At the just-concluded 2017 annual meetings of the IMF-World Bank in Washington DC, President of the bank, Dr. Jim Yong Kim, in his opening press conference, analysed the challenges and opportunities in the global economy. Kim, who fielded questions from journalists, also suggested ways Nigerian government can fast-track economic growth. Kunle Aderinokun, Chika Amanze-Nwachuku, Obinna Chima and Nume Ekeghe, who attended the briefing, present the excerpts:
Global Economy
Good morning and welcome everyone to the 2017 World Bank and IMF annual meetings. This week finance ministers and central bank governors from our 189 member countries are gathering here in Washington to discuss the challenges and opportunities we face as a global community. These discussions will help countries chart the path forward for how to improve the lives of their people, and in doing so this should help set the agenda for the world’s economy for the coming year.
Here’s what we’re seeing now. After several years of disappointing growth, the global economy has begun to accelerate, trade is picking up, but investment remains weak. We’re concerned that risks such as a rise in protectionism, policy uncertainty, or possible financial market turbulence could derail this fragile recovery.
Overall, we’re seeing growth rise in most developing and advanced economies which is why countries need to make critical investments now. This is the time to implement reforms that have been insulated against potential downturns in the future.
Countries need to build resilience against the overlapping challenges we face today including the effects of climate change, natural disasters, forced displacement, famine, and disease.
To help countries address these challenges we’re working to maximise finance for development. We’re pursuing private sector solutions whenever they can help achieve development goals and reserving scarce public finance for where it’s most needed, particularly investments in human capital. All countries need to invest more in their people.
Last week, I spoke to Columbia University where I explained why this is so critical, and I introduced an accelerated effort we’re undertaking at the World Bank Group called the Human Capital Project that will help countries invest more and more effectively in their people. We’re hoping that this project can show heads of state and finance ministers how long-term investments in their people can help grow economies and it can help create the political space for leaders to make these critical investments.
Over the next year leading up to the 2018 annual meetings in Indonesia we’ll be working with a wide range of experts in economics, global health, and education to develop the Human Capital Project. We think this effort has the potential to be a game-changer in the same way that our Doing Business Report was when it launched 15 years ago. This is the latest effort by the World Bank Group to meet rising aspirations all over the world, to truly create equality of opportunity and build new foundations in the project of human solidarity.
Thanks very much for your attention and I’d be happy take your questions.
China’s battle against poverty
Thanks very much. You know, this is one of the great stories in human history, frankly. Starting in 1990 with the evolution of the Chinese economic system and its embrace of the global market China has lifted over 800 million out of poverty. So, most of the progress that’s been made in going from 40 percent of the world living in extreme poverty to now less than 10 percent most of that progress happened in China. So, we’re always looking for the lessons from that experience and it continues.
We’ve been working very closely with China on things like ensuring that some of the more distant regions in China are also getting access to social services and healthcare. We’re working right now on a major overhaul of the healthcare system — not an overhaul, right now it’s in the form of a pilot project. But if it works out it could lead to a major change in the healthcare system that would I think help to improve outcomes overall.
So, this effort has been historic. I think we’re still trying to understand exactly how 800 million people were lifted out of poverty, but it was one of the great successes.
In terms of the Party Congress, of course, these are internal Chinese political matters, but I think China has been pretty clear about the direction it’s going. In our joint document that we published some time ago called China 2030, it was very clear about how it’s going to change the path of growth from focusing so much on investment and export to unfocused on services and consumption, and that’s actually happening. So, we’re encouraged that China has stayed on a course of this change from what they call rapid growth to more quality economic growth.
And while we think that the growth rate is going to remain stable in China this year we’re waiting to see what comes out of the Party Congress just like everyone else. But I don’t expect a major change in policy. I mean, the economic growth strategy has I think been made clear and we’ve been watching as they’ve kept to the plan.
World Bank’s capital increase
We have been arguing that we need a capital increase just because of the demand we’re seeing from countries. This is not just the large middle income countries like China, we’re seeing it from the fragile and conflict-effected countries, we’re seeing it from middle income fragile and conflict-effected states. And we also continue to get requests from our shareholders to do more in this area, and that area, and in other areas. So, the demand has just exploded for us.
I think we’ve done pretty well in making the argument for why we need a capital increase. Now, the point that the U.S. makes is not a point that only the U.S. is making. There is an ongoing discussion about who should qualify for loans and who should not qualify for loans, and that is actually a shareholding decision because we have to bring every loan; every project has to go to the Board and the Board says yes or no. So, things like a capital increase are also a shareholder decision. We make the case and then the shareholders decide whether we get one or not.
The good news is the U.S. is now very much a part of the discussion. A new administration takes time to get organised. I think now the fact that the U.S. is part of the discussion is really encouraging. And it shouldn’t be surprising to us that something as significant as a major capital increase for the World Bank Group would take time and everyone would want to know the details of why we were doing it or not doing it.
So, I think on China for me the rationale for us working in China is quite clear. Not only are we helping them along the development path, but the lessons we learn in China, just like what we were talking about, the fact that 800 million people were lifted out of poverty, the lessons we learned by working in China are very helpful to other middle income countries.
But again, this is a decision by shareholders. The shareholders together make the decisions about who qualifies, who doesn’t qualify. We will provide all the information they need. And we look forward to a very good discussion on Saturday at the Development Committee and then we hope to move to some sort of decision in six months.
Now, I remain extremely optimistic. I mean, I think that once shareholders see how much they’re asking us to do and then look at the capital we have to actually get that done I think eventually we’ll get to a capital increase. But we’re going to have to keep answering questions for at least the next six months. I think the result will end in a significant capital increase but, again, it’s not something that management can decide on its own.
Reforms in India
I think that the point that I was making is that our team feels that the slowdown has been the result of waiting for the passage of the goods and services tax. But the goods and services tax, we have to understand, is something that India has been talking for a long time, well before Prime Minister Modi took power. The goods and services tax is going to stop things like trucks being stalled for such a long time in transporting things through India because every border they have to stop and go through a complicated tax payment process. The goods and services tax will be very good for Indian growth. But for now, the sense is that companies are waiting until that passes before really making investments and taking action. So, our sense is that this is temporary.
Prime Minister Modi took a very different approach to a doing business report. His approach was, we are going to move up quickly and we’re going to do the things that we need to do to reform the business environment. And the actions that he’s taken are really quite substantial. So, we’ll wait to see what happens in the business report this year but we’ve been very encouraged with the reforms that he has already taken. Now he knows that there are more to do. I won’t be specific about them because they have prioritised them for the government but the reform process has been significant. And we think that it is certainly in the medium and long term, the growth will reflect the seriousness of Prime Minister Modi’s government in making those reforms.
Intervention in north-eastern Nigeria
You know, in my very first meeting with President Buhari he said specifically that he would like us to shift our focus to the northern regions of Nigeria and we’ve done that. Now, it has been very difficult. The work there has been very, very difficult. I think Nigeria, of course, has suffered from the dropping oil prices. I think things are just now getting better. But the conversation we need to have with Nigeria, I think, is in many ways, related to the theme that I brought to the table just this past week which is, investment in human capital. The percentage of GDP that Nigeria spends on healthcare is less than one percent. Despite that, there is so much turbulence in the northern part of the country, and there is the hit that was taken from the drop in the oil prices. Nigeria has to think ahead and investing in its people, investing in the things that will allow Nigeria to be a thriving, rapidly growing economy in the future, is what the country has to focus on right now. It can’t rely just on oil prices going back up. It has to think, what are going to be the sources of growth in the future for Nigeria in what will surely be a more digitalised economy.
And this is true for most of Africa. If you look at the numbers in terms of how successfully African countries have invested into their human beings versus other regions, there is a real issue. And so, over this next year, not only in Nigeria but in all of Africa, we’re going to focus on accelerating investments in human capital- we call it but investments in health, education, social protection, so that Africa can prepare itself for the next phase in economic development.
One of the real questions that we all have is our traditional notions of economic growth which are agriculture, to light industry to heavy industry. How many countries in Africa will actually experience that, and do we need to really think about another kind of path to economic growth that’s very focused on a small to medium enterprise as an entrepreneurship as they have in other parts of the world. I think we still don’t know that. But the one thing we know is that better health outcomes, better education outcomes will be critical, no matter what the global economy looks like. So, yes focus on the north, hope that as commodity prices stabilise, oil prices come back up and the economy will grow a bit more but very, very much focus on what the drivers of growth in the future will be.
Lending to the Poor
You know, it’s very related to the answer to Shawn’s question. This is an ongoing conversation on the Board of the World Bank Group. It’s true that many countries have gone from being very poor to having developed quite a bit. The UK government, rightly, is very focused on lower middle income countries. Countries that have just graduated from our fund from the poorest. There is no question that that’s the direction that our lending is going. The question that the Board will have to take up with us providing information is what percentage of our lending will go to these different client segments. I think that the request to us to be more systematic about it, to have a strategy and to move forward in that strategy is perfectly reasonable. That’s the discussion we’ll have at the development committee and that’s the discussion we’ll have over the next six months as we talk about a capital increase.
Support for startups
So, I haven’t had the privilege of meeting President Biya, but let me get to the question of entrepreneurship. So, we’re just on Saturday, we’re launching a major new effort that we worked on with the United States government and Ivanka Trump, called the Women’s Entrepreneurship Financing Initiative.
And in a very short period of time, we were able to raise $350 million of grant based financing which will be leveraged into at least one to two billion dollars of support for women entrepreneurs. Now, this is something that we’ve done before and been very successful with at IFC. IFC has also financed small and medium enterprises and entrepreneurs in other parts of the world.
This is a major issue though because it is very difficult for big institutions like ours to get the relatively small amounts of money that are required for small and medium enterprises. So, that’s why we’re working with companies like Alibaba. Alibaba in China, has developed a system where within five seconds, literally within five seconds, they can provide loans to small and medium enterprises for up to $160,000. And they do that solely based on the online activity. So, online activity for Alibaba is a better measure of credit worthiness than the traditional processes that we call KYC, Know Your Customer. So, what we’re looking at is, can we utilise some of these methods, these rapid disbursements of capital to small and medium enterprises in Africa. Right now, the answer is not yet, because we don’t have enough information on online behavior. So, Jack Ma, the CEO of Alibaba, recently visited Kenya which is probably one country that has the most information on people’s online behavior. 98 percent of Kenyan’s do some form of financial transactions online.
So, it gets back to the question of Nigeria. I think with Africa, we have to be much more creative. We have to think, so what are going to be the drivers of growth if, in fact, light manufacturing is becoming mechanized. If 3D printing is going to make garments and shoes, what is going to happen with the light manufacturing industries? Are they going to go back to the developed countries? And then if you don’t attract light industry what about heavy industry.
So, it might be a different path altogether and if that’s the case, again, investing in people is important and then looking at innovative ways of moving capital. Moving capital quickly and efficiently to people who are going to start promising business is probably a major direction we have to go. Right now, it is still pretty slow and pretty difficult because we’re always working with financial intermediaries which makes things much more difficult for us.
