WASHINGTON, April 28, 2017 - Despite the current volatile global economy, African economies are modestly rebounding and are expected to grow at a rate of 2.6% in 2017. However, to ensure that this growth continues to rise, it will be critical to create conducive business climates that crowd-in private investment to unlock the investment potential in Africa.
This was the leading message from Saturday’s State of the Africa Region seminar, a flagship event organized by the World Bank’s Africa region. The seminar brings together stakeholders, private sector leaders, and development partners to reflect on the main issues shaping Africa’s economic future.
“Traditional sources of funding are shrinking and there needs to be a paradigm shift that would shift the focus away from conventional financing and increase emphasis on a more sustainable investment model,” said Makhtar Diop, World Bank Vice President for the Africa region, during his opening remarks.
Achieving this shift, along with essential structural reforms and greater regional collaboration, would require strong political will and accountability on the part of African leaders, Diop explained. “We must help Africa achieve the structural transformation we have been talking about for years by de-risking Africa and crowding-in the private sector,” he said.
This remains particularly pertinent given the strong headwinds facing African investment growth. During his presentation on the trends shaping economic development in Africa, Albert Zeufack, Chief Economist for the Africa Region, underlined external risks such as protectionism in large markets like the United States and the United Kingdom; and the normalization of the United States monetary policy, which is tightening financing conditions for Africa. He also mentioned heightened political, and policy uncertainty in major economies – Nigeria, South Africa, Angola – that make up 60% of Africa’s economy; and security issues hedged on terrorism, food insecurity and environmental hazards such as the drought in East Africa, as barriers.
“This is why we need to deepen reforms and continue working hard to maintain macroeconomic stability in our countries,” Zeufack said, noting the need for oil-producing countries to diversify and invest the revenue generated from their production to boost other sectors such as agriculture.
“As a continent, we must come to an understanding that the agricultural sector should be prioritized when it comes to investment,” said Muhamudu Bawumia, the vice president of Ghana who also heads the economic financing team.
Bawumia was sharing his views during the panel discussion segment of the event moderated by Julie Gichuru, a Kenyan television journalist. The panel also featured Henry Rotich, the Cabinet Secretary of Kenya’s national treasury, and Admassu Tadesse, the president and CEO of the Eastern and Southern African Trade and Development Bank, commonly known as the PTA Bank.
Scaling Up Investments in Africa
The seminar was also an opportunity for the World Bank and other development partners to affirm the robust interest of the international community in scaling up investments for Africa, Zeufack noted during his presentation. The G20 Compact with Africa and the World Bank's record International Development Association (IDA) financing of 57 billion over the next three fiscal years are two windows of opportunity that African leaders are encouraged to seize to crowd-in the investment needed to reverse the decline experienced over the years. Total investment growth in Africa as of 2010 was 8%, however in 2015, that growth plummeted to close to 0%.
According to Kenyan Cabinet Secretary Rotich, what is also critically important is knowing how to blend the financing with loans in a way that would boost the confidence of investors. “We have seen this at work in Kenya, and we were able to increase financing because our developing partners have been able to blend their financing with commercial loans," highlighted Rotich during the discussion.
In an attempt to increase investment, there can be a tendency to lean too heavily on fiscal incentives as a way of attracting potential investors. However, “empirical evidence from around the world has shown that such practices are not enough to drive investment,” explained Zeufack.
“If your overall climate is not conducive, if your infrastructure is not adequate, if you do not have the right kind of institutions that are nurturing and promoting private investment, the fiscal incentives will not lead to increased investment,” he continued.
The World Bank is committed to financing projects and providing technical assistance in areas where the private sector is less inclined to invest. It is also helping countries develop enabling business landscapes needed to mobilize private investors, de-risk investments, and capitalize on Africa’s ability to leapfrog into the future.
When Africa is in the Driver’s Seat
“There is nothing more inspiring than when people see you leading with the things that are within your control in your environment,” said Admassu Tadesse, President and CEO of PTA Bank.
Creating the right fiscal environment through efficient spending and domestic revenue mobilization can boost both domestic and private investment, both of which are in the power of African countries.
Highlighting the example of the success recorded in the telecommunications sector in the continent, Tadesse said that Africa is able to attract the money it needs should it implement the right reforms and innovations.
“Our telecommunication industry is a shining example of what can be achieved. And now the power sector is poised for a similar revolution in Africa,” he said.
Policy reform in the telecom industry was instrumental in boosting the growth of the telecommunications industry and can do the same for the power sector. “A very simple issue like tariffs – not requiring people or institutions to sell power below the cost of the production – can make a huge difference,” Tadesse pursued.
Africans also need to show investors the impact that local investment is making in Africa. This would boost the confidence of foreign investors. M-Akiba is an example of how domestic resources can be utilised for investment. “In Kenya, we’ve tried to mobilize retail savings from Kenyans by offering a product that allows them to invest in government securities,” Rotich explained. Through M-Akiba, ordinary citizens can invest a minimum of $30 in a government bond rather than keeping their money in a bank that yields zero interest.
Investment in infrastructure can also create a synergy needed to foster intra-Africa trade across regional zones. Next month, Kenya will launch its standard gauge rail that connects Mombasa to Nairobi. Managed by East Africa Community, a regional intergovernmental organization, the project, which cost about $13 billion, would ease trade and integration in the region. Bawumia pointed out the need for more leaders to collaborate in creating policies that emphasize trade logistics and road linkages that would expand the intra-Africa trade and boost growth prospects in the continent.
On practical steps of action beyond the forum, Diop urged African leaders to create incentives for officials to implement policies and challenged them to hold regular consultations between government leaders and the private sector in Africa in all regional economic community zones.
