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Treasury Notes

 Africa Surges Forward

By: Charles Collyns
12/19/2012

One of the most remarkable features of the global economy over the past fifteen years has been the striking surge of economic growth over much of sub-Saharan Africa.  Since 2000, the region has grown by close to six percent a year, up sharply from roughly two percent over the previous decade, making it one of the fastest growing regions in the world.

A number of commodities exporters have achieved particularly rapid economic growth, especially metals and oil exporters, including Angola, Ghana, and Nigeria, which have benefitted from sustained improvements in terms of trade.  Others like Kenya, Rwanda, and Tanzania have relied on sound economic management and reforms to help drive growth. The surge has truly been widespread, affecting virtually all except a few countries on the continent where endemic violence and political turmoil have stifled economic development.  And growth in numerous countries has yielded important dividends in terms of poverty reduction, although much remains to be achieved.

Last week, I visited two key centers of the new African dynamism, Kenya and Nigeria, to learn more about the underpinnings of recent economic success and the challenges to sustained growth and poverty reduction going ahead.  These two countries have particular significance as the largest economies in East and West Africa, respectively, and are natural hubs for trade and investment within their regions. 

Of course there are important differences in the structure and recent history of those countries, but it is striking that both contain key ingredients for success.  First of all, both have made real progress in recent years towards establishing genuine democracies and open societies.  Politics may be noisy and not always pretty, but the people's voice can be heard and deep injustice largely avoided because of popular pressure.

Second, economic policymakers have been notably successful in putting in place solid macroeconomic frameworks capable of delivering sustained fiscal performance, low and declining inflation, and stable external positions, all essential ingredients for confidence and investment.

My trip to Nigeria had particular personal meaning because I lived there as a child, before being evacuated during the Biafran war in the 1960s.  The country had since gone through many rough decades of military dictatorship in which oil wealth was misappropriated and squandered and a once-thriving agricultural sector was virtually wiped out.  The country became a prime example of missed opportunities from economic mismanagement of resource abundance.

LagosSkyline.JPG

And yet on my own visit, I was struck by the energy, warmth, and optimism I remembered from my childhood.  I met a broad range of senior officials but also bankers and business leaders, all with impressive ambition and drive, ready to take advantage of new opportunities as the government opens up sectors for private investment like telecom and power.

To be sure, the challenges ahead are immense.  A viable framework for hydrocarbons development is desperately needed as Nigerian oil exploration has dwindled.  Governance and legal frameworks need to be overhauled to improve the business environment and support access to credit.  While progress has been made to reduce petroleum subsidies, further steps are needed and the savings should be directed to support infrastructure and to strengthen education, healthcare, and social safety nets.  A new agricultural strategy aimed at addressing supply bottlenecks would pave the way for reviving exports of lucrative cash crops, as well as supplying staples to home markets.

LagosMeetingBusinessLdrs.JPGNigeria has a bold and ambitious national transformation strategy aimed at the inclusive growth so desperately needed.  It is too much to expect that this can all be delivered neatly to order, and no doubt there will be setbacks.  Yet there is a real chance of success that could, as the Nigerian government targets, launch Nigeria in the years ahead into the ranks of the world's twenty largest economies, as entrepreneurial spirit is released, and hydrocarbons wealth is applied more effectively.

Kenya also is moving forward impressively.  Although it lacks Nigeria's vast hydrocarbons potential it does have natural resource wealth, including some newly discovered oil and gas fields.  It also has a strong agricultural sector that has successfully moved up the value chain.  The flight I took in to Nairobi returns to Amsterdam each day full of cut-flowers for the European market.  And of course, Kenya is a major tourist destination.

In Nairobi, I again met with a broad range of official and business leaders to learn about plans to tackle the tough policy challenges to sustain and deepen success.  One area in which Kenya is leading the world is in developing mobile banking.  Widespread access to mobile phones has allowed close to 75 percent of the population, including in remote rural areas far from the nearest bank branch, to gain access to payment services, and this is already contributing to the development of small farms and businesses.  I heard about emerging plans to extend mobile banking to offer savings accounts and even short-term loans.

Another area where Kenya is playing a key role is that of logistics hub for the growing East African Community (EAC), which already includes Burundi, Rwanda, Tanzania, and Uganda; other neighbors are showing interest in joining.  All these countries are growing impressively, and close economic cooperation has helped strengthen financial and trade integration.  Intra-EAC trade has increased by about 25 percent over five years. Improved transportation infrastructure, including upgrading the key port in Mombasa and rail links inland, will pay important dividends by allowing greater integration of supply chains across countries and potentially establishing East Africa as a globally attractive manufacturing location.

Sustained success by Kenya and Nigeria, and more broadly across the sub-Saharan region, will create important opportunities for U.S. companies to invest and export, creating jobs at home.  Already we export close to $20 billion of products to the region each year, and U.S. direct investments are growing quickly.  The U.S. government is putting major emphasis on promoting closer and stronger economic and business ties with this dynamic region, and has been working hard to put in place trade and investment framework agreements.   

A particular priority has been to help these countries to trade more intensively with each other and with the U.S., including through trade facilitation and trade capacity building projects.  And the Treasury Department has been playing a part through its technical assistance program, which has been active in both Nigeria and Kenya to build capacity in areas such as deposit insurance, payments systems, government securities markets, revenue administration, and infrastructure finance.

Clearly, the emerging successes in Nigeria and Kenya are not just the artifacts of favorable commodity price developments, but also the reward for commitment to democratic governments, responsible macroeconomic policies, and steps to improve the business environment.  Now the challenges are to sustain this progress and to continue to push ahead difficult reforms to establish the basis for sustained strong and inclusive growth.  The U.S. Treasury will continue to play its role as a committed partner to countries across sub-Saharan Africa as they tackle these challenges.

Charles Collyns is the Assistant Secretary for International Finance at the U.S. Department of the Treasury.​

Posted in:  International Finance
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