20140117 expert meeting_summary_lr

Resetting the Agenda

FRAMING FINANCE FOR AFRICA’S FUTURE

EXPERT CONSULTATION 28 NOVEMBER 2013 Summary of Meeting

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DEVELOPMENT FINANCE FOR INCLUSIVE AND SUSTAINABLE GROWTH IN AFRICA – RESETTING THE AGENDA

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Africa Progress Panel Expert Meeting

CONTENTS

AgendA 4

List of pArticipAnts 6

pArticipAnt biogrAphies 7

Panel members 7

Consultation group 10

sUMMArY report 20

Introduction: Changing the narrative 21

Transforming agriculture 23

Raising productivity 23

Making more finance available for agriculture 23

Building institutions, systems and markets 24

Optimising fisheries 24

Developing infrastructure 24

Mobilising investment 25

Making the best use of taxation 26

Rebalancing aid with other resources 28

Conclusion 28

bAcKgroUnd pApers 29

Unlocking Private Finance for African Infrastructure – Paul Collier 30

Follow the Money: From Extractives Revenues into Agricultural Results - Jamie Drummond 36

Comments and suggestions – Rosalind Kainyah 43

Unlocking Africa’s Potential: Strategies for sustained transformation – Karuti Kanyinga 45

Financing For Africa’s Development: Major Trends – Carlos Lopes 48

Fishery Development in Africa – Árni M. Mathiesen 50

Note for APP Consultation – Rudy Rabbinge 54

The Brazilian Experience and Africa – Erich Schaitza 56

Four Economic Themes in sub-Saharan Africa in 2014 – Abebe Aemro Selassie 59

The Information Revolution that should accompany the Financing Revolution – Patrick Smith 63

Perspective from Ashish J. Thakkar – Ashish J. Thakkar 66

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The overall aim of the meeting is to look beyond aid to a discussion of the development finance that Africa needs in order to build sustained and inclusive growth. The question we want to address is: what financial resources are required on what terms to ensure that Africa is able to develop the infrastructure, build the skills, generate the jobs, and create the opportunities needed to embark on transformative growth. In this context, we should ensure that agriculture and fisheries figure with some prominence.

AGENDA

9:00 – 10:00 BREAKFAST

10:15 – 11:15 session 1: framing the debate – Managing finance and investing in renewables with a focus on agriculture and fisheries

The APR 2013 clearly highlighted how Africa can generate considerable wealth from its own natural resources. There could be less dependence on foreign financing since Africa can generate revenues internally. How can African governments manage better these resources transparently and effectively? How can foreign investments be harnessed to benefit rather than exploit Africa? Great potential exists to diversify and transform African economies, gradually eliminating the need for aid. Investment in key renewables such as agriculture and fisheries is critical to the process to ensure job creation, food and nutrition security, and a food surplus for generating export revenue. Discussants – 5 minutes eachOpen exchange

11:15 – 12:30 session 2: closing the deficit in infrastructure and energy financing

What is the role of blended finance, bond-finance, private investment and aid? How could cross-border projects be more effectively managed? What is the role of guarantee instruments (such as those of the World Bank)? While answers will vary across countries, we would like the meeting to advise us on the questions to ask and the criteria to consider.• Discussants – 5 minutes each• Open exchange

12.30 – 13.30 LUNCH

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AGENDA

13:30 – 14:30session 3: Mobilising the right type of investment on the right terms including foreign direct investmentAfrica continues to be perceived as a high-risk investment destination, creating a risk premium that effectively drives up the cost of capital and insurance, while also shortening the investment horizon. At the same time, more and more investors investing in Africa are African. What are the incentives to support both external and domestic investors? How can internal financial systems capture financial flows more effectively? What are the success stories? What are the appropriate policies and regulatory measures to improve investments? • Discussants – 5 minutes each• Open exchange

14:30 – 15:30session 4: thinking about taxationAll countries need to develop a tax base and better manage revenues. It is vital that high growth economies across Africa mobilise taxation in order to broaden and deepen their revenue base. What are the lessons on effective approaches to taxation? How should the challenge be approached?Discussants – 5 minutes eachOpen exchange

15:30 – 15:45BREAK

15:45 – 16:45session 5: reflecting on the future of aidDevelopment assistance retains a crucial role in Africa – and predictions of the demise of aid may prove premature. What is the role for the future of aid as a source of finance for human development goals? Should aid be more focused on capacity building and strengthening institutions? How should we seek to utilise aid as a lever for private sector finance to invest in key sectors such as agriculture and fisheries? What is the role of aid to support local partners to develop small and medium sized companies?• Discussants – 5 minutes each• Open exchange

16:45 – 17:30Lessons, conclusions, and follow-up

17:30 – 19:00reception

13:30 – 14:30 session 3: Mobilising the right type of investment on the right terms including foreign direct investment

Africa continues to be perceived as a high-risk investment destination, creating a risk premium that effectively drives up the cost of capital and insurance, while also shortening the investment horizon. At the same time, more and more investors investing in Africa are African. What are the incentives to support both external and domestic investors? How can internal financial systems capture financial flows more effectively? What are the success stories? What are the appropriate policies and regulatory measures to improve investments? • Discussants – 5 minutes each• Open exchange

14:30 – 15:30 session 4: thinking about taxation

All countries need to develop a tax base and better manage revenues. It is vital that high growth economies across Africa mobilise taxation in order to broaden and deepen their revenue base. What are the lessons on effective approaches to taxation? How should the challenge be approached?Discussants – 5 minutes eachOpen exchange

15:30 – 15:45 BREAK

15:45 – 16:45 session 5: reflecting on the future of aid

Development assistance retains a crucial role in Africa – and predictions of the demise of aid may prove premature. What is the role for the future of aid as a source of finance for human development goals? Should aid be more focused on capacity building and strengthening institutions? How should we seek to utilise aid as a lever for private sector finance to invest in key sectors such as agriculture and fisheries? What is the role of aid to support local partners to develop small and medium sized companies?• Discussants – 5 minutes each• Open exchange

16:45 – 17:30 Lessons, conclusions, and follow-up

17:30 – 19:00 RECEPTION

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AFRICA PROGRESS PANEL MEMBERS1. Kofi Annan, Chair2. bob geldof3. strive Masiyiwa4. Linah Mohohlo5. olusegun obasanjo6. tidjane thiam (By audio)

CONSULTATION GROUP7. paul collier, Co-Director, Center for study of African Economies, Oxford University8. nathalie delapalme, Executive Director, Research and Policy, Mo Ibrahim Foundation9. Alan doss, Senior Political Advisor, Peace and Security Unit, Kofi Annan Foundation10. Jamie drummond, Executive Director, ONE11. eleni gabre-Madhin, Chief Executive Officer, Eleni12. Max Jarrett, UNECA13. Zhong Jianhua, Special Representative of the Chinese Government on African Affairs14. Andrew Johnston, Editor and Consultant, Language Aid15. rosalind Kainyah, CEO, Kina Advisory Ltd and Kina Investments Ltd.16. Karuti Kanyinga, Director, South Consulting17. John Kufuor, Former President of Ghana18. carlos Lopes, Executive Secretary, UNECA19. Árni M. Mathiesen, Assistant Director-General Food & Agriculture Organization of the UN20. rudy rabbinge, Professor at Wageningen University, Netherlands21. Judith randel, Executive Director, Development Initiatives22. erich schaitza, Head of Africa, Embrapa23. Abebe selassie, Deputy Director, African Department, International Monetary Fund24. Jóhann sigurjónsson, Director General of the Icelandic Marine Research Institute25. patrick smith, Editor, Africa Confidential26. tesfai tecle, Special Advisor to Chair, AGRA27. Ashish J. thakkar, Founder & Managing Director, Mara Group28. shriti Vadera, Non-Executive Director of BHP Billiton29. Kevin Watkins, Executive Director, Overseas Development Institute30. ngaire Woods, Dean of Oxford University’s Blavatnik School of Government

SECRETARIATcaroline Kende-robb, Executive Directorpeter da costa, Senior AdviserJon Lidén, Head of Strategy and Planningedward harris, Head of Communicationstayo omotola, Program OfficerAlinka brutsch, Communications AssistantAlero okorodudu, Executive Assistantstephen Yeboah, Research and Communications Assistant

LIST OF PARTICIPANTS

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PARTICIPANT BIOGRAPHIESPANEL MEMBERS

Kofi A. AnnanChair, Africa Progress PanelKofi Annan is Chair of the Africa Progress Panel. He also heads the Kofi Annan Foundation, Chairs the Alliance for a Green Revolution in Africa (AGRA), and is an active member of a number of organisations including the Elders, the UN Foundation, the World Economic Forum and the Club of Madrid. He served as United Nations Secretary General from 1997-2006. During his tenure, he made his mark as an advocate for human rights, the rule of law, and the revitalization of the United Nations. He has been a key player in the fight against HIV/AIDS and a leader of the multilateral response to the global terrorist threat. Since leaving the United Nations, Kofi Annan has continued to press for better policies to meet the needs of the poorest and most vulnerable, particularly in Africa.

bob geldofPanel memberBob Geldof is a musician, businessman and UN advocate for the MDGs. He is the Founder andChair of Band Aid, Live Aid and Live8 - ten landmark worldwide concerts held in July of 2005, timed to put pressure on the G8 leaders at their annual summit. Geldof is also co-founder of DATA and advisor and advocate for ONE, a powerful lobby group focused on better policy for and within Africa. He has a number of media and technology business interests. He is currently founder and director of Ten Alps, the UK’s largest independent factual television production company. He has received numerous awards for his TV work. Amongst other international honours, in 1986 he was awarded a knighthood for his work on Africa and has been nominated for a Nobel Peace Prize five times. He was also a member of the Commission for Africa.

strive MasiyiwaPanel memberStrive Masiyiwa, a Zimbabwean national, is one of Africa’s most respected business leaders. He first came to international prominence when he fought a landmark constitutional legal battle in Zimbabwe. The ruling, which led to the removal of the state monopoly in telecommunications, is generally regarded as a milestone in opening Africa’s telecommunications sector to private capital. Mr Masiyiwa is chairman and chief executive of Econet Wireless, a global telecommunications group based in South Africa with operations in 18 countries. He is also involved with leading African businesses in areas including financial services, insurance, renewable energy, hotels and safari lodges.

Mr Masiyiwa is internationally recognised for his leadership in campaigning against corruption in Africa and championing the rule of law. He has served on numerous boards and trusts in Zimbabwe and internationally. He is a trustee of the Rockefeller Foundation and a board member of the Alliance for a Green Revolution in Africa. Mr Masiyiwa is also active in promoting awareness of the impact of AIDS in Africa. He and his wife established and fund a foundation that provides scholarships to more than 25,000 orphans. Mr Masiyiwa and his family live in Johannesburg.

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olusegun obasanjo Panel memberOlusegun Obasanjo was president of Nigeria, Africa’s most populous nation, from 1999 to 2007. He oversaw his country’s first democratic handover of power and administrative reforms that accelerated economic growth. Mr Obasanjo has played a pivotal role in the regeneration and repositioning of the African Union, including helping to establish the New Partnership for Africa’s Development (NEPAD) and the African Peer Review Mechanism (APRM), designed to promote democracy and good governance. He has consistently supported the deepening and widening of regional cooperation through the Economic Community of West African States (ECOWAS) and the Co-prosperity Alliance Zone incorporating Benin, Ghana, Nigeria and Togo. He has served as chairman of the Group of 77, chairman of the Commonwealth Heads of Government Meeting, and chairman of the NEPAD Heads of State and Government Implementation Committee.

Mr Obasanjo has also been involved in international mediation efforts in Angola, Burundi, Namibia, Mozambique and South Africa. In 2008, the United Nations Secretary-General, Ban Ki-moon, appointed Mr Obasanjo as his Special Envoy to the Great Lakes region, where he has played an integral part in mediation efforts in eastern Democratic Republic of the Congo. Mr Obasanjo was born on March 5, 1937, in Abeokuta, Ogun State, South Western Nigeria. He attended Baptist Boys High School, Abeokuta, then worked as a teacher before enlisting in the Nigerian Army in 1958.

tidjane thiamPanel memberTidjane Thiam, born in Côte d’Ivoire in 1962, is chief executive of the London-based international financial services group Prudential plc. He previously served as chief financial officer of Prudential from March 25, 2008 to September 30, 2009.

Mr Thiam spent the first part of his professional career with McKinsey & Company in Paris and New York, serving insurance companies and banks. He then spent several years in Africa where he was chief executive and later chairman of the National Bureau for Technical Studies and Development in Côte d’Ivoire and a cabinet member as Secretary of Planning and Development. Mr Thiam returned to France to become a partner with McKinsey & Company and one of the leaders of its financial institutions practice before joining the British multinational insurance

Linah MohohloPanel memberLinah Mohohlo was appointed Governor of the Bank of Botswana in 1999, following a 23-year career with the Bank. She has also worked for the International Monetary Fund (IMF) and, in her capacity as Governor of the IMF for Botswana, she has been a member of the International Monetary and Financial Committee (IMFC), representing the Africa Group 1 Constituency comprising more than 20 English speaking sub-Saharan African countries. Linah serves in Boards of major corporations in Botswana and abroad. Among her international engagements, she was appointed Eminent Person in 2001 by the former Secretary General of the United Nations, Mr. Kofi Annan, to oversee the evaluation of the United Nations New Agenda for the Development of Africa. She was later appointed by the former Prime Minister of the United Kingdom, Tony Blair, to the Commission for Africa, which addressed Africa’s poverty and stagnation problems. She is also a member of the Africa Emerging Markets Forum.

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company Aviva in 2002. He worked at Aviva until 2008, holding successively the positions of Group Strategy and Development Director, Managing Director of Aviva International, Group Executive Director and Chief Executive Officer, Europe.

Mr Thiam is a member of the council of the Overseas Development Institute in London and a sponsor of Opportunity International, a charity focusing on microfinance in developing countries. In January 2012, he was appointed to the UK Prime Minister’s Business Advisory Group and he has been a member of the European Financial Round Table since January 2013. Mr Thiam holds engineering degrees from the Ecole Polytechnique in Paris and the Ecole Nationale Supérieure des Mines de Paris (top of his class), and an MBA from the French business school INSEAD. A national of both Côte d’Ivoire and France, he was awarded the rank of chevalier of the Légion d’honneur by the French government in July 2011.

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coNSuLTATIoN GRouP

paul collier Co-Director, Center for study of African Economies, Oxford UniversityPaul Collier is Professor of Economics and Public Policy at the Blavatnik School of Government and Director of the Centre for the Study of African Economies at the University of Oxford. He is also Co-Director of the International Growth Centre and is currently a Professeur invité at Sciences Po. From 1998–2003 he took a five-year Public Service leave during which he was Director of the Research Development Department of the World Bank. In 2008 Paul was awarded a CBE ‘for services to scholarship and development’. He advised the British Government on its recent G8, in which corporate tax avoidance and evasion were core concerns. This work is described in his article in Prospect, April 2013.

Paul is currently adviser to the Strategy and Policy Department of the International Monetary Fund. He has written for the New York Times, the Financial Times, the Wall Street Journal, and the Washington Post. His research covers the causes and consequences of civil war; the effects of aid and the problems of democracy in low-income and natural resources rich societies. Recent books include The Bottom Billion (Oxford University Press, 2007) which in 2008 won the Lionel Gelber, Arthur Ross and Corine prizes and in May 2009 was the joint winner of the Estoril Global Issues Distinguished Book prize; Wars, Guns and Votes: Democracy in Dangerous Places (Vintage Books, 2009); The Plundered Planet: How to reconcile prosperity with nature (Penguin, 2010); and Exodus: How Migration is Changing Our World, to be released on 3rd October 2013 (Penguin).

peter da costa Senior Adviser, Africa Progress PanelPeter da Costa is a development policy and strategic communication specialist who has worked extensively in Africa as well as on global issues and initiatives for more than two decades. A trained journalist, he reported from West Africa during the early 1990s for a range of print, broadcast and multimedia outlets. In 1994 he became Regional Director for Africa of Inter Press Service, a global media and development communication agency, and moved to Zimbabwe.

In 1997 he was appointed Senior Communication Adviser to the UN Under-Secretary General and Executive Secretary, United Nations Economic Commission for Africa, headquartered in Ethiopia. In 2003 he left the UN to pursue doctoral studies at the School of Oriental and African Studies, University of London, and was subsequently awarded a Ph.D. in Development Studies. His areas of expertise include Translating Research into Policy; Strategic Communication; Monitoring and Evaluation; and Organizational Development. He consults extensively with multilateral and bilateral development agencies, philanthropic foundations and civil society organizations. He originates from The Gambia and Ghana, and is currently based in Nairobi, Kenya.

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Alan doss Senior Political Advisor, Peace and Security Unit, Kofi Annan FoundationMr Alan Doss is a Senior Political Advisor to Mr. Kofi Annan and senior fellow at the Geneva Centre for Strategic Studies (GCSS). He has a long career at the UN working on peacekeeping, development and humanitarian assignments in Africa, Asia and Europe as well as at United Nations Headquarters in New York.

In 2007 he was the Special Representative of the Secretary-General of the United Nations in the Democratic Republic of the Congo and Head of the UN peace keeping mission (MONUC). Immediately prior to his assignment to the DRC, he was the Special Representative of the UN Secretary-General in Liberia and head of the UN mission (UNMIL). Mr Doss had previously held positions as Director of the United Nations Development Group (UNDG),where he coordinated the UNDG’s work on the follow-up to the UN global conferences of the nineties, which led to the pioneer publication “A Better World for All” published jointly by the UN, World Bank, IMF and OECD and subsequently, at the end of the decade, to the UN’s Millennium Development Goals.

Mr Doss has written numerous articles on development, peace keeping and peace building. He delivered the 2009 Nelson Mandela Lecture on Africa at the Royal United Services Institute in London and the 2010 Count Folke Bernadotte Memorial Lecture on Protection and Peacekeeping at the United Nations Association of the United Kingdom. He has been a guest speaker and lecturer at the Woodrow Wilson Centre in Washington D.C, the International Peace Institute in New York. He is a graduate of the London School of Economics and Political Science.

nathalie delapalme Executive Director, Research and Policy, Mo Ibrahim FoundationNathalie Delapalme was previously a French senior civil servant. Her most recent position was Inspector at the Inspection Générale des Finances. Prior to this, Mrs Delapalme served the French Government as an advisor for Africa and Development in the offices of various Foreign Affairs Ministers, between 1995-1997 and 2002-2007. She also served the French Senate as advisor for the Finance and Budgetary Commission, where she assessed fiscal and public expenditures and policies between 1984–1995 and 1997–2002.

Nathalie Delapalme is a member of the Supervisory Committee of CFAO, and a member of the Boards of IFRI (Institut Français de Relations Internationales), Maurel et Prom and Maurel et Prom Nigeria. Nathalie is a member of the board of trustees for Fondation Pierre Fabre and Fondation Elle. Nathalie is chevalier de l’Ordre du Mérite et chevalier de l’Ordre de la Légion d’Honneur.

Jamie drummond Executive Director, ONEJamie is co-founder of the global advocacy organisation ONE, which has offices in Europe, the US and Africa. Along with 3 million members and many influential advocates. In 2005 ONE worked closely with the public and political leadership of the G7 and EU governments and the global entertainment industry to force consensus on a package of polices for African development; and has been working on ensuring these promises were kept, and built upon, ever since.

Prior to co-founding ONE, Jamie helped start DATA, and worked as the global strategist for Jubilee 2000 Drop the Debt. Working with key partners, these movements made sure $110bn

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eleni gabre-MadhinChief Executive Officer, EleniEleni is an internationally recognized thought leader on commodity exchanges and rural development in Africa, with a career spanning both research and development practice, and now business. Prior to returning to her native Ethiopia, she served as Senior Economist at the World Bank and Senior Research Fellow with the Washington-based think tank, the International Food Policy Research Institute. She has also worked at the United Nations as a Commodity Trading Expert, based in Geneva, Switzerland.

Dr. Gabre-Madhin holds a PhD in Applied Economics from Stanford University, an MSc in Agricultural Economics from Michigan State University and BA in Economics from Cornell University. She was awarded Outstanding Dissertation by the American Agricultural Economics Association in 1999 for her thesis titled, “Social Capital, Transaction Costs, and Market Institutions in the Ethiopian Grain Market.” As a voice for African markets, she represented the African business community at the G-20 Business Summit in London in 2009, and is presently on the Nike Foundation-sponsored Advisory Panel on Girls in Rural Economies, as well as the Expert Group on Development Issues for the Government of Sweden, the African Union Task Force on Commodities, and the Stiglitz Task Force on Africa. Dr. Gabre-Madhin is a Founding Fellow and Board Member of the Ethiopian Academy of Sciences, and was nominated in 2010 for Outstanding Businesswoman of the Year by African Business Awards.

Zhong JianhuaSpecial Representative of the Chinese Government on African AffairsAmbassador Zhong was born in 1950, in Jiangsu, China. After spent five years in village as a peasant, he was sent to study in Beijing Institute of Foreign Language in 1973. Joined the foreign service in 1977, he first served as a diplomatic courier for 2 years and then posted in the Chinese Embassy in London for 4 years. Ambassador Zhong went to study in Fletcher School of Law and Diplomacy, Tufts University in Boston USA 1984-1985, and finished with a master degree. He went back to work in the Embassy in London again for another 4 years as 3rd secretary and 2nd secretary before been posted as a 1st secretary and legal expert in the Sino-British Joined Liaison Group in Hong Kong from 1991 to 1993.

From 1993 to 2002, he worked in the Consular Department of the Ministry of Foreign Affairs in Beijing, as Director, Deputy Director General and Director General. He was appointed Consul General (ambassador rank) in Los Angeles in 2002, and served there until 2007. He was Ambassador of China to South Africa from May 2007 to January 2012. Ambassador was appointed Special Representative on African Affairs for the Chinese Government in February 2012.

in developing country debt was cancelled, and that overall aid to Africa increased from $17bn in 2001 to $40bn in 2010, with significant initiatives to combat AIDS, TB, malaria and to increase childhood vaccinations and access to education put in place. In 2007, Jamie was elected a Young Global Leader by the World Economic Forum. He has travelled widely in Africa and Asia and has a Masters in Development from the London School of Oriental and African Studies. Jamie regularly speaks on development issues and building popular movements.

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rosalind Kainyah CEO, Kina Advisory Ltd and Kina Investments Ltd. Rosalind Kainyah is a highly qualified and experienced senior executive with over 20 years’ experience in law, government relations, political risk management, and social investment primarily related to the mining and oil industries in sub-Saharan Africa.

Rosalind was appointed as Vice President, External Affairs at Tullow Oil plc in 2009, a position she held for four and a half years when she left to set up Kina Advisory Limited and Kina Investments Limited. She has also held senior executive posts in international mining companies, Anglo American and De Beers. She is a qualified barrister with wide experience of corporate and environmental law. She has advised governments in Africa and elsewhere on policy and legislative issues.

Rosalind is on the Global Advisory Board of the Africa Leadership Network and Resurgo Trust, and was a trustee of the Africa Center for Economic Transformation till 2011, and The Africa America Institute till 2009. Kina Advisory provides advice to the private and public sector on economic, political and social issues that are critical to the commercial success and sustainability of mining and oil & gas agreements. Kina Investments focuses on building national or local companies to participate effectively in the supply chain of the extractive industries through advice and direct investment.

Karuti Kanyinga Director, South ConsultingKaruti Kanyinga is an Associate Research Professor at the Institute for Development Studies (IDS) at the University of Nairobi, Kenya. Karuti holds a PhD in Social Sciences from Roskilde University, Denmark. He has wide knowledge and experience in governance and development in Africa and has many years of teaching and research experience at the University of Nairobi. He has published extensively on politics, development and governance. He has been involved in many research projects focusing on governance and development in Africa. Karuti is also a director of South Consulting Africa Ltd, a firm monitoring implementation of key reforms under the Kenya National Dialogue and Reconciliation Monitoring Project following the post-2007 election violence in Kenya.

caroline Kende-robbExecutive Director, Africa Progress PanelCaroline Kende-Robb is the Executive Director of the Africa Progress Panel. Prior to joining the Africa Progress Panel, Caroline worked at the World Bank for over ten years as a sector manager and technical expert for the Sustainable Development Network in the regions of East Asia, Africa, and Europe and Central Asia. In these roles, she led teams of technical experts to implement World Bank loans and grants and conducted policy research on a range of global issues including macroeconomic policies and poverty outcomes, social inclusion, job creation, conflict and fragility, climate change, and financial crises.

Caroline began her career in management for five years in the private sector. She then worked for the EU and The Gambian Government as a Business and Community Development Advisor based in a small fishing village along the Atlantic coast. Consequently, Caroline was the West Africa Field Director for Africa Now, a small CSO, and the Poverty Alleviation Focal Point for the

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John Agyekum Kufuor Former President of GhanaMr. Kufuor was called to the Bar at Lincoln Inn, London (1959-1961) and obtained an Honours Degree in Philosophy, Politics and Economics from Exeter College, University of Oxford (1961-1964). John Kufuor served two terms as president of the Republic of Ghana from 2001–08. During his presidency, he served as chairperson of the African Union (2007–08) He was also chairman of the Economic Community of West African States for two terms (2003–05). Earlier in his career, he was twice elected Member of Parliament (1969–72 and 1979–81). He served as a deputy minister of foreign affairs, representing Ghana’s delegation to the United Nations (UN); secretary for local government; and chief legal officer and city manager of Kumasi.

In retirement, President Kufuor has set up the John A Kufuor Foundation on Leadership, Governance and Development. In 2011 he was named joint winner of the World Food Prize for Food and Agriculture with former Brazilian President Lula da Silva. He is currently a Global Ambassador against Hunger for the UN World Food Programme; chairman of the UN Interpeace Program; Chairman of the Sanitation and Water for All Partnership; Global Envoy for the Neglected Tropical Diseases Alliance; Lead Advocate for the Partnership for Child Development. Kufuor has received numerous awards including; the Chatham House prize for good leadership by Queen Elizabeth II of Britain, Germany’s highest national award the Bundesverskkreuz by former President Horst Kohler; Liberia’s highest award of the Grand Cordon in the Most Venerable Order of the Knighthood of the Pioneers for helping to return peace to that country.

carlos LopesExecutive Secretary, UNECAPhD in History, University of Paris 1 Panthéon-Sorbonne; Research Master’s, Geneva Graduate Institute of International and Development Studies. 1998 - 2005 he joined the United Nations Development Programme (UNDP), as a development economist and occupied various positions, including Deputy Director at the Office of Evaluation and Strategic Planning, Resident Representative in Zimbabwe, as well as Deputy, and later Director of the New York-based Bureau for Development Policy.2005-07, UN Assistant-Secretary-General and Director for Political Affairs, Executive Office of the Secretary-General. 2007-12: Executive Director, United Nations Institute for Training and Research (UNITAR), Geneva; Director, UN System Staff College, Turin, at the level of Assistant Secretary-General. Since September 2012, Executive Secretary, Economic Commission for Africa, at the level of UN Under Secretary-General. Recipient, Honorary PhD in Social Sciences, University of Cândido Mendes, Rio de Janeiro, Brazil.

UNDP in The Gambia. Before joining the World Bank, Caroline worked for the IMF for seven years. She was the first Poverty and Social Development Advisor recruited by the IMF to manage the introduction of a poverty and social perspective into the Fund’s macroeconomic programs and policy dialogue. Caroline is part of the World Economic Forum’s Global Agenda Council on Africa. She is also an Advisor for CAMFED, a CSO focused on the education of girls in Africa, and an Ambassador for Protect African Lions. She is the author of many publications including, “Can the Poor Influence Policy?” a book co-published by the World Bank and the IMF. She holds a BA (Hons) in Geography and MSc in Social Policy from the London School of Economics.

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Árni M. Mathiesen Assistant Director-General Food & Agriculture Organization of the UNMr Árni M. Mathiesen, a national of Iceland and coming from a fishing family, was appointed as Assistant Director-General (ADG) of the Fisheries and Aquaculture Department of FAO, effective 2 November 2010. Mr Mathiesen graduated from Flensborgarskóli in Hafnarfjörður with a university entrance diploma in 1978 and obtained a Bachelor of Veterinary Medicine and Surgery degree from the University of Edinburgh, U.K, qualifying as a veterinarian in 1983. He was awarded a Master of Science in Aquatic Veterinary Pathology from the Institute of Aquaculture, University of Stirling, U.K in 1985. After completing his studies, he worked as a veterinarian, specializing in fish diseases from 1985 to 1995. He also served as Managing Director of Faxalax, an aquaculture firm, from 1988 to 1989.

Mr Mathiesen was a member of the Board of the Guarantee Division of Aquaculture Loans and, from 1994 to 1998, a member of the Board of the Agricultural Bank of Iceland and of the Agricultural Loan Fund. He was also an Icelandic representative on the Nordic Council from 1991-1995. From May 1999 to September 2005, he served as Minister of Fisheries; the agency is responsible for fisheries policy, quota allocation, surveillance and enforcement, processing, research and development, marine aquaculture, marine food safety and management of international agreements. From September 2005 to February 2009, Mr Mathiesen served as Minister of Finance; the agency is responsible for state budget, tax policy, revenue collection and forecasts, economic forecasts, pensions, government property and wage settlements in the public sector. Prior to joining FAO, Mr Mathiesen was a consultant for the Confederation of Icelandic Employers and part-time general veterinary practicioner in the south of Iceland.

prof. dr. ir. roelof (rudy) rabbingeProfessor at Wageningen University, NetherlandsDr. Rudy Rabbinge is University Professor Emeritus in Sustainable Development and Food Security at Wageningen University in the Netherlands. He is a former member of the Senate of the Netherlands Parliament and former chairman of the Board of Trustees of the Royal Institute of the Tropics. Rabbinge has led various missions and agricultural programs in developing countries and served as editor of several journals. He was a chair of the board of trustees of two CGIAR centers and co-chair of the Inter-Academy Panel on Food Security and Agricultural Productivity in Africa. He is also a member of the board of the Alliance for a Green Revolution in Africa (AGRA) and chairman of the Council for Earth and Life Sciences of the Royal Netherlands Academy of Sciences. He formerly served as deputy chairman of the IFDC board and chairman of the Science Council of the CGIAR.

Rabbinge also serves on the boards of various international agribusiness firms and has responsibilities in the Board of Trustees of many scientific, agribusiness and public national and international organizations. He holds degrees in phytopathology, entomology, theoretical production ecology and philosophy of science from Wageningen Agricultural University. He was also a member of the High Level Panel of Experts of the CFS of the United Nations and as such in 2011 he advised the UN about price volatility and about land use and global investments in agriculture and horticulture. At present he functions a Special Envoy for Food Security in the Ministry of Economic Affairs.

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Judith randelExecutive Director, Development InitiativesJudith Randel is an Executive Director of Development Initiatives (DI) an independent organisation that specialises in access to information and data for poverty eradication. Judith is well known across NGO and donor communities for her research and expertise in the areas of aid statistics, financing instruments, humanitarian aid policy and for her leadership on the International Aid Transparency Initiative, for which DI is the Technical Lead. Judith’s most recent accomplishments is the launch of Investments to End Poverty, which looks at the impact of all resources on poverty reduction. The 2013 report brought together data on global financial inflows and outflows in developing countries, ‘unbundled’ aid to examine and understand its true value, and called for a costed plan to drive poverty eradication by 2030. Launched at the 2013 UN General Assembly, it has received acclaim from many leading development commentators and donor agencies, being called “hands-down the most important contribution in some time to rethinking our strategy on how to end extreme poverty” by Gregory Adams of Oxfam America, and “an important contribution to the post-2015 debate” by Erik Solheim, Chair of the OECD-DAC. Judith has worked on aid transparency for decades, including through the Prime Minister’s Africa Partnership Initiative under Tony Blair, providing the background data and analysis for ONE’s DATA Report which tracks donors’ performance on their commitments, and promoting and implementing the International Aid Transparency Initiative (IATI) which puts real-time information about aid spending into the hands of people who can use it. Before setting up DI, Judith job-shared with Tony German as Director of Public Affairs at ActionAid. She and Tony were founding members of the collaborative working group which launched the Reality of Aid in 1992, the first yearly independent review of the OECD DAC donors’ aid spending. Judith holds an MSc (Distinguished) in Development Studies from University of Bath and an LLB from School of Law, University of Southampton.

Abebe selassieDeputy Director, African Department, International Monetary FundAbebe Aemro Selassie is Deputy Director in the IMF’s African Department. Until recently he was mission chief for Portugal under its IMF/EU-supported adjustment program. Previously at the IMF he also led the teams working on South Africa as well as the Regional Economic Outlook for sub-Saharan Africa. Abebe has also worked on Thailand, Turkey and Poland, as well as a range of policy issues. From 2006-2009 he was the IMF’s resident representative in Uganda. Before joining the IMF, he worked for the Government of Ethiopia.

erich schaitza Head of Africa, EmbrapaErich Schaitza has been a researcher for Embrapa in the last 25 years, with experience in small-scale farming, research-extension integration and management of multi-institutional programs of soil, water and biodiversity conservation. Since 2012, he is the coordinator of Embrapa Africa, with headquarters in Accra, Ghana. As such, he has travelled extensively and visited 20 countries in the continent, both visiting agriculture and discussing opportunities of cooperation.

With 47 research centers in Brazil and over 2,400 researchers, Embrapa has strategically improved international cooperation, both through laboratories abroad and business offices. In Africa, it is the main agent of Brazilian agricultural cooperation developing both research and technical assistance with more than 40 projects in the entire continent.

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Jóhann sigurjónsson Director General of the Icelandic Marine Research InstituteBorn in Reykjavik, Iceland in 1952. Graduated from the University of Iceland in 1976 (BSc biology), followed by post graduate study (Cand. real) at the University of Oslo, Norway 1980 (marine biology). Research specialist in whale biology, University of Oslo 1980, and at the Marine Research Institute (MRI), Reykjavik, Iceland 1981-94, part-time lecturer at the University of Iceland since 1994, member of MRI Fisheries Advisory Committee 1992-94. 1994-1996: Deputy Director of Science, MRI. 1996-1998: Ambassador and Chief Negotiator on Fisheries, Ministry for Foreign Affairs, Government of Iceland. 1998-present: Chairman of Board, United Nations University Fisheries Training Programme, Iceland. 1998-present: Director General of the Marine Research Institute, Reykjavik.

MRI is the principal research and advisory organisation to the Government of Iceland in the area of fisheries management and conservation. Member of Icelandic delegations to several international fisheries managment and fisheries science organisations (FAO, NEAFC, NAFO, ICES, IWC and NAMMCO). Involved in providing advice on fish and whale stocks around Iceland and in work related to developing future research policy in marine sciences and long-term utilization strategies of fish stocks. Actively involved in activities of ICES (International Council for the Exploration of the Sea) as expert and member of Council and Bureau the last 20 years. Author/co-author or editor/co-editor of 70 scientific publications on marine mammals and fisheries. Member of the Royal Swedish Academy of Forestry and Agricultural Science (Fisheries) since 1999 and the Icelandic Academy of Science (Societas Scientiorum Islandica) since 2000.

patrick smithEditor, Africa ConfidentialPatrick Smith is the Editor of Africa Confidential. He has worked as a journalist reporting on politics, economics and security issues in Africa, Asia and the Middle East for 30 years. He has run detailed investigations into the arms trade, the financing of war and its links to resource exploitation. Mr. Smith also served as a technical advisor to the United Nations group of experts investigating illegal exploitation in the Democratic Republic of Congo. Mr. Smith has been based in Paris since 2006.

tesfai tecle Special Advisor to Chair, AGRADr Tecle brings AGRA more than 30 years of experience in management and technical expertise in the fields of international agriculture and rural development. He has provided extensive policy guidance and promoted investment in developing countries by organizations such as the World Bank, Regional Development Banks, and the European Union. Prior to joining AGRA, he was the Assistant Director-General and Head of Technical Cooperation with the Food and Agriculture Organization of the United Nations (UN) in Rome. He has designed large-scale rural development investment programs, working as program economist and analyst, and the leader of large, multidisciplinary teams. He has served in various senior capacities at the UN, worked with the Institute of Development Research in Ethiopia and the World Bank in Washington DC. Dr Tecle, an Eritrean national, has a PhD in International Economics and Development from Cornell University (USA).

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Ashish J. thakkarFounder & Managing Director, Mara GroupAshish is a serial entrepreneur who founded his first business in 1996 at the age of 15 with a $5,000 loan. Since then, he has driven the growth of the company from a small IT business in Uganda to the globally recognised multi-sector investment group that exists today. Through its investments, Mara Group now employs over 8,000 people across 19 African countries in sectors spanning IT services, manufacturing, real estate and agriculture. Ashish continues to drive the business development and strategy of Mara.

In 2012, Ashish was appointed a Young Global Leader by the World Economic Forum (WEF) in recognition of his success and leadership in driving social and economic change in Africa. Ashish is also a member of the World Economic Forum’s Global Agenda Council on Africa and was recently awarded ‘Young Entrepreneur of the Year’ at the World Entrepreneurship Forum in Singapore. Ashish advises several heads of state in Sub-Saharan Africa. Ashish is passionate about enabling, empowering and inspiring young male and female entrepreneurs. Consequently, in 2009, he founded the Mara Foundation to foster and support emerging entrepreneurs through mentorship and venture philanthropy. Born in the UK, Ashish and his family moved back to Africa after surviving the historic Rwandan genocide and generational exile of African families. He grew up in the UK and Uganda and now lives between Dubai and Kampala, Uganda. Ashish has secured a place on Virgin Galactic’s inaugural mission to space, thereby making him Africa’s second astronaut.

baroness shriti Vadera Non-Executive Director of BHP BillitonBaroness Shriti Vadera advises sovereigns, funds and companies on strategy, finance and restructuring and is a Non-Executive Director of BHP Billiton and AstraZeneca. Her assignments, amongst others, include advising the African Development Bank on the Africa50 Fund, two major European sovereigns on the Eurozone crisis and sovereign wealth funds on strategy and market developments. She advised the Korean Presidency of the 2010 G20 which created the G20’s framework for growth in low income countries.

She was a Minister in the UK Government from 2007 to 2009 in the Cabinet Office and Business and International Development Departments. She worked on the Government’s response to the financial crisis and was a key architect of the pioneering UK bank recapitalisation plan and G20 London Summit. At the Department for International Development she was Minister for Africa and development policy. From 1999 to 2007 she was on the Council of Economic Advisers at HM Treasury, where she worked on international economic and development policy such as debt relief for low income countries, the creation of IFFim for vaccinations, Education for All, IMF and World Bank policy and the Gleneagles Summit, as well as business and private finance issues. Prior to that, she was an investment banker for 14 years with SG Warburg / UBS, with a particular focus on emerging markets and advising countries on debt restructurings, balance of payments, privatisation and raising project finance. She has a degree in Philosophy, Politics and Economics from Oxford University and was a trustee of Oxfam from 2000-2005.

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Kevin Watkins Executive Director, Overseas Development Institute Kevin Watkins is Executive Director of the Overseas Development Institute. He is a non-resident senior fellow at the Brookings Institution and a senior visiting research fellow at the Global Economic Governance Programme at Oxford University. Previously, he was the director and lead author of UNESCO’s Education for All Global Monitoring Report (2007 to 2010) and the UNDP Human Development Report, where he led the research on reports covering global poverty and inequality, the global water crisis, and climate change. Prior to working with the United Nations, he worked for thirteen years with Oxfam, where he authored major reports on African debt, international trade and Oxfam’s Education Report. He holds a BA in Politics and Social Science from Durham University and a doctorate from Oxford University. His research interests include poverty and inequality, education, approaches to equity in public spending and inclusive economic growth.

ngaire Woods Dean of Oxford University’s Blavatnik School of GovernmentProfessor Ngaire Woods is the inaugural Dean of the Blavatnik School of Government and Professor of Global Economic Governance at the University of Oxford. She is founder and Director of the Global Economic Governance Programme and co-founder (with Robert O. Keohane) of the Oxford-Princeton Global Leaders Fellowship Programme. Her research focuses on global economic governance, the challenges of globalization, global development, and the role of international institutions. Her publications include The Politics of Global Regulation (with Walter Mattli); Networks of Influence, and The Globalizers: The IMF, the World Bank and their Borrowers. Professor Woods has served as an advisor to the IMF Board, to the UNDP’s Human Development Report and to the Commonwealth Heads of Government. She was educated at Auckland University (BA in economics, LLB Hons in law) before studying at Balliol College, Oxford (as a New Zealand Rhodes Scholar), completing an MPhil (with Distinction) and then DPhil (in 1992) in International Relations.’

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SUMMARY OF DISCUSSION

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Experts from the private sector, government, United Nations agencies, non-government organizations and academia gathered in Geneva on November 28, 2013, for a consultation to prepare for the 2014 Africa Progress Report. Discussions centred on looking beyond aid to the financial resources Africa needs to enable transformative growth. The meeting was organised into six sessions:

1. Managing finance and investing in renewable

resources, with a focus on agriculture and fisheries

2. Closing the deficit in infrastructure and energy

financing

3. Mobilising the right type of investment on the right

terms, including foreign direct investment

4. Thinking about taxation

5. Reflecting on the future of aid

6. Lessons, conclusions and follow-up.

The introduction to this summary lays out the framework of discussion: the need for a structural economic transformation in Africa. It is followed by five sections that cover the main topics of the meeting: transforming agriculture and fisheries; developing infrastructure; mobilising investment; improving taxation; and better use of aid. The conclusion outlines some themes that emerged from the day’s discussions: balancing public and private finance; building up institutions and systems; increasing knowledge and skills; reducing risk; and developing the financial sector.

introdUction Changing the narrative

At the start of the new millennium, Africa remained burdened with challenges that it had been grappling with since the late 70s. Attention focused on getting out of debt, fighting infectious diseases, and sustaining the economic reforms necessary to put countries on

a growth path, but conflict and political instability in several countries hampered these efforts.

Today, much of Africa is in the world’s high growth league. Education and health are improving. Aid dependence is in decline and public finance management is more robust. For every US$1 in foreign aid Africa now mobilises US$10 in domestic revenue. Foreign investment has overtaken development assistance as a source of finance in many countries.

Despite these advances, much of the growth that is taking place is not creating new jobs or lifting people out of poverty. In many countries, high growth masks the need for structural reform and a significant transformation of the economies to ensure that growth continues in the long run and that it creates enough jobs and reduces poverty. The continent needs to increase agricultural productivity, improve the skills of its workforce, apply new technologies, develop its infrastructure and strengthen regional integration. Africa needs to attract investment partners willing to contribute to development in exchange for the returns that a fast-growing region can offer.

Accomplishing this transformation has become more urgent than ever, as demographic changes mean large numbers of young people become ready to enter the workforce and drive millions of people into cities. To enable a constructive discussion about how to deal with the new and exciting challenges these developments pose, the narrative about African development must change; from managing poverty to creating an enabling environment for economic development. Africa’s challenges are ones increasingly shared by the rest of the world and so are the stakes in the continent’s success.

The Africa Progress Panel consultation on November 28, 2013, was called to brainstorm content for the Africa Progress Report 2014. The report will aim to identify actions for high-quality investment to transform agriculture and fisheries, to ensure self-reliance while protecting the renewable resource base, with a focus on entry into higher value-added areas of production.

FINANCE FOR INCLUSIVE AND SUSTAINABLE GROWTH IN AFRICAResetting the Agenda

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“Agriculture should not be taken as a development issue - it should be taken as a business issue.”

- Olusegun Obasanjo, Former President of Nigeria, Africa Progress Panel Member

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This year’s APP report will address the key role of finance in driving positive change: Building on last year’s report, it will consider the national and international strategies needed to harness Africa’s resource wealth for national development. It will also address the wider strategies needed to unlock the region’s economic potential and create the conditions for dynamic, inclusive and sustainable economic growth.

trAnsforMing AgricULtUre

A wide-ranging discussion on agriculture centred on ways to transform the sector, especially by enabling smallholder farmers to grow from subsistence producers to commercial producers. Participants underlined the need to change the discussion about agriculture of one about development and poverty reduction exclusively to one that also sees agriculture as a source of economic growth and opportunity. They stressed benefits of such a transformation not only for equitable economic growth but also for food nutrition security. It was noted that although Sub-Saharan Africa has 60% of the world’s uncultivated arable land, it still imports over 40% of the food it needs. The point was also made that land currently under production is underutilised and mismanaged.

Reform of land rights and land tenure was seen as vital to facilitate consolidation of small family farms, ensure access to vulnerable groups in particular women - and encourage long-term investments and land improvements. At the same time, it is important to deter large-scale “land grabs” by speculators, and to complement consolidation by fostering rural businesses that create off-farm jobs.

The African Union’s designation of 2014 as the Year of Agriculture and Food Security, and of agriculture as the focus of the AU summit in January 2014, will form the wider background and context for the 2014 Africa Progress Report. They follow on the heels of the 10th anniversary of the Maputo Declaration, which offers a chance to take stock a decade after African heads of state promised to allocate 10% of national budgets on agriculture and seek 6% annual agricultural growth.

Much of the agriculture discussion in the meeting focused on three interlocking themes:

• Increasing the productivity of Africa’s farms and

farmers

• Making more domestic and foreign financing

available for agriculture

• Building or strengthening the necessary institutions,

systems and markets.

Raising productivity

Participants drew on the experiences of countries such as Brazil and the Netherlands that have succeeded in tapping agriculture’s economic potential by increasing productivity. Key points included the importance of funding research; not only to develop crops and seeds adapted to local conditions but also to identify crops that are most economically and nutritionally viable and whose production can most easily be scaled up.

Several participants mentioned the need to improve farmers’ knowledge and skills by expanding and improving vocational education; in modern agricultural methods and technology, but also in business skills and entrepreneurship. The role of agricultural extension services – networks of advisers who take technical and business advice to farmers – was seen as vital.

Efforts to raise productivity also reduce risks and farmers’ vulnerability to economic and other shocks, including climate change. Investing in land and water management, including water harvesting and irrigation infrastructure, for example, can mitigate the risks inherent in rain-fed farming, which comprises much of Africa’s agriculture.

Making more finance available for agriculture

The right combination of public and private finance could offer Africa a chance to “leapfrog” to modern agricultural practices, just as it has bypassed fixed line telephones to adopt mobile phones. While the need to attract private investment, mentioned in the context of farm consolidation, was seen as crucial, several participants underlined the key role of public finance.

The meeting focused on the paradox that although agriculture in Africa can have a high rate of return, many farmers find it impossible to borrow finance on viable terms, with interest rates higher than 20%. While building credit systems were seen as important, especially for smallholders, the risks inherent in agriculture may make larger-scale better suited to equity finance than to credit.

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Several of the finance themes that ran through other sessions were mentioned in connection with agriculture, including the need to improve Africa’s banking systems, the potential for insurance capital to convert domestic savings into investment, the importance of remittances, the need to stem illicit financial flows, and the tendency of donors to focus on social spending rather than investing in institutions or infrastructure.

Building institutions, systems and markets

As well as focusing on building up the public institutions and systems mentioned above – including research, vocational education and extension services –participants underlined the importance of creating local markets. Farmers need to organise in cooperatives and associations that would enable them to market and sell their produce more easily.

The establishment of the Ethiopia Commodity Exchange was offered as a case study of innovation in transforming a sector of the agricultural sector. The exchange has lowered costs and risks for the smallholder coffee farmers who produce 95% of Ethiopia’s coffee output, and enabled them to negotiate better prices. The government has also benefited by being able to collect higher tax revenues. However, the exchange focuses on an export crop – coffee – and the challenge now will be to use the inspiration of the Ethiopia Commodity Exchange to create viable exchanges for trading staple crops.

Regional initiatives such as the Comprehensive Africa Agriculture Development Programme (CAADP) were seen as valuable frameworks that focused attention on the importance of supporting agriculture. But the point was made that the need for concrete proposals and action is at the country level.

optiMising fisheries

Although fisheries and agriculture in Africa face some similar challenges and opportunities, the differences are marked. While the developed world and the developing world each account for about 50% of the world’s fisheries, 90% of the people employed in the sector are in the developing world, where small-scale fishing is the norm, often at a subsistence level.

Africa’s fisheries are underexploited by Africans, but some areas are overfished illegally by overseas commercial

fishing fleets in territorial waters of countries unable to assert their control. Fish consumption per capita (9.5kg) is half the world average (18.5kg). Yet, Africans depend more on fish for protein than the rest of the world does indicating that there is potential for fishing and aquaculture to contribute to food and nutrition security.

Participants discussed the fisheries strategies that contributed to Iceland’s transformation from poverty to wealth over the course of the 20th century, including a solid scientific foundation; a comprehensive, regulated management framework; and enforcement of territorial fishing rights.

deVeLoping infrAstrUctUre

To enable the structural transformation that Africa needs, it is crucial to end the large infrastructure deficit that is constraining long-term, high-quality growth. Participants focused on the urgent need to attract investment in infrastructure by reducing risk and increasing the pipeline of projects that are ready for implementation.

African infrastructure projects are not getting off the ground despite high liquidity in global capital markets, because they are still seen as overly risky and too few of them are implementation-ready. So there is an urgent need to reduce risks and costs, and to match the remaining risk with sources of funding that are most able to carry that risk.

There is also an urgent need to shorten planning periods for infrastructure projects by increasing skill in public-sector agencies and ministries, standardize some of the planning processes and improve the ability to overcome political resistance driven by interest groups or self-interest.

Participants agreed that a balance of public and private finance needed to be struck across the three stages of an infrastructure project – preparation, building and operating. The planning stage may for the foreseeable future predominantly require public finance, which could be facilitated by the African Development Bank and other multilateral or bilateral partners. The building stage may be best suited to public capital from sources such as the World Bank and the African Development bank, while the lower-risk operation stage could be left to the private sector.

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Regional integration and bilateral projects were seen as crucial ways of making infrastructure projects happen.It was noted that 21 Sub-Saharan African countries have power systems smaller than the scale required for optimum economic efficiency.

Investing in infrastructure played a crucial role in South Korea’s leap from low-income to high-income status. The point was also made that better infrastructure lowers inequality, because roads and communications networks improve access to and from marginalised regions and communities and facilitates farm-to-market transportation.

MobiLising inVestMent

Participants underlined the need to create an enabling environment in Africa; not only to attract significant sources of foreign investment, but also to free up large

amounts of African financial resources that exist but too often either leave the continent or are locked up in unproductive vehicles. Harnessed in the right way, Africa’s own considerable savings could potentially drive investment in both small and large-scale business ventures. A rich discussion raised a wide range of ways to improve the environment for investment:

reduce risk and alter perceptions of risk: Perceived risk in Africa is much higher than actual risk. Many participants made the point that many of the individuals and institutions that assessed and graded risk in Africa know very little about the continent. There is a need to shift mind-sets, from concentrating on risk to focusing on opportunities – and what needs to be done to realise these opportunities. Reducing perceived risk will increase access to much larger amounts of local money.

reform Africa’s stock markets and exchanges: Markets are highly illiquid, with cumbersome bureaucracy and

“Mobile (phone) penetration being in excess of 70 percent is a great factor. however, on the financial services side, penetration is less than seven percent. so how do we bridge that gap and truly become a game changer?”

- Ashish J. Thakkar, Founder and Managing Director of the Mara Group

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overly complicated requirements for participation by both companies and investors. It is important not to neglect smaller investors; the success of the Ethiopia Commodity Exchange offers a lesson.

improve governance and transparency: To attract and retain investment, it is vital to build national oversight policies and mechanisms that improve governance and transparency, as well as joining regional and global transparency initiatives.

create public-private partnerships: Such partnerships are a key way of attracting investment, but the public sector shouldn’t always have to lead; the private sector could be involved from the start.

improve financial services: Africa has the most profitable and yet the most inefficient banking sector in the world; financial intermediation is in a very poor state. Mobile banking offers potential, but it is currently led by the telecommunications sector. The entry of banks into this sector would increase dynamism and expand the range of services offered. The expansion of insurance coverage would mobilize savings for investments (as insurance premiums in local currency will need to be re-invested in the country) and lower the risk of doing business. Better access to financial services is a crucial ingredient of equitable growth.

Make venture capital available: One of the participants pointed out that equity may be a better source of start-up capital than debt for many small and medium-sized companies in Africa, given the difficulty in obtaining bank loans and the prohibitive interest rates. There may be a role for aid in providing such venture capital for small and medium-sized companies in some contexts.

focus on adding value: Foreign ventures – especially in extraction industries – making little use of local companies as sub-contractors and service providers. Many investment projects so far have therefore provided little added value for the larger economy. Attracting investment in enterprises that add value and make use of locally produced goods and services is vital to enable the long-term structural transformation that Africa needs. But for this to happen, local companies must have a skilled work force and be able to meet international environmental, labour force and human rights standards. This will demand significant investments in local companies amd in capacity building, something that could be demanded – to some extent – from the

international investors as part of their larger commitment to the countries where they invest.

bridge the skills gap: There is a growing disconnect between education systems and the labour market, which has led to a huge shortage in the kind of knowledge and skills that employers need. There is a danger of overstating the scale of this challenge, given that there is much greater scope for the private sector to train workers, but education systems need to focus on flexible and transferable skills so that they produce people who can be trained.

support small and medium-sized enterprises (sMes): Given the dominance of small and medium-sized businesses in Africa’s economic landscape, supporting them and helping them grow is a crucial way to create jobs and sustain growth. Entrepreneurs need access to finance (as mentioned above) and opportunities to improve their business skills; mentors can play a key role.

bring informal businesses into the formal sector: Informal businesses comprise the dominant part of many African economies, so creating pathways for them to enter the formal sector is a crucial part of the structural transformation that the continent needs. Formalising informal enterprises enables them to grow, create jobs, increase the skills of the workforce and contribute to the tax base.

MAKing the best Use of tAXAtion

Tax revenue is the foundation of a functioning state that serves its population. It is needed to finance an effective public sector, basic social services and a social and economic safety net for the population, and for developing and operating at least some of a country’s needed infrastructure. Creating a broad-based, fair and sufficient tax base is a crucial element of the structural transformation the continent needs.

African governments face two major challenges to ensure a growing and reliable tax base: increase their administrative capacity to raise tax revenues; and establish a “social contract” between the state on the one hand and citizens and corporations on the other, based on a sense of tangible social and personal benefits delivered by the state in return for tax payments.

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On the first challenge, aid can play a role in strengthening tax collection systems (including legislation and technology) and in increasing skills and expertise of tax authorities. Better data is a key part of increasing the tax base. African countries should share more tax information among them, and not create a “race to the bottom” by competing to lower tax rates. Governments need not only to increase their administrative capacity to raise tax revenues, but also to make it easier for citizens and companies to comply with tax rules.

On the second challenge, there was broad agreement that taxation is ultimately a political issue: the tax burden needs to be seen to be fair; there needs to be a

basic provision of services; and as a minimum, a public commitment to fight corruption (nobody wants to pay taxes to finance a police force which main interaction with citizens is to demand petty bribes). There is a challenge to balance the use of easily implementable but potentially regressive taxes, such as value-added tax, with progressive but more contentious taxes, such as levies on fuel, alcohol and tobacco, progressive income tax, estate taxes and some forms of corporate taxes, especially on environmentally detrimental practices. Tax exemptions are an important way to provide incentives for companies to invest, but they should have expiry clauses.

“if we get the rules of the game right, new investment becomes possible.”

- Eleni Gabre-Madhin, Chief Executive Officer of Eleni

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rebALAncing Aid With other resoUrces

Participants focused on the need to see aid in the wider context of international cooperation. There is an urgent need for change in the development narrative from talking about reducing poverty to talking about economic transformation, especially given that the aid era that began around 1960 seems to be coming to an end.

China’s emphasis in Africa on development finance rather than aid should be seen as a wake-up call for Africa’s traditional partners. At the same time it was emphasized that aid should be seen not in opposition to other resources but as a complement to them.

It was pointed out that donor countries supply aid but block Africa’s economic prospects in other domains, including trade and climate change negotiations, migration policies, and global tax and transparency rules. International trade agreements need to be more conducive to African economies. Western nations must acknowledge that any economic partnership agreements with African countries must not be in contradiction to African moves to improve regional trade. The focus of the official development assistance framework needs to move from donor preferences to economic partnerships that enable African trade.

Participants underlined the importance of learning from successful uses of aid, and recommended that the 2014 Africa Progress Report consider the optimum balance between aid, international financial flows and domestic resources.

The debate over post-2015 global development goals was seen as offering Africa a space in which to move further away from rigid policy prescriptions. It offers instead an opportunity to focus on the most pragmatic routes for reaching goals, and participate in the global development debate according to global rules, rather than being seen as a passive recipient of aid.

concLUsion

A strong thread running through all the discussions during the consultation meeting was the need to turn towards a new narrative for Africa; one focusing less on aid and instead describing a deep economic transformation that can lock in long-term, equitable growth. The overarching theme was the need to create an enabling environment for investment; within this theme, seven lines of argument stood out:

balancing public and private finance, using public investment and aid to support sectors and projects that draw private investors.

building up public institutions and systems to boost all parts of the value chain, including research, extension services, credit facilities, producer cooperatives and associations, and support for local and export markets.

developing the finance sector, so that it can play a more effective role in making credit and equity available – especially for agriculture and fisheries.

reducing risk and shifting risk perceptions that drive up capital costs for Africa in private equity markets; using financial intermediation, equity investment and insurance capital to manage risk.

building knowledge and skills through vocational education and training, bridging the gap between education systems and employment needs; also by involving the private sector.

strengthening regional integration in order to reduce costs, increase trade, facilitate infrastructure development, harmonise taxation and stem illicit financial flows.

reinforcing the social contract between government and people, by improving governance and transparency at all levels, and delivering the public goods that citizens expect in return for their tax contributions.

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BACKGROUND PAPERS

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introdUction

Africa needs far more infrastructure than its governments can afford to finance through tax revenues and aid. Its lack of infrastructure is recognized as an impediment to growth. However, while the scale of the region’s infrastructure needs is too large for its existing funding sources, it is trivial relative to the size of world capital markets. To date, Africa has not been able to tap into these markets to finance infrastructure. This paper argues that this is an organizational failure that can be overcome by public action, rather than something intrinsic to African infrastructure projects. If so, it is of major consequence for the region’s development.

1. the Actors to dAte

Four types of actor matter. African governments are evidently parties to any African infrastructure transactions; until the 21st Century, donors were their key partners and I will argue that their involvement is still important; the OECD financial sector is the gatekeeper to most private finance; finally, so far during the 21st Century the key actor has been China. I briefly consider these four actors in turn.

African governments are very conscious that they need to attract private investment for infrastructure, but usually have not advanced much beyond long wish-lists of desired projects. African governments have little capacity to design and present projects in detail in a form that is financially attractive to investors. For example, at the investor conferences at which African governments commonly pitch projects, the political risk of hold-up once the investment has been made, which is probably the biggest single impediment to private finance, is seldom acknowledged let alone addressed.

Over the past 15 years donors have switched from infrastructure to social spending. The trend began during the Wolfensohn presidency of the World Bank and reflected two concerns. One was that the rise of private capital markets would rapidly make donor lending and

grants for infrastructure irrelevant. The other was that OECD tax payers were often ambivalent about paying for modern infrastructure due to environmental and social concerns; something most evident in respect of dams. There was much stronger acceptance for expenditures that were directly child focused, such as health and education. In attempting to make infrastructure projects more acceptable to their critics, the agencies encumbered themselves with a demanding range of procedural checks which raised costs and slowed implementation. A significant exception to this trend has been the establishment of the Private Infrastructure Development Group (PIDG) by a consortium of donors led by DFID. I will discuss this initiative later.

The OECD private sector has held off, perceiving African infrastructure projects as being a hassle to undertake, risky both financially and in respect of reputation, and individually too small to warrant the costs of developing the necessary skills to assess. This is despite global capital markets being in a phase of exceptional liquidity with the real interest rate on risk-free assets hovering around zero. Large sums were directed to emerging market economies, but little to Africa. In contrast to the zero real return on safe OECD assets, the return required for private investment in African infrastructure is very high. For example, InfraCoAfrica, a PIDG-funded company which initiates infrastructure projects, has been unable to raise finance for a Ghanaian electricity project despite a projected yield on equity of 20 percent. Since Ghana is rated as one of the best-governed countries in Africa, this massive wedge between the risk-free rate of interest acceptable to financial markets, which is currently around zero, and the risk-corrected rate demanded for African infrastructure, suggests that more effectively addressing risk is central to private finance. Nor is this Ghanaian project in any way exceptional. A World Bank analysis of the African electricity sector undertaken in 2011 found that despite several attempts, virtually no privately financed projects were actually operating.1

China has filled the resulting vacuum through a distinctive package in which infrastructure is financed and built in return for the rights to resource extraction.

uNLockING PRIvATE FINANcE FoR AFRIcAN INFRASTRucTuREPaul Collier

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This offers speed and a full range of services in which the infrastructure is designed, built, financed and transferred. It also provides a commitment technology whereby an African government can lock into using natural asset depletion to accumulate infrastructure, thereby avoiding the pressure to dissipate resource revenues in recurrent expenditure. However, the Chinese proposals are often difficult to evaluate. They are opaque and so are hard to price, and since China is a near monopolist in this type of package they are not subject to direct comparison. A radical approach would be for the bilateral OECD donors to copy the Chinese approach, using aid to catalyze a consortium of private firms. Several OECD donors used to work in this way, and indeed China appears to have modelled its approach on aid it received from Japan in the 1950s. This would, however, require a cultural revolution in OECD aid agencies and is probably not feasible.

if priVAte finAnce for AfricAn infrAstrUctUre is A good ideA WhY hAsn’t it hAppened ALreAdY?

Since private capital markets are designed to seek out attractive opportunities to finance investment, a reasonable question is why, if private capital should finance African infrastructure, it has not happened already? Economics is rightly wary of arguments that depend on sophisticated private financial actors making prolonged and systematic errors.

A killing answer would be if the overall social return on African infrastructure was inherently too low to warrant private investment.2 In most instances this seems implausible: it is difficult to envisage Africa becoming a developed region without substantially improved infrastructure. This paper sets out the case for public intervention, and it may be useful to set out the key reasons in summary form at this stage.

An overarching answer to the seemingly smart point that as private actors are not willing to invest neither should the public agencies, is that the valuation of risks and benefits is manifestly different for private investors and donors because they have different objectives. Investments that are risk-increasing for a private investment portfolio can be risk-reducing for a development agency simply because they are concerned with different risks. A related answer concerns externalities. Private investors who pioneer

an activity cannot prevent subsequent entry. The first-mover advantage may be insufficient to compensate for the externalities of imitation which confer social but not private benefits. Public catalytic action can therefore accelerate pioneering.

The other responses point to specific failures of private actors. One is that private actors in a market are geared for competition and so standardization does not readily emerge without public intervention. Yet standardization is essential for reducing the information burden imposed if each infrastructure transaction is entirely idiosyncratic. The scope for private actors to establish standardization is further limited by the fact that one or more African governments are necessarily parties to these transactions: only multinational public actors are likely to have the perceived legitimacy.

The public sector may have an absolute advantage in the provision of some activities. A key step in making African infrastructure eligibly for OECD private finance is to de-risk it by providing African governments with commitment technologies. International public agencies are better placed than private actors to do this.

Similarly, OECD financial markets are necessarily regulated. The design of optimal regulation involves trade-offs between multiple competing objectives, most obviously between security and dynamism. In practice, these trade-offs are navigated through the arguments of competing lobbies of professionals. Currently, an indirect consequence of OECD financial regulations is that pension funds cannot hold African infrastructure in their portfolios. Yet while Africa is disadvantaged by these regulations, there has been no lobbying channel for reconsideration. In effect, OECD development agencies need to substitute for this missing voice.

Finally, an argument which will occupy much of the paper is that although private actors can create a new market, if two or more interdependent but distinct markets are both missing it may take a long time for distinct organizations to coordinate the provision of supply. Public action can potentially accelerate this coordination.

2. AnALYsis

Infrastructure is not inherently a risky investment. In OECD financial markets investment in electricity generation is classified as being in the utilities sector.

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Despite the prospects of very slow growth in the OECD, it is rated as a safe but boring asset for a pension fund. In Ghana, and a fortiori in most of the rest of Africa, investment in electricity generation is classified not as a utility, but as a frontier market. Despite rapid growth of the economy, it is regarded as utterly unsuited for a pension fund. This is because of a series of contrasts between an electricity project in the OECD and in Africa.

The Ghanaian project promoted by InfraCoAfrica took eight years to prepare. That Ghana needed InfraCoAfrica is a symptom of a lack of capacity within African governments, at both the civil service and political levels, to prepare projects to a standard appropriate for financial assessment. That even with the InfraCoAfrica assistance the project took eight years to bring to market is an indication of the multiple political veto points that must be negotiated in order for a project to be authorized. Because of the combination of political complexity and the lack of African public sector specialist teams able to prepare projects, there is no pipeline of projects ready for funding. The technical aspects of project preparation can be undertaken by international consultancy companies, but they are not able to provide the political authority needed to overcome the spoiling actions of veto players. The lack of a pipeline indicates that financing appropriately equipped specialist teams to the point at which a project is ready to be raise funding for construction has not been an attractive venture for private finance and is too expensive for African governments to undertake with their own money. The preparation stage is open-ended and may lead nowhere, as indicated by the lack of success in African electricity projects. Organizations with risk capital, such as investment banks, do not have the appetite for investments which are replete in unquantifiable and uncontrollable risks, (and are therefore not risks but rather uncertainty), and such long periods of preparation.

Further, as demonstrated by the Ghana case, there may be no market for the project once prepared. Because African infrastructure projects are mostly small and idiosyncratic, they are not only costly to prepare, they are hard to value. Being hard to value reduces the size of the market for the asset, and this in turn makes the asset yet more difficult to value. For example, the supporting legal documentation for the off-take agreement in a recent Kenyan electricity project is a thousand pages long. The sheer legal costs involved in evaluating such a project are prohibitive. What are the solutions to these problems?

2.1 Valuation

For a variety of reasons discussed below, the costs and risks of investing in some of the stages necessary to bring an African infrastructure project to fruition are likely to exceed the returns that a private investor can expect to capture. If the returns are inadequate for a private investor why should they be acceptable to a public agency? The most straightforward reason is that private and public valuations of risks and returns should differ quite radically in low-income countries. The private investor always has the option of staying out of the country: the decision problem is to maximize the risk-corrected return on assets. The public agency has an entirely different objective, namely to accelerate the development of the country. A project may be so risky as to be foolish for a private investor, yet actually reduce the risk of state failure and so be astute for a public agency.

This difference in valuation was the original rationale for the public risk capital agencies, such as CDC and IFC. However, the activities of these agencies have seldom been integrated into any larger development strategies. Aid and public risk capital have been assigned by different and unconnected processes. The difference in valuation implies that it is possible that activities rejected by private financial actors might be sensible for public agencies, but it does not guide us to specific public interventions. I now turn from this over-arching rationale to specific needs for public capital.

2.2 standardization

Idiosyncrasy is often a killer for markets because it inflates the information cost of transactions. The generic solution to idiosyncrasy is standardization. By means of standardization the information costs can be reduced twice over. Most obviously, purchasers need a single effort to understand a whole class of projects and so the cost can be spread over the class rather than be individual to each project. More subtly, in designing a standard it is worth investing in the costs of achieving simplicity. Although ex post, simplicity by definition requires little effort, ex ante if it is to meet requirements it is difficult, as acknowledged in the famous letter which ended ‘I apologize that this letter is so long; I did not have the time to write a short one’. Radical simplicity is attainable: for example, an Indian off-take agreement for electricity is only around 20 pages long.

Markets are bad at self-generating standardization. Even

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simple standards such as weights and measures have invariably been supplied by governments as public goods. That a standard contract that would be suitable for many low-income countries has not yet been provided reflects the deficit in international economic governance: no authority has yet played the coordinating role. For Africa, the most likely agency might be the African Development Bank since this is both African-governed and itself a provider of infrastructure finance.

2.3 specialist teams

One reason why the Ghana electricity project took eight years is that African infrastructure projects are usually highly political with multiple veto points. Catalyzing a project in such an environment requires a combination of specialist technical knowledge and high-calibre political entrepreneurship. While the technical knowledge is readily available on the consultancy market, the ability to act as a political catalyst is rare. Conventional private venture capital is unlikely to have this combination of Africa-specific skills that can be redeployed between African projects and other activities, and so the set-up costs are high and the return uncertain. Nor is it clear what the business model can be that would enable such a team to generate a return if its role is to catalyze the cooperation necessary for such a project but not itself to own equity in it. PIDG has established a publicly funded enterprise that directly provides teams, but its staffing is essentially drawn from the infrastructure industry rather than from political entrepreneurs. It has yet to bring its projects to fruition. I know of only one private team dedicated to African infrastructure projects that has combined political and technical skills: BlackIvy. Even this is a start-up, albeit a high-level one. Its objective is precisely to play the catalytic role and its business model envisages a combination of fees and a limited equity stake. It is too recent to assess performance. Since it is difficult for African governments to justify the decision to finance such entrepreneurial coordination, it may be that PIDG is better-suited to provide the finance for them rather than directly to try to provide the skills in-house. Donors are understandably wary of spending aid on fees and have surrounded decisions with procedures that sacrifice speed for defensibility; but this sits uncomfortably with the opportunistic nature of entrepreneurial activity.

2.4 de-risking projects

Between them, standardization and the provision of specialist teams address the supply of projects to a

pipeline. They do not, however, address the risk of the project. To make the risk acceptable, it can be lowered, insured, or repackaged.

commitment technologies

The riskiness of African infrastructure projects is predominantly political. This is especially the case now that the conventional commercial risks have been reduced by rapid economic growth.

The political risks are seen as substantial because governments have exceptionally strong opportunities for hold-up. By its nature infrastructure is irreversible and single function. Its construction is often intrusive on the local environment and so provokes opposition. The services are often provided through a network, so that there are inherent issues of monopoly, network access, and hence regulation. If these discretionary regulatory powers are assigned domestically in a corrupt environment, there is a reasonable presumption of corruption. The services that infrastructure provides are often politically sensitive because citizens perceive the government as having some obligation for them. Further, the government will sometimes by a customer for these services. Infrastructure is long-lasting and so the horizon for government interference extends far into the future. Since not all issues can be fully anticipated in sufficient detail, contracts will inherently be incomplete and so subject to subsequent negotiation. The risks of infrastructure can be compared and contrasted with those of investing in mining. Like infrastructure, a mine is disruptive to the local environment and so provokes opposition, and it is long-lasting, irreversible and single-function. However, the output of the mine is sold neither to government, nor to the population, and so the scope for hold-up is considerably reduced. In the past decade, in contrast to infrastructure, African mining has been able to attract considerable private finance. Infrastructure for mining has proved more problematic, as implied by the above comparison.

Faced with these exceptional political risks, one approach is to reduce them through commitment technologies. Some commitment technologies do not need public intervention. Dispute Resolution Boards are purely private processes that can be agreed between African governments and the private contractor. However, African governments are often wary of this loss of sovereignty. A more widely accepted form of commitment technology is implicit in the political risk insurance provided by the World Bank and the US Government: MIGA and OPIC.

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Each agency is able to offer political risk insurance cheaply because, through the implied power of the World Bank and the US Government respectively, they are able to recover from governments most of what they have to pay out to insured investors. In effect, by permitting investors to insure with MIGA and OPIC, governments are subjecting themselves to a publicly provided commitment technology in which the implicit threat of deteriorating relations provides credibility.

There may be potential for other implicit publicly-provided commitment technologies. For example, a standardization package such as might be promoted by the African Development Bank might include a guideline timetable for setting deadlines. Deadlines, if credible, are useful devices for coordinating action, and a neutrally provided standard timetable might make it easier both to get agreement on them and to enforce them.insuranceMIGA, the World Bank’s insurance arm, is small, and until very recently largely avoided Africa. As with IFC, it has not been strategically integrated into World Bank operations. Typically, if MIGA is willing to insure a particular African infrastructure project, it will charge around one percent per year to cover a range of political risks. MIGA’s operations in Africa need to be scaled up and for this it needs more public capital. Further, if the infrastructure project is strategic, covering the cost of the insurance premium should be regarded as a legitimate use of IDA: currently there is no mechanism for a country’s IDA allocation to be used in this way.

Political risk insurance is not the only need. Revenue streams from projects are in local currency, whereas investors function in foreign currency. Hence, there is a need for currency hedges. Often African financial markets lack the efficiency and depth to provide currency hedges beyond the short term at reasonable rates. PIDG has recognized this need by establishing a company to provide currency hedges for infrastructure, GuarantCo Ltd Infrastructure.

re-bundling

To the extent that risks cannot be further reduced or insured, they can be re-bundled so that investors with a low risk threshold are able to accept the low-risk component on a project without having to take on risks which are unacceptable. Over the lifetime of a project, from design through construction to operation, the risks change considerably. Once the project is operating it becomes a utility with relatively low and

clear risks, whereas up to that point it faces substantial uncertainties. This suggests that if pension fund money is to be attracted into African infrastructure it would be appropriate to split the project up into two or three stages. The catalytic design stage, envisaged by companies such as BlackIvy, might be funded by either public capital or private venture capital. The project construction phase, during which large irreversible investment is committed, is likely to require a combination of private equity and bond finance. The project operation phase, which may last for decades, is lower risk, and should in principle be appropriate for OECD pension funds.

Having un-bundled individual infrastructure projects according to their phasing, a further step in de-risking would be to re-bundle them into a fund which would hold them together with other infrastructure projects from emerging market and OECD contexts. This would both diversify individual country risk and dilute the high-risk projects. Such a bundling approach has already been demonstrated to work by the Bank for International Settlements in respect of East Asian sovereign debt. Following the East Asian Crisis, the sovereign bonds of Indonesia and the Philippines were rated at sub-investment grade, but, by placing them within a sovereign bond fund which predominantly held bonds from countries which were investment grade, the fund received an investment grade and thereby channelled money into sub-investment grade assets.

A good way of getting such a fund started would be for the public agencies that already provide risk capital for infrastructure, such as IFC, FMO and CDC, to divest themselves of their existing portfolio of completed, operational infrastructure projects. Not only would this enable a fund to hold a range of projects from the start, but it would inject liquidity into the agencies needed for the role in which they are irreplaceable, of funding the construction phase.

Utility operators

Whether the operation phase of a project is low risk depends primarily upon whether it is well-run. This requires a reputable specialist private operator. In the OECD there are now major companies dedicated to running infrastructure – power companies, rail companies, port companies, airport companies etc. To date, these companies have seldom ventured into Africa but it is a potential market for expansion of their business. To an extent, their reluctance may reflect their OECD-focused corporate cultures: the OECD infrastructure companies

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grew out of domestic privatisations. Even in respect of telecoms they were late into the African market: Mo Ibrahim only founded Celtel, his spectacularly successful African company, after failing to persuade established OECD companies to enter the African market. Despite not being African, OECD infrastructure companies offer several advantages for African governments. They have built the specialist teams and organizational structures needed for good performance, and having established reputations, they have a stronger incentive to perform.

Potentially, OECD infrastructure companies could not only operate African infrastructure but finance it on their core balance sheets, subsuming it into their other projects just as an international oil company treats its African projects as financially integral rather than being run a separately financed subsidiary. However, a single company may not be operating in many African markets: there are indeed high fixed costs of entry. Hence, its Africa exposure could not be diversified across several countries with largely uncorrelated political risks. For such diversification the project-specific risks would need to be re-bundled as discussed above. If OECD infrastructure companies did not wish to leave African projects as part of their core assets, they could sell them on to an infrastructure fund.

2.5 financial regulation

The next hurdle facing the private financing of African infrastructure is thus the behaviour of pension funds. Currently, OECD pension funds are required by law to hold assets of at least A- quality. African infrastructure projects are far below this threshold and there is no realistic prospect of getting them to A-. The move to risk-weighting of capital ratios further disadvantages those assets perceived as high-risk. This is why diluting the risk of African infrastructure projects through bundling in with lower risk projects might be particularly useful.

One possible deficiency in financial regulation is that pension funds tend to equate safety with liquidity. Since pension funds have well-defined future obligations, the liquidity of all assets should be irrelevant to their concerns. Pension funds are currently facing a crisis not because their assets have become illiquid, but because the yield on them has substantially declined. By sacrificing some liquidity for higher yield, pension funds could reduce the risk that they will be unable to meet their liabilities. Hence, regulations which equate safety with liquidity might not only be damaging for Africa but

actually be counterproductive for their core objective.

A further possible deficiency is a consequence of the fact that financial regulations give legal force to the assessments of commercial risk-rating agencies which are not publicly accountable. A rule adopted by the rating agencies, which is of considerable importance for African infrastructure, is that an African project cannot be rated more highly than the sovereign debt of the country. The rating agencies do not adopt such a rule for OECD countries: there, projects can be rated more highly than national debt (Greece is a case in point where Goldman Sachs famously encouraged the government to raise funds by securitizing infrastructure projects). The rationale for applying this rule to Africa but not to the OECD appears questionable. For example, during the past decade when the government of Cote d’Ivoire suspended its debt service, projects maintained payments to bondholders. More generally, the structure of risks differs between sovereign debt and infrastructure. With sovereign debt the collateral is the revenue stream from the tax base, but this is subject to possible pre-emption by public spending. With an infrastructure project, the revenue stream is project-specific, but this cannot be pre-empted by other claims. A more limited revenue stream is compensated by stronger rights. The rating ceiling is important because there is a lot of inertia in bond ratings. Lacking a track record of public debt service, even though African governments are currently able to borrow cheaply on sovereign debt markets, their new bonds are not highly-rated by the agencies. Nor, given their record, can the rating agencies make strong claims for specialist knowledge. It is questionable whether OECD financial regulators are even aware that they are giving legal force to this questionable ceiling, yet it closes off the chance of creating ring-fenced collateral that can leapfrog the slow process of sovereign bond re-rating.

2.6 interdependence of distinct needs

Above, I have reviewed a long chain of deficiencies which between them account for why African infrastructure projects with high potential returns cannot attract private finance. Were there only one of these deficiencies there would be a strong market incentive to provide it: in matching finance in search of yield with high-yield assets in search of finance big profits could be made. The over-arching problem is that there are multiple critical deficiencies which would need to be supplied by distinct classes of actor. When there is interdependence between

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distinct missing classes of actor, private markets do not transmit signals to respond to needs.

Without the chain of missing activities necessary for a pipeline of projects, there is no incentive to fix the impediments to being able to sell completed projects to pension funds. Of course, this could be restated in reverse. The only actors with an incentive to recognize and respond to this strategic interdependence are the development agencies.

3. concLUsion Public agencies such as IFC, MIGA and PIDG already deploy public money to encourage private investment. However, unless agencies use their role strategically, they merely out-compete private agencies in transactions that would have been done anyway. This is indeed the standard private sector critique of their current behaviour. To the extent that they are staffed largely with expertise drawn from the private sector with which they compete, this outcome is all too likely.

I have suggested a range of strategic uses of public money. To generate a pipeline of bankable projects there is a need for standardization and catalytic finance for specialist teams equipped not just with technicians but with political entrepreneurs who can overcome veto players. A further range of public interventions can help to de-risk projects: commitment technologies, subsidized risk insurance, and re-bundling. Financial regulation needs to be revised to remove rules which prevent pension funds from holding African infrastructure without making them safer. Once these obstacles were overcome by public action, the one remaining missing piece - OECD utility operators – would probably be resolved without further public action as a result of the changed commercial incentives.

Several donors now recognize the case for using public funds to catalyze private finance for African infrastructure. DFID catalyzed a multi-donor fund, PIDG, of which it remains by far the largest funder. It also recently reformed CDC, giving it a more development-focused purpose. During 2013 there have been several further initiatives. The African Development Bank announced the intention of launching an Africa50 Fund to raise private finance for infrastructure. The US Government launched a PowerAfrica initiative. The World Bank has recently quadrupled its MIGA portfolio in Africa, and announced that it will make IFC more strategic, for

the first time creating an economic advisory board. The BRICS announced a plan to establish a development bank for infrastructure. The G8 communique included a specific commitment to the objective with delivery in 2015; the G20 has a corresponding objective.

PIDG has some but not all the elements of public action that are needed, but it lacks scale. There is a danger that, while recognizing the opportunity, the public agencies will respond with a plethora of small, uncoordinated and incomplete initiatives. Arguably, the underlying reason is that while the goal of attracting private finance into African infrastructure has become sufficiently compelling to have triggered action, there is no agreed analytic foundation around which actions can be guided. A vacuum does not attract research. It is not well-suited to randomized trials, and there is little academic expertise that spans both the intricacies of financial markets and the practical challenges facing African infrastructure. The present paper does not aspire to fill that vacuum, but rather to draw attention to it. What is now needed to catalyze that analytic foundation is a program which draws together the wide variety of pertinent practitioners together with academic expertise. Under the auspices of the G8 commitment, the IGC will be launching such a program in the coming months.

sources: 1. See Eberhard, A., O. Rosnes, M. Shkaratan, H. Vennemo (2011).

Africa’s power infrastructure; investment, integration, efficiency, WorldBank,Washington,DC., and Eberhard, A. and MN. Shkaratan (2012). Powering Africa: Meeting the financing and reform challenges, Energy Policy, 42, 9-18.

2. In some African countries this is likely to be the case. See P. Collier, (2013) ‘Aid as a Catalyst for Pioneer Investment, WIDER Discussion Paper 2013/004.

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FoLLow THE MoNEy: FRoM ExTRAcTIvES REvENuES INTo AGRIcuLTuRAL RESuLTSJamie Drummond

Caveat: Given relatively short notice, this paper is far from exhaustive, it is just indicative of areas for further work; potentially through the much anticipated 2014 APP Report and ONE’s ongoing policy and advocacy work in 2014.

A. oVerVieW of this MeMo

ONE is currently researching and developing partnerships for a campaign across the continent that aims to support African citizens’ and policymakers’ efforts to “follow the money from resources to results”. This aims to help ensure that resources received into African governments and economies through extractive revenues and other domestic revenue generation/tax collection, as well as aid and investment flows, are maximised for the generation of inclusive growth, improved service delivery for the poorest citizens, achievement of the MDGs and overall economic transformation.

Globally this campaign is already underway, including through the work of partners in the Publish What You Pay coalition, Publish What You Fund (for transparency in the aid sector), and in ONE’s own ‘Stash the Cash’ campaign targeting “phantom firms’ (which aid and abet illicit capital flight out of African economies). Our aim is to help identify and stop financial leaks out of African economies and government budgets, so that more can be programed back into needed infrastructure, physical and human, for the development of the region.

Within Africa, in 2014 we will be prioritising a campaign with African civil society organizations, think tanks, and governments that focuses on the quality and quantity of development finance for agriculture. We will argue that stopping the leaks through global governance reforms identified above will help increase the resources available within African economies to drive improved results in vital sectors such as agriculture. This will form part of our work in support of the 2014 AU Year of Agriculture, which marks the 10th anniversary of the Maputo declaration; the ten year old promise made by all African governments to spend at least 10% on agriculture. The policy work and campaign push will look particularly closely

at how income generated by the extractives sector could have a transformative impact if programmed into investments in agriculture in Africa.

The below summarises some key statistics about overall extractives revenues and investment in agriculture for Sub-Saharan Africa. (SSA) It then dives a little deeper into two specific countries where agriculture is central to the generation of inclusive growth, and where extractives revenues could and should play a transformative financing role if programmed transparently: Nigeria and Tanzania. It then concludes with some broad policy recommendations for agriculture and extractives.

b. KeY stAtistics for ssA: eXtrActiVes reVenUes VersUs AgricULtUrAL inVestMent

ssA extractives revenues:1. Exports of oil, gas and minerals from Africa were valued at $382 billion in 2011. Total exports from Africa in 2011 equalled $594 billion.1

2. Twenty countries in SSA are natural-resource dependent, meaning more than 25 percent of their exports are from natural resources. Ten of these countries rely on natural resources for more than one-fifth of budget revenues.2 Natural resource discoveries in seven African countries have the potential to generate $181.2 billion annually.3 For comparison’s sake, that would equal more than five times the amount of aid to the continent or six times the amount received in foreign direct investment.

ssA agricultural investment:1. domestic resource Mobilisation vs. odA for agriculture in ssA4: $29.1 billion (2010).5 If Maputo promises for 10% were kept by all countries, levels should be $43.3 billion. The deficit is $14.2 billion.

2. odA to agriculture in ssA: $2.8 billion (2010)6

Therefore the deficit in promised DRM for agriculture is

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roughly 5 times more than all ODA for agriculture, albeit with different base prices.7

3. fdi to agriculture in Africa: $1 billion (2006-2007)8

Total foreign direct investment flowing into agriculture and agribusiness in developing countries was estimated at around US$13 billion for 2006–07. While much of this investment is targeted to Brazil and other Latin American countries, investors are also flocking to Africa, which received about US$ 1 billion in that period. Africa’s inward foreign direct investment stock in agriculture accounts for just 7 percent of the total stock in developing countries, compared to 78 percent for Asia and 15 percent for Latin America.9

Key takeaway:SSA Maputo Agriculture investment deficit by African government: $14.2 billon. SSA export revenues from extractives: $594 billion.

c. KeY stAtistics for nigeriA

nigerian extractives revenues:1. Extractives (oil) export value: 94.6 billion, 201210

2. Extractives (oil) revenues: $50.3 billion, 201111

Nigeria is Africa’s largest oil exporter, and the world’s 10th largest oil producer, accounting for more than 2.5 million barrels a day in 2012.12 Oil and gas production dominates Nigeria’s economy, and is expected to do so into the foreseeable future. Oil and gas production accounts for approximately 75 percent of total government revenues, and 95 percent of total exports.13 Yet a lack of transparency has hampered the effective use of those funds. Problems such as inadequate reporting practices, weak rule of law, and ineffective governance resulted in the country’s overall “weak” rating on the 2013 Resource Governance Index14 and likely contributed to its poor ranking on Transparency International’s 2012 Corruption Perceptions Index (139 out of 176 countries).15

nigerian agricultural investments

1. public agriculture expenditure (2005 $ ppp, in billions):

Some government officials claim the figure spent on agriculture is between 6 percent and 7 percent. However,

official sources suggest that current spending is actually below 2 percent.16

If Nigeria identified and allocated the resources necessary to boost its agricultural expenditures from its current 1.7 percent to 10 percent, it would spend an additional $2.4 billion per year on much-needed agricultural investment plans.17 With the announcement that the government would allocate 3.5 percent of its budget to agriculture spending in 2013,18 the government appears to be taking a step in the right direction, although its commitment still falls well short of its Maputo commitment.

2. Agricultural growth rates in nigeria:

3. the nigerian agriculture sector: - Accounts for 40.2 percent of Nigeria’s GDP and

employs an estimated 58 percent of the country’s active work force;

- The sector is predominantly made up of smallholder farmers who produce over 70 percent of the nation’s food and own over 80 percent of all agricultural land;19

- 84 million hectares of arable land – only 40 percent of which is cultivated; 230 cubic meters of water; abundant and reliable rainfall on 2/3 of the country.

4. constraints on the agriculture sector:Low economies of scale- - Inhibit smallholder farmers’ access to the

credit required to purchase the appropriate quantity and quality of improved seeds, agrochemicals, and fertilizers at the right price;

- Inhibit smallholder farmers from accessing the critical agricultural extension necessary to drive adoption of improved agricultural practices that improve soil health and crop yields. Due to lack of access to inputs and knowledge, these smallholder farmers attain crop yields that are 20 percent to 50

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percent of that obtained in similar developing countries;

- Leave these smallholder farmers in a weak position in output markets, unable to market their produce directly to end buyers to attain a fair price.

In effect, low economies of scale squeeze farmers on both ends, i.e. inputs and outputs, trapping them in a cycle of poverty.20 This from the AEO:“Underperformance in the agriculture sector – which employs 75 percent of the workforce – has been a key factor in jobless growth and chronic underemployment. Rapid aggregate GDP growth has not led to substantial reductions in poverty or improvements in overall socio-economic conditions for most of the population. Agricultural growth must be accelerated to achieve more effective poverty reduction.”

5. nigeria and the g8 new Alliance for agriculture and food security:On results:Consistent with the New Alliance goal of improving food security and nutrition by helping 50 million people in sub-Saharan Africa emerge from poverty by 2022, the participants intend for their combined actions in Nigeria to help create 3.5 million new jobs and provide 10 million farmers with accelerated farm inputs and markets support by 2015. Nigeria anticipates that 50 million people will experience increased food security and increased wealth during this time period.21

On mutual accountability:The G8 members, the Government of Nigeria, and the private sector intend to review their collective performance under this document through an annual review process to be conducted jointly. These participants intend, in particular, to review progress toward jointly determined objectives on the basis of jointly determined benchmarks in contributing to the fulfillment of Nigeria’s Agricultural Transformation Agenda. Agreed upon objectives include: (1) progress towards achieving wealth creation target through job creation; (2) G8 member commitments to align their agricultural investments to the Government of Nigeria’s ATA; (3) Government of Nigeria’s progress in implementing its policy commitments and consulting with private-sector investors; and (4) the investment commitments of private-sector investors. The review will also take account of the shared responsibilities related to the Voluntary Guidelines and the Principles for Responsible Agricultural Investment.22

6. nigerian budget transparency (including agriculture):

Nigeria scored just 16 out of 100 in the 2012 Open Budget Index, its third consecutive backward slide in the biannual ranking. This puts Nigeria well behind the average score for Sub-Saharan Africa (31) and globally (43). The Nigerian government provides its citizens with relatively little information on the national budget and financial activities, making it difficult for citizens to hold the government accountable for its managementof the public’s money.23

Agricultural budget status:It is very difficult to find information pertaining to agriculture expenditures in Nigeria, particularly at the local level. Some information is reported at the federal level, but overall budget and expenditure transparency remains poor. Further exacerbating this problem is the lack of availability to reliable data at the local level, and the levels of transparency vary considerably from state to state.

d. Key statistics for tanzania

tanzanian extractives revenues:1. Value of exports: $2.1 billion, 2011;24

2. Value of Tanzanian government revenues from extractives: $329.8 million, 2011;25

3. Estimate of future gas revenue: $3 billion/year.26

Mining accounts for about 5 percent of Tanzania’s gross domestic product and a third of its exports, which were valued at $2.1 billion in 2011. With rising gold prices, and new discoveries of natural gas coming online, petroleum and minerals will play an increasingly important role in shaping Tanzania’s future. Yet weak institutions and poor oversight mechanisms risk derailing the country’s prospects for extractives-fueled growth. Tanzania received a score of “weak” on the 2013 Resource Governance Index,27 and ranked 102 out of 176 countries on the 2012 Corruption Perceptions Index.28

tanzanian Agricultural investments1. public agriculture expenditure (2005 $ ppp, in billions):

In 2011/2012, Tanzania’s budget allocations for agriculture represented 6.9 percent of total government spending.29 In response to a joint campaign by ONE and ANSAF in Tanzania in March 2012, President Kikwete

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promised to increase the agricultural budget from 7 percent to 10 percent by 2014. He also stressed the need for transparency of budgets. If Tanzania identified and allocated the resources necessary to boost its agricultural expenditures from 7 percent to 10 percent, it would spend an additional $250 million per year on much-needed agricultural plans. He has increased agriculture spending to 9% in the most recent budget.

2. Agricultural growth rates in tanzania:

3. the tanzanian agriculture sector: - Agriculture provides full-time employment for over

70 percent of the population and also provides most of the food. It contributes about 45 percent to the gross domestic product (GDP). It also contributes approximately 66 percent of foreign exchange and provides the bulk of the raw materials for local industries. The country’s economy is heavily dependent on a combination of subsistence and commercial agriculture. The main export crops are traditionally cotton, coffee, tobacco, cashew, tea, pyrethrum and sisal.30

- Some of the fastest growth rates during 2000–07 were for export crops. Traditional crops, such as cotton, sugarcane, and tobacco, grew by almost 10 percent per year. These crops are highly concentrated in specific regions. Cotton is mostly produced by smallholders in the Western and Lake zones (81.5 percent of output). Tobacco, another smallholder crop, is mainly produced in the Western and Highlands zones (82.8 percent). Finally, sugarcane is mostly produced by large-scale commercial farmers in the Eastern and Northern zones (83.8 percent). Together, these three crops generated 17.4 percent of total merchandize exports in 2007. Export agriculture therefore grew rapidly during 2000–07, driven by the strong performance of a few regionally concentrated crops.31

- Livestock and fisheries are key subsectors, accounting for almost one third of agricultural GDP. Fisheries kept pace with overall agricultural production during 1998–2007, growing at 5.1 percent per year.32

4. constraints on the agriculture sector: - Tanzania’s agricultural sector remains fairly

traditional, with little use of modern inputs and farming practices. Farmers are reluctant to adopt improved seed varieties (for example, drought-resistant species) because of low market and consumption values and the high labor investment associated with their cultivation. The Minister of Agriculture, Food Security and Cooperatives in Tanzania recently stated that 90 percent of farmers still use low-productivity recycled seeds, which he ascribed to weak extension services, a lack of credit, and high seed prices stemming from the inefficient and underdeveloped seed distribution and marketing system. Additionally, less than 1 percent of land suited to it is currently under irrigation.33

5. commitments made in agricultural investment in tanzania through the new Alliance:On results:Consistent with the New Alliance goal of improving food security and nutritional status by helping 50 million people in sub-Saharan Africa emerge from poverty by 2022, the participants intend their combined actions in Tanzania to help 6.7 million people emerge from poverty.34

On mutual accountabilityThe G8 members, the Government of Tanzania, and the private sector intend to review their performance under this document through an annual review process to be conducted within the existing broader CAADP-donor Joint Sector Review of TAFSIP implementation. These participants intend, in particular, to review progress toward jointly determined objectives on the basis of jointly determined benchmarks in contributing to the fulfilment of Tanzania’s CAADP investment plan: (1) progress towards achieving the poverty reduction target; (2) G8 member commitments to align their agricultural investments to the Government of Tanzania’s TAFSIP; (3) Government of Tanzania progress in implementing its policy commitments and consulting with private- sector investors; and (4) the investment commitments of private-sector investors. The review will also take account of the shared responsibilities related to the VoluntaryGuidelines and the Principles for Responsible Agricultural Investment.35

40

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6. g8-tanzania Land transparency initiative:In June 2013 the UK (on behalf of G8) and Tanzania agreed to implement a Land Transparency Initiative and set up a Land Tenure Unit. However, implementation to date is unclear

7. how open are tanzanian budgets and can citizens trace agricultural budget expenditures from national to local level? - Tanzania scored 47 out of 100 on the 2012 Open

Budget Index, slightly higher than the global average (43) and considerably above the average for Sub-Saharan Africa (31), but is below the scores of its neighbors, Kenya and Uganda. Tanzania’s score indicates that the government provides the public with only some information on the national government’s budget and financial activities. This makes it challenging for citizens to hold the government accountable for its management of the

- public’s money. Encouragingly, Tanzania’s score on the Open Budget Index has increased in each round of the Open Budget Survey.36

- However, finding information about national and subnational agriculture expenditures is extremely difficult, and there is significant debate about what should or should not count as part of agriculture spending.

e. conclusion: from resources to results, a summary of policy recommendations on Agriculture, extractives and budget transparency

1. on transparency: - Beneficial ownership: Establish a public register of

who owns and controls companies and trusts; - Contract transparency: Make contracts public; - Payments transparency: Make all payments from

extractives companies public, on a disaggregated project by project basis;

- Revenue management: Invest in strengthening the capacity of country systems for

- tax collection and revenue management; - Asset disclosure: Implement and enforce asset

disclosure laws for government officials; - All governments should: Publish the budget proposal

they table in Congress; Publish an independent audit of government progress against this proposal; Allow public hearings during the budget debate in the legislature to which the public is invited to

provide evidence; Publish a citizen’s budget.37

2. on Agriculture:A. Meet the Maputo pledge of at least 10 percent of spending;38

In order for the agriculture sector to contribute more to GDP and development, the sector requires much greater public investment by African governments to increase the productivity and competitiveness of smallholder farmers. To boost their potential, Africa’s smallholders need more training, infrastructure, financial services, affordable inputs, and better access to markets. Without robust public investment, farmers in Africa will simply not be able to benefit from these basic building blocks of a thriving agriculture sector.

It is not only the amount of spending on agriculture that is important to the sector’s development, but also the effectiveness of that spending. Studies show that different types of expenditure in differing agro-ecological regions and geographic locations vary in their impacts on development goals.39 Public spending needs to take into account the diversity of farmers, agro-ecological conditions, local needs, and production systems. In particular, priority should be given to effective services and public goods – including extension services, irrigation, road networks including trunk and feeder road systems, financial services, cell phone networks, and inputs – for smallholder farmers, including and especially women.

B. Increase transparency and accountability;African leaders should redouble their efforts to engage their citizens in designing and delivering their agriculture vision.

To do so, all African governments should open all components of their agriculture spending to the public by posting easy to understand budgets online, enabling farmers, stakeholders and citizens at large to track the impact of the investments.

Greater clarity about what precisely counts as an investment in agriculture versus other development priorities should be attained, so that there is greater consistency across African countries accounting processes.

African leaders should also strengthen accountability and transparency in the implementation of an enhanced Maputo framework, including through the creation of a CAADP food security and agriculture index to measure and monitor the implementation and outcomes of the enhanced Maputo framework at the national level, while

42


while engaging smallholder farmers on accountability. They should also deepen their commitment to engaging farmers, businesses, civil society and other non-state actors in the design, implementation and monitoring of agriculture plans. Through increased participation, governments can better serve their populations and make the sector more dynamic and sustainable.

endnotes:

1 WTO International Trade Statistics, 2012. http://www.wto.org/english/res_e/

statis_e/world_region_export_11_e.pdf.

2 International Monetary Fund, 2012: http://www.imf.org/external/pubs/ft/

reo/2012/afr/eng/sreo0412.pdf.

3 Africa Progress Panel. 2013. Africa Progress Report 2013. http://www.

africaprogresspanel.org/wp-content/uploads/2013/08/2013_APR_Equity_in_

Extractives_25062013_ENG_HR.pdf .

4 We have data on 41 of 49 SSA countries Missing countries: Comoros, Eritrea,

Gabon, Guinea, Somalia, Sudan, South Sudan, Zimbabwe.

5 Benin, S. and Yu, B. 2013. Complying with the Maputo Declaration Target:

trends in public agricultural expenditures and implications for pursuit of optimal

allocation of public agricultural spending. ReSAKSS Annual Trends and Outlook

Report 2012. International Food Policy Research Institute (IFPRI). Washington, DC.

(2005 $ PPP prices).

6 CRS codes: 310:III.1. Agriculture, Forestry, Fishing, Total and category 32161:

Agro-industries (2011 constant prices).

7 Such as 2011 constant prices vs. 2005 $PPP.

8 Miller, C. et al. 2010. Agricultural Investment Funds for Developing Countries.

FAO. Rome.

9 World Bank. 2013. Growing Africa: Unlocking the Potential of Agribusiness.

Washington, DC.

10 OPEC 2013 Annual Statistical Bulletin, Table 2.4, p17. http://www.opec.org/

opec_web/static_files_project/media/downloads/publications/ASB2013.pdf

11 Revenue Watch Institute, http://www.revenuewatch.org/sites/default/files/

countrypdfs/nigeriaRGI2013.pdf.

12 Dr.Ngozi Okonjo-Iweala. 2013. “Overview of the 2013 Budget.” http://www.

budgetoffice.gov.ng/bof_2013-update/CME_Budget_Speech1.pdf.

13 International Monetary Fund. 2013.

14 Revenue Watch Institute. 2013. “The 2013 Resource Governance Index: Nigeria.”

http://www.revenuewatch.org/sites/default/files/countrypdfs/nigeriaRGI2013.

pdf.

15 Transparency International. 2012. “Corruption Perceptions Index.” http://www.

transparency.org/cpi2012/results.

16 Budget Office, 2012 Appropriation Act, Agriculture and Rural Development

section, http://www.budgetoffice.gov.ng/2012_appropriation_act/7.%20

Summary_Agric_NEW_31xls.xls_Revised_V2_April%2010.pdf, accessed

1/23/13. Percentage share of government budget from Budget Office,

Understanding Budget 2012, http://www.budgetoffice.gov.ng/2012_

appropriation_act/UNDERSTANDING%20BUDGET%202012.pdf, accessed

1/23/13. Total government budget was Naira 4.7 trillion.

17 ONE. 2013. A Growing Opportunity: Measuring Investments in African

Agriculture. http://www.one.org/us/policy/a-growing-opportunity/.

18 Dr.Ngozi Okonjo-Iweala. 2013. “Overview of the 2013 Budget.” http://www.

budgetoffice.gov.ng/bof_2013-update/CME_Budget_Speech1.pdf.

19 Doreo Partners. 2013. Babban Gona summary.

20 Ibid.

21 Excerpt from Nigerian New Alliance agreement.

22 Ibid.

23 International Budget Partnership. 2013. Open Budget Survey 2012. http://

internationalbudget.org/wp-content/uploads/OBI2012-Report- English.pdf.

24 Revenue Watch Institute, http://www.revenuewatch.org/countries/africa/

tanzania/overview.

25 EITI, http://eiti.org/Tanzania.

26 KPMG, Oil and Gas in Africa, 2013. p17 http://www.kpmg.com/Africa/en/

IssuesAndInsights/Articles-Publications/Documents/Oil%20and%20Gas%20

in%20Africa.pdf.

27 Revenue Watch Institute. 2013. “The 2013 Resource Governance Index:

Tanzania.”

http://www.revenuewatch.org/sites/default/files/countrypdfs/tanzaniaRGI2013.

pdf.

28 Transparency International. 2012. “Corruption Perceptions Index.” http://www.

transparency.org/cpi2012/results.

29 The Eastern African Farmers’ Federation. 2011. “ Study on Budgetary Allocation

and Absorption in Agriculture Sector Ministries in Tanzania.”

http://88.198.10.114:8080/jspui/bitstream/123456789/52/1/Agricultural%20

Sector%20Budgetary%20Allocations%20-%20Tanzania.pdf.

30 FAO. 2013. Agribusiness public-private partnerships – A country report of the

United Republic of Tanzania. Country case studies – Africa. Rome.

31 Diao, X et al. 2013. Strategies and Priorities for African Agriculture Economy

wide Perspectives from Country Studies. International Food

Policy and Research Institute (IFPRI). Washington, DC..

32 Ibid.

33 Ibid.

34 Excerpt from the New Alliance G8 Tanzanian agreement.

35 Ibid.

36 International Budget Partnership. 2013. Open Budget Survey 2012. http://

internationalbudget.org/wp-content/uploads/OBI2012-Report-English.pdf.

37 makebudgetspublic.org.

38 Through the 2003 Maputo Declaration, African leaders pledged to reverse

decades of underinvestment in the sector by allocating at least 10 percent of

their national budgets to agriculture and achieving 6 percent annual agriculture

growth. A decade later, the results of these commitments are decidedly mixed:

fewer than 20 percent of countries have fulfilled their Maputo commitment for

agricultural spending. According to the latest statistics from IFPRI’s Regional

Strategic Analysis and Support System (ReSAKKS), just nine of the 54 member

states have met the Maputo target of spending 10 percent of budgetary

resources on agricultural and rural development. Of these, only seven (Burkina

Faso, Ethiopia, Guinea, Malawi, Mali, Niger, Senegal) have consistently met the

target in most years (ReSAKKS, 2013, ReSAKKS Map Tool, 9/24/13, http://www.

resakss.org/).

39 ReSAKSS. 2013 http://www.resakss.org/sites/default/files/pdfs/ReSAKSS_IN20.

pdf, op. cit.

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A lot has been said and written about Africa’s growth and there is undoubtedly evidence of the same. However, considering that a significant amount of this growth can be attributed to the exploration and production of natural resources (minerals, oil and gas), there is still the question of the sustainability in terms of length of time as well as depth and breadth of its impact.

In deciding on a new set of development goals, the issue of financing substantive and sustainable development – and by this I mean economic development – on the Continent should be a priority. It is therefore important that the private sector is a key player both in determining what these goals should be, as well as in contributing to their delivery. It needs to be recognized and accepted that the private sector is the main source of economic growth necessary to provide solutions to social development issues.

1. the theMe of the 2014 App report

The background note states that 2014 APP Report will:• address ‘the financing for development challenges’; • consider the national and international strategies

needed to harness Africa’s resource wealth; and• address wider strategies needed to unlock the

region’s vast potential to create conditions for dynamic, inclusive and sustainable growth.

At the moment the theme for the report seems too broad. As important as it is to have some academic rigour underpinning and assuring the report, we need to be careful not to err on the side of being so aspirational that the Report ends up with solutions that cannot be easily implemented within the current contexts of the various African countries.

I would suggest that one of the first agenda items for the meeting would be to drill down a little bit more into exactly what these three themes mean and be more precise about the objective, expected outputs and outcomes of the report. It might be an idea to try and set out what we would like to see as measurable impacts

of the report in 1, 3, 5 and 10 years.

For example, what do we mean by ‘development challenges’? I am a little concerned that the word ‘development’ and the phrase ‘development challenges’ can easily turn the mind back to aid and social issues ONLY.

With a private sector hat on, I look at development from an economic perspective. The lack of a strong and pervasive middle class in Africa is a major weakness to any long term sustained solution to social issues. The continent needs local businesses with enough breadth and depth to be vehicles of substantive job creation and revenue generation for individuals and as a source of public revenue (i.e. taxes). This will result in economically empowered citizens with the freedom to plan and makes choices about their economic and social needs and aspirations, and who can then become politically and socially empowered to pressure governments into using public revenue for the public good.

So the big question for me is where are these local businesses – including in the agriculture sector - and what is stopping them from growing from small (sole trader type) to medium to large sized businesses? We will find that lack of affordable financing is a major obstacle to their growth. In addition to traditional bank financing, it might be worthwhile looking at private equity investment into local businesses and whether such financing has worked.

On the back of the 2013 APP report, we can also consider how the extractives/natural resource industry can also contribute effectively and efficiently in growing such businesses as part of their direct and indirect supply chain.

2. eMerging qUestions And KeY prioritY issUes

In order to answer the questions and key priority areas set out in the background note, it might be prudent to take a good hard and realistic look at the ‘causes’ of growth

coMMENTS AND SuGGESTIoNS Rosalind Kainyah

44


in Africa and assure ourselves that these are sustainable. For example, Ghana is often quoted as a great example of a country that is “doing well” – and this includes constant quotes about its growth rate. However, the story on the ground is far from perfect. For the APP report to be as transformational and impactful as anticipated, it will be important to fearlessly pull back the bed covers. The recently published 2013 Ibrahim Forum Facts & Figures would be a good start.

The background note refers to Africa now mobilizing US$10 in domestic revenue for every US$1 and foreign investment having overtaken development assistance as a source of finance. As the 2014 APP report will be considering new sources of finance for development, it will be worthwhile reviewing the existing sources of domestic revenue and foreign investment to determine if these are sustainable and, if so, whether and how they can be used and leveraged to support the sort of development the report will address.

It is important to revisit the question of what is hindering or might hinder the Continent’s further success. In my view, this is not too difficult a question to answer and neither does the Continent lack the human resources and intellectual capital to do so. The more challenging issue is whether Governments are willing to do what is necessary to ‘tackle what is not working’. This includes depoliticizing what they consider to be acceptable (to them) solutions. If this critical and fundamental issue is not dealt with then a lot of the solutions that might be proposed by the 2014 APP Report will be unworkable. I note that though mentioned in the introduction to the background note, it is not included among the priority areas set out in the note and I would suggest that it should be.

3 . other coMMents And sUggestions

I presume that the term ‘development partners’ refers to agencies such as DFID, USAID and the World Bank. If so, I am not fully convinced that they are best placed to ‘create an enabling environment through trade and investment’. I think it will be important to address what we mean by this and exactly what role we expect the development partners to play. My experience to date is that, in spite of best intentions, they have not been very good in partnering with the private sector (the source of trade and investment) in achieving trade and investment

objectives. In addition, from a private sector perspective, I think it is strange that the background note refers to governments and development partners but does not mention the private sector and what role it can play either in ‘tackling what is not working’ or in promoting trade and investment.

The APP Report is also planning to address bottlenecks in banking, finance, insurance and the regulatory framework. However there does not appear to be anyone from the investment or commercial banking industry on the expert panel. I would also suggest that if the focus of the report is going to be on agriculture and fisheries, it might be worthwhile having some ‘practising’ business people in this sector represented.

Finally, as I read through the list of key issues to be considered, I could not help thinking that much has already been written on each of these topics. As the APP does not want to produce yet ANOTHER report but rather something that will led to clear action and results, I thought it might be an idea to focus the list a little bit more and our minds on the core objective of the report. My understanding is that the report want to looks at affordable and efficient financing for sectors, such as agriculture and fisheries, that are critical to the sustained and sustainable economic and social development of African countries and their citizens; what are the obstacles to achieving this; and suggested solutions for removing those obstacles.

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introdUction

Over the last ten years, much of Africa has witnessed increased growth rates. Some countries have reduced poverty to significant levels and many others have invested in policies, which, if sustained, will contribute to the well being of the ordinary citizens in an unprecedented manner. The development that is taking place in some parts of Africa is not the result of development aid. In fact, dependence on development assistance is revealing certain important problems that may be argued to have contributed, rather than alleviated, Africa’s development challenges. The changes taking place are the result of several factors including effective utilisation of domestic resources as well as synergising policy priorities.

These developments present an opportunity for the continent to transform the lives of the ordinary citizens. But this may not happen if the changes are not deepened and if the benefits do not reach high numbers of Africa’s poor. The continent may not transform if the growth levels are not significant to enable the continent address the obstacles that hold back the process of development. Poor infrastructure, for instance, remains an important binding constraint to development; it prevents the continent from reaching high growth levels. Low absorption of technologies and costs of service delivery are also challenges that impede development.

poLicies for trAnsforMAtion

The debate on how to address Africa’s development problems or even how to sustain the new levels of growth, has been dominated for some time by thinking on the importance of ‘governance,’ the rule of law, and democratic practise. There has been less focus on whether Africa has been making and implementing sound development policies. Furthermore, there is less focus on what lessons to learn from the rapidly developing countries in Southeast Asia yet in the 1960s

some of these countries were much poorer than those in Africa. In Africa, per capital incomes stagnated in the 1970s while those in Asia witnessed continuous growth. Studies now reveal that this was not necessarily because of governance; both regions were experiencing, to some extent, authoritarian regimes and high levels of corruption.

Policy choices accounted for the different pathways in the two regions. Evidence from ‘Tracking Development Project’ suggest that timing and sequencing of three policy features made a difference1. These were stable macro-economic management policies, focusing on combating inflation to prevent it from jeopardizing growth. Two was improving economic conditions for freedoms of small holder producers and entrepreneurs. Removing state imposed conditions on marketing of their produce, or even what they produced, gave them freedom choice. Three was investing in pro-rural policies and specifically policies that would improve the productivity and profitability of small holders.

These three are sufficient conditions for developmental success. But more important are three other important principles that underlie these choices.2 The studies on also identifies important principles in this respect. First, interventions are selected on the basis of the number of people they reach; it is about quantity rather than appeal in terms of quality. Secondly, successful development strategies are anchored on urgency; it is about priorities first based on what is not desirable at present. Last is the principle of expediency: the goal of improving the material conditions of the poor people is more important than the rules and administrative procedures.

In much of Africa, however, development problems have continued to plague many people because development policies tend to emphasis on qualitative dimensions. Though important, a focus on qualitative dimensions glosses over the question of ‘how many people’ will directly benefit from the intervention – it does not focus on ‘mass impact’. There is also a general focus on long term aspirations rather than immediate needs.3

uNLockING AFRIcA’S PoTENTIAL:STRATEGIES FoR SuSTAINED TRANSFoRMATIoNKaruti Kanyinga

46


These principles suggest that Africa’s turning point requires laying down the pre-conditions for sustained growth and poverty reduction. More importantly, they suggest a need to raise productivity and profitability of the small holders agricultural peasants. This productivity, however, cannot be increased without first addressing the obstacles that the small holders face. Productivity also cannot be increased without investing in pro-poor programmes and rural development in general. Investments in infrastructure – the binding constraint to agricultural productivity among other sectors – technology and in human capital is critical. The three policy choices mentioned above are meant to play an important part in this respect.

A combination of macro-economic stability, economic freedom of small holder farmers, and a strong foundation for rural development has potential to catalyse development in unprecedented manner. But these must be accompanied by a commitment to policies. Governments that have succeeded in addressing development challenges in recent times have been growth-led; redistributive; and pro-poor.4 Unfortunately, Africa’s growth is not accompanied by major improvements in agricultural productivity and growing capabilities in technologies yet these are some of the major catalysts for successful development. What strategies should Africa undertake to improve on productivity?

strAtegic interVentions

Poor infrastructure remains a major constraint to agricultural productivity in Africa yet pro-poor development policies rarely unlock resources for investment in infrastructure. The huge budget outlay that is required to transform infrastructure in a manner that can trigger spiral effects in other sectors constrains governments from investing in infrastructure. Similarly, the private sector lacks motivation and incentives for rural infrastructure or even agricultural production as an end in itself. But the private sector has shown interest in telecommunication and Information Technology (IT) and related infrastructure. This is perhaps because the costs of entry and associated risks in these sectors are different from those around agriculture and infrastructure for rural development. This suggests a need to give incentives for investment in pro-poor programmes and rural infrastructure because these will spur growth in agriculture, improve productivity, and create more jobs

for Africa’s growing youth population. This will in turn sustain the progress achieved thus far.

Catalysing private capital for development of infrastructure and agriculture: private sector remains a critical factor to the success of African development efforts. There is a need to leverage more private capital to finance development efforts. But there must be incentives for the private capital to develop interest on infrastructure among other sectors. Private capital will develop viable and novel solutions to development problems only when there are incentives to do so. One approach that is gaining traction in recent times includes using private equity funds to leverage capacity for more funds; private capital can use $1 to leverage capacity for more than $4 using a concessionary window. This way, more people access capital for development initiatives; small holders access the credit they need to improve productivity.

Private-public-partnership framework should be in place: This can develop infrastructure, roads and provision of energy, and by that lay a sound foundation for sustained growth and development. But for the partnerships to do so, there must be a policy in place to strengthen the partnership. However, policies for this form of partnership are rudimentary. They are evolving. The existing frameworks are yet to capture Africa’s growing diaspora population of investors.

Innovative banking is important: many small holders in Africa lack bank accounts. Studies show that that education level has a direct correlation with those who hold bank accounts. The ordinary peasants are disconnected from banking, and therefore disconnected from credit facilities, because sometimes banks use inaccessible language and procedures. They do not use processes that favour informal traders and ordinary peasants without education. This is changing with phone banking, for example, in Kenya where many peasants use phones (M-pesa) to transact businesses. This has generally revolutionised rural economies particularly because moving money has become easy. Banks will have to simplify their procedures and attend advise to their lending in order to reach a wide range of small holders and entrepreneurs. This approach will remove the traditional bottlenecks in financing rural development: it will improve access to credit for ordinary small holders.

Policy and regulatory frameworks must be attractive

47


for the private capital to show interest in development efforts: stable macro-economic environment and more so policies to stem inflation and stabilize exchange rates will undoubtedly attract private equity funds and, at the same time, promote intra-Africa trade. Pursuing policies that attract private capital provide resources required to improve infrastructure and agricultural sectors. Making of such policies should not longer be the preserve of the government, or that of the government and the private sector. The making of such policies should be made in a participatory manner so that the voices of everyone are heard.

Institutions and governance matter: although recent studies on what contributes to sustained growth and development have not been emphatic on governance and institutions, it must be added that how African societies are governed and how the culture of the rule of law is deepened will remain important ingredients for development. Respect for the rule of law ensures that contracts are signed and respected for what they are worth. Private capital cannot flourish or develop interest in putting a dollar in investments if enforcement of contracts require extra-legal means. The courts and the entire chain of justice system institutions much be independent of vested interest and operate with efficiency.

Improving human capital: the challenge that many countries continue to face is the lack of big numbers of educated and skilled population; a critical mass of well educated and skilled youth. With limited investments in education, many countries continue to have insufficient human capital to unlock their potential. Revitalising the education system to produce skilled human capital, nurture the culture of entrepreneurship and innovation will lay a foundation for wealth creation. A well educated Africa is key to Africa’s developmental turning point.

concLUsion

Africa is witnessing new opportunities for growth and development. These opportunities are not sustainable if not anchored on policies that promote macroeconomic stability, protect the small holder and entrepreneur, and if not geared towards pro-poor development. Furthermore, Africa must prioritise on addressing immediate obstacles to development and using the resources available at present. These priorities must be those that are preventing or constraining development at the present moment.

There are several strategies to unlock resources for development. These strategies must be geared towards eliminating the binding constraints to development: infrastructure, productivity and profitability. Giving incentives to private capital to venture into infrastructure and agriculture are just some of these strategies. Further, Africa’s diaspora has grown considerably in recent times. Introducing the diaspora to long term infrastructure bond will invite the required resources for major and feeder roads, and infrastructure for agricultural productivity and profitability.

sources: 1. See Jan Kees van Donge and David Lewis (eds) ‘Tracking

Development in South-East Asia and sub-Saharan Africa’, Theme Issue, Development Policy Review, 30(s1), 2012.

2. David Henly. Three Principles of successful development strategy: outreach, urgency, and expediency

3. fo Jan Kees van Donge, David Henley and Peter Lewis. 2012. ‘Tracking Development in South-East Asia and sub-Saharan Africa: The Primacy of Policy. Development Policy Review, 2012, 30 (s1) s5-s24.

4. See summary of argument by David Booth. 2012. Africa’s Economic Transformation: Policy and Governance. Developmental Regimes in Africa. Policy Brief No. 2

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FINANcING FoR AFRIcA’S DEvELoPMENT:MAJoR TRENDSCarlos Lopes

The overall effort to scale up both domestic and external financial resources is central to Africa’s industrialization as Africa’s financing gap remains large despite the improved economic growth performance in the last decade.

remittances: Africa has witnessed the growing importance of remittances as a source of development finance. Workers’ remittances have become Africa’s largest external source of finance compared to FDI and

ODA since 2010 with an estimated inflow of US$62.5 billion in 2012, up from only US$13.5 billion in 2001 (Fig. 1). It has been higher than ODA since 2007. However, Africa is the most expensive region of remittance destination, with an average remittance cost of 12.4 per cent in 2012 (World Bank, 2013). If the cost of sending money to Africa is brought down to the 5 per cent, which is what the G8 and G20 are targeting by 2014, Africans would save US$4 billion a year (World Bank & European Commission, 2013).

odA, external debt and fdi: The total official development assistance (ODA) to Africa increased in nominal terms from US$51.3 billion in 2011 to US$56.1 billion in 2012 despite the continuing financial crisis and the turmoil in euro zone which led several donors to tighten their budgets. In 2011, ODA flows to the region mainly targeted social infrastructure (health and education) sector which accounted for 40 per cent of total ODA commitments to the region. Although industrialization plays a critical role in transforming

African economies, only about 2 percent of the total aid commitment to Africa targeted the industry, mining and construction sectors over the same period.

Africa’s external debt remains high and increasing in recent years with the total debt outstanding standing at US$440 billion in 2012, up from US$288.1 billion in 2006 (AfDB). However, the total debt service on external debt fell from US$45 billion in 2006 to US$23.6 billion in 2010 before it picked up to 26.3 billion in 2011 (IMF, 2013).

source: AfDB, OECD, UNDP and UNECA (2013)

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While the increase in total external debt of the region could mainly be due to the new additional borrowings, part of the fall in debt service can be attributed to debt relief (of US$76.3 billion between 2006-2010) to poor African countries through the Heavily Indebted Poor Country Initiative (HIPC) which is supplemented by the Multilateral Debt Relief Initiative (MDRI). During 2001-2012, Africa received a total of US$89.6 billion as debt relief (AfDB).

FDI: The foreign direct investment (FDI) flows to Africa have been steadily increasing over the last few years. FDI grew by 16.5 percent in 2012 from US$42.7 billion in 2011. Although FDI inflows to Africa have been concentrated in extractive industries, there is an increasing number of success stories of manufacturing FDI in Africa that are not directly linked to extractive industries, including the automotive industry in South Africa, the leather industries in Ethiopia and pharmaceuticals across East Africa. It has also been reported that foreign investors from the BRICS group and other emerging countries have started to explore the potential of Africa’s manufacturing sector (UNCTAD, 2013).

There is also increasing interest in new sources of finance which could provide the much needed capital for industrialization. These include Diaspora Bonds; private equity funds, and Sovereign Wealth Funds (SWFs). These new sources of financing are set to grow if African countries can find new ways to ensure that Africa continues to grow in its investment attractiveness and also provide incentives to direct FDI flows to key growth areas. This will not only provide forward and backward linkages in the economy but also maintain the high rate of return that African investors see compared to other regions.

As external finance flows can be volatile, particularly FDI and ODA, the financing of Africa’s industrialization and economic transformation has to be increasingly based

on domestic public and private resources (UNECA and AUC, 2013).

There is a growing divergence between the savings and investments rates in Africa. Both savings and investment rates are falling and well below middle incomes countries. The domestic saving rates fell from as high as 24 percent of GDP in 2008 to 16.0 percent in 2011, while capital formation fell from 23.8 percent to 22.2 percent over the same period (World Development Indicators, 2013)

Tax revenues are the largest source of domestic resource mobilization in Africa. However, tax collection as a percentage of GDP marginally increased from 26.6 percent in 2009 to 27 percent in 2011. This increase is attributed to a number of reforms implemented by African countries. Nevertheless, several countries in the region have tax ratios below 10 percent. These countries include Central African Republic, Democratic Republic of Congo, Ethiopia, Liberia, Nigeria and Sudan. The challenges in expanding and exploiting the tax base are still pervasive in most African economies AfDB, OECD, UNDP and UNECA (2013).

Another potential of financial resources for investment in Africa’s development and transformation agenda through industrialization could be the stemming of the illicit financial flows from the continent. Africa lost approximately US$854 billion in Illicit Financial Flows (IFFs) over the period 1970-2008, averaging about US$22 billion a year which is also equivalent of 70 percent of Africa’s infrastructure financing deficit. Illicit Financial Flows (IFFs) have been a huge drain on Africa’s resources, not only in denying Africa to access these funds for productive investments but also in undermining the economic governance of the continent. Africa should exert its efforts to address the illicit flow of funds from the region as much as it tries to mobilize both domestic and external resource.

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fishery development in Africa

• Fastest increase after 1995• Aquaculture Started in late 1990s• Marine landings plateaued after 2000

fish consumption in African countries (2009)

Average consumptionAfrica – 9.5kg/personWorld - 18.5kg/person (red line)

Highest consumption in mid-west coastal countries

Uneven distribution:• Mid-west coastal & island countries >> world average• Inland countries << world average

percentage of fish in total Animal protein consumption in Africa (2009)

Africa sees a greater importance of fish in animal protein consumption:World average=16.8% (red line)Africa average=19%

Mid-latitude countries have a much higher % than low and high latitude countries

FISHERy DEvELoPMENT IN AFRIcAÁrni M. Mathiesen

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fish consumption (kg/person) and % of fish in total Animal protein consumption in Africa (1961-2009)

• Stable between 1980-2003 in fish consumption, increasing prior to 1980• Little variation in % of fish in animal protein consumption after 1975• Increased fish production counteracted by human population increase

geographic distribution of Marine, inland and Aquaculture production in Africa (2011)

• Largest fish production in: Egypt, Nigeria & Morocco• Largest Marine production: Morocco, S Africa, Namibia• Largest aquaculture: Egypt, Nigeria

geographic distribution of top freshwater brackishwater and Marine Aquaculture production in Africa (2011)• Largest freshwater production: Nigeria, Egypt & Uganda• Largest brackishwater production: Egypt, Tunisia & Côte d’Ivoire• Largest Marine production: Madagascar, South Africa & Morocco

regional per capita food fish supply (kg/capita/year)

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total food fish supply (million tonnes)

fish demand driven by population and income growth

fish supply-demand gaps

per capita fish demand in 2020 estimated based on assumptions:• GDP per capita projection by IMF • Prices unchanged• Preference unchanged

total fish demand in 2030 estimated based on:• Estimated per capita demand in 2020.• UN population projection in 2030.• Non-food fish demand unchanged

results:• Supply < Demand – 51 mt shortage• S-D gaps decline in all regions – Largest insufficiency in Asia

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the state of fish resources in Waters surrounding Africa (2009)

• the most overexploited: Mediterranean (37)• the least overexploited: South West India Ocean (51)• Three areas (34,37,47) are worse overfished than world average• Area 51 at world average

improved fisheries governance cc-eAf

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Development and progress in economic terms is in nearly all places around the world initiated through a more productive and economic viable agricultural sector. In many regions of the world green revolutions (discontinuities in productivity rise in the three major food crops rice, wheat and maize, from 3-8 kg per ha per year to 80-150 kg per ha per year) caused a dramatic increase in agricultural productivity fulfilling the tremendous increase in demand due to population rise and wealth induced richer diets. The absence of such a green revolution in Sub Sahara Africa caused famine and chronic hunger and this led Mr Kofi Annan in 2002 to question the Inter Academic Council on reasons and recommendations to initiate an urgently needed African green revolution.

The report of the Inter Academy Council, Promise and Potential of African Agriculture (2004) analysed the causes (not one but 20 reasons) and recommended 5 fields of interventions. Agro technologies tuned to the specific characteristics of the multitude of African farming systems comprising seed systems, soil fertility and plant nutrition, water management, crop protection and improved storage facilities.

Institutions that are more in line with the specific circumstances and conditions, good functioning local and regional markets. A new generation of agriculturists and farmers that manage the more productive and prosperous agriculture based on knowledge, insight and experience and leap frog the unproductive unsustainable farming systems to productive and environmentally advanced production systems. Credit systems that empower farmers, their organisations and enforce vital communities.

Political will and support needed to create an enabling environment for investment and change.

In each of the five fields considerable progress has been made during the last five years. Many organisations were instrumental in those developments.

AGRA, the Alliance for a Green Revolution in Africa, has programs in each of the five fields and the preliminary results show that an African green revolution has been started. During the last five years considerable progress has been made with the expansions of seed and farm input dealer networks and the farmers have attained better, more reliable and more productive seeds, soil fertility has been increased at many places, making use of fertilizers and other plant nutrition components. The increase of productivity per ha is now visible in rice, wheat, maize, cassava and potato. Other crops are farming systems are now also considered.

Agro technologies have been adapted and improved farming systems implemented. The staple crops leading to a better filled breadbasket have now been complemented with better nutrition and nutritive components. Vegetable growing is now stimulated to create more nutritious diets. In that way stunting in children can be considerably reduced.

Markets, local and regional, are now stimulated and modern instruments such as I-phones enable farmers to leapfrog to modern ways of access to markets. The skills and experience to operate in that way are now considerably increased and adapted by many farmers and their communities.

Credit systems tuned to the very poor and enabling the development of entrepreneurs at the Bottom of the Pyramid have been initiated by AGRA and its important instrument AECF. That has resulted in more than expected activities and an empowerment of entrepreneurs in the primary sector, the farmers organisations, agro dealers and other actors on the market. There is, however, still an enormous need for more advanced credit systems. Commercial banks, cooperative banks and national banks show interest. There are already typical examples of successful support in the farming community. Capacity building at an academic level has been very successful, many MSc and PhD’s thesis have been sponsored and a new group of agriculturists have been

NoTE FoR APP coNSuLTATIoN Rudy Rabbinge

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initiated. Also vocational education is at this moment urgently needed and there is an increasing interest in that type of schooling.

Last but not least, political support was needed at the turn of the century. After the Maputo declaration and with the acceptance and support for CAADP there is a

growing interest and commitment to agriculture, food security and nutrition security.

To maintain that support the African Progress Panel has a pivotal role to play. The meeting in Geneva may stimulate that repeated support and commitment.

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THE BRAzILIAN ExPERIENcE AND AFRIcAErich Schaitza

Brazilian agriculture had a tremendous development in the last decades. Formerly an importer of agricultural products, Brazil is now one of the main global exporters of crops, meat and fibers. Part of that development was due to a massive investment in science and technology, especially made via Embrapa, the Brazilian Agricultural Research Corporation.

With 47 research centers in Brazil and over 2,400 researchers, Embrapa has strategically improved international cooperation, with laboratories and business offices abroad. In Africa, it is the main agent of Brazilian agricultural cooperation developing both research and technical assistance with more than 40 projects in the entire continent.

I have been a researcher for Embrapa in the last 25 years, with experience in small-scale farming, research-extension integration and management of multi-institutional programs of soil, water and biodiversity conservation. Since 2012, I am the coordinator of Embrapa Africa, with headquarters in Accra, Ghana. In this capacity, I have travelled extensively and visited 20 countries in the continent to learn about agriculture in the continent and discuss cooperation opportunities.

Past and current professional experiences give me a broad view of similarities and differences between Africa and Brazil.

this docUMent

Writing this document was a tough task. First, the term expert carries a heavy weight and makes me wonder how expert I am and especially what my field of expertise is. Second, it is not a scientific structured paper, backed up by references and focussing on a scientific object of study. Third, I am writing to a panel of people whose experience in policymaking and African development is as comprehensive as it can be.

My area of expertise is agricultural research and rural development in a State of Brazil and in a small country of West Africa. Brazil and Africa are so diverse and complex and some generalizations may not apply to any of the

two countries as a whole. Besides, generalizations and the inappropriate scale of information are one of the main problems observed in Africa and in Brazil. Some similarities are clear: both have pockets of wealth and poverty; share similar soils and climate: and are building their institutional framework.

Most comments are about agriculture, based on the Brazilian experience and reflect my opinion, not necessarily that of Embrapa.

the brAZiLiAn eXperience in rUrAL And AgricULtUrAL deVeLopMent

Agriculture in Brazil had a tremendous development in the last 30 years. From an importing country, Brazil became one of the major players in the international market, with a large, good quality and varied range of products.

When Brazilians talk about agriculture, they immediately segment farmers according to the size of their properties and entrepreneurial capacity. Segmentation is so strong that different ministries address problems and define development policies for each category. The Ministry of Agriculture deals with commercial farmers. Their properties can be small, medium and large size, but they do not rely on family farmhands only to run their businesses. The Ministry of Rural Development deals with family-owned farms, all of them small in size and run by family members, not by employees.

A small farm in Brazil is very large by African standards: areas range from 10-50 ha. Besides, family farmers are not subsistence farmers any longer. They are businesspersons acting in a fragile economic environment. The .5 - 1 ha farmer in Africa will never be a businessperson and Brazilian experience and technology would readly apply if there were changes in land tenure, with less farmers owning larger areas.

Some pillars supported the development of agriculture of Brazil:

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- Research and development, with massive investment in the National Systems of Agricultural Research (SNPA) and Extension Services (SIBRATER, with Extension Agencies in most Brazilian States);

- Investment in technical and vocational education; - A credit policy that treats different farmers

differently; - The organization of farmers in Associations and

Cooperatives; - The extensive use of government purchase power

to support family farming development; - The development of local markets.

There are no environmental and technological barriers to the development of a similar model for agriculture in Africa. Savannah soils are as fertile or more fertile than those of Brazilian Cerrado, there is water available and the climate is similar.

the brAZiLiAn eXperience And AfricA

1. Brazil is not necessarily an innovator in agriculture, but it is an early follower and adaptation of technologies to different conditions is fast. A network of research institutes and universities is highly integrated to production and very much result-oriented. Embrapa is Brazil’s largest research institute. Acting nationwide, it has 2500 researchers and a budget of about one billion dollars. Most of the Brazilian States also have an agricultural research institute which works with Embrapa. Added up, they have about the same number of researchers and budget. Universities complement the research network. This system is no different in Africa, where CGIAR centers, national agricultural research institutes and universities form a network.

three key differences are:

- Funding for Brazilian institutes comes mainly from the government and, therefore research is highly programmatic. In Africa, funds for research comes from donations or calls for projects, consequently opportunities of fund raising and research is not programmatic;

- A highly qualified public and private extension and vocational education system matches extension, which links research to the beneficiaries. Research

problems and development opportunities derive from this connection. In Africa, extension is weak and vocational education is even weaker. Research problems and development opportunities derive from funding opportunities;

- There is a large number of agronomists, foresters, biologists, agricultural technicians among farmers and working with farmers in Brazil, in all areas of the agricultural value chain. In Africa, most of those professionals are working for governments, research and development, international aid and not at agricultural production. That makes technology transfer simpler and faster in Brazil.

Perhaps, two opportunities of change would be the strengthening of the coordination capacity of research and the massive investment in quality extension and vocational training. In Brazil, 0.4% of all salaries in all sectors are set aside by employers to finance vocational services. The private sector manages those funds under government supervision.

2. Brazilian government offered US$ 72 billion dollars of credit to farmers for the 2013/14 harvest. Annual interest rates range from 1% to 9.5%, depending on the purpose of the loan and who is borrowing the money.

Commercial farmers have US$ 62 billion at their disposal. Financing of current expenses and investments have interest rates of 6-9%, but some areas deemed of key importance may have lower interest rates. That is the case of Low Carbon Agriculture, for example, where interest rebates push farmers to adopt technologies.

Family farmers have US$ 10 billion for the 2013/14 season. Interest rates range from 1-4%. Credit can be individual or for groups of farmers. This credit is topped up with a series of other programs that aim at increasing the security of small-scale farming, such as insurance against harvest losses, guarantee of minimum prices, possibility to repay with agricultural products, and technical assistance.

In both cases, banks operate private funds from their reserves. Government funds the difference between commercial and harvest plan interests.

Finally, credit walks hand-in-hand with technical demands, thus research and development. No loan

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is granted without a technical project for which a qualified professional is in charge and follows technical recommendations. Public extension operates loans for family farmers and are paid by banks to do that. The edafo-climatic zoning defines what can be financed and when. If good agricultural practices are not followed, farmer loses the right of rescuing insurances.

In Africa, credit to farmers is small and interest rates are very high. The small size of farms and loans is a barrier to operation as the relative cost of transaction increases for smaller amounts. A good strategy would be offering credit to groups of small farmers, but a whole banking system must be put in place. Besides, high default rates should be considered as part of a learning curve. Furthermore, extension services are not ready to assist and develop projects.

Some financial mechanisms are being developed in Brazil to leverage agricultural investment in Africa. For instance, Fundação Getúlio Vargas developed business plans as part of an agreement with national African governments based on detailed socio-economic and environmental analyses of the investment areas. With that and in conjunction with the Brazilian Stock Exchange, they make road shows and offer a high-risk high-yield investment alternative in African agriculture , thus raising funds for investment. Finally, they offer financing at low cost to top Brazilian farmers and to groups of African farmers to develop their businesses in Africa. Areas of Mozambique (corn and poultry) and Zambia (sugarcane and ethanol) are trying this approach. Uganda, Ghana and Malawi are discussing this alternative also.

3. Brazil built a large social network. Among other initiatives, schools provide food for 20 million kids on a daily basis and preschool children get free milk in various states. Similar programs are in place in Africa, such as the School Feed Program in Ghana.

These programs have the merit of combating hunger and improving livelihood even if they are limited to food acquisition and distribution. In Brazil, strategies of local production match those initiatives, thus generating local

development, jobs and income to farmers.

Brazil adopted this strategy with success in 2003 and in 2012, together with FAO and WFP, started a small-scale initiative in a program named Food Purchase Program Africa, developed initially in Ethiopia, Malawi, Mozambique, Niger and Senegal. Local food purchase pilots where established in those countries and along with the elaboration of assessment and strategic plans to strengthen local food purchase for food assistance. In the next phase, PAA Africa will contribute to the development of a twin-track approach for food security, linking food assistance in schools to investments in agriculture in the short- and medium-term.

The upsizing of that dual strategy, i.e. rural development and food assistance, may be a good strategy for rural development. The strategy can be expanded to the purchase of energy from biomass, seeds or whichever product or service the government buys.

4. Whenever foreign consumers buy food in Africa, they are afraid of the quality of that food. If the supermarket offers tomato from Holland and from Togo, I know that tomatoes from Holland had a certain caution in the use of pesticides, did not used sludge or untreated water in its production etc. The same goes for milk, cheese and many other products. With that, European vegetables, South African meat, and Brazilian chicken reach high prices at supermarkets and people buy them.The Brazilian government has a strong marketing program to show that family farming produces with top quality and more safety than any other commercial supplier does. This strategy includes revamping the charm of being a farmer, the opening of points of sale for family agriculture, and producing according to health and quality standards at appropriate prices.

Africa should launch a health and quality program and build nice urban points of sale. Africa needs a quality branding policy for its agricultural products. Production for rich Africans and expats can be one of the steps towards exporting quality products to the world.

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There are four areas where the Africa Progress Panel could encourage a much needed expansion – in terms of quantity and quality – of the information and reporting about economic conditions and the finance industry in Africa.

1. in terMs of econoMic groWth, these Are the best of tiMes for Most coUntries in sUb-sAhArAn AfricA

the last decade or so has been a very good one for the lion’s share of sub-saharan African countries. Economic growth since 2000 for the entire region has averaged 5½ percent, compared to 2½ percent in the 1980s and 2¼ percent in the 1990s. Indeed, one would have to go back to at least the 1960s for a period when growth has been as robust and widespread in the region as it currently is (Figure 1). Moreover, this recent growth stint has been broad-based and resilient:

• Growth among all analytical groupings has increased—landlocked and coastal nations, small and large economies, countries with fixed and flexible exchange rate regimes, and commodity exporters and non-resource rich countries.

• Even the global financial crisis only slowed growth in the region for a brief period, and growth has now returned to pre-crisis levels. Because in the run-up to the crisis countries were pursuing counter-cyclical policies, when the crisis threatened to slow growth many were able to expand fiscal deficits and thus support growth (Figures 2 and 3). A counterpoint to this being, in many instances, the expansionary stance adopted to combat the crisis remains in effect, despite the growth having recovered. The IMF is urging these countries to rebuild policy buffers promptly.

this turn around in growth has been driven by

fundamental factors. In particular, the proximate factors behind the improvement in economic growth performance are, first, the advent of more democratic forms of government and, second,

Figure 1. Sub-Saharan Africa: Real GDP Growth

Figure 2. Sub-Saharan Africa: Fiscal Balance

Figure 3. Total Public Debt

FouR EcoNoMIc THEMES IN SuB-SAHARAN AFRIcAIN 2014Abebe Aemro Selassie

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Figure 4. Sub-Saharan Africa: Real GDP Growth

improved economic policy management. To be sure, for some countries, higher commodity factors have played an important role. But for the region as a whole this has been a positive but far from decisive influence. Consider the case of oil prices. There are many more net oil importing countries in sub-Saharan Africa (some 35) than exporters (around 10). Even in population terms, almost 70 percent of the region’s population resides in oil importing countries. Higher oil prices, other things equal, have an adverse economic impact on most countries. In fact, 6 of the 12 fastest-growing economies in sub-Saharan Africa since 1995 are low-income countries considered non-resource rich (Burkina Faso, Ethiopia, Mozambique, Rwanda, Tanzania, and Uganda), and as a group they have grown slightly faster than the oil exporters.

And the solid growth performance is expected to be sustained. Subject to the external economic environment remaining benign and prudent domestic economic policy management, the region’s economy is expected to grow on average by 5-6 percent over the next five years (Figure 4). The main factor behind the continuing underlying growth in most of the region is, as in previous years, strong domestic demand, especially associated with investment in infrastructure and export capacity in many countries. While inflation is anticipated to remain in check, fiscal deficits are expected to expand in 2013 and 2014 in many countries in the region, although debt levels will most likely remain manageable in most countries. Also, external current account balances are projected to deteriorate in 2013–14

on average, in the region, particularly in oil-exporting countries running expansionary fiscal policies. Despite this, the region is expected to maintain the post-crisis trend toward increasing its reserves coverage in 2013–14.

still, this growth record is not without shortcomings and two, in particular, stand out.

• First, there are emerging questions about how inclusive this growth has been in some countries. This issue is considered further below.

• Second, there remain a small number of countries where conflict persists. Countries such as Guinea Bissau and the Central African Republic have been in an extremely fragile state for decades. Even erstwhile stable Mali has fallen victim to instability recently. The untold dislocation and suffering that people in these countries continue to face while conflicts persist cannot be ignored.

2. sLoWer groWth in eMerging MArKets

In recent years, emerging markets have become major trading partners (Figure 5) with—and an important source of financing for—sub-Saharan African countries. Some one-third of non-oil exports of sub-Saharan African countries go to the BRICs, compared to less than 10 percent a decade ago. China, in particular, is also a major financier for many countries in the region.

Looking ahead, however, the breakneck pace of growth in many of the BRICs is expected to decelerate for both cyclical and structural reasons. This slowdown will in turn

Figure 5. Sub-Saharan Africa: Total Exports to Partners1

Source: IMF, Direction of Trade Statistics.1 Excludes Angola, Cameroon, Chad, Congo, Rep. of, Equitorial Guinea, and Nigeria.

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be a source of headwind for many sub-Saharan African countries. The main channels through which countries will be affected are:

• commodity prices. A growth slowdown in the BRICS could result in weaker-than-projected global commodity prices. This, in turn, would affect economic activity in sub-Saharan Africa, especially among oil exporters. Our estimates suggest that if commodity prices were about 25 percent lower than current projections, real GDP growth in sub-Saharan Africa could be lower by some half a percentage point relative to baseline growth projections. Lower export prices and volumes would result in a deterioration of the current account balances, and could potentially reduce foreign exchange reserves.

• trade flows. But even non-oil exporters will be affected. As noted above, the BRICs are now also an important destination for non-oil exports. A marked slowdown in activity in these countries is likely to weaken demand for African exports.

3. prUdent MAnAgeMent of internAtionAL cApitAL fLoWs

An increasing number of countries in sub-Saharan Africa (the so-called frontier markets, like Ghana and Nigeria) have increasingly been tapping global financial markets. The highly supportive monetary stance in most advanced countries has heightened the appetite for high yielding assets, prompting several sub-Saharan African countries to issue sovereign bonds in international capital markets for the first time. The fact that many of these countries have been posting strong growth records in recent years, and hence their debt servicing prospects look promising, adds to the attractiveness of these bonds.

This access to global financial markets has allowed countries to secure financing for pressing needs but also poses some challenges. Two challenges are, in particular, noteworthy: one related to the volatile nature of some forms of capital flows and the second the use to which these flows are put to.

• First, investors’ appetite for emerging market assets tends to wax and wane for reasons unrelated to the recipient countries economic conditions. A good example of this is the sudden and significant reversal

of capital flows to many emerging markets observed over this past summer, prompted by little more than expectation of a shift in the US monetary policy stance. These ebbs and flows can have significant macroeconomic effects and need very careful policy attention. For example, as capital flows in, it can cause the exchange rate to appreciate and also facilitate excessive credit growth by the banking system. Conversely, when the direction of flows reverses it can put pressure on the exchange rate, deplete scarce foreign reserves, and cause undue balance sheet strains for those that have borrowed in foreign currencies (including the government). Once the scale of capital flows reaches a certain threshold, and in some countries it is approaching these levels, the conduct of monetary and even fiscal policy has to pay heed to this issue much more.

• Second, the uses to which the incremental and temporary increase in resources that such reliance on capital markets allow also has to be considered very carefully. Relying on fickle international investor appetite to scale-up investment in, say, education or health is not sensible. Higher spending in these areas has to be sustained over many years and needs to be financed by more durable revenue streams—ideally, through higher tax revenue mobilization and/or reducing often economically inefficient and iniquitous spending on items like energy subsidies. The proceeds of, say, an international sovereign bond issuance only provides temporary fiscal space. It makes more sense to use these proceeds for one-off type infrastructure projects. But even then, this should be done only after careful cost-benefit analysis. While the current environment for issuing sovereign international bonds is attractive, conditions may well be fairly different when these bonds mature and have to be rolled over or repaid. The seemingly attractive interest rates at which these issuances are being made at the moment may not look as attractive then. The markedly higher borrowing cost of these loans makes it even more important to ensure that the proceeds go towards projects with particularly high rates of return.

4. iMproVing the qUALitY of groWth

In the broadest of terms, the transition from low- to middle or upper income country status entails three phases:

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(i) getting growth started; (ii) sustaining this growth for many decades; (iii) and structural transformation. Countries in sub-Saharan Africa are in various positions along this continuum, and our advice to countries in the region is context-specific. But among the common issues that we see impeding countries’ progressing along this path are: growth not being inclusive enough and fostering structural transformation.

Making growth more inclusive. Increasingly, questions are arising about the extent to which the fruits of the high growth that countries in the region are posting are benefiting all segments of the population. To be more concrete still, consider Mozambique, a country which has been growing at an average of 8 percent per year since 1995. But the benefits of growth in Mozambique may not have been widespread. At least for the 2002-08 period

which a recent IMF study looked at, the bottom one-third of the population saw their real consumption decline. To be fair, there are other countries where growth has been more inclusive—including Ghana and Uganda. But the aggregate picture is far from a comfortable one as also suggested by the patchy and modest progress towards

the MDGs. For SSA as a whole, while the poverty rate has declined—by 10 percentage points to 48 percent between 1999 and 2010 (Figure 6)—in absolute terms, the number of poor has increased—from 205 million to 414 million over the same period. The main point is that increasingly the policy agenda has to focus on what is needed to sustain high growth but also ensuring that it is as inclusive as possible.

structural transformation is the kernel of economic development. Experience shows that growth that is not accompanied by economic diversification (an increase in the range of goods and activities that are produced) tends not to be sustainable. Such diversification shifts resources (both labor and capital) from low to high-productivity sectors, raising average productivity for the whole economy. The jury is still out on the extent to which such diversification has been taking place in the region. But increasingly, along with whether the fruits of growth are being shared widely enough, the extent to which growth is inducing more economic diversification requires more attention.

To some extent, some of the solutions to these challenges are policy interventions high already on the priority list of most governments in the region. Thus, for example, public investment in agricultural infrastructure (such as new rural roads) can improve market access and encourage productivity-enhancing private investments in the sector, facilitating diversification and improving rural living standards. Relatedly, if the objective is facilitating industrialization, increasing the supply of electricity, easing access to ports, etc. are often the most effective way of reducing the cost of production and increasing the returns to investing in such activities for private agents.

Figure 6. MDG 1a: Extreme Poverty

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There are four areas where the Africa Progress Panel could encourage a much needed expansion – in terms of quantity and quality – of the information and reporting about economic conditions and the finance industry in Africa.

the poWer of neW ideAs And neW proJects

There is a lack of reliable, detailed and timely news, analysis and data about economic activity and financial trends. Addressing this shortfall would serve both the interests of investors, who could then make better decisions about which projects to back; and also the producers and companies looking for finance, who would have better channels to raise money and awareness of new projects.

This economic information shortfall is apparent across a wide range of economic activities and sectors, from micro to multinational enterprises. It has led to both governments and companies taking bad investment decisions that have cost jobs and wasted scarce resources.

The problem partly reflects the availability of up-to-date statistics, but recent work by the African Development Bank and the World Bank has started to improve this, and it is coming under constructive and critical scrutiny from statisticians such as Morton Jerven (see “Poor Numbers” By Morton Jerven, Cornell University Press). But there are wider information deficits to tackle: on new projects, market structure, available inputs, and on competing sources of finance.

A practical example: the Nigerian Incentive-based Risk-Sharing system for Agricultural Lending (NIRSAL) offers guarantees to banks lending to farmers. It was developed jointly under the aegis of Central Bank governor Lamido Sanusi and Agriculture Minister Akinwumi Adesina. NIRSAL’s research showed a project in Kaduna State for 8,000 farmers to grow 50000 hectares of tomatoes for a processing factory would cost about Naira4 billion. The

tomato paste market in Northern Nigeria was dominated by cheap Chinese imports, which had pushed out their Italian competitors, but no serious thought had been given to the economics of local production and processing.

NIRSAL approached companies such as Olam, a leading commodities house with extensive investments in Africa, and CHI Ltd, which were not interested in the project.

Eventually, the cement magnate Aliko Dangote agreed to build a $25 million tomato paste factory, which meshes neatly with his other interests in canning, packing and transport. The farmers got a guaranteed price of $700 tonne – twice their previous earnings in the local market. The social and economic value of such a project under present conditions in northern Nigeria doesn’t need stating.

By contrast Olam has gone ahead with a $12 million processing plant in Lagos: the difference is that Olam’s plant imports triple tomato concentrate from its farm in California. However, the NIRSAL/Dangote plant showed that the project could work profitably from start to finish within Nigeria. Dangote is now planning to open another factory in the region, having supplanted the imported paste in the market.

Both journalistic reporting and detailed market assessments of such projects would help boost the search for investment and the ways in which companies and producers could work together on similar enterprises.

infrAstrUctUre, procUreMent And proJect costs: hoW to coMpAre And benchMArK

Whether it’s the cost of building a liquefied gas export plant or a power station, or of servicing a deep offshore oil rig, prices and tariffs in Africa are invariably far higher than for comparable work in other regions. Although most officials and companies know this anecdotally,

THE INFoRMATIoN REvoLuTIoN THAT SHouLDAccoMPANy THE FINANcING REvoLuTIoNPatrick Smith

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there has been little effort to produce a more rigorous reporting of comparative costs and what contributes to the ‘Africa price’. For example, why does it cost four times more to service an oil-rig in the Niger Delta than it does in Indonesia? What is the impact of those cost differentials on investment levels and environmental protection?

Accurate analyses of the cost structure for African infrastructure projects in comparison to their counterparts elsewhere would be of great use to government procurement departments, civic groups monitoring public expenditure and companies looking at the operating economics in African markets.

The starting point for this kind of benchmarking and international comparisons would be an African contracts database, which ideally would provide detailed reporting on all contracts over US$10 million. It would provide the name of the procurement agency and the contracting companies and sub-contractors, the cost structure of the contract and the source of finance.

Ideally, the database managers would have the capacity to benchmark individual contracts against similar projects in Latin America, Asia and Europe. More problematic, but equally valuable, would be a natural resource production contract database, which would build on valuable work pioneered by the Extractive Industries Transparency Initiative and Revenue Watch. It would enable African producers to measure their terms and conditions against other producers in the continent and in other regions.

the cLiMAte chAnge threAt to AfricA’s AgricULtUrAL potentiAL? Where is the reseArch needed?

Although it is widely accepted that Africa potentially offers the biggest source of new agricultural production in the world, it is also the region most vulnerable to desertification, flooding and other forms of extreme weather. All the big development agencies have launched climate change programmes and policies in Africa in recognition of this.

However, the Sahel and the Horn of Africa – currently the scene of intense political confrontations – are likely to be inordinately affected by the exigencies of climate change. A jointly financed effort from governments, development agencies and commodity trading companies could build

the research expertise on the ground in the Sahel and the Horn. This would mean training a new generation of agricultural, environmental scientists and climatologists and building research stations in the Sahel and Horn.

Not only would these research stations provide data about environmental shifts; they could launch research on crop adaption and other strategies to counter the effects of the changing climate. Bringing together a consortium of countries – including, for example, Algeria, Mali, Nigeria – to run these initiatives would strengthen regional solidarity at a time when it’s coming under particular pressure. It would also provide a much needed boost in terms of jobs and investment to the hard-pressed economies in the region.

reWArds And risKs of coMMerciAL finAnce: better inforMAtion cAn strengthen AfricA’s hAnd in negotiAtions

The fact that the brave new world of Africa’s financial requirements is being overwhelmingly met by bond issues, local and foreign direct investment, domestic taxation and customs revenues, and the diminishing role of concessionary finance from international development institutions, also highlights the importance of good economic information and reporting.

There are obvious risks in the new financial landscape. Over a quarter of Africa’s 54 countries have floated eurobonds: Angola, Côte d’Ivoire, Gabon, Ghana, Namibia, Nigeria, Rwanda, Senegal, Seychelles, South Africa and Zambia. Most of them wanted to take advantage of historically low interest rates and improving perceptions about Africa’s economic management; these Africa bond issuers borrowed on better terms than Greece or Portugal, and some could get terms as good as those in Spain and most Eastern European countries. Few think this happy era of low cost borrowing for Africa is sustainable in the medium term.

The costs of borrowing are determined substantially by the operations of the international ratings agencies, whose shortcomings in the run up to the west’s financial crisis in 2008 are well rehearsed elsewhere. If the ratings agencies are unable to properly understand the industrial western economies about which they have full and timely economic and financial data, it is safe to suggest that their understanding – with some notable

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exceptions -- of African economies is still more deficient.

Yet, it is these agencies – with their capacity to downgrade or upgrade the sovereign risk ratings of economies – which will determine the costs, and even the availability of credit, for substantial numbers of countries on the continent.

For now, the ratings agencies are largely dependent on the reports and the assessments of the IMF, but these are often not the whole story. For example, Fitch downgraded Ghana after reading that IMF calculated that the Finance Minister would not hit his target to reduce the budget deficit to 9% of GDP. Yet the government in Accra argued there were many other factors to take into account. This risks becoming a partisan debate. No country likes being downgraded: it hits the pocket and political reputation of the governments, whether they are in Paris, Accra or Washington.

More and independent analysis of economic policy and management could improve the flow of information and the quality of assessments by the ratings agencies. It may also be time for Africa to launch its own ratings agency, backed by the African Development Bank, and perhaps in partnership with another international agency.

At the same time, international lenders will demand much better information about Africa’s money markets as they increasingly move into partnerships with local banks and insurance companies. The wholesale reform process in Nigeria’s banks, undertaken by the Central Bank in 2009, exposed some horrors that had been kept out of the banks’ annual reports and formal balance sheets. It argues for more thorough and independent monitoring of both the money and capital markets, as they become increasingly critical to growth and production.

Such information, analysis an reporting would also instil more confidence between countries, as cross-border financing gains in importance among members of economic and monetary unions.

Better information might also avert another risk for those countries moving from so-called frontier market to emerging market status. Governments are issuing debt, which is snapped up by lenders seeking returns:

emboldened by currently favourable interest rates and bullish projections for economic growth, some ministers see this as a means to fix their infrastructure deficit.

The equity markets are booming, although even the buyers question the valuations of the stocks, and often know little about the reality behind the company statements and annual reports. Yet, the boom spreads and companies use the stock or corporate bond market to raise more funds.

Nigeria, South Africa, Egypt, Morocco and Kenya are now included in several emerging market bond indices. Between them, Nigeria and South Africa attracted portfolio inflows of around $20 billion over the past year; during the emerging market wobble this year, both countries’ currencies came under pressure.

What happens if the next emerging markets wobble becomes a deeper crisis and African governments face something akin to the Latin American debt crisis of the 1980s or the Asian financial crisis of the 1990s? The risk is of an African bubble; inflated and talked up by interested parties and accepted by those who lack reliable and independent information.

The danger is that the local economies would not keep pace with the rising demand for foreign exchange, and the currencies are not adjusted. The crisis could start in one of the big economies and spread across the neighbourhood.

None of this is inevitable or unique to Africa, but other emerging regions have to contend with similar crises. And one way to ameliorate the dismal effects of these pressures is to get more accurate and timely knowledge of the companies and banks – international and regional – involved in the transactions.

Of course, the contractors conduct their own due-diligence, but the last decade of financial trauma shows the weakness and often self-serving nature of those checks. An African ratings agency, together with more local providers of reliable economic analysis and financial data, could be part of a vital early warning system. Not only might it pre-empt crises and glitches, but it could help promote a more accountable, and therefore more attractive, financial market in Africa.

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pUrpose

To set out 3 strategies which support the successful application of foreign investment in Africa.

1. nurturing small and medium-sized enterprises (sMes)

We believe that SMEs will act as a channel for increasing employment and building economic growth:

• Small businesses are the largest employers in most economies

• SMEs constitute 90% of sub-Saharan African businesses1

• SMEs provide a channel for an economy to grow, innovate and specialise

To maximise the impact of investment in SMEs, we need to support the SMEs to develop and grow. The Global Agenda Council on Africa is working on 4 key areas:

• Mentoring: enabling entrepreneurs and small businesses to connect with experienced business leaders for advice and support (e.g., Mara Mentor, Cherie Blair Foundation for Women)

• formalising the sector: a policy framework that incentivises the informal sector to become part of the formal sector, which can be used to lobby governments and instigate change (e.g., tax incentives, marketing campaigns)

• financing: tailoring financing to SMEs and delivering support for SMEs to attract and effectively use such funding. Two models are being developed: - Incubators help entrepreneurs to identify possible sources of funding outside of the banking sector and prepare them to raise capital (e.g., Nigerian Government)

- Venture capital investors are developing propositions to find low-cost sustainable

mechanisms to invest in SMEs (e.g., Mara Ad-Venture Fund)

• entrepreneurial education: teaching young people how to set up and manage their own businesses (e.g., Ten Youth, NFTE).

2. skills deficit

• to compete internationally, African countries must develop a competent, confident and creative workforce: - By 2040, Africa will be home to 1 in 5 of the world’s young people, with the world’s biggest workforce at 1.1bn people.

- High vacancy rates in the presence of large-scale unemployment indicate the presence of mismatched skills.

- More needs to be done to align academia with industry to ensure we are catering to the demands of local industry.

- The World Bank argues that human capital is the “stepping stone to a viable and growth-promoting industrial system”.

- We need only look at the UAE to see what has been achieved in less than a generation - the UAE is now recognised as the fourth most attractive education destination among emerging markets (Deloitte/DIAC report).

• the skills deficit is over-exaggerated. Whilst government resources can help, the onus should be on ppps to up-skill the local workforce: - Public-private partnerships should have a much greater focus on the positive social impact they can bring to surrounding communities.

- In Madagascar, Rio Tinto has partnered with the UN Development Programme to establish a vocational training centre to help bridge the skills gaps in the local workforce.

- Mara’s own businesses (Riley Packaging, Ison BPO, Mara Ison) have also been successful in up-skilling

PERSPEcTIvE FRoM ASHISH J. THAkkARAshish J. Thakkar

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their own workforce across a range of sectors, including technology and manufacturing.

- We need to encourage more of this knowledge transfer in order to grow Africa’s talent pool.

• Vocational vs higher education: - In the short-term, absorbing the enormous number of new entrants into the market will require the development of job-intensive sectors (construction, manufacturing).

- In the longer-term, the demand for more-advanced high-value skills and services sectors will require significant investment in education (engineering, professional services).

- The short-term focus should be on vocational education, but we should not ignore the longer-term demands of the higher education system.

3. technology

Technology will enable Africa’s economic growth and development to leap forward as it increases the efficiency and reach of existing companies and creates a wave of new web-based ventures:

• Mobile penetration has reached 55% and is expected to grow to 75% by 2016.2

• The number of smartphones sold is forecast to grow on average 40% per year and account for 30% of handsets by 2017.2

• Internet penetration is expected to grow from 16% to 50% by 2025.3

• Internet contribution to GDP will increase from $18bn (1.1% of GDP) to $300bn by 2025.3

There are two areas that we believe will be most important in this wave of development:

governance: • 25 percent of urban Africans go online to check

social media daily.4

• The increasing penetration of social media sites (e.g., Facebook, Mara Mentor) will aid communication, increase transparency and enable digital record-keeping.

• The speed of information flow via digital media, coupled with the volume of information available, has resulted in elevated and forced transparency for businesses everywhere.

finance:• More than 75% of Africans do not have access to

formal financial services. Mobile phones could enable 60% of Africans to access banking services by 2025.3

• To realise this growth, mobile financial services need to become bank-led and develop innovations beyond payments.

sources: 1. IFC, “IFC Approach to SME Development in Africa”, 2011, accessed

May 23, 2011, http://www.ifc.org/ifcext/africa.nsf/Content/SMED_Home

2. Sub-Saharan African Mobile Observatory 2012, Deloitte and GSMA

3. Lions go digital: The Internet’s transformative potential in Africa, McKinsey Global Initiative 2013

4. The rise of the African consumer, McKinsey & Company, October 2012.