Anne Kristin Sydnes Minister of International Development Norway

Reforms in the International Financial System- and Africa’s Needs

Eighth Session of the ECA Conference of Ministers of Finance Addis Ababa, 21-22 November 2000

Plenary Session III: Panel on international financial architecture

Mr. Chairman, Excellencies, ladies and gentlemen,

It is a great honor and pleasure for me to participate in this conference and to meet such a distinguished group of ministers of finance and representatives from development agencies and research institutions.

This session is about changes in the international financial system. In my introduction I will focus mostly on factors that should be in place in addition to an improved financial framework if the latter is to have any chance to attract more investment and trade. Factors that also need to be taken into account if we are to have any success in combating poverty and achieving the International Development Goals – which is what we are ultimately trying to do.

As has been pointed out by Secretary General Salim Salim and other delegates, official development assistance (ODA) needs to increase if growth is to be enhanced in Africa. After many years of decline we welcome the increase in ODA we have seen over the past two years. However, more OECD countries need to join the exclusive "0.7 per cent aid club". We also need to go beyond this figure – as some of us have already done.

However, it is probably just as important to emphasize that ODA should be used more flexibly and more efficiently than is the case today. Debt relief must be increased and it needs to be made truly additional. As Secretary General Amoako pointed out in his excellent opening statement, there is also still room for improvement in the HIPC mechanism.

But increased ODA is not enough. Our goal is to see ODA being replaced by private investment and larger export revenues. Unfortunately one of the big challenges for Africa today in this respect is the perception among investors that it is particularly difficult to do business here. Africa is often viewed as the continent where poverty, corruption, AIDS and warfare flourish, as lagging behind in financial development and the use of modern technology.
We have heard this so often. We know it is to some degree a false picture, created by a lack of balanced information. This is partly a public relations and information issue and constitutes a challenge to all of us.

But there is also some truth in it. The conflicts in Africa have been many and long-lived. AIDS is threatening to decimate the continent’s human and social capital. There is a large digital divide, the development of the African ICT sector is lagging behind and there is the unresolved issue of how Africa can attract more investment to traditional sectors. Furthermore, even though most countries in Africa escaped the directly negative effects of the Asian financial crisis, many were hard hit by the slump in demand for export products that followed.

I believe that some of the lessons that we learned from that crisis in terms of the dangers of weak national finance institutions are also valid for Africa. The volume of volatile portfolio investments in Africa is admittedly not at all comparable to that in Asia, and the danger of a crisis is therefore not imminent. On the other hand, many of the types of institutions that could have helped mitigate the crisis in Asia, but were too weak to do so are, clearly also weak in many African countries.

To prevent anything similar from happening in Africa in the future and at the same time to increase investor confidence, to reduce the flight of capital and to attract new capital, it is obviously necessary to further develop financial markets and to strengthen legislation and the supervision of financial systems.

The need to revise legislation to underpin the security of investments is obviously also part of the picture. This is a field where the IMF has a comparative advantage and where the Fund should continue to be the main adviser. But in doing so, the IMF must learn from the evaluations and the experience that have shown that dialogue is a better way than conditionality to communicate the need for sustainable change. I say this because the way we cooperate as partners is also an important part of the framework for facilitating an enabling environment. From what I heard at the annual meetings in Prague, among other places, there is a real hope that the IMF will follow up on this in the cooperative spirit of the PRSP (Poverty Reduction Strategy Paper) concept.

With regard to conflicts as a deterrent to investment: although solving national and regional conflicts does not in itself improve the international financial architecture, an improved financial environment needs peace, security and political stability in order to function properly. This poses a great challenge for the regional organizations, in particular the OAU, which should continue to explore ways of resolving conflicts and do so with greater determination.

As I mentioned above, there is a need to change the negative picture of Africa that many people have. For my part I try to give potential investors as balanced information as possible. Partly for this reason, Norway plans to arrange special side events next year as part of the preparations for the Least Developed Countries Conference 2001 and for the subsequent Financing for Development Conference. We aim to solicit the views of potential private investors on investment in Africa and elsewhere and to discuss the issues with them.

Endemic corruption is also part of the picture investors see in many African countries. For investors corruption represents an extra transaction cost and it also seriously jeopardizes their reputation. This latter factor is increasingly being systematically included in the risk management calculations of potential long-term investors. This problem therefore needs to be attacked vigorously in parallel with the ongoing restructuring of the international financial system. In this respect I am pleased to note that more and more donor countries are also amending legislation to combat this problem.

Yesterday, at the "Big Table", we talked a lot about the need for capacity building. As regards Africa, this need clearly cannot be overestimated. All the available resources in African countries, in regional institutions and in the Diaspora should be tapped, and efforts should be made to retain skilled personnel in the public sector. Obviously wages that are sufficient for a decent livelihood play an important role in this connection.

Mr. Chairman,

Finally, let me close by mentioning the one issue which will have perhaps the greatest impact on development in Africa over the coming decade: the HIV/AIDS pandemic.

AIDS is not only about health.

AIDS is seriously undermining economic and social development.

AIDS threatens to wipe out the best and brightest.

AIDS, if not defeated, will jeopardize Africa’s very future.

We are involved in a war. A war to change attitudes. A war to change behavior. A war which, if we lose it, could have devastating macro-economic and structural consequences for the peoples and countries of Africa. Poverty will prevail. The most important capital you have – people and knowledge – will perish and the social fabric will crumble. Thus the war must be won.

From you, ministers of finance, combating AIDS therefore requires that you demonstrate your political leadership to prevent the worst case scenario from happening. If you invest every effort, if you cooperate with multilateral organizations that can supplement your capacity to tackle the issue and if you work with donors on financing, the war can be won.

Many of you have already started to see positive results from the measures you have taken. To the rest I will say:

I urge you to take on this challenge.

I know that most donors will stand by you in your struggle.

Thank you for your attention.