(Archived Content)
FROM THE OFFICE OF PUBLIC AFFAIRS
JS-1698
President Kabbaj, fellow Governors, ladies and gentleman, on behalf of Secretary Snow, I would like to thank the Government of Uganda and Minister Ssendaula for hosting this momentous meeting. It is an honor for me to join you in celebrating the fortieth anniversary of the African Development Bank.
Economic Development Agenda of the United States
Since the beginning of President Bush's time in office, he has stressed four core principles in U.S. development policy. Financial assistance for the poorest countries should be increased. More assistance should be provided in the form of grants. Development assistance should be subject to rigorous measurable results. And support should be targeted to countries that pursue pro-growth policies.
Implementation at the African Development Bank
We have worked together with African Development Bank Management and many other countries to implement these principles. And we are very pleased that this cooperative effort has worked so well at the AfDB. Over the past several years, under President Kabbaj's leadership, the Bank has demonstrated an impressive willingness and ability to reform. We are cautiously optimistic that these changes will be sustained. Let me be specific.
Increasing Financial Assistance for the Region's Poorest Countries
The United States increased its contributions to both the African Development Fund and IDA by 18 percent over the previous replenishments. And we may consider the possibility of additional support in the next replenishment to the extent that the African Development Fund is becoming more focused on delivering meaningful results for the people of Africa. Our expanded support for the AfDF is congruent with the Bush Administration's dramatic increase in support to fight HIV/AIDS and expansion of bilateral U.S. assistance to the best performing poorest countries through its new assistance program -- the Millennium Challenge Account (MCA).
A special category among the poorest countries is post-conflict countries. In the last 10 years, more than one-third of Sub-Saharan Africa's countries have experienced major civil conflict. The countries often emerge from conflict with inadequate institutional capacity, weakened infrastructure, and excessive external debt, including arrears to the AfDB. We commend the Bank's initiative in developing a framework to help clear arrears of post-conflict heavily indebted poor countries (HIPCs). Countries like the Republic of Congo and Central African Republic could benefit from such a framework as they attempt to normalize relations with official donors and establish economic stability.
Increased Grant Assistance
During a recent trip to Africa, I visited several grant-financed projects, including an AfDF project in Senegal to train middle school teachers. Throughout my trip, my conversations with health professionals, village chiefs, and parents of schoolchildren made me all the more convinced that grants are critical to heavily indebted poor countries. I was struck by their enthusiasm over the benefits of grant financing, particularly that grants eliminate bureaucratic hurdles.
Grants reduce the probability of poor countries experiencing debt distress. As we are seeing in the cases of Niger and Ethiopia, countries' debt levels remain at unsustainable levels, despite HIPC debt relief and additional topping up assistance. Grants free up scarce public resources, which would otherwise have been used to pay off outstanding loan commitments. These resources can be used to fund the kind of productive investments that President Museveni described this morning, such as infrastructure improvements and agricultural programs, which contribute to economic growth and poverty reduction.
During the upcoming AfDF-10 replenishment discussions, I urge donors to carefully evaluate the debt levels and tremendous development needs of AfDF countries before developing a final view on grant funding in AfDF-10.
Rigorous Measurable Results
The U.S. applauds the Bank's progress in putting in place a strong results management system aimed at securing improvements in people's lives. A good example of what can be done is the AfDF project in Senegal that is training middle school teachers. This grant is being used to train 3,000 middle school teachers and its aim is to reduce middle school repetition rates from 15% in 1998 to 10% in 2004. Such progress makes meaningful changes in people's lives. We urge the Bank to ensure that such quantifiable and monitorable indicators are rigorously incorporated at the project, country and institutional levels.
Encouraging Pro-Growth Policies
For 2004, average real GDP growth rate in Africa is projected to be 4.5% and expected to rise to 5.5% in 2005. Part of the increased growth can be attributed to a better policy environment. Throughout Africa, countries have strengthened their macroeconomic policy framework in order to create an environment conducive to strong private sector-led economic growth. However, the strong growth rates are also functions of increased oil production, higher commodity prices and favorable weather. In order to sustain economic growth rates at levels which would significantly reduce poverty in Africa and to reduce economic vulnerability to exogenous shocks, Africa must continue to promote policies and institutions which promote private investment. Some countries are already promoting such policies. For example, Benin has made a concerted effort to improve financial intermediation which has led to a fully private banking system. Cape Verde recently lowered corporate and income tax rates in order to improve its investment climate.
Our host country, Uganda, is another good example. For the last 15 years, Uganda demonstrated commitment to economic reform, averaging 7% growth rate per year and reducing the proportion of its population living below the poverty line from 56% in 1992 to 38% in 2002/03. The country has sustained macroeconomic stability and effectively channeled donor assistance to promote economic growth. In order to sustain this economic growth rate, Uganda has worked to diversify its economy, attract private investment and improve service delivery.
To support and reinforce these pro-growth policies, all the multilateral development banks have in place a system to allocate assistance to countries based on a range of indicators that include governance, portfolio performance and country needs. The AfDF is similarly implementing a performance-based allocation system that targets Fund resources to those countries that can use this assistance most effectively.
As President Museveni described so eloquently this morning, a strong private sector is critical to economic growth and poverty reduction. Support for small enterprises is particularly important. No country has achieved sustainable growth without a robust small business sector and no country can hope to foster innovation and generate jobs without small business growth. Recognizing this, the Ghanaian Government implemented reforms to reduce the number of days to start a business by 35% in just one year.
In this context, we call upon the Bank to rejuvenate its approach to supporting the private sector. In particular, we urge the Bank Group to find more innovative approaches to support small- and medium-sized enterprise development beyond extending lines of credit, perhaps via great technical assistance to banks to help them better analyze small credit risks. That said, we want to very much welcome the Bank's franchising initiative that will soon be launched in South Africa, and hopefully, elsewhere on the continent.
Conclusion
At the conclusion of his trip last July, President Bush called Africa a continent of possibilities. The more I travel throughout Africa, the more I see those possibilities. I see the possibility for stronger economic growth, greater private sector involvement, and improved social service delivery systems to ensure that children can receive good educations and live long prosperous lives. Our responsibility as donors is to push for assistance which is more effective in delivering meaningful results without saddling countries with more debt they cannot repay. We appreciate the progress that the AfDB has made in these areas and look forward to strengthening our partnership for reform even further.