November 16, 2007
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Remarks by Secretary Henry M. Paulson, Jr. before the U.S.-Africa Business Summit on the Remarkable Change and Progress in Africa’s Economic Development Change and Progress in Africa’s Economic Development
Cape Town, South Africa--Good evening. Thank you, Dr. Sturchio, for the kind introduction, and thank you to the Corporate Council on Africa for the opportunity to speak to such a notable gathering of business, government and academic leaders.
Africa is a unique continent: diverse in people and heritage, with some of the most spectacular geography and biodiversity on the planet. All too often, however, those who do not know Africa well associate the continent with issues like famine, conflict and disease. Tonight, I will talk about a much different Africa, one with which I suspect most of you are more familiar – a continent of diverse nations increasingly defined by economic opportunity and promise.
Most importantly, I will talk about an Africa where leaders are taking control of their own economic futures and continuing to move beyond reliance on donors.
Evidence of Progress – Growth and Investment
On this visit to Africa, I have seen the economic advances ushered in by a new generation of leaders. Improved fiscal and monetary policies, combined with favorable global conditions and strong commodity prices, have had dramatic consequences across the continent: annual GDP growth has exceeded 5 percent for half a decade, inflation rates have dramatically declined, debt levels are more sustainable and the IMF projects that, this year, foreign exchange reserves will reach record levels. Yesterday, in Arusha, I met with the economic leaders of the East African Community – it was heartening to see the progress those countries have made since I last visited that part of the world in the early 1990s.
Africa's macroeconomic statistics only tell part of the story: as a former business person I find what is happening on the ground also particularly illuminating. Africa's thriving telecommunications industry perhaps best illustrates the benefits of creating a sound environment for private investment. Africa is the fastest growing mobile phone market in the world. Over the last few years, the penetration level for mobile phone use has grown from almost zero to an average of over 20 percent – over 200 million new mobile phones. Driven by private sector investment, with reasonable government regulations, African and foreign telecom companies have created thousands of jobs at all levels – for engineers, salesmen, managers and customer care representatives.
In many respects, increased foreign investment is the ultimate vote of confidence in Africa's economic future. And the votes are coming in. We see new private equity funds, with a focus on Africa, being raised. We see the stock of U.S. foreign direct investment in Africa growing by over 90 percent in the last few years. And we see this successful conference -- proof positive that the world sees these remarkable changes and wants to participate as Africa takes its place in the global economy. In essence, investors see attractive direct, portfolio and equity investment opportunities all across the continent.
These results demonstrate the immediate impact of good leadership. While a supportive international economic environment has helped, this progress comes because of sound macroeconomic policies, and a commitment to improving business climates. In my 30 years of financial market experience, this is the formula that I have seen work around the world for making rapid strides in poverty reduction.
Yet, to ensure benefits for the long run, Africa's leaders and people must maintain a firm commitment to reform, combat corruption, respect human rights, adhere to the rule of law and spread the benefits of economic growth to more of Africa's population. Inclusive growth is not easy. As President Bush has observed, "Real prosperity is the work of many years. It's hard work."
United States Supports Reform Efforts
The United States has long supported Africa. We have focused significant health assistance on those who are most needy, such as through the President's Malaria and HIV initiatives. Our economic assistance is increasingly directed towards supporting countries where economic policies reflect the lessons learned over the last 30 years. These lessons teach us the importance of market principles, of sound fiscal and monetary policies, transparency and the rule of law.
Debt Relief/Liberia
The U.S. Treasury led the charge for comprehensive debt relief; our efforts under HIPC and MDRI have resulted in over $60 billion in debt forgiven for the world's poorest nations. Recently, we played a key role in helping bring together over 80 countries to help support Liberia, another of Africa's economic reformers. Together with our G-8 partners and management at the international financial institutions, we have mobilized financing for full debt relief for Liberia's billions in arrears to the IMF and World Bank and almost closing the gap at the African Development Bank, which we expect to be completed very soon.
Millennium Challenge Account
Through the Millennium Challenge Corporation the United States provides grant finance – so-called Compacts -- for development investments in countries with sound political, economic and social policies. The Compacts finance those investments prioritized by our African partners.
Since 2004, MCC has approved $4 billion in grants to nine African countries. In Tanzania, President Kikwete and I discussed the positive impact the upcoming $698 million Compact will have on the country's infrastructure. Ghana – where I travel next – recently signed a $547 million Compact. I know that we could be doing more, particularly on the issue of Compact implementation, and as a board member of MCC I am committed to pushing for greater effectiveness.
Technical Assistance
I am also committed to helping train Africa's public finance professionals. Through our 19 resident advisors throughout Africa, Treasury's technical assistance program is helping develop local debt markets in Ghana, Nigeria, Zambia and East Africa, and is working in countries such as Guinea and Mauritius to create a more professional and transparent budgeting system. I am committed to expanding this program because it has proven to make a difference.
Important Next Steps – Sustainable Natural Resource Policies, Financial Markets, Business Climate, and Free Trade
U.S. support is only one component of Africa's growing economic promise; what really matters is African leadership. Four areas where African leadership is essential to accelerate and sustain development are natural resource policies, financial markets, business climates, and free trade.
Sustainable Natural Resource Policies
This is a vast continent – 48 countries, 2,000 languages and 750 million people. It has some of the most remarkable geographic and biological diversity on the planet. Natural resource issues are critical for Africa's future: they are an essential part of the continent's heritage and figure prominently in economic opportunities, but can often be the spark in regional conflicts. Throughout my career, I have maintained an ardent interest in the conservation of land and wildlife.
Yesterday, I visited Manyara Ranch and saw an innovative example of how Africa can both preserve its heritage and create economic opportunities for its people. The ranch land is a critical migratory corridor for a broad range of species from nearby parks, and is also important for the cattle raising activities of the local Maasai tribes. The Africa Wildlife Foundation – with support from USAID – has set up a land trust that seeks to make the ranch commercially viable through tourism and beef sales, with a plan to use the proceeds to protect these valuable tribal lands.
The U.S.- sponsored Congo Basin Forest Partnership provides another model for fostering sound management practices and involving local communities so that conservation's benefits align with the perceived costs. The Partnership is a regional initiative which brings together the governments of the Congo Basin with non-regional partners such as the U.S., France and various NGOs. It fights illegal logging and poaching while improving the livelihoods of those who depend on the forest. The Partnership has already trained thousands of students and professionals in forestry and resource management, strengthened local and national institutions devoted to national resource protection, and helped establish new national parks in the Congo Basin region.
I know that some may believe that these initiatives are a luxury. But I know that natural resource protection is key to Africa's long-term, sustainable, and inclusive economic advancement. We all know that there are significant economic and political risks for mismanagement of natural resources. I believe that Africa can unlock real economic potential through careful management of its natural resources.
Financial Markets
A lifetime in financial markets leads me to make special mention of the importance of a sound financial system, and the critical role that it plays in allocating resources efficiently in a developing economy. Africa needs properly-regulated and well-functioning financial markets. This includes legal structures – with property rights, contract law and mechanisms to resolve disputes – that protect individuals, businesses and investors.
Strong financial systems help everyone – from large multinationals to the farmers and the seamstresses that seek to build small businesses of their own. Reliable, solvent banking systems provide the tools for savings, investment and credit needed by entrepreneurs, families, small and large businesses.
Research shows that a lack of access to finance – caused by weak technical capacity in the financial sector and inappropriate public sector policies – is one of the biggest constraints for private sector growth in Africa. Less than 20 percent of Africans have bank accounts – the lowest level in the world, and this is one of the reasons why President Bush announced the Africa Financial Sector Initiative last June. This initiative is expected to mobilize up to $1 billion in privately-managed investment funds to help spur job creation and economic growth, and provide technical assistance to address financial sector impediments.
Business Climate Reform
A stronger financial sector needs to be combined with an improved business climate, so that businesses can be formed and take advantage of ready capital. Africa's government leaders, particularly in Ghana, Tanzania, Kenya and Mozambique have recognized that they need to enhance transparency, shorten the business start-up process, improve the rule of law, and strengthen property rights so that the private sector can do what it does best – start businesses, create jobs, and sustain and accelerate growth. In 2006, Kenya launched an ambitious program to eliminate and simplify hundreds of business start-up license requirements. Similar changes in Tanzania reduced the cost of business registration by 40 percent over the last two years. In many respects, it is simple – cutting the costs of doing business allows for greater competition, and greater competition is vital for improving productivity, fostering innovation, and generating jobs.
Free Trade
It is the concept of competition that led South Africa's Finance Minister Trevor Manuel to recently talk about the importance of pushing for greater trade liberalization. Trevor is right. Trade liberalization should not be feared – it should be embraced. It is a development strategy that has worked for countries as diverse as Singapore, Chile, Ireland and Mauritius. And it is a strategy that can work for other countries in Africa. That is why I am such a believer in the power of Doha. The United States stands ready to negotiate off the texts that have been produced in Geneva. I think Africa can play a strong role by also negotiating to achieve an ambitious result.
Conclusion
In the last 30 years, the world has experienced an unprecedented reduction in global poverty. China, a country I have come to know well, and India – where I was just last month – have both shown strong commitment to implementing sound economic policies, and to creating economic opportunities for their populations. As a result, hundreds of millions of their people have emerged from poverty and created businesses, acquired jobs, and enriched their lives in countless ways. In Africa – just as in China, India, and other places in the world – reforms, once started, have to be completed in order to realize their full benefits.
It is heartening to see that African leaders are showing a strong commitment to the difficult work of reform. Results do speak for themselves. We all know Africa is rich in talent, resources and tradition. All it takes is good leadership to unlock this potential.
Thank you.
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