Africa's Fiscal Hopes Lie in Private-Sector Investment

IMF-WORLD BANK MEETING

TIGHTER credit is presenting new challenges for Africa's debt-distressed countries. African leaders broadly acknowledge that private-sector development is the region's only hope for economic recovery, and foreign investment is the only means left to finance it.

According to the International Monetary Fund's forthcoming World Economic Outlook, strong African export growth and more limited loans to governments will reduce national budget deficits. This should help stabilize the debt situation in Africa because the countries will incur less additional debt. But they still must repay existing loans.

Hence private sector development geared toward export is essential, not only to stimulate local economies, but to pay off foreign debt as well.

Africa annually receives roughly $15 billion in foreign aid but is now in a tug-of-war with Eastern Europe over future funding. With near-bankrupt governments and little local capital to invest, Africa must now rely heavily upon private foreign investment as a source of money for local development.

The world's official and commericial banks acknowledge that Africa's slice of the financing pie will shrink proportionately as the world's declining savings rate reduces the total money available for investment.

World Bank Vice President for Africa Edward Jaycox says that external support for Africa ``is not just a question of money, but how fast the money can flow.'' The situation should not deteriorate to the point where governments are making cutbacks on education or health services in order to pay off the foreign debt,'' he says. ``That would be absurd and counterproductive.''

At $230 billion, the region is the most heavily indebted in the world.

``More needs to be done on the debt front,'' Mr. Jaycox warns. ``If not, every central banker and finance minister will be running around the world renegotiating debt rather than managing [their] economies.''

African statesmen, who pushed for a two-fold increase in the IMF's lending capacity, didn't gain much ground this week at the IMF-World Bank spring meetings here. They had hoped stepped-up financing would provide them with additional resources.

Instead, a compromise was reached to increase the IMF's total capital base from $120 billion to $180 billion.

Despite assurances from IMF managing director Michel Camdessus and World Bank president Barber Conable that competition from Eastern Europe will not rob Africa of its financing needs, Africa's leaders are worried.

And there is the problem of timing - the $60 billion agreed increase may take more than a year to activate.

``For years the world has turned deaf ears to Africa's persistent demand for a Marshall aid type plan for Africa. Now that a bank of reconstruction and development is being set up for Eastern Europe in spite of the existence of the World Bank ... the time has come for ... Africa,'' says Adebayo Adedeji, Executive Secretary of the UN Commission for Africa.

``There is not enough money in the world to help [Africa] if structural adjustments are not made,'' Mr. Jaycox says. He accuses official and commercial creditors of intrasigence - ``becoming like the African authorities by being preoccupied and mesmerized by the current crisis.''

An essential first step, according to the IMF and World Bank economists, is to clean up the state-owned enterprises; some of them have more ghost workers on the payroll than legitimate employees. More than 3,000 state enterprises will have to be abolished, according to the multilateral lenders, or profitable market conditions cannot exist.

Sir William Ryrie, executive vice president of the International Financial Corporation, says private investment must triple from five to 15 percent. Foreign investment must also triple, he says, from $1 billion to $3 billion.

Trade finance in Africa, particularly of agricultural goods, is both a stimulant to and a barometer of private sector development.

It will become increasingly important as exports make up a larger portion of the countries' respective gross domestic products.