The pursuit of inclusive growth in Africa

The Pursuit of Inclusive Growth in Africa

Tao Zhang, Deputy Director General of the IMF
BRICS Summit, South Africa

July 24, 2018

As prepared for delivery

Introduction

Ladies and gentlemen – good afternoon.

It is an honor to be in South Africa for the BRICS Summit. J & # 39; would
Thank Caixin for hosting this important panel on Guaranteed Inclusive Growth
in Africa.

Africa is a continent that holds immense opportunities. He has a huge
demographic dividend, abundance of natural resources and untapped potential
in many sectors. Countries in the region have made considerable progress
development, but the work is not over.

In my remarks, I will focus on priorities to ensure sustainability
development. And, do not get me wrong, the first economic priority for
Africa is development. It means an improvement in the standard of living,
inclusive growth and sustainable financing from its partners.

I.
Global Context – Recovery Becomes More Unequal

Let me start with the global outlook. We recently released our growth
forecasts for the global economy.

Global growth is projected at 3.9% in 2018 and 2019, in line with
our April forecast. But the expansion becomes less even, and its rate
appears to have peaked in some large advanced economies.

In the United States, growth continues at 2.9% this year and
2.7% in 2019. However, the dynamics in the euro area, Japan and
The United Kingdom is weaker than expected six months ago.

Growth in emerging and developing economies is expected to remain strong
4.9% this year and 5.1% in 2019.

It is expected that dynamics will be sustained in this region as well. Global
In sub-Saharan Africa, growth is expected to reach 3.4 percent this year,
to 3.8 percent next year. With growth rates exceeding those of the population,
many countries should see an increase in per capita incomes.

Yet even among this dynamic group of emerging economies, growth prospects
become more unequal. Rising oil prices, escalating trade tensions,
higher yields in the United States and market pressures on
market currencies challenge prospects. Think of the recent
experience from Turkey or Argentina.

These challenges are likely to persist, and that's why we see the rise
downside risks for even short-term prospects. An escalation of the trade
Tensions can derail global recovery and depress further in the medium term
growth.

At the same time, financial conditions remain accommodative. The differences are
always squeezed, valuations in some markets are tight and volatility is low.
However, these conditions may change suddenly. Countries with higher debt
could be particularly affected by the tightening of global financing conditions.

Clearly, the global backdrop is difficult for sub-Saharan Africa
Region. This gives more urgency for policies to lock recently
achievements and offer opportunities to all its citizens.

II.
Sub-Saharan Africa – Significant Progress

Before seeing how to ensure a better future for the region,
go back a moment to see how far it has gone. In the last two
decades, the region has made great strides in improving
social conditions.

For example, real per capita income increased by 50% on average
the region. Importantly, per capita income doubled in Mozambique and Angola
and Rwanda, and tripled in Ethiopia. These are remarkable gains.

At the same time, infant mortality rates dropped dramatically – from 108 to 55
per 1000 live births for the whole region. Countries like Angola,
Malawi, Liberia and Rwanda experienced the largest improvements.

During this period, growth was supported by reforms and
macroeconomic policies. He also benefited from the explosion of commodity prices
This has helped commodity exporters and increased trade and investment flows.

These are great achievements, but much more is needed.
The region must create sustained, strong and inclusive growth
achieve the United Nations Sustainable Development Goals and reap
dividends.

Africa is the youngest continent in the world. It's both a challenge
and an opportunity.

In 2035, the number of sub-Saharan Africans reaching the age of 15-64
years will surpbad the rest of the combined world – adding about 110 million
workers. This is a trend with potentially important implications for both
the region and the world, in terms of new markets and investment
Opportunities.

Yet, realizing the full potential of these demographic trends means creating
20 million jobs each year until 2035. That's double the average number
jobs created each year during the 2011-2017 period.

III.
Unlocking Opportunities in Africa – The Way Forward

How can the region take advantage of its demographic potential to reach
SDG and achieve higher and more inclusive growth?

In my opinion, this will require respect for the multilateral spirit of
cooperation of all parties concerned. Countries in the region should do
their part by putting their house in order; and development partners should
help by ensuring "sustainable" sources of finance.

What does this mean in practice? For the countries of the region, this means
reduce macroeconomic vulnerabilities and increase growth potential. And
here I see two important priorities. One for the short term; the other for
the long term.

The first priority is to reduce the vulnerability of the debt
. It's urgent. Public debt ratios have increased significantly in the past
five years – from an average of 30% of GDP to more than 50%
currently.

In some countries, the increase in debt is driven by development and
infrastructure needs. In other countries, it reflects the impact of
significant drop in oil prices in 2014. And in others, it is the migration of
off-balance sheet commitments to the public sector.

If Africa's growing debt trends continue,
rising interest costs of the increase in debt would divert resources from
education, health and infrastructure.

The priority is therefore to reduce the vulnerability of the debt. L & # 39; emphasis
should focus on domestic revenue mobilization and improved debt management.
This will create space for investment in physical and human capital and
social spending.

Many countries in the region have seen significant improvements
collections. Tax revenues exceed the tipping point of 13% of GDP
in two-thirds of the countries, compared to only one-third in 1995.
this leaves more than 16 countries with less than 13% of GDP in taxes
returned.

At the same time, oil exporters saw a sharp decline in their incomes
the contribution, from 31% of GDP in 2012 to 18% in 2016. Clearly,
the focus on domestic revenue mobilization must be maintained.

The second priority for boosting long-term growth is to revive
investment

.

For many years, low levels of private investment have been offset by
expenses. Yet, in the face of increasing vulnerabilities in public debt, it is
not clear how long this trend can continue. Some countries have continued
public-private partnerships, but these efforts have had varying success.

At the same time, initiatives such as the Belt and Road Initiative
The G20 Pact with Africa offers an opportunity to support
investment. This includes institutional reforms that can encourage
direct investment and support public-private partnerships.

But for these initiatives to be effective, the countries of sub-Saharan Africa
should ensure a transition from public investment to private investment. It needs
maintain macroeconomic stability and improve regulation and insolvency
frames. It also means increasing intra-African trade and deepening
access to credit.

Here, Africa can offer the world important lessons on financial inclusion.
We recently published a

paper

which brings together the lessons of 16 pilot countries in Africa on the policies
expand access to credit.
[1]

Facilitating the shift from public investment to private investment
requires alternative, non-debt-creating ways to finance
large infrastructure needs. According to some estimates (ADB), these needs
from 130 to 170 billion dollars a year. This funding should minimize
risks for the economies of the region.

Conclusion

There is enormous potential to catalyze private funds for infrastructure
investment. And in the long run, non-debt capital investment will not be
only help meet the infrastructure needs of the region. It will also be
deepen financial markets, promote greater trade integration and
significantly higher returns of additional capital.

The IMF will continue to support the continent in these development efforts
through strategic advice, capacity building and financial support
necessary. We will also collaborate with other international financial institutions
institutions and development partners to help the region achieve
its demographic potential and the achievement of a sustainable and more inclusive development
growth.

It would be a huge opportunity – for Africa and the whole world.

Thank you.