4 May 2010

Africa: Speech by Deputy Secretary Wolin to the Corporate Council on Africa

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The Following is full text of the addressed issued by Deputy Secretary Neal Wolin to the Corporate Council on Africa in Washington, DC.

Good evening and thank you for that kind introduction, Steve. The work that the Council is doing to build business links between the United States and African countries is vital, and I appreciate the opportunity to address this group this evening.

When I spoke at CCA's U.S.-Africa Business Summit last September, we were still assessing the impact of the global economic crisis on Africa.  Steep declines in commodity prices, the prospect of fewer remittances, and a drop in capital inflows threatened to undermine the nearly decade long economic expansion in sub-Saharan Africa.  Leaders were bracing for a dramatic setback.

Six months later, some of these concerns have been borne out. The IMF estimates that Sub-Saharan Africa grew by only 2 percent in 2009 after averaging more than 5 percent for the last five years.  Africa's three largest economies – South Africa, Nigeria and Angola – accounted for the bulk of the decline.

And there has been a significant social cost to the crisis. While we can't know precisely how many people have been pushed into poverty by the crisis, the slowdown clearly reversed some of the gains of recent years.

As elsewhere in the world, including here in the U.S., we have work to do – together – to repair the damage of the past two years.

But at the same time, there are reasons for optimism. The financial sectors of most sub-Saharan African countries largely escaped the turmoil that ravaged our financial system.  Low-income countries, while experiencing a lower rate of growth, did not go into recession.  And the IMF predicts growth of almost 5 percent this year and almost 6 percent in 2011.

Much of the credit for the quick rebound in African economies can be attributed to the foresight of Africa's finance ministers and central bank governors.  In countries like Uganda, Tanzania, and Mozambique, sound economic policies adopted in recent years reduced government deficits and inflation and facilitated the flow of more credit to the private sector, fueling more robust domestic demand.

So even as we work to repair the damage of the crisis – here in the U.S., in Africa, and around the world – now is the time to look beyond repair and recovery.  With a rebound on the horizon, now is the time to get to work building the foundation for long-term, sustainable growth in sub-Saharan Africa.  And that means confronting two basic, unavoidable challenges: infrastructure and environmental sustainability.

Everyone in this room recognizes that Africa's acute infrastructure deficit is a significant constraint on growth and direct investment.

When I visited Rwanda last November, I was struck by the vibrancy of the economy. Rwanda has quadrupled exports over the past ten years, led by large increases in its agricultural production, particularly in the coffee and tea sectors.  But the country's growth is held back by the high costs of exporting its goods – 50 percent higher, according to the World Bank, than the already high African average. President Kagame speaks --with understandable urgency – about the need to construct a modern rail link between Kigali and the port of Dar Es Salaam.

On the other end of that trade route, in Dar Es Salaam, I saw tremendous lost opportunity as well. Traffic jams on the roads into and out of Dar make the DC Beltway look tame.  Ships stretched out for miles along the Tanzanian coast waiting to enter the port of Dar because of antiquated port facilities and burdensome customs procedures.

In South Africa, too, the costs of inadequate infrastructure were clear.  I visited the factory of a South African manufacturer who needed reliable grid power in order to power a high tech industrial coating process.  But he was deeply concerned about the reliability of South Africa's grid after the brownouts the country experienced in 2008.

Meeting the vast infrastructure needs of sub-Saharan African countries will require substantial investments, and the United States Government is committed to doing its part.  Of the $5.1 billion that the Millennium Challenge Corporation is investing in Sub-Saharan Africa, $3.5 billion will go to infrastructure.  The Overseas Private Investment Corporation has invested nearly $900 million in African infrastructure. The United States Export-Import Bank has completed approximately $1 billion of infrastructure-related transactions in the last 5 years, including a $350 million loan to support rural electrification in Ghana.  USAID is also playing a leading role to bring infrastructure deals to closure and create a favorable investment environment.

Alongside those public investments, the private sector is an important part of the solution.

One of the biggest success stories in Africa has been the rapid expansion of cell phone services, led by private African companies.

We have seen the private sector exploring exciting new opportunities in the energy sector, too. I visited an innovative pilot power project on Lake Kivu that removes methane from the lake's depths and converts it to badly needed clean power. A U.S. energy company is helping to scale that pilot up to produce 100 megawatts – significantly increasing Rwanda's generating capacity.

And in Mozambique, the private sector is investing more than $15 billion in major hydro power generation and transmission projects that will help meet not only Mozambique's power needs but those of her neighbors.

Between public commitments of assistance and increasingly important public-private partnerships, African nations will have strong support as they work to tackle the infrastructure challenge.

Of course, resources alone will not guarantee success.  Strong governance and accountability are equally important – to ensure that public and private investors alike can be confident in committing their capital.

And at the same time, everyone with an interest in building Africa's infrastructure – African nations, donor nations, private investors – has a responsibility to ensure that infrastructure development does not come at the price of environmental sustainability.

Environmental responsibility should not – must not – not be viewed as a barrier to development. To the contrary, environmental responsibility is vital to the growth and well being of African economies, where the livelihoods of so many remain closely tied to the land.

Approximately 70 percent of families in Africa are dependent on agriculture in one way or another. Achieving meaningful reductions in poverty in Africa will require significant increases in the productivity of Africa's smallholder farmers.

This Administration is ready to help committed African governments achieve that goal. The President has pledged to spend at least $3.5 billion over the next three years on agricultural development.  Just last week, Secretary Geithner, his counterparts from Spain, Canada and Korea, as well as Bill Gates launched a new multi-donor trust fund focused on the agricultural sector of low-income countries, and we anticipate that a number of African nations will tap into this fund.

But efforts to improve agricultural production and food security in many African countries and regions are likely to be severely compromised by climate change and climate variability. We have already seen millions of people in East Africa face food shortages as a result of severe droughts that have increased in severity since the mid-1990s. While climate projections involve a great deal of uncertainty, we cannot afford to be complacent.

That is why, in his speech to the Ghanaian parliament last July, President Obama challenged us "to find a route to high growth rates while ensuring environmental sustainability."

The United States is committed to helping find that route. In 2010, our budget contains $595 million to support efforts to develop and deploy clean energy technology in developing countries and we have requested 35 percent more for 2011.

We will support clean energy assistance programs to provide Africans renewable energy alternatives to burning wood and fossil fuels – wind energy in Namibia and Mozambique, geothermal power in the Rift Valley countries, hydroelectric power in the Democratic Republic of the Congo, and the development of regional electricity grids in southern Africa.

U.S. support to multilateral adaptation programs complements these bilateral efforts.  The Climate Investment Funds' Pilot Program for Climate Resilience is providing financing to three African countries to help integrate climate issues into their development planning and implementation.  The United States contributed $55 million to the program in 2010 and has requested another $90 million in FY11.

And the United States is channeling significant financial resources through multilateral institutions to scale up support for adaptation and clean energy activities in developing countries.

We are contributing to the Clean Technology Fund – $300 million in FY10 and $400 million requested in FY11 – which is developing renewable, energy efficiency, and public transportation programs in South Africa, Morocco, and Egypt, as well as a regional program across North Africa to develop 900 megawatts of concentrated solar power.

We have asked Congress for $50 million in FY11 funding for the Program for Scaling-up Renewable Energy in Low Income Countries, a new program to demonstrate how the poorest countries can use renewable energy to expand energy access and stimulate economic growth.

And finally, as you know, the United States is encouraging the multilateral development banks to work with client countries to develop low-carbon energy sources and move away from more carbon-intensive sources such as coal.

These efforts to promote environmentally sustainable infrastructure development are vital to Africa's long-term growth. The United States is committed to doing its part.  But again, there is also an important role – and, I believe, significant potential opportunity – for the private sector to partner with African countries and develop more environmentally sustainable power sectors.

Some of you have already recognized that opportunity and are taking the lead.  In Kenya, a consortium of private companies is investing in a 300 megawatt wind turbine farm in the Lake Turkana region that, when completed in 2012, will provide nearly 17 percent of Kenya's total installed power. And a number of investors are looking to tap the geothermal energy potential of the Rift Valley.

Through innovation, creativity and commitment, the public and private sectors are already demonstrating that there is no inherent tension between economic development and environmental responsibility.

One more point: As I said here last November, success ultimately depends on African leadership. Without African leadership, nothing the U.S. or the international community does will be enough to address the daunting infrastructure, energy, environmental, and climate challenges facing the continent.

In order to attract private investment in low-carbon infrastructure, African leaders will need to dismantle broader barriers to infrastructure investment.  In too many countries in Africa, lack of rule-of-law or nontransparent regulation leads investors to go elsewhere.

And African governments must recognize that they have a stake in preserving fragile ecosystems. In her Nobel Prize Lecture in 2004, Ms. Wangari Maathai called on African government and communities to recognize their role as the custodians of Africa's environment and the links between African cultural traditions and environmental preservation.

There are already positive examples: In Tanzania, the government has introduced new regulations governing small independent power producers.  In Mozambique the government has begun to tap its enormous hydropower potential, about 12,500 MW, with the help of foreign investment.

By combining local leadership with American know-how and ingenuity, we can achieve a better future.  I hope that this infrastructure conference – and future ones – will be an important part of this partnership.  I hope it will remind investors that there are significant business opportunities in Africa and that this continent has enormous potential.

This conference is a chance to affirm that the private and public sectors can partner to increase Africans' access to power while skipping the dirtier phase of development. Together, we must work aggressively to build the infrastructure that holds the key to Africa's infrastructure.

And we must do it while protecting and in some cases repairing the tremendous – and tremendously valuable – natural resources on which so many on the continent depend.

The United States looks forward to partner with African governments to achieve these goals.

Thank you.

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