth boost that outweighs the losses from commodity exports.
In 2016, with a barrel price of US$ 30.8, Africa is going to earn US$ 47.1 billion less in trade surplus in 2016, relative to that in 2015. This difference is around 8% of the total value of Africa’s exports in 2014. While considerable, this is unlikely to change the development trajectory for the entire continent. The fall in oil prices is more likely to have large adverse impacts on the few African countries whose economy depends on oil exports. However, Governments can seize the opportunity offered by lower oil prices to scrape wasteful oil subsidies. IMF research shows that more than 40% of fuel price subsidies in developing countries accrue to the richest 20% of households, while only 7% of the benefits go to the poorest 20%.
The volatility of most commodities excluding oil has been high in 2015, but, contrary to general belief, not far above historical trends. Uranium gold, coffee, cocoa or orange juice exported from Africa are experiencing record prices.
The case for headline 1 depends on whether we want to look into the full picture or fall into the easy perception of negativism about Africa.
I could pick many other headlines. For instance debt in Africa is soaring, entering the danger zone.
Africa's total foreign debt has been higher than 30 percent of GDP since 2010 and it was projected to have risen to 37.1 percent by the end of 2015. However, net foreign debt as a share of GDP is only 1 per cent, having been negative since 2006 because of Africa’s international reserves. This debt level is also comparable to other developing countries and is well below that of advanced economies. For example, the total debt for OECD countries was nearly 80 percent of the OECD GDP in 2008 and was expected to grow to 111.2 percent in 2015. The champion of debt is Japan with GDP/debt ratio of 230 percent.
Sovereign debt is driven by advanced and powerful economies asynchronous monetary policies. There is no coherent mechanism to govern any future sovereign debt crises. Creditor specific mechanisms used to facilitate past debt restructurings are no longer available. Although a sovereign debt restructuring mechanism was proposed by the IMF more than a decade ago, there is still no international agreement on the topic to date. There is a general consensus that the existing rules are too creditor-friendly, but that a push for an international agreement that is too borrower friendly might not be the best way forward. But the biggest under current of the debt debate should be the pervasive effects of Quantitative Easing that have created easy credit for debilitated economies of developed countries that have contracted 54% since the beginning of the financial crisis of 2008-9. Obviously something has to give and in this case it is the increase in the cost of borrowing for the poor ones.
In fact there is a need for flexibility in placing debt ceilings and assessing debt. African countries should not be over-constrained or unduly deprived. The issue of debt sustainability will essentially depend on a comprehensive treatment of all components of debt in a debt restructuring, and the provision of clear mechanism to engage all stakeholders to build up consensus on how to close the gaps in financial architecture. This is going to be difficult for rich countries to accept.
Neither monetary policy nor the financial sector is doing what it’s supposed to do. It appears that the flood of liquidity has disproportionately gone toward creating financial wealth and inflating asset bubbles, rather than strengthening the real economy. Despite sharp declines in equity prices worldwide, market capitalization as a share of world GDP remains high. The risk of another financial crisis cannot be ignored. This will not be the making of Africa.
Ladies and gentlemen,
We have a huge number of publications being launched during this week. We assess trade relationship with innovation, the investment treaties reality, a blue economy comprehensive handbook, a macro-economic alternative framework for Africa, the progress made in West Africa integration, the regional integration index, a governance report centered on corruption, an African demographic profile, the landmark new country profiles that will be over time covering each African country, the migration issue, not to mention our two twin reports on transformative industrialization and greening industrialization. It is a genuine effort to shift our mindset to transformative policies. We contribute to knowledge generation that is African-centered and do not apologize for it. Time has come to accelerate the speed of structural transformation, because of the headwinds, not despite of them. That requires knowledge.
Ladies and gentlemen,
Is the current Africa growth to our liking?
Of course not. African current growth has not generated sufficient jobs and has not been inclusive enough to significantly curb poverty. It has been driven for a third by commodities price boom and government related spending. Fluctuations in commodities prices has made such growth vulnerable. This reminds us of the imperative to structurally transform that in our case focuses on the potential offered by industrialization. Be it through the expansion of commodities value chains. Be it through the positioning for agro-business to act as the pull factor for agricultural to get out of the doldrums. Be it through the capacity to attract low-value manufacturing production facing rising labor costs in Asia.
This is not out reach.
Structural transformation has been experienced for real by many countries in different regions of the world. But will not happen spontaneously but rather as a result of deliberate and coherent policies that are entrenched into a coherent development strategy, enlightened by a transformational leadership.
I thank you