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Re-examining the strategic development initiatives on wealth and job creation in Africa

Keynote address by

Emmanuel Nnadozie UN Economic Commission for Africa

Mombassa, Kenya 05 August 2012 Excellencies, Distinguished participants, It is a great pleasure and honour for me to be with you today in this beautiful, tourist and historic city of Mombassa. I warmly thank His


Excellency, Chief Olusegun Obasanjo, the Africa Leadership Forum and The Kenya Institute of Management for inviting me to this important event and also for giving me the opportunity to share with you ECA’s perspectives on the strategic development initiatives on wealth and job creation in Africa. I would like to begin my address to you today by discussing Africa’s recent economic performance and argue that there is the need for the continent to rethink its development strategy to make it more inclusive and sustainable. I will also examine the key development initiatives that seek to address poverty alleviation and create employment in Africa. Finally, I will present ECA’s views on how to promote sustainable wealth and job creation in Africa. Africa has made progress in recent years African countries began the new Millennium with significant improvements in economic performance. Up until the onset of the global financial and economic crisis, average real GDP growth rate for the region was above 5 per cent and inflation fell from double to single digit in most countries in the region. There has also been a decline in the poverty rate as well as the absolute number of poor people. Available data indicates that the proportion of people living on less than $1.25 a day in Africa (excluding North Africa) decreased from 56.5 per cent in 1990 to 52.3 per cent in 2005 and further to 47.5 per cent in 2008. These positive developments have led some to argue that Africa now has the potential to be a pole of global growth if appropriate measures are adopted to address infrastructure bottlenecks, strengthen human and physical capital, reduce commodity dependence, and promote scientific and technological innovation. But the current growth pattern is unsustainable


Despite the progress that has been made in recent years, there are concerns that the current pattern of growth in Africa is not sustainable because it is driven mostly by exploitation of exhaustible mineral resources, has been associated with increases in inequality and environmental degradation, and has not led to significant increases in employment. The high dependence of African economies on primary commodity sectors has rendered African economies vulnerable to commodity price volatility, external shocks, natural resource exhaustibility, and climate change. Most importantly, the capital intensive nature of its economic structure has contributed to low employment opportunities and a prevalence of vulnerable jobs, predominantly in the informal sector. Unemployment rates are estimated to have risen from 7.4 per cent to 8.2 per cent between 1998 and 2009 in Sub-Saharan Africa and from 12.8 per cent to over 13 per cent in North Africa over the same period. As a result of high unemployment and the fact that even those that are employed struggle to find decent work in the formal sector, poverty rates remained chronically high in Africa over the last three decades, while inequality in incomes, assets, and social services is on the rise. All this suggests a pace and character of growth that is non-inclusive and therefore unsustainable. Against this backdrop, one of the major policy challenges facing African countries in the short to medium term is how to lay the foundation for inclusive as well as sustainable growth, wealth and job creation. Over the past decade, several initiatives have been developed to create jobs and wealth and reduce poverty in Africa. For instance, at the global level, Member States of the United Nations adopted the Millennium Development Goals (MDGs) in 2000, aimed at ending human suffering from hunger, destitution and disease, particularly in poor developing countries. At the continental level, African governments adopted the New Partnership for Africa’s Development (NEPAD) as an integrated socio-


economic development framework for the continent in 2001. There are also initiatives established by Africa’s development partners, such as the United States’ Africa Growth and Opportunity Act (AGOA). A pertinent question to pose at this point is what has been the development impact of these initiatives? What has been the impact of the MDGs? The MDG Report 2012 published jointly by the Economic Commission for Africa (ECA), the African Union Commission (AUC), the African Development Bank (AfDB), and the United Nations Development Programme (UNDP), argues that Africa is on track to achieve the following MDGs targets by 2015: universal primary education; gender parity in primary education; HIV/AIDS prevalence among population aged 15-24 years; proportion of the population with access to antiretroviral drugs; and the proportion of seats held by women in national parliament. However, the report also indicates that poverty is not declining fast enough and that decent jobs are hard to find in the region. There are several reasons why the MDGs may have had less impact in terms of employment and wealth creation. The MDGs were conceived as a top-down approach and so developing countries’ involvement in the initial framework was minimal, leading to weak national ownership. In addition, critics allege that the MDGs have a disproportionate focus on social indicators and de-emphasize the productive sectors. This has created a gap between achievement of outcomes and the sustainability of such achievement. Without growth and strengthened productive capacities, it is unlikely that there would be significant gains in employment and wealth. Furthermore, there was insufficient focus on inclusive growth and job creation in the MDGs. In order to tackle poverty, create jobs and wealth a


consensus has emerged that the MDGs should be amended post-2015, because as currently constituted, they: (a) have limited focus on economic growth and transformation; (b) do not sufficiently emphasize the role of domestic resource mobilization in Africa’s development agenda; (c) tend to neglect issues relating to the quality of service delivery; (d) are silent on inequality including spatial and horizontal inequality; and (e) disproportionately focus on outcomes with limited consideration of the enablers of development, thereby excluding the role of factors such as infrastructure and peace and security in facilitating socio-economic development. What has been the impact of NEPAD? With regard to NEPAD, the Programme has achieved several positive results including the implementation of concrete projects in the areas of infrastructure; agriculture and food security; and governance, among others. The Presidential Infrastructure Champion Initiative (PICI) illustrates the progress that has been made by African countries to collectively develop infrastructure on the continent. It also demonstrates the political will at the highest level to implement flagship regional infrastructure projects. Within the framework of PICI, chaired by President Jacob Zuma of the Republic of South Africa, African Presidents are spearheading the implementation of seven projects across the continent, including the construction of roads and rails; optic fibre networks, and gas pipelines. Progress has also been made in implementing several other NEPAD infrastructure projects. In the energy sector, for instance, construction of the Millennium Dam in Ethiopia, which is part of Programme for Infrastructure Development in Africa (PIDA), is well underway. Notable progress has also been made in the implementation of CAADP in several African countries. For example, 30 Country Compacts have been signed; 23 Investment Plans developed; 20 Business Meetings held; and a


Regional Compact signed by the Economic Community of West African States (ECOWAS). The process of signing regional Compacts with the Intergovernmental Authority on Development (IGAD), and the East African Community (EAC) is underway. These infrastructure projects are expected to boost growth and lay a good foundation for wealth and job creation.

The African Peer Review Mechanism (APRM), launched in 2003 by the African Union, is another success story in Africa. As we all know, it is a mutually agreed instrument voluntarily acceded to by members as an African self-monitoring mechanism. So far, 30 countries have acceded to APRM, 14 of which have been peer reviewed. APRM is important to the NEPAD agenda because it is critical that Africa’s development takes place in the context of good economic and political governance. Overall, NEPAD has also enhanced the effectiveness of partnerships both within the continent and between Africa and the international community. This is illustrated by improvements in coherence and coordination of support from development partners, as well as the development of common African positions on major global issues. Furthermore, through NEPAD, continental programmes have been developed across a wide range of sectors and their implementation is at different stages.

Despite the above-mentioned achievements, NEPAD faces several structural, political and economic constraints that have limited its development impact. The structure of NEPAD itself (being a philosophy, vision, and programme); the relationships between the NEPAD Agency, RECS and member states; perceived inadequate African ownership; and ineffective monitoring and evaluation are major structural constraints to the implementation of NEPAD. Specific issues related to these structural challenges include: inadequate implementation architecture (institutional


gaps); inadequate coordination at all and between levels; and limited technical implementation capacity. The main political constraints include inadequate political will in some countries, conflicts between NEPAD and national priorities, and continuity of political leadership in the context of championing NEPAD. Many African countries are still not devoting adequate resources to the implementation of NEPAD, and rely on development partners in that regard. Some countries are also reluctant to engage in regional and continental integration that may require regional/continental decisions or programmes to supersede national policies. Furthermore, in order to ensure that NEPAD principles continue to be implemented in the future, the challenge of institutionalizing NEPAD so that success does not depend on the willingness of a particular generation of political leadership to carry the “burden� of implementation has to be addressed. The economic constraints of NEPAD implementation include inadequate financial resources, and insufficient focus on the private sector. While employment and wealth creation are not the central focus of NEPAD, some of its programmes such as PIDA, CAADP, the Rural Futures Programme, among others offer employment opportunities to Africans. Private sector involvement in NEPAD projects, especially in the construction sector, also has the potential to create many jobs.

What has been the impact of AGOA?

Turning to AGOA, results of a survey of African countries conducted by ECA and the AUC suggest the following.


Eligible countries have been able to build some industrial base especially for textiles and apparel. Without doubt, there has been an evident economic payoff for countries such as Botswana, Kenya, Lesotho, Madagascar, Mauritius, South Africa and Swaziland and to a lesser extent Cape Verde, Ethiopia, Ghana, Malawi, Tanzania, and Uganda. In these countries, AGOA helped promote non-traditional exports such as textiles and apparels, leather products, agroprocessing goods and transportation equipment.

On employment, 75 percent of the respondents reported employment creation due to AGOA and 82 percent said that low- and high-skilled jobs had been created due to AGOA. There is also evidence that skill enhancement has been supported by AGOA with a great majority of the respondents reporting that due to AGOA’s job creation, they actually trained and coached personnel.

Overall, it is fair to say that AGOA has had a positive development impact, in as far as it has helped create jobs, enabling households to earn income. Nevertheless, there are concerns that the full employment creation potential of AGOA has not been realized. The fear of AGOA phase-out was cited by survey respondents as impeding building local capacity through investment, thereby deterring job creation.

How to promote sustainable wealth and job creation in Africa

Research conducted by ECA and the AUC and published in the last three issues of the Economic Report on Africa (ERA) indicate that generating rapid employment growth will require economic growth rates above those achieved in the last decade as well as structural shift of the growth driving


sectors of the economy away from low labor intensive sectors to large and expanding high labor intensive sectors. In this regard, agro industry, labor intensive manufacturing, and services, especially service exports are sectors to be explored and expanded. This structural transformation will not only decrease the boom and bust episodes tied to volatility of international commodity prices that have characterized economic performance in Africa, but will also allow African countries to pursue effective economic policies that are not dictated by what happens elsewhere. It is now evident that economic transformation in Africa would not take place without a more prominent role for the State to address market failures and institutional and policy gaps. Structural economic transformation ultimately involves a process of expanding productive capacities in the economy, through continuous technological innovation, industrial upgrading and diversification, and improvements in the various types of infrastructure and institutional arrangements which constitute the context for business development and wealth creation. To be successful, economic transformation requires planning and selective industrialization strategies that address constraints and promote productive capacities for domestic firms to compete locally and internationally. Based on the experience of currently developed and emerging economies the State needs to carry out three important tasks to achieve economic transformation. One is planning the process of development. The development process has to be planned because the changes required are substantial and must be coordinated. The interdependence of all elements of the process needs to be reconciled through comprehensive development frameworks rather than narrow, partial models. In this regard, I am pleased to state that 30 African countries now have an explicit development plan to guide their development efforts. This renewed emphasis on planning should be welcomed and supported.


The State has the responsibility to formulate appropriate development policies that are best carried out through constant dialogue with key social and economic agents on both the production and consumption sides. Economic transformation requires appropriate policies, incentives and penalties to ensure that public and private resources move in the direction in which they are optimally used. The State therefore has the responsibility for negotiating the associated conflicts between social groups as a means of establishing policies that promote economic growth and transformation, without sacrificing equity. Evidence shows that countries that have successfully transformed from agrarian economies to modern advanced ones had governments that played a proactive role in assisting the private sector in the process of structural transformation. The State should also have the capacity and competence to implement development plans and policies. It needs to set up, or, in cases where they exist, revive key planning institutions and give them the power and autonomy to do their work. It also needs to establish and institutionalize consultative and deliberative mechanisms as the necessary links through which the bureaucracy can interact with all key stakeholders. Monitoring and evaluation, as well as assessment and review, should feature strongly during implementation. Finally, the State has to forge fully encompassing relations that involve all stakeholders—civil society, public and private sectors. These arrangements enhance public participation and citizens’ ownership of national development programmes. The interactions result in a more cohesive society in which there is more efficient allocation of resources, and greater citizen accountability and transparency in governance.

Concluding remarks


I would like to conclude by stating that Africa can increase its share of global GDP to 5 percent in the next twenty years if it continues to grow at an average of 7 percent a year or earlier if the growth rate was to double and the global growth rate remains at about 3 percent per year. In addition, it seems to me that there is a growth imperative as well as a structural transformation imperative, whereby growth has to be strong, inclusive and broad-based. Furthermore, Africa should accelerate regional integration and address the binding constraints to its development capacity in governance, institutions, technology, human capital and infrastructure and launch a transformation programme capable of changing the economic structure from primarily agrarian to industrial economies.

Africa’s development challenges cannot be addressed in isolation. They require concerted actions at the national, regional and international levels. They also require strengthening old partnerships and developing new ones. In this regard, there is the need for African countries to manage their new partnerships with Southern countries in a manner that promotes mutual and equitable development. In particular, African governments should take an incisive approach towards emerging Southern economic powers and develop a coherent regional strategy to ensure that trade, investment and finance from these countries serve to accelerate the continent’s development potential, create employment, promote technological progress and capital accumulation and enhance structural transformation.

I thank you for your attention