By Christine Lagarde
Managing Director, International Monetary Fund
Dakar, Senegal, January 30, 2015
As Prepared for Delivery
Introduction
Mr. President of the National Assembly,
Members of Government,
Members of the Parliament,
Members of the Diplomatic Corps and International Organizations,
Ladies and Gentlemen,
Good afternoon. Asalamu Alekum!
I would like to thank President Moustapha Niasse for his kind introduction, and members of the National Assembly and economic team for their warm hospitality.
It is such a pleasure to be in Senegal—the land of Teranga [hospitality], land of culture and openness, where the boundaries between cultures and continents merge, like the Sine and the Seine rivers often do in Senghor’s poetry.
Senegal is a country of many achievements. Your democracy has been a model for Africa, as exemplified by the diversity of this Parliament. You are recognized for your education system, dynamic civil society, and strong civil service. You have achieved macroeconomic stability and made inroads against poverty.
Yet Senegal cannot rest on these achievements. Today it stands at a critical turning point. The foundations for growth have been laid, but growth is neither vigorous nor inclusive enough to unlock Senegal’s potential, significantly roll back poverty, and secure a brighter future for its youth.
Fortunately there is a roadmap. The government’s new development strategy – “Plan Senegal Emergent” – is an ambitious yet feasible path towards emerging economy status. Accelerating, broadening, and deepening the reforms required by this plan are integral to this vision. A vision that Senegal shares with many of its African peers.
Africa’s future has been very much a part of the IMF’s work of late. Last year, I took part in a conference that we co-hosted in Mozambique called “Africa Rising”. This event brought together political and business leaders and members of civil society from 42 African countries and other parts of the world.
For me, one message that came out loud and clear was the value of peer-to-peer learning as the way of going from prescription—what to do—to practice—how to do. With a membership of 189 countries, the Fund is a treasure trove for cross country experience and offers a unique platform for knowledge exchange.
There is a Wolof proverb that captures this idea: “Ku la jëkk ci néeg bi moo lay wax ni ngay tooge” – He who precedes you in a room will tell you where to sit.
So today I would like to discuss what lies ahead for Senegal through the lens of this popular Wolof wisdom drawing on the Fund’s knowledge “chest.” I will share my thoughts on three topics:
(i) First, the road forward for “Africa Rising” and the implications for Senegal;
(ii) Second, how Senegal can build on the success of peers—both positive examples and pitfalls to avoid; and
(iii) Finally, key policies to inject dynamism and propel Senegal toward emerging market status.
1. The Road Forward for “Africa Rising”—Implications for Senegal
Let me start with when we last met—in Mozambique, where we were witnessing a new narrative on Africa. One where many countries were marching forward— expanding steadily for ten years or more—and taking their rightful place in the global economy. One where sound policies and stronger institutions made African countries attractive to major investment flows from both advanced and emerging economies.
The conference also captured the essence of the challenges that confront Sub-Saharan Africa. There was a shared understanding of the importance of accelerating structural transformation, building badly needed infrastructure, and making growth more inclusive.
In my view, these priorities resonate well with Senegal. Why do I say that?
Let’s step back for a moment. Senegal has made significant progress in securing macroeconomic stability. Yet, delays in implementing reforms have resulted in an average growth of 3-4 percent annually—short of the vibrancy needed to encourage the private sector, create jobs for its people and secure prosperity for future generations. Here I am thinking of the 45 percent of your population under 14 years of age for whom action is urgent.
Fulfilling Senegal’s aspiration of middle income status will require a shift toward policies that will inject greater dynamism into the economy, and open space for small and medium enterprises and for foreign investment. This objective can become more challenging in an uncertain global environment.
According to our latest forecasts, global economic activity this year will be weaker than we had projected only a few months ago. And this is despite the boost from lower oil prices and firming activity in the United States and the United Kingdom. Momentum is slowing in many advanced and emerging economies, including China—one of Africa’s main trading partners. This will inevitably affect Africa as well.
In addition, the world economy will face a number of headwinds. The first is from asynchronous monetary policies in advanced economies—monetary normalization in the United States and easing in Japan and the Euro Area. Even if the process is well managed and well communicated – and I believe that it has been and will be – there could be negative effects for emerging markets and global financial stability. African economies could also be affected.
The second headwind is a potential “triple hit” for emerging and developing economies from higher interest rates, the stronger U.S. currency, and more volatile capital flows. A scenario of persistently lower oil prices would add to these risks, as oil exporters are likely to see increased external and fiscal pressures, including in Africa. For oil importers, however, lower oil prices provide governments the opportunity to reform costly and inefficient energy subsidies.
Of course, compounding these headwinds is the persistence of geopolitical tensions, as we have seen in Ukraine, the Middle East, and even in parts of Africa—Nigeria and Mali.
This outlook has implications for an Africa that is now more integrated into the global economy than ever before. Growth forecasts for Sub-Saharan Africa have been pared down due to lower oil and commodity prices. Still, the overall African outlook remains promising, and at close to 5 percent, the region is expected to post the world’s second highest growth rate in 2015 after emerging Asia.
Senegal can reinvigorate its economy and help place the region on the path to inclusive growth and poverty reduction. To end the chronic underperformance of the Senegalese economy over the last thirty years—when average growth hovered around 3.5 percent. At this growth rate, not only will inclusive growth be elusive but youth will not find their place in a modern Senegalese economy.
It is time for Senegal to start growing at faster rates—the 7 to 8 percent envisaged in the “Plan Senegal Emergent” and recorded by the Asian tigers and fast growing African economies. It is time for the “Red Lion” to roar.1
So how can this growth acceleration be achieved?
2. Building on the Success of Peers—What Lessons for Senegal?
This brings me to my second topic—what lessons can countries that have managed to sustain growth takeoffs offer to Senegal?
Overall, the wisdom of international experience offers two main lessons.
First, the ambition to rise to emerging economy status within the next two decades is achievable. The reforms involved are difficult, but doable.
Second, not all countries are successful in all reforms at all times. Each country has its own story to tell.
Senegal has defined the right track. Your announced development agenda indeed includes all the main components that led the others to success. However, the pitfalls on the road may also be substantial. Senegal has stumbled over them in the past. Minister Ba summarized it well at last year’s Consultative Group Meeting for Senegal: “We have had many strategic plans in the past. But we have often failed in the implementation.”
Today, Senegal can learn from other countries’ experience in pressing ahead and moving from plan to implementation.
Let me mention three key lessons to heed.
First lesson—focus on prudent fiscal management and macroeconomic stability. Countries that experienced growth accelerations typically embarked on important investment programs. Not all of them were successful. Some countries accumulated large debt burdens in the process.
So what did the successful countries do right—those that saw an increase of at least 5 percent in per capita growth rates? Think of countries like India, Guyana, and Sri Lanka, but also African lions such as Cape Verde, Mauritius, and Uganda.
To begin with, these countries improved their public spending, particularly public investment management. This helped unlock private sector investment, including foreign investment. Unless these components are in place, higher spending, including of donors’ money, generally has led to higher debt with sub-par economic outcomes.
Indeed, efficient public spending and private sector investment were the missing links in countries that saw large increases in debt. Even here in Senegal, limited private investment and poor returns from capital spending have been major factors holding back growth.
Second lesson—focus on export expansion through openness to foreign direct investment. During episodes of growth, most successful countries dramatically increased exports. This expansion was supported by two factors.
The first is a significant increase in foreign direct investment—typically from an average of 1 percent of GDP to about 4 percent. The second is the implementation of policies that facilitated entrance and growth of small- and medium-sized enterprises that are globally competitive. Improving the business climate was typically a key ingredient of these policies. Both these factors proved to be mutually reinforcing in expanding exports and accelerating structural transformation of the economy.
Finally—focus on building institutions and human capital. An ambitious growth rate is not a goal in itself. It should also support an increase in the well-being of the population – all the population.
International experience suggests that when this important dimension is disregarded, the outcome can be dismal. Lack of job opportunities and limited investment in human capital can result in growing imbalances in incomes between rural and urban areas, men and women, young and old. They ultimately can lead to social strain and undermine the reform efforts.
3. Senegal: Building to the Future—The Need for a “Big Push” Reforms
So what does this collective wisdom imply for Senegal—the last topic I want to discuss.
The good news is that all key components for success are in place. The government owns a strong development program and there is consensus on the need for reforms among political stakeholders.
The international community shares the authorities’ vision and has already pledged more than US$7 billion to help finance it.
But perhaps most important is heeding what is on everybody’s minds. That is, the need for a critical mass of reforms—a “big push”—to decisively break with the past and accelerate growth. And time is running short. People’s aspirations for rewarding jobs, better social protection, improved living standards, and brighter business opportunities should be honored.
Drawing on international experience, I can see three policy dimensions that are key to this “big push” agenda to inject dynamism into the Senegalese economy.
First, strengthen public financial management and bridge infrastructure gaps. Building public infrastructure and social spending will require more resources. Yet simply accumulating more debt is not the way to go. This fiscal space should instead be created by increasing revenues and rationalizing spending.
Spending, in particular, can be reallocated from low priority items to high priority ones. From poorly planned capital spending and untargeted electricity subsidies, which benefit mostly the rich—to well planned public infrastructure and investments in human capital, which benefit everyone but are particularly valuable for the poorest.
Second, strengthen the business climate to accelerate structural transformation. The arduous process of improving Senegal’s regulatory framework has begun. Senegal was amongst the top reformers in 2014 who improved most according to the World Bank Doing Business Indicators.
Even so, Senegal remains in the bottom ranks among African peers in terms of its investment climate. And the consequences are huge. For example, over the past few years, foreign direct investment in Senegal has been about 2 percent of GDP. This is much lower than the 7 percent of GDP levels recorded in many lower and middle-income countries in Sub-Saharan Africa.
Broadening the scope of the regulatory reforms that have started would be important in attracting much needed foreign investment. Policies should also focus on helping small and medium enterprises start up and flourish, so that youth can access productive jobs in the formal sector. This is a key pillar of the aspirations of youth around the world.
Finally, make growth more inclusive. Unlocking high growth is not sufficient. Pro-active social policies will be required to build up human capital and ensure that growth is inclusive.
Creating opportunities for a growing young labor force and women should be key elements of this strategy. It is crucial to bridge what in the words of Ousmane Sembene, one of the greatest African writers, referred to as “the terrible gulf between young people’s aspirations and their accomplishments.”
Senegal has taken some important steps in bolstering the status of women in political institutions. Laws that require lists for elective positions to include equal representation of men and women are credited for the gender diversity of institutions such as this parliament.
Still, a lot remains to be done to make gender equality a reality. Senegal ranks 77th out of 142 countries on the 2014 World Economic Forum Gender Gap ranking—far behind other peers such as Rwanda and Cape Verde. Many of the challenges are tied to the patriarchic structure of the society, exacerbating women’s limited access to justice, decision-making power, economic empowerment and security.
These challenges must be overcome—through deliberate policies, but also through a change in attitudes. As I often say, a healthy society needs gender equality. And as increasing research shows, a better gender balance is also good for economic growth.
Conclusion
Let me conclude. Senegal is indeed at a turning point. My meetings here instill optimism and high hopes.
The Government’s goals are ambitious, but achievable. Risks are substantial but manageable. The preconditions are in place, and the opportunities are vast. Now is the time to go further—to work together towards an inclusive, job-rich and sustainable growth strategy. Now is the right time to start reforming institutions building on the experience of many countries that have become emerging economies. This is the right time to empower the youth, women and the poor.
Rest assured that the IMF will be by Senegal’s side. Senegal is one of the largest users of our technical assistance and capacity building services, and we are proud to continue to help—through regular policy advice, peer-learning, or a new program engagement, should that be your desire.
The theme of our conference in Mozambique was Africa Rising.Senegal Rising to emerging economy status would be an important milestone in this direction. The journey maybe long and fraught with cross currents. Yet only if we sail together on this boat, “Sunugal”, can we fulfill the promise of the brighter, more inclusive future this country is destined to have.2
As Leopold Sedar Senghor so rightly said “the goal we have set ourselves can only be development through economic growth. I say development. I mean by that valuing all Africans and all Africans together. It is about the human being.”
Jereujef! Merci.
1 Senegal’s national anthem starts with “Le lion rouge a rugi” by Senghor.
2 Senegal comes from Sunugal, which means “our boat”.
Courtesy of IMF
Discussion
No comments yet.