PROSPECTS FOR SUSTAINABLE AND INCLUSIVE GROWTH IN AFRICA

1. PROSPECTS FOR SUSTAINABLE AND INCLUSIVE GROWTH IN AFRICA PhD Sarah O. Alade, Acting GovernorCentral Bank of NigeriA Presented at the 1st Covenant University International Conference on African Development Issues. May 5, 2014

2. Outline • Introduction • Inclusive Growth • Ensuring Inclusiveness • Drivers of Inclusive Growth • Lessons from Emerging regions • Concluding Remarks

3. Introduction • Since the turn of the century, perception on Africa’s economic growth has changed from a hopeless continent to the next growth frontier • In real term, the continent grew on average by 4.9% between 2000 and 2008 • At 4.6% in 2010, growth was substantial in spite of the global crisis • It, however, slowed down from 5.7% in 2012 to 4.0% in 2013 and forecasted to increase to 4.7% in 2014

4. Introduction … Growth was principally driven by: • Relatively high commodity prices • Rising trade & investment ties with emerging economies • Increased domestic demand • Enlarged middle class projected at 34% of the population • Improved economic management, which has resulted in macroeconomic stability

5. Introduction … • Inflation decelerated from an average of 8.2% in 2012 to 8.0% in 2013; and forecast to fall further to 7.8 per cent in 2014 • Mainly due to: • Subdued demand • Moderating international food and fuel prices; and • Tighter monetary policy in most countries Source: Adapted from UNECA-ERA 2014

6. Introduction … • In 2013, most African countries witnessed real exchange rate appreciation • Influenced by tight monetary policy to control inflation • Fiscal deficit as percentage of GDP stood at 1.9% in 2013 compared with 1.5% in 2012 and projected to rise to 3.1% in 2014 • Current account deficit stood at 1.8% of GDP in 2013 and expected to decelerate to 1.7% in 2014 • Due to improved macroeconomic management in most countries

7. Introduction … • International reserves in US dollar term increase by 3.5% in 2013 and stood at 28.1% of GDP compared with 28.3% in 2012 • External debt as share of GDP was 24.0% vis-à-vis the 25.0% threshold. • Despite Africa’s impressive economic performance, the growth has been non-inclusive, owing to • inability to create jobs, • improve overall wellbeing of the people, and • reduce income inequality gap

8. Introduction … • Though, global poverty rate in all regions continues to fall • … Africa’s still highest

9. Introduction … • Similarly, unemployment is highest in the African region vis-à-vis comparable regions • There is need to reverse the prevalent jobless growth Source: ILO, Trends Econometric Models, October 2013

10. Inclusiveness In Growth: Why Is It Important? • Sine qua non for better living conditions • particularly in emerging and developing countries • Engenders pro-poor and distributive growth • reduces poverty and inequality → empowerment • Enhances social welfare evenhandedly • benefits all strata of the society including the poor, near-poor, middle-class, as well as the rich • A “no-loss” welfare outcome • benefits the disadvantaged at no cost to the well-offs

11. … why inclusiveness? • It is characterised by equity, empowerment, expanded opportunities, increased participation, wide-ranging satisfaction • enables agents to contribute to and benefit from the growth process → diminishes social alienation and polarisation • It dismantles constraints and institutes level-playing field for investment • It supports entrepreneurialism and creativity • It involves not only wage-employment but promotes self-employment

12. Non-inclusiveness: Some Implications • Retards social mobility, heightens polarisation in education and healthcare, exclusion in the labour market • Debilitates social cohesion and unity, nurtures discontent and rile, and undermines confidence in social policies • Alienates disadvantaged individual and vulnerable social groups from economic life • denies the society optimal use of its human capital

13. Inclusive Growth: How? • Through benign policies in human capital (education ad health), innovation and regulation • Increased access to good jobs and education, health services and a healthy environment, and well-functioning institutions • In Africa, access to basic social services largely remains a challenge • Focus on productive growth rather than merely on employment growth • Emphasis on increased productivity • Conducive environment for entrepreneurship and investment to thrive

14. Why Inclusive Policies Will Outperform Non-inclusive Ones? • It is able to juxtapose growth in income vs. living standards • Taking cognizance of non-income aspects of well-being • It circumvents the equity-growth trade-off identified in the literature • Synergizes pro-inclusiveness and pro-growth policies • Employs pro-inclusiveness devices to propel growth

15. Drivers of Inclusive Growth • Productive employment • Increased broad-based opportunity for investment • Increased access to social services • Financial inclusion • Access to financial services by the socially and economically disadvantaged group • Increased consumer credit • Fiscal inclusion • Revenue → tackling tax avoidance and evasion • Expenditure → provision of public goods → de-emphasizes social benefits → subsidies (partial or total) not the best form of fiscal inclusion

16. Ensuring Inclusiveness The Role of the Financial Sector • Regulation to ensure competiveness in the financial sector • to ease access to finance by SMEs and informal sector • Financial deepening • Interventionist policies of central banks/ government should focus on promoting development of the economy

17. Ensuring Inclusiveness … • Improved payment systems is a precursor for the promotion of financial inclusion • Encourages private participation • Mobile banking results in financial inclusion and promotes financial stability • Promote investor confidence to enthrone the private sector as the engine of growth • Investment-friendly and transparent macroeconomic environment

18. Ensuring Inclusiveness … The Role of Government • Adopt and implement coherent development plans • Develop and improve human capital • Providing quality health and education • Effort at empowering youth and women • Address infrastructure constraints and bottlenecks • Roads and transport, power and electricity, water, • Providing incentives for innovation

19. Ensuring Inclusiveness … The Role of Government … • Promote structural transformation (diversification, industrialization and competitiveness) • Focus on employment by creating better conditions for the private sector to drive growth • Build capable and accountable states and regional institutions that invest in human development

20. Ensuring Inclusiveness … The Role of Government … • Safety nets • Improving market access through promoting regional trade • Reforms that fast-tracks technological change and innovation focused on green growth engenders: • Investment in skills • Education • Poverty reduction • Employment opportunities

21. Ensuring Inclusiveness … • The Role of Government … • Laws and regulations, customs and social norms • weak enforcement of contracts and laws • property rights • corrupt and inefficient bureaucracies • societal norms that discourage cooperation • Political institutions • political stability and democratic system • Economic and social infrastructure • Privatisation – private sector participation • Trade liberalization - partial liberalization of the financial account

22. Ensuring Inclusiveness … The Role of the Private Sector • Encouraging value-chain development • skills development and upgrading • Increase local content • strengthening linkages with local suppliers • Adoption and adaptation of appropriate technologies and access to capital • Improved value addition • Research and development to cover job creation at all levels of skills

23. Lessons From Emerging Regions China – world’s fastest growing economy • Though inequality is still high but it is coming down • Absolute poverty is also falling given the general rise in mean income • Significant progress in education and social outcomes Mexico – on the right track inclusively • Reducing income disparity amidst yet high inequality. • Ratio between the richest and poorest 10% is 27:1 • Improved outcomes in education and access to public goods Brazil – embracing inclusiveness • Sustained fast paced growth in the last 2 decades • Tapering inequality (albeit still high at 50:1), falling unemployment, significant poverty reduction

24. Lessons From Emerging Regions … Philippines → Non-inclusive growth • Fast paced growth (2nd in Asia behind China in 2012-2013) • Rising prevalence rate of poverty from 2.4% in 2009 to 2.6% in 2013 • High unemployment (10.3%) and underemployment (12.1%) in 2013 South Africa – Africa’s largest economy • Laced with widespread poverty, high unemployment, growing inequality • 50% unemployment rate among the under-25s • Income of the richest 10% is 100 times that of the poorest 10% on average • Social discontent – destructive protests (and strike actions) against poverty (and high in-work poverty), joblessness, inequitable access to public amenities,

25. Lessons From Emerging Regions … India • Elimination of heavy regiment of licenses and controls • New industrial policy which ease entry of foreign firms to operate in the country • Improve access to good education and health • Innovative safety net that lifted millions out of poverty • Incentives for innovations

26. Closing Remarks • Development institutions and central banks need to support inclusive growth and transition to green economy to minimize their vulnerability to climate change • Central banks should be more than financiers • knowledge broker and connect clients to knowledge centers: in Africa and globally such as World Bank, IMF, IADB, etc • Development efforts should focus on: • Regional Integration - provide local competitive advantage, large domestic markets • Private Sector Development • Governance

27. Closing Remarks … • Africa’s growth though robust remains below potential • Growth needs to be both inclusive and green • Anchored on sound democratic principles to eliminate social discontent as evidenced from Arab Spring • Energized by vibrant civil society so as to ensure engagement and enforcement of accountability