INTERVIEW: IMF Promotes Policies to Make Growth Sustainable and Inclusive – Lagarde

Christine Lagarde, IMF boss

The International Monetary Fund and the Mozambican government last week hosted the “Africa Rising” conference, attended by policymakers and private sector and civil society representatives to discuss how to manage and promote the economic gains Africa has been making since the 2008 global economic downturn. In an interview with AllAfrica’s Melissa Britz, the fund’s Managing Director, Christine Lagarde outlined the key reasons for convening the conference, then discussed the opportunities and risks facing governments and people across sub-Saharan Africa:

We wanted to take stock of the developments of sub-Saharan African countries since we last all congregated in Tanzania five years ago. We are five years into and hopefully past the crisis, and the point was: number one to take stock of what had happened and, number two to lay out together and discuss with our African colleagues and partners what the opportunities were, what the challenges were.

What kind of fiscal policies, legal framework, fiscal and tax frameworks should be considered in order to benefit from the growth that we have seen in Africa? That’s really the whole point and I’ve heard from various participants that they really appreciated and found it interesting in terms of exchange of best practices, recommendations from various experts. So voila.

This is the third economic-focused conference on Africa in almost a month, counting the World Economic Forum on Africa in Abuja and the African Development Bank meeting in Kigali. So there’s been a lot of “Africa Rising” discussion. Do you feel that policy makers in Africa and internationally have become too intoxicated with the good news story and have perhaps forgotten what needs to be done to make that good news happen?

I won’t comment on the other two conferences because I wasn’t there.

I’ll focus on what we are trying to do. I think we have a very balanced message which is around the theme of Africa Rising, Africa Watching, because there has clearly been a solid trend of growth over the last few years and, obviously surprisingly, also during the financial crisis when everybody [else] went down.

So Africa like other developing countries emerged as the bit of good news on the horizon. There are also big issues to be addressed and potential risks on the horizon. So our message is mixed and suits the economists because it’s on the one hand, on the other hand. It’s good news and worries.

We tried to address the issues: How do you manage your natural resources? How do you make sure that the population of the country reaps the benefits of natural resources? And we tried to go a little bit deeper in terms of how do you structure your legal framework, how do you organize the tax landscape in which the investors are going to be prepared to invest, leaving enough on the African table and taking away what any investor wants to have as a return.

When we focus on the creation of jobs, we are also trying to address one of the big issues on the horizon. So I think it’s a mixed message. What we take away is good news. It’s positive but we see risks on the horizon.

South Africa is on the verge of recession. The bottom is falling out of the Zambian currency, the bottom is falling out of the Ghanaian currency, and Nigeria’s got a massive internal security problem. The list is long. Where do you see the good news?

I think you’re looking at four countries.

Four quite important countries.

Absolutely. But you have to flash back as well – what was it like 10 years ago? You also had major risks, and very difficult situations.

Probably much more complicated, not much more because there is one that is not only affecting Nigeria but the whole issue of the Sahel region.

But you also had big conflicts, some of which have been resolved in the meantime. So our job as macro-economists is to look at the key numbers, and when you look at the key numbers you see growth, you see inflation, you see current account, and you see deficits. On all those accounts the situation is a lot healthier than it was 10 years ago.

Sorry I forget to mention debt which is a subset of the other numbers.

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Debt has been significantly reduced. The average debt in Sub-Saharan Africa is 35 percent. But if you take one or two countries – and that’s where we’re saying watch out, because there are some countries that have gotten a bit ahead of themselves, that are increasing the level of indebtedness to a level which could be a concern.

Former South African President Thabo Mbeki who heads up theHigh-Level Panel on Illicit Capital Flows says that Africa wouldn’t need development aid if illegal outflows were stemmed. What needs to be done to address this from the side of wealthy countries where the money goes but also by African governments?

Transparency here, transparency there. It’s not enough but given the availability of information, to which you contribute by the way, and the facilitated access to information I think that transparency is a very strong weapon to fight against those illicit flows.

I was struck [when] I went to the university [in Maputo] and asked how many in the room do not have internet access. Do not use internet. Zero.

Not all of them had iPhone or iPad or tablets, but all students in the room said “yes, internet access” and use it on a very frequent basis. I would say that transparency is key because it’s the tribunal of public opinion that is then available.

The way the IMF communicates these days is vastly different to how it communicated 10 years ago. Are you still finding your way in Africa, finding the tone in which you speak to governments, or is it clear what the parameters of the interactions are?

It is a partnership, whether we are doing bilateral work with the Article Four’s [see IMF Surveillance of member countries], whether we are providing technical assistance or training. We have five regional training centres now in Africa and sub-Saharan African countries consume 40 percent of our technical assistance on a global basis.

Whether it’s through surveillance, technical assistance or through the programmes, I think it really works as a partnership. There have been instances where we were lacking the appropriate information, where the level of disclosure was not satisfactory. When we find out, we go back to the authorities and we have a dialogue. We don’t patronize. We want to partner and partnership again is based on transparency. Where there are obscure contracts we don’t get a copy of or there are side letters that we are not aware of, we say “sorry we want the information”.

The European Central Bank is considering measures to stimulate the economy, and we have seen what stimulating the economy has done positively and negatively to countries in Africa over the last few years. Is there not a risk that if the ECB does put some stimulus into the economy, it can exacerbate the debt situation for some African countries?

If that was to happen – and we haven’t seen that yet, we have heard statements to that effect – but if that was to happen, the intention behind it is not to destabilize or unsettle other economies but to stir the European economy which is clearly a key partner for some of the African countries, and a partner altogether for sub-Saharan African countries.

So that’s the positive side of it – if Europe does better, clearly the relationship [with Africa] based on either trade or investment or remittances can be improved. The other side of the coin is that if not well communicated, if not well anticipated, it would bring about a level of volatility which could be detrimental. And my hunch is that given what happened a year ago, in May 2013, the authorities anticipate and have begun to take measures to anticipate that. It is a potential risk but one that I hope can be mitigated by those measures.

A large number of African countries has raised Eurobonds in the last couple of years. Do you think this is a good idea?

What we see as a key priority is energy, I think that’s my answer to your point. When you look at the per-capita input of energy, it’s amazing to see that it has hardly moved since the 80s. The output of electricity in the whole of sub-Saharan Africa is equal to that of Spain. So there’s a crying need for investment in energy and infrastructure projects such as transportation. I would say that improving the productivity of agriculture in a smart and green way would also be a good way forward and I know that some of the panelists[at Africa Rising] did not agree with that.

The Chinese premier recently has promised technology transfers and more investment to Africa. Do you have any comment on his promises and what are the potential areas that China can best assist?

In terms of the sectoral approach, our take is that the energy sector is absolutely key. Then you can roll out the rest of the infrastructure projects that would be needed – transportation channels, whether it’s railway, roads, airports or ports. So energy and transportation – this is what I would call the hard infrastructure projects. But you also have soft infrastructure projects that touch on people – training, vocational training and education. If the Chinese authorities at the highest level support the transfer of technology to the effect that it would help in those directions that I have identified, I think it’s good. I think it’s a sign of more mature investment than just financing and construction.

If that is what is intended – I haven’t seen his quotes, I haven’t read his speech – but if it’s the intention, it’s a mature approach to investment.

What do sub-Saharan African countries need to achieve development apart from investment?

Yesterday I tried to be as crystal clear as possible. It was picked up by a Chinese colleague who was on a panel afterwards. It’s infrastructure, institutions, people. But at the rock bottom of all these projects you need money. Investment is not in and of itself sufficient but a pre-requisite to build infrastructure projects, and to develop institutions.

I’m not sure if money is necessary for transparency and good governance.

But clearly the lack of growth, and misallocation of the benefits are not conducive to good governance and institutions. And when you talk education, when you talk health, talk investment. Now how you balance the public and the private and how you mix them together – the concessional arrangements – that’s really where the technical work has to be done with a view to reaching the right balance. The royalties rates, the length of contracts, those are the technical things that actually matter.

You recently spoke about the three L’s of women’s empowerment – learning, labour and leadership – and said that women are more inclined to share knowledge and share consensus building. How do you see women contributing to Africa’s growth?

Significantly, if I look at the numbers. I mentioned in my speech that if you were to close the gap between men and women in the labour market in Africa, we’re talking about U.S. $90 billion on an annual basis – tantamount to the U.S. $93 billion needed on an annual basis to finance projects. So that’s a bit from the textbook because clearly then you get into all the technical issues: inheritance, ownership of land, availability of collaterals, access to credit – all the cultural bag of issues that often get in the way of women having access to finance, job market and education.

I’m not sure that it is so much the case in Mozambique because I think that Mozambique has done quite a lot to improve the situation for women but there are other sub-Saharan African countries that have a long way to go. They can benefit enormously from the real emancipation of women and better and equal access to job and finance markets.

Melissa Britz’s attendance at Africa Rising was sponsored by the IMF.

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