Transcript

Transcript of a Press Briefing on the Sub-Saharan Africa Regional Economic Outlook

October 20, 2007

Participants:
Abdoulaye Bio-Tchané Director, African Department
Benedicte Christensen, Deputy Director, African Department
Saul Lizondo, Deputy Director, African Department
Tom Krueger, Sr. Advisor, African Department
Lucie Mboto Fouda, Sr. External Releations Officer, External Relations Department

MS. MBOTO FOUDA: Good morning, everyone. I am Lucie Mboto Fouda, and I am from the IMF External Relations Department, and I would like to welcome all of you to this press conference on the launch of the fall 2007 Sub-Saharan African Regional Economic Outlook.

Mr. Bio Tchane and his colleagues will be conducting this press conference, and I would like to introduce them to you. To my immediate right is Benedicte Christensen, who is the head of the policy wing in the African Department. Bio Tchane is indeed the Director of that Department. To his right is Tom Krueger, who is also Senior Advisor in the same department. And we have at the far end Saul Lizondo, who is also Deputy Director in the African Department.

Mr. Bio Tchane will have a few opening remarks, and then the team will be ready to take your questions. I would like to mention that this is a 40- to 45-minute exercise. We cannot go beyond that for time constraints. Indeed, as usual, before asking your question, please identify yourself, and then we can proceed. Thank you. Mr. Bio Tchane, you have the floor.

MR. BIO TCHANE: Thank you, Lucie.

Good morning, ladies and gentlemen, and welcome to this press conference on the African Regional Outlook.

Before taking some of your questions, let me elaborate on the report that we are issuing today. This fall issue of the Regional Outlook is indeed a very good one. The Region's prospects look very strong. We expect economic growth to be about 6 percent this year, and our forecast for 2008 is around 7 percent. This will expand the period of very high growth performance for three or four years now, and in recent years, the region has seen indeed its strongest growth rates and the lowest inflation rates in more than three decades.

Obviously, internal as well as external factors are playing here. On the internal front, it is clear that the African economic policies are far better than in the past. Deficits are going down, inflation is going down, and as I suggested, the growth rate is picking up based on those strong policies.

On the other side, it is also true that external factors are playing, with, obviously, financing both private and public going to Africa; external debt granted to several African country; and also, finally, commodity prices going up. This has really indeed helped the countries generate more resources but also to use those resources in support of the highest growth rate we have witnessed in Africa in the latest years.

Therefore, the Region looks well-poised to sustain its growth momentum. Historically, because of both commodity price swings and other shocks, as well as institutional weaknesses, growth episodes in Sub-Saharan Africa have often ended with a dramatic collapse in output.

This time, though, many oil exporters that have benefited from high oil prices have saved most of the windfall and have also improved their policies. I think Nigeria is really one of the best case studies in this group of countries.

On the other side, many other countries are also contributing to this growth, even when prices of their exports and imports have adversely affected them.

This strong growth in the region also reflects the fruits of institutional improvements, structural reforms and more rigorous economic policies that have started to bear fruit in many countries. The number of armed conflicts and political crises has diminished, and it is also clearly playing to support the policies and also the institutional changes. With better economic conditions and greater stability, investments, both domestic and external, are increasing and helping countries to support their growth momentum.

Obviously, as you can see in many countries, this growth rate is certainly not sufficient to help them reach the MDGs, and therefore, the challenge is there not only to sustain that growth rate but also to accelerate it to reach a higher level.

There are, of course, risks, and the first risk is really coming from the global outlook. As you saw in recent weeks, things can change and have changed indeed, and obviously, particularly if commodity prices are being affected, this will affect the growth momentum in the continent.

But of course, to generate more growth and to sustain the recent growth surge, things need to be done, and I want to finish this presentation with these issues. Clearly, sustaining the current expansion and reducing poverty ultimately depends on each country's policy and the ability of the government to conduct and pursue the social reform agenda in their own countries.

On that front, I would like to mention first that while some countries still need to bring stability to their economies—notably, the countries emerging from conflict—most others need to consolidate the stabilization that has happened in their countries, and we see many examples where this has certainly been achieved, and obviously, the challenge there is to continue and sustain those policies.

Second, countries must use fiscal space efficiently to provide better services, particularly health, education, water sanitation, and obviously continue improving the infrastructure in the countries.

Third, countries should strive to reduce the cost of doing business. It is clear that the challenge is there. The recent report published by the World Bank, while showing that some of the countries have made tremendous progress, particularly Kenya and Ghana, most of the African countries still need to improve the environment for private sector development, and I think it can be done, as shown by those two countries, and our advice is that with the help of the World Bank and with the help of the IFC, this can be done, and we urge countries to seize that opportunity.

Fourth, countries have to put their domestic pool of savings and efficient financial systems to work so they can foster private investment, and we are committed to that. We have launched recently an initiative with our Bank colleagues to assist in that, and obviously, countries can seize that opportunity, and we are there for that.

Fifth and finally, countries should aim to regain their share in global trade not only through greater market access but also by reducing trade and non-trade barriers as well. I think that's one of the greatest challenges we face on the continent, that is, how to put the trade agenda at the forefront of the economic programs and use that to seize the global momentum going on currently.

This is the conclusion of the recommendations we would like to make and the end of this presentation, and of course I am ready to take your questions.

QUESTIONER: Thank you very much. I have two questions about the entertainer Bono who was here earlier in the week. One, he was highly critical of international banking outlets for not forgiving loans that have been made to Liberia. This was given what I thought was very substantial coverage in The Financial Times yesterday.

The other thing is that Bono has urged other countries, particularly the United States, to join his program ONE, which would bring tax dollars to Africa for work on poverty programs and other things that private organizations historically have worked on.

Is the ONE program something the group is familiar with and endorses as well—more tax dollars from Western countries for relief in Africa in dealing with poverty?

MR. BIO TCHANE: Well, let me say that I clearly share some of the comments you make in support of debt relief to Liberia, and indeed, as far as the IMF is concerned, we are working hard to achieve that. And specifically to the question related to Bono's reaction, we have responded to him. The Managing Director has indeed responded, sent a letter to Bono, assuring him that this is indeed an issue that we are actively seeking to address.

Our Management has indeed written to all the member countries, asking them to provide additional resources that will help clear their arrears toward the IMF, and that clearly will allow Liberia not only to access that debt relief, but also to get additional resources from the World Bank and the African Development Bank and certainly finish with that round of debt relief and help the country achieve its development agenda. So I clearly share the concern you raise, and I want to assure you that we are working hard on that.

QUESTIONER: Good morning. Mr. Bio Tchane, in the Francophone area, they are worried about the devaluation of the CFA franc. Can you give us your input on that?

If the CFA franc is devalued, will the CFA Zone profit? And the Governor of the Bank of France says that they are not for the devaluation of the CFA franc, and President of Gabon says that if you devalue the CFA franc, it will have to make its own currency. So, what is your assessment on that? Do you think that devaluating the CFA franc can profit the CFA Zone?

MR. BIO TCHANE: Well, I just want to recognize the statement you just quoted by the Governor of Banque de France. There are several other authorities, including the President of Gabon, who have spoken on that, and I don't want to say more than what they said.

As far as we are concerned, the issue is not on our agenda, but at the same time, there are competitiveness issues that could be addressed differently. Exchange rate is one instrument among others. So I think that as the authorities stated, they are tackling the competitiveness issues differently. So I just want to take stock of what the authorities managing that currency state, and I think we should proceed on that basis.

QUESTIONER [Interpreted from French]: Good morning. I wish to go back to the question that the IMF gives guidance, and—the Managing Director said it—the credibility of the IMF will depend on the quality of the guidance it will be able to provide to nations. And today we are talking about a possible devaluation of CFA. It is linked to the euro, but the euro is stronger and stronger versus the dollar.

However, balance of payments in African nations is determined in dollars, so today there are better economic conditions, better stability, and there is a boost in economic growth. So, in case of devaluation, don't you think that that would compromise, jeopardize, all the efforts that have been made so far?

MR. BIO TCHANE [Interpreted from French]: I will repeat what I said earlier to your colleague.

Regional authorities, French authorities, dealing with this subject have said that a devaluation is not planned, is not on the economic agenda, so we should take note of that. But there is an economic issue. Exchange rate is one of the tools available economically, particularly to address competitiveness issues, but there are other aspects of that problem that must be tackled—I am referring to labor market, cost of labor, the cost of production factors, energy costs—and authorities may choose to address the competitiveness issue in a variety of ways.

So, let's take note of what they declared about this about what their commitment is, and let's not be too focused on the exchange rate. I cannot go beyond that.

MS. MBOTO FOUDA: We have a question from the Online Media Briefing Center.

The question reads as follows: "Do you foresee the situation in Zimbabwe stifling economic growth among her neighbors? Could you elaborate on how traditional trade patterns have been disrupted by the Zimbabwe crisis?"

MR. BIO TCHANE: Well, first, let me say that we are quite concerned about what is going on in Zimbabwe, and we have discussed that several times, including in South Africa, including recently, when we had a meeting with the African Caucus in Mozambique. And what we are clearly seeing is that, yes, the trade pattern is clearly being affected by what is going on. You have more than 2 million Zimbabweans living currently in other Southern African countries, including in South Africa.

What we are advising the country authorities to do is to tackle the current problem by putting in place a comprehensive package of policies which should include fiscal policies, quasi-fiscal policies, exchange rate policies, and obviously, some measures on the structural side, including liberalization of exchange rates, liberalization of the prices, but also addressing property rights issues.

So I think the situation is dramatic. It is of great concern not just to us but to many friends of Zimbabwe. But at the same time, the encouraging thing is that we know the solution. So, when the political situation will be sufficiently addressed—and I hope it will happen soon—the players will clearly be able to address it.

We know the problems; we also know the solutions, and therefore, I think it is up to the country authorities to move on that.

QUESTIONER [Interpreted from French]: You said that developing countries strive to integrate better into international markets. That's a good thing, but there are thousands of Californian growers subsidized by the Government. They have irrigation systems, they have pesticides, they have herbicides, and they get subsidies. Therefore, they have an unfair advantage over our farmers in Chad, in Burkina, et cetera.

Shouldn't there be greater equity in international markets rather than asking us to make efforts, asking our farmers to make efforts, whereas they cannot on the international markets under these conditions?

MR. BIO TCHANE [Interpreted from French]: Thank you for that question. There are two aspects to your question. The first theme is the international subsidies. It is not new. This is not a secret. The International Monetary Fund has always called for a suppression or a significant reduction of these subsidies that distort international trade. This is a call that we have made and that we continue to make.

That being said, it is important for Africans and African governments to modernize the agriculture sector, especially the cotton sector. In your question, you have talked about inputs, the modernization of production of cotton in those countries and in the United States. I think that cotton producers in Africa have to follow the same—have to go in their footsteps and modernize their production systems for cotton in Africa. I think we have to go beyond the production of 800 kilos per hectare; we have to go beyond the ton of cotton per hectare. I think that is the solution, in productivity, because of the subsidies were suppressed today, I'm not sure if those who would benefit from the most would be the West African cotton producers. There are some measures to be taken, and it is the right moment to do it.

MS. MBOTO FOUDA: Another question on the Media Briefing Center, from Nigeria.

"Does the IMF think that Nigeria's vision of becoming one of the top 20 economies in the world by 2020 is achievable? What recommendations does the IMF have to make this vision realistic in terms of macroeconomic policies?"

MR. LIZONDO: I think it is very difficult to forecast whether Nigeria is going to be able to be one of the 20 top economies in such a distant period. At the same time, one has to recognize that Nigeria has been growing strongly and now has the additional resources as a consequence of high oil prices and is adopting the correct macroeconomic policies and also in terms of structural policies.

Undoubtedly, continuation of these types of policies will result in continuous growth in Nigeria and probably will increase and raise the position of Nigeria with respect to the other countries.

QUESTIONER: There has been considerable concern about China's activities in Africa that many African countries that have benefited from debt relief are taking on new debt from China. Yet this Chinese investment is helping many of these countries close the infrastructure gap.

What practical measures does the IMF recommend for African countries in their engagement with China to ensure that it is a win-win situation and that they do not erode the fiscal gains that they have achieved over the past decade?

MR. BIO TCHANE: Well, I think you have presented the question in, I believe, the best way we can respond to it, because your question includes the response at the same time.

For one, I think we should welcome China's financing in Africa, because the continent needs resources, and it should come, obviously, from both traditional donors and from emerging donors like China, but others.

At the same time, I believe it should be a win-win situation in the sense that those loans and that financing should not create down the road the same situation we are just exiting from—I mean unsustainable debt.

Therefore, I think the only way we see it is for the countries but also for the Chinese authorities to use the debt sustainability framework that we have just designed with the World Bank and us in 2005 and which we updated last year. This is an instrument that could help countries assess where they are and also help the emerging creditors and all the creditors indeed to look at what could be the consequence of their own activities and particularly their lending activities in a country.

So, to summarize our position, I will say that, one, we welcome China's involvement in Africa; second, we believe it should be a win-win situation for both China and the African countries; and third, we should make sure that the lending activities will not lead to unsustainable debt in the near future. And of course, because of that, we should use all the instruments available, and we are offering an instrument in that regard.

QUESTIONER [Interpreted from French]: I have a question for Mr. Bio Tchane. You said that the end of conflict in many countries has favored macroeconomic stability and economic growth. What are the actions that could be implemented at the IMF level to help post-conflict countries to avoid going back into conflict and to consolidate political stability and macroeconomic growth?

MS. CHRISTENSEN: In terms of how we generally help countries in post-conflict situations, I think the immediate issue is to rebuild the capacity of the country or the government to be able to perform rudimentary economic policies. We help countries first in terms of capacity building to rebuild capacity in the central bank, in the ministry of finance—for instance, in the ministry of finance, by putting in place ways to generate revenue to sustain at least the most minimum, basic kinds of expenditures that need to be conducted in the immediate post-conflict situation.

Then, the second thing we do is give policy advice to the authorities in terms of putting in place a macroeconomic framework, meaning a budget framework, monetary policy framework, and usually, that involves also putting in place monetary policies that reduce the rates of inflation which sometimes have gone out of control in countries that are subject to conflict.

We think it is very important in order to prevent the reemergence of conflict that there is relative price stability, and that is usually associated with exchange rate stability, at least, more than was in the past. So, based on this framework, then, we encourage donors to come in and support the countries.

We have, more concretely, an instrument available in the Fund that deals with post-conflict assistance, and that is where countries that are not yet ready to implement policies supported by our other arrangements that we provide for in the Fund can make use of such facilities. Currently, for instance, Cote d'Ivoire has it.

QUESTIONER: Thank you. I just want to ask a follow-up question to this Chinese issue. There are two elements in there. One, the new thinking within the Chinese Government that they are not actually seeing the creditworthiness of countries at the moment, but rather, they look at their potential in the future—potential which could or could not come.

How would you view that they base their decision to provide concessional loans to African countries on the basis of something that may or may not come in the future?

Second, the competitiveness of internal companies when they come to Africa and bid for major infrastructure projects—there appears to be no international tender or international bidding, because the Chinese Government provides the foreign currency or the money for the project, and therefore, African countries would not have any choice but to award the project to whomever the Chinese company is, and many of the companies from other countries, whether it is Europe or the U.S. or elsewhere, are completely excluded from such infrastructure contracts in Africa. Thank you.

MR. BIO TCHANE: Well, I just don't know how the Chinese authorities—what is the basis of the decision in going to one country or another. I am not even sure that what you are alluding to is true. But what I know is that China has been in Africa for a long time. I think that if you look historically at the relations between China and the African countries, including in some countries that have fought liberation wars, China has been in those countries.

So I'm not sure that the assumption behind the relations between China and one specific country is based on what you said, on the potential of that country today or in the future. And indeed, if you look at the relations between China and the individual African countries today, China is in almost all the countries. So I think that one is pretty much clear.

The second aspect of your question is of course very important, and it is related to the value of money, of all the investments that African countries are conducting. And of course, in that regard, I believe there should be a competitive procurement process when a particular investment is to be conducted. And of course, because of the link between the financing and that particular investment, it has happened frequently that that specific financing is clearly related to roads, energy supply, or any other particular investment.

Of course, our call is here that there should be a competitive procurement because that is the only way you can make sure that there is value for money in a particular investment. That call is toward the Chinese authorities, but is especially a call to all the other investors, whether it is other government agencies or private business, because that is also happening in some public and private partnership investments that have happened in several countries, where the financing is clearly related and correlated with the particular investment. So I think that to make sure the countries receive the value for the money they are investing, there should be a competitive procurement process.

QUESTIONER: Thank you. I want follow up on your earlier comments. You referred to concerns about Zimbabwe's reluctance to liberalize the exchange rate, and you have also previously expressed concern about the quasi-fiscal activities of the central bank of Zimbabwe.

Just less than three weeks ago, the Central Bank Governor said that in 2005, when they cleared their arrears to the Fund, there was an understanding that there was going to be a restoration of its voting rights. He says that this did not happen. He also says that I think there is consensus that if the same kinds of conditions that are being asked of Zimbabwe were applied to the other countries, probably half of them would not actually be benefiting from lending or support from the IMF.

I wonder whether you would care to comment on that.

MR. BIO TCHANE: Well, I think the most important comment is that Zimbabwe deserves better than it is having today. Zimbabwe, with its own economic potential, deserves to be among the best growing economies and the fastest-growing economies in Africa today. This is not the case, and that is really the most important thing for me, and I will continue calling for a different set of policies. We need a comprehensive policy package in place, including those I mentioned earlier.

Second, to address the specific question you asked, the restoration of the voting rights is a decision of the Board. It has been recommended by staff, and the Board did not decide on it, so we'll just take note of that.

And third, I think all the countries that are receiving financing from the Fund have to meet a certain number of conditions, and they have all met those conditions, and that is why they have received that financing. So I think that that statement is certainly an exaggeration by Governor Gono.

So I think I would like to conclude this session by saying that we are really living through a very exciting period for the continent, and it is happening, yes, because of a commodity boom, it is happening because financing is going to Africa, but it is also happening because the conditions are changing, because the countries are converting different sets of policies, and they are clearly addressing the weaknesses of the economies.

So I think we need more of the same. We need an acceleration of growth, and obviously, we need to continue improving the environment for business in Africa. Thank you.

MS. MBOTO FOUDA: Thank you, Mr. Bio Tchane, Ms. Christensen, Mr. Krueger, and Mr. Lizondo, and thanks all for coming.