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Addressing Key Structural Vulnerabilities for [Africa’s] LDCs

Addressing Key Structural Vulnerabilities for [Africa’s] LDCs

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Addressing Key Structural Vulnerabilities for [Africa’s] LDCs

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  1. Addressing Key Structural Vulnerabilities for [Africa’s] LDCs UN-OHRLLS Brainstorming Meeting on Substantive Preparation for UNLDC-IV New York, NY 14-16 July 2010

  2. 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

  3. 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

  4. 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.

  5. VULNERABILITY 1 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: • implementing structural reforms to diversify their economies, including development of the manufacturing sector; • increasing flexibility of macroeconomic frameworks while maintaining macroeconomic stability; • building social safety nets to raise social and political stability; and • deepening regional integration. • These measures are also key for making African economies more attractive to foreign investors.

  6. VULNERABILITY 2 Generally non-Competitive Economies

  7. VULNERABILITY 3 Underdeveloped Manufacturing/Industrial Sector Share of Manufacturing in Output, 1998 - 2008

  8. VULNERABILITY 4 Comparatively Low Saving Rates

  9. VULNERABILITY 5 Africa’s under-developed human resources

  10. VULNERABILITY 6 Generally underdeveloped infrastructure • Infrastructure critical to growth, but continent held back by limited stocks and high costs. Images from Google

  11. VULNERABILITY 7 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.

  12. Key Policy actions required for Africa’s LDCs: • Continue macroeconomic policies aimed at improving general resilience in the economies; • Prioritize improvements in general competitiveness of the economies; • Develop the productive capacities, particularly in the manufacturing sector, based on latest thinking on the subject; • Redouble efforts to boost saving rates; • Scale up investments infrastructure; • Support efforts at greater regional integration.

  13. 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.