Addressing Key Structural Vulnerabilities for [Africa’s] LDCsUN-OHRLLS Brainstorming Meeting on Substantive Preparation for UNLDC-IVNew York, NY 14-16 July 2010

Brief Outline

•Context: Africa’s macroeconomic fundamentals in recent past

•Key structural vulnerabilities specific to [African] LDCs and actions required:▫to increase resilience to shocks; and▫for structural transformation

•Concluding thoughts

Underlying risks, but great potential• Speed and the magnitude of

the global recovery;• Amount and timeliness of

foreign aid;• EU turmoil may increase risk

of recovery; may induce W-shaped recovery;

• Delayed recovery could derail economic fundamentals due to lack of finances;

• Setback on institutional reforms could delay technology adoption▫ Nonetheless, the 53 countries

offer a variety of business environments: with different investment grade ratings

5.2

4.5

4.34.2

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2006 2007 2008 2009 (e) 2010 (f) 2011 (f)

AfricaWorldsub-Saharan Africa

Africa’s Strong Performance in 2001-08• At about 6% annual growth,

Africa among the fastest growing regions in 2001-08; rel. low inflation

• Broad-based growth – 40% of countries grew at 5% or above;

• Continent becoming more integrated into the global economy:▫ Trade openness increased for

all countries – from 62% of GDP in 2001 to 79% in 2008;

• Drivers:▫ Policy and structural reforms

Stable macroeconomic conditions;

▫ Favorable external environment; commodity boom;

▫ Increased FDI flows; remittances; debt relief; non-traditional partners;

• ….. but Africa’s growth more subdued in terms of GDP/cap.

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

Adv

ance

dec

onom

ies

W

este

rnHe

mis

pher

e

Ce

ntra

l and

East

ern

Euro

pe

M

iddl

e Ea

st

A

frica

CIS

and

Mon

golia

De

velo

ping

Asia

aver

age

annu

al c

hang

e in

per

cent

World average

Many African Economies Still Rather Fragile

• Continent remains highly vulnerable to external shocks (dependence on commodities; little value addition; undiversified trade partners, etc); Africa can increase resilience through:i. implementing structural reforms to diversify

their economies, including development of the manufacturing sector;

ii. increasing flexibility of macroeconomic frameworks while maintaining macroeconomic stability;

iii. building social safety nets to raise social and political stability; and

iv. deepening regional integration. • These measures are also key for making African

economies more attractive to foreign investors.

VULNERABILITY 1

Generally non-Competitive Economies

VULNERABILITY 2

6

The Global Competitiveness Index The Framework

Key for

efficiency-driven economies

Key for

factor-driven economies

1. Institutions

2. Infrastructure

3. Macroeconomic stability

4. Health and primary education

5. Higher education and training

6. Goods market efficiency

7. Labor market efficiency

8. Financial market sophistication

9. Technological Readiness

10. Market size

11. Business sophistication

12. Innovation

Key for

innovation-driven economies

BASIC REQUIREMENTS

EFFICIENCY ENHANCERS

INNOVATION & SOPHISTICATIONS FACTORS

Underdeveloped Manufacturing/Industrial Sector

VULNERABILITY 3

0

2

4

6

8

10

12

14

16

18

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

pe

rce

nt

of

GD

P

Oil exporters

Oil importers

AFRICA

Sub-Saharan Africa

Share of Manufacturing in Output, 1998 - 2008

Comparatively Low Saving Rates

VULNERABILITY 4

0

10

20

30

40

50

60

CEE AdvancedEconomies

Lat. Am.,Carribeans

Africa CIS Middle East DevelopingAsia

perc

ent o

f GDP

2005 - 2008 (average)

2009 - 2010 (average)

Emerging and developing countries average 2005- 2008Emerging and developing countries average 2009- 2010

0

5

10

15

20

25

30

35

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Post Conflict Countries

AFRICA

Sub-Saharan Africa

Fragile States

Africa’s under-developed human resources

VULNERABILITY 5

5.04.54.03.53.0

10

8

6

4

2

0

Log of GDP per capita (2008, PPP, current $)

Educa

tion Index

AfricaOther EMEs and LDCsAdvanced economies

Education and Human Resources: Africa and other coutnries, 2009

Generally underdeveloped infrastructure

•Infrastructure critical to growth, but continent held back by limited stocks and high costs.

VULNERABILITY 6

Images from Google

General absence of regional integration• In general, efforts at regional

integration on the continent have not gone far enough to▫ remove barriers to free trade in

the region;

▫ increasing the free movement of people, labor, goods, and capital across national borders,

▫ reduce the possibility of regional armed conflict, and

▫ adopt cohesive regional stances on policy issues, such as the environment, climate change and migration, trade, FDI, relationship with donor community, etc.

VULNERABILITY 7

Key Policy actions required for Africa’s LDCs:

1. Continue macroeconomic policies aimed at improving general resilience in the economies;

2. Prioritize improvements in general competitiveness of the economies;

3. Develop the productive capacities, particularly in the manufacturing sector, based on latest thinking on the subject;

4. Redouble efforts to boost saving rates; 5. Scale up investments infrastructure;6. Support efforts at greater regional integration.

Concluding thoughts

• In general,▫Diversification and structural reforms (private sector

development, financial sectors, labor markets) as well as deepening regional integration remain key development priorities for Africa’s LDCs.

▫Pay-off to domestic policy reform in Africa would be even greater if supplemented by measures taken by developed countries (including adequate and timely development assistance; successful completion of Doha Round).

▫The African voice is still not adequately heard in the debate on global financial governance framework—something that ought to change.

▫As a major partner of choice for Africa’s development financing; the AfDB is an important voice in the debate on the continent’s development challenges.