South Africa, at a Ministerial roundtable discussions on infrastructure
development and regional integration, issues, opportunities and
challenges
16 May 2006
Distinguished Prime Minister, President of the ADB, Mr Kaberuka
Executive Secretary of the ECA, Mr Janneh
Excellencies
Ministers
Governors
Dear friends
Our deliberations here are about the responsibilities we have as decision
makers. This is the most fundamental reason that brings us together. If we look
at previous decisions about issues like the Millenium Development Goals (MDGs),
it is essential that we review what we have done to improve the quality of life
of our people and identify the challenges that remain.
Last yearâs discussion was about Africaâs resource needs including what we
could do together to write off debts to create fiscal space.
Now it is time to get down to the business of addressing how we use the
fiscal space in order to stimulate growth and development on our continent. We
not only need to make more resources available for social expenditure, but also
for economic infrastructure to ensure that we stimulate growth and development
in all our countries.
In our endeavours to attain the MDGs, we must ensure that space is created
for the productive sector. We need to correct the balance between the social
and productive sectors, so that we also build for the future by investing for a
higher growth path. Together with our development partners, we have tended to
tilt only towards the social side of the responsibility. The result is that our
infrastructure investment levels are far too low to support the magnitude and
character of growth and development that our continent needs. In correcting
these imbalances by scaling up investment in infrastructure, we must take
responsibility for driving our own development trajectories and ensuring that
our development partners reciprocate by aligning their support to our
development imperatives.
We also know, friends, that investment in infrastructure is pro poor and
improves Africaâs prospects for long-term growth and development.
Infrastructure is an area of regional collective regional interest indeed,
getting to Ouagadougou presented a challenge to those of us who had to travel
between two African cities. Many of us had to fly via Europe to get here from
our home city. Clearly, if we are to build an economically and socially
integrated continent, we need to spend much more on economic infrastructure to
link different parts of our continent.
Where do we begin? The first step is to ensure that we effectively use the
fiscal space we have created to correct the balance between social and
productive expenditure in our budgetary allocations. We also need to monitor
the impact of changed expenditure patterns from an ex-ante policy perspective,
to ensure that we are making the optimal allocations between social and
economic infrastructure. In addition to ensuring the adequacy of budgets, there
is also a need to win political consensus for budgets and to be very sure that
the money has been spent as we intended and has achieved the outcomes we
desired when planning the budget.
We can facilitate such planning and accountability for both our people and
donors, by embarking on simple budget reforms like better planning, more
transparency, and opportunities for greater participation, multi year budgets,
better governance and effective accountability for spending. Part of our
pleading is to ask donors to trust the quality of governance to ensure that
they support the gap in budgets, rather than a myriad of projects dreamed up by
officials in the capitals of the donor countries.
Some of these reforms are relatively easy, and we have succeeded in the past
few years through Monterrey, Paris, Gleneagles and a series of G7 meetings, to
raise the profile of our continent and achieve the fiscal space required. We
have also progressively strengthened support for our economic and social
imperatives from our development partners. Now we must grasp the opportunities
created by these favourable developments to squarely address the challenges
associated with lifting the continent onto a higher growth and development
path.
We need to move forward by building on the significantly improved political
and economic circumstances we find ourselves in. As the latest statistics
illustrate the higher growth of five percent in 2005 and projections of 5,8
percent this year masks the fact that growth in non-oil exporting African
countries is significantly lower.
It is essential that we develop clear growth and development strategy
country by country on our continent and focus on the binding constraints that
prevent us from growing faster. The dependency of many of our countries on
primary commodity exports, frequently marked by single commodity exports in an
environment of huge oscillations in commodity prices severely constrains our
growth prospects. Measures to drive the diversification of our economies must
be the centrepiece of our national growth policies. The two key constraints to
diversifying our economies are inadequate economic infrastructure and the slow
pace of regional integration.
Infrastructure and investment
It is common cause that the enormous backlog of investment in infrastructure
is a primary constraint to service delivery, to attaining the MDGs and to
increasing investment in Africa. Almost every investment climate assessment
conducted in Africa by the World Bank by United Nations Conference on Trade and
Development (UNCTAD), by the World Economic Forum and other research
institutions over the last five years identifies poor infrastructure as the
primary constraint on expansion and the key variable informing negative
investor perceptions. This is the issue that President Kaberuka referred to
earlier in relation to the investment climate. This is why colonial trade
patterns have persisted in many of our countries for many decades after
liberation.
They typical investment pattern has been finding a mineral, digging a hole,
getting it out of the ground and exporting it to the north. The top item on our
list must therefore be the decolonisation of Africa, the current patterns of
trade and investment holds back development.
Africaâs share of world FDI inflows is relatively small at three percent and
is restricted to minerals including oil, gold, diamonds, platinum and copper.
We should therefore embrace the initiatives of the investment climate facility
(ICF) as a measure to support our domestic endeavours to improve investment
flows to our continent. Our agenda for participation in world trade will
flounder unless we focus on first things first: increasing trade amongst
ourselves is the imperative. Intra African trade will be boosted by regional
integration and the implementation of infrastructure to link our countries.
We all recognise inadequate infrastructure is a core constraint. We have
recognised the imperative of increasing investment infrastructure by placing it
right at the centre of our New Partnership for Africaâs Development (NEPAD)
strategy.
Indeed, we will be reflecting on progress made with implementation of the
New Partnership for Africa's Development (NEPAD) short term action plan by our
own institution, the African Development Bank (ADB) in our review of progress
later this week.
There is substantial agreement and distinguished Prime Minister of Burkina
Faso raised this again this morning that regional infrastructure in the form of
power pools, road corridors and communications networks are critical to the
support of growth and competitiveness, in achieving economies of scale and in
reducing costs.
Improved infrastructure not only improves the living conditions of the poor
but also reduces the costs of business and further encourages business to
invest in productive assets. It enlarges markets. It is not surprising that the
poor of Africa perceive the isolation associated with the lack of
infrastructure to be the cause of their poverty and marginalisation. Too far
from markets, too far from arable land, too far from hospitals and clinics.
The responsibility for ensuring the rapid expansion of infrastructure lies
squarely with the state; the government budget will continue to be the main
driver of infrastructure development. The domestic public sector remains the
dominant source of finance for infrastructure all over the developing world. It
accounts for 70 percent of current spending on infrastructure, with the private
sector accounting for somewhere between 20 and 25 percent (1) and Official
Development Assistance (ODA) for five to 10 percent. But thatâs a global
statistic in Africa private investment in infrastructure is a fraction of this
developing country average.
The critical question that remains is, âhow much do we need to spend?â
The World Bank has estimated infrastructure investment needs in Africa to be
approximately five percent of Gross Domestic Product (GDP) per year, plus a
further four percent for operation and maintenance, totalling nine percent.
Today total expenditure on new investment in infrastructure is about two to 2,5
percent with private investment only 0,3 percent. Thatâs a huge gap and that
gap is widening as technology moves ahead across the world in leaps and
bounds.
This afternoon we are going to tackle these issues in detail assessing how
to get the policy framework right and meeting the investment needs.
Investment in infrastructure poses particular challenges. Projects tend to
be large and expensive. They also require maintenance to ensure continued
effectiveness.
Given the small size of our domestic markets, our development prospects are
greatly enhanced if we facilitate trade across national boundaries, create
integrated energy markets, support regional water resources management and
develop the private sector so that they can also then invest in regional
infrastructure.
But lest we forget it is the nurturing of human capability that we must
focus on teams of engineers, project managers, technicians and artisans
together with effective governments are the real drivers of infrastructure
development.
Regional integration
The poor and often non existent linkage between African countries poses a
constraint to growth. Apart from the difficulty of travelling between African
countries why is it that we find it easier to trade with Europe, Asia or
America rather than to trade with our own brothers and sisters on the
continent? While we can point to reasons like poor regional infrastructure or
slow progress on the DOHA round, we need to also look at the self-imposed
barriers that prevent trade and other economic linkages. Many of these barriers
are regulatory constraints that we have the power to remove.
The key constraints that require urgent redress are some of those mentioned
by President Kaberuka earlier and include restrictions on travel, including
visa requirements; bureaucratic controls that inhibit participation by
non-citizens; and the lack of harmonisation in frameworks for investment,
taxation and tariff regimes, particularly as they affect foreign investors.
The key point is that we can and must seek agreement on these issues and
develop and implement policies that will integrate our economies in a way that
enhances our growth and development prospects. In other words we have to look
at issues of governance and not just concrete, we have to look at intra-African
trade and not only the construction of rail and roads.
Conclusion
In conclusion, we need to commit ourselves to budget more resources for
economic infrastructure. We need to do this through a more transparent and
accountable budgeting framework, where we make the tough choices for a more
optimal balance between social and economic expenditure. The battle is to
persuade our development partners that investment in infrastructure is
investment in change and in the human condition.
We also need to make more progress in developing regional policies that
promote trade and co-operation, starting with lower tariffs and removing
constraints to inter-regional investment.
More importantly, we have to develop plans to implement these policies. It
is easy to devote resources to infrastructure but much more difficult to plan
and spend such funds effectively so that we achieve the desired outcomes.
More particularly, we have to address the following issues if we are to
effectively deal with the challenges of infrastructure and regional
integration:
* Firstly, how do we mobilise development finance institutions like ADB and
World Bank (WB) to address the capacity constraints associated with the
implementation of infrastructure projects in order to eliminate the lag between
approvals and disbursements.
* Secondly, how can we assist our development partners to improve
co-ordination and reduce the administrative burden associated with project
implementation? In this regard we look forward to hearing more about how the
Africa Infrastructure Consortium at the ADB will improve donor harmonisation
and co-financing for infrastructure programs.
* Thirdly, how do we enable investors and financiers to have more confidence
in our ability to provide a stable long term investment environment? And then
you might ask what the limits to change might be? I saw a recent television
programme on Dubai which showed how this city in desert has highest water usage
in world. The government has built capacity for the desalination of water and
has built infrastructure that will be sustained long after the countryâs oil
resources are depleted. They have shifted the limits. What are the limits to
change for our continent?
If we as policy makers are serious about uplifting the poor and sustaining
our ability to do so, there is no time to waste in identifying what we must do
to get the policy framework right and ensure effective implementation. There
are no limits.
Thank you.
(1) The private sector is a much smaller contributor for Africa
Issued by: Ministry of Finance
16 May 2006
Source: National Treasury (http://www.treasury.gov.za)
