T
his paper explores the required resources to attain essential development goals and its sources of finance in Africa. Several policy implications are drawn from the study as in the following.All different development goals and growth scenarios for SSA - poverty reduction, structural transformation, balanced sectoral growth, and industrialization - invariably requires high investment ratio.
The required resources to attain different development goals are consistent and similar in terms of investment rate (about 40% of GDP per annum: table 8). The G14 potentially emerging SSA economies need to double the investment ratio and more than double is required for other SSA countries.
The fact that required investment for different development goals are consistent reflects that those development goals can be attained simultaneously. By sustaining the required growth rate of halving poverty, African economies are able to sustain their maximum growth prospects, structural maturity (by the year 2025) and balanced sectoral growth, and resource-based industrialization, if they are to meet the prerequisites that we discussed.
Development financing challenges are more severe in poor performing group of economies with large residual finance gap (because of lower domestic savings, higher aid dependency ratio, higher required growth and investment).
For a sustainable growth and effective poverty reduction, balanced sectoral growth and sectoral dynamism and structural transformation should be emphasized and incorporated into an integrated-comprehensive growth and development strategy.
The required investment derived from growth-investment relationship (using ICOR) turned out to be not overestimated. On the contrary, it is consistent with desired level of investment derived from the growth simulation, and the investment gap that SSA needs to narrow to catch-up the benchmarks of the G5 African economies and Southeast Asia MITs.
Required resources should be considered as an essential necessary condition rather than a sufficient condition to attain those development goals, and hence the efforts of African policy-makers should be concentrated not only on securing development resources but also on satisfying the prerequisites.
Other prerequisites that should be met include: first, removal of policy gap and structural imbalances (to reduce negative performance caused by the policy gap);
second, as it is apparent from many empirical growth studies, it cannot be emphasized too much to strengthen initial conditions such as human capital and core infrastructure.
To elicit non-debt-creating flows, an integrated framework for development financing is indispensable. What needed is a large array of reinforcing measures, which encompass debt relief, additional ODA, increasing FDI and mobilization of domestic savings, as well as generating trade surpluses and reversing capital flight.
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Annex Tables
Table A.I. Estimation Results of the Growth-Investment Relationship (Aggregate level): 1 year lag
where. 1/p = ICOR World development indicator (World Bank 1998), GDP at market
prices constant 1987 US$
Table A.2. Estimation Results of the Growth-Investment Relationship (Aggregate level): 4 year lag
Country
Table A.3. Sectoral Estimates of the Growth-Investment Relationship
Botswana: (considering dominant mining sector in the economy). For Kenya, we use manufacturing sector data for industry.