Monterrey, Mexico — Remarks of James A. Harmon, Chairman of the Corporate Council on Africa to the U.N. International Conference on Financing for Development, Monterrey, Mexico-March 18, 2002
INTRODUCTION
Thank you for the opportunity to be here today. This audience is fully aware of the challenges facing the poorest nations of the world. I am not going to talk about the number of people who live on less than $1 a day or the HIV/AIDS pandemic. You know more than I do about the needs that exist today. I also don't have to make the case for the powerful connection between stability in the developing countries and stability around the world. It is self-evident today.
As Chairman of the Corporate Council on Africa and the former chairman of the U.S. Export-Import Bank, I would like to focus my time on the area where I can add value to the dialogue, and where I do have some specific thoughts. This area is the role of the private sector and how it can be dramatically expanded, in no small part through public-private partnerships, to help meet the needs of the developing world.
Public-private partnerships may be a tired phrase to most of you. But what it means simply is bridging gaps in resources and expertise - fusing the unique capabilities of different parties to achieve a common goal. We know where the gaps exist today: between rich and poor, between words and action, between all the different parties that share one increasingly clear vision of a world mobilized to turn the course of history. This conference is focused on bridging perhaps the most critical gap: the gap between needed and available resources, the gap between our vision for Africa's future and the perilous reality of the continent today.
POSITIVE DEVELOPMENTS
Over the next few days, we will hear the litany of challenges all too familiar to those of us who participate regularly in these conferences. But there are some positive signs that are important to note. First, we see the kind of intense global focus on Africa not seen since the fall of apartheid. Furthermore, this series of conferences has lent substance to the public debate, creating regular forums full of candor and adding transparency to international financial institutions.
As a result, we are gaining momentum toward real action. No longer is the West preaching to Africa what it should do to attract capital and reform its economies. African leaders themselves have developed the New Partnership for Africa's Development. Now, the G8 is working on a companion plan that builds on that homegrown initiative.
Others will talk this week about what the public sector should do. It's important that we continue that debate. But I would like to talk about a vastly unexplored frontier-the private sector-and how we can involve it in a far greater way in establishing the nations of Africa in their rightful place as equal shareholders in the broader community of nations.
THE PRIVATE SECTOR IS AN ESSENTIAL, NEGLECTED PART OF SOLUTION
Clearly, private companies can play an important role. Its ability to manage, to move quickly, to bring to bear immense resources, to be imaginative and entrepreneurial-by design and practice-far outpaces even the finest government and multi-lateral institutions.
That is the core value of the Corporate Council on Africa. It represents a lot of strong companies-companies with market capitalizations that are equal to, if not greater than, the gross domestic product of all of sub-Saharan Africa-companies that are searching for ways to do more and to get out from under this perception that they simply take away.
Since becoming chairman of CCA earlier this year, I have heard one thing consistently: We want to do more. If we can develop vehicles that translate that good intention into constructive action, then we can deliver meaningful progress on a scale not seen before.
Let me make clear: This is not an either-or debate between aid and finance. Without question, we need stronger efforts on both sides of the equation. But if we think about the level of resources we need, the speed with which we need them, how consistent we will need the flow of capital to be, it leads us to a pragmatic truth: Whether we think it appropriate or not, the reality is that the private sector has to carry a significant share of the burden. If we recognize that reality, then it becomes an opportunity - one that opens up a new world of possibilities.
But first, it requires us to open our minds to new solutions. While I don't agree with those who believe we can simply replace aid with trade, I do believe that our debate has not placed enough emphasis on the potential of trade to lift the economies of the developing world. One need only look at the immediate effect of the Africa trade bill-also known as AGOA-on trade between the U.S. and sub-Saharan Africa. In the first 11 months of 2002, U.S. imports of AGOA products, excluding oil, rose by 96%. As we all know, increasing exports and the diversity of exports will lay a much more solid foundation for the future. And, consider this one fact: If sub-Saharan Africa had today the share of world trade it had in 1980, its annual global exports would be $191 billion - more than double what they are today - almost four times the most ambitious calls for increased foreign aid.
So, I favor an expansion of the African trade bill. And, I strongly favor exploring how the public sector can encourage the private sector to play a more expansive role. We need vehicles that mitigate the risks, so private sector capital can flow to the parts of our world that need it most.
PUBLIC-PRIVATE PARTNERSHIPS CAN ACCELERATE THE PROCESS
A few months ago, at CCA's U.S.-Africa Business Summit in Philadelphia, I talked about the need for a Marshall Plan for the developing world. The machinery for carrying out this effort could be the export credit agencies of the OECD countries. These agencies provide about $75 billion annually in long-term credit for developing countries to purchase goods and services from the export countries. At a relatively modest cost, we could provide two to three times more credit to strengthen vital industries and improve health, transportation, communications and other essential systems.
Since this supplemental assistance comes in the form of finance for trade rather than aid, assuming these infrastructure projects are a success, the investment is repaid, so it is available for even more development down the road. This fact-that the investment is repaid-combined with the strong track record of U.S. Ex-Im Bank-which has averaged only 3% losses on disbursements over the past two decades-makes this proposal far more likely to gain the political support that has so far eluded aid-driven efforts.
This is just one way that the U.S. government can be more imaginative and open to new ways of addressing old problems. They will have to step up and lead. Because one thing is certain: Public entities are critical to expanding the private sector role in the developing world. There are two primary reasons Africa attracts less than 1% of all global investment. First, there is the perception problem. There is no question that legitimate investment opportunities are being passed by due to a lack of understanding about the African market today. But secondly, there is equally no question that significant risks continue to exist.
This means that new investors will remain risk averse - unless we can come up with mechanisms to bridge the gap. Here the export credit agencies can play a pivotal role. How can we better leverage their limited budgets? By building partnerships that allow private financial institutions to share the risks and rewards of the export credit portfolio, so we can amplify the amount of financing available. This has an organic benefit, as well. The more private financial institutions get involved and see first-hand the legitimate opportunities, the more likely they will be in the future to do more transactions on their own-creating new sustainable flows of capital.
A lot of serious work was done on this risk-sharing proposal at the U.S. Ex-Im Bank two years ago. The conclusion was that we could significantly increase credit for developing countries without increasing costs to the U.S. government. If we can get this concept underway in the U.S. and in other countries, then we would greatly increase available credit and private sector involvement in developing countries.
THINGS WE CAN DO TODAY
Here, the Corporate Council on Africa has an important opportunity. We represent 85% of all investment by U.S. companies in Africa - some 200 companies that do business in and are concerned about Africa. We are committed to marshalling the forces of private investment into Africa.
First, let's consider an idea from the Halliburton company, which, like many companies that do business in Africa, expressed concern about the fact that when a project is completed-all that's left is the final deliverable. Too often, this means an outside company goes into an African country to build, they can't find the support staff they need locally, so they import their own people to do the work. Then, when the project is complete they leave.
Halliburton's idea is this: Bring U.S. businesses over to do the support work-painting, canteen and laundry services, equipment maintenance and so on-but have them work with local people, marrying trained U.S. technicians with African small businesses, so we leave behind not just the finished product, but also a capacity to provide those services domestically in the future. CCA could organize this program together with the World Bank's private sector affiliate, the International Finance Corporation. I believe every country will welcome this approach. This is an effective way to create expertise, deliver training and generate real, sustainable jobs. And, it can be done during the normal course of virtually any project.
Second, we are considering a private equity fund, organized by CCA with other qualified parties, to invest in Africa. We would look to create a partnership between some of our corporate members and the Overseas Private Investment Corporation-the U.S. government trade and investment agency-to maximize our leverage. Some of the investors may agree to funnel the profits back to African countries for the public good. This could be a model of private sector risk taking, leveraged by the public sector, to benefit the African people. You may ask: Why would corporations do this? Because it builds a stronger partnership between the companies and the market-a stronger Africa is a bigger buyer of goods and hopefully an exporter back to the U.S. -and because the private sector recognizes it must do more.
Third, the mechanism created by the World Bank to address the capacity-building concerns in the Chad-Cameroon pipeline project has the potential for greater use in other projects in a modified form that involves the private sector. As many of you know, the World Bank required Chad to establish a Revenue Management Plan, whereby royalties and dividends were escrowed in an offshore account to be applied to specified uses-health, education, infrastructure. Why not modify that approach to include the companies that profit from these projects, so a certain portion of the project revenue flows back to investment in public goods, such as schools and hospitals?
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This will require some new thought to create a feasible mechanism, so-for example-it does not merely increase overall project costs. But if we put the right minds in a room together, we can come up with the right mechanism. In that regard, I am pleased to announce that CCA plans to organize a task force to study new approaches to capital flows to Africa. We hope to coordinate this work with the Council on Foreign Relations and the Institute for International Economics, so we can bring some new faces and fresh ideas to this critical subject.
At this stage, we have to be more than open to new ideas. We have to seek them out. If we leverage public funds through trade finance and public-private risk-sharing - if we ask that companies leave behind a percentage of their project or sales revenue and invest in a fund to further development and growth - and, if we tap into private sector ingenuity, then we take the first critical steps toward employing the private sector more fully in our efforts to chart a brighter future in the developing world.
CONCLUSION
Some of you may think it unusual to quote a rock star at an international finance conference. But at the World Economic Forum, Bono eloquently revealed the central knot we must unravel. He said if we fail Africa, then history will record this as a time when 'an entire continent went up in flames while we stood around with watering cans.'
He's right. The most shameful fact about the dire position of Africa today is that the continent's problems do have solutions. We simply have to muster the international will and ingenuity to pursue them. What is the water that can put out the fire? It is the flow of capital-the flow of massive resources into the infrastructure of Africa to build a stable, growth-oriented future.
What I propose would be a strong complement to what must be equally strong public endeavors. It is at its heart a market-based investment in global security. It's something different than we've tried in the past. But in the post-September 11th world, there has never been a time when the developing world so needed the resources of the world's wealthiest nations and conversely, when the world's wealthiest nations so needed a stable developing world. All that's left for us to do is to create the mechanisms and muster the commitment necessary to pursue our mutual interest. Thank you for the opportunity to share my ideas about the private sector and the public interest in this very important endeavor that has gathered us all here today. Thank you.
