Africa has experienced faster economic growth rates in the past decade, averaging 5.2% per annum compared to 3.6% per annum during 1994-99 period but poverty levels remain a challenge. The proportion of people living below a dollar a day fell marginally from 47% to 43% between 2000 and 2005, while those living below USD 2 per day are estimated to have declined from 68.7% in 1990 to 60.8% in 2010. Also, inequality remains high and widening in many SubSaharan Africa (SSA) countries (Fig 1). Of the 10 most unequal countries worldwide six were in SSA in 2010 - the top 3 being Namibia, South Africa and Lesotho, with Gini coefficients of 70, 65 and 63, respectively. The youth constitute majority of the poor in Africa (72%). African countries continue to have high rates of unemployment, and youth unemployment remains high in most countries, with Nigeria, Ethiopia, Uganda, Zambia and Burundi having over 80%. There is therefore need for the continent to pursue an Inclusive Growth (IG) agenda for its sustainable development beyond pro-poor growth policies. This brief highlights selected key areas that the Bank and other development partners should focus on in order to enhance IG agenda in the RMCs. Unlike pro-poor growth which targets the poor only, the IG agenda targets all the segments of society and economy. IG pertains to the process of ensuring that all groups of society are included in the development process irrespective of their social classification, thus providing economic opportunities (the pace of growth) for all while ensuring equal access to them (the pattern of growth), including the vulnerable and the marginalized to contribute to and benefit from interventions in absolute terms. The bank refers to Inclusive Growth (IG) as economic growth that results in a wider access to sustainable socio-economic opportunities for a broader number of people, regions or countries, while protecting the vulnerable, all being done in an environment of fairness, equal justice, and political plurality. It has three main pillars: broadbased growth across sectors and regions, productive employment, and protecting disadvantaged and marginalized groups from adverse shocks. It takes into account: age, gender, regional or geographical gaps and sectoral differences and balances. Accelerated, strong, sustainable and inclusive growth will support increased incomes for majority of the population sufficiently to bring about a general improvement in living conditions. And the more inclusive the growth, the greater is its potential to contribute to broad-based development and sustained poverty reduction and wealth creation. Therefore, as argued by the G20 Seoul Summit 2010 at the Seoul Development Consensus for Shared Growth, the development partners’ actions and policies should have the capacity to significantly improve the prospects for inclusive, sustainable and resilient growth above business as usual. 2. Operationalizing Inclusive Growth Agenda A brief discussion is made in the section below on how the selected key sectors can contribute to inclusive growth in Africa followed by a discussion on measures that can stimulate strong, 2 sustained and resilient growth as well as help remove the exclusions, including addressing poverty, inequality, poor social indicators, unemployment etc. 2.1 Infrastructure: Africa has low infrastructure stock relative to other developing regions of the world. For instance, recent data (2006-2009) shows that only 28% of Africa’s population had access to electricity compared to 70% of other developing world and 69% had access to improved water access compared to 88% of other developing world population. Improved infrastructure including its regulatory environment will increase Africa’s competitiveness and productivity, lower the costs of doing business, and facilitate trade and foreign direct investment. It will deepen economic and social integration and create employment opportunities during project implementation and operational phases. It also supports the delivery of social services, and thus contributes to the IG. Developing rural infrastructure in particular has a wide range of impacts on households, communities, and businesses both in terms of income and other quality of life indicators. There is a high disparity in infrastructure access rates between urban and rural populations. While one in two urban dwellers in SSA have access to grid electricity, only one in ten rural dwellers are connected. Populations in small states, fragile states and landlocked countries remain largely under-served. The infrastructure projects can realize IG when they: (a) ensure connectivity including for the poor and marginalized groups; (b) create opportunities for local procurement of labor, inputs and services; and (c) protect vulnerable groups. The Bank supported these endeavors by allocating 60.4% (inclusive of private sector investment in infrastructure) of its total investment during 2008-2010 to infrastructure. 2.2 Regional Integration and Trade provide opportunities for enhancing productive capacities of African economies, create economies of scale, and improve competitiveness. Opening up the economic space through regional integration and trade policies/regulations promotes value addition on Africa’s primary commodities that can have positive impacts on IG agenda. Well-connected regions, in terms of road transportation and ICT, power supply and water systems will enhance inclusion. Regional integration will create large and competitive economic spaces that will be attractive to investors and lead to increased employment and mobility of people across borders. Transportation infrastructure promotes IG when it links businesses and farmers to markets, helps redress territorial imbalances within countries, or links small economies/fragile states to a regional economic hub. Provision of roadside socioeconomic infrastructure and services, and integration of feeder roads into project design, enhance inclusiveness of interventions. 2.3 Private Sector Development (PSD) activities are cross cutting promoting IG across all economic sectors and through all firm sizes ranging from MSMEs to large corporations, as it generates growth, jobs and economic opportunities for the majority including the poor. Africa’s private sector accounts for over 80% of total production, 67% of total investment, 75% of total credit to the economy, and 90% of the labor force. It is dominated by small firms and informality, with most of Africa's largest businesses residing in a few MICs. Its productivity rates are low compared to other regions, as farm sizes in many African countries are inefficient and labor intensive. African enterprises need to be expanded in order for them to increase their 3 contribution to more jobs and wealth creation, value added production, use of domestic raw materials, capital formation, government revenues, and export earnings. This will boost broadbased growth and allow PSD to promote sustainable IG. The private sector contributes to government revenue as well as financing public investment in development infrastructure and services. Most of the MSEs (65%) operate in the informal sector, a sector whose businesses account for over 40% of Africa’s economy. The informal sector provides economic opportunities for the majority and for vulnerable groups and contributes to IG agenda. 2.4 Governance institutions and instruments in most of RMCs are weak. The IG agenda in governance entails putting in place standards and conditions to foster resource mobilization build strong institutions, mainstream transparency and support voices and accountability. These will contribute to a broad-based growth in RMCs. Africa needs strong institutions to accompany the growth process. Right institutions with the necessary capacity and resources are needed to effectively establish a sound macroeconomic framework, through good public financial management; a better business environment with an appropriate legal and regulatory framework that facilitate contract enforcement, property rights; and more stable and secure society. IG also requires supporting the voices and democratic accountability of the poorest and vulnerable groups. There is need to foster good political governance through democratization and representation of the various strata of the population in all economic and political spheres. Inclusiveness also means that people should also participate in the control and monitoring of the management of public affairs, particularly the management of public resources, and be held accountable for their economic and fiduciary responsibilities. Such system requires strong control, audit and judicial systems able to enforce the rule of law, the disclosure of the management of public affairs. 2.5 Higher Education, Science and Technology (HEST): The IG agenda in Africa will benefit from promotion of higher education and in particular HEST and vocational training and skills development that are critical to development. To realize this, the tertiary education systems must address the challenges related to access, quality and relevance of these educational systems to the economy and society. Education at tertiary level should be accessed by a wider population regardless of socio-economic status, gender or regional/geography. It should be of good quality to ensure internal efficiency; and it should be relevant by ensuring efficiency where all those who have gone through the system become productive in society through employment in the labor market including self-employed. 3 Challenges to the operationalization of the Inclusive Growth Agenda Factors that impede IG agenda in Africa include lack of diversification, weak institutions, limited access to finance, and external factors, which are within the key pillars below. These constrain income growth, equality and inclusion, productivity, job-creation, competitiveness, effective markets, exports and economy diversification, financial markets development etc. 4 3.1 Infrastructure: Challenges to inclusive infrastructure development and maintenance in RMCs relate to project design and operational approach, financing restrictions, as well as priorities and regulatory environments faced in RMCs. 3.2 Private Sector Development: For Africa to embrace an inclusive PSD, it needs to address challenges arising from: high costs of doing business; costly and inadequate infrastructure, limited access to finance, low labor productivity among others. The cost of doing business in Africa remains among the highest in the world. However, a number of RMCs are making progress in improving business environment. Among the 10 economies in the world recognized as having the most improved ease of doing business across several areas of regulation as measured by the 2012 Doing Business Report, five are from Africa. 3.3 Governance: Past governance interventions in RMCs have not significantly helped translating recent economic growth performance into significant poverty reduction outcomes partly due to the absence of inclusiveness of the interventions. The Arab spring revolution in Tunisia, Egypt and Libya, serve as an example of this absence. The design of instruments supporting governance such as - Policy-Based Lending, Institutional Support Project and Balance of Payment Support Project does not appropriately address the missing links and time dimensions. These instruments most often focus on economic and fiduciary aspects, leaving aside key governance issues such as transparency through press freedom, and voices and democratic accountability. They do not significantly address domestic resource mobilization and the long-term approach necessary to resolve most of the structural governance issues. 3.5 Higher Education, Science and Technology (HEST): The inability of RMCs to meet the rapidly expanding demand for tertiary education that is partly caused by the burgeoning demographic transition is a major challenge to inclusive HEST. Africa is the world's most populous continent after Asia accounting for 15% of the world's population; and the youngest region in the world. The Bank, development partners and RMCs are challenged to: overcome capacity constraints; prevent or reverse declines in quality; ensure the relevance of tertiary education to the countries’ needs and also its contribution to industrial development; and provide for its cost, financing, and governance. 4. Conclusion and the Way Forward for the Bank This section addresses how to address the challenges discussed above and actions the Bank and the development partners can put in place to support inclusive growth in RMCs. 4.1 Support massive improvements in inclusive infrastructure development to assist African countries to become competitive, realize its IG agenda, and eradicate extreme poverty. For instance, in the energy sector, support grid extensions in cost-effective inclusive manner. Also ensure that fiscal regimes in RMCs are supportive of inclusive investments including those impacting the poor. A continuation of subsidies is necessary at least in the midterm. The key lies in ensuring that subsidy schemes target the poor and marginalized groups but are not detrimental to efficiency in power service delivery and to public expenditure. 5 Adopt project design feature that improve local linkages in transport sector. This design features will require policy dialogue, careful technical design and implementation supervision arrangements. Support institutional reforms to better link remote areas to markets to develop rural agriculture based communities. Undertake policy and institutional reforms to ensure more competitive markets for transport and trade facilitation, improving the efficiency of government agencies at borders, and investing in infrastructure. Support RMCs to invest more in priority rural infrastructure (feeder roads, storage facilities, agro-processing, irrigation infrastructure and improved land and water management) in agricultural growth corridors. In the areas of ICTs, focus should be on: (i) extending ICT infrastructure to underserved areas and expanding regional/national ICT broadband infrastructure; (ii) creating enabling policy/regulatory environment to leverage private investment and forging PPPs for improved connectivity; and (iii) providing support for RMCs to scale up their ICT applications in all sectors to transform public service delivery. Allocate sufficient resources to secure access to clean urban-rural water and sanitation for a wider population including the poor. Develop an incentive system for connections to the poor and promote installation of public fountains in underserved areas such as informal settlements and slums. Also strengthen water capacity building and mobilize resources. This will enhance the participation of communities, including women and service providers (artisans, mechanics, vendors), in design, implementation and operation and maintenance. 4.2 Facilitate diversification of African economies beyond natural resource extraction and agriculture to promote regional integration and trade. Support RMCs to break into manufacturing, by strengthening their competitiveness through policy reform to ensure more competitive markets for transport and trade facilitation, improving the efficiency of government agencies at borders, and promoting value addition, increasing productivity, and investing in infrastructure for reduced cost of inputs. Support the design of projects/programs that improve productivity and market access for smallholders – such as: infrastructure development to open up and link the farmers and markets from different regions; institutional and human capacity building to enhance efficiency, productivity, governance, absorptive capacity, etc.; regulatory and legislative harmonization work; macroeconomic convergence and financial integration; trade facilitation, including support to SMEs/traders in meeting International Standards for exports; and support to streamline of RECs and creation of grand Free Trade Agreements. 4.3 Provide support to RMCs to improve business environment and strengthen their international competitiveness; promote inclusive PSD; and encourage RMCs and entrepreneurs to anchor development on social and environmental responsibility. This approach is anchored on three distinct but inter-connected pillars: the Business Enabling Environment; Social and Economic Infrastructure, and Productive Enterprises. In addition, provide support for the building of robust African and pan African financial institutions. 6 4.4 Expand or consolidate the list of instruments to include specific instruments that maximizes governance impacts. Develop a composite instrument mixing Policy Based Lending, Institutional Support Projects and capacity building instrument in order to comprehensively impact on governance. 4.5 Support RMCs to design and pursue education policies that promote the Higher Education, Science and Technology IG agenda in the three areas of access, quality and relevance. Remove skills mismatch and address labor market needs. Also scale up support for TVET linked to specific needs in the labor market, in both the formal and informal sectors, including the skills needed to create small businesses. Figure 1: Gini Index for Selected African Countries 2000-04 and 2005-09 Source: AfDB Statistics Department 2011, compiled from World Bank data, 2010 REFERENCES AfDB, 2010, AfDB Agricultural Sector Strategy (AgSS), 2010-2014. AfDB, 2011 October, Draft Approach Paper - AfDB’s Human Capital Development Strategy: One Billion Opportunities – Building Human Capital for Inclusive Growth in Africa. 7 AfDB, (Forthcoming), African Development Report 2011. AfDB, 2011 October, Draft Approach Paper - AfDB’s Human Capital Development Strategy: One Billion Opportunities – Building Human Capital for Inclusive Growth in Africa. AfDB, 2011, Africa: Inclusive Growth, Occasional Series, Vol. 1, Issue 1, September 2011 AfDB, 2011 October, Draft Approach Paper – AFDB Long Term Strategy (LTS) 2013-22 – Supporting Strong, sustained and IG in Africa. 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