Thursday, March 3, 2011

Africa's future and the World Bank's support to it

WRITTEN BY SHANTAYANAN DEVARAJAN
WEDNESDAY, 02 MARCH 2011

On the day the World Bank announces its new Africa strategy, its chief economist for the Africa region, Shantayanan Devarajan, sets out the Bank’s thinking. The focus will be on employment, resilience and governance.

Sub-Saharan Africa in 2011 has an unprecedented opportunity for transformation and sustained growth. Until the global economic crisis, Africa’s economic growth was averaging 5% a year for a decade. Growth declined in 2009 but rebounded in 2010 thanks mainly to prudent macroeconomic policies. Progress on the Millennium Development Goals has been sufficiently rapid that several countries (such as Malawi, Ghana and Ethiopia) are likely to reach most of the goals. Africa’s private sector is increasingly attracting investment, and—if policymakers’ response to the global crisis is a guide—the climate for market-oriented, pro-poor reforms is robust.

But Africa continues to face long-term development challenges: dependence on a few primary commodities, low human capital, weak governance, youth employment, empowerment of women, and climate change, to name a few. If we can harness the current dynamism and optimism on the continent—which came through loud and clear in consultations with 1,400 people—to address these challenges, Africa could be on the brink of a takeoff, much like China was 30 years ago, and India 20 years ago.

To that end, the World Bank will support Africa with a strategy that has the following themes:

• Competitiveness and Employment. The strategy seeks to help diversify African countries’ exports and generate productive employment, especially for the 7-10 million young people entering the labour force every year. The strategy will require a mix of pro-active government policies that target sectors – which helped Kenya’s cut flowers and Mali’s mangoes – with more “neutral” policies that enable different industries to flourish, as shown by the dynamic growth of the ICT sector in Africa.

• Vulnerability and Resilience. Africa’s poor are subject to a series of shocks that conspire to keep them poor: macroeconomic shocks; health shocks such as malaria or HIV/AIDS; natural disasters, which are likely to increase with climate change; and conflict and political violence. The strategy seeks to build resilience to these shocks by, for example, improving macroeconomic policies, promoting public health interventions, adapting to the effects of climate change with greater use of irrigation and water management, and strengthening institutions of resource-sharing and consensus-building. The strategy will also support countries in the event of a shock through, for instance, health insurance and safety net programs, such as Rwanda’s nearly universal insurance scheme or Ethiopia’s public works program.

• Governance and Public Sector Capacity. Of Africa’s $48bn infrastructure deficit, $17bn can be filled by efficiency improvements in the management of infrastructure. Teachers in public primary schools in Uganda are absent about 20% of the time. Yet governance problems—vested interests—stand in the way of these efficiency gains. The strategy will help address these problems by approaching governance from both the demand and supply sides. We aim to strengthen citizens’ voice using the Bank’s knowledge assistance and the power of ICT, so that they may demand good governance from their leaders. On the supply side, we will continue to strengthen the capacity of the public sector, focusing on incentives within the civil service.

The World Bank will implement the strategy using its three instruments—finance, knowledge and partnerships—but we will reverse the order. The first instrument is partnership—with African governments, the domestic and international private sector, civil society, and development partners. We will tailor our interventions depending on what others are doing. Since Rwanda and Niger receive substantial amounts of money for “vertical health programs” such as HIV/AIDS or malaria, the Bank uses

The second instrument is knowledge, which we will use to promote a more evidence-based public debate. Studies on leakage of public funds, teacher absenteeism, and student learning outcomes, by informing the public about the quality of public services, have stimulated a vigorous debate which, in turn, is bringing change.

Finally, the Bank’s third instrument, finance, will be used as a source of leveraging. How can we turn a lending envelope to a country of $500m into $3bn of external resources to the country; just as the Bujagali dam in Uganda used $150m of the Bank’s IDA resources to crowd in $650m additional resources from public and private sources?

Needless to say, this strategy is not without risks. The global economy could face another serious downturn; political violence could break out in parts of the continent; and we may not have the resources to carry out these plans. But the themes of the strategy, as well as the focus on partnerships—not to mention the palpable optimism on the continent—make us confident that Africa can seize this opportunity and realize its full potential for sustained growth and poverty reduction.

To read The Africa Report's appraisal of the World Bank's work in Africa, read The World Bank: does it pass the test?