Director of UNDP Africa at the New School

22 Nov 2010

Building on a Decade of Progress: Seizing the Opportunity for a Breakthrough in African Development, Tegegnework Gettu at the New School's Conference: " From Impunity to Accountability: Africa's Development in the 21st Century"

I would like to start by expressing my appreciation to Professor Arien Mack and those who organized this conference for inviting me to address it. I am delighted to be present at the New School today and also have the opportunity to interact with so many distinguished scholars of Africa.

The theme for this conference, “From Impunity to Accountability: Africa’s Development in the 21st Century” could not have come at a more appropriate time. As you may all observe, Africa is changing and it may be on the verge of a developmental breakthrough. While many challenges still persist, the continent is indeed moving from impunity to accountability, from economic stagnation to steady growth, from social morass to progress in reducing poverty and improving health and education.

Distinguished Ladies and Gentlemen,
Just consider the recent economic performance of Africa.

After twenty years of economic stagnation from the mid-1970s to the mid-1990s, economic growth in Sub-Saharan Africa since the late 1990s has been rapid and sustained. After reaching a post-1970 bottom of US$489 (at constant 2000 prices) in 1994, Gross Domestic Product per capita has been increasing steadily ever since.

In the five years prior to the 2009 global recession, the pace of growth in the region accelerated. Africa posted some of the highest rates of economic growth in the world, displaying a 6.5 percent inflation-adjusted GDP growth between 2004 and 2008. In per capita terms, GDP grew above 4 percent a year in the same period, approaching 5 percent in both 2004 and 2007.

Growth has been fairly widespread across the continent. Natural resource-rich countries certainly benefitted from the commodity price boom up to the middle of 2008. But the economic rebirth of Africa was not driven only by commodity exporters. There were robust growth rates in middle and low income countries.

The good economic performance of Africa is now well-known. A number of high profile studies by McKinsey and others have made this story highly visible. Less attention, however, has been given to the fact that the gains in growth went along with reductions in poverty and improvements in social conditions.

The share of people living in extreme poverty (less than US$1.25 in purchasing power parities) increased slightly in the 1990s, peaking at more than 58 percent in 1999. In about five years, it dropped to 51 percent in 2005. Some projections indicate that it may have dropped even further, to 45 percent in 2009. In fact, the trend of decrease in poverty rates since 2000 is parallel to the MDG consistent path.

Most human development outcomes have improved over the last decade. For example, alongside the increase in GDP, the primary school education completion rate in the region has shown sustained progress – from 52 percent in 1999 to 62 percent in 2007. As to poverty reduction, there was little progress during the 1990s, but the rate of progress since 2000 is parallel to the path required to achieve the universal primary education Millennium Development Goal.

Earlier this month, UNDP launched the 2010 Global Human Development Report. The evolution of the Human Development Index (HDI) for Africa confirms, once again, the progress over the last decade. In 1990, the HDI for Africa stood at 0.35. By 2000, it had deteriorated, to 0.32. This year, the report estimates that it will almost attain 0.4. This corresponds to an average annual rate of improvement in the HDI in Africa of more than 2 percent a year between 2000 and 2010, by far the most rapid compared to other regions over the last ten years.

Is this assessment too optimistic? Earlier this month, during a conference that we organized on lessons from China and other emerging economies for poverty reduction and development in Africa, the African Development Bank President, Donald Kaberuka asked a similar question. He asked whether we were witnessing another false dawn, similar to what many Africans expected in the mid-1970s. Here is his answer, and I quote:

“As for whether this is yet another false dawn, this seems unlikely. The renewed momentum is, this time, well merited and anchored in solid foundations- built over years of reform – a much sounder business environment, a reassessment of Africa’s risk, strong macro-economic fundamentals, and good progress in the microeconomic area- including increasing productivity at the level of the firms.” End of quote.

This is because, in contrast to other periods of global economic contraction, Africa has proved to be more resilient during the 2009 global recession than in previous shocks. The response to the shock has been quick and successful policy action was set in motion early enough. The policies pursued during the high growth period were for the most part prudent. The increased revenue base and healthy macroeconomic indicators have allowed governments to accommodate larger fiscal deficits and greater social expenditure during these difficult times, as opposed to other periods of crisis when fiscal behavior was to a large extent pro-cyclical. The pro-cyclical policies during much of the 1990s were implemented in the context of tough structural adjustment policies that imposed high social and economic costs on many countries.

Counter-cyclical spending this time around has meant that, while incurring fiscal deficits, capital, health and education has continued to rise through the economic deceleration. Expenditures in education and health increased from an average of 5.5 percent of GDP between 2006 and 2007 to nearly 7 percent in 2008. According to preliminary budget figures, outlays in health and education increased in 20 of the 29 low income countries in the region. Capital spending has also increased in real terms in more than half of the countries in 2009. In addition to timely and effective fiscal policy to offset the fall in private spending, governments have also implemented expansive monetary policy.

If we accept that the economic performance and social progress in Africa over the last ten years rests on a solid foundation, the question still remains whether this momentum can carry the continent forward at the pace that is required to make a developmental breakthrough. We must not forget that, while rates of improvement have been remarkable over the last ten years, when we look at levels – of GDP per capita, of poverty rates, of life expectancy, of child and maternal health – Africa still has a long way to go to converge even with the average for developing economies.
Distinguished Ladies and Gentlemen,

Looking ahead, three challenges loom large.

The first is whether rapid growth can continue going forward and how effective growth will be in bringing poverty down. Trevor Manuel, Minister in the Presidency of South Africa, put it well. He said, and I quote:

“[…] growth cannot be taken as a given. Furthermore, the conditions for translating economic development to social development are still fragile. These conditions largely deal with employment, human capital development and infrastructure.” End of quote.

As impressive and positive as economic growth has proven to be in Africa, the effectiveness of growth in reducing poverty in Africa has been historically low. Even if we accept that high growth rates will resume in Africa, as the latest projections from the IMF indicate, growth will not necessarily trickle down into improved living standards. Several studies have documented that the responsiveness of poverty to income growth - the poverty elasticity of income- has been significantly lower for Africa than in other developing regions.

It is for this reason that it is so important to unpack the low poverty elasticity of income in Africa to understand what may be driving this pattern. Several studies have shown that income distribution plays a dramatic role on the impact of growth on poverty reduction. Initial income distribution counts when explaining the lack of poverty convergence - why poorer countries are not benefitting from higher rates of poverty reduction. High initial inequality slows down progress against poverty at any given growth rate. The impact of GDP growth on poverty reduction is a decreasing function of initial inequality.

Another factor refers to the composition of economic growth, with slow structural diversification in the region. The slow productivity growth in the rural sector -where the majority of the labor force in the region still works – is a key factor of the lack of diversification and limited impact of growth on poverty. Growth originating in improvements in agricultural productivity tends to be poverty and inequality reducing. Welfare gains from economic growth originating in the agricultural sector are substantially higher for poorer households. Yet, productivity growth in agriculture in Africa has been stagnant. The region still faces the challenges of underdeveloped infrastructure, low fertilizer use, degraded soils, and overall lower public investment in agriculture compared to other regions.

Finally, high dependency ratios - the ratio of elderly and young to the working age population - are a drag on per capita growth rates. Fertility rates continue to be high in the region and so are mortality rates. Although fast growth in the labor force has the potential to be a positive driver of growth, if employment opportunities do not match the pace of increase in population, this may turn into additional pressure on unemployment and underemployment.

A second challenge relates to the long-standing impact of the global financial and economic crises. Much attention has been given to the macroeconomic resilience of the continent. I made this point a moment ago. But economic and financial shocks do not have only an almost immediate effect on households’ income through depressed earnings and wages, job losses and other means of transmission. Evidence suggests that their impact on income as well as on human development outcomes often surpasses the transitory interlude of the crisis, impacting long term well-being, particularly in the case of low income countries.

Poor households in developing countries often lack the access to credit, insurance and other income-smoothing mechanisms, and are frequently unable to maintain the consumption levels that support human development throughout shocks. The impact of temporary shocks may translate into permanent losses when after households deplete their savings, they are forced to sacrifice current nutrition, education and/or health care, with the consequent loss of future human capital –even after income recuperates from the shock-, ultimately limiting the potential economic growth and development.

There is a view that says after a major recession, there is a rebound followed by a return to pre-recession conditions. Available evidence suggests otherwise. There are long term impacts after major financial and economic crises. On average, GDP does not return to the pre-recession status. Developing countries typically suffer from larger permanent losses than higher income countries. There are typically permanent outcome losses after crises, with recoveries that are not faster, on average, than pre-recession growth rates.

In fact, this is what we are witnessing in much of the advanced economies. One consequence of this sluggish growth rates in rich countries is the additional pressure on developed countries’ fiscal stances. By and large, as a consequence of lower growth and revenues, and to a lesser extent of the increased stimulus spending, budget deficits rose in the aftermath of the crisis. The enlarged public debt in advanced economies implies that financing of aid for Sub-Saharan Africa will be more restricted in the medium and long terms.

The main risk for the region does not come from the fiscal positions of Sub-Saharan countries, but from those of rich economies. While the average debt level of emerging economies is expected to decline moderately after 2010 -remaining below 40 percent of GDP, the debt ratios in advanced economies could reach 110 percent of GDP by 2015, almost 40 percentage points above the pre-crisis level of 2008.

A third critical challenge for Sub-Saharan Africa is climate change. Although the region’s carbon emission levels are marginal, accounting for only a minimal share of global emissions, the impact of climate change will be more severe in Africa than in other parts of the world. Evidence suggests that the region is warming faster than the world average and that this will likely persist. Furthermore, the proportion of people working in the agricultural sector, the importance of agriculture for economies, and the reliance on rain-fed crops further compounds the exposure to weather variation.

Thus, climate change will likely exacerbate existing vulnerabilities across Africa. The sea level rise forecasted towards the end of the current century will impact coastal areas of the continent in which large populations live, with an adaptation cost starting at 5 to 10 percent of GDP. Arid and semi-arid land in Africa will increase by an estimated 5 to 8 percent by 2080. By 2020, between 75 and 250 million people in Africa will be exposed to increased water stress due to climate change. Yields from rain-fed agriculture could decrease by up to 50% in the continent by the same year, compromising access to food, and aggravating food insecurity and malnutrition. An impact on health may also be expected, particularly through disease-carrying insects and other vectors, affected by temperature, rainfall and humidity. Projections indicate that climate changes will affect the potential distribution of malaria in the poor and vulnerable regions of the world, placing areas of Africa at risk. This implies that the issue of adaptation to climate change needs to be addressed more broadly in the context of development policy.

But climate change is a challenge for Africa on the mitigation side, too. While current emissions are low, as noted, the energy and infrastructure needs of the continent are massive. It is simply not possible for African countries to grow and improve living standards without massive investments in power and transportation. And yet, these investments will have to be made in a carbon-constrained world, facing conditions that rich countries and the fastest growing developing economies did not have to grapple with. Climate change mitigation, therefore, lies at the heart of the development policy in Africa.

Distinguished Ladies and Gentlemen,

Can Africa address each of the above mentioned challenges? I am convinced that it can. Imbedded in each of these challenges are opportunities for transformational development. African countries and the international community can pursue a purposeful policy agenda that tackles these challenges and seizes those opportunities. Let me take a few minutes to share with you how I see this policy agenda being taken forward.

To address the first challenge, Africa’s growth needs to be not only rapid, but more inclusive and steady. There are two important ingredients to achieving this goal. One relates to the importance of agricultural growth to unleash more inclusive growth. In fact, the topic of the first African Human Development Report UNDP Regional Bureau for Africa is preparing will be precisely food security and the role of agricultural growth in reducing poverty. Let me quote:

“W.W. Rostow, in his classic “The Five Stages of Growth” wrote that “revolutionary changes in agricultural productivity are an essential condition for successful take-off; modernization of a society increases radically its bill for agricultural products. In a decade or two, both the basic structure of the economy and the social and political structure of the society are transformed in such a way that a steady rate of growth can be, thereafter, regularly sustained.” In Africa, we have to act collectively to negotiate significantly improved market access; we must undertake the necessary and agreed upon land reforms and we have to get the infrastructure developed to liberate inaccessible land. These are the elements of what Rostow called “The Take-off”. It is about unlocking our moment.” End of quote.

We have seen this happen in many developing countries. In China and Vietnam, massive reductions in poverty came along with increases in agricultural productivity. We have this in Africa, too, where Ghana has almost met the MDG target of reducing poverty by half, largely due to rapid agricultural growth.

The other side of the challenge is to make growth steadier, or at least to ensure that societies and economies are more resilient to shocks. Development at its heart is really about increasing resilience. It is about ensuring that a natural or human-made disaster does not destroy livelihoods and launch populations into cycles of self-perpetuating poverty.

One critical tool to increase resilience is social protection. Too often this is seen as a residual expenditure category, once other more productive activities have been taken care of. We are challenging this perception. Enabling people to preserve assets and human capital during shocks is more than a measure that protects the weak and the vulnerable. It is an investment in future growth and prosperity.

In terms of the second challenge, what we are witnessing is a realignment of the old development paradigm that was based on a simplistic duality between the North and the South. Aid will remain important, but will be increasingly seen as mere leverage for the mobilization of additional external and domestic resources. Beyond aid, opportunities for investment, trade, technology are coming increasingly from the global South. Developing countries are growing much more rapidly than rich countries, and face much less fiscal constraints.

That is why it is so important for Africa to be well positioned to marshal the opportunities for South-South engagement to further its own development. This is an area in which we at UNDP are heavily investing. For example, through initiatives like the China-Africa Poverty Reduction and Development Conference that we organized earlier this month, lots of useful lessons and experiences can be acquired from China, India, Brazil, Turkey, Indonesia, Malaysia and other emerging economies to strengthen Africa’s efforts to reduce poverty and promote development.

But this realignment goes beyond the opportunities for economic relationships with the global South. It is leading to a fundamental rethinking of the process of policy formulation in Africa. Let me quote again President Kaberuka, when he was reflecting on the implications of the old development paradigm for policy formulation in Africa:

“In consequence [of the underlying North-South development paradigm], the policy foundations tended to be largely externally generated and superficially internalized only by promise of funding and good economic management behavior. While these have not always been bad ideas, to the contrary, many were positive and pertinent. But the case is they haven’t been endogenous. Second; much of it has been very much “aid driven” with what all that implies: limited policy space, lack of predictability and above all, inability of the leaders to make popular choices, trade- offs, sequencing policies as needed, fully accountable to their people, as to the success or failures – but instead the incentives have been shifted mainly to try and be accountable to external governments and their taxpayers.”

We at UNDP have always emphasized the importance of ownership of policies, and the need for countries to have policy space to chart their own developmental path. Wholesale policy prescriptions are always ineffective. This is precisely the problem with what is referred to as the “Washington Consensus”.

What emerged from the different experiences is the importance of learning: by doing, and from others, but always having in mind that local and national conditions determine the specific content of policies and institutions. Even when we know that certain outcomes matter – for example, that land security is important for increasing agricultural productivity – there are several ways that can lead to this outcome. African countries need to find their own means of getting to the same outcome.

The third challenge, climate change, can be an opportunity, too. This depends in part on African countries, but the role of the international community is absolutely essential. African countries may be able to chart a low-carbon developmental path, but this will be conditional on having access to the right kind of technologies and appropriate financing.

That is why it is so important for Africa that the outcome of the on-going negotiations on climate change delivers the financing that will be required for Africa to adapt to, and develop in a way that is consistent with mitigating climate change.

Let me conclude by saying that while Africa faces important challenges, the continent is as well placed for a breakthrough in development as it has ever been. In addition to an impressive widespread economic growth performance –with growth rates ranking amongst the highest in the world- the institutional and policy environment in Africa has improved over the past decade.

I have argued that while the booming global economy of the 2000s benefited Africa, effective policymaking has also contributed. There have been an increasing number of African countries meeting a set of thresholds associated with macroeconomic stability. Reforms of the regulatory and business environments have been carried out effectively in numerous countries across the region. Enhanced regional initiatives, involving a greater participation of the private sector are contributing to improve scale and competition through the integration of infrastructure, markets for goods, finance, labor, and energy.

The degree of regional integration is also evident in the development of the continent’s Regional Economic Communities (RECs), for instance the planning for the creation of a monetary union by the East African Community (EAC). Organizations like the Economic Community of West African States (ECOWAS) and the Southern African Development Community (SADC) have continued to improve their policies and structures. Important initiatives have also been carried out by continental organizations like the African Union (AU), the New Partnership for Africa’s Development (NEPAD), and the African Development Bank (AfDB), such as the Africa Investment Initiative, the African Financing Partnership or the African Financial Market Initiative (AFMI).

Adding on to the burgeoning domestic entrepreneurship, the increased attractiveness of the continent has not been overlooked by foreign investors. Foreign Direct Investment (FDI) inflows into sub-Saharan Africa rose to US$88 billion in 2008, a record level. Oil-exporting economies attract a large share of this influx but the growing FDI also reflects higher corporate profitability, as a large share of inflows is going into manufacturing.

Distinguished Ladies and Gentlemen,

Finally, the region has also experienced significant improvements in governance over the past decade. Indicators of corruption, government effectiveness, regulatory quality, and voice and accountability have been registering sustained improvements. Countries are increasingly adhering to NEPAD’s African Peer Review Mechanism. Governments are increasingly being held accountable by civil society, complementing intergovernmental organizations such as the African Peer Review Mechanism (APRM). There is more progress towards democratization and smooth transition of power. Accountability has improved progressively. At the same time, we have challenges and important requirements.

Conflict has also declined reflecting in part, and not only reinforcing, the improvements in economic and social conditions. Low income and poor economic performance have been shown to be associated with increases in the likelihood of conflict outbreak. The number of civil wars, while very volatile on a yearly basis, has declined when taking decadal averages since reaching a peak in the 1990s.

I wish to thank you for this opportunity to share my thoughts on how I see the current developmental prospects for Africa, the main challenges, and elements of a policy agenda to address them.

I speak from the perspective of our work at UNDP, the developmental arm of the United Nations. I hope that your deliberations and discussions during the conference will contribute in helping us at UNDP to be more effective in our collective efforts to support African countries in their on-going journey, from economic and social stagnation to growth and prosperity, from impunity to accountability.