1. Boosting Investment for Transformative Growth and Competitiveness in Africa: Review of Trends, Policies and Prospects Franklyn Lisk CSGR, University of Warwick, UK, and CREPOL, Dakar Sixth Annual Conference on Regional Integration in Africa (ACRIA 6) Lagos, Nigeria, 1-2 July 2015

2. Structure of Presentation I.Introduction: Concept and context II.Investment trends, patterns and policies III.Determinants of Investment: constraints IV.Policies for catalysing investment for long- run transformative growth: National and regional dimensions V.Policies: International aspects VI.Conclusion

3. Africa’s Growth and Investment: Some Stylized Facts Africa has enjoyed high and continuous economic growth in the past decade –The average annual growth rate of real output increased from 2.6% in 1990–2000 to 5.3% in the period 2000–2010, and even double digit annual growth rates in recent years for some countries. But structural problems with the continent’s pattern of growth both on the demand and supply of the economy –Poverty rate declined but the number of poor increased significantly –Growth has been jobless and inequality remains high –Growth has not been transformative from a supply or sectoral perspective – e.g. hardly any shift from low- to high-productivity activities –Growth has been driven mainly by resource extraction, long commodity boom and consumption of mostly imported goods. –Growth not accompanied by significant improvements in investment rates (defined as the ratio of gross fixed capital formation to GDP) –Low rates of investment and no significant change in investment rates over the past two decades –Productivity of investment below optimal for long-run growth at a rate necessary for sustained and transformative development

4. Structural problems and investment There are structural problems with Africa’s pattern of growth both on the demand and the supply side of the economy

5. Why are Africa’s investment rates and trends worrying? To achieve sustained and transformative growth with poverty reduction – Africa needs an average growth rate of about 7% and above in the medium to long term –This will require investment rates of 25% of gross domestic product (GDP) and above –Over the period 1990-99 Africa’s investment rate was 18 percent and in the period 2000-2011 it was 19 percent (compared to 26 percent for developing countries). Investment is a major driver of long-run growth –It is needed to build productive capacities, transform the structure of economies, generate employment and reduce poverty. Question: How can African countries catalyse investment for sustained and transformative growth and improved international competitiveness ?

6. Constraints on investments The main factors that affect investment in Africa are: access to credit and the cost of finance; low domestic savings; risk and uncertainty; productivity and efficiency of investment; and the policy and institutional environment. Most binding constraints are: –access to credit and cost of finance: shortage of long-term finance; high lending rates –low domestic savings: capital flight; limited internal resource mobilisation –risk and uncertainty: political instability, poor governance –the policy and institutional environment: incoherent and inconsistent policies; underdeveloped financial systems; insufficient and inefficient public capital expenditures; low productivity of FDI; absence of appropriate ‘industrial policy’ for driving economic diversification and structural transformation

7. Public investment rates in Africa have declined relative to the 1980s and are currently below optimal levels

8. Boosting investment for long-run growth and sustainable development: Key issues First, achieving sustained and transformative growth in Africa requires broadening the sources of growth both on the demand and supply side of the economy. Second, enhancing the contribution of investment to growth requires: boosting investment (private and public) rates improving the productivity of existing and new financial and human investments to support increased competitiveness ensuring that investment goes to strategic and priority sectors deemed crucial for economic transformation

9. Boosting investment for long-run growth and sustainable development: Key issues Third, more public investment, particularly in infrastructure, is needed to catalyse private investment in Africa Fourth, African policymakers have to adopt a more coherent and consistent approach to promoting investment, for it to play an effective role in driving long-run transformative growth and sustainable development in Africa

10. Policies for catalysing investment: National and Regional Dimensions 1.Boost the level and rate of investment –More balanced and coherent macroeconomic policy framework needed –Reduce risk and uncertainty –Remove binding constraints on investment (credit access, policy environment 2.Ensure that investment goes to strategic or priority sectors –Redirect financing to infrastructure and production sectors (need industrial policy) –Partial credit guarantees is a useful instrument 3.Improve the productivity or quality of investment –Better project selection and delivery, getting more value out of existing infrastructure, and more targeted public investment (for example, on energy, transport)

11. Policies for boosting investment: International Aspects 1.Reform governance structure of key global financial and trade institutions: IMF, WTO, UN 2.Strengthen linkages between local and foreign enterprises –Promote joint ventures, develop workforce skills, and make FDI policy consistent with the promotion of domestic entrepreneurship 3.Stem capital flight to boost investment –More international cooperation required to prevent tax evasion and illicit transfer of capital from Africa. 4.Stimulate investment through aid and trade –Use aid as a guarantee mechanism to reduce risks faced by lenders and investors will boost investment –Promote global and intra-regional trade.

12. Conclusion: Boosting investment for long- run growth and competitiveness Increase level and rate of investment: productivity-driven, long-run transformative growth Raise the productivity of existing and new investments Increase the level and efficiency of public capital expenditures: infrastructure Broaden the financing options for development projects Promote a diversified, dynamic and competitive private sector including SME’s, agribusiness, modern services Improve legal and institutional frameworks for leveraging and attracting capital inflows Advocate and secure facilitating international environment: governance structure of key global institutions; capital flights; aid; and trade