1. African Economic Conference 2007, Addis Ababa 1

2. 2 Presentation Outline What wisdom have we gained so far to explain growth in Africa?  Several explanations have been documented: 1. The survey papers form the 1960s to 1990s 2. Trade and growth debate: The evidence so far 3. Africa in the 21 st Century  The set of conditions necessary for Africa to claim the 21 st Century

3. African Economic Conference 2007, Addis Ababa 3 Presentation Outline (cont.) 4. Current emerging growth experience evidence and regularity of Africa’s economic opportunities 5. Addressing the binding constraints: The growth diagnostic literature The “software” issues (policy directions) have been solved, but now the “hardware” the physical constraints remain

4. African Economic Conference 2007, Addis Ababa 4 The Survey of Issues Azam, Fosu and Ndung’u (2001); summarises the issues up to 1990s: i. Macroeconomic policy environment; ii. Macroeconomic uncertainty; iii. Human capital and regional effects; iv. External shocks; and v. Trade, openness and growth vi. Institutional and political uncertainty.

5. African Economic Conference 2007, Addis Ababa 5 Trade and Growth Debate But the trade, openness and growth debate still lingers and is important: Enhances development permits exploitation of comparative advantage. This enhances productivity and hence growth; The larger international market allows for economies of scale to be realised in the export sector; International competition leads to reduced inefficiencies in exports production and results in adoption of more efficient techniques in the tradable goods sector; An expanding exports sector makes available more resources and expands the productive sector.

6. African Economic Conference 2007, Addis Ababa 6 Eight Years into the 21 st Century Can Africa claim the 21 st Century? This question was asked in 2000 by a group of eminent African scholars in very important institutions. The answer was conditioned on: 1. Improving governance, managing conflict and rebuilding states; 2. Investing in people; 3. Diversifying exports, reorienting trade policies and pursuing regional integration;

7. African Economic Conference 2007, Addis Ababa 7 Eight Years into the 21 st Century (cont.) 4. Reducing aid dependence and strengthening partnership; 5. Addressing poverty and inequality; 6. Lowering transactions cost through investments in infrastructure and information; and 7. Spurring agriculture and rural development.  But, where are we now?

8. African Economic Conference 2007, Addis Ababa 8 What is emerging evidence in Africa: 8 years into the 21 st Century?  There is emerging evidence in Africa that shows optimism for the future: Growth and stability is slowly returning to SSA; Export growth is similarly rebounding after decline between mid-1970s and mid-1980s; Stability, likewise, is returning to many parts of Africa with reduced inflation; and Political and social stability is also gaining ground as the number of cases of civil unrest is declining and more open political regimes are being established.

9. African Economic Conference 2007, Addis Ababa 9 Africa’s economic opportunities  Collier (2007) highlights Africa’s economic opportunities premised on policy management and taking advantage of global markets;  Underscores the fact that growth opportunities are determined by geography and resource endowments and identifies four categories of countries: Resource rich and land-locked; Resource rich and coastal; Resource scarce and land-locked; Resource scarce and coastal.

10. African Economic Conference 2007, Addis Ababa 10 Africa’s economic opportunities (cont.)  Best performing globally are coastal and resource scarce e.g. in Asia;  African population is skewed towards the globally slow growing category of land-locked and resource scarce;  Resource rich countries need a form of democracy with unusually strong checks and balances; and  Resource rich countries are increasingly important in Africa.

11. African Economic Conference 2007, Addis Ababa 11 But, there is still a lot to do! Addressing the binding constraints: 1. Low physical capital accumulation; 2. Low social return to factors of production; 3. Poorly maintained and cost infrastructure – high transactions costs 4. Poor private appropriability – returns to investment is low, why? i. High taxation; ii. Macroeconomic risks – instability and political uncertainty; iii. Institutional risks – poor property rights, corruption, crime, etc.; iv. Labour-capital conflicts and rigid labour market v. Learning and coordination failure – product diversification as evident in exports in most countries.

12. African Economic Conference 2007, Addis Ababa 12 Addressing the binding constraints (cont.) 5. Financing capital accumulation – a major constraints: i. Low savings rate and high lending rates;- ineffiency in the financial market or dysfunctional markets? ii. Lack of innovative instruments to attract and channel savings at affordable rates; and iii. Constraints and distortions in the money and capital markets.

13. African Economic Conference 2007, Addis Ababa 13 THANK YOU