Economic transformation, industrialization and extractives: At the core of Agenda 2030?
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Transcript of Economic transformation, industrialization and extractives: At the core of Agenda 2030?
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At the core of Agenda 2030?
Roundtable for Enhancing Inter-Regional Cooperation on Agenda 2030
Presentation made at the ACP House
Isabelle RamdooDeputy Head,
Economic Transformation ProgrammeBrussels, 30 – 31 March 2016
Economic transformation, industrialization and
extractives
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1. Agenda 2030: extractive sector, economic transformation and industrialization
2. SDG9: Special focus on regional infrastructure
3. Challenges and Policy prospects
4. Conclusion
Structure of Presentation
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1. Agenda 2030
Extractive sector, economic transformation and industrialization
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SDGs and the extractive sector: Where do they intersect?
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Focus on Infrastructure: Why it matters? Visualizing the deficits
Source: African Union
Energy Railways
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Lack of infrastructure a significant barrier to mobility (people, goods and services), productivity and economic development
World will require US$ 57 trillion in infrastructure investment from now to 2030.
Energy and transport infrastructure are particularly important;
Regional cooperation and integration matters: Scope to leverage use of (regional) infrastructure for broader economic development:
Africa’s geography is particularly challenging (biggest no. of landlocked countries)
Essential benefit is to provide larger and more competitive markets, reduce transport costs and establish connectivity across countries.
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ACP (and Africa in particular) infrastructure needs are enormous…
By 2030, Africa alone needs US$93 billion per year to bridge infrastructure deficits (current spending is only about $45 billion per year and the gap is therefore US$ 48 billion). More than half funded by public sector.
Poor infrastructure and market fragmentation estimated to shave off at least 2% of Africa’s GDP annually; High transport costs inflate the price of goods by up to 75%; and reduce firm’s productivity by about 40%.
Underdeveloped infrastructures skim off at least 2% of Africa’s annual growth.
Access to electricity: 30% of the population compared to 70 - 90% elsewhere in the developing world (Asia, Central America and the Caribbean, Middle-East and Latin America)
Road access rate: 34% compared to 50% elsewhere Access to water and sanitation: 65% of the population compared to 80 -
90% in other developing regions. Telecommunications penetration rate: ~ 3% compared to ~ 40% in other
developing regions (very low penetration rate for broadband services)
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2. What potential synergies?
Extractive sector provide an important leverage
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Extractive industries are particularly large consumers, producers and contractors of infrastructures
Extractives are expected to invest up to $ 2 trillion in resource-rich countries by 2030
Capex in infrastructure in bulk ore minerals can go up to 40% (mostly in transport)
But infrastructure is not sufficient in itself: it cannot be transformative: If not well connected and integrated in spatial development; If it does not stimulate trade, investment and business development
Therefore, a strong case to be made to leverage, share and optimise the use of mineral based infrastructure at national, but most importantly, at the regional level
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(Too) few examples in the extractive sector. Where they exist, partial successes (MDC – scope is narrow, roads only, short corridor; SAPP, South Africa driven, low trade (7% of energy needs)
Lessons can be learnt from elsewhere (non-extractives, but regional focus) (Europe connectivity; Baltics; Central America)
Reasons for success:1.Political leadership;2.Proper planning and coordination;3.Strong institutions;4.Clear regulatory frameworks, implemented, monitored and evaluated; 5.Incentives (Fiscal incentives for companies; industrial zones and business prospects for the private sector etc)
But it is (really) happening? ….Yes but not enough….
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3. Key challenges and policy prospectsMeans of implementation
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1. Funding requirements and deficits in Africa
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As a benchmark, it is estimated that developing countries need to invest 5 - 6% of their GDP in infrastructure to sustain their economic growth;
Excluding IFIs, Govt budget spending is quite high: estimated to be 63% of spending on infrastructure (IMF: 2012)
Other instruments at disposal of govt include:(i) Financial markets;(ii) Bonds (iii) SWF(iv) Sukuk finance
Who is currently financing Africa’s infrastructure?(a) Govt finance: main single source of infrastructure finance
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(b) external sources
ECDPM Page 14Source: The Infrastructure Consortium for Africa Report, Dec 2014.
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(i) Official Development Finance (ODA + IFC + AfDB)
ECDPM Page 15Source: Brookings, 2015
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(ii) Private participation in Infrastructure
ECDPM Page 16Source: Brookings, 2015
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(c): Non-OECD Financing: Eg. Chinese Finance
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Source: Brookings, 2015
Chinese infrastructure investment commitments in SSA by sector, 2007 - 2012
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Sector v/s finance matrix
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Source: Brookings, 2015
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2. Synergies and project coordination at the regional level: can the tripartite serve as a model?
Tripartite cooperation a good business case
Three pillars if implemented can be a game changer
• Market integration - establish a FTA to bolster intra-regional trade through a wider market and value chain development, increased investment flows, enhanced competitiveness and development of cross-regional infrastructure
• Infrastructure development - to enhance connectivity and reduce costs of doing business and
• Industrial development to address productivity constraints
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Underscore the importance of the ACP as a facilitator and hub for cross-regional and cross-continental infrastructure.
A niche, in particular:1) Given the its geographical composition (second largest
organization by size in the world; majority of sea-locked countries; spans across all continents);
2) One common asset (relevant for maritime transport or ICT), which is the ocean (not to underestimate its geopolitical importance);
3) The capacity of the ACP to leverage financing at a macro-level, and hence can help put forward innovative mechanisms to access large-scale funds; and
4) The only institution capable to federate inter-regional cooperation to discuss common goods.
To conclude..
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