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The East African : Feb 2nd 2015
38 The EastAfrican BUSINESS JANUARY 31 - FEBRUARY 6, 2015 main at about 15 per cent of GDP — have been effectively used for economic development and poverty reduction. So sound economic management is key. Still, and perhaps what struck me most about Rwanda, is the unrelenting focus on homegrown interventions to make growth more inclusive and improve social services, especially for women and the rural poor. I find Rwanda’s approach to empowering women particularly telling. Parliament is a clear example of how much the gender gap in political representation has been narrowed. Women have broken glass ceilings in other spheres as well, making up about 30 per cent of ministers and half of Supreme Court justices. Today, girls have the same access to primary and secondary education as boys, and Rwanda is well on its way to achieve the Millennium Development Goal for education. Former street children work on computers at the Rugamba Centre in Kigali. Rwanda has strong and concerted policies that focus on inclusiveness. Picture: AFP The Rwandan example: Taking on the futu≥e, staying ahead of the cu≥ve This slower growth has im- COMMENTARY CHRISTINE LAGARDE “As I said in Mozambique, just as Africa is ‘rising,’ it should be ‘watching’ as well.” brought together officials, business executives and civil society from 42 African countries and many other parts of the world. Rwandan Finance Minis- T ter Clever Gatete and National Bank of Rwanda Governor John Rwangombwa joined us in Maputo, and the discussions reflected the much more upbeat narrative on Africa that is slowly but surely asserting itself. Most countries in sub-Saha- ran Africa showed extraordinary resilience in the face of the Great Recession in 2009. In fact, many have bucked the recent global trend of slow growth by expanding at a healthy clip for 10 years or more. Sound policies, stronger institutions, and a more educated population have positioned Africa as a major investment destination for both advanced and emerging economies. In a growing number of countries, we are indeed seeing Africa Rising. Rwanda epitomises that nar- rative. Since the early 2000s, Rwanda has grown at an average of about 8 per cent — well above the regional average and on par with emerging Asia. Per capita income has more than tripled, and while poverty is still high — at about 45 per cent of the popu- he IMF co-hosted the “Africa Rising” conference in Mozambique last year, which lation — the poorest have shared the benefits of growth. This is a remarkable feat — a genuine Intore (victory dance) story. Still, as many African policy- makers emphasised in Mozambique, important challenges remain for the region. Many countries need to make growth more inclusive and invest more in human capital to equip future generations to join the global economy. Africa also faces a huge infra- structure gap, which must be financed in a sustainable manner. And let us not forget that some countries are still grappling with fragility and failing to harness the benefits of rising prosperity on the continent. These challenges are sur- About 45 pc of the population — the poorest have shared the benefits of growth. This is a remarkable feat.” mountable. But they become more daunting in an uncertain global environment. So, as I said in Mozambique, just as Africa is “rising,” it should be “watching” as well. Why do I call for vigilance? Because according to our latest forecasts, global economic activity this year will be weaker than we had projected only a few months ago. And this is despite the boost from lower oil prices. With the exception of the United States and the United Kingdom, momentum is slowing in many advanced and emerging economies, including China — one of Africa’s main trading partners. plications for an Africa that is now more integrated into the global economy than ever before. Growth forecasts for subSaharan Africa have been pared down due to lower oil and commodity prices. Still, the overall outlook remains promising, and at close to 5 per cent, the region is expected to post the world’s second highest growth rate in 2015. Even so, a number of down- side risks loom large, with the potential for increased volatility and vulnerability, including in Africa. Consider a scenario of persistently lower oil prices. This may be a boon for oil importers, putting more money in the pockets of households and providing governments with the opportunity to reduce costly and inefficient energy subsidies. Oil exporters, however, will see increased external and balance sheet vulnerabilities. Consider another scenario that we have been talking about for some time and that is now imminent — that of monetary policy normalisation in the United States. Even if this process is well-managed and well-communicated — and I believe that it has been and will be — there could be negative effects for emerging markets and global financial stability. African economies could also be impacted. Compounding these risks is the persistence of geo-political tensions as we have seen in Ukraine, the Middle East, and even in Africa. What is the bottom line? Sus- taining growth is a first-order priority — reigniting it where it is deficient, and supporting it where it is waning. Sound policy fundamentals are paramount, although policy specifics will differ by country. So what does the current situ- ation portend for Rwanda? The country is taking on the future with a strong foundation laid over the past two decades. It is a positive example for countries striving to exit fragility, offering valuable lessons on how homegrown initiatives can be adapted to promote inclusiveness and social cohesion. And it is demonstrating leadership in reforming the business environment, building investments and jobs. Rwanda today is a dynamic economy with good governance standards. Second-generation reforms have helped sustain growth, and even accelerate it beyond the rebound that came after 1994. Women have been empowered and now offer a practical case of “gender in economics.” Rwanda is an economic suc- cess story. This is not accidental. It is the upshot of strong and concerted policies and a deliberate focus on inclusiveness. Prudent fiscal and monetary policies were instrumental in maintaining macroeconomic stability. This was a necessary precondition for growth, but not sufficient for inclusive growth. A clear focus on inclusive policies and institutions was essential. Let me highlight two aspects. Fiscal space from debt relief was efficiently used, allowing a scale up in priority spending — that is spending on health, education and social protection. This type of spending is now about 13 per cent of GDP, up from just 4 per cent in 1999. In fact, protecting social spending from competing fiscal pressures is a key feature of IMF support, including in Rwanda. At the same time, resources from foreign aid — which re- Gender equality How were these results achieved? Through a set of legal and institutional frameworks that ensure that gender equality is mainstreamed in all social and economic aspects. Not only does the 2003 Con- stitution enshrine women’s representation, but there are laws that further ensure equality in land ownership and inheritance. Our own analysis has shown that education and legal rights are key to unleashing women’s full potential and their contribution to the economy. Think of the “complete farm- er” approach — another homegrown initiative that helped reduce rural poverty by focusing on raising agricultural productivity. Or the Girinka programme — the one cow per poor family initiative — to overcome childhood malnutrition and ensure that the tide of prosperity lifts all boats. How can we translate Rwan- da’s current achievements into an even stronger outlook? Taking on the future — stay- ing ahead of the curve. Rwanda’s success has been impressive. But to achieve its goal of middle income status, its growth model will need to evolve. Think of this evolution as the Ikinimba dance — celebrating youth and the commitment to a brighter future. What are the key dimensions of a future growth model? I can see a three-pronged approach focusing on: (i) Mobilising domestic resources to reduce dependency on aid; (ii) Encouraging private sector development to reduce reliance on the public sector; and (iii) Harnessing the potential of regional integration to support export diversification and overcome geographic constraints. The reform priorities articu- lated in the government’s Vision 2020 are appropriately aligned with this evolution. Christine Lagarde is the man- aging director of the International Monetary Fund.
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