My Take-away from the IMF-World Bank Conference - Okonjo-Iweala

Former Coordinating Minister of the Economy and Finance Minister, Dr. Ngozi Okonjo-Iweala, was a toast of participants in Lima, during the IMF-World Bank meetings. Although he declined to speak with the media because, according to her, it is not yet ripe to comment on Nigerian issues. However, after much pressure, she agreed to speak with Festus Akanbi only on issues pertaining to the African continent

What are the lessons learnt from the 2015 IMF/World Bank meeting?

Ngozi Okonjo Iweala

One is that the global economy is full of uncertainty and it’s not performing well apart from the US where the economy is looking a bit brighter even though it is fragile. In Europe, there are issues. The big topic here is the performance of emerging market countries which had been the bright star for global growth. They did more than 50 per cent of GDP growth in the last few years and now they are experiencing problems. African countries that were also performing relatively well will now have a growth rate which is less than four per cent this year and perhaps up to five per cent next year.  So what can African countries learn? I think there are one or two key lessons.

The first thing I want to say is that we have to give African countries credit for having mastered the lessons of 80s and 90s and the lesson there was that you need macro-economic stability before you can grow or develop or even solve your social problems. It means you need fiscal deficits that are low and reasonable, preferably below three per cent.  You need a low inflation, single digit as low as possible, you need a stable and reasonable exchange rate, and all of those things were areas where we did not do well in the past, now African countries are doing very well. So, they have managed to maintain macroeconomic stability. That was the lesson learnt in 80s and 90s which was applied in the 2000 and resulted in African countries growing very steadily. The lesson to be learnt for the next two decades in my view is the lesson of structural reforms and the transformation of the Africa economy. This is because we almost have the same problems in Africa. Only few of our economies are truly diversified. So whether you are an oil exporter, diamond exporter or a coal producer, we all have to work really hard to diversify resources of growth in our economies and very importantly, the sources of revenue and it means we need to work very hard to try to improve our tax base. All of these work we started in Nigeria. They just need to continue.

What is your view on the recommendations of Central Bank Governors of Africa to the IMF?

First is African countries said they need specific attention. Of course you cannot just take policies that apply generally and apply it but I think institutions now realize that. Each country is different even when we have common and similarities between each country for us to get a solution. Above all, you have to listen to the countries and ask, what are their aspirations, what are their own visions, where did they really want to go and you have to support them. They were saying they do not want to see same set of recommendations. To some extent, we have similar characteristics. Most of us have a very narrow base in terms of our revenues so we have to find ways around it but the way to diversify ranges from countries to countries. They have to ask, what are the sources of growth to this country different from exporting one mineral to the other? We have to go with it or you take the mineral and say how we can transform it into making the kind of investments attracting those to do that. I agree with that.

The second issue was better representation on the board of the IMF. I completely agree with that. The governance of international institutions have to change, has to include emerging markets and African continent. You need to give them a voice and their reforms that have been put before the IMF to give emerging markets more of the voice but due to blockages in the US congress, it has not been enacted. But African countries have not been given that voice, so IMF quota reform still needs to go further in the next round to make sure African countries have a strong voice. I totally agree with that. They also need to give African countries, additional chair on the board of the IMF like they have done in the World Bank as you know African countries are represented by three chairs now not two. In the IMF, they still have two and that has to change.

How should the call for the war against illicit financing be handled?

The estimate of large amount of illicit financing flowing out of the continent is enormous and I’m very proud that ministers of finance of Africa, under the aegis of the AU  and ECA commissioned former President Thabo Mbeki of South Africa to do this famous report which showed that African countries experienced an outflow of about $50 billion as illicit financing each year due to transfer pricing, trade mis-invoicing (over invoicing and under invoicing of trade, base erosion and base shifting, this refers to the efforts of multinational companies working in the region trying to shift their profit base to country where their tax is lower, meaning they are not paying proper tax in the country they are operating and making the money. All of this contributes to the $50 billion outflow and this revelation is very important. We now have an idea of the amount and I think the IMF and the World Bank should help with supporting analysis of country by country so that each country can know its figure.

In Nigeria, we commissioned the African Development Bank, the Global Financial Integrity. ADB paid for the report for them to look at Nigeria. I don’t think it’s finished but when they finish it, it should have an indication for our own country of how much has been going out each year and following that they will also analyse how because you have all this causes but you ask which one is peculiar to your own country. Once you have that, you will then need to work the IMF and the World Bank to say they will have to put the capacity to look and say these are measures in place and then, I also feel it should draw international attention. The OECD has just released a report, which contains an analysis of these bases. It suggested several recommendations which the international community needs to take. Also, our countries need to look very hard at these recommendations which they are trying to implement.

How will you describe the various processes of integration in Africa?

We still have a long way to go on the economic aspect of integration. I think we have done a lot. We have come a long way in terms of the political issues, I think the presidents have moved on the issue of governance on the issue of coup and we have seen their responses indicating nobody is going to recognise leaders of any coups as we have seen what happened in Burkina Faso as Senegal on behalf of ECOWAS was able to move in, but on the economic scene, there are still some challenges. Although some progress has been made but there is a lot to be done. First, we need infrastructure. Integration also needs connectivity, so we need better connectivity by road by rail, by air within the continent. That will help integration. We also need to sweep away, all the hurdles in front of people moving goods and services. All the inspections along the roads, stoppage of transport of goods and the cost they incur because many are stopped five to seven times. All that has to go and all that is needed is a political will so that goods can move freely. Rwanda and Kenya have done it by establishing a corridor and they have brought down the cost of logistics by 50 per cent for Rwanda. That’s a huge saving. We can do that. Those are the things we need to do as critical steps on integration.

What are the options for oil producing countries in Africa under the present circumstance?

The countries have to ask themselves the questions on how they secure themselves against this volatility. Nigeria has made tremendous progress. For instance, we had established all the mechanisms so that when the oil is high we save and we guard it to be used when the price crashes. Angola is better positioned because they have bigger sovereign wealth fund, their population is much lower, and they have slightly higher ability to absorb the shock than we do but in all of these, we have to establish a mechanism to take care of the volatility. That is a short term measure but in the long term, the answer lies in the fact that the various countries have to move away from their dependence on oil earnings.

For instance, Nigeria’s economy is well diversify but the revenue source is not, we have to look at how do we diversify, invest in the various sectors of the economy so that the tax base can broaden and can diversify the sources of revenue which means attention should be given to other sectors. Both Nigeria and Angola are oil producing countries and they also produce oil and gas. Agriculture in both countries is huge and has big potential and Nigeria has a very big internal market so that if it can do well there, it can save a lot of foreign exchange. This is what we need to focus on. How do we produce for ourselves so that we won’t have to buy so many things and how do we do it in a way that is sustainable.

Are there lessons to learn from the host country, Peru?

Peru is a middle income country. There are so much you can borrow from Peru. Putting in place steady infrastructure, that is one. They have urban rail transport system, so there is a good infrastructure to move people around. It’s not just the train system but the bus system. The place is clean. The first thing you notice first and foremost is how clean the place is, it means if you are poor you don’t have to be dirty. It shows there are many things we can do in our countries to make living environment pleasant for Africans whether poor or rich.

Another lesson we can learn is the fact that they have maintained steady policies over time. You cannot develop when you start one set of policies and many of our countries then, you stop and start again. That means there has to be a social contract /agreement that no matter what, a set of policies will be followed steadily so that the country can make progress not back and forth.

I think the third aspect is the social safety net. This was what we were trying to build in Nigeria. Attention to the social safety net which means if you have the growth of the economy, what you need to do is put in place a system that those at the very bottom, the vulnerable like women and girls will have transfer. We started in Nigeria to some extent and we were already doing a pilot in eight states and it was very successful. Conditional cash transfers, saying women, you will get these transfers if you bring your child for immunization, if you send your boys and girls to school, and we piloted it in eight states and it worked. The next stage was to broaden it into the entire country. That is very important. Peru has been doing that and it has worked for them. They are not just giving people cash. They are doing it and telling them they must send their children to school, they must look after the health of their children.

My Take-away from the IMF-World Bank Conference - Okonjo-Iweala