Uganda will go back to 6% and above rate of growth

By Andrew M. Mwenda

African Development Bank President, Donald Kaberuka, spoke to The Independent’s Andrew Mwenda about the future of African economies and Uganda.

Since the mid-1990s, we have seen sustained economic growth across most of Africa. What role has AFDB played in that transformation? Is AFDB relevant to growth in Africa?

First of all I want to be careful about what we call the attribution problem. All I know is that in this period (1995 -2002) AFDB has put USD 100 billion into the African economy. It is the first time when GDP growth has consistently out stripped population increase. There are a few outliers, but the growth for sub-Saharan Africa will be 6.4% next year.

I like to believe that the contribution of the AFDB has been firstly in terms of a policy shift; getting the best practices and policies. Secondly, the emphasis on infrastructure and thirdly, regional integration, which are the key issues here.  What you see is a combination of domestic factors, policy, external input which is money, high commodity prices and some degree of demographic dynamics contributing to the current Africa momentum.

What are the specific policies you think are responsible for this sustained growth in Africa?

I think for the first time we have had a very positive relationship between the private and public sectors. Number two I also believe that in terms of policy consistency rather than policy volatility is important. Today in sub-Saharan Africa we no longer have policy outliers.

Which are these policies that have been good and consistent in Africa over the last so many years?

The macroeconomic policies which are very critical and also the private and public sector cooperation. I am less enthusiastic about the quality of the institutions that could have done better; in other words institutions that deliver, agree, and are accountable. That is work in progress.

In macroeconomic policies what are the specific policies that you can point out, say these have been good and consistent?

The size of deficit, level of debt, and inflation control; these for me, are very good.

What would you say of deregulation, privatization and liberalisation?

I would like to put it differently. What is the right dose of state in markets cooperation in a particular country? It is important not to be theological about it because in some in some countries the private sector was so weak it required a helping hand from the state without picking winners and with an exit strategy.

How can the state be involved in the private sector without picking winners?

First of all there has to be a political decision that there will be no political support to favoured groups. This has been the problem in Egypt and Tunisia. In Egypt today privatization has a bad name because it was seen as creating a kleptocracy and crony capitalism. Same for Tunisia. However if the aim is to create a level playing field for everyone, with rules which are clear for all to enter or exit, then you will succeed.

What do you see as the next major challenge that Africa is facing especially given the slowdown of growth in western economies.

The biggest challenge is number one jobs, number two jobs and number three jobs and that comes with ensuring that economic growth is broad-based and inclusive. If economic growth actually breeds huge inequalities, excludes large populations from the benefits of the economy, and does not create enough jobs; it is not sustainable. The biggest issue we are facing now is one of sustainability, and sustainability will not happen until you can ensure that jobs are being created, and all people are participating.

What is the AFDB doing in helping African countries confront the challenge of jobs?

Our new ten year strategy is called a strategy for inclusion with three critical elements. The first one is ensuring that children of the poor get access to education to achieve two simultaneous golden objectives. One you break the inter-generational transmission of poverty, the second golden rule is ensuring safety nets that are targeted.

What are these safety nets?

In other wards subsidies which are targeted to the poor or those who need them, because what has been happening is that in many of our countries in Africa, the subsidies are across the board. The third one is the area of agricultural transformation because even in a place like Uganda, if you can raise productive agriculture even by as low as 15% you lift millions out of poverty immediately. Two you ensure that the children end up in quality schools not simply numbers. There is inter-generational transmission of poverty.

So what is AFDB doing on this?

On agriculture, we do not do microfinance fertilizer distribution or farmer training, we concentrate on infrastructure for agriculture because we have found that in countries where productivity has increased and the y have got 40% post-harvest losses,  it is pointless.

In North Africa, they have a high number of highly educated people who could not find jobs. Meaning that education may not always give you the dividends you want.

Let me add something you do not know. First of all, crony capitalism creates a limited number of jobs, does not necessarily employ those who should be employed. But talk about education, I have added the word quality education. One thing we are doing in northern Africa is called the David partnership. It is how to retrain some of these people to make sure that they can be employed or create jobs themselves.

There is a lot of debate about Africa and China; some think China is coming to steal our raw materials others think it is coming as a genuine trade partner. What do you think China offers Africa?

Can I expand that question? I think there is some fascination of Africa with China. People think that they can pick China’s final outcome without going through the same path. China has made many mistakes before getting where they are today.

So what interests me is the experience of all those countries around the table of the G20; to see what I can learn from them including China. But don’t think you can take the Chinese model and transplant it in Uganda. Every country is different.  There is no escalator to development. It is a hard slog up the stairs. You fall, you stand up, you keep moving.

But do you think China is good for Africa?

China is good for China; it’s out to defend its national and economic interests. It’s up to Africans to defend their own interests. I certainly like very much the cooperation between Africa and China on infrastructure which was very much needed. Frankly I don’t think the relation between Chinese mineral importing companies and Africa mineral exporting countries is any worse than say European or American oil companies and African oil exporters. I think it is a fantastic opportunity.

You have been travelling around Africa; from the AFDB perspective which countries in Africa are growth outliers that you think will be able to become middle income countries within the next ten to twenty years?

You have to be careful with these growth numbers because I distinguish between growth from the enclave economies. I presume you are asking about the sub-Saharan countries. I think Ethiopia has been an interesting experience because of 80 million people, with not much natural resources but hydro power in the horn of Africa, transforming itself in a decade from a poster child of starvation to one of Africa’s fastest growing economies under Meles Zenawi.

It also has had very high levels of inflation about 37% – 40%

My own country, (Rwanda) from where it was in 1994, almost a country in ruins to where it is today has also been a fascinating experience. Ghana which in 1956 was compared to South Korea; went almost as low as they could go in the early 1980’s, now almost coming close to middle income country after a recent debasing of the GDP. Cape Verde from nowhere to a middle income country. What I am trying to say is that in Africa we have such a whole range of experience to look at and I am keen that they learn from each other.

We are in Uganda, you haven’t spoken about Uganda?

I think Uganda’s challenge going forward will be probably trade. I think Uganda needs to reduce its level of aid dependence, I think it’s at a critical level, once you come close to 50% of GDP, it’s too high. Number two Uganda should avoid making the mistakes of the first generation oil producers, it is possible and doable. Third Uganda like my own country Rwanda has to manage the challenges of being landlocked and what that means in terms of potential for manufacturing and industrialisation.

How do you manage the challenges of being landlocked, massive investment in infrastructure like railways and roads?

I think probably the best option for this country is to observe the global value chain and determine how to enter it with high value low bulky goods. If today Uganda was to become say a major center of manufacturing of some electronic components, in this case the distance from Mombasa would become totally irrelevant.

But is it possible for a country to jump from a raw material bulky products exporter to a high end technology exporting country?

It’s a continuum; the word jump is not the right one. Vietnam which has gone from a command economy to the world’s second biggest exporter of coffee did not jump but its investment in rice and coffee production and education has been such that companies are relocating to Vietnam for low value production like textiles.

How much money does the AFDB have to support your partners?

Since the creation of the bank we have put out there up to last year USD 100 billion worth of lending.  We are managing a portfolio of about USD 32 billion. I expect that in the next three years to commit an extra USD 26 billion and 60% of that will be infrastructure, namely broadband, roads, electricity, water and sanitation.

At the time you became president, the capitalization of AFDB was USD 35 billion. You have expanded it by 200% to about USD 105 billion. What dramatic changes should we see from the AFDB in terms of its contribution to Africa?

We are able to commit shareholders to triple the capital of the bank. At the same time, during the period of the financial crisis, adopting a counter cyclical stance which we think helps to minimize damage on the African economies. In terms of our strategic choices, I focus on infrastructure both national and regional.

What are the components of infrastructure?

We have broadband, transport (roads and railways), energy and water and sanitation. Economic integration for us is extremely important, one of the reasons that I am here is that I was looking at the progress of the Kisoro to Bunagana Rwanda highway from Fort Portal to the Congo because we are interested in those things. We have just funded, along with other institutions, the electricity highway between Ethiopia and Kenya and the road from Kenya to Tanzania. Second we have put a lot of emphasis on the private sector. When I joined the bank, they were doing may be USD 300 million a year on private sector lending it is now at USD 2 billion. Almost 30% of bank lending is now private sector.

The third emphasis for us has been issues institutions and governance, building institutions that deliver, that are clean and accountable. Fourthly has been the issue of supporting countries emerging from conflict.

Finally I want to ask you a question about Uganda, Uganda’s economy has been growing at around an average of 8% per year but last year and this year it is declining to 3.5%-2%. What advice do you have for Uganda?

First of all, in all fairness, Uganda like many other African countries in terms of crisis management, post Lehman Brothers I think they have been models of how to do things both in terms of monetary and fiscal policy. However Uganda is an open economy, so you have the pass through of the Euro Zone crisis on the export account and investment flows. Thirdly I think that the relative slowdown in some of the large emerging markets will have some impact on other countries, but I am confident that Uganda will go back to 6% and above rate of growth.