Keynote address by Mr TT Mboweni, Governor of the South African Reserve Bank, 5th Annual African Development Finance Conference 1. Introduction Esteemed guests, ladies and gentlemen. Africa is the poorest region in the world, with real per capita incomes averaging one-third less than those in South Asia, the next poorest region. Sub-Saharan Africa's per-capita GNP is only one tenth that of Latin America. Therefore, the promotion of economic development remains the major challenge confronting the continent today. However, it is widely accepted that economic development goes beyond the mere maximisation of economic growth. The distributional consequences of economic growth are of paramount importance. Given their potential to address both the growth and distributional concerns of economic policy, it is imperative that appropriate attention is given to the promotion of SMEs. The presentations and deliberations at this conference cover many important aspects pertinent to the development of SMEs. It is widely accepted that macroeconomic stability is a pre-requisite for sustainable economic growth. If this is the case, then what has been the African experience to date? 2. Recent macroeconomic developments in Africa In the past three years, real GDP growth in sub-Saharan African countries remained surprisingly resilient in spite of the slowdown in advanced economies. GDP growth in the sub-Saharan African region (excluding South Africa) was 3,1 percent in 2002, compared to 3,8 percent in 2001. Subdued economic activity in 2002 was due to the weak global economy, the slower-than-expected rebound in world trade, droughts, and political and armed conflicts in some parts of the continent. The latest IMF forecast released in September 2003 projects that GDP growth in sub-Saharan Africa (excluding South Africa) will rise to 3,6 percent in 2003, mainly as a result of the expected global recovery, improved macroeconomic policies, rising commodity prices and the debt relief under the Heavily Indebted Poor Countries (HIPC) initiative. While the economic growth rate in Africa compares quite favourably with those of developed countries, it is significantly less than those in other emerging countries, most notably in Asia. A reasonable benchmark for the evaluation of Africa's economic development, is the progress being made towards the achievement of the Millennium Development goals. The world’s leaders adopted the UN Millennium Declaration in September 2002, committing their countries to reduce poverty, improve health and promote peace, human rights and environmental sustainability. Eight Millennium Development Goals, with specific targets to be achieved by 2015, dealing with key development challenges emerged from the Declaration. According to the 2003 Human Development Report, sub-Saharan Africa will not meet any of the goals by 2015 at the current rate of progress – the only region for which this is the case. In order to meet the Millennium Development Goal of halving poverty between 1990 and 2015, the IMF has estimated that growth in sub-Saharan Africa should be around 7 percent a year. IMF. 2003. World Economic Outlook: 51 2003: 51. Only six African countries achieved growth rates above 7 percent in 2002. There is little doubt that monetary policy has been successful in bringing down inflation in Africa. The rate of increase in prices has declined from an average of 14,3 percent in 2000 to 9,3 percent in 2002. Contributing to the low inflation environment has been the fiscal prudence apparent in the macroeconomic policies of a number of African countries since the late 1990s. The development challenges that confront the continent today, demand that both the quantity and efficiency of government expenditures are kept in check. While global FDI inflows declined 21 percent between 2001 and 2002, the inflow of FDI to Africa declined dramatically by more than 40 percent, according to the 2003 World Investment Report. In addition, Africa’s share of foreign direct investment into developing countries has dropped from 25 percent in