Summary Report of the Chairman

The Economic Committee of the Global Coalition for Africa (GCA) met in Gaborone, Botswana, on March 15-16, 1998, under the chairmanship of Dr. Kwesi Botchwey. GCA Co-Chairpersons, President Ketumile Masire of Botswana, Minister Diane Marleau of Canada, and Dr. Frene Ginwala, Speaker of the South African Parliament attended the meeting. African Ministers of Finance, as well as Ministers of Industry and Trade and senior officials from African and northern countries, and from African and international institutions, participated in the meeting, along with parliamentarians and representatives of business and non governmental organizations.

The meeting was opened by H.E. Sir Ketumile Masire, President of Botswana. Dr. Botchwey and Minister Marleau also spoke during the opening session, following brief remarks of welcome from the Executive Secretary of the GCA, Mr. Ahmedou Ould-Abdallah. There is a report of the meeting. You can buy an annotated bibliography if want to use it in your works.

In his opening address President Masire welcomed participants to Botswana, and highlighted the contribution of the GCA forum in developing consensus and support for Africa's aspirations for more rapid growth and better integration into the global economy. The President underlined the importance and timeliness of "investment" as a topic of discussion for the GCA Economic Committee. Minister Marleau also emphasized the importance of attracting increased levels of investment for Africa, and indeed for all countries, in an increasingly competitive globalized economy. In his introductory remarks, Dr. Botchwey reviewed the challenges facing African countries in expanding investment and touched upon some of the important policy reforms and institutional restructuring and strengthening measures that need to be taken to improve the environment for investment in African countries. He also underscored that official development assistance would continue to be required during a transition period until adequate response in the form of increased domestic savings and investment is forthcoming. Dr. Botchwey indicated that the necessity of reform is now accepted in most African countries, and that several are in the post-stabilization phase of reform. He felt that this, coupled with the fact that fund managers are seeking to spread their risk by diversifying into new geographic areas, provides African countries with a window of opportunity which should not be missed.

During the reception hosted by the Government of Botswana, Dr. Ginwala took the opportunity to extend appreciation and special thanks to President Masire, who, along with Minister Jan Pronk and Mr. Robert McNamara, has provided the GCA since its inception with the leadership that has enabled it to evolve into such a unique and influential forum. Dr. Ginwala also praised and congratulated President Masire and the entire leadership of the country for the vision, wisdom and dedication which has enabled Botswana to enjoy a long period of exceptionally high growth, enviable political stability and remarkable consolidation of democratic institutions.

Enhancing the Investment Environment in Africa

The Economic Committee reviewed and discussed in detail the principal constraints and issues pertaining to the investment environment as well as the concerted and proactive measures that must be taken to promote and facilitate investment in Africa.

Political, Governance, and Macroeconomic Policy Constraints

As political and macroeconomic stability, and open and participatory governance are important preconditions on which investors want to be reassured, the discussion first focused on these issues. Participants recalled that these critical issues have been repeatedly debated in prior GCA meetings and reconfirmed their significance and relevance to the establishment of a conducive environment for investment. In particular, the importance of internal as well as sub-regional peace and stability was emphasized. At the same time it was agreed that more effort is required to further consolidate the recent gains in resolving conflicts and establishing security in most sub-regions of Sub-Saharan Africa. Participants also noted that it is essential to convey through various media these positive developments so as to improve and enhance the image of Africa.

The meeting reaffirmed that good governance, reflected through inclusiveness, pluralism and wider political participation, as well as equity in sharing of political power and economic resources among regional, ethnic and other and other interest groups will help to underpin and solidify peace and stability. Several participants also stressed the importance of civil society, and the need for public debate on policies as well as participation in the allocation and management of public resources. With regard to the macroeconomic policy framework, it was recalled that most African countries have been undertaking reform programs aimed at macroeconomic stabilization and equilibrium, and there was consensus on the need for each country to continue to take further necessary and timely adjustments to sustain a stable macroeconomic environment. In addition to the political and economic reforms which many countries are undertaking, the discussions underscored the importance of long-term commitment to improving education levels.

Several participants expressed concern that, although African countries have been implementing reforms, a tangible investment response has not yet been forthcoming. In this regard, however, it was noted that more remains to be done with respect to both political and reform in most countries. Moreover, private sector participants emphasized that investors need to be assured of the continuity and credibility of reforms over the long, rather than the short, term. In addition, it was noted that there is usually a time lag between the implementation of reforms and an increase in investment levels, which some of the better performing countries are now demonstrating. A number of participants stressed that the primary responsibility for improving the investment climate and attracting investment lies with African countries themselves, and that the domestic investor needs to be encouraged and supported in order to inspire confidence among foreign investors. It was also recognized that continued high levels of capital flight acts as a deterrent to foreign investment, and that increased confidence between the public and private sectors has to be built. The need to develop capacity as well as to mobilize the existing stock of capacity was also emphasized.

Improving Competitiveness

The discussions on improving competitiveness were introduced with a presentation by HIID of a survey of African competitiveness. The presentation identified a number of challenges to competitiveness which African countries have to face. The openness of economies in terms of trade and exchange rates; governmental policies, and the degree of governmental involvement in the economy and its attitude toward reforms; access to finance and the maturity of the financial sector; the adequacy and cost of transport, communication and other essential infrastructure; skill levels and labor policies; and the strength of institutions were all seen as critical determinants of competitiveness. The presentation also highlighted that policy and political stability were essential underpinnings for enhanced competitiveness. Confirming observations on the diversity of African countries, and the fact that there has been, and continues to be, progress in competitiveness in a number of African countries, the survey indicated that countries with a track record of reforms generally ranked higher in the "optimism" and "improvement" indexes than more reluctant or recent reformers.

The discussions following the presentation reaffirmed the importance of political and policy stability, effective and efficient institutions and infrastructure in creating a competitive and investor-friendly climate. The need to establish rule of law and a sound and transparent legal environment, along with a competent civil service able to meet the needs of investors and the private sector, was stressed. In particular, participants noted the significance of property rights and contract enforcement in building investor confidence and promoting transparency. The importance of appropriate tax and incentive structures, as well as the need for a generally conducive regulatory environment, were emphasized. It was agreed that reducing, streamlining and simplifying regulations pertaining to business and investment, as well as ensuring the effective and impartial enforcement of essential regulations, would help to reduce corruption and facilitate private enterprise. In general, the meeting recognized that although considerable progress has been made, many governments and civil servants still need to make greater efforts to become facilitators, rather than hindrances in their supervision and regulation of private sector activity.

The discussions underscored that, in a highly competitive global economic environment, investors are more likely to invest in those countries which offer a more conducive climate and lower costs of doing business. It was recognized that many African countries are not competitive in terms of transaction costs, largely due to inadequate physical infrastructure and relatively low labor productivity. Participants thus emphasized that greater attention has to be paid to improving and maintaining essential infrastructure for power, transport, communications and port handling, to increase efficiency and lower costs. Provision of energy and telecommunications at reasonable cost is especially important to take advantage of new technologies, while the upgrading of physical infrastructure is essential in many instances.

It was agreed that perceptions of competitiveness need to be addressed as much as actually improving competitiveness, and that improvements once made, have to be publicized widely in order to change negative perceptions. In addition to regularly making information known, it was suggested that entering into binding tariff and non-tariff agreements within the WTO and more rigorous privatization would signal commitment to reforms. In turn, this could help build credibility and encourage investment. The fact that all countries, not just African countries, have to continually implement policy changes to ensure that they remain competitive was noted. It was also recognized, in the increasingly globalized world economy that African countries should not assess their competitiveness against their own past performance, but rather against the best performers in the developing world, given that investors look for the best return on their investment.

The meeting agreed that action is required at many levels to make African countries more attractive to investors, both local and foreign. Particular efforts are required to address customs-related problems and reduce the time required for processing of import-export transactions. With regard to labor, participants noted the need for labor laws which permit flexibility in hiring, while still protecting labor rights. They encouraged governments to work with the private sector to implement training programs to enhance worker productivity and thus improve the competitiveness of African countries. It was also agreed that more attention has to be paid to developing the service sector in African countries if they are to attract investors. Governments were also urged to take measures to address corruption and rent seeking, which add to the cost of doing business, create inefficiencies, and contribute to a negative image of African countries among potential investors.

Financial Sector

Particular emphasis was given to the financial sector, and to the importance of building an effective financial intermediation capability to mobilize savings from both the formal and informal sectors and efficiently channel such savings to meet the requirements of investors and private businesses. A number of participants expressed disappointment with the virtual withdrawal of established banks from rural areas as well as with the reluctance of banks to finance medium and long-term private investment. On the other hand, others observed that the real problem with the financing of investment in Africa is the shortage of well-formulated business projects. It was recognized that in many African countries the financial sector has to be both strengthened and deepened, and existing financial institutions made to function more efficiently. It was noted that entrepreneurs, including women entrepreneurs, must have better access to credit for funding both investment and working capital. At the same time, it was agreed that in most countries attention has to be paid to the structure of the financial sector, to assure the development of capital markets and appropriate kinds of institutions, such as investment and mutual funds, and stock exchanges, able to provide medium and long-term financing to businesses under effective regulation and supervision. In this respect, there was consensus on the usefulness of investment funds which could share risks with governmental investment guarantee programs. Participants also referred to the significant role of, and the need to strengthen, credit institutions, including cooperative credit organizations, catering for rural areas and the informal sector. The use of pension schemes and other social insurance mechanisms, both for their intrinsic value and as a source of investment finance, was also suggested. The need for a sound regulatory and legal framework to facilitate the recovery of non-performing loans was noted.

Proactive Measures for Investment Promotion

In addition to discussing how factors which hinder investment could be reduced, the meeting also considered measures which could actively promote investment. These include improving the image of African countries, enhancing the climate for investment, and increasing credibility. While it was recognized that many investors have a negative image of African countries, it was also agreed that changing this image required real action, and not cosmetic changes. Promotion of business opportunities has to be accompanied by removing the constraints which investors face. Thus constant attention has to be given to addressing bureaucratic problems, and to continually improving and refining the business climate, in response to the voiced needs of the private sector. This implies greater interaction between government and the private sector than currently exists in most African countries, and the establishment of open and transparent channels for government-private sector dialogue. The need for consistent implementation of policies in order to create a predictable environment and enhance credibility was also stressed.

The meeting recognized that a number of African countries have made special efforts to promote investment, often establishing specific investment promotion institutions. While the mandates of these investment promotion agencies differ, for the most part they are intended to function as "one-stop shops" for investors. Most of these agencies are designed to undertake a variety of functions, from image building to generating new investment and facilitating the passage of interested investors through the bureaucratic system. The discussions indicated that, useful though these special agencies are in principle, they have met with mixed success in practice. Ensuring that key investment constraints have been addressed and that an investor-friendly environment actually exists is a critical pre-condition to effective promotion. Participants stressed the need to involve the private sector in investment promotion efforts, and for investment promotion agencies to adopt a more professional and autonomous approach. The meeting also noted that the majority of African countries have to do much more in terms of investment promotion.

Although considerable attention was paid to measures to be taken at the country level, the discussions also emphasized the importance of sub-regional arrangements. In this regard, the necessity of groups of countries promoting and building credibility was noted. This is especially important given the small size of many African economies, and the fact that countries can be negatively affected by the situation in surrounding countries. It was recognized that the benefits of sub-regions promoting an investor-friendly climate would accrue to individual countries as well as the sub-regional grouping as a whole. The removal of barriers to the establishment of cross-border trading arrangements and infrastructure in order to create larger markets and attract investors were encouraged, and existing efforts in this regard commended. The discussions also stressed the benefits of policy harmonization and coordination among the countries of sub-regional groupings, and it was agreed that this should be further emphasized within the context of existing sub-regional groupings.

The meeting agreed that each country has to find its own appropriate development vision and strategy, and that most of the actions required to improve the environment for investment were the responsibility of African countries themselves. However, participants also recognized the important supportive role of donors. They stressed the need for continued traditional development assistance, while welcoming and encouraging recent trends toward increasing opportunities for trade with and investment in African countries. In this regard, donor countries were also urged to continue and further expand market access under preferential terms for African products, and to end the practice of "dumping" highly subsidized agricultural products in African countries. In terms of specific support, the meeting encouraged donor countries and agencies to help strengthen the financial sectors of African countries, and also encourage and catalyze private investment through innovative financing arrangements and guarantees and insurance to lower investor risk.

The importance of continued external assistance in education, training and capacity building in both the public and the private sectors, was stressed, and the need of support for the strengthening of integration institutions encouraged. Africa's partners were urged to address racism and negative stereotypes about Africa in their countries in order to improve the image of Africa and to encourage foreign investors to more positively consider the possibilities and prospects of investment in African countries. The utility of greater coherence and coordination of donor policies was emphasized, and in addition, the international community was urged to take more complete, credible and decisive measures to address the debt overhang of African countries.

The meeting recognized that African countries have made considerable progress in recent years in creating a more conducive climate to investment and private sector activity. It also acknowledged that a new development paradigm is emerging, which encourages trade and investment and the more complete integration of African countries into the global economy. However, it also admitted that increased efforts have to be made, by both African governments and their development partners, if African countries are to improve their competitiveness in the near term and attain the levels of economic growth which are required for sustainable development. The meeting also underscored the need for the private sector in African countries to become more competitive, and for increased investment in their own countries on the part of Africans themselves. While recognizing the problems still to be faced, the meeting also recognized that important changes were occurring in Africa, which would help to create more positive images of both individual countries and the continent as a whole.