Growth in Africa (finally) but not enough.

At first glance, one of the first thing that jumps to anyone, is that even after more than a half a century or more of independence, the legacy of colonization is still very much present. The striking development in the former British colonies versus the Francophones ones (Belgium & France). One enjoys a strong, real nascent middle class rise with all of it's benefits, while the later, struggles in the 21st century to provide for it's populace basic needs such as electricity, waste management services and proper healthcare.

 At the macro level, economic growth in Africa has not been inclusive enough, the World Bank has warned in an unprecedented assessment of the limited progress brought by the overall GDP increase. Growth, which has been encouraging in most parts of Africa and even spectacular in a few cases, is expected to be close to 5% on average this year, and even more in 2014 and 2015.

Francisco Ferreira, acting chief economist for the Africa region, said GDP per capita growth over the past 10 years - 1.8% on average - had been "below the developing countries average".Nearly half of the African population was living below the poverty line in 2010, which was an improvement from the 58% that were registered by the World Bank in 1999, but the pace of reduction is "unacceptably low" and inequality "unacceptably high", he told Emerging Markets.

Progress towards reducing inequality in Africa has been slower than elsewhere. On average in the developing world, one percentage point of GDP growth reduces the incidence of poverty by 2%. In sub-Saharan Africa that number is 0.7%. That's simply too low.

 A few nations have made some good progress, that needs to be acknowledge and encourage. However, much still needs to be done. I do hope that the return of the diaspora will bring the kind of progress the continent needs.

Economic Policies for a Globalized World

Economic Policies for a Globalized World

What should policymakers, especially African policymakers, do to reap the benefits of economic globalization? I could now embark on an IMF list, including sound macroeconomic policies, better governance, legal and financial reform, privatization, price liberalization and infrastructure investment.

Let’s talk briefly about two priorities: trade liberalization and effective social spending. First, trade liberalization, which helps open economies up to competition and deepens their integration into the world economy. Sub-Saharan Africa is less open to international trade than other developing regions. Several studies have shown that liberalization should improve the region's trade performance significantly and thereby spur the growth of productivity and incomes.

Some African countries have made major progress in liberalizing trade over the past several years. For example, in recent years there has been important progress in adopting a common trade policy and a relatively open customs union in CEMAC. This will contribute not only to trade liberalization within the region but also to a considerable reduction and simplification of the region's external tariff structure. Such progress could now be strengthened and extended to other parts of sub-Saharan Africa - and the recent decisions in ECOWAS, as well as the revival of the East African trade bloc are also promising. Given the number of overlapping trade blocs in Africa, rationalization of their structure would be desirable. In light of the small size of many African economies, the impulse to regional integration is extremely important - but regional integration will help increase long-term growth only where it is truly trade increasing and not an attempt to erect new protectionist

Progress on trade liberalization in Africa should be matched by the opening of advanced country markets to the exports of African producers. In particular, the advanced economies should lower the effective protection on goods of interest to sub-Saharan African countries, such as clothing, fish, processed foods, leather products, and agricultural products more generally.

Second, let’s talk about the importance of effective social spending. Globalization delivers its economic benefits in part by promoting change, the rise and fall of different industries and economic activities. The process is not a painless one. Economists talk in the abstract about labor moving from low productivity to high productivity uses. But it is individuals and families who have to do the moving. If they feel threatened and unable to cope with the process of change, they will resist it and the economic benefits will be lost.

The answer is to invest in the human capital of the poor - increasing their access to health, education and economic opportunity - as well as to provide a cushion during the process of adjustment, in the form of efficient social safety nets. The IMF in partnership with the World Bank Have taken the problem into account and increase their effort via the poor countries debt relief programs. One result is that when poor countries need to get their budgetary house in order to ensure the sustainability of the growth on which long-term poverty reduction depends, there is indeed a very serious need to protect productive social spending from budget cuts.

In fact, among the low-income countries that have received IMF support since 1985, per capita spending on both health and education has risen by more than 4 per cent a year on average. But this masks big variations by country and for much of that period gains in education spending in Africa were much smaller.

In this globalizing, rapidly changing world economy, investment in education takes on special significance. The new technologies are knowledge and skill intensive, and there is a need to train people to work with those technologies. But the training cannot be too narrow, for adaptability to change is another key to success in the modern world. The generation gap in dealing with computers is obvious to every parent, and the benefits of starting where possible with young schoolchildren are obvious. Of course, this requires money, and here there is a special role for donors.

The HIV/AIDS pandemic is exacting a heavy toll in human lives. It is not only a humanitarian tragedy on an extraordinary scale, but it is also a potentially massive economic disaster for the continent. All the more reason, then, to seek to reduce the incidence of HIV/AIDS through public health policies that have worked in several African countries, including Uganda.

International Institutions

The IMF, the World Bank, and the GATT and WTO, were set up as part of an implicit bargain: that countries that elected to play by the rules of the international system, would be helped both by the basic pro-growth design of the system, and by loans and other assistance when in special need. That is one of the reasons why the former IMF's Managing Director, Horst Köhler, reaffirmed the role of the IMF in its poorest member countries through the PRGF shortly after he took office last May.

The issue of the representation of developing countries in the international institutions has been raised. With regard to the IMF, let’s note first that, given that the Executive Board prefers to work by consensus, the quality of the representation and the number of voices, as well as the share of votes, are important. With regard to the quality of African representation, the Executive Directors from sub-Saharan Africa are first-rate representatives of their constituencies. However, their constituencies have many members, and consideration could be given to providing each of them with extra resources to deal with the exceptionally heavy workload.

Conclusions

Let me conclude by reiterating that promoting growth and reducing poverty are best achieved by embracing the global economy, improving policies and strengthening institutions. This will be a difficult task, but one that can be accomplished, provided that policymakers in Africa and the international community alike are ready to do their part.

But some ask whether Africa is different. Pessimists claim that the continent is predestined to endure low growth, in part because it is tropical and suffers from systemic diseases such as malaria; because the quality of its soil is poor; and because many of its countries are landlocked.

I most certainly do not share this pessimism. The success of countries around the world that have managed to make serious inroads into poverty - in Asia and elsewhere - suggests that others, including African countries, can do likewise. Indeed, some countries in Africa have already shown that it is possible to sustain rapid growth, notwithstanding seemingly unfavorable conditions. In recent years, we have seen more and more countries adopt prudent, market-based economic policies, seeking integration into the world economy, and thus conducive to growth and poverty reduction - many of them with IMF and World Bank advice and support. This strategy is beginning to show encouraging results. There are useful lessons here for the beneficiaries of the HIPC initiative. Twenty-two countries - 18 of them in Sub-Saharan Africa - are already at the point at which they are beginning to receive debt relief under the initiative. On average it is reducing their debt service obligations by half. It is essential that these resources be used effectively for poverty reduction, both for its own sake, but also because waste will play into the hands of those who argue that aid flows are squandered and should be reduced.

Population Growth Challenges

The population of the world continues to grow, as does the average standard of living, increasing demand for food, water, energy and waste disposal and placing increasing pressure on the environment. The population of the world doubled from 3.2 billion in 1962 to 6.4 billion in 2005 and is forecast to grow to 9.2 billion in 2050. Fertility rates are dropping in developed countries, while migration could lead to significant changes in population compositions. In most countries life expectancy is increasing, leading to larger populations of retirees who require pension and health benefits to last longer. Relentless productivity improvements are causing rising unemployment. All these are placing pressure on private and state social security systems. As a result, national budget deficits are likely to worsen and could lead to default as politicians fail to face up to proper funding of future liabilities for fear of electoral defeat or even social unrest.

The health care sector is also under pressure to provide more cost-effective solutions. With 80% of deaths from cancer, heart disease and other chronic diseases now taking place in low and middle income countries, demand for low cost medicines in developing countries is leading to conflicts with first world pharmaceutical companies determined to protect their intellectual property. While the world's workforce is growing apace, education systems are failing to provide enough skilled professionals, artisans and managers to meet demand, particularly for the mining, energy, construction and education sectors. Paradoxically, at the same time unemployment levels are rising, specially amongst the youth, as technology drives productivity gains. This situation is likely to worsen as an ever-shrinking proportion of the world's population is able to provide the goods and services required by all. The income gap between the wealthy, on the one hand, and, on the other, average workers and the unemployed poor, continues to grow, another potential source of social conflict. The lot of women, in servitude to ignorant men in many parts of the world, continues to look bleak.

Though food supplies have more than kept pace with rising population levels in the past, a combination of biofuels, rising standards of living and climate change, including floods and drought, are stressing agricultural production and leading to significant increases in food prices. With food already representing 10-20% of developed consumer spending but 65% of developing nation consumer spending, this impacts most on the world's poor. Applying modern agrobusiness methods in Africa and Asia will drive subsistence farmers off the land. According to the UNDP, 40% of the world's population will suffer water shortages by 2050. Scientists forecast that there could be no commercial fishing by 2048 as present levels of fishing would cause stocks to decline to less than 10% of maximum catches recorded.

Fuelled by demand from China, the mining industry has grown worldwide. Supplies of oil, gas, coal and uranium are forecast to peak as reserves are depleted, though technology to access shale gas and oil has deferred that peak. At the same time, fear of climate change is putting pressure on the energy sector to move away from carbon burning to solar and other environmentally friendly energy sources. The future of nuclear energy is uncertain after the Japanese disaster. The combined pressures of environmental regulation and higher energy costs will lead to the relocation of energy-intensive, polluting industries, such as smelting and pulp and paper production, to developing nations with fewer safeguards.

Experts, in the face of aggressive disinformation campaigns by sceptics, warn that world temperatures could rise significantly during the 21st century, leading to climate changes everywhere, unless governments, companies and individuals take corrective action soon, something not likely after the dismal Doha meeting in November 2012 even though recent research shows global warming accelerating. Australia, for instance, is experiencing record high temperatures yet persists in exporting coal and natural gas, while depending largely on coal fired power stations. There is disagreement between developed nations, with a history of pollution, and developing nations, industrialising to improve standards of living, on the appropriate action to take. The transport industry is the one most likely to be impacted by the combination of rising standards of living in the developing world, specially China and India; increased prices of hydrocarbon fuels; and efforts to mitigate global warming. There will be a move to more hydrocarbon-efficient vehicles. Transport infrastructure will have difficulty coping with forecast increases in traffic.

The global economy continues to grow with Asian countries leading the way with export led manufacturing and services industries. However, this growth is dependent on buoyant consumer markets in Europe and North America. While many countries of the world continue to report regular GDP growth, the growth itself is uneven within countries with the rich growing richer and the poor poorer. As the average standard of living in booming economies rises, so too does the number of poor people around the world, many of them moving from the countryside to unemployment in the city slums as part of a search for a better lifestyle. Globalisation now comprehends the movement not just of physical goods, but also services, finance, people, information and ideas. As a result the world is becoming ever more interlinked putting pressure on global, national and local governance systems designed in a previous era by those with power and influence at the time and, as fiscal, trade and environmental agreements are negotiated, even now. At one and the same time, we are seeing the move to larger, and even global, groups covered by the same regulations as well as to the creation of smaller entities with niche interests. Corruption and crime, particularly drug and human trafficking, have become huge international money spinners.

Economic power is shifting from the governments and companies of the USA and EU to those of the energy rich countries of the Middle East and Russia, low cost Asian manufacturers and service providers and South American agribusiness. Asia now has nearly 60% of the world's population, accounts for more than 35% of world output and 26% of world trade and has contributed more than 50% of post 2000 world economic growth. Asian average per capita incomes are now 25% of those of the USA and rising though 20% still live in poverty. Although reports give the impression of a large scale move in manufacturing capacity from the G7 countries to Eastern Europe and the Far East, where wages are lower, the reality is that the move has been much more gradual and less spectacular. Companies domiciled in developing nations are increasingly buying companies in the developed world.

Military power could well follow the shifts in economic power. Tensions could be exacerbated as groups with different beliefs and ideologies battle to control scarce resources. Traditional warfare between national armies is increasingly being replaced by terrorist groups representing dissident groups and prepared to conduct suicide missions against civilian targets; drones and other weaponry that is more powerful and can be more closely targeted; and cyber-sabotage. The spread of nuclear weaponry continues to be a major risk.

Technology provides the best hope for solutions to challenges ranging from cheap medicines to food production and from greater global democracy to converting the heat of the sun to other forms of energy. Technology continues to play an important role in communication, entertainment and improving productivity. The rise of the Internet has made people data rich and information poor while convergence is leading to the merging of computers, cell-phones, hi-fi, TV and other electronic devices, as well as the blending of cable, wireless and satellite communication. Smart-phones have become the cake and circuses to distract the modern unemployed. The rise of outsourcing services in countries such as India and the Philippines is underpinned by improvements in the global telecommunications infrastructure. In the financial sector, technology is also allowing stock exchanges of the developed and developing worlds to merge and provide sophisticated trading products. A shift is taking place from traditional money managers to sovereign wealth funds managing the proceeds from huge trade surpluses, hedge funds and private equity groups, all of which are less transparent and relatively unregulated. In time, technology improvements will also lead to knowledge management jobs being replaced by artificial intelligence. The gainers will be the deployers of capital provided consumer markets don't shrink.

And Africa? In the short to medium term, the continent will be prized as a source of minerals, energy (oil, gas, uranium, coal, solar) and arable land rather than for its people. The challenge for its leaders will be to avoid corruption while making best use of the rent to educate a growing population and provide an infrastructure so they can produce competitive goods and services, if only for local consumption, in a world of high energy prices. As with cell-phones, there will be opportunities to use new technologies to leap-frog countries with a vested interest in obsolete technology, though in the medium term technology could lead to the rape of African resources with minimal local manpower involved. For Africa's people, the biggest drawback will be, it's reliance on a limited range of commodities and the extractive industries. Those industries are dead-end activities that only provide diminishing returns over time (primary agriculture and extractive activities such as mining, logging, and fisheries). These sectors are not generating the employment opportunities that would allow the majority of the population to share in the benefits. This is in marked contrast to the Asian experience, where the growth of labor-intensive manufacturing has helped lift millions of people out of poverty.

That's a thumbnail sketch of today's world and some of the intertwined factors we need to consider. What will the world be like in 2020 or even 2050? We don't know. All we can do is scan the mass of data coming our way and try to identify the signposts which might only hint at where we are all headed.