Drivers of Economic Growth in Africa

Occasional Paper No. 29, 2017

THE A FRICAN C AP ACITY BUILDING F OUNDA TION

Produced by the Knowledge and Learning Department The African Capacity Building Foundation

This Occasional Paper establishes that African countries need to pursue economic diversification and structural transformation vigorously using appropriate policies and institutions that address inclusive growth priorities. In addition, good governance and a committed national leadership with a developmental vision are crucial ingredients. Any capacity building interventions have to be crafted taking these priorities into account as well as the contextual factors that determine a particular country’s economic direction.

The African Capacity Building Foundation (ACBF) does not guarantee the precision of the data included in this work. The boundaries, colors, and other information shown on any map in this work do not imply any judgment on the part of the Foundation concerning the legal status of any territory or the endorsement or acceptance of such boundaries. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the ACBF Executive Board or Board of Governors.

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ISBN: 978-1-77937-055-6

pportunities inancin and apacity ssues

According to Agenda 2063, African people aspire to “a prosperous Africa based on inclusive growth and sustainable development.” Countries are aware that the “Africa rising” discourse needs to lead to ider access to sustainale socioeconomic opportunities for the maority— hile protectin the ulnerale—in an enironment of fairness euality and political plurality. any frican countries hae enoyed stron economic roth since . fter sia frica has een the secondfastest roin reion in the orld oer the past decade. ut hiher economic roth has not translated into etter liin standards loer poerty rates or hiher employment rates. oerty is still a scoure in many frican countries. nemployment is risin een as these countries achiee hiher roth rates and reater inestments and trade olume. hy hat capacity uildin is reuired to deelop sustain and share the enefits of hiher economic performance in frica he has produced this paper under its supported trateic tudies roup to prooe discussion encourae further inestiation and define the critical capacity challenes to taclin the rotheuality disconnect in frica. he paper shos that inestment human capital formation det and oerseas deelopment assistance drive Africa’s economic growth. It recommends paying attention to capacity, which is critical to making Africa’s growth sustainable and inclusive. Continental, regional, and national lonterm roth plans reuire stroner capacities to improe economic oernance alin national and sunational institutions coordinate plannin and financin ministries and cultiate a culture of committed leadership to stir economies hen times are hard and execute recoery plans ithout policy reersals. n addition to estalishin thin tans and policy institutes and strenthenin indiidual and institutional capacities throuhout the continent eneratin nolede ill enhance eidenceased policymain processes. uildin the capacities for policy analysis and economic manaement remains a priority. e hope that staeholders and deelopment partners ill oin us to continue strenthenin human and institutional capacity for sustainale deelopment in frica.

rofessor mmanuel nadoie xecutie ecretary he frican apacity uildin oundation

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his occasional paper was prepared under the supervision of the nowledge and earning epartment, guided by its director, r. homas Chataghalala unthali. ithin the epartment, this paper was coordinated by r. obert antchouang, enior nowledge anagement pert, and r. arassou iawara, nowledge anagement pert. he paper was produced as part of the African Capacity uilding oundation AC trategic tudies roect, which aims to provoke discussion and raise awareness about strategic issues of importance to Africa and its development agenda. trategic studies topics were selected through a consultative process by members of the olicy Institutes Committee and the trategic tudies roup. pecial thanks to members of both networks. In addition, we thank the trategic tudies roup for its critical review of the manuscript. he AC wishes to acknowledge the efforts of the researcher who conducted the study from which this paper was generated, r. Abbi . edir. he oundation also thanks all agencies, AC partner institutions, and individuals in the countries where this study was conducted that provided the data and information that made the paper’s completion possible. his paper benefited from insightful comments by rofessor ichael lummer and rofessor imothy haw, eternal peer reviewers. It also benefited from internal reviews by AC staff. About the African Capacity Building Foundation The African Capacity Building Foundation (ACBF) is Africa’s premier institution in capacity building. stablished in ebruary , AC builds human and institutional capacity for good governance and economic development in Africa. he oundation has empowered governments, parliaments, civil society, private sector, and higher education institutions in more than countries and si regional economic communities. It supports capacity development by way of grants, technical assistance, and knowledge generation across the continent. ACBF’s vision is that of an Africa capable of achieving its own development. About the Strategic Studies Group he trategic tudies roup is an AC network of global development eperts and practitioners made up of the AC olicy Institutes Committee, selected development partners, international development specialists, and the ACsupported training programs and university partners. he assists the oundation in identifying key policy and emerging issues reuiring the attention of the oundation and its stakeholders. he works with the AC to identify research themes and advises the oundation on strategic and pertinent issues that need special attention. It also serves as a “review panel” that shapes, eamines, and evaluates the highlevel studies undertaken by the oundation.

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PREFACE III ACKNOWLEDGEMENTS IV ABBREVIATIONS VII EXECUTIVE SUMMARY 1 CHAPTER 1. INTRODUCTION 3 Bacground Study’s structure Africa’s development, potential, and role in global partnerships Social and political dimensions of Africa’s growth Challenges to Africa’s growth Opportunities for Africa’s growth artnerships for infrastructure and technology transfer and to curb illicit finance flows

CHAPTER 2. DRIVERS OF AFRICA’S GROWTH 12 Fied effect model ynamic panel system generalied method of moments estimator conometric evidence CHAPTER 3. IS DEBT-FINANCED GROWTH SUSTAINABLE? SOVEREIGN DEBT AND SOVEREIGN BONDS 18 Total and net eternal debt overeign bonds ound macroeconomic management to limit the risy rush to borrow CHAPTER 4. WHY IS AFRICA’S GROWTH NOT INCLUSIVE? CAPACITY ISSUES AND THE WAY FORWARD 22 CHAPTER 5. RESULTS AND INTERPRETATIONS 24 APPENDIX. ROBUSTNESS CHECK FOR THE ECONOMETRIC EVIDENCE 26 BIBLIOGRAPHY 30

vi AAOS

A African apacity uilding oundation oreign direct investment ied effect ross domestic product eneralied method of moments ighly ndebted oor ountries nternational onetary und ultilateral ebt elief nitiative OA Official development assistance O Organisation for conomic ooperation and evelopment SA Structural adustment program S Sustainable development goal nited ations evelopment rogramme

All dollar amounts are S dollars unless otherwise indicated

vii

viii SA

Africa’s economic, social, and political history largely determines its current economic development he eternally imposed structural adustment programs and reform initiatives of the s and s failed to promote productivity, employment, and poverty reduction Since , most African countries registered remarable growth, but this growth failed to reduce ineuality Some African countries have strong development states that organie economic activities and regulate the private sector and other development actors such as civil society organizations. Economies’ growth is driven by large public investment in infrastructure and other growthenhancing sectors but with visible urban bias and ever greater borrowing espite encouraging gross domestic product epansion over the last years, many African countries do not perform well on human development, as recent nited ations evelopment rogramme reports show So we must investigate whether this growth is inclusive and sustainable given its reliance on debt or policy and research purposes, we must eamine the drivers of Africa’s recent growth, recognizing the diversity of the continent’s institutional uality, income growth, geographical location such as having coastal access or not, and resource endowment such as mineral or oilrich versus mineralpoor or nonoil economies sing longitudinal data on a large dataset, this study provides the following • A detailed discussion of African countries’ growth performance—focusing on economic, social, structural, and political changes he study underscores the importance of using the continent’s potentials (such as arable land and young population) for its structural transformation. Africa’s growing economic and geopolitical importance gives it the opportunity to mae the most of its partnerships—used by many African countries for infrastructure development, technology transfer, trade, and curbing of illicit financial flows here are also outstanding challenges to Africa’s growth—such as declining aid, youth unemployment, dysfunctional institutions, income ineuality, poor economic governance, unfavorable global trading arrangements, development planning devoid of nationally developed macroeconomic framewors, and rising eternal debt from non concessional sources • vidence of various financing sources such as debt, savings, revenue, and foreign direct investment and their future proections based on current trends ebt, savings, and ta revenue are important development finance sources or growth sustainability, debt is critical because most governments get nonconcessional finance to fund their development needs in the face of declining grants and aid from traditional development partners • nformation on Africa’s substantial growth determinants using panel data from 1980 to for countries ast growth, human capital, trade openness, foreign direct investment, and overseas development assistance have huge, positive impact on growth African governments failed to mae the most of the debt relief from ighly ndebted oor ountries and the ultilateral ebt elief nitiative ebt finance needs to be channeled to growthenhancing sectors such as infrastructure to improve long term growth • nformation on ey capacity needs that will contribute to development policymaing and economic growth n Africa, institution capacity needs to be reinforced to build on the recent economic governance improvements in some countries And focusing on long term capacity issues, such as human capital development, will mae the bureaucracy 1 more efficient and facilitate technology acuisition. iven the wellrecognized role of development states, it is important to build capacity of development planning commissions or ministries so that they will have the necessary sills to domesticate continentwide development visions such as the African nion Agenda 0. Eually, local capacity should include the capacity of planning officials to align national development obectives with obectives at the subnational level. o plan, monitor, and trac progress, data are critical. o capacity in data collection, compilation, management, and harmonization needs the support of multilateral institutions such as the African evelopment an, the nited ations Economic ommission for Africa, and the A. he data issue needs coordination at all levels and prioritization among capacity issues.

2 AE 1.

Background African countries have pursued many economic development models and policy regimes over the last five decades. Choosing one is a complex process influenced by Africa’s economic, political, and historical evolution. he models pursued so far include the twosector model or the surplus labor model of growth developed by Arthur ewis in the 190s the import substitution or inwardlooing industrialization of the 190s credited to rebisch and inger (used by Ethiopia, hana, enya, ali, igeria, and ambia) and the growthwitheuity paradigm of the 190s. hey also include the neoclassical model of development in the 1980s and early 1990s through the structural adustment programs (As) designed by maor international financial institutions such as the nternational onetary und () and the orld an. As made African countries abandon the development planning of the 190s, which was generating decent growth in gross domestic product (). After the A era of the 1980s and 1990s, characterized by deindustrialization in much of Africa, countries have pursued mied economic planning combining statecontrolledregulated development initiatives with private sector epansion. any countries now have longterm visions and five year development plans, such as Ethiopia’s Growth Transformation Plan I for 2010–01 and a second plan for 01–00. Development planning’s attractiveness is growing as countries that have plans with strong political commitment behind them have been sustaining their growth over the last 1 years. n recent years, the New Partnership for Africa’s Development was designed to eradicate poverty and help the continent participate in global partnerships in the 1st century. ecause previous attempts to transform African economies have not brought the desired outcomes (Ewang 2013), careful empirical attention is needed to understand the drivers of Africa’s growth (erven 01). hen countries are fragile and suffer from shocs (such as conflict and epidemics), capacity to pursue growthenhancing policies is compromised. ut structural capacity challenges must be tacled to transform African economies. herefore, prioritizing economic and policy governance as well as institution building and data are essential for durable growth. Establishing a strong development state with peace and stage building (with ta administration and collection ability) and gendersensitive initiatives are also reuired (ones 01). Empirical studies show that growth reduces poverty (ollar and raay 00). he last decade witnessed impressive growth rates for many African countries, but structural transformation has been slow. Right now, optimistic research and media headline phrases such as “Africa rising,” “Africa’s extraordinary boom,” and “middle class rising” proliferate. According to African Economic Outlook 2015, the continent’s GDP growth was expected to strengthen to 4.5 percent in 01 and percent in 01 after limited epansion in 01 (. percent) and 01 (.9 percent) (Af, E, and 01). he arch , 01, issue of the Economist refers to the continent as “Aspiring Africa” and “The world’s fastestgrowing continent,” much in line with the 2010 McKinsey Global Institute report that described African economies as “lions on the move” (Roxburgh et al. 010). eizing the moment, presidents and highlevel officials have cited Africa’s encouraging growth trends when addressing audiences. The July 2015 speech delivered by arac bama at the African nion ommission during his visit to Ethiopia is a case in point. Academics and policy researchers also eamine and debate the sustainability of Africa’s growth (Anderson and Jenson 2014).

3 But Africa’s historical economic performance must be understood to identify what works in different contexts. Africa’s diversity complicates the search for alternative growth models, as heterogeneous growth traectories must be followed for optimal economic and human development outcomes in different countries (Collier and O’Connell 2007). A better understanding of the drivers of Africa’s growth based on recent data and with an appropriate analytical framework is essential to shed light on a viable path. Africa experienced a growth tragedy in the 10s and 10s, with the highest poverty rate and lowest human development indicators in the world. Africa was the slowest growing region for many decades except in the last 10 to 15 years (ECA 2015b). According to the classification of the world’s poorest countries, 33 are in Africa, 15 in Asia, and only 1 in Latin America. Despite the growing optimism about the continent, 32 of the 40 that rank lowest in the human development index are in Africa. Looking at the 2013 inequalityadusted human development index, 24 of the 25 worst performers are African countries (DP 2013). o from a global comparative outlook, the continent still has a long way to go to improve its residents’ welfare. A growth model for resourcerich countries does not apply to resourcepoor countries. Equally, an export competitiveness model for coastal countries has different implications for landlocked countries that experience excessive trade costs. The same logic applies when examining the growth traectory of fragile and nonfragile or postconflict societies. The continent’s great diversity should be reflected in the diversity of proposed analytical findings, prescriptions, and economic growth models (Aryeetey et al. 2012). The last decade’s fast growth rate is encouraging, but is this growth inclusive and sustainable (edir 2012) ome quarters recognie the importance of public investment in infrastructure, but this investment is often financed by excessive borrowing, with many African countries diversifying their sources of loans (from concessional and nonconcessional sources). o we must determine whether this debtfinanced growth is sustainable and what mechanisms should be in place to support the encouraging growth traectories. “Growth with Depth” is the theme of the 2014 African Transformation Report, published by the Accrabased African Center for Economic Transformation (ACET 2014). Arguing that Africa needs more than growth, the report emphasies the inclusive and sustainable dimensions of growth, which are complementary and mutually reinforcing. or instance, the principle of inclusive green growth recognies the importance of environmental and climate change impacts of growth for development planning. It strives to meet the current generation’s needs without compromising those of future generations. any African countries, following heterogeneous growth models, have tried to make growth inclusive and sustainable. Almost all these countries registered fast growth over the last decade. A few have attended to inclusive growth through social protection initiatives and ob creation. e can learn from those few. Africa can also learn from countries beyond its shores. An article titled “You Can’t Eat GDP Growth” shows how shared growth in Africa can be sustained, using examples from Latin American social protection programs (orbrook et al. 2014). But comparing Africa with Asia or Latin America is problematic given these continents’ divergent economic, political, institutional, and social histories. This study focuses on a comprehensive discussion of relevant economic growth paths and models tailored to Africa’s diverse realities and unique characteristics. It also includes proected figures to 2020, assuming current trends continue.

4 Study’s structure This study has four parts. This first part concentrates on Africa’s growth performance, recogniing each region’s characteristics and growth patterns (such as geography, resources, and institutions (yong and Foy . Focusing on economic, social, structural, and political changes, the paper discusses how Africa’s future path will be better charted by unlocing its potential and harnessing current and emerging partnerships. The first part also touches on Africa’s outstanding challenges and growth opportunities. For example, partnerships with emerging economies are growing despite persistent goernance problems (haw . The paper proides eidence on growth financing sources (such as saings, reenue, and foreign direct inestment and their future proections assuming current trends preail. ince some African countries hae pursued public inestmentdrien growth—with debt as a driing force—the discussions focus on whether debtfueled growth is sustainable. Part two identifies substantial growth determinants using a dynamic generalied method of moments (G estimator based on longitudinalpanel data from to . The ey data sources for African countries are the recent orld Deelopment ndicators published by the orld an, nternational ountry is Guide, and ountry Policy and nstitutional Assessment. Part three focuses on promoting growth. n recent years, fastgrowing African countries hae been receiing more nonconcessional and concessional loans from multilateral financial institutions such as the orld an, the F, and the African Deelopment an to fund public inestment and other deelopment proects. Academic researchers and policymaers debate whether this debtdrien growth is sustainable. The paper puts forward critical iews on debt financed growth, reinforced by the insights from regression results presented in part two. Part four discusses the outstanding poerty challenge, lessons, and capacity issues for inclusie and sustainable growth. The conclusion reflects on a iable path that would lead Africa to sustainable and inclusie growth. Africa’s development, potential, and role in loal partnersips African economies hae grown at least percent in the last years. onfidence in and eidence for the sustainability of this growth is rising (Andersen and ensen . any countries are implementing sound macroeconomic policies, improing goernance and regional business enironments, and experiencing greater global demand, with commodity price booms and progress in regional integration (A b. The economic growth is easing infrastructure constraints increasing trade and inestment ties with emerging and adanced economies by taing adantage of recent natural resource discoeries (such as gas and oil and boosting financial inflows (through remittances, soereign bonds, foreign direct inestment, and so forth see appendix (odomo . Part of this growth was made possible by lower indebtedness. For instance, external debt as a proportion of GDP is falling because of debt relief, expansion of countries’ GDP, and GDP rebasing leading to larger economies in at least percent of countries, including Ghana, enya, igeria, ganda, and ambia. ndebtedness declines in all countries whether they are disaggregated by deelopment leel or by region (A, d.

emittances are now larger than DA. ut eidence indicates that they are often allocated to consumption expenditure items, so it is not clear how aailable they are for deelopment purposes through entrepreneurship. 5 iure ternal det y development level

ource F . iure ternal det y sureion

ource F . ectoral alue added statistics show that the share of the modern sector (manufacturing and services) in Africa’s GDP is higher than that of agriculture. But because most of the African population is still engaged in agriculture, agricultural productiity must be emphasied for growth to be inclusie (A, b. Social and political dimensions of Africa’s growth Despite persistent challenges in material mortality and gender ineuality, the social dimension has seen important progress. The foundation for Africa’s future transformation relies on the continent’s capacity to provide compulsory and inclusive highuality basic education (primary schooling that will lead to a productie worforce, economic prosperity, and social stability. The commitment of goernments to uniersal primary education has paid off, and priate and public higher education is proliferating. ut literacy and numeracy leels are not as impressie as expected, een at the primary leel. Also, lac of funding at the secondary leel maes the focus on the primary and tertiary leel of education misguided. n the positie side, African 6 countries have addressed enrollment and gender imbalances in primary education hich then etends to other education levels. or instance the overall youth literacy rate for the population aged to years has improved in Africa through increased access to universal primary education observed since edir ). n the political front governance public financing management and transparency are improving edir et al. ). Governments have taen steps to provide the enabling environment infrastructure and regulatory frameor to guide economies to fast groth traectories. The various development visions underscore the increasing groth orientation of many African governments and political elites. Armed conflict in the s and s hampered the continent’s growth (Durbach and Fettweis 2014). The peace dividend has translated to strong groth for over a decade but riss may reverse progress in some areas such as Burundi Democratic epublic of ongo and outh udan). Challenges to Africa’s growth Despite promising changes setting a foundation for robust future groth outstanding challenges remain including a huge infrastructure gap of billion a year inadeuate human capital development as reflected in health and education and a ea technological base and lo agriculture productivity AfDB ). ne ey threat to Africa’s growth—capital flight— costs the continent billions of dollars every year. ince the s capital flight has robbed the continent of about billion maing Africa a net creditor to the rest of the orld diumana and oyce ). f this money had been invested in the continent it could have addressed ey economic and human development challenges. Tacling this problem is at the heart of sustainable groth for the continent. ther challenges include poor service delivery limiting ta collection efforts. Policymaers and researchers are aare of the need for euitable basic social services Adedei Du and pouAfari anda and aubo ). ther challenges include natural resource mismanagement AB ) ineuality climate change global price fluctuations youth unemployment deindustrialiation and recurring conflict such as in Burundi) A b). The impact of these challenges on economic performance is compounded by slo progress to unlock the continent’s development potential. Africa has abundant arable land an economically active youth population and large deposits of natural resources as discoveries in the last years reveal ayne hamberlin and eadey ). Africa has the potential to be the net frontier destination ith unprecedented economic opportunities. Opportunities for Africa’s growth Many areas can sustain Africa’s growth, such as natural resources, domestic resource mobiliation through savings and ta revenue) and emerging and strengthened trading and investment partnerships. The continent has abundant natural resources. e discoveries of gas and oil mae the outloo bright. There is a huge maret potential as incomes rise and the middle class eeps groing. outh and omen are a huge resource for laborintensive development initiatives and foreign investment proects. A orld Ban study provides evidence supporting the role of an increase in the share of oringage population capital accumulation and total factor productivity for sustaining groth in Africa ecluding orth Africa ho and Tien ). Africa’s trade partners are expanding and diversifying. China is the largest trading partner, folloed by the nited tates surpassed in ) and the . ther emerging partners are ndia orea Brail and Turey African conomic utloo ). nvestors are attracted to Africa because of higher returns to investments A b). nvestment is not restricted to 7 the extractive industry, with emerging partners working in areas such as textiles (Turkey) and agrobusiness (rail). Collaborations for technology exchange and other productive capacity building initiatives can be created and harnessed with countries with huge grain production and agricultural technology experience. Traditional rganisation for conomic Cooperation and Development (CD) partners are also expanding their presence. The improving investment climate is attracting foreign direct investment (FD) inflows into the continent. African governments are lowering the cost of doing business and regularly revising commercial laws and investment codes. Trade and FD ties will facilitate technology transfer and innovation and add value to African products for export. Africa’s global partnerships play a critical role in its future growth and in the inclusiveness and sustainability of this growth. The partnership can be bilateral or multilateral, and engagement strategies can vary across countries. For instance, China is working at the continental level with the African nion and locally with various governments on infrastructure and other development projects. Africa’s leadership and the technocratic elite must ensure that global partnership configurations align with national development priorities. Domestic and external sources of development finance for Africa’s growth are vital vehicles. First, partnerships are useful to raise the muchneeded financing for the upcoming sustainable development goals (Ds) established in eptember 201 through official development assistance (DA), sovereign bonds, remittances, and FD.2 ut the primary responsibility for securing development finance rests on the continent through domestic resource mobiliation and innovative financing mechanisms (tax revenue, savings, private euity, pension funds, blended finance, and so forth). avings and tax revenues are rising steadily and are expected to continue doing so (CA, 201d). roections here reflect the growing consensus that developing countries are expected to raise development finance themselves rather than from outside sources. The encouraging trend in Africa indicates the continent’s potential to raise development finance by itself. DA is still relevant, but should play only a complementary role, with domestic resource mobiliation taking center stage.

2 The Third nternational Conference on Financing for Development, held in Addis Ababa in uly 201, discussed in detail the mechanisms and processes for mobiliing domestic and external finance for development in the next 1 years (201 to 201). For instance, a study in preparation for the uly 201 Third nternational Conference on Financing for Development emphasies the need for domestic resource mobiliation to finance the post201 development agenda, or sustainable development goals, which were finalied in eptember 201 in ew ork (achs and chmidtTraub 2014). 8 igure aings eelopent leel

ource . igure a reenue eelopent leel

ource . Africa will continue to attract capital from traditional and emerging partners because of its improved business environment and rising positive corporate sentiment ratings. ineral and oil discoveries across the continent also attract foreign capital. is the largest source of external private finance followed by remittances. etween and is expected to rise by percent to billion according to computations based on TA data A d.

9 igure oreign irect inestent net inflows to Africa suregions – illion

ource alculations based on TAstat. igure oreign irect inestent net inflows to Africa eelopent leel – illion

ource alculations based on TAstat. artnerships for infrastructure an technolog transfer an to cur illicit finance flows Africa’s growth will not be sustainable and inclusive if investment supports soft infrastructure, wea technology adoption framewors food insecurity and rampant corruption and capital flight facilitated by multinational companies’ tax evasion practices. artnerships can help not only to raise development finance but also to provide regional or crossborder infrastructure. For instance, over the last decade, Africa’s partnerships, particularly with China, changed the face of Africa’s infrastructure with the construction of roads and railways. This focus contrasts 10 sharply with that of previous partnerships with C countries on social sector proects such as education and health enping . egional transport proects with emerging partners will help sustain growth by providing the solid foundation for private investment to thrive. ne example is the ast African tandard auge ailway, lining cities in four countries such as ombasa, airobi, ampala, uba, and igali. ther proects include the ransahara road and fiber optic cabling proect running from Algiers to agos and the proposed gas pipeline from igeria, through iger and Algeria, up to urope he Africa eport . artnerships can also help overcome collective challenges such as illicit financial flows, estimated to cost about to billion a year CA c. llicit financial flows are an international crime, so transparent international partnerships are essential. nternational rhetoric and, in some cases, a practical cracdown on tax evasion by some member countries are a step in the right direction. nternational and regional attempts to enforce tax information exchange reuire further wor. any African countries are expected to sign and implement the xtractive ndustries ransparency nitiative and to avoid granting unreasonable tax holidays, underestimated royalty payments, and unfair deals in natural resource extraction arguments. here is a huge capacity development need in these areas. For instance, many countries do not have the reuired silled labor to negotiate natural resource contracts with potential investors and end up having an unfavorable deal Aayi and diumana . For structurally transformed economies and sustainable development, partnerships can focus on technology transfer. ased on economic reports published since , the nited ations conomic Commission for Africa argues that Africa can industrialie CA b. For instance, there is more intraAfrica trade in manufactures than with the rest of the world, pointing to the potential for value addition and further expansion in manufacturing. o advanced economy can avoid industrialiation. he future growth traectory of African countries should focus on industrialiation with reinforced bacward and forward linages with critical sectors such as agriculture. here is scope to add value to products leaving production lines in Africa, but without technology transfer through developmentoriented partnerships and transformation of the means of production, the chance to oin global value chains will be severely limited. o trade and investment ties with partners need to focus on growthenhancing technology adoption. Finally, Africa’s partnerships must contribute to solving formidable challenges such as food security. n Africa, despite structural change, the agriculture sector has stagnated. artnerships can improve agricultural productivity through technology exchange such as with rail.

11 A DRIVERS OF AFRICA’S GROWTH

Africa has registered positive groth for more than a decade ha ut hat is driving this growth? As discussed earlier, Africa’s growth is an outcome not only of a commodity boom. ince the second half of , commodity prices have fallen in international marets because of the global economic slodon, and African economies continue groing ith a marginal impact on figures For instance, based on F primary monthly commodity price data, the oil price decline increased the of oilimporting and mineralrich countries by percent and percent, respectively A d n the other hand, fell percent for oil eporting countries o noncommodity price factors—such as investment, infrastructure, trade, sound macroeconomic management, improvement in governance, relative peace, and prudent fiscal policies—are important drivers of groth he econometric evidence discussed belo corroborates this conclusion he empirical approach used here adopts static and dynamic panel models for robustness First, a baseline fied effect F model is adapted for static analysis his is folloed by the dynamic system generalied method of moments specification proposed by lundell and ond his paper contributes to the current groth literature through its comprehensive data, its focus on the lin beteen groth and debt, and its use of robustness checs to verify the results he analysis covers to , and the sample includes African countries A recent F study focused on only ubaharan African countries, covering to haanchyan and totsy o approaches are used in groth literature he first is based on convergence theory, and the second applies groth theory frameor to specify and estimate groth euations his study follos the second approach in modeling groth determinants arious studies have identified investment such as F in ensin and orrissey , human capital formation, openness, and the policy environment as ey groth determinants his paper controls for these variables and highlights others that are often missed, such as gross public debt or eternal debt he theoretical frameor dras on an augmented olo groth model o eplore the effect of groth drivers on economic groth among African countries, first a fied effect estimation techniue is adopted he estimating euation is given as follos ′ here𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺 ℎ𝑖𝑖𝑖𝑖 = 𝛼𝛼 + is 𝑋𝑋 the𝑖𝑖𝑖𝑖𝛽𝛽 +annual 𝑢𝑢𝑖𝑖𝑖𝑖 groth rate for country at time and is the constant term stands for vector of k variables such as gross government debt ebt as a 𝑖𝑖𝑖𝑖 percentage𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺 shareℎ of , gross fied capital formation GFC)𝑖𝑖 as a percentage𝑡𝑡, 𝛼𝛼 share of 𝑖𝑖𝑖𝑖 used as𝑋𝑋 a proy for domestic𝑘𝑘 investment in physical capital secondary school enrollment as percentage share of gross enrollment used as a measure of investment in human capital accumulation (HC) net foreign direct investment FDI, official development assistant ODA and international remittances emittances inflos measured as percentage share of rate of inflation (INF) proied by the rate of change of annual consumer price inde, trade openness measured as the sum of eport and import, and general government final consumption ependiture F as a percentage share of , population groth and institutional factor inde F a proy for transparency, accountability and corruption in the

Why Africa Is Becoming Less Dependent on Commodities,” The Economist, anuary , 12 public sector rating low to high. Here the error term contains fied effects both countrytimeinariant effects and time arying effects and the idiosyncratic shocs. ote that the error term has familiar error component structure with ero mean and constant ariance. The aboe static specification leads to biased results caused by the potential state dependence in growth, which introduces endogeneity. This problem will arise when the classical ordinary least suares, twostage least suares, or static panel estimation techniues fied effects or random effects are considered because of the dynamic nature of economic growth. The preferred estimation framewor needs to address this potential bias and endogeneity problem. The process of adustment in economic growth to a change in its factors may depend on the passage of time, which necessitates the inclusion of lags and past alues of the economic growth ariable annual GD growth rate. All the estimation problems in this contet are conentionally handled by adopting a dynamic panel estimation techniue preferably the system G proposed by Blundell and Bond . The problem of potential endogeneity is much easier to address in the dynamic panel system G estimation framewor than in the static models that do not allow the use of internally generating instruments from past dependent ariable alues. An underlying adantage of the dynamic system G estimation is that ariables from the regression not correlated with the error term including lagged and differenced ariables can be used as alid instruments Greene . Furthermore, in the longitudinalpanel dataset, countries were obsered from to , constituting the latest official data on the ey ariables listed aboe. Thus, there are more countries than years T. any authors argue that the dynamic panel system G estimation procedure is specially designed for a situation where T is smaller than in order to control for dynamic panel bias Bond . Last, system G estimation approach is more appropriate than difference G because timeinariant ariables would disappear if the difference G approach were used. This does not wash away country specific features that may eplain the certain economies’ growth dynamics (Bond 2002; Roodman Baum Baltagi . In other words, differencing ariables within groups will remoe any constant ariable, including country and regionspecific fied effects. Thus, the estimation results will be based on system G instead of difference G. The twostep system G estimating euation is gien as follows ′ ′ 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺where,ℎ 𝑖𝑖𝑖𝑖 = 𝛽𝛽𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺 is laggedℎ𝑖𝑖𝑖𝑖−1 + alue 𝑋𝑋𝑖𝑖𝑖𝑖 𝜃𝜃 of + economic 𝑍𝑍 𝑖𝑖𝑖𝑖𝛿𝛿 + growth(𝜇𝜇𝑖𝑖 𝑣𝑣 i.e.𝑖𝑖𝑖𝑖 annual growth rate of GD and is endogenous in this specification. is a matri of predetermined regressors GFC, HC, Debt, 𝑖𝑖𝑖𝑖−1 PG and 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺Inflationℎ while is a ector of eogenous control ariables FDI, ODA, Trade, 𝑖𝑖𝑖𝑖 Remittances, IFI. In this study, therefore,𝑋𝑋 the lagged alue of growth is considered as a 𝑖𝑖𝑖𝑖 regressor along with other𝑍𝑍 eplanatory ariables such as human capital accumulation, gross fied capital formation, debt, inflation rate, annual population growth. Besides, lagged alues of the ariables that are not correlated with the error term are potentially used as alid instruments. The empirical analysis is based on the latest annual panel data of African countries from to . Ecept for gross goernment debt, sourced from the IF World Economic Outloo,

Instruments should not be correlated with the ariable that they are instrumenting and with the estimating equation’s error term. These are often referred to as the orthogonality conditions. 13 variables are obtained from the latest edition of the World Bank’s World Development ndicators

D groth rate ross government debt of D man capital formation ross fied capital formation in millions of D oplation groth rade openness oreign direct investment inflos in millions of D fficial development assistance of D emittances eneral government final consmption ependitre millions nflation annal change he average D per capita groth rate for the continent is more than percent ith hge variation across time and contr table his average figre masks the heterogeneit in groth performance or instance the loest average groth rate at contr level as percent in had hile the highest average registered over the ears covered as percent for ape erde ross government debt as a percentage of D ranges from in lgeria and iba to in echelles iberia had received the continent’s highest official development assistance D at percent of its D Becase of the bola otbreak in the s abon had faced net otflo of D percent in inall the mean inflation rate in the region is percent ranging from percent in abon in to percent in ngola in ven thogh the static panel model regression reslt is reported in this section as a baseline table the empirical analsis and conclsions are based on dnamic panel sstem model estimates ccording to the baseline reslts gross government debt gross final consmption ependitre and eternal debt are negativel and significantl associated ith the rate of annal economic groth Bt hen the model is specified b inclding onl the eternal debt trade openness shos a positive and statisticall significant coefficient his is consistent ith the argment that trade can be an engine of groth as is often the case hen smart trade policies are copled ith strategic sectoral investment and development sch as promoting indstrialiation throgh trade

ross government debt man capital formation ross fied capital formation oreign direct investment fficial development assistance rade emittances eneral government final consmption ependitre nflation oplation groth onstant sared mber of observations mber of contries ote tandard errors in parentheses p p p o get reliable parameter estimates and allo dnamic specification acconting for endogeneit the paper ses the rellanoBond stem estimator able shos the estimated reslts together ith serial correlation and some significant specification tests ccordingl the etended set of moment restrictions is not reected b the argan test of overidentifing restrictions n this specification the overidentifing restrictions or instrments inclded in the regression to control for endogeneit are valid and are consistent ith the standard assmptions able in its first colmn reports the estimated reslts hen economic groth is regressed on its lagged vales gross government debt hman capital accmlation and gross fied capital formation percentage of D t ecldes indicators of development finance or international financial inflos sch as foreign direct investment official development assistance remittances and trade openness to avoid potential mlticollinearit among the variables inclded in the right side of the estimated eation Bt these variables are inclded in the second colmn nd the final colmn incldes ke variables to captre the inflence of domestic macroeconomic sitations sch as inflation and government final consmption ependitre and demographic shifts as captred b annal rate of poplation groth he reslt reveals state dependence in groth roth in one ear has a strong positive effect on groth the folloing ear his phenomenon is robst across the three specifications

15 althogh the impact of past groth is not too strong in the last colmn compared ith the second colmn nother robst reslt relates to the gross government debt n empirical macro literatre the relationship beteen debt and groth is not clear in developing contries dearth of research evidence links these to variables for frica egardless of the specification adopted higher gross government debt as a share of D is associated ith a loer D groth rate among frican contries ore important the estimated coefficient on gross government debt as a share of D is not onl negative bt also statisticall significant he negative association beteen gross government debt and D groth might be becase higher debtservice particlarl eternal debt repaments ma hamper D groth b ehasting the pblic resorces that cold have been allocated for grothenhancing activities sch as infrastrctre man capital accmlation and investment in phsical capital have a positive and statisticall significant impact on D groth pointing to the need for ftre groth endeavors to focs on this area t is hard to defend a case for development that ecldes sstained investment in pblic infrastrctre provision and hman capital D trade and D have a positive and significant impact on D groth Bt the estimation reslt reported in the second colmn implies that D groth is adversel affected b remittances hile trade has an insignificant effect his is consistent ith microevidence shoing that the probabilit of those receiving remittances engaging in entreprenership is negative nless remittances can be channeled to prodctive se their impact on development and groth might not bring the desired reslt o in development discorse remittances as a ke sorce of development finance shold not be romanticied for their potential development impact he se of diaspora bonds b the thiopian government for the constrction of its hdroelectric poer plant the rand enaissance Dam is one innovative a of mobiliing remittancerelated income for development prposes ternal sorces of development finance sch as D and D are important positive drivers of Africa’s growth. So, even if domestic resource mobilization and innovative sorces of finance are important for financing the post development agenda or the Ds ntil the eternal financial flos need to be maintained and sed as complementar financing mechanisms he last colmn of table incldes government final consmption ependitre poplation groth and inflation rate measred as annal change in consmer price inde s epected inflation and government final consmption ependitre have a negative and statisticall significant impact on D groth in frica he negative effects of the latter ma reflect grothhampering or nprodctive government ependitre ne groth determinant that proved statisticall significant nder varios specifications relates to the debt variable ross and eternal debt are linked to groth rom a technical point of vie to check the robstness of the reslts reported in table regressions ere rn b disaggregating the gross government debt variable beteen domestic debt and eternal debt lso it as important to nderstand groth drivers b dividing the period into distinct polic regimes that have been folloed b frican contries or instance instead of considering to as one block it can be split into to and to becase frica has registered impressive groth since he robstness check reslts are reported in the appendi in tables to

16 –

ag of growth . . . . . . ross government debt . . . . . . uman caital formation . . . . . . ross fied caital formation . . . . . . oreign direct investment . . . . fficial develoment assistance . . . . rade . . . . emittances . . . . overnment final consumtion eenditure . . nflation . . oulation growth . . value Sargan test . . . value A test . . . value A test . . . umber of instruments umber of observations umber of countries ote Standard errors in arentheses. ., ., . There is no consensus on the definitive list of growth determinants because of each country’s idiosncrasies. ut investment, human caital formation, debt, and A are relevant and significant drivers of Africa’s growth (Jaunky 2013; Mijiyawa 2013; IMF 20 hazanchan and Stots . A key development finance source for Africa’s growth has been debt (both domestic and eternal. he net section will investigate the sustainabilit issue associated with debt financing of Africa’s growth. Over the last decade or so, A has declined and there is an increasing recognition that African governments can no longer rely on it for their economies’ transformation. Along with aggressive actions to mobilize domestic resources through savings mobilization and imrovements in ta administration, the are accessing concessional and non concessional finance such as b issuing sovereign bonds in financial marets to raise the reuired funds for the various infrastructure and develomentoriented investments the are committed to. ecause of unfavorable terms countries face in the rivate debt maret, African heads of state at the African Union Commission’s January 2015 summit expressed concern about otential debt distress hamering economic growth.

17 CAT 3. I TFIAC OT UTAIA OI T A OI O

ebt can be a heavy burden and debt servicing limits fiscal space. ue to strains in many African countries caused by the debt crisis of the 10s and 10s international arrangements were put in place and debt relief initiatives were undertaken. The debt relief helped many countries to sustain their positive growth. According to the ecember 201 ighly Indebted oor Countries (IC and Multilateral ebt elief Initiative (MI statistical update only African countries are still to benefit—economies characteried by weak macroeconomic management debt arrears and political instability. A large volume of development finance including external borrowing, is required for Africa’s structural transformation. It is underpinned by investment infrastructure industrialiation skills development resilient health systems improved agricultural productivity and better regional integration. Accountable and transparent public finance management needs to be in place to ensure that external debt finance is allocated to development projects with longterm social and economic returns. Another important trend is for African governments to issue sovereign bonds. This trend is rising as the sources of concessional loans dry up. ut does issuing bonds guarantee sustainable growth Total external debt as a percentage of is declining in Africa. There has been a sharp decline since the Monterrey consensus particularly from 2002 to 200 driven by debt relief sustained growth and economic expansion induced by rebasing. There has also been a corresponding robust growth since 2000. ut a recent study on 52 countries shows the negative association between total debt and growth in Africa suggesting the need to use loanable funds for growthenhancing projects (edir et al. 2015; cube and rixiova 201. The net foreign debt for Africa is low because of the oilexporting countries’ high international reserves which can uickly shrink in the face of declining oil prices. espite a declining trend in total foreign debt the share of net foreign debt in some countries is not negligible. Mineral rich and oilimporting countries have positive net foreign debt. And the average hides extreme cases such as Cape erde (5 percent of hana (2 percent of udan (55 percent of Mauritania (52 percent of Moambiue (2 percent of o Tom and rncipe (11 percent of enegal (25 percent of eychelles (0 percent of Tunisia (50 percent of and imbabwe (33 percent of (CA 2015b. Africa’s public investment–driven growth momentum fuels the sovereign debt appetite. o fastgrowing economies such as thiopia are moving toward marketbased loans in addition to concessional loans. Optimistic views by international credit agencies (such as Moody’s) enabled countries to borrow from riskier sources. Other countries that issue urobonds include abon hana Ivory Coast Moambiue amibia igeria epublic of Congo wanda enegal the eychelles outh Africa Tanania and ambia. According to y (2015 1 countries have issued international bonds up to at least 15 billion. The debt problem will be exacerbated in countries with weak fiscal discipline and those who overborrow and pay little

The countries that reuire urgent attention are Chad ritrea omalia udan and imbabwe. 18 attention to repayments. Along with potential global effort to manage debt distress, individual African governments should be held accountable. he debt burden and macroeconomic situation of countries that go through shocs such as disease outbreas and conflict (such as uinea, iberia, ierra eone, and outh udan) eep them vulnerable to external shocs such as the sharp recent declines in commodity prices. Macroeconomic fundamentals such as volatility of terms of trade affect sovereign debt spread substantially (ilscher and osbusch ). o a global framewor on sovereign debt restructuring is essential. lobally, there are huge legal and political bottlenecs to be tacled. urrent arrangements are driven by laws in advanced economies such as the nited tates, whose courts often rule in favor of vulture funds. o international agreements to prevent a potential debt crisis should see to solve such impasses in the international financial architecture. uring the th A summit in anuary , it was pointed out that African sovereign debt losses may reach $10.8 billion, 1.1 percent of the region’s GDP (ODI 2015a, 2015b). Sovereign debts are risier options for investment even if they have better terms than concessional loans. M proposed a sovereign debt restructuring mechanism more than a decade ago, but there is no international agreement so far. here is a consensus that current rules are too creditor friendly. ut a push for an international agreement that is too borrowerfriendly might not be the way forward. lobal agreement should strie the right balance (A b). oreign asset holding in the form of debt depends on a variety of factors, such as the country’s development level, future prospects, and absorptive capacity. nsustainable debt might also result from poor macroeconomic management and structural economic malfunction. f a country that benefits from a commodity boom is prudent, it will follow a countercyclical fiscal policy by amassing the revenues allowed by the boom. And it will use them when times are hard (such as when oil prices fall). ountries that failed to do so often request a bailout from a maor lender (such as the M) with conditions such as fiscal consolidation by downsiing the public sector. A bailout loan by a maor lender may encourage private lenders to provide loans because of a rise in investor confidence triggered by the willingness of a maor lender such as the IMF to offer a bailout package. This increases the country’s potential future indebtedness. f many economies fail to have a sound macroeconomic management in place, this vicious cycle of debt stress might lead to a systemic breadown, because illdiscipline amplifies the impact of exogenous shocs. he commodity price cycle in demonstrates this reality. As some African countries fail to follow a countercyclical fiscal policy or demand management (such as through commodity stabiliation funds), they face currency depreciation, low foreign reserves, and more demand for loans. esourcepoor countries, which lac the option of saving from a commodity price boom, rely on sovereign borrowing. hus, debt sustainability is crucial for them and their fiscal situation. A broader, comprehensive loo into African macroeconomic management is essential for debt sustainability. his cannot be emphasied enough, as the continent is experiencing a structural change with an increasing commitment to transforming its social and economic landscape (issane ). Also, optimistic rating agencies’ outlook and GDP rebasing reinforce the need for risky borrowing. For instance, Ethiopia and Ghana were rated B1 by Moody’s, which feeds into investor confidence. ecently, both issued billion worth of sovereign bonds. hana, for instance, raised the money in dollar bonds before the last quarter of . n ebruary , the M agreed to lend hana million, which will boost investor confidence (awu ). n

19 turn, this might fuel further borrowing from other sources, such as bond issuance, potentially eacerbating the debt situation. DebttoGDP ratios decline as more countries rebase their economies, which might alleviate sustainability concerns. The following focuses on what Africa needs to do, as well as what development partners can do, about eternal debt. The suggestions are based on an analysis of eternal debt since 2000 and on a preliminary empirical analysis of the association between total debt and growth. • Eternal debt (concessional and nonconcessional) can be an important source of development finance, but it is helpful only if Africa uses debt finance for growth enhancing proects. For instance, the econometric evidence shows the negative association between gross government debt (the sum of domestic and eternal debt) and Africa’s growth from 1990 to 2013 (see appendix). • Following countercyclical fiscal policy during commodity booms and building foreign reserves is essential to avoid a future debt crisis. • Since Monterrey, total eternal debt has been falling as a percentage of GDP, epanding the opportunities to access various loans and ensuring debt sustainability (figure 1.1). But net foreign debt caused by etremes observed in some African countries highlights the need for caution. • Most African countries benefited from initiatives such as IP and MDI, made possible by the sensible policies pursued by the beneficiaries. Thus, continuing sound macroeconomic management in addition to sustained growth will lead to debt sustainability. • African countries can engage more with SouthSouth partners in addition to traditional bilateral and multilateral lenders. • To circumvent the crippling impact of potential debt distress, countries can pursue growth bonds, whereby they need to respect repayment terms only if they grow. Eually, governments should be transparent and allow independent debt audits to avoid irresponsible use of funds. • Because of their robust growth record for over a decade, African governments are accessing new forms of loanable funds, such as sovereign bonds. African governments need to weigh the mi of longterm bond issues in local and foreign currencies to reduce their eposure to risks of currency volatility. This should also hold for other forms of debt, which again should be split between or among various currencies. • In line with the Monterrey onsensus, creditors often located in advanced economies can share responsibility with the sovereign debtor to resolve potential future debt crises. This can be done through creditworthiness assessment prior to lending and debt relief in case of etreme distress. • There should be follow up on the recent resolution of the General Assembly (AES2) as a priority to establish a multilateral legal framework for sovereign debt restructuring. This ensures the international financial architecture’s stability. Other debt crisis international mechanisms not in place should also be pursued. • Based on eperience after Monterrey, there is a concern that potential future debt relief might lead to ODA reduction. This should not be ignored in the net round of engagement with development partners.

21 AT . WHY IS AFRICA’S GROWTH NOT INCLUSIVE? AAT A T A OA

mpressie African growth is not reducing poerty. ow should Africa tacle poerty and ineuality in the next round of s One issue is poerty measurement. or instance compared with conentional poerty estimates based on expected utility theory prospect theory insights reeal a different degree of association between growth and poerty reduction (ntti et al. 201). The measurement problem emanates from African governments’ poor statistical capacity (eren 2009). or instance when hana corrected the methods it used to calculate its the figure grew by 0 percent. This affects the accuracy of the debate on the translation of growth figures into poerty reduction. As ields (2012) argues poerty measurement and data anomalies are at the heart of the debate on the lin between growth and poerty and there is need to ascertain data alidity to boost confidence in the translation of growth into poerty reduction. Other possible channels to explain the growthpoerty lin include inflation ineuality high fertility resource mismanagement trade liberaliation poor statistical capacity and churning when there are household moements in both directions of the poerty line (eren 2013). The discussion of transmission channels is of utmost importance because it helps us to understand whether growth has translated into poerty reduction and welfare improement. edistribution through social protection programs (such as safety nets) is a shortterm measure to share the proceeds of growth and can be unsustainable. abor marets are important to promote shared growth. abor is the surest factor endowment and income source for the poor. A study using 10year household panel data from thiopia showed the importance of selfemploymentinformal sector wor the number of woring adults remittances assets and ineuality in poerty reduction (edir Alemu and ndale 2011). The informal sector absorbs a large portion of labor in Africa but it is stared of capital (Aryeetey 199). There are arious policy attempts to mae growth inclusie and sustainable. ocial protection and other redistributie measures are important but their effectieness and sustainability are a huge problem for many countries. eelopment planning is taing center stage for structural transformation of economies as many countries hae deeloped different deelopment and growth strategies or isions that extend 20 or 30 years. The lessons of deelopment planning in Africa Asia and atin America since the 190s show that the maret alone cannot fix deelopment problems. lanning should be consultatie to mae deelopment inclusie. This consultation should be at all leels (national and subnational) and embrace all societal groups (children youth women the elderly and those with disabilities) and sectors (priate ciil society and public sector as in auritius). Africa has arious longterm isions articulated in the African Union’s Agenda 2063, the details of which need to be domesticated at the national leel. And consultation and coordination at the national leel play a critical role. eelopment plans need to be anchored on macroeconomic framewors suited to heterogeneous contexts without imposing a macro framewor borrowedimposed from other settings. or transformatie deelopment planning the importance of building the capacity of indiiduals and institutions has been underscored (Acemoglu and obinson 2012). eelopmentoriented planning should be left in the hands of the committed leadership of deelopment states and be complemented by marrying fast growth with sustainable deelopment principles or green growth principles (nadoie erome and eita 2012). uilding the capacity of inclusie 22 instittions is slow and reires a gradal dismantling of etractive economic and political instittions that ndermine progress Inclsive development planning cannot wor in a vacm, and data management plays a critical role There is need to go beyond designing a good development plan, since implementation and followp sing varios monitoring and evalation framewors are essential To do so, varios contries have attempted medimterm ependitre framewors to match resorces with plans and ependitre tracing These reire data and many contries in Africa lac timely, highality data for monitoring and evalation and medimterm ependitre framewor eercises Ths, the data harmoniation efforts by the African evelopment an and the African Centre for Statistics of the United Nations Economic Commission for Africa shold be complemented by reglar data on capacitybuilding initiatives such as the ACBF’s African Capacity Indicators, which help point ot capacity shortcomings Withot solving critical data capacity isses, little can be done to set growth benchmars and trac progress sstainably This capacity problem is not restricted to having data, bt necessitates properly staffing statistical offices, bilding the necessary data infrastrctre, and setting p internationally accepted harmoniation and datasharing arrangements

23 CA A A

Based n a cehensive dataset an Aican cunties this ae shed the significant drivers of Africa’s growth and focused on the importance of prudent use of funds bed ublic and ivate suces gth sustainabilit ith a call inclusive and sustainable develent in st cuent glbal develent discussins st eseaches and licaes ae cusing at least in the s negtiatins n ineualit because cuent gth tends ee und t educe vet hile neglecting euit his ehasis n ineualit is a ecuse t the gthitheuit aadig the s Aican gvenents have e leveage n lic neshi than bee because inceasing essues including a cnceted et b Aicans t ensue the have the lic sace t chat the utue thei develent ithut ecessive utside inteventins and alling int debt cisis as A declines n the ae the eat ecessin and the ecn cannt be let t the ee ill the aet A stateled and egulated aet ecn sees t bette such as China and thiia F instance in auitius industialiatin has develed thugh a lngte cllabative engageent beteen the state and the ivate sect inting t the itance eliting atneshis acss sects and natins sustainabilit sectal and natinide gth Futue gth athas in Aica shuld ecgnie the e cleenta le the state can la in the ecn and include the lling eleents • Allcate debt inance in activities that can te gth as eeience s a shs that debt has been detiental t gth hee is need t cus such debt inance n eecting ne inastuctue such as e statins ads ailas telecunicatins educatin and health and eaiing cuent inastuctue • evel investent ties in aeas that enhance gth ith ai tes Aica ith caeul evie the ta hlidas and ithut dislcating investents b lcal invests in sall and ediu enteises • lit untaed huan natual and hsical esuces F eale the cntinent has a lage uth ulatin—the – ea lds ae at illin and ected t hit illin in hee als ae ne natual esuces and vast undeutilied aable land • eie pportunities of technology transfer from elsewhere and adapt it to Africa’s cnditins Culed ith the esence vast aable land in Aica cuent agicultual technlgies can be hanessed t bst iigatin and agicultual ductivit hich ill lead t b ceatin and d secuit Building caacit enhancing agicultual ductivit and divesiicatin is citical in sting the uneasnabl high cst and vlue d its in uch Aica hile st the sae its can be duced and suced ithin the cntinent • Capacity is critical to sustain Africa’s growth and make it inclusive. Given the proliferation lngte gth visins thee is a caacit need t align natinal and subnatinal gals cdinate lanning and inancing inisties t atch lanned develent iities ith inancing esuces ive ecnic gvenance ighting cutin ta evasin and caital light and cultivate a cultue citted leadeshi t sti ecnies hen ties ae had and t eecute ecve lans ithut lic evesals F eicient bueaucac huan develent health and educatin is essential Findle elsn and haan e itant data visin in a tiel ashin

24 with appropriate uality checks is of paramount importance. o assess growth set enchmarks plan the future and track progress sustainaility achievement of Gs the capacity of institutions in the economic planning chain should e strengthened.

25 A. CC CC C

–

ag of growth . . . . . . ternal det . . . . . . uman capital formation . . . . . . Gross fied capital formation . . . . . . oreign direct investment . . . . fficial development assistance . . . . rade . . . . emittances . . . . General government final consumption . ependiture . nflation . . opulation growth . . pvalue argan test . . . pvalue A test . . . pvalue A test . . . umer of instruments

umer of oservations umer of countries ote tandard errors in parentheses. p. p. p.

26 –

ag of growth . . . . Gross government det . . . . uman capital formation . . . . Gross fied capital formation . . . . oreign direct investment . . . . fficial development assistance . . . . rade . . . . emittances . . . . General government final consumption . . ependiture . . nflation . . . . opulation growth . . . . pvalue argan test . . pvalue A test . . pvalue A test . . umer of instruments

umer of oservations umer of countries ote tandard errors in parentheses. p. p. p.

27 –

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29 GA

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33 PES SSES F ACF CCASNAL PAPE SEES

Soumana Sao (2002), AFCA: MAJ EELPMENT CALLENES TE CAPACT LN MENSNS, CCASNAL PAPE 1

Soumana Sako (2003), THE NEW PARTNERSHIP FOR AFRICA’S EELPMENT: LN ECNMC CPATE ENANCE NSTTTNS F SSTANALE EELPMENT, CCASNAL PAPE 2

Severine uumamu (2004), CAPACT LN N PSTCNFLCT CNTES N AFCA: A SMMA F LESSNS F EPEENCE FM MAME, WANA, SEA LENE ANA, CCASNAL PAPE

enevesi ioio (200), MEASN PEFMANCE F NTEENTNS N CAPACT LN: SME FNAMENTALS, CCASNAL PAPE 4

Soumana Sako (2006), CHALLENGES FACING AFRICA’S REGIONAL ECONOMIC COMMUNITIES IN CAPACT LN, CCASNAL PAPE

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eore Kararach, Phineas Kadene and ibson uvheya (2010), CENC EFMS N MAWE: AN ANALSS F PSSLE CENC EMES, CCASNAL PAPE 10

eore Kararach (2010), A TMES: TE WL ECNMC CSS AN EMEN CAPACT CALLENES F AFCA, CCASNAL PAPE 11

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