Tweah Clinches Top African Business Leadership Award
-Calls for Paradigm Shift to Accelerate Development in Africa
As Africa braces itself for what some expect to be an arduous recovery from the impact of the coronavirus pandemic, the continent would need its partners more than ever before, especially as the economies of most sub-Saharan nations have been decimated by the Coronavirus pandemic. Joining ranks with scores of luminaries Tuesday, Liberia’s Finance and Development Planning Minister Samuel D. Tweah has called for a radical paradigm shift in development policy especially for sub-Saharan Africa.
Speaking at the Fifth US-African Investment Forum and Policy Dialogue, which also coincides with programs marking the African Business Leadership Awards (ABLA) presentation, where Minister Tweah received the African Inspirational Leadership Award in Public Service, the Liberian finance minister has lamented the low level of global investment inflows into Africa as compared to other parts of the world, even though empirical evidences point to significant progress being made in sub-Saharan Africa in the last four decades, evidenced by the fact that although more than USD 33 trillion in Official Development Assistance (ODA) has been spent in all regions of the world since 1960, Africa has received only a paltry USD 1 trillion, that has been spent in a way that has not enhanced Africa’s ambition from private sector expansion.
“In the last 75 since the end of the Second World War, momentous events have occurred and with them tremendous changes have been wrought in our world. We have seen the Vietnam and Korean Wars. We have seen the onset of the Cold War and its demise with the fall of the Berlin Wall in 1989 and the end of Soviet Communism. We have seen Africa plunge into nearly two decades of conflict and violence for much of the 80’s and 90s under the aegis of brutal dictatorships, but we have also seen the continent climb from these maladies to the post-millennial era of democracy and economic growth, even if the growth has been sporadic in different regions, buffeted by macroeconomic instabilities . During these decades, we have seen China rise from a per capita GDP of 185 US dollars in 1977, to a per capita GDP of nearly 10,000 US dollars in 2018, lifting more than 700 million people out of poverty in the last four decades, the greatest poverty alleviation feat in recorded history! We have also seen Latin America and the Caribbean move from a per capita GDP of about 1400 US dollar in 1977 to about 8500 US dollar in 2019,” Minister Tweah stated.
Despite these seismic events and the changes they have engendered, Tweah said Africa has changed very little. “Per-Capita GDP in Sub-Saharan Africa moved from USD 462 in 1977 to a meager USD 1500 in 2019. This means Africa is presently where Latin America was more than 40 years ago. In the last four decades, Africa has made some progress but has remained in virtually the same place.”
Minister Tweah said there is an abundance of economic evidence and analyses have purported to show why Africa has not grown and developed as fast as or as much as other continents or regions, and why the continent remains at the bottom of the economic ladder.
“The reality emerging from all these analyses is that global investment capital has not flown into Africa in the way it has flown into other regions of the world. In 1990, Nobel Laureate Robert Lucas explored reasons why capital has not flown to Africa or developing countries despite the huge potential for economic returns to those investments. This criticism has been dubbed the LUCAS PARADOX in neo-classical economic literature. Among economists, the predominant explanations for the LUCAS PARADOX revolves around the quality of institutional governance in Africa or developing countries.
“There is no gainsaying the importance of institutional quality in the form of effective property rights, investment friendly policies and regulatory frameworks, strong anti-corruption governance and a stable and predictable policy environment. However, I argue that this lack of capital flows, which explains Africa’s lack of infrastructure development, without which the continent’s private sectors will be left in the lurch, cannot alone be explained by institutional factors of empirical studies. For example, Sub-Saharan Africa’s share of Public Private Investment is the lowest in the world and is concentrated in four countries— South Africa, Nigeria, Kenya and Uganda. This fact may appear to suggest that these countries are the best on global indices of Government effectiveness, regulatory quality or anti-corruption. I can hear choruses across Africa saying ‘so true.’”
Minister Tweah further conjectured that the factors underpinning sub-Saharan Africa’s ability to attract global capital flows or PPPs may lie beyond empirical findings in economic papers and will require a complex array of approaches, among them undeniably the need for countries to continue to upgrade and improve their investment climates.
“Additionally, the most fundamental critique of the current economic or investment consensus is that while it has identified the lack of capital and investment flowing into Sub-Saharan Africa as a major culprit, enabling or catalyzing these flows has not occupied a particularly high niche in the drive for global solutions. For example, Official Development Assistance, which should help solve this problem, has itself been puny relative to sub-Saharan Africa and has been spent in ways that do NOT solve the binding constraints for private investment on the continent. In the last 60 years, Africa has received a mere three percent of what is classified as Official Development Assistance, with assistance going to other regions of the world. So the first issue is this: to the extent ODA is supposed to untangle complexities for investment flows in Africa, the share of ODA going to Africa to achieve this purpose is insignificant. More than USD 33 trillion in ODA has been spent in all regions of the world since 1960 and Africa has received only a paltry USD 1 trillion. The second problem is that this USD 1 trillion has been spent in a way that has not enhanced Africa’s ambition from private sector expansion,” Tweah lamented.
“So as we grapple for change and new answers to Africa’s investment challenges in the Post-COVID-19 era, we must begin to ask the fundamental and hard questions. First, why is the share of resources that should help Africa’s development so small relative to other regions of the world? If Development assistance is smaller, of course we should expect outcomes accruing to that development assistance to be equally smaller,” Finance Minister Tweah said.
He said it is also paradoxical that the world today celebrates the South Korean economic miracle and takes for granted the neoclassical model that may explain South Korea’s emergence, but forget to realize that in the 1950s South Korea alone received in development assistance, the total amount of assistance that went to the rest of the World.
“So here goes your institutional quality or neo-classical argument! This example is provided to show that development assistance is and can be an important complement to private investment, and in contexts such as sub-Saharan Africa where market and institutional imperfections abound, development assistance and private investment flows must move in tandem.
“So the menu of options for Post-COVID-19 Social and Economic rethinking and paradigm redefining must be as rich and nuanced as it must be complex. I offer the following broad contours toward such a menu,” he suggested.
To tackle these development aid anomalies that underpin scanty growth in most sub-Saharan countries, Minister Tweah is challenging private investment to assume center stage within Breton Woods multilateralism. “The share of resources dedicated to resolving constraints to private sector investment must dramatically increase. This increase need not be at the expense of spending in the social sectors, which have seen the lion share of resources. This increase must occur on the backdrop that private sector led growth obviates the need for the large social sector spending we see under the current model, since the jobs that accrue from these expansions avail higher incomes.”
Consequently, Tweah believes the world must begin to perceive Africa debt vulnerability as the immediate consequence arising from a combination of the inefficiencies in public infrastructure spending, from weaknesses in the bankability of large public investments, from the lack of private investment and from anemic and sporadic growth. “The narrative around Africa’s debt crisis or challenges must change in favor of these more fundamental resources. In other words, if the ability to service debt is not enhanced, the stock of debt would become the problem. As such the stock itself may not necessarily be the problem. The World Bank notes that total debt for Sub-Saharan Africa increased nearly 150 percent to 583 billion United States dollars between 2008 and 2018. As a share of GDP, total debt in sub-Saharan African increased from 40 percent of GDP to 59 percent in 2018. Liberia’s debt has risen from the debt waiver under the Highly Indebted Poor Countries Initiative in 2006 to now USD 1.5 billion or 46 percent of GDP. About USD 1 billion of this stock comes from multilateral concessional loans that were expected to solve private sector constraints. The reality is that this debt stock has become a problem limiting further borrowing because private sector bottlenecks constraining growth are still prevalent despite the concessional borrowing,” Tweah noted.
Going forward, Minister Tweah enjoined countries to continue working aggressively on improving the quality, stability and predictability of institutional governance. “The Government of Liberia is planning a massive forum on business and investment climate to address major challenges and regulatory issues in Liberia’s investment climate. The aim is to rebrand Liberia as a top-notch for business and investment in the Post-COVID era. The conference will be under the auspices of the Supreme Court of Liberia and will aim to situate legal practitioners and judges at the center of efforts to reform the Liberian business and investment climate, considering that business climate issues often have serious judicial ramifications. The goal is to place Liberia as a premier destination for private investment,” he disclosed.
Furthermore, Tweah said sub-Saharan Africa must continue to ramp up anti-corruption governance, as exemplified recently when Liberia just ended a two day anti-corruption conference. “The Conference is expected to present to President George Weah a roadmap for improving anti-corruption governance in Liberia, building on lessons from the last decade of governance,” Minister Tweah revealed.
“We must change the way we have delivered development assistance. The Paris Declaration on Aid Effectiveness, the Accra Agenda for Action and the Busam Accord have wonderful ambitions for ensuring development aid effectively complements private investment. But the evidence is that these big agenda items appear to have been overtaken by major events in the world since they were pronounced. Development assistance is still not being delivered optimally and we must return to these accords in the post-COVID era. For example, the accords avail to developing countries a clear roadmap for improving the quality of institutional competence, governance or delivery in developing countries, through what is termed as ‘use of country systems’. Unfortunately, country systems are still largely not being used in a lot of countries and situations. This will have to change under the Post-COVID-19 Economic Consensus. Recently in Liberia, we launched a new aid and NGO policy to bring back the goal of the Paris Agenda into focus,” Minister Tweah stated.
He said governance on natural resource management in African countries must take on the challenge of value-addition in the extractive industries. “In the last decade, the extractive industry transparency initiative has achieved greatly on availing transparency to the exploitation of natural resources in developing countries. Despite this progress, the share of extractive value-added in extractive Gross Domestic Product remains small, as natural resource countries continue to remain net exporters of raw materials, which exposes countries to the vagaries of commodity price whirlwinds. Governance around natural resources must address the key challenge of economic diversification, which is a major driver of financial or macroeconomic instability on the continent,” Tweah lamented, but disclosing however that Liberia remains a natural resource exporter and has improved extractive governance.
“We continue to work in this area to attract more investments. A massive oil palm sector is taking shape in Liberia with strong value added potential. Investments to add value to Liberian rubber are also happening with the Government working with stakeholders to achieve results in these areas,” he disclosed further.
Minister Tweah believes that the post-COVID-19 must place at the disposal of developing countries the ability to recover more sustainably from economic crises or from global health pandemics. “Sustainable recovery means putting the right policies and the right incentives in place to drive sustainable economic growth. In agriculture for example, if banks continue to remain risk-averse and if Governments and multilateral partners are not able to develop de-risking mechanisms, African agriculture will continue to be largely subsistence. Some countries are making steady progress in the transformation of African agriculture but progress remains very slow compared to the potential for change. The role of global finance and investment in African agriculture can clearly be enhanced,” he affirmed.
Another area for sustainable recovery and management, Minister Tweah said, is in the area of climate of change and environmental protection. “Sustainable recovery means giving forest communities less incentives to cut down trees for livelihood support by ensuring these communities access resources from Green Climate Funds or Carbon Credit markets. In many developing countries, significant complexities appear to prevent easier access to carbon credit markets that avail investment or development financing, while protecting and safeguarding our climate and biodiversity. Serious Action is needed in all these areas,” he said.
The world, he said, is at a watershed moment in both the relations among nations and in the possibilities for delivering greater prosperity for the peoples of different regions. While the Government of the United States has played an exemplary role in preserving world peace and upholding the economic consensus that issued from the Second World War, Tweah believes America can impart a new sense of mission to galvanizing a new consensus that will reverse Africa’s investment woes. “The United States still enjoys the deepest bond with most African countries and I believe US-AFRICA diplomacy and relationship can situate African investment challenges at the top of the global agenda,” he said.
“The financial crisis of 2008 that originated in the United States proved that the US remains the bastion of the global economic order. How does US investment and trade change the dynamics of African development? What should be done to unlock resources from American Pension Funds, for example, to close the African Infrastructure financing gap, which the African Development Bank has put at between 70 to 107 billion United States Dollars per year. Closing this financing gap should pre-occupy policy wonks and experts concerned about Africa’s transformation. The US-AFRICA relationship should concern itself with this development,” Tweah noted, adding that the US Government’s Millennium Challenge Model is particularly critical to helping countries improve governance in exchange for receiving support for expanding the private sector.
“This model is seriously focused on private sector expansion and we look forward to seeing the next generation of transformation happening under the MCC. Liberia presently has an MCC compact addressing challenges in electricity and road sectors and is working to qualify for a second Compact. USAID’s new vision of Journey to self-reliance has essential elements of the MCC model, which looks to unlock private sector potential. Our partnership with the USAID will address key private sector challenges in the coming years,” Minister Tweah revealed.
He said the US-Liberia relationship will play a key role in bending the arc of development in Liberia. Freed slaves from the United States established Liberia in 1847. Black Americans do not make much of this historical connection with Liberia for a variety of reasons. It is up to the Government of Liberia to exploit this rich history in building a vibrant tourism sector in the post-COVID-19 era. With COVID-19 all over the world, visitors and tourists from the United states to Liberia would no longer fear epidemics as they once did when the word Ebola was pronounced. US-Liberia investment dialogue should concentrate on these game changing dynamics beyond normal patterns that have defined Liberia’s relationship with the United States in the last 100 years. Our Government will explore these paths in the coming months and years,” Tweah stated.
Enabled investment, Minister Tweah cautioned, is the way forward. Left to neoclassical theories of incentive-compatibility and institutions, investments may not flow into Africa commensurate with the size of the continent’s development challenges. These Investment flows would have to be enabled by a combination of needed institutional reforms and other quasi-economic or diplomatic factors. “The situation may differ from one country to the next but the consensus is unmistakable that the next century in Africa is the century of Private Investment,” Minister Tweah stated.
Leading African and United States policy and business leaders participated in the African Leadership Magazine’s 5th US – Africa Investment Forum & Policy Dialogue 2020, a virtual meeting taking place from September 29th – 30th 2020, with the theme set as ‘US Africa Relations – A necessary Realignment’.
Keynote speakers were Swaziland’s Prime Minister (Eswatini) HE Rt. Hon. Ambrose Mandvulo Dlamini; Sierra Leone’s former President Ernest Bai Koroma and first US AFRICOM Commander, General William Kip Ward. Also, among those who spoke participated at the forum were Ahmed Shide, Ethiopian Minister of Finance; Hon. Samuel Tweah, Liberian Minister of Finance and Development Planning; Dr Ernest Addison, Governor of the Bank of Ghana; HE Lee Kinyanju, Kenyan Governor of Nakuru; and Mallam Mele Kyari, Group Managing Director of NNPC, among others.
The awards presentation was held on Day 2 of the forum, on 30 September 2020, where Minister Tweah was formally honored with the African Inspirational Leadership Award in Public Service, during the awards presentation ceremony and gave an acceptance speech during the event.