British prime minister Tony Blair’s initiative to launch a Marshall Plan for Africa at July’s G8 meeting could not come at a better time. Although Africa remains the world’s poorest continent, with conflicts in some regions and the threat of the spread of the HIV/Aids pandemic, encouraging signs are emerging nonetheless.
Conflicts have abated in most regions and in 2004 Africa enjoyed an “exceptional year of economic growth”, with average GDP growth for the continent reaching 5.1%, Omar Kabbaj, head of the African Development Bank (ADB), tells fDi. He adds that growth prospects remain favourable with GDP growth projected to reach between 4.7% and 5.0% in 2005.
Mr Blair is seeking approval from other G8 countries for his proposal to double development aid to Africa – which stood at $24.7bn in 2003. If he succeeds, African nations will be well placed to build on their own achievements and attract larger amounts of much-needed FDI, Mr Kabbaj says.
“The increased resources would enable African countries to step up their investments in key sectors, such as education, health and agriculture – all critical for reducing poverty,” he adds.
“In addition, it would enable them to undertake large investments in infrastructure that are essential for stimulating private investment – both domestic and foreign.”
Mr Kabbaj, a Moroccan civil servant with a long career in international organisations – he was a member of the executive board of the IMF and the World Bank – is wrapping up 10 years at the helm of the ADB. This unique experience of dealing with African development has given him a long-term perspective. He believes that for all its woes, Africa “has come a long way in the past decade”.
Last year was a good case in point. At 5.1%, GDP growth was the highest since 1996. Although it was spurred by rising oil and non-fuel commodity prices, the performance was “strengthened by progress most African countries made in implementing sound macroeconomic policies and improving the management of their economies”, Mr Kabbaj says. “Other macroeconomic indicators – inflation, balanced budgets and the current account – were also among the best in over 20 years.”
Most importantly for investors, he notes: “Significant strides in creating a better environment for private sector participation and attracting FDI have also been made.”
Mr Kabbaj emphasises this point. “Many countries on the continent have improved their investment codes to attract FDI, progress has been made in the privatisation of state-owned enterprises, and many have made notable gains in improving their regulatory environments and reforming their legal and judicial systems, with the support of the bank,” he says.
He also points out that, as a result, leading reform countries, such as Morocco and Tunisia in North Africa, Senegal, Mali, Ghana, and Burkina Faso in the west, and Mozambique, Tanzania and Uganda in eastern and southern Africa, have begun attracting foreign investments in non-traditional sectors.
Pace of reform
Countries are already reaping the results of privatisation and liberalisation. The UN Conference on Trade and Development (Unctad) reveals in its 2004 World Investment Outlook that FDI inflows to Africa grew by 28% to $15bn in 2003, after a 40% fall in 2002. Traditionally resource-rich countries like Algeria, Libya and Nigeria are the ones that attract the most multinationals. The encouraging news from the 2003 results is that a number of poor countries, such as Angola and Chad, were among the top 10 for FDI inflows, Unctad reports.
Unfortunately, reforms and the growth spurt have yet to have an impact on poverty, Mr Kabbaj points out. Poverty is still rampant, with close to half the population living on less than $1 a day. If the Millennium Development Goals – which call for a reduction of extreme poverty by half by the year 2015 – are to be achieved, the continent needs to grow by about 7% for many years. “We are still far from it,” he says.
Development aid to Africa has increased from $15.2bn in 2000 to $24.7bn in 2003, although much of the increase is due to debt relief. In nominal terms, the 2003 Official Development Aid level has returned to the same level as in 1990. However, if inflation in the past decade and a half is taken into account, it is considerably lower in real terms, the ADB president says.
In this context, Mr Kabbaj is encouraged by Mr Blair’s call to double aid to Africa. But seeing is believing, he says. “We hope these proposals will be approved at the forthcoming G8 Summit in Gleneagles.”
When Mr Kabbaj took over as president of the ADB in 1995, it was as much in need of an overhaul as the continent itself. His greatest challenge at the helm of the ADB – a position which he will turn over to one of the seven official candidates in May – was to restore the organisation’s credibility, he says.
Previously, the president was in conflict with the board of directors, and the bank’s work was slowed by a plethora of unproductive officials, poor policies and sloppy procedures. Irked by the low quality of projects, donors froze all contributions to the African Development Fund (which gives concessional loans), leaving 39 of the poorest African countries without low-cost finance for two and a half years.
“We dealt with all the bank’s problems at the same time,” Mr Kabbaj says. He separated 20% of the personnel and 30% at management level. The portfolio of projects was progressively “cleaned”. A new financial management system was introduced. Today, ADB’s net income is not only high but more predictable. Intense efforts were also undertaken to renew relations with countries and financial institutions. “Now, we are respected by all organisations active in Africa,” he says.
The ADB headquarters have temporarily moved to Tunis from Abidjan because of the political situation in the Ivory Coast. One of four regional development banks, it celebrated its 40th anniversary last year. It was set up to promote sustainable economic growth and reduce poverty.
In its four decades, the ADB has grown from modest beginnings to become the leading development finance institution on the continent. In 2004, bank lending reached a record $4.4bn. Direct lending was further leveraged by $3.1bn in co-financing activities.
Mr Kabbaj’s successor will have his work cut out for him. “He needs to consolidate everything that has been done,” Mr Kabbaj advises. A strategic action plan for 2005-2007 includes beefing up analysis and research capacities and setting up 16 regional bureaux in addition to the nine that already exist.
Special emphasis will also have to be placed on promoting regional economic integration. “In Africa, it is more necessary than anywhere else,” because countries cannot face the challenges of globalisation alone, Mr Kabbaj stresses.
As for his own plans after he leaves the ADB, Mr Kabbaj says that he will make himself available to his home country, Morocco, then subsequently to the African continent, which he has learned to love.