FROM THE OFFICE OF PUBLIC AFFAIRS

It is a pleasure to speak with all of you today, and I am delighted to be in Abidjan. Let me begin by thanking President Kabbaj for that introduction, and for his leadership of the African Development Bank. The African Development Bank and the Development Fund and its committed staff have contributed significantly to African development finance over the last 35 years, providing more than $30 billion in resources to African countries. Under President Kabbaj's leadership, the African Development Bank has undertaken sweeping reforms that have helped restore confidence and optimism to the Bank and effectively positioned the Bank to help the nations it serves. We look forward to participating fully in the Bank and to making a substantial contribution to replenishing the African Development Fund.

This is my first trip to Africa -- and I come with great enthusiasm and interest. Part of the purpose of our trip is to continue the process the President began with his trip in March: (1) to establish regular discussion and introduction between senior officials of our country and those of Africa to further improve our working together on the great array of issues of mutual concern, and (2) to help convey to Americans an accurate and balanced view of Africa and its many countries. As part of all this, and also to share our views on various matters, I greatly look forward to discussing the economic issues of Africa -- the opportunities and the challenges -- with government officials, business people, and the others I will be seeing on this trip, at meetings like the very concrete and substantive discussions we had last night with Prime Minister Duncan and his economic team, and then over dinner with President Bedie.

In preparing for this trip, I spoke to American businesspeople who are active in Africa. They all discussed the great differences among African nations and the view that while the difficulties in investing in African nations were real, there was also an unfair gap for many of those countries between the actual opportunities and problems and the perception of opportunities and problems. I'm looking forward to my time here and adding first-hand exposure to my understanding of the realities of Africa and African nations, and then returning to the United States with an enhanced understanding to help inform my work with business and financial people, Congress, and the International Monetary Fund, the World Bank, the African Development Bank, and others.

I come as the U.S. Secretary of Treasury, but also as someone who spent 26 years in the highly entrepreneurial world of Wall Street. During the time I spent in the private sector, I lived first-hand the emergence of the global economy and global financial markets, events that helped developing countries around the globe attract investment, foster growth and lift millions of people out of poverty.

But just as those developments have brought enormous opportunities for nations around the world, so have they brought new risks, as demonstrated most recently by the financial crises in Asia. Countries in many parts of the world, including Africa, have been impacted by the Asian crisis. However, as we consider the implications of the Asian crisis for the economic development of African nations and their integration into the global economy, it is important to remember that many Asia nations, by integrating into the global economy and attracting private capital, have had 20 to 30 years of high rates of growth. Countries like the Phillippines, Korea, Thailand, Malaysia, Singapore -- and the list goes on -- are far better off today than they were before the process of integration began. Having said that, there were also underlying problems, which eventually led to crisis, and African nations have the opportunity to learn from the Asian experience.

A central lesson of the experience of Asia and other developing countries during the last 25 years is that attracting private sector capital is central to fostering growth. But it is also clear that the public sector has a key role to play in creating an environment that attracts private investment and allows it to flourish, and in performing functions which markets simply can't perform.

Pursuing policies for success in the global economy is politically difficult in any country, and in the United States we certainly have had throughout our history -- and continue to have -- real political struggle around important policy decisions. But we can't and you can't turn away from these difficult political challenges. The politics of reform must keep pace with the policies of reform. This challenge may well be even greater in many African nations than in many other parts of the world, for a variety of historical reasons, but the imperative is no less.

Against that backdrop, today I would like to discuss how African nations can better attract private investment at a time when African nations still depend on official financing for most of their needs; how the international financial institutions such as the African Development Bank can help them through official financing; and what the United States can do to help African nations in creating the environment that attracts investment and more generally in promoting economic development.

This is a pivotal time in the history of many African countries. Across the region, democracy has started to take root and 25 nations have held free elections since 1990. In many nations, market reforms have also begun to take hold, and, in response, the region's annual average growth rate has risen from less than 2 percent over the period of 1990 to 1994, to 4 percent in the period from 1995 to 1997. Sixteen countries had growth rates of 5 percent or greater.

In response to these changes, portfolio and foreign direct investors have begun -- though this is still just a beginning -- to take a new look at African nations. However, for this process to move forward towards its full potential, there is much that the African nations must do. Right after President Clinton returned from Africa, a few of us were discussing his trip with him in the Oval Office. He said, among other things, that the African leaders were highly focused on attracting foreign investment and very much wanted to discuss how to do it. This is part of why we are here on this trip.

Clearly there is an enormous amount to do to achieve desired levels of private investment in Africa. Sub-Saharan Africa attracted less than 3 percent of total long-term private capital flows to developing countries last year, and the region remains heavily dependent on concessional loans and grants from multilateral and bilateral donors. The relative importance of the foreign private sector in financing Africa's development has actually declined since 1970. And maybe most important of all is capital flight. One scholar has estimated that 39 percent of the private wealth of Africans is held overseas. As a result, African investment rates remain low relative to other developing regions. Private investment as a percent of GDP in the newly industrialized economies of Asia has been double the rate in sub-Saharan Africa.

While perception gaps and lack of focus in the industrial countries have played an important role in this, so have a wide array of real problems -- many grounded in Africa's history -- and too little African focus, prior to recent years, on creating an environment to attract private investment. Creating such an environment is critical to the future of African nations, because as you look at economic success in countries around the world in recent decades, I think the evidence is overwhelming that it is private sector investment and activity that is key to fostering economic growth and raising living standards.

Developing countries focused on attracting capital have a complex set of challenges before them. Let me describe six of the elements that I view as particularly critical in the context of African nations today in attracting private capital.

First is political and social stability. Instability is obviously a major deterrent to investors. Moreover, in Africa, the problems affect not only the countries involved but the perception of the whole continent. The instabilities are extremely serious and must be effectively addressed for humanitarian and economic reasons; but we in the industrial world must also learn to draw the appropriate distinctions, a process I hope to further. I might add that strife and social instability are obviously extremely complex matters, but an important factor with respect to social stability around the world -- and a problem in Africa and in some measure in our country -- is the absence of full participation through the whole population in the benefits of economic growth.

Second is macroeconomic stability -- sustained, sound policies that lay the foundation for low inflation and steady growth.

Third is a sound legal and administrative framework. This includes a legal and judicial infrastructure that reinforces private property rights; promotes impartial and transparent decision-making by governments; and contains access to fast, transparent and fair legal remedies to disputes. Let me also add, as someone who has been around financial markets a long time, corruption is a major impediment to economic activity, a deterrent to foreign investment, and leads to the misappropriation of scarce resources.

Fourth is openness to international trade and investment. Regional arrangements that break down barriers to trade and investment in a group of countries -- such as those that exist in the West African Economic and Monetary Union -- can be very useful to achieve economies of scale, larger markets, and policy stability. However, regionalism must be part of a larger strategy of global integration, and not an instrument for trade and investment barriers of the region towards the global economy. Moreover, while regionalism can be very positive in raising all members to the policies of the most forward looking, regionalism has the danger that must be avoided of convergence towards the least forward looking.

Fifth is a well supervised, regulated, and competitive financial system. Experience around the world suggests banks, securities firms, insurance companies and pension funds function best when in the private sector and operated on a commercial basis. A successful financial sector also requires a critical mass of loan officers and bank auditors with the requisite skills to carry out the types of financial transactions demanded in a market-based economy and a strong credit culture. One of the lessons of financial crises in Asia and elsewhere is that they have almost always either been triggered by or exacerbated by problems in the financial sector.

Sixth is investment in people, which is obviously good in itself, but also critical to creating an environment to attract investment.

In all of these six elements, the international financial institutions have long had an important role to play. In addition to the African Development Bank, the World Bank, since its first loan to Ethiopia in the 1950s, has lent more than $50 billion to African nations. And the IMF, through its concessional lending window, has also been actively engaged in almost all African countries at one time or another.

Having said that, these institutions are dealing with complex and unprecedented issues in today's global economy and global financial markets, and for many decisions, there are no easy or sure answers, but instead best judgements and then adjustment when circumstances warrant. I believe these institutions are doing a good job, but also must keep changing to reflect our greatly and rapidly changing world. I would like to discuss four specific areas in which the IFIs are changing their practices and should continue to do so.

First, the IFIs should be more selective in lending and focus on these countries that are implementing pro-market reforms. Some argue that putting conditions on assistance is harmful. But recent research at the World Bank and elsewhere demonstrates that foreign assistance is of little benefit -- and is sometimes harmful -- where the policy environment is not sound. Where policies are appropriate, by contrast, aid can be an enormous help in promoting growth. In other words, the IFIs should help those nations that are doing the most to help themselves.

Second, the IFIs should focus efforts on areas that catalyze private investment. This can be done not only through encouraging effective policy reforms but also by using innovative financing vehicles such as equity seed capital and insurance products that can give investors greater confidence.

Third, each institution should focus on its comparative strengths. The African Bank with its unique character as an African institution has a great comparative advantage in focusing on governance, agricultural development, and fostering small scale business, including microfinance.

And, with respect to all of the IFIs, the programs they do undertake should enjoy a high degree of national ownership and participation.

Fourth, and finally, the banks should focus more attention on building human capital, that is, investing in health, education and training.

The U.S. approach toward the IFIs parallels our own economic policies toward African nations: assist those countries undertaking the boldest reforms; encourage private sector trade investment, and economic activity, and encourage human capital development; and make sure that Africans themselves are full partners in this relationship. This is the essence of President Clinton's Partnership for Economic Growth and Opportunity with Africa.

The fundamental purpose of the Partnership is to support the governments in Africa in bringing their economies into the global economy and in attracting the private sector. We can do so by maintaining our traditional openness to trade and by opening our markets further to countries that are most committed to reform and opening markets. We recognize that reduction of trade barriers can cause fiscal and balance of payment difficulties in the short-term. To help make sure those concerns do not deter bold reformers, we have asked the IMF and World Bank -- and they have agreed -- to make financing available to help African governments that are committed to integrating into the global economy.

Another financial constraint the Partnership seeks to address is the burden of excessive debt. All told, through bilateral and multilateral programs and the private sector, the international community has reduced debt among African nations by more than $35 billion in the last decades, with another $40 billion expected under current programs. The United States is committed to continuing to provide leadership to reduce indebtedness to sustainable levels -- we are doing so through our participation in the Paris Club, our leadership in the HIPC Initiative, and the Partnership's commitment to extinguish remaining bilateral concessional debt for the strongest reformers. But I should emphasize that debt relief makes sense only in the context of economic reform. In the absence of reform, these benefits are likely to be lost.

The Partnership also aims to use our existing institutions -- the Overseas Private Investment Corporation, the U.S. Export Import Bank, and USAID -- with greater effectiveness and innovation on Africa's behalf.

Already President Clinton's trip -- and the changes and trends it highlighted -- has served to provide greater and more balanced attention to Africa. Under the President's Partnership, we are working to establish the same kind of ongoing dialogue and relationship on economic issues with African nations we have in other parts of the world.

Let me conclude by saying most emphatically that helping Africa's reformers foster growth and prosperity is not only in the interest of the African people but very much in the economic and national security interests of the American people. It is in that spirit that I have discussed with you today the conditions for attracting private investment to African nations and the activities of the international financial institutions. The emergence of the global economy and the global financial markets has led to increased interdependence of all nations around the world. All of us -- the African Development Bank and the other international financial institutions, the United States, and the rest of the international community, and most importantly the African nations -- must work together to help the people of this continent realize the opportunities in the global economy at this important period in their histories. All of us will benefit when African nations fulfill their potential, and the United States is committed to reaching that goal. Thank you very much.