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FROM THE OFFICE OF PUBLIC AFFAIRS To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®. January 16, 2003KD-3806 I. Introduction. I would like to focus on two interconnected themes: increasing the number of high productivity jobs in African countries, thereby promoting economic growth, and increasing the productivity of African workers generally—thereby improving standards of living. We cannot have one without the other. Quite simply, increasing the number of high productivity jobs is meaningless if there are no high productivity workers to fill those jobs, and having a highly productive workforce is equally pointless if there are no jobs for them to take. Due to these three endemic impediments, neither of our keys to development—a higher productivity workforce and an increasing number of high productivity jobs—is realized in most of Africa, and the result is that many Africans are caught in a poverty trap. Let us now consider ways to get out of the trap. II. Getting Africa Out of the Poverty Trap by Focusing on Productivity Without such remedial actions, the environment will be perceived as unfriendly to investment, the number of high productivity jobs will not increase, and firms will have no incentive to invest further in their workers. Economic growth is likely to stagnate and standards of living are likely to decline. The long term effects of poor governance are very hard to overcome, but taking a strong stand and demonstrating that there is a commitment to improving governance is the first step. African examples of successful action in this area would include Botswana, South Africa, and our hosts here in Mauritius. Taking the South African example, the government has worked since the onset of majority rule to ensure that the benefits of growth are shared more equitably, fiscal management is more transparent and accountable, and the rule of law is reinforced. The result has included stronger domestic investment and a resumption of growth. Mauritius is a good example of the connection between education, productivity, and growth. Secondary school enrollment ratio for Mauritius is 53% while the average for Africa is 31%. The country’s relatively educated and skilled manufacturing workforce has an average wage of $336 per month, while in other parts of Africa productivity levels have made possible manufacturing wages of only around $54 per month. Consequently, investing in education is just as important as investing in plant or equipment. Creating a stronger education system has multiple dimensions, including stronger pro-education policies by the government, a commitment from firms to train and invest in their workers, and innovations such as internet-based teaching. Investing in people also means investing in health, and specifically addressing the crisis of HIV/AIDS. In countries with adult prevalence rates of 10%, economic growth could be reduced by one-third; rates of 20% could reduce productivity and growth by more than half. There is empirical evidence in some areas that for every 1% decrease in life expectancy, the rate of GDP growth falls by 0.7% and the rate of investment by 1.2%.
A useful step toward an enabling environment for investment is to obtain a sovereign credit rating. This can be useful for the government being rated, since it provides direct exposure to market expectations, as well as for investors, since it signals that this is a country committed to creating an environment where domestic and foreign investors should be putting their capital. Another important issue is the composition of public spending, which should be slanted toward investment in people and infrastructure in preference to unproductive purposes such as military spending. In the end, the qualities that investors look for above all else are clarity and stability—so that they can foresee what risks they must plan for ahead of time. Uganda has made substantial strides in improving its domestic economic environment, primarily by divesting government holdings in the productive sectors and introducing regulatory reform. Monetary management has been relatively sound and inflation has remained in check. There has been significant progress in redirecting spending toward the social sectors, and devising ways to ensure that funds reach their intended uses in local schools and clinics, for example. Lastly, the US recognizes that large debt burdens are additional obstacles to improved productivity for many of the poorest developing countries. This is why we support the HIPC program, and why we also are encouraging greater use of grants, especially with productivity-enhancing programs. Both these initiatives will increase support to those countries that are prepared to move decisively to enhance productivity. Sustainable and successful economic growth depends on it.
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