 Good morning everyone. My name is Jennifer Cook. I'm director of the Africa program here at CSIS, and I'd like to welcome you to CSIS and today's event on Africa's regional economic outlook. This is part of a series called the Chevron Forum on Development. Chevron has partnered with CSIS through our U.S. Leadership in Development Project, which is co-led by Johanna Nessith and Dan Rundie to look at ways to more fully incorporate and harness the strength of the private sector and the business community in U.S. development assistance and planning and activities. The Africa program has been looking at this through the Africa policy lens. Africa's relatively robust economic growth performance over the last decade has really begun to shift the narrative on Africa, and this Africa rising scenario has generated a lot of interest among global investors and policymakers. There's some debate about how real or sustainable this rise will be. Our take is that, and we'll hear from today's speakers, their thoughts, is that this rise is real and that the opportunities for growth are going to be enduring, but the bigger question is whether African governments seize and manage this opportunity for maximal benefit. This means getting at some of the long-standing impediments to accelerated growth, infrastructure, we all know them well, infrastructure, power generation, human capacity, regional integration, and all of these really require strategic vision, planning, and often very difficult trade-offs by African governments, and we're going to hear about some of those today. So in the Africa program, we've been looking at how African governments and private investors have been tackling these challenges and how the U.S. can best coordinate its efforts to assist. The U.S. is moving in this direction. Elevating the trade and investment and the economic engagement agenda was a major new element in President Obama's strategy for sub-Saharan Africa announced last year, and President Obama's trip to Africa at the end of June and early July will certainly feature this agenda as a big priority. So this panel, I think in the run-up to that trip, makes is a very timely and valuable look at the outlook for Africa, and I'm very happy to welcome our speakers today. We're really delighted to host Dr. Antoinette Saye, who is being Director of the Africa Department of the International Monetary Fund since 2008. I think most of you know her. She was former Finance Minister of Liberia at a particularly difficult and critical time in that country's immediate post-war history. She's had a long career at the World Bank, working in several African countries in Afghanistan and Pakistan. Dr. Saye today is going to talk about the IMF's most recent regional outlook report for Africa. It comes out annually. The most recent was just released this month, and we'll talk about the continent's growth prospects, but also some of the risks and some of the critical steps that African governments are going to need to take to mitigate those risks. Next we have Stephen Cashin. You have their bios, so I won't go into great length, but Steve Cashin is founder and CEO of Pan-African Capital Group. As you'll see, he has long been focused on investment trade in African markets before it was trendy. Dating back to his time at Peace Corps in Zanzibar some time ago, I won't say how long. And former Associate of CSIS, and I think he'll recall some of the recommendations he made a decade ago, over a decade ago, that are now just coming into vogue. Finally, we have Sean Nolan, who's Deputy Director of the Africa Department at the IMF. And Dr. Nolan is going to delve into some of the chapters of the report that focus in particular on creating fiscal space in African countries to mitigate potential future shocks, and to the very timely issue of undoing energy subsidies and how that can be done in a sensitive political way that undoes some of the distortions around energy consumption and energy investment. And we'll leave ample time for question and answers, but we'll begin with Dr. Sai and welcome. So glad you're able to do this. Well, thank you so much, Jennifer. Thank you for that very generous introduction. And thanks for inviting us here today. It's really a pleasure for us to do this and to join you in a discussion of Sub-Saharan Africa. Lots of interest, of course, these days in the region, and we're enthused by that and want to do our part to put out the analytic work and the economic work that the IMF spends a lot of time doing on Sub-Saharan Africa. And we produce actually, still I'm happy to say, Jennifer, twice a year, a regional economic outlook on Sub-Saharan Africa, 45 countries covered by our department. And we put that report out, of course, on the same schedule as the World Economic Outlook that the Fund produces and the last version of that being published in April. We are fond of acronyms in the IMF, so we call this regional economic outlook the REO. And the REO includes two components. The first looks at recent economic developments is an analytic review of recent developments in the region, the near-term outlook for the region. And the second part of the REO normally delves in more detail into selected topics of immediate relevance for policymakers. And Jennifer already referred to one of those, which is energy subsidy reform that we cover in this report. So I'll cover the review and the near-term outlook in my presentation. And then Sean will discuss specific topics explored in this report. So let me start and start even further. So I'll look at four pieces. First, what we can refer to as Sub-Saharan Africa's long-delayed growth spurt, just to provide the context of this long period of growth we've seen in the region. And then I'll move on to talk about recent economic developments in the near-term outlook that is in 2013-2014. And then move on to discuss the key risk to that outlook and how the region might be effective if those risks materialize. And finally, I'll conclude by summarizing the macroeconomic policy choices we think decision makers in the region face. So let me start with this slide and a brief comment on where Sub-Saharan Africa has come from and stands in terms of overall growth and poverty indicators. For the first time since the late 1970s, a large number of countries in the region have really enjoyed an expanded period of rapid solid economic growth beginning in the mid-1990s. That growth period only interrupted by the Great Recession of 2009. But overall growth in the sub-region has averaged about five percent since 1995. That's a significant turnaround from where Sub-Saharan Africa was in the previous two decades before that, where we're characterized by falling living standards in many countries. And in terms of poverty and what has happened there, poverty levels have come down significantly. Just under 50 percent now, about 48 percent. Of course, not stellar compared to the progress that has been achieved in other developing countries, but certainly important achievements in the past decade and a half. Many factors contributed to the turnaround in economic fortunes in the region. Domestic factors, of course, and then external factors as well. Just flagging some of the key domestic factors in three areas. Certainly much sounder macroeconomic policies, including strengthening of fiscal positions across many countries. Containment of inflation is now in single digits in most countries. Liberalizing the elaborate foreign exchange controls, unification of exchange rates, all of that in the macro policy area, but one area. Second area, trade and regulatory reforms. Quite a bit of that contentious and controversial structural reforms and all of the stereotypes that people have of that. But covering scaling back of direct state intervention in the economies, more space for the private sector. Of course, having said that, there's still a lot of work to do in that regard in terms of improving the investment climate for the private sector. The third very important area and contributor to this turnaround was the reduction in armed conflict and civil turmoil in many countries in the region. Think way back 20 years ago and where countries like Mozambique, Angola, Sierra Leone, Rwanda have come from and all of those countries, of course, having gone through their own civil wars and recovered from it. And a second aspect of this reduced turmoil, of course, increased political stability and transition of power in a number of countries, the most obvious one being Ghana, that has had a series of elections now and made transitions very smoothly. External factors that helped with this turnaround. First, broadly favorable commodity prices across several commodities and, you know, discovery of oil and other natural resources in a number of countries, Uganda, Borquina, Rwanda, Ethiopia. Those are countries that I just flagged that are not natural resource producers that did very well in any case. So it's important to understand the natural resources and important factor in growth in some countries, but that the growth story in Sub-Saharan Africa is much larger than natural resources. Many countries who didn't have natural resources have done quite well. And on the international side, still, international debt relief initiatives were very important to enable Sub-Saharan Africa to make the fiscal space to invest in areas critical for development. So those are some of the factors explaining what has happened. Now, let me move on to first talk about the global context very briefly, drawing on the April 2013 World Economic Outlook. And of course, this outlook is subject to significant uncertainty. Though when we compare it to the uncertainties we talked about last fall, those risks have come down somewhat. And at last fall, we're all very focused here in the U.S. on the fiscal cliff, and that is now seemingly behind us. But this global growth is now often described as one of a multi-speed economy in the global economy these days, with emerging markets and developing countries growing very strongly. The U.S. economy gradually gaining some momentum, notwithstanding the significant fiscal adjustment underway. And much of Europe experiencing little or no growth, with the Eurozone now expected to actually contract slightly in 2013. And against this backdrop of sluggish global growth, world commodity prices are expected to ease somewhat during 2013-14, but relative to the period before the crisis to still be generally favorable for exporters. So now coming to the continent, we find that it's helpful when talking about developments in Sub-Saharan Africa to split the region into four country groupings. First grouping being the oil exporters in yellow in this map, and middle and those oil exporters are countries that export more than 30 percent, their exports are 30 percent more in oil. Middle-income countries with per capita incomes above $993 or so, low-income countries with per capita incomes below that, and the so-called fragile states in red in this map and they're classified as fragile based on political division and instability or because they have exceptionally weak institutions. But even with that breakdown, we find it sometimes that is important and useful to further subdivide those groupings. For example, they're now newly, they're long-established middle-income countries like South Africa, but they're very newcomers to the mixed groups like Ghana, for example, so still more disaggregation of those groupings. And the groupings have changed over time, reflecting the evolution of economies in the region. And as the map shows, we have a most recent change in 2011 when Ghana, Senegal, Zambia were all moved from the low-income country category to now middle-income country groups. And some fragile states actually also moved. Sierra Leone, for example, used to be a fragile state, is now considered a normal low-income country. So the broad trend we see in these country groupings is that fragile and low-income groups should gradually shrink, we think, with some countries graduating to middle-income group and possibly others becoming oil exporters. It's, of course, not a linear process. And we've seen countries move backwards, Côte d'Ivoire, that used to be just about a middle-income country, moved backwards to the group of fragile countries a few years ago when it had the problems we all know it had. So those are the country groupings we have when we talk about development in sub-Saharan Africa. How does the region then look? What is the outlook we see against the backdrop of the global economy? We expect that output growth in sub-Saharan Africa will accelerate this year to about 5.4 percent from 5.1 percent last year and accelerate even further to 5.7 percent in 2014. And some people tell us we're far too optimistic about sub-Saharan Africa, but I hope that the context I set in showing you how long the region has grown and the resilience that the region demonstrated relative to the 2009 global recession speaks to the fact that this growth, we think, is sustainable and we see it continuing. What are the factors we see supporting these projections? Maybe three broad factors. First, that international commodity prices will, in the main, remain relatively high. They'll come down slightly in 2013 and 2014, but overall are quite high and good for exporters. Second factor is that domestic demand in sub-Saharan African countries will continue to provide, we think, solid support to growth, domestic demand coming from both public and private investments. And the latter, private investments often linked to natural resource production in a number of countries. And the third broad area is that a number of supply factors explain better growth in some countries. First, agricultural output is recovering in many countries after the droughts that we saw in West and East Africa. And there's increased oil production in a number of oil producers, Angola, Chad, and Nigeria. And a number of natural resource, new natural resource projects coming on stream in countries like Niger and Petroleum and Iron Ore and Sierra Leone. And of course, fortunately, a strong post-conflict recovery in Kodiwa explains very high growth rates there. But of course, not all countries will show this very robust growth. In particular, middle-income countries are continuing to face problems. Picture is very mixed there. Most countries in that group, but most notably South Africa, have been hard hit by the global crisis. And that reflects, in part, their closer lengths of force to Europe. Europe is South Africa's largest export market. And like most analysts, we see the South African economy that slowed in 2012. We see it still not just reviving only gradually this year, with growth still below 3% in South Africa. And with regard to inflation, as you see in the right side panel on the screen, inflation receded in 2012 in most countries in the region, and we expect that trend to continue in 2013, 2014. And explaining that, it has been a moderation of food price inflation. Also, local weather conditions have improved in many parts of Africa that previously suffered from drought. And that has benefited food markets in a number of countries. Of course, in a number of other countries, and in particular in conflict-affected countries, food security has remained a significant problem. And an additional factor explaining the slowdown in inflation, of course, has been the implementation of very tight monetary policy in a number of countries that had seen huge surges in inflation in 2011. Those countries mostly in East Africa, so Kenya, Uganda, and to a lesser extent Tanzania. I will turn quickly now to public finance and talk about the picture in regard to fiscal balances, which is a mixed one, with surplus positions in several oil exporters, Angola, Chad, Republic of Congo. Those surplus positions now weakening as a result of sharp increases in public spending. Fiscal deficits have risen in many middle-income countries, but for different reasons in those countries. In Ghana, of course, Ghana's budget deficit in 2012 expanded significantly, reaching about 12 percent or so in response to pressures around, well, in an election year for Ghana. And by contrast, a country like South Africa deficits rising there also, but reflecting the impact of the sluggish domestic economy and policy adjustments that were taken to try to sustain support weak demand in South Africa. And a mixed picture also looking at government debt in the region, and you see that in the right side of the panel with low-income countries, debt had fallen quite sharply, of course, in response to debt relief and have risen really only marginally since then. In the middle-income countries, by contrast, and South Africa there again carries a very large weight, public debt levels rising with the onset of the global crisis, reflecting the deficits that countries had trying to respond to that. Our projections are that debt levels should stabilize in these middle-income countries in the near term. And moving quickly to the external positions in the region, you see there is just a stress that current account deficits, as you see in the left side of the panel, are steadily increasing in both low-income and middle-income countries and reflecting, of course, in some countries sluggish performance of exports, such as in South Africa again, but also high import demand associated with investments in many other countries, many of the low-income countries in particular. And again, a mixed picture, a different picture for oil exporters. They typically had improved positions in 2012, but large fiscal expansions in some of these countries into investments, infrastructure investments in particular, are contributing or projected to contribute to declining the external circumstances in 2013 and 2014. In low-income countries, their deficits have been financed largely by foreign direct investment into some of those natural resource projects I talked about, but also from loans, both concessional and non-concessional loans. And so in some of that, those loans have been linked to mineral resources as well. In middle-income countries, and here, Ghana, in South Africa, and some oil exporters like Nigeria, in those countries, in addition to the foreign direct investments we've seen flowing into those countries, they've been now sizable inflows into domestic bond and or stock markets. We've been seeing that in response to global investors' search for yield in African frontier markets. And Sean will maybe talk a little bit about that also when we talk about the issue of sovereign bonds. So looking at the right side of the panel that looks at reserves in Sub-Saharan Africa, reserve coverage, and this is measured in terms of the number of months of imports coverage that they can provide. Over the past two years, relatively modest changes in reserve coverage and in middle-income countries, reserves remain around the same level recorded prior to the global crisis, about four months of imports. And foreign reserve levels in low-income countries have typically risen in dollar terms from year to year, but reserve coverage of imports has drifted downwards in recent years. And most of the countries in the region, however, have foreign reserve coverage about at least three months of imports, which is traditionally seen as the minimum prudent level for countries. But of course, optimal reserve coverage is different, and it's higher, typically in countries exposed to more volatile. Capital flows are highly dependent on one or two export commodities, and that's the case with the oil exporters in the region in particular. I'm moving right along to sum up just to say of course that the near-term outlook for the region as a whole remains favorable with moderate acceleration of growth in 2013-2014 and gradual easing of inflation. And this outlook is of course subject to risk and is contingent on the global economy continuing to recover, and of course the implementation of sound macroeconomic policies in sub-Saharan Africa itself. And turning quickly now to the risk. A number of risks discussed in the world, economic outlook covering risks such as the prolonged near-stack nation in the Eurozone, significant slowdown in major emerging market economies, adverse shocks to oil prices that may come from geopolitical developments, and possibly significant shift in market sentiments in both the U.S. and in Japan in the event that the medium-term fiscal challenges are not perceived to be addressed credibly, and finally adverse side effects from unconventional monetary policies such as quantitative easing. And our country teams have looked at the impact of these risks on sub-Saharan Africa and the broad conclusion is that growth could be slowed somewhat but not severely. And a number of countries of course would be more severely affected those that depend on the single commodity for example, but by and large growth would remain strong in the region. Domestic risk to sub-Saharan Africa include of course the threat to agriculture production from adverse climate shocks, and climate change is already having a considerable impact in some African countries. And also of course the intensification of internal conflicts in some countries. We follow developments in Mali in the Central African Republic, in Guinea-Bissau, eastern part of Democratic Republic of Congo. If those situations deteriorate of course the impact could spill over into some neighboring countries. So having looked at the outlook, just to touch briefly now on some of the main challenges that policymakers face. I think maybe four issues to flag. First that upper middle income countries will continue to see sluggish growth and in a context where their policy space for providing stimulus is quite limited. And second inflation will remain in double digits in a handful of countries and monetary policies should remain cautious in those countries. And third challenge is that large current account deficits in several low income countries require careful analysis and monitoring. And finally that international reserves are quite low in some countries in a few cases for example in Ethiopia. And so they could do with some boosting including another country for example Ghana could also do more on the reserve side. So another point is that fiscal imbalances are emerging in several countries and so those also need to be washed and dealt with. And capital inflows and debt accumulation are emerging as issues in many countries in the region. Frontier economies like Ghana and Nigeria need to be careful in balancing the benefits and risk associated with attracting large volumes of portfolio inflows into government bond and equity markets. And so those are quite significant challenges for policymakers in the region. Macro economic challenges that is. Finally the risk of with the risk of global slowdown still persisting policymakers need to assess to what extent they have fiscal space policy room not just fiscal but monetary also to manage an adverse shock. Many countries in the region have very little room to finance larger deficits if there's a slowdown because they have thin domestic financial markets even if they have low debt burdens they just don't have the domestic financial markets to expand their borrowing. And with that constraint we think that countries that are growing fast currently and have these thin policy buffers should really give priority to strengthening their fiscal positions and their foreign reserve levels. And countries with fiscal policy space may be able to have their deficits increase when they're hit by a downturn. Countries with monetary autonomy with strong track records of containing inflation and that's the case with South Africa for example could ease monetary policy in response to a downturn. And countries with market determined exchange rates like in Kenya of course can allow their exchange rates to depreciate and to act as a shock absorber to a downturn. So let me let me stop there. I think I've gone on a little longer than anticipated and thank you very much for your attention. Look forward to the discussion. Dr. Sayed that gives us a great frame for subsequent discussions and questions and answers. We're going to turn to Steve Cashin. The view from the outside. Thank you very much. Good morning. Dr. Sayed that was a terrific and very different analysis of the African markets than we would have seen even just a few years ago. While Dr. Sayed is diplomatic and cautious with her words to me that was a resounding cheerleading effect for the African markets with a caution to say manage it because we have an opportunity for growth and an environment for growth in a manner that I don't think we've seen in the past. And just as a quick aside the reference to the medium term issues in Japan and the United States. I don't know if you were reading the financial times this morning but that poor Japanese woman pulling out her hair. I didn't know whether medium was more what framework medium was. But listen the financial environments in Africa have been characterized by silos and lack of transparency for my lifetime. The there have been huge efforts which can in no way be belittled or derided by the fund the development institutions development finance institutions and the whole development finance network that have resulted in a debt reduction and a creation of a platform and core environment that has opened up the markets in Africa in a way that the leaders of the financial markets in Africa have an opportunity to scale up in a way that we've never seen before. The report the IMF report demonstrates a real beginning of real seeds of change and to me that's very very exciting. It also points out a number of areas where my world and Antoinette's world are working together in a way that just didn't exist before. And I think that is as healthy a beginning as we as as we've seen for a long long time. The as Jennifer mentioned earlier I actually will have a few points of show and tell from the past in my comments in as much as in 1998 when I was in a bit of a transition from the banking world to the private equity world CSIS gave me a home. And in sitting here as I debated and CSIS developed a financial working group on Africa which no one else at the time had and in sitting here working with Dr. Connie Freeman I said there's no transition for African governments moving from structural adjustment to a market driven economy and she looked at me and said oh come on that's there are a lot of different opportunities and I said well in my world we look at credit ratings in terms of evaluating risk that it just is what it is it's not right wrong and different it is and and within the development finance community we look at different indicators and there was no product to bridge that divide and we had some discussions with the IMF no one in this no one on this panel was included in those discussions but they were actually very close working relationships with us at the time and we said we would like to introduce we would like to do a a meeting and a workshop on the impact that sovereign credit ratings could have in the African markets and the IMF looked at us and said you've got to be off your rocker but we did it and the and this is the report from 1998 it's small but but it would be a whole lot bigger today because it ended up following with support from the U.S. government in terms of Fitch funding the ratings of the first seven countries in Africa followed by UNDP followed more importantly by African governments taking it on its on their own and working in cooperation with the development and the development finance community to ensure that data is public and data comes from a number of different sources for people to be able to evaluate in the manners in which they feel most appropriate a year ago dr. Sayeh and I spoke at a conference sponsored by Ernst and Young and they it was a totally different type of conference than I've ever been at they had a map on the floor and there were a few irreverent things on the map but there were the point was they were using they approached their evaluation of data in a different way than either the IMF or I or many others would do and it was healthy because it looked at it slightly differently and it became a it's a stronger balance for all of us to evaluate and make determinations on the risk parameters that exist in the African markets for us to make decisions as it relates to the appropriateness of investment in those markets there is an evolving balance between political leadership and economic and financial leadership good governance and the judiciary the weakest still being the judiciary across the continent if you get in trouble you get in real trouble and and that's a that's in spite of all of the efforts being made on improved governance in many different respects the judiciary does remain weak and does require a real focus the continent is emerging from a generation of also no commercial leadership there were there's been there's been political leadership there's been economic leadership there've been a lot of different types of leadership and it's now time for its commercial leaders to show their their capability their determination and and and their determination for good governance across the continent supports for the commercial environment and leadership has been kind of muddled for a long time the as dr. Sy mentioned earlier there's been a strong focus on macro fundamentals government implementation but when it comes to building the commercial environment and specifically the environment that I work in the financial environment the development community focused on a lot of different things private equity over here micro finance over here and most and now we're there's a lot of talk about impact investing and SME investing well what is SME if it's not just the market that why are we creating a new term for Africa the to me it goes back to the issue of what are we doing with the commercial banks in Africa and the commercial banks and and and the answer is not enough and not a lot and the regional commercial banks in Africa need there's a balance between the international governance environments that they need to follow and their ability to implement on the ground and the two do not meet nor is there an a a focus on the regionalization of treasuries of treasury markets risk credit markets and other governance factors that that will improve the commercial banking industry across the continent and will will be the basis for the the responsible scaling up of the financial industry across the continent the Africa has a lot of the capital to begin to evolve that environment the pension funds in Africa are scaling up considerably the insurance markets are scaling up considerably the and and they can play a real role in in improving as core investors the commercial banking markets the bond markets which historically have been driven by offshore as opposed to onshore and the equity issues which again have have been characterized by offshore money and in my mind you're never going to have the governance you need until it's your own dough and I know because I invest my own dough and the and there are very few of us who do they're very few who have their own money in Africa and it requires in my mind your own money to really force the governance side of the improved governance across the continent a couple of sort of little anecdotes we one of the companies in which we've invested in years ago data bank launched the first mutual fund that invested in all the stock markets in Africa the EPEC fund the returns have been absolutely exponential we had 40 percent annualized returns for over a decade the last few years have been significantly reduced given the overall equity markets across Africa and across the world but based on a 15-year track record we are now launching a fund which is an offshore fund building on the experience of 15 years of operations there are a lot of other examples like that that can can be implemented across the continent using the experience on the ground to to leverage and bring in additional capital the I think that the in the report there was a a reference to ensuring that in looking at the international bond markets countries need to be careful to ensure that they don't move back into unhealthy borrowing approaches there are a number of examples of unhealthy borrowing in the bond markets and some of those examples relate to countries that the international community is celebrating and not looking at the local environment I think we need to be careful and I think that that goes back to the whole issue of those bonds need to be driven from the local market and scaled into the international market so you incorporate the local risk parameters as you are developing the overall risk profile of the product that you're launching you're seeing an Africa presenting a huge huge opportunities for change over the next decade if you look at Ethiopia and Nigeria which very few people seem to equate but there are lots of similarities in terms of scale and opportunity Ethiopia has the cheapest power in Africa Nigeria has the most might be not the most most expensive I think that we win that in Liberia but we but in a scale there it has significantly higher power Ethiopia remains a very closed and controlled market Nigeria is a chaotic vibrant market as Ethiopia opens up what impact does that have to the rest of the continent as Nigeria puts a little bit more structure around its growth what impact does that have I think it can be significant and I think we need to start looking at the regionalization of growth as as doctors I mentioned there are a number of areas of real growth on the real opportunities for growth agriculture is huge commodities and oil absolutely and and it needs to be recognized and I don't buy into the threats that people present to us in terms of of of the negative impact of commodities there can be very strong impacts from growth in the commodities and oil sector if you've got responsible governance and I think it's it is beholden to the people of Africa to ensure that their leaders do lead them in a responsible manner and I think you're beginning to see that in country after country after country I also think that a lot of the issues around commodities and agriculture have to do with concession agreements and I think that goes back to the judiciary and back to governance and it is possible to do responsible concession agreements uh that impact our children or or their children in the way that they should um the um I think governments need to continue to focus on some of the stumbling blocks land tenure it's it's time uh incentives Dr. Tsai and I don't always agree on what incentives should be but I think that governments can do more to attract other investors um in a number of different ways um the um uh I mentioned earlier um the more information and the more transparency that exists across the continent the more investors you're going to have and the reduced and and eat with each additional dollar the risk that one exposes oneself across the continent reduces um there are a number of initiatives being done uh being launched by the US government today power Africa feed the future um uh there are others um I think we need to take a real look at what those what those initiatives are I think every initiative will only improve the relationship um and I think that we need to look at how our initiatives can impact not only the improved political governance across Africa but the improved economic returns on a more regionalized basis as it relates to that I think the adb can play a huge role I think the adb has um is led by a man who I refer to as the senior prefect uh who has the credibility to introduce products that do have a double bottom line both in terms of scaling up infrastructure on a regional basis and requiring some concessions as it relates to governance of the financial institutions across Africa um and I think it's worth beginning to to explore um how they may take a more leading role in that effort um and with those comments I'm gonna end by saying I think we're at a very different stage I think we're at a stage where there is a lot more um openness a lot more cooperation um uh and a recognition that in order to scale up the um the commercial and and investment climate across continent we need to be working together um and there are many many transactions where you need to have a multiple of different types of financial products uh with debt with with with donor funds right down on the bottom taking the majority of risk leveraged by development finance private equity commercial debt all within a one financial structure supporting the same transactions in a manner that I think can be healthier and stronger in the long run thank you thank you very much that was that was terrific um Sean we'll turn to you good morning everybody pleasure to be here um I've rather a short period of time I want to do is do a short commercial and then tell you three stories uh being Irish I respond to a time constraint not by saying less but by speaking a lot faster so I apologize I apologize for that in advance um firstly the commercial um as Anton I mentioned we produced this regional outlook twice a year we only do it for sub-Saharan Africa on a on a biannual basis because uh it's the one continent where there is one region where there's relatively little analysis provided by the um the financial the investment banks the uh some the european union whatever so we actually find that this is the one probably the most timely set of consistent data on Africa that's produced every six months and um they're an interesting side effect is when you start reading analyst reports on countries you're covering say Nigeria can you you're firstly amazed at the fact that the analyst tends to agree with just what you think which empowers you in your belief that you're right and then you actually realize oh actually they're really basing this on the IMF analysis and actually there's no value added and you may still be as wrong as you you thought you might be in the first place but anyway we'll try and cover lots of different topics and what's actually interesting about the topics is they're not academic they're all produced by the problems that our country teams are encountering and that so it's they tend to be bottom up in terms of what we we take to we take a hold of and take a look at three stories the first one is on fiscal policy space who has it sounds a bit obscure uh i hope i can address that one quickly second when i'll touch on sovereign bond issue and then we'll turn to energy subsidy reform um on fiscal policy space what are we talking about here well one of the most striking feet in fact one of the most dramatic features to uh growth in sub-saharan Africa in in the last two decades is summarized in the black line there on the left hand panel which is the rate of growth of the low income countries in Africa and what's striking about it is where's Lehman where's 2009 where's the collapse the answer is in low income countries growth remained obviously dip but it relatively robust this is a striking break from the past where global crisis you know the global economy caught uh cold and Africa caught pneumonia boom bus cycles uh major macroeconomic disruption etc so why was it so different this time you may say well the middle income countries is a big dip that's largely a south africa story um so one of the factors that contribute to resilience was the idea was the fact that governments were in a position both in middle income countries and in low income countries to allow fiscal deficits expand i they could finance they had the room the fiscal room to finance larger deficits why does this matter it matters because uh think of the greece scenario if you have no access to financing and you you experience an adverse shock revenues go down you have no choice but to then further cut expenditures producing a sort of a constantly pro-cyclical policy that deepens recession in this case african governments avoided that trap and were able to finance uh able to provide some stimulus some support to economic to demand in the economies uh what i'm looking at and what this paper is looking at i'm just telling you the story of is looking across countries right now and saying okay who has fiscal who has the room to handle a downturn or who is going to come knocking on the door of either the donors or the international financial institutions for assistance and we look at it from three angles one is to say okay which countries are constrained by high debt levels then secondly who has got marked domestic markets deep enough to allow the government to increase significantly is borrowing in those markets for a temporary period of time during the downturn and then of course which countries have sizable financial assets that they can draw on to finance to finance a downturn to finance spending during the during the downturn i'll try and answer these three questions quickly antonette has already presented part of this chart which is the story about debt levels across the region of course that the after period of strong growth after a period of substantial debt relief general debt burden story is generally quite favorable burden debt as you can see just the chart on the right probably summarizes it best because it conveys a distribution so much lower debt levels in most cases where do what countries do debt levels are they still a high burden constraining fiscal policy and it's possible response to a downturn there are a few there are a number of low income countries that still are either in in debt distress or very high levels of debt such that you can't see anybody lending them any money examples would be probably the gambia barundi drc camoros swaziland these are a number of smaller countries in the main where debt levels are still very high even in some cases after hippock after debt relief they still remain high a second group of countries is countries like ghanan south africa where debt levels are not necessarily exceptionally high but they've risen very sharply over time and the bond markets are beginning to become troubled the rating agencies are becoming troubled so south africa for example in its response to the downturn global to continue weakness of economic activity to maracana etc is actually quite the very very limited room because the more they increase the deficits the faster the accumulation of debt the more the rating agencies get worried and the more the cost of funds goes up so south africa and ghan are countries where there are actually significant some constraints from the high levels the relatively high levels of debt and there are a few other special cases erotrae is imbab where examples they're countries that are either in deep distress or in debt distress or else are characterized by complete financial repression that's one angle the debt angle the second one is the ability to borrow and we say domestic borrowing here because in a global downturn access to external markets private markets is going to dry up certainly for general budget finance and so we look at in the in the chapter of how deep are the markets and to what extent is the model is the borrowing capacity both from borrowing from the banks and and also from from capital markets gobbled up by the government the fiscal dominance problem and who's got a lot of who's got rich deep markets and where the government is not dominating them because in those circumstances the government can indeed expand its borrowing and what's the bottom line here again you won't be too surprised in poorer countries and smaller countries typically financial markets are very shallow the ability of the government to increase its borrowing in a downturn quite limited big crowding out of private sector investment when you do it sharp increase in interest rates but there are countries Kenya Mauritius South Africa Nigeria come to mind where where financial markets are domestic markets are quite deep where the government's not the biggest borrower on the block and so they're able to respond in a downturn by increased borrowing and financing larger deficits there are various cases that I describe as a judgment call where you'd really have to get into the details of the country case to see whether or not there is room sending all it's an example that comes to mind the last issue where the countries can turn to when in an economic downturn is the question of does the government of financial assets either offshore or onshore in the banking system no it's onshore in the banking system and has to be backed with foreign reserves otherwise it's the government accessing it will require the central bank issuing debt to mop up the liquidity so it's not really a plus so you need government deposits backed by foreign reserves or else government deposits the government assets abroad and who meets these criteria you wouldn't be too surprised I think in any of the names here it's in the cfa area it's the Republic of Congo and Equatorial Guinea that have large financial assets either deposits at the central bank the regional central bank or also direct deposits held abroad among other countries that have pegged exchanges in Africa the suit is example the suit is not resource rich but actually it's rich in the sense that it is a part of the South African customs union it gets very very large transfers from the South Africa much of the time and unless the South African harm isn't deep recession and lastly you look at those countries with flexible exchange rates Angola not surprisingly built up fairly sizable deposits again after the 2009 shock Botswana's noted for the pool of fund which at the onset of the global crisis had 29 months of worth of imports and foreign reserves and Nigeria with its excess crude account really rode through the 2009-10 crisis very nicely and again has rebuilt to a large extent not totally the amount of foreign reserves it has that said you can have a lot of foreign assets but if you're a one country if you're a one product play as Nigeria's for example in the sense of the importance of oil then you actually need a very large buffer to handle highly volatile oil revenues so to sum up who's got fiscal space debt isn't the problem for most countries but shallow financial markets are for smaller countries for most poor countries push to the wall in a downturn these are the countries that will turn to external financing ideally bilateral and official but bilateral financing is likely to be a little bit scarcer given fiscal problems in the advanced countries I've mentioned the case of countries with deep financial markets who were and still remain able to borrow more domestically in a downturn Allah is it introduced the South Africa Ghana caveat and then there's the natural resource exporters who have accumulated significant reserves may need to accumulate more but already have accumulated so that's story one maybe a little policy oriented very much maybe wonkish in nature but let me go to topic two which is I think less wonkish in nature and that's the issue of sovereign bond issues there's actually a broader thing going on in in the region since financial markets kind of stabilized at the end of by the end of 2010 there's two kinds of flows there's the direct issuance of sovereign bonds by many African sovereigns I'll turn to that in a moment but also in a significant number of the frontier markets there's large amounts of inflows directly into domestic markets into government bond markets in Ghana for example maybe a third of Ghana's domestic bonds are now held by foreigners ditto in Nigeria also in the case of Nigeria into the equity markets as well there's two distinct phenomena you know buying dollar bonds issued on the global markets and then at the same time investing in local markets I'm going to focus on the first of these but the second one is also an important phenomenon that we will certainly be looking at more closely at the moment 12 I mean actually I've got up to 13 at this point following Rwanda's issue 12 about 13 African countries Sub-Saharan have sovereign bonds that are outstanding three or four of these are actually Brady bonds or restructuring bonds so they're not so interesting the ones that are interesting are on this table and they're the countries that in some sense have gone to obtain new money from the markets Ghana began the process in 2007 as you'll see on the table since about 2011 there's been a significant number of issues Nigeria Zambia Zambia one being a real game changer Tanzania and Rwanda are cited here Angola did a very strange bond issue as well by borrowing money from a Russian bank that then sort of sold paper backed by the Angolan loan rather I'll come back to that point in a moment it was not the best way to do it in some ways so what's driving all this why the why the this is these are the countries that have done bond issues but it's it can you certainly going to turn to the bond market soon unsurprisingly they were kind of waiting for the end of the elections before jumping into the water Cameroon is another example and Angola will probably do a conventional bond issue this year too so there's a steady flow of potential new borrowers coming to the market what are the drivers this is this slide is not rocket science the real push factor of course is the low interest rates in the advanced economies the sustained low interest rates which is pushing a wall of money into emerging markets and into frontier markets as well the pull factors I think in some sense have already been covered by Antoinette's presentation which is that for most of the of the SSA countries have modest levels of both public and external debt if you're thinking of investing in the European periphery African numbers look really really good debt levels are very very low post-debt leaf and post-high growth and secondly many of the economies I've mentioned have strong growth stories and acceptable levels of political risk countries where you say yeah this this is the policy is reasonably predictable over a reasonable period of time and this growth story is quite strong they're the pull factors the result of this is we've already seen is the steady flow of newcomers to the market but also and this is an important point moderate spreads Ghana issued sorry Zambia it's bond issue in September spread the interest rate was about 5.6 percent which is a dollar bond which is even four five years ago would have seemed inconceivable indeed when you look at the issuances by Sub-Saharan African issuers and compare them with similar countries with similar credit ratings there's no Sub-Saharan Africa premium being in Africa is not a negative fact it seems to be a mild plus for your given credit rating so on the whole the in some sense the idea that you're in Sub-Saharan Africa the the risky continent etc that one is gone I tell a story here because it really captures the point very very nicely back in that summer June July when the Spaniards and the Italians were under severe pressure in the market see at the Spanish finance minister was being harassed by journalists and being rather arrogant he sort of dismissed them all and he said excuse me he said Spain is not Uganda and he sort of left it at that and this story is true two days later the Ugandan finance minister made a presentation on the finances of Uganda he ended up by saying remember he said Uganda is not Spain the humor came two months later after the Zambia issue when the FT had a very nice little piece saying Spain is not Uganda it's Zambia because when the Zambians issue the bond they issue it at the same interest rates at Spain and so I think I wanted to get the idea that the rates certainly for maybe comparing them with just rest European sovereigns is not the best comparison but certainly spreads are no different than what they are in Eastern Europe for example so it's a very different pricing environment out there what are the pluses and minuses of all this I'm going to touch upon them quickly to to avoid taking up too much time clearly this is a new source of long-term external financing expands the range of choice that African governments have to borrow in the same way that the arrival of China XM and CDB also expanded the range of choices open to African governments to borrow and you know we were economists rational choice etc expanded choice has to be a good thing I want to mention as the second point here is some countries are using it to restructure debts lower costs a third point mentioned here is that and this was certainly case for Nigeria that the purpose of the bond the Nigerians are very large foreign reserves so you don't really need extra money to to borrow externally to finance to finance domestic activity they did it to provide us some sense of benchmark issue in the international markets that could then be provided as sort of a benchmark rate for sovereigns for sorry for corporates and banks in Nigeria to borrow abroad and the last one is when once you get into the issue of issuing sovereign bonds that there's a big plus as you tend you're almost required by the market to to become more transparent issue more information handle investors more with more more flow of information to to increase their comfort level and there's a theoretical argument that it improves macroeconomic discipline that the bond market sort of impose discipline on the borrowers if you think about the european periphery over the last 10 or 12 years you realize that argument's pretty dumb but it's in the textbooks and the risks I think actually Steve pointed to some of the risks clearly if you instead of using investments for the financing for for productive investment if you do white elephants if you use it to finance consumption then indeed you're creating beginning to gradually recreate a debt problem for yourself because the growth premium the growth payoff and the borrowing isn't there the vulnerabilities you're now borrowing in foreign currency you may end up with bunching of repayments there's rollover risks etc these are the kind of factors that governments need to take into account they're all spelt out on the report in the chapter so I'm not going to go into further so last comment what what how should sub-saharan african sovereign issues proceed we've looked across the the issues to date and some few points made here one is you've got to think of sovereign bond issues it's just one way of raising funds there's other debt instruments borrowing domestically as I said there's project finance there's the multilateral development institutions etc etc you have to consider this is one piece of a general bond strategy clearly you need to build that manager capacity and acquire ta appropriate assistance and then you do it probably how do you do the issue itself you sort of play up by the rules you select the legal and financial advisors you get a sovereign rating typically you make the the loan uncomplicated plain vanilla typically many of the loans have been 10-year bullet payments loans issued in dollars and then often that there's an argument for a minimum scale of about 500 million the minimum scale of the 500 million gets you into the global bond indices and therefore makes the bond much more attractive to institutional investors but if you're really small country borrowing 500 million dollars may well be a really something to do because it's a huge amount of money that you will not be able to use for example recently the recent Rwandan bond issue was only 400 million because Rwandan said we don't need that much we need less I'm going to repay a pot of debt with it and they got a very attractive out turn on that based on the the story behind issuing a small amount was quite good some of the recent issuance haven't followed these practices the Tanzania issuance earlier this year was a private placement it was done without a sovereign rating and has a more complicated structure as I mentioned earlier the Angolan issuance last year indirectly through a russian bank also didn't follow follow these practices and why was that a bad thing what was a bad thing because you could see within days that the interest rate the Angolans were paying was very different significantly higher than the yield on the on the the russian bank paper that was backed by it so the Angolans in some sense were paying a sizable premium to go the indirect route rather than plain vanilla so let me leave that at that one and turn to topic number three story number three um we took on this issue we did a lot of research on it across the IMF particularly in the african department because it is a cross cutting issue energy subsidy and uh and energy expanding energy capacity it cuts across the region although it's mainly a problem primarily more problem in central and west africa than in east africa and southern africa where there's typically a more market-based approach to pricing well that's been a hard one it's taken 10 or 15 years in east africa to move towards a sort of a cost full cost recovery of prices what's what's the issue on energy subsidies what what's wrong with them they are as i mentioned a very widespread particularly in west central africa firstly they're costly costly to the budget um by the way energy subsidies two of them the easy one to understand is fuel subsidies because that's just the you're selling food fuel at a cheap price you're subsidizing it from the budget or from lower tax revenues what it's just a waste of fiscal it's it's a use of fiscal resources but energy electricity subsidies are more important why because electricity subsidies can really mess up electricity pricing can really mess up incentives to uh invest in generation and if you want if you don't think that's the problem look at this next chart which i think is truly striking the bottom line in red on the left hand side is uh output per kilowatt hour of electricity in africa and it's basically flat over the last 15 years and i think one thing we can say with confidence is maybe you can get 15 years of growth without that energy without significant growth in energy production but my god you're not going to get another 15 so the so central it's absolutely central i think that the issue of energy production and energy generation be addressed and as i said part of that is the issue addressing subsidies and get quote unquote if i could use an old washington consensus term getting the prices right the other angle there as you can see is the issue of access to electricity in africa which is much much lower as you can see is very very low even compared to south asia which is also sluggish in terms of energy so what do we think are probably problematic with the energy subsidies they're expensive uh the numbers are there they're very poorly targeted this is the class nigerian fuel subsidies the classic example here the bottom 40 percent of the households receive only a small fraction of the fuel subsidy the upper bound received very large share of the subsidy and in this example and typically to transfer one dollar of benefit to low ink the bottom 40 percent it costs the government five dollars highly inefficient way of providing subsidies to the poor secondly electricity subsidies are are even more uh regressive if you like because the vast majority of the poor don't have access to the grid in the first place so the beneficiaries aside from industry are the higher better off households so what's wrong with all this is as i said the subsidies reinforce inequality but secondly and i think much more importantly in the case of electricity the depressed growth by really reducing incentives to invest in the energy sector and then there's the whole issue of crowding of public spending from the budget because you're using it all for fuel subsidies very much an issue not in nigeria and then there's other complications regarding the providing excessive incentives to energy intensive industries to develop you may think that's uh what on earth is he talking about here but if you think of something like uh the way in which kohora basa is used in mozambique to basically uh push energy into the moza aluminum plant which employs about 2000 people it's a very inefficient juice and very attractive prices it's a very costly way of using electricity in a country where electricity is very scarce so what do we do we we looked across the countries that have succeeded in the region and to some extent outside the region as well to say well what how do you go about doing energy reform the first lesson is the issue of the unilateral comprehensive reform plan it you don't it's not a step but it's not a piece of middle uh let's just jump in and do it the nigerian fuel price reform of of uh january 2012 was actually part of a more comprehensive plan to put in place social protection programs and a very a number of other measures alongside the the subs the price increase slash subsidy removal but that's not how it actually played out in reality suddenly the price increase from 60 to 160 naira was announced overnight and um yeah it all held i was looking i was trying to use involve using a metaphor involved with something hitting the fan but i uh so i i'm actually very grateful to janifer for bailing me out there um so one is a comprehensive reform plan the second is a really clear communication strategy again i'll pick nigeria if you all the international coverage or media coverage of the of the subsidy problem in nigeria and and the the crisis it created is nigerians just didn't believe the money was going to be used to benefit for them in any way the only thing they were getting back from the state was cheap or cheap travel and they couldn't be convinced otherwise and if they look back at 40 years of nigerian history you could not argue that they were really missing the picture um but what the in the sense so you need a communication strategy and you need a package of measures you need to explain it really well take time this is this was a lesson of the reforms in east african kenyan uganda the reform took an extended period of time in a fairly elaborate public education system at education process so you get the idea of appropriate phasing and sequencing of price increases gradual price increases is typically uh typically better than very very big bang as perhaps the major in example flags three other lessons that we picked up on was one is the importance of trying to strengthen the typically in most countries the generating of generator generation is going to be done by the state-owned enterprise or certainly that the transmission distribution is and one really needs to improve efficiency in the state-owned enterprises that you really have to see these as electricity is central to the growth process you can't really mess around with patronage systems etc and inefficiencies in the state-owned enterprises delivering electricity or your growth process is severely impaired lesson five is certainly i've mentioned already someone at targeting targeted measures to protect the poor cash transfers are feasible but if you don't have cash transfers in position there are other mechanisms that can be developed and indeed in the nigerian case the finance ministry had developed a series of measures which were to be financed by your mother and child care initiatives etc etc there were to be financed by the savings from the from the fuel subsidy but that got somewhat derailed um the last lesson is the issue of trying to deep politicize price setting which of course is easier said than done typically you're going to end up a situation where prices you've got the electricity perhaps in fuel as well you often have near-natural monopolies are relatively few suppliers so you'll typically end up with pricing formulas it's absolutely imperative these be set outside the political process once they become politicized you go right back into the game of of providing subsidies so these are the lessons we've learned these are these are probably the pieces of a reform package this is not to say in any way that it's an easy thing to do thank you very much indeed thank you all three for really thoughtful and thought-provoking presentations we're going to open up for questions we have about half an hour for that um I want to maybe start with the the the governance question and and you know these are as you said these are hard complex issues to take on you need kind of long-term vision and commitment on something like reforming the energy sector on getting the fiscal balance right there are political trade-offs you have political pushback on you know on creating fiscal space I mean you look at the public worker strikes and and and so forth I mean these aren't easy questions but I wonder if all of you might say you know who you've said a bit who's getting it right but what accounts for what is common to those countries that are getting it right what what is it that impels the leadership to to make those tough decisions is there is there a common factor in that are there public constituencies is it just a matter of kind of a couple of champions within government that are that are moving it in some cases some of the more democratic countries may have a harder time pushing through some of those kinds of reforms so I wonder if maybe you want to reflect a little bit on what is it that impels government to to take these big big challenges on but as you ponder that then that may be a little difficult to answer why don't we take a couple questions and we'll we'll take a couple rounds of questions and come back to the panel uh we'll start with tony carrell a senior associate of csis um uh none no discussion whatsoever about subnational debt is there an opportunity for subnational debt I look across this country and I see special districts that have been you know funding power plants schools dormitories water treatment plants and when you what's particularly remarkable and on a recent trip to Nigeria is to what extent the development of a state like legos in its public infrastructure in the last five or seven years it's just absolutely astounding and which seem to me that there'd be an an avid audience of of takers for bonds that could be used in a state like Nigeria that was backed by the state is it all tied up in taxation is it you know what are the impediments to some of those districts in subnational level that could in effect use debt more intelligently and more responsibly than what's done at the national level thanks Jennifer and thanks to the speakers i'm ed barber from good works international and uh this actually is a nice coincidence because tony wants to talk about subnational I want to talk about super national I have I think all Africans and all most of us believe that regional cooperation is going to be necessary and in some contexts it's essential cross-border financing power pools transportation projects etc etc yet you all haven't said much about that except for Steve frankly I have believed that a lot of the regional groupings have too long an agenda and too many members to be very effective sadek and echo us in particular some of the others seemed more promising at least before the cote d'voire coup but even there thinly staffed governments don't have a lot of resources to contribute to regional institutions so I wondered if you could give us any comments about the prospects have there been any positive effects yet of the various regional communities thanks very much thank you very much my name is Tarek Ben Yusuf I'm a senior political officer at the African Union mission in Washington DC allow me first to thank very much CSIS and the IMF for organizing this event which coincides with the African Union celebration of its 50th anniversary thank you for giving us this visibility my question is regarding the diaspora bonds we are speaking more and more about the potential of the diaspora financing long-term infrastructure projects development in Africa and there is an untapped potential about the diaspora contribution to that what is what is your assessment of the potential of the diaspora bonds and what are the best lessons learned from other experience that could be applied to Africa and if there are practical modalities for developing countries in Africa to learn from from the best practices for instance in India or other country thank you very much let me maybe start with your question saying a little bit about what accounts for some countries getting things right in the way of reforms both energy sector reform but more generally in the macro more generally in the macro side you know I think it's difficult to give a broad sweeping response that you know one or two factors have led to successful reforms I think where the starting point in individual countries is extremely important in terms of you know where they are you know how long they've gotten to where they are and how how much people are looking to a better day because they've seen so much deterioration or a disaster in their recent past and I think you look to countries fragile countries for example emerging from conflicts like Liberia and other countries there that have seen the results of many years of bad governance and war and all of that and have an opportunity to to come into a period of better leadership but also not only better leadership a lot of expectations in the way of a better day for people and the combination of that sometimes I think it's a very powerful and ingredients to pushing reforms because leadership is strong and wants to to make a difference and people are certainly are sick of what they've seen in the past and want to see results so I think leadership is extremely important in in reform efforts and leadership from the top of course but pressure from the bottom and accountability from the bottom is extremely important I think countries obviously can't push forward on reforms comprehensively without a modicum a minimum of capacity also and sometimes there's a need to when countries don't have that capacity there are times when it can be facilitated by outsiders or by technical assistance or but capacity is a hugely important ingredient capacity that actually works to create institutional capacity not just substitute ta but also that really helps countries to to to do it themselves at some point down the road and there there are times when countries actually faced with a complete absence of financing anymore no donors there to hold hold the bag anymore no no way to borrow certainly have to then ask themselves how to how to finance basic services and will then start the process of looking at what is less less of priority and I think circumstances can really also be an important motivating factor for reform so I think it's hard to just have one general picture I think many African countries on the macro side of course had themselves managed very badly for a long period of time and came into the reform effort because many of them had reached the point of desperation frankly and had to come to the fund and others were financing and then proceeded with their reform efforts being desperate so I would stop there on that question and maybe say just a little bit about subnational debt I think in in Nigeria I think Sean probably knows more about Nigeria he's followed Nigeria a bit closer than I have but presumably the nature of many subnational governments in in in Nigeria and not with the level of credibility that has been growing for Lagos possibly and certainly not the first place that people will think of extending debt to because of issues of governance of lack of capacity the need for the federal government to actually guarantee those borrowings all of that I think is not the the most attractive place that people look to provide financing so I think elements of capacity and credibility of those governments and taking on the difficult reform efforts at their level will be critical for the ability to to borrow on the regional cooperation side it is the case they're they're large a number of regional organizations in sub-Saharan Africa and there's a multiplicity sometimes many countries belong to several groupings with conflicting obligations that they have and conflicting responsibilities and there's certainly a need to to look at streamlining some of the the regional groupings and that's I think an effort that Sadek and others have been looking at to see how they can better coordinate and and streamline the regional obligations there are some I would say some progress that we're seeing in in how certain regional organizations are trying to proceed we've been working quite a bit with the East African community for example in their objectives of ultimately getting to monetary union and all the work they need to do at the fiscal level to be able to to to think about monetary integration down the road and certainly in the in the in the dialogue and the discussions and on working on a work program towards ultimately having monetary and I think some progress in terms of what the challenges are and how to go about addressing them is being made slowly we do of course a lot of work in our surveillance of economic policies of the the two monetary unions the West African Economic and Monetary Union and the Central African Economic and Monetary Union the CFA zone in other words and certainly on the on the monetary and fiscal side a lot being done with some degree of progress there less of a success among those countries despite their the existence of monetary union in those countries very little in the way of progress on trade and on regional trade among those countries and because of all the other things that they have not dealt with you know non-trade barriers between countries all kinds of customs problems getting across countries and and and all of that so still work in progress across sub-Saharan Africa on the regional integration issue but a vision of regional integration being essential to making progress on infrastructure in particular a lot of interest in in doing more on the infrastructure side and I think institutions like the World Bank and others have certainly been trying to to support that uh maybe you talk to us for a bonus in Nigeria or anything on the sub-national debt question as I think Antoinette mentioned I mean Lagos province is very well run uh this is not true of the other 35 provinces many that is to say that there's varying levels of quality of governance across the country and one lesson I think that's we see is absolutely imperative is that on any official government bond issue or any official government issues of a government guarantee it's absolutely imperative to be signed off by the ministry of finance otherwise literally you you will soon quickly lose control of of the debt situation and you're heading right back into an external debt problem very quickly so uh I think that issue of central control is really key rather than um maybe that would be the thing I would focus on most uh it's interesting actually that so let's say the multilateral development banks for example such as the World Bank and I think they have to be are interested in engaging within Nigeria as also is the same in India with provinces or states that are actually dynamic and are using funds well um I'd one thought on the super national issues of where things are working well or don't work well you mentioned the power pools electricity just what I'm going to echo from my own presentation where I think the southern african power pool is the only one that works relatively well the power pools are actually imperative for Africa to obtain cheap electricity one of the striking features that didn't mention in the subsidies is electricity in Africa is frequently highly subsidized even if it's highly subsidized it's usually very expensive and the the dilemma the contradiction there is summarizing one word which is scale you just you need very large scale generation capacity to be able to deliver electricity at low price if you're a country like Liberia or Sierra Leone are there many other in Nigeria will say 2025 you don't have the scale and so the power pool arranged with the ability to share around is absolutely imperative I'm not sure that's a point that's fully internalized on on on the continent yet and on the diaspora bonds it's an excellent question and I don't have an answer we should indeed look at the lessons learned from experience you mentioned India as an example Turkey certainly had an elaborate or system via Dresden or bank of raising deposits from from Turks in living in Germany certainly at one point it was 10-12 billion dollars in terms of its sum I think you need to look carefully as to whether or not there really is a separate niche there if in many cases the diaspora may say well actually it'd be more sensible for me to invest my money and what I think is going to generate the highest yield and then send home more money to mom rather than to invest in national bonds that are the diaspora bonds you really have to there's I think that's going to be specific to very to specific country and cultural situations but certainly a question I think that we that we would need to look at actually looking forward couple of comments as it relates to governance I very much agree with Dr. Sai I think governance it comes from both the bottom and the top leadership matters and participation of local capital is fundamental and if all the capital comes from outside the market you don't have the impetus for governance that I think you need to have in addition transparency matters information a free press sometimes there's a balance between anarchy and a free press and you've got to address that but a but openness is really important I think it's terrific that the three next questions all had to do with bonds of different sorts so I'm thrilled we may not have the questions answered but you know what we're beginning to explore the different questions as it relates to the subnational bonds we we focused more on Nigeria but look at Kenya's new constitution which is has been created very much for that for for that purpose again I'll go back to Kenya on a supernational bond the president Kenyatta in Cape Town said it is time to stop harassing our traders and calling them smugglers and opening our borders it was a it was a little it was a small point but it's a really important point all of the borders across Africa are populated by tens of thousands of small people trading little commodities and being victimized because they're doing it that has to stop these people are the core of the economy yes there are some things that are being traded that there shouldn't be traded but the majority of them are basic commodities Omar Issa at the at the investment climate facility said that they did a study in Tanzania recently of goods being shipped from the port of Dar es Salaam to Rwanda and it wasn't an issue of the borders it was an issue in Tanzania of 65 different checkpoints before they even made it to the border it's time to there's got to be a core level of cooperation across the continent internally in order to scale up regionally and I think the point of the diaspora bond India is extremely different from Africa we got a lot of different countries we've got a lot of different mothers and a lot of different grandmothers and we've also got a lot of different countries and people don't know actually that's not true my generation doesn't know their neighbors the next generation the 20 and 30 somethings do and I think that it's a process that is going to be worked out the African citizen is is a this generation phenomenon which my generation kind of fought against for a long time opening those borders creating the African citizen is fundamental to the success of Africa yes very good thanks so much great great panel fleet to ponte I'm the Africa director at Eurasia group and I just wanted to say you know it seems to me at least in the US foreign direct investors I think still overestimate risk in Africa but I do wonder whether portfolio investors aren't underestimating some of the risks even when you look at sort of the reform oriented countries many of which are issuing bonds you know one thing that jumps out for those that aren't oil producers is is twin deficits and twin deficits impervious to six seven eight percent growth and and for a decade which I find sort of puzzling so it seems to be very sticky so I guess the question would be kind of how problematic is that from your vantage point and you see countries that countries that really have a credible pathway to to addressing one or both of those deficits over the medium term thanks this will be very quick for professor cash in I know Steve could you briefly address the what I would call barriers and uber risk managers on the US and european side of actually trying to wire capital into Africa particularly African countries with an Islamic overlay in my experience they don't want to do it US banks don't want to do it and you become exhausted and they won't tell you why yes and in the far back yes thank you Rob Colerina AAC investments I was at that the event that Steve referred to on the accounting firm with the map on Africa that was there since then we've invested in southern Africa and and and that's worked out well to Sean's presentation that was fantastic my question is who's buying these what's the distribution of the purchasing geographically generally are you seeing any unique trends and then more of an equity question for Steve as far as protection for the equity investor are you seeing some new trends as to the courts and to I see in South Africa this this companies act that there is actually some respect for for areas north of north of of senior debt yeah thank you again for the panel it's a great discussion I was a former economist at the World Bank and we kind of talked a lot about the real value of the bank was we were a global institution much like the IMF and I'm trying to understand how much of you know Africa is not it's very diverse place it's not really one places unique across which I think is important but how much are we learning from other places and I asked that because of a couple questions that I have one you know there was the first discussion what there was a promise for the better day but are we learning from things what happened in Zimbabwe what's happening in Mali what's happening in South Africa in Kenya you know are they going forward or backwards secondly on the on the borders and energy are we learning from things like India Pakistan in that region in their borders and their in electrical problems there as well of huge subsidies there's just a good talk twice at the Atlantic Council they had some people come in it was very interesting talking and thirdly what's very interesting I haven't heard any discussion on China and its influence there's a little bit of talk about Russia but nothing on China maybe to start with the the last question a set of questions actually on how much are we learning from other parts of the world in in in the work on Sub-Saharan Africa and how much are Sub-Saharan Africans learning from the rest of the world I'd say quite a bit I mean certainly a resounding requests in a constant one we get from our member countries is to bring to them experiences from other countries and I mean that's the value added of course of international institutions like ourselves is that we've worked across we work across the world and we can bring to them you know the experiences of other countries and we certainly try to do that especially in the context of the work we do on our regular surveillance work with our countries and the analytic work underpinning those reports of often bring to bear other country experiences and certainly the the work we do in the context of the we owe is is driven by cross-country experience and many African countries are taking it upon themselves constantly to go to other countries to learn about specific issues they're working on and as you mentioned China many of them are quite interested and have sought to learn about how China has has tackled a number of problems infrastructure certainly poverty the progress made in reducing poverty in China has been a a big area of interest for Sub-Saharan African countries so I mean and our our work in the fund of course with collaboration between various departments functional departments and the area departments speak a lot to to cross-country work our strategy and policy review department which is the one that does the review function in the in the fund is populated by people with cross-country experience and that's their job to bring to reviewing and signing off on things the cross-country knowledge of the fund and so I think there's a lot of that going on and certainly we can continue to do more and countries are asking us to bring them together to share lessons among themselves and one of the things we did in this past spring meetings for example with our small middle income smaller middle income countries which have traditionally felt that they don't get as much attention as our program countries in the fund we brought them together with people from other parts of the world to talk about some of the challenges of being a small middle income country and to talk through those so certainly something we put some effort into. China again just to to speak to China we've actually done a quite a bit of work looking at China's relationship with Sub-Saharan Africa our real our regional economic outlook from a year a year and a half ago I guess did some some work on on looking at the trade relationships Sub-Saharan Africa trade relationships which have have been diversified to the to the extent that China now as a single country is the largest you know place of African exports and one of the reasons that Sub-Saharan Africa was able to be resilient through this past global crisis was because the trade relations the trade patterns had changed significantly trading more with China and India and the breaks more generally trading more internally as well so China we we continue to to to do quite a bit of work with and collaboration with China trying to understand and work with them with a view to having countries giving countries the opportunity of course to benefit from the additional financing that can be provided and is being provided by China some of it non-concessional so of course has to be managed properly and their limits to how much non-concessional borrowing Sub-Saharan African countries low-income countries can take on and what they're spending those borrowings on so we've done a lot of work on China actually we didn't focus on it this in this discussion but there is quite a bit there let me pass over and over to let me take the question about in a sense what's the investor base for the portfolio flows into into the frontier markets in Sub-Saharan Africa I'm leaving South Africa entirely to one side I think actually first it's important to distinguish between the portfolio investors who are buying sovereign bonds dollar denominated sovereign bonds where when you talk to people in in London especially a wall of money is the term being used going into emerging markets and onto frontier markets in search for yield and it's a very rich it I was struck at the extent to which people would say the knowledge base of the investors was off on Africa was actually quite thin it was more a sense of really a short term the yield is really good I was really dismayed when someone says you know this is a 10-year bond so the default risk for the next nine years is zero so I'm not worried about it at all I didn't feel that was quite sort of the appropriate level of due diligence but but so I think for the portfolio for the dollar bonds it's a very rich investor base for inflows we'll say for somebody who's investing in the in in Naira bonds or SETI bonds for example their country the type of investment is interesting in this very much hot money it's very much a play on real interest on nominal interest rates versus the potential stability of the exchange rate you know the 12 yield in Naira world oil price looks good Naira looks good boom very high yield and there you really need to know a little bit more about what you're doing and so there you have a some of the banks Barclays and others are involved in and perhaps on the path of clients there's also I think a number of boutique firms out there now who focus efforts on it on investing in Africa but they would underscore and they're underscore the difficulties for most of the bigger funds many african markets are not worth the effort of investing time in and developing where it's sort of analytical capacity because the scale the size of markets is still still too small to move in and out of them therefore they don't make the list that's why I mentioned Nigeria is an excellent example where the market is indeed very thick so I hope that answers your question I'd wonder the thought on just on regional economic cooperation and I agree with Steve entirely on the issue of the importance of breaking down barriers but one has to be pragmatic as to what's really going to happen and I'll give you two three examples ECOWAS is indeed pursuing a sort of a free trade area over time at the end of the day the Nigerians which were of course the dominant player are quite protectionist in orientation and wanted to develop their own industry whereas the smaller countries in ECOWAS are not interested in buying from Nigeria instead of buying from China so the issue of moving towards a free trade agreement there is actually and a customs union very very very different interest among the two countries among the big guy and the smaller guys exactly the same in Sadik South Africa is quite protectionist in its approach as very tight rules of origin for example on inflows of goods that are at free trade within Sadik and so the conflict between the interests of the South Africans and the others is quite deep it's interesting that the example I think that Antoinette mentioned is East Africa where there isn't really a sort of an economic giant in the region Kenya is the biggest player some of the countries like Tanzania are a little bit touchy about the Kenyans but it's not in any way something on the scale of the disparity in size between South Africa and Nigeria and their neighbors that's just a thought. Do you want to say anything on the first on the twin deficits the current account and when you asked the question all I could say was Ghana that was the question that came to mind actually as the one where indeed there are sizable twin deficits there's a classic political business cycle at work and perhaps there is a case where investors are underestimating risk or have been but I mean it's a judgment call I wouldn't I wouldn't know enough in detail to to follow it I think again it's the one case that we see as being where macroeconomic situation is a little bit with the need for macroeconomic adjustment is quite significant it's probably the fairest thing to say in other cases there are the risks often are the commodities that stand behind the economies and as I said oil is an excellent example for for Nigeria and there the risk is not anything happening in Nigeria it's it's a world price of oil and I think actually investors take those kinds of risks very well into account that's pretty high in their risk so I'll go to mr. Gibson immediately the I think that the issue of the banking relationships between the U.S. and Africa is totally driven by the by 9-11 and the fee the the fright that it's not worth it for American banks to have any relationships across Africa they literally closed all of the bank account most of the bank accounts for the African embassies here we who are principal owners of banks across the continent have our correspondent relationships canceled even though we're American and in trying to resolve the relay in trying to engage with the government it's so many different components of government even though it may be driven initially by treasury because you're hitting so many different levels no one has taken on this issue and it hurts it fundamentally hurts any relationship that the U.S. can ever expect to have as it relates to being a serious investor in Africa assuming you're going to involve debt so the oil industry other large-scale natural resources that doesn't depend on the banking environment to scale up their participation on the continent are kind of outside of that equation but if you're looking at mid-cap investment you've got significant issues and yes but we would like to know why actually you're sending money to islamic countries no yeah having been having been born in livia the uh that is an issue that comes up on occasion i'm aware of it i'm totally aware that it is not funny it's horrible it is absolutely horrible and until we address it the the scale of u.s participation is as investors in Africa will not grow in the way that it should um interesting enough so so the issue of the the chinese participation in africa i would throw that wider i think frankly the chinese participation in africa while there were governance issues and our governance issues um it's woken up a lot of investors coming into the african markets including the united states and and the level of investment that one sees from brazil from turkey from from any number of other markets that you didn't see 10 years ago has been spectacular uh that being said we do scratch our heads a little bit about that three billion dollar bond to gana but on the other hand we say so what's the correlation correlation between the debt to gana and the chinese debt in the united states so i think that it it takes to the tango we are at time i want to say thank you so much for really a rich discussion and i think you know we come out of this for all the risks that stand out there there is something qualitatively different about this surge right now the domestic demand that you referred to i think that builds constituencies for reform for the difficult reform on energy on on fiscal space and so forth within those countries the demonstration effect of countries and states like legos that are getting it right and the political pressure that brings to bear and so i think as steve said at the outset this is not something we would have you know this is not the outlook we would have talked about five ten years ago um i hope that we can keep you all engaged because this was just fascinating to me and i want to thank um the audience for for joining us and our panelists please join