‘Post-Crisis Africa: Old Challenges, New Opportunities', a talk by Dr Ngozi Okonjo-Iweala, MD of the World Bank

The charismatic Dr Ngozi Okonjo-Iweala gave a presentation at my alumni university, the London School of Economics, last Tuesday, 13th September 2009. Her presentation was on ‘Looking beyond the Crisis: Challenges and Opportunities for Africa’ - a rather typical presentation title, but quite refreshing ideas from her side.

Her presentation gave a brief overview of the economic developments taking place across the continent since 1995, citing remarkable growth rates, reductions in armed conflicts, increased regulatory reforms and more transparent elections.

However, over the last three to four years, the continent has been struck with what Dr Ngozi referred to as the crises of the four ‘F’s’ – Fuel, Food, Financial which has led to a new crisis - the Fertiliser crisis.

During the presentation, she kept stressing the importance of stimulating growth by creating jobs. The World Bank are predicting a rise in average real GDP growth rates to 4.5% across the continent in 2010, however, jobs will lag behind.

Dr Ngozi then proceeded to talk through what she saw as the eight main challenges facing the continent in the years ahead, many of which have been cited before. These are:

· The role of government and its accountability

· The sustainability of public debt

· Economic volatility

· Corruption

· Political stability

· Climate change

· Augmenting Energy resources

· Accelerating ‘job-creating’ growth

The opportunities that she laid out however, were more unique. These included:

1. Promoting labour intensive manufacturing to spark technological innovation and competition. China will be driving this manufacturing growth and Africa should be looking to partner with China and India to service their industries rather than be undercut by Chinese and Indian goods.

2. Investing in the full agricultural value chain, from raw products to processed goods. Only 40% of Africa’s productive land is currently being cultivated. She cited the need to bring more female entrepreneurs into this sector as women largely comprise the agricultural workforce.

3. Climate change is a challenge, but also an opportunity. Currently, Africa uses only 8% of its renewable energy resources compared to 30% in Latin America. Investing in sustainable agriculture and clean technology can supply Africa with a new revenue source. The World Bank has just launched the World Development Report 2010 on Tuesday (22 September), which focuses on Development and Climate Change.

4. Repatriate embezzled resources and stem the outflow of financial and natural resources from Africa. This opportunity is off the back of the G20 financial summit pledging to put an end of tax havens and the OECD anti-corruption programme and convention.

The question and answer session raised a few interesting ideas as well, such as the need to implement strong tax reforms so that a government’s revenue doesn’t rely solely on exploiting natural resources. However, the main obstacles to this, and obstacles that Dr Ngozi faced when she was the Nigerian Minister of Finance, was the difficulty of tax administration and the narrow tax base, with many people still in the informal sector. She recommended that government should incentivise the set up of small and medium sized enterprises by placing a 0% or subsidised tax regime on these businesses for the first few years, and then slowly introducing a taxation system which provides them with resources and assistance.

The issue of regional integration also cropped up. Dr Ngozi was an advocate of regional bodies like COMESA and SADC but stressed that they could still do more. She was supportive of common currencies but stated that national currencies and economies need to have the correct systems to manage exogenous shocks first.

She summed up by stating that to prevent another financial crisis like the one we have just experienced, the world must establish multiple poles of growth. America was once the main growth centre and China and India are emerging. But more are needed. Dr Ngozi is confident that Africa can be the source of successful and strong growth centres.

Meeting for Africa in New York

Near the end of September, New York will be a flush with Heads of state, CEOs and executives. They will be flocking to the city not just for the annual UN General Assembly, but also the annual Clinton Global Initiative, a CEO’s working lunch on the Millennium Development Goals (MDGs), the African-American Institute Awards Gala Dinner and the Africa Investor Index Awards.

Increasingly, businesses are being welcomed to governmental and multilateral events. It is a sign that all parties are recognising the need for collaboration and mutual understanding. And the growth of Africa-focused events is also a promising sign given the impact of the financial crisis on aid flows to the continent.

At the CEO’s working lunch on the MDGs, the main topic of discussion will be how Africa can make substantial headway to attaining at least some of the MDGs. The theme of this year’s African-American Institute Awards Gala Dinner is “Nurturing Democracy and Hope for Development in Africa.”. Interestingly, most of the sponsors are from the corporate world, including Constant Capital Partners, Chevron, DeBeers and Exxon Mobil. Corporates are being recognised for their contribution to Africa’s development and many businesses are doing a good job of it at that, as highlighted by Africa Investor’s Index Awards, which awards and recognises Africa’s institutional investors, stock exchanges, best performing listed companies, stockbrokers and capital market regulators. These awards demonstrate the burgeoning financial industry in Africa which is driving economic growth.

As for the Clinton Global Initiative Annual Meeting which brings together business, government, and civil-sector leaders to plan and launch specific projects, ‘Commitments to Action’, to address global economic, environmental, and social challenges, it probably comes as no surprise that most of these 391 commitments are projects based in Africa. Many of these commitments are from large corporations such as Diageo, Standard Chartered, Coca-Cola, Nestle, Guaranty Trust Bank, Equity Bank Ltd, and Philips. Again, it is a demonstration of the private sector driving social, environmental and economic development in Africa.

More obviously can be done - we are still along way away from attaining all the MDGs in all African countries. As it stands, corporate contributions to Africa’s social and environmental development mostly takes the form of philanthropic giving. However, there are signs that companies are beginning to view their role in Africa’s sustainable development slightly differently.

Over the next five to ten years, I believe we will see a shift from ‘Corporate Social Responsibility (CSR)’ thinking and a philanthropic giving mentality, to a more strategic approach to sustainability. I believe we will see the following trends:

· Business management strategies and the ways of doing business will increasingly start to embed ecological, social and ethical viewpoints and measurement tools and standards. Many MBA courses in the US and the UK are looking at the development of strategies which create business as well as social and environmental value.

· More companies will begin to tie their marketing strategies with green initiatives, as we have seen with electric and hybrid cars.

· Larger companies, through their public affairs department, will increasingly engage governments on environmental and social policies to deepen their understanding of public opinion and public policies especially in the themes of climate change, energy and water.

· Companies will move away from providing grants to non-governmental organisations to investing in stimulating small to medium sized social enterprises such as ‘clinical social enterprises’.

· All companies, large and small, will begin to use social media and online tools more frequently to improve their stakeholder engagement methods and transparency.

My hope is that businesses who are beginning to implement some of these initiatives are showcased at events like those taking place in New York, so that they can be replicated and adapted into other business models.

Doing Business 2010

The International Finance Corporation (IFC), a World Bank institution, released its annual “Doing Business 2010” report yesterday. The audit looks at how countries around the world have improved the environment for small to medium businesses (including sole traders and entrepreneurs) to set up and do business.

Singapore remains at the top for overall “ease of doing business” but some interesting results for Africa – and opportunities for sharing best practices.

287 reforms were recorded in 131 economies (June 2008 to May 2009) – a record – but more significant was the fact that low- and lower-middle-income economies accounted for two-thirds of reforms in 2008/09. Is the economic crisis hitting developing nations harder than we thought, kick-starting reformers into action to attract more inward investment?

Rwanda – the top reformer - introduced reforms in 7 out of the 10 categories (such as registering property, enforcing contracts, getting credit, protecting investors), rising from 143rd to 67th place on the ease of doing business rankings – and the first time a Sub-Saharan African country has led the world in reforms. Liberia entered the top ten, while Mauritius and Sierra Leone were also recognised for leading in certain areas.

So post-conflict countries have a reason to reform as well it seems – again with the driver of attracting Foreign Direct Investment. While business reforms are only one part of economic development / recovery, it is one area that the government can manage, monitor and measure. The question is how much the private sector can influence the government – but big business has to realise the advantages of a thriving SME sector in that case.

Rankings are one thing – the World Economic Forum also released its 2009 / 10 global competitiveness index yesterday, to give countries even more numbers to compete on, but surely what counts is the experience in each country. As Penelope Brook, Acting Vice President for Financial and Private Sector Development for the World Bank Group said – absolute scores are what matter. A women trying to set up a retail business in South Africa is not going to care what others are going through in Ghana or Guinea; what matters is the speed and ease of processes for her. All the top rankings in the world count for nothing if people on the ground don’t experience change.

So where to from here? Is it the case, as Thierry Tanoh, IFC Vice President for Sub Saharan Africa, states, that we are seeing a sea change in the way Africa views investment, or is it a short-term shift in rankings due to circumstance? There are remarkable signs of progress in Africa, with the likes of Rwanda providing a roadmap for others, but the ability to maintain that momentum, and weather the storms of political, economic or social changes is crucial – for domestic and international audiences and investors.