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FROM THE OFFICE OF PUBLIC AFFAIRS April 29, 1997RR-1652 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:
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.
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:
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?
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.
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.
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.
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.
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.
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.
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.
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:
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:
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.
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.
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