Opening Remarks by Abdoulaye Mare Dieye at the High-level Event on the Occasion of Africa Week 2017Oct 17, 2017
High-level Event on the Occasion of Africa Week 2017
Financing Africa’s Infrastructure and Agricultural Development: Inclusive Growth for Economic Transformation
Opening Remarks by Abdoulaye Mare Dieye
UNDP Assistant Administrator and Regional Director for Africa
Economic and Social Council Chamber (ECOSOC) Chamber
[as prepared for delivery]
New York, 17 October 2017
Excellencies, Distinguished Guests, Ladies and Gentlemen,
It gives me great pleasure to deliver these remarks before this distinguished audience. I would like to thank you for this opportunity.
As you are all aware, the African continent is at an important crossroads. The leaders of the continent have committed to implement two historical and very ambitious agendas for their people and for the planet: the global 2030 Agenda for Sustainable Development and the continental Agenda 2063. I am pleased to inform you that our study shows these two agendas are 90 percent aligned. These agendas need to be matched with the requisite resolve, resources and partnerships to ensure effective implementation.
For Africa, achieving the vision of an integrated, prosperous and peaceful Africa means attaining meaningful and inclusive transformation of the economies, investing in sustainable agriculture, resilient infrastructure including sustainable and modern energy as well as accelerated creation of decent and productive jobs, especially for young people and women.
Overall, the global and continental agendas have very significant resource implications for Africa. Estimates indicate that Africa will need between US$ 600 billion and US$ 1.2 trillion per year to implement the SDGs, with infrastructure alone costing around US$ 93 billion, and the cost of addressing constraints in the agricultural sector estimated at US $ 32 to 40 billion, annually.
With a growing middle class, an increasing size of its youth population, and stronger economic and political governance, Africa is the market of the future, the Eldorado for investment and the next region for development frontier. To meet its financial needs, Africa must tackle illicit financial flows (estimated to exceed $50 billion yearly), go beyond traditional ways of financing investments, and creatively explore high octane funding avenues. In this regard, I would like to emphasize four promising finance opportunities:
1. Greater mobilization of private sector finances
A large part of financing needs for developing the industrial sector, agriculture, infrastructure and modern services can, indeed, be met through more effective mobilization of private financing. Africa offers vast opportunities for growth and development. Foreign direct investment (FDI), in 2016, reached US$ 56.5 billion and is expected to rise further. In 2016, remittances exceeded FDI, at US$ 66.2 billion. Such private investments and capital flows overwhelmingly outweigh ODA to the continent and represent an increasingly important source of financing sustainable development. Capital markets are comparatively underdeveloped but growing. Between 2013 and 2015, African countries issued sovereign bonds worth
US$ 20.9 billion compared to US$ 5.9 billion in 2009 – 2012. These avenues need further expansion.
Implementation of the SDGs, Agenda 2063, and the AfDB’s High 5s offer compelling business case for private sector actors to invest increasingly in social and green enterprises. Today, the continent offers on average the highest return on FDI, with an internal rate of return of 11.4 %, compared to the world average of 7%.
2. Expanding its fiscal space for sturdier development funding
Domestic resource mobilization also plays a critical role in financing Africa’s investment needs. Tax revenues remain the most important source of domestic financing. However, the tax to GDP ratios in Africa are still too low, at approximately 21 per cent, the lowest compared to all other regions. And national budgets mostly cover recurrent costs. Sustainable funding of investment will call for expanding the fiscal space by increasing the tax bases and putting in place fair and efficient tax systems. African tax systems should provide the space for Small and Medium Enterprises to thrive.
3. Leveraging the power of pension funds
By the end of 2014, global Pension Funds’ assets were estimated at about US$ 36 trillion, while those in 16 African markets amounted to US$ 334 billion. And they keep growing; but they have not been optimally invested in productive activities. Investing Pension Funds in agriculture and infrastructure offers an enormous potential to tap. However, policies must focus on closing the knowledge and capacity gap, increasing investor confidence in the infrastructure sector, and boosting the predictability of returns on investments.
4. Capitalizing on Sovereign Wealth Funds
Today, Africa harbours an estimate of US$160 billion in Sovereign Wealth Funds; out of the US$7.2 trillion available worldwide; but they tend to invest less domestically and more abroad, contrary to Asian funds. Low sovereign ratings, lack of appropriate debt instruments for infrastructure like infrastructure bonds and structured infrastructure products are binding constraints, which, if lifted, can give huge oxygen to infrastructure funding in the continent.
Ladies and Gentlemen,
The prospects for funding Africa’s sustainable development, and most singularly agriculture and infrastructure, are quite real and feasible. But this will require reinvigorated African financial markets and creating innovative funding instruments. Africa can build investors’ confidence by showcasing successful infrastructure and agriculture projects which can be considered as reference points. Political stability, good governance, zero tolerance on corruption, Rule of Law, sturdy and transparent procurement processes will build the required investors’ confidence. And this is happening in Africa. The momentum just needs to be accelerated and expanded.
I thank you.