Professor Jeffrey Sachs, Economist, speech to the Africa Union: the Times are Perfect for Longterm Rapid Development

Africa Needs a Common Integrated Deep Strategy for Ending Poverty and Industrialization

transcript by PD Lawton, 1 March 2023

Jeffrey Sachs was speaking at the “High Level Event on Africa’s Macroeconomic Performance and Outlook,” at the opening session of the 36th Assembly of the African Union at AU headquarters in Addis Ababa, Feb. 17. He was one of several speakers and was present in person.

What Africa can achieve in the coming 40 years is what China achieved between 1980 and 2020. Forty years in which the Chinese economy grew roughly 35 times and went from poverty to a very strong economy, indeed by some measures, the largest economy in the world. Africa has the same population as China and it has the same potential as China but it requires obviously a deep strategy to achieve this kind of result because what China achieved resulted from a deep strategy, it was not something that just happened. It was something that was promoted by the Chinese leadership, by the National Development and Reform Commission, by strategists over the course of 40 years. This I think, is Africa`s challenge. I don`t believe this can be viewed as one country at a time even though each country has a very important role to play, because it will be the cumulative, Africa wide , process that will carry each of the countries forward , help set improved policies , make financing available and solve infrastructure problems . Africa needs an Africa wide power pool. Africa needs an Africa wide fiber network.  Africa needs an Africa wide transportation networks both highways and I would say especially fast rail. And that means no country on its own can accomplish this. These are big projects; they require a lot of financing.  They require a lot of cooperation between countries.

I think the progress the AU has made in the last 10 years is extremely important because it is only in the last 10 years that the real idea of a single market and an integrated prioritization of Africa wide infrastructure has come to the fore.

So I think that the base for this kind of development really wasn`t there 20 years ago. Individual countries could do their best often surrounded by a lot of chaos in the neighborhood. But it was very hard to get this kind of long-term rapid development. Now I think what`s crucial is that at the base – long-term rapid development comes from investments and rapid growth comes from high levels of investment relative to the size of the existing economy. So to grow faster means to invest a higher proportion of GDP.

What is crucial though to understand is that these investments are both public and private so there is no possibility to say we are going to have private sector led growth. That is not possible, of course private sector is crucial but without the public sector there is no private sector led growth. And the reason that is there are really is at the core 4 kinds of investments that need to be made:

The first is physical infrastructure, power, fiber, roads, transport, water and sanitation, urban infrastructure. And these are by and large public sector investments. Of course the private sector can contribute but I don’t know of a single country where the private sector does this on its own, because these are monopoly sectors. So if you hear about the privatization of the utility sector don’t believe it, nobody has a private utility sector. They may have private utilities that are publically regulated but this is a public investment. And that is crucial.

The second investment is and most important fundamentally, is in human capital. First, basic healthcare, nutrition, healthy brain development, healthy child development. It is fundamental obviously. And then children in school, learning. Africa needs all of its school aged children in school , all of them! This is not so hard to accomplish but I will come back to that in a moment. But that is a public effort. No private sector is going to solve that problem! What the private sector does with health and education is cater to the top 1% or top 5% or top 10% of the population. But that is not economic development. Economic development is ensuring that all children have at least an upper secondary completion.

But I would aim and I think this study should aim that 30% or more of African young people have a university degree by 2040 or so. Absolutely achievable, even faster. Especially with on-line education. So this is the second area of investment, it is public. No business is going to come, other than to take oil and gas or cobalt, unless there are skilled people in the workforce. What a business wants is – are there managers locally, are there engineers locally who can manage the technologies? Are there people w2ho can be a good interface with the international community? That is ALL education!

So this education as the second most fundamental part of human capital is crucial. The third is business development and of course that’s overwhelmingly private sector. And it’s both domestic businesses and its international. But I tell you if there is no electricity they are not coming. If they have to depend on their own diesel generator they are not coming. If they can’t find skilled workers they’re not coming. If they can’t find decent water and sanitation half of manufacturing can’t function.

And the 4th kind of capital is the environmental capital. This continent is uniquely blessed with natural capital and it’s uniquely threatened right now. It is under a lot of stress. And so there is going to have to be a lot of investment to protect the nature, to stop the deforestation, to protect the eco systems, to protect the wildlife which is key for tourism aside from everything else. And that requires al of of investment. So the core that I am emphasizing is we need a smart investment strategy more than anything else. And that investment has to be comprehensive. And I feel very much for the minister right now when she says – I have to pick and choose right now, my budget does not allow this-.

Do you know that most African budgets right now do not have enough revenues to keep all children in school? It is not a matter of desire; it is a hard bottom line. Africa has a large young population, sometimes 35-40% of the population is school age. And schooling costs something. There are teachers and teachers have to be paid. There needs to be physical infrastructure and if you’re finance minister and a minister of education comes to you and says this is the real bill for universal upper secondary completion and for having enough higher education- the finance minister is going to say –that’s wonderful, I agree completely but I can’t pay for this. That`s 20% of GDP you’re asking me, that’s my whole budget, my entire revenues-.

So these are the challenges that need to be addressed. I by the way fault the international system. Terribly!.

That when Minister de Souza goes to the IMF, they don’t care whether the children are in school or not. I guarantee you! There’s no page in an article for consultation, checking on that fact. They don’t care whether the health system has universal health coverage or not. Its terrible! You know why, because they don’t care! Honestly, just if you had any doubts. So you have to care because no one else cares! This is really important:

You have got to get the kids in school, you have got to get the health care covered, you have got to get the electrification. And you can`t be told – sorry you have to wait, your budget does not allow it so you will have to go another 10 years without electricity in half your country!

You know what that means? It means 10 years from now that situation will be even more desperate! The population will have increased 30-40%, children will not have gone to school, the physical environment will be worse and there will be no business development. And you will be blamed for it! – You see no governance! [that is what they will say]

So it is a bunch of nonsense actually! So what we need to show is what is the scenario to get out of this. Now I don`t have all of the answers by any means that is why I am so interested in this study, but I do believe in one thing which is really key and completely different from what my former students at the IMF and World Bank believe. And that is that African governments should take on a lot more debt and use it to keep the kids in school, to build the electricity, to build the rail, to build the transport systems because it can`t wait. And if you do it right the growth will be rapid, so what looks like a lot of debt today , 25 years from now won`t be very much debt at all.

But the problem with my analysis obviously is that I believe that Africa needs financing on 30 year borrowing , not on 5 year Euro Bonds, which is nonsense! Because development is a 30 year process. It is not a 5 year process. And if you borrow for 5 years, you will get into debt trouble. Because you will still be iliquid 5 years on. You will be starting your investments, the kids in 5th grade will be in 6th grade, so what. Your debt will come due. And then they will tell you, you are in a debt crisis, you need austerity. And nobody thinks very hard about how to break this. But the way to break this is long term finance.

And that is one way, I believe, that the African Development Bank is completely central to this story. Because the AfDB should be borrowing on behalf of Africa at a much much much larger rate and then lending at maybe 10x the amount it lends now. And for 30 year low interest loans. That enable every child to be in school, so 20 years from now completely different situation in the country and everybody has electricity! And then everybody has the basics that they need and then, by the way , you have an incredibly creative population across the continent! Boy!, they are so creative, they make do with nothing! Imagine when they have all of the backing with them, then the possibilities are endless in so many areas.

So to my mind, finance is central. So how to do this, let me just give you a couple of tips. The World Bank will never give you the right answer unfortunately. It is too close to the White House. [laughter from audience]. It is at 18th and Pennsylvania [Avenue], the White House is at 16th and Pennsylvania. The executive office of the president is at 17th and Pennsylvania and the IMF is at 19th and Pennsylvania. It`s very tough. [audience laughing]. But you`ve got friends all over the place. And you need to use the friends all over the place.

China is crucial for Africa`s development, no question! Saudi Arabia, the Gulf countries are crucial for Africa`s development, no question! A lot of money there. A lot of capital to tap into. India will be crucial for Africa`s development. There will be a lot of money to tap into. Don`t just look at the US and Europe. Look for novel solutions for this financing and have a foreign policy that is friendly with everybody and closed off to nobody .And that has nothing to do with – who is number 1 in the world and who is number 2. Which is the only issue that matters to the United States. Otherwise they don`t care about anything. They just want to know they are number 1, I don`t even know what that means.

But you have lots of sources of capital and by the way, the cost of a thirty year loan , AAA is 3%. Imagine if Africa could finance its development at 3%. 30 year borrowing. Believe me , the issues would be finished! Because you would be on your way, this would be the biggest construction site in the whole world history, roads, power, housing, new factories.

Now the problem is that Africa right now borrows at 13% on 5 years. This Euro Bond stuff is useless, worse that useless! I wouldn`t take any borrowing with less than 20 year maturing, anything. Because you cannot run development on a year by year basis. And that is what Prof Oromo was just showing, all these [up and down/high and low] swings are just finance swings. Commodity prices are high, finance is easy, you borrow, commodity prices come down, finance is tough, then austerity. All that Africa is suffering is finance swings.

And so what this study will show is the underlying strategy. Which to my mind is a high investment rate in skills, in health, in physical infrastructure and in business development. And it will show that that will produce growth at 7-10% per year. I always teach my students the rule of 70 which is divide 70 by the growth rate and that tells you the doubling time. So if you were growing 10% per year, 70 divided by 10 = 7, the economy doubles every 7 years. That is what China did in 35 years, it doubled 5 times. That is what Africa can do! And then what looks like unpayable debt, is nothing! Because you divide by 35, what difference is it if it is 200% of GDP today because GDP is going to be 30 times larger in 30 years. But this way you will have electricity, children at school and the things that you need.

I am convinced it is possible. Timing is right. Geopolitics is good. I think if it was just the US dominated world, I would be more pessimistic. But the rise of China, the rise of Brazil, India, means you have lots of friends all over the place, lots of partnerships in business, lots of pools of capital.

I want you to go to the Gulf and say – we want you to put it into the African Development Bank and we will leverage it 3 or 4 times. And we will absolutely deliver the core infrastructure for the continent.

So to my mind, this geopolitical situation, combined with the increased capacity and vision, determination of the African Union itself, makes a circumstance which gives reality to a rapid growth scenario. And this project will be the first ever rapid growth scenario. To say it isn`t just dreams- here it is – statistical based work based on absolutely known properties! On standard analytics. But showing a different path from the one that has been imposed by lack of imagination and lack of caring. And one that is now possible through this kind of high level politics that`s coming properly into shape. So I am extremely excited by this work. Thank you.

Source: Make Afrika Great



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