Today, dear reader, I am posting a speech delivered to participants at a roundtable discussion, with stakeholders, by the managing director of the International Monetary Fund (IMF), Ms. Christine Largade, at the Eko Hotel, Lagos, Nigeria, on December 20, 2011. Please read on:
"Good morning. It is a privilege to be here with you today. My thanks goes to the Nigerian Government for arranging this event, and to you all for taking the time to join us.
I would also like to express my gratitude to Ngozi Okonjo-Iweala, the Coordinating Minister for the Economy and Minister of Finance, and Central Bank Governor Sanusi Lamido Sanusi. Both have been instrumental in pursuing Nigeria’s economic transformation.
This is my first official visit to Nigeria — indeed my first visit to Africa — as IMF Managing Director. I can think of no better place to begin my discussions with the region and to work toward a stronger partnership.
To borrow some words from Ngozi:
This is the Africa of opportunity... the Africa where people take charge of their own futures... the Africa where people are looking for partnerships…
Nigeria — with its abundant resources, its wealth of people, and its vast potential — embodies this spirit of opportunity and Africa leadership.
Yet, these are challenging times for the global economy. The dark clouds of risk are gathering, and Nigeria and others in Africa will need to watch them carefully.
So, let me talk about four things today:
• First, the state of the global economy and the policies needed by countries at the heart of the crisis.
• Second, the growing risks for Nigeria and the region.
• Third, the importance of pursuing Nigeria’s Transformation Agenda both to guard against these risks and to promote shared growth for all Nigerians.
• And, fourth, how the IMF can help Nigeria and Africa face these challenges.
1. Global Outlook and Policies
As I have said many times, the world economy has been poised in a dangerous phase. In our last forecast, we still saw global growth at 4 percent for this year and next. But, today, the growth outlook is much dimmer. And, worse, there are severe downside risks.
A collective crisis of confidence is at the heart of the problem.
Adverse developments in the real economy and the financial sector keep feeding off each other, propelling each other down. And, as we have seen in Europe, there has been a loss of market confidence in both governments and banks.
Governments have been adjusting — in some cases with the help of IMF programs — but some not convincingly enough to regain market confidence. On top of this, unemployment remains unacceptably high in too many countries.
What does this mean for the policy path forward?
The advanced countries, especially those in the Euro Area, are at the center of the crisis. And they must be at the center of any solution.
In recent months, eurozone leaders have started to outline the key pillars of a solution. But, what is needed now is implementation.
Policies also need to focus on the bigger picture — the need to restore stability and growth, lasting growth.
The advanced economies need to strike an appropriate balance between fiscal and monetary policy to promote growth and stability. It means forging ahead with structural policies that focus squarely on boosting competitiveness, growth, and jobs. And, it means strengthening financial sector regulation to ensure a safer and more stable financial sector that is better able to support growth.
While these problems might seem a world away, without action, the world economy could be swept into a downward spiral of collapsing confidence, weaker growth, and fewer jobs.
And in today’s interconnected global economy, no country and no region is immune to these risks.
2. Implications for Nigeria and the Region
This brings me to my second point: how might these escalating global risks affect Africa and Nigeria?
Let me first acknowledge the progress in Sub-Saharan Africa, and here in Nigeria, over the past decade. Naturally, challenges remain. But the starting point for our discussion has shifted — shifted for the better.
Good economic policies have provided a platform: for higher growth, for more investment, for less poverty. Growth across the region averaged 5-6 percent or more over the past decade and, although it varies from country to country, this is significant. And the poverty rate declined from nearly 60 percent to just over 50 percent in the 10 years up to 2005.
That’s not to say the crisis didn’t hurt. The food and fuel crisis of 2008, and the global financial crisis that followed, took a toll on efforts to reduce poverty.
But, when the crisis hit, policymakers responded effectively. Most countries were able to maintain critical spending on health, education and infrastructure. And we saw countries in the region recover quickly, with growth rates now returning to levels enjoyed in the mid-2000s.
This is a testament to the hard work and dedication of policymakers and people across the region. Before the crisis, they reduced budget deficits and public debt; they brought down inflation, and built up foreign exchange reserves. In short, they put their economies on a fundamentally stronger footing.
Nigeria is no exception. Reforms initiated 6-7 years ago helped mitigate the impact of the global crisis. Nigeria’s economy continued to grow by 6 percent despite the crisis — and above the current regional average.
Growth looks set to continue at a healthy pace into next year. But, spillovers from the advanced economies threaten that outlook. Nigeria’s resilience is being tested again.
The trade and financial links, so critical to moving the economy forward in good times — ironically — become the interconnections that carry today’s escalating economic risks.
A sustained slowdown in advanced countries will dampen demand for Africa’s exports. And, together with continued financial market uncertainty, this will likely inhibit private financing flows, remittances, and concessional financing.
The potential for greater volatility in commodity markets could cause further disruptions, with winners and losers within the region. The risk of a drop in world oil prices if global demand weakens is the key watch point for Nigeria.
Faced with these risks, my main worry is that many countries do not have as much capacity to absorb shocks as they did three years ago. Added to that, the global slowdown could be more pronounced this time around.
Policies need to tread a fine line between defending against the global slowdown in the near-term, while also preserving fiscal resources for investment in much-needed infrastructure that will help promote employment and growth.
But, for the main part, policymakers need to focus on restoring the fiscal buffers that served the continent and Nigeria so well during the last downturn. It will be important to be prepared.
As Ben Okri, the Booker Prize-winning Nigerian novelist and poet, once said: “Life throws stones at you, but your love and your dream change those stones into the flowers of discovery.”
With the right vision, the right actions, today’s global risks need not become Nigeria’s reality.
3. Nigeria’s Transformation Agenda
Which brings me to my third point: how reforms underway in Nigeria are the key to guarding against risks, and securing more inclusive and lasting economic growth. At the outset, let me say that I am confident that Nigeria is on the right track.
Earlier this year, President Goodluck Jonathan described the goals of the government’s Transformation Agenda: “Nigeria needs to build a more inclusive society where every Nigerian would have equal access to economic and developmental opportunities.”
These echo the goals for many other countries in the region.
Yet this is not an easy task. In addition to growing global risks, the reform agenda also must contend with some serious local challenges.
Infrastructure gaps, particularly in the power sector, are also holding Nigeria back from its full growth potential. Nigeria’s electricity generation capacity, for example, is just 10 percent that of South Africa’s, while Nigeria’s population is more than 3 times greater.
And high unemployment is also a critical economic and social issue. This is especially true for Nigeria’s young people for whom the rate of unemployment is over 35 percent.
So, economic growth alone will not suffice. Job creation will be critical to ensuring that growth is both economically and socially sustainable.
There are three aspects of the government’s agenda that I see as crucial to this endeavor.
One, better managing Nigeria’s vast natural resource wealth.
Establishing the Sovereign Wealth Fund and emphasizing the use of oil revenues for stabilization and investment are important advancements. Pressing ahead with these reforms is particularly important given the external environment — namely, the need to rebuild fiscal buffers.
It will also help ensure that natural resource revenues are channeled more effectively toward the infrastructure investment needed for growth and jobs.
But, prudent management of natural resource revenues will also create room for other critical public spending. Given the distance still to go to reach the Millennium Development Goals, increasing the resources available to build stronger social safety nets is particularly important, including in areas such as maternal and child care.
Two, structural transformation.
Promoting a more diversified economy will help Nigeria better withstand shocks. It will also provide for more broad-based growth, with opportunities and jobs for the entire population.
There is huge, untapped potential here. Nigeria is an enormous market for investors. A market where telecommunications grew, with the explosion of mobile phone subscribers, from 60,000 in 2000 to 125 million today.
But much could still be done to improve Nigeria’s business environment. This will require investment to address infrastructure bottlenecks, to raise education levels, and to help development the agricultural sector.
It also means more reliable policies that can help promote macroeconomic stability and investor confidence.
Three, financial sector reform.
Nigeria’s banking system experienced a severe crisis in 2009, as over one third of banks became insolvent or seriously undercapitalized. But there has been an impressive record of reform. And actions to resolve the banking crisis are nearly complete.
Looking ahead, continued refinements in regulatory and supervisory practices should focus on preserving financial stability and improving access to credit.
This is a broad and challenging agenda. And, perhaps, what is most impressive is that it is an agenda for Nigeria, driven by Nigerians.
4. Role of the Fund
The IMF is here to support you and be a better partner for you. This is my final point.
I am committed to a deeper, more fruitful dialogue, with the IMF listening even more carefully to your needs. This will help us serve you even more effectively.
Nigeria is a thought leader in the region. And I am here to listen.
We have also been working hard to reform the IMF’s governance structure so that emerging market and developing countries have a greater voice in the institution. And, so we can be truly representative of our membership.
For those countries that need it, we have boosted our concessional lending capacity and made our lending instruments more flexible, with greater protections for social spending.
We are also redoubling our efforts to provide quality technical advice. The IMF has technical expertise to offer, expertise that can help African countries achieve their social and economic objectives; we have an active program of technical assistance with Nigerian public institutions. We can also play an important role, through our four, and soon to be five, regional technical assistance centers in Africa, of facilitating a sharing of expertise between countries.
Conclusion
Let me conclude with a thought from renowned Nigerian novelist Chinua Achebe. In Things Fall Apart, he wrote: “The sun will shine on those who stand, before it shines on those who kneel under them.”
There are challenges ahead. And this is the time for policymakers to stand up. To turn away from the global economic storm clouds and turn to the sun.
It is a time for action; a time for African leadership, Nigerian leadership. With continued action, Nigeria can be a source of growth, for itself, for the continent, and for the world.
Thank you."
End of Ms. Christine Largarde's speech - delivered to participants at a roundtable discussion at the Eko Hotel, Lagos, Nigeria, on December 20, 2011.
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