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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
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 longrun transformative growth: National and
regional dimensions
V. Policies: International aspects
VI. Conclusion
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
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
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 ?
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
• Public investment rates in Africa have declined relative to the 1980s
and are currently below optimal levels
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
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
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)
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.
Conclusion: Boosting investment for longrun 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