1 John Page Chief Economist, Africa Region World Bank INVESTING IN AFRICAS GROWTH What Role for The Diaspora? Cape Town, February 2008

2 Growth with the rest of the world Something new on the horizon: Africa is growing in tandem with the rest of the world Growing with the rest of the world

3 Growth with the rest of the world A group of diversified sustained growers has emerged, but economic performance varied substantially Growing with the rest of the world

4 Growth with the rest of the world Growth has been low… A long term perspective

5 Growth with the rest of the world …volatility is far higher than in any other region A long term perspective

6 Growth with the rest of the world A lot happened in the short and medium term Several episodes of growth acceleration But accelerations were usually followed by growth collapses Thus, the very slow long run growth Good times and bad

7 Growth with the rest of the world South Africa Good times and bad

8 Growth with the rest of the world The frequency of good and bad times shifted over time Good times and bad

9 Growth with the rest of the world Had Africa avoided the bad times, it would have grown at 1.7% instead of 0.7%, and the GDP per capita would be 30% higher in 2005 Good times and bad

10 Growth with the rest of the world Avoiding bad times The good news: many of the factors that have contributed to growth collapses have improved –Better economic management –More competitive exchange rate –Better institutions –Better governance –Fewer conflicts But: The region remains vulnerable to outside shocks and changes in commodity prices Spreading and sustaining growth

11 Growth with the rest of the world SUSTAINING GOOD TIMES: CREATING COMPETITIVE FIRMS Four common themes to achieve a better investment climate and higher productivity: - Good Policies - Access to Finance - Reliable Infrastructure - Good Institutions

12 Growth with the rest of the world Average ease of doing business rank Spreading and sustaining growth

13 Growth with the rest of the world Infrastructure Is A Major Bottleneck Many firms complain about reliability of electricity Unreliable infrastructure services affects all firms…

14 Growth with the rest of the world Infrastructure Is A Major Bottleneck (contd) Better infrastructure is associated with an increase in productivity and employment Landlocked countries are most affected by weak infrastructure, which further lowers productivity by 10% Losses due to unreliable infrastructure services could be substantial

15 Growth with the rest of the world Good policies are more important to achieve a better Investment Climate than Geography or Geology.

16 Growth with the rest of the world Access to Finance Remains a Critical Constraint in Africa Half of all respondents report access to finance as the leading constraint. Access to finance as a constraint increases as firm size decrease

17 Growth with the rest of the world African Institutions Need to be Business Friendly to Foster Competitiveness Corruption and regulations have an impact on productivity

18 Growth with the rest of the world Indirect costs are much higher, and net productivity is much lower than factory floor productivity due to high costs of doing business Spreading and sustaining growth

19 Growth with the rest of the world Exports are important, but are growing slowly… Growing with the rest of the world

20 Growth with the rest of the world …and export diversification is very low Growing with the rest of the world

21 Growth with the rest of the world Exports have declined in importance for Africa's top performers Spreading and sustaining growth

22 Growth with the rest of the world AFRICAS DISAPORA AND THE INVESTMENT CLIMATE LOBYING FOR BETTER POLICIES REMITTANCES AND INVESTMENTS AS A SOURCE OF FINANCE CREATING A BRAIN BANK

23 Growth with the rest of the world Substantial funds held offshore Africa has the highest share of offshore deposits

24 Growth with the rest of the world Remittances to SSA in 2006: US$ 9.6 billion Already remittance flows to Africa are an important source of finance (but not for private sector investments) Remittance flows to Africa, 2006 (in US$ bln)

25 Growth with the rest of the world How do we get the money where it should go? International remittance transfers are costly, often more then 15%: Increased transparency & competition will reduce costs (= more funds available) In-country transfers are often inefficient Finscope Kenya Survey, 2007

26 Growth with the rest of the world Leveraging Diaspora Funds Broaden developmental impact of Diaspora remittances: Move from a purely personal focus to the development concerns of communities in the regions of origin Leverage funds from national and local governments interested in attracting inward Diaspora investments Pool funds to achieve economies of scale, e.g. housing construction Use remittances as an entry point to the financial system

27 Growth with the rest of the world Conventional instruments branded and marketed to the African Diaspora Sovereign Diaspora Bonds have been used successfully by India and Israel Very similar to Sovereign Eurobond issues, but can attract better conditions (hence more development resources) as Diaspora accepts Diaspora discount Private Investment Funds investing in Africa and marketed to Diaspora Often problematic as Diaspora discount is not re- invested Increasing presence of mainstream investment funds / direct investments by Diaspora (Nigerian banks, Ghana Eurobond, Kenyan KenGen IPO) are more efficient vehicles

28 Growth with the rest of the world Emerging ideas for instruments to leverage Diaspora funds Linkage/Knowledge Transfer Funds Co-financing and risk mitigation instruments for greenfield investments by Diaspora members conditioned on operational involvement (facilitate reverse brain drain) Remittances Matching Grants Remittance transfers are matched by an additional grant if they are used in a developmental way. For example: An organization offers low cost housing, including a simple progressive housing loan. If remittance is used for the down-payment for the mortgage it is matched by a matching grant