FROM THE OFFICE OF PUBLIC AFFAIRS

It is a pleasure to testify before you today on the proposed "Partnership for Economic Growth and Opportunity in Africa."

I will focus my remarks today on three points:

o First, on the changes that are taking place in Sub-Saharan Africa, changes which present us, and Africans, with an opportunity that we should seize.

o Second, on some lessons from the development record in order to illustrate how those lessons have informed our proposal.

o Third, on the specific contents of our proposal.

Before going further, though, I would like to note that the proposal I will discuss with you cannot really be considered solely the Administration’s proposal. It is a compendium of the ideas that have emerged in this Congress--in your Committee--as well as from Africa itself. Our thinking has benefitted very much from the spirit of cooperation and bipartisanship that has characterized this entire initiative. I would like to express my appreciation to you and the Committee for engendering that spirit, for taking the initiative to prepare legislation on Africa, and for giving us the opportunity to work together on it. We look forward to continuing that work.

Mr. Chairman, the challenges facing Africa are many, but so are the opportunities. Our goal should be to throw our collective weight against those challenges, and push in the same direction. In so doing, we will be helping the United States as we are helping Africa. In addition to the moral imperatives of such assistance, it is in America’s commercial and security interest to support stronger trade and investment ties with Africa.

Currently, those ties are not nearly as strong as they could be, especially from the U.S. perspective. U.S. trade with Africa represents about 1 percent of total U.S. trade, while U.S. investment in Africa represents slightly less than 1 percent of total U.S. direct investment abroad. Yet when one considers the vital role that America’s commercial relations with developing countries play in our own economic well-being--approximately 40 percent of American exports now go to developing countries--and the fact that Sub-Saharan Africa is still a largely untapped market of 600 to 700 million people, it leaves one with a sense of tremendous opportunity and potential.

The key to unlocking that potential, as the legislation before us appropriately underlines, is to help Africa make the transition to commercial vitality and growth. A growing Africa offers marketing and supply opportunities for U.S. investors and traders, and helps lift Africa out of conditions which foster poverty, political conflict, contagious disease and environmental degradation.

I. Africa: Change and Opportunity

Unfortunately, many Americans still have a rather one-dimensional view of Africa. That view is shaped to a great extent by media focus on the latest civil or biological disaster to strike the region. Such disasters are sobering reminders of how badly things can go in circumstances of economic and political despair, but they are not the whole story. The story that is less well known is this:

-- Since 1990, approximately 25 African nations have held free and fair elections. Over time, this political evolution should also pay economic dividends as some of the most important, productive and heretofore ignored parts of African society--women, poor rural populations--exercise a greater influence over policies that affect them.

-- A growing number of countries are undertaking market reforms, and are beginning to reap the benefits of their efforts. Senegal, Ghana and Cote d’Ivoire, to name a few, are seeing annual growth rates in the range of 5 to 6 percent. Uganda grew by 10 percent in 1995, and Ethiopia by an estimated 12.5 percent in 1996.

These nascent success stories show that democracy and economic reform can take root and grow in Sub-Saharan Africa. Those roots are still establishing themselves, however, and continued growth is far from certain. The question is, how can we help the countries that have recently taken off to continue their upward climb, and show the way to others?

II. Lessons on Development

There are few eternal truths, but the development record around the world, including in Africa, suggests several lessons which have guided our thinking, and which we should continue to bear in mind as we move forward.

1. Sound macroeconomic policies are prerequisites to progress.

Large government budget deficits absorb domestic saving and foreign funds that could otherwise be channeled to the private sector. Inflation and overvalued exchange rates stifle exports, damage domestic producers, and create pressures for protectionism. Overvaluation also leads to the rationing of foreign exchange, which historically has meant that those in government and their friends skim off large rents.

2. Open economies work better than closed economies.

The experience of the past thirty years, as well as recent economic research, show that internationally integrated, outward-looking economies perform far better than closed economies.

Despite some progress, Sub-Saharan African economies are still among the world’s most closed to trade.

o Import tariffs in SSA average 26.8 percent, about three times higher than those of the fastest-growing exporters in the developing world.

o Over one-third of all African imports encounter some form of non-tariff barrier restriction, which is almost nine times higher than the corresponding average for fast-growing LDC exporters and thirteen times greater than high-income non-OECD countries.

Such trade protectionism erodes the competitive position of Africa’s exports, and costs the region an average of $11 billion per year in annual trade losses -- about the same as total aid to Africa in 1991.

The picture regarding foreign direct investment is not brighter. While a number of African countries have taken steps to open their investment regimes, the region is still characterized by investment climates which are relatively closed or otherwise unattractive to investors. A result is that foreign direct investment generally passes Africa by. In 1990, net FDI in Sub-Saharan Africa represented only 4 percent of net FDI in developing countries. By 1996, this figure had dropped to 2.7 percent.

3. Development assistance is vitally important but cannot overcome flawed policies.

Foreign aid is helping Africa and making a difference. USAID programs to support democracy, to promote sound economies, and to relieve poverty are fully consistent with the objectives we are discussing today. But for aid to achieve its real objective--to be no longer necessary--it must be accompanied by appropriate economic policies. We can help African governments to strengthen their capacity to make good policy choices and to carry through with them. But they must be committed to creating an appropriate policy environment, and must demonstrate their commitment through actions. This is their essential contribution to our Partnership.

4. The most enduring investment a country can make is in its people.

Numerous studies highlight the importance of and high rate of return on investments in people. Unfortunately, not enough African governments have invested adequately or wisely in people. This neglect hits the very people with whom Africa’s future lies, and tends to hit hardest the most vulnerable: women, children, and poor rural populations.

This is partly a problem of spending priorities--some African governments spend more on the military than on health and education combined--but as important is the quality of spending. When governments do invest in education and health, all too often expenditures are focused on urban hospitals and universities rather than on relatively neglected primary health care programs and elementary schools. There also needs to be greater focus on spending results--improvements in life expectancy and literacy rates--and less emphasis on simply spending.

5. Government officials must use the instruments of government with a sense of public stewardship and accountability.

It is difficult to define "good governance," or to identify specific data on the incidence of poor governance. But the effects of mis-using the instruments of government are powerful and can overwhelm progress made over many years and on many fronts. The Administration’s approach in this very difficult area is two-fold:

First, to encourage the streamlining of government, and the elimination of government activities, structures and regulations that lend themselves to discretionary application, such as investment approval boards and import licensing requirements. The goal is to reduce the opportunities for government corruption.

Second, to provide technical assistance to raise the level of professionalism and technical expertise of government officials in key economic institutions.

III. The Proposal

Bearing in mind the opportunities presented by recent changes in Africa, the lessons of Africa’s development record, and the possibilities at our disposal to help accelerate Africa’s transition to economic vitality, we suggest an approach with four main components:

1. Trade, about which the U.S. Trade Representative has spoken;

2. Financing and debt relief, on which I will focus my remarks;

3. The enhancement of existing U.S. programs related to development aid, investment and trade promotion, and commodity assistance; and

4. Enhanced dialogue with African countries.

Financing and Debt Relief. The Administration has looked carefully at the need for well-targeted, appropriate financial assistance and debt relief. The need for financing--both budget and balance-of-payments support--and debt relief would be acute for countries pursuing aggressive trade liberalization and trying to maintain, or even increase, useful investments in health, education and infrastructure development. The budgets of many African countries are both heavily burdened by debt service and highly dependent on revenues from trade taxes. Typically 40 to 50 percent of total budget revenues come from trade taxes. We want to see to it that aggressively liberalizing countries have enough breathing space to carry through with a comprehensive program of trade liberalization and tax reforms. It would be unfortunate if concerns about short-term revenues deterred countries from undertaking such a program which, if maintained, should generate additional revenues within a politically meaningful period of time (several years). Accordingly, our proposal would provide for:

o Debt reduction. In this regard, the Administration would: (1) support an approach that leads to the extinction of concessional bilateral debt for poorest countries that are undertaking bold reforms; and (2) urge the World Bank and IMF to provide maximum relief under the Heavily Indebted Poor Countries (HIPC) debt initiative for HIPC-eligible countries.

o Enhanced financial support through the International Financial Institutions. Secretary Rubin has written on behalf of G-7 Finance Ministers to the Managing Director of the IMF and the President of the World Bank to seek their support. Mr. Camdessus and Mr. Wolfensohn have responded, and their response is extremely encouraging. They confirmed for us just last week that both institutions are now working on a "reinforced strategy" to spur growth in Africa through support for trade liberalization, investment, good governance, increasing the role of the private sector, and investment in human resources. Their specific contributions would include, for example:

-- Enhanced financing under ESAF and IDA policy-based loans to support countries where bold structural reforms, such as trade sector liberalization, result in greater financing requirements;

-- Financing for improvements to infrastructure related to trade and business development, such as improvements to ports, railways, roads, and storage facilities.

-- Enhanced support for primary school education (especially for girls) and health.

-- Intensive training to develop African capacity in the areas of macroeconomic policy and management, and statistics.

The response of the IMF and the World Bank underscores the vital role that the international financial institutions play in our efforts to develop a meaningful program of reform and assistance in Africa. We are looking to them to provide, through IDA and ESAF programs, the financing to support trade liberalization and a host of other vital reforms in African countries. Their support for HIPC debt reduction will allow strong reformers to direct a greater share of budget resources from debt servicing to primary education. The point has been made in Congress before on other occasions but bears repeating: The United States must meet its financial obligations to the institutions that we have asked to join us in this extraordinary effort to help Africa.

o Enhancement of existing U.S. programs. The Administration’s proposal includes a number of initiatives to enhance U.S. support of Africa through: the U.S. Agency for International Development; the Overseas Private Investment Corporation, which will launch a $150 million equity fund and work on developing another $500 million fund focused on infrastructure; the EximBank; the Trade and Development Agency; and U.S. commodity assistance programs. These are critical components of the initiative.

o Enhanced dialogue. To give special, high-level attention to the African countries that are taking bold reforms, and to exchange views about what is working well and what is not, the Administration has proposed to hold annual cabinet-level meetings with strong performing countries. This kind of high-level dialogue, complemented by ongoing discussions at the technical level, will help ensure that the Partnership is working well.

In conclusion, Mr. Chairman, I would like to emphasize that the Administration is committed to working with you, with African countries, and with other partners of Africa. On this last point, the Administration will be talking with other countries that will be participating in the Denver Summit in June. Africa will be a major issue at the Summit, and we hope that our Summit partners will take actions that complement those we will be undertaking in support of economic growth and opportunity in Africa.