There are few eternal truths, but the development record around the world, including in Africa, suggests several lessons which have guided our thinking, and which we should continue to bear in mind as we move forward. Sound macroeconomic policies are prerequisites to progress. Large government budget deficits absorb domestic saving and foreign funds that could otherwise be channeled to the private sector. Inflation and overvalued exchange rates stifle exports, damage domestic producers, and create pressures for protectionism. Overvaluation also leads to the rationing of foreign exchange, which historically has meant that those in government and their friends skim off large rents.
Open economies work better than closed economies.
The experience of the past thirty years, as well as recent economic research, show that internationally integrated, outward-looking economies perform far better than closed economies. Despite some progress, Sub-Saharan African economies are still among the world's most closed to trade. The picture regarding foreign direct investment is not brighter. While a number of African countries have taken steps to open their investment regimes, the region is still characterized by investment climates which are relatively closed or otherwise unattractive to investors. A result is that foreign direct investment generally passes Africa by.