The Way Forward for African Economic Development Presentation by: Jomo Kwame Sundaram Assistant Secr

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The Way Forward for African Economic
DevelopmentPresentation byJomo Kwame
SundaramAssistant Secretary-General for
Economic Development,United NationsAbuja, 14
May 2005Conference of African Ministers of
Finance, Planning and Economic Development of the
Economic Commission for Africa on Achieving the
Millennium Development Goals in Africa
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• Millennium Development Goals (MDGs) excellent
  ECA issues paper important for mutually
  reinforce UN Development Agenda, derived from UN
  global conferences, esp. since the 1990s, e.g.
  Rio, Cairo, Beijing, Monterrey, Johannesburg.
• United Nations geared to supporting attainment of
  the MDGs Ecosoc High-Level Segment, GA High
  Level Summit. Millennium Project expanded.
  Blair Commission report. UN Taskforce to support
  NEPAD.
• Presentation will focus on certain influential
  misconceptions in thinking about African
  development, has led to misguided policy making,
  seeming failure and Afro-pessimism.

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ECONOMIC TRENDS IN SUB-SAHARAN AFRICA
This data is for the whole of Africa
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Slowdown from mid-1970s, unlike Asia, Latin
America
GDP per capita (constant 1995 US) - annual
average growth rates
60-65
65-70
70-75
75-80
80-85
85-90
90-95
95-00
00-02
East Asia Pacific
0.99
3.86
3.85
5.32
5.33
5.79
8.33
4.49
5.22
1.64
2.17
0.10
1.22
3.09
3.58
3.04
3.47
2.72
South Asia
1.39
-1.87
-0.75
0.90
1.54
1.21
Middle East North Africa
2.76
2.37
1.79
-0.32
-1.90
-0.40
-1.43
0.68
0.75
Sub-Saharan Africa
1.99
2.94
3.79
2.95
-1.60
-0.09
1.93
1.37
-1.68
Latin America Caribbean
3.04
2.03
1.70
2.70
2.17
2.25
1.18
2.74
0.25
United States
8.28
10.36
3.08
3.50
2.65
4.38
1.18
1.16
0.26
Japan
2.88
1.20
3.03
1.21
2.28
0.85
European Monetary Union
-5.94
2.49
3.76
E. Europe Central Asia
3.48
3.33
1.63
2.01
0.82
1.91
0.64
1.76
0.38
World
4.22
4.43
2.32
2.84
1.90
3.03
1.34
2.25
0.60
High income
2.87
3.35
4.50
3.38
0.37
1.28
0.90
2.72
2.03
Middle income
1.28
2.20
1.21
1.68
1.87
2.72
2.09
2.08
2.33
Low income
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Exports of goods and services annual average
growth rates (constant 1995 US)
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Indices of Export Price Unit Values annual
average growth rates (US) (IFS)
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Manufactured Exports (USm.)
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Manufactured exports average annual growth
rates (million US)
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ECONOMIC LIBERALIZATION IN AFRICA

• Berg Report (World Banks Accelerated Development
  in Sub-Saharan Africa An Agenda for Action,
  1981) anticipated the Washington Consensus
• Since 1980s
• Liberalization of trade, finance, investment and
  other flows, but not labour/people.
• Privatisation of enterprises, especially
  associated with import substituting
  industrialization, food security and even public
  goods.
• Focus on domestic determinants of economic
  performance, rather than impact of external
  factors on economic growth.

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NATIONAL INTERNATIONAL POLICY SPACE NOW GREATLY
CONSTRAINED

• mainly by WB and IMF policy conditionalities as
  well as WTO, donor other requirements.
• Especially for governments attempting to pursue
  development, especially selective
  industrial/investment policy.
• Liberalization often externally imposed by the
  BWIs as part of conditions for emergency credit
  during the debt crises of the 1980s and, more
  recently, in the wake of other economic crises or
  to qualify for external credit.

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• IMFs short-term stabilization programs and
  World Banks medium-term structural adjustment
  programs (SAPs) generally contained policy
  conditionalities.
• Though Washington Consensus has been challenged,
  it continues to provide ideological basis for
  economic analysis and policy-making in developing
  countries, especially in Africa
• not unlike earlier imported consumption of
  development policy fads.
• Let us now turn to consider some prevailing
  misconceptions adversely affecting African
  development

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CAPITAL FLIGHT FROM SUB-SAHARAN AFRICA CONTINUES

• despite popular impression of net flows to the
  continent.
• 40 of private African wealth invested outside
  Africa in 1990 (Mkandawire 2002).
• Capital flight from SSA estimated at US193 bn
  (US285 bn with imputed interest) in 1970-96
  (Boyce Ndikumana 2000)
• compared to the combined debt (US178 bn in
  1996 higher now) (Mkandawire 2002).
• Capital flight from Africa largely debt-financed
  (Ndikumana Boyce 2002)

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FDI TO AFRICA STILL MINISCULE

• FDI flows to Africa only about 2 of global FDI
  flows despite ongoing efforts to attract FDI,
  although
• BWI policies adhered to
• Macroeconomic stability largely achieved
• Much higher rates of return to FDI in Africa than
  in any other region.
• Africa is systematically rated as more risky than
  warranted by economic indicators reliance on
  market standards and norms exacerbate
  Afro-pessimism.

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CAPITAL INFLOWS TO SUB-SAHARAN AFRICA BY TYPE OF
FLOW, 197598 ( of GNP)
Source Global Development Finance 2000
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FDI LARGELY CONCENTRATED IN NATURAL RESOURCE
SECTORS

• FDI into natural resource sectors have limited
  benefits because they usually do not
• stimulate general, broad-based development
• significantly expand employment opportunities
• diversify exports
• meaningful transfer technology to recipient
  countries.
• Globally during 1990s, predominance of
• portfolio over direct investments, and
• acquisitions over green field FDI,
• as consequences of FDI policies adopted.

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ONGOING DE-INDUSTRIALIZATION IN AFRICA SINCE THE
1980s

• African industries prematurely exposed to global
  competition by trade liberalization.
• Share of manufacturing in GDP has fallen in 2/3
  of African countries.
• Rates of growth of manufacturing value added have
  fallen continuously from 1970s, and contracted by
  an annual average of 1 during 1990-97.
• In 10 industrial branches in 38 African
  countries, labour productivity declined by 7
  during 1900-95, attributable to
  de-industrialization (UNIDO).

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MASSIVE AMOUNT OF ODA NEEDED

• ODA could help break the vicious circle
• Rapidly rising income would allow domestic
  savings to grow faster than output, thereby
  raising total investible resources without
  additional external financing.
• Sustained growth should attract private capital,
  substituting for official financing.
• ODA to Africa from G-8 less than from smaller
  Nordic countries.
• Recently, countries like China, India and Brazil
  have been increasing ODA to Africa and
  South-South cooperation.

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GAINS FROM TRADE LIBERALIZATION?

• Not clear whether and how much Africa would gain
  from agricultural trade liberalization.
• Some food importing African countries may become
  worse off without subsidized food imports.
• 20th century decline of terms of trade for
  primary commodities versus manufactures
  (Prebisch-Singer), especially tropical versus
  temperate agriculture (Lewis)
• Growth needed for trade expansion
• rapid resource reallocation not feasible
  without high rates of growth and investment
  (UNCTAD).
• Countries risk being locked into permanently
  slow growth by pursuing static not dynamic
  comparative advantage no Kaldor-Verdoorn
  effects, less linkages, employment.
• Existing industrial and agricultural production
  capacities capabilities undermined.

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OPTIMISTIC PROJECTED WELFARE GAINS FROM FULL
MERCHANDISE TRADE LIBERALIZATION
Source Anderson, et al (2001)
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SELECTED ESTIMATES OF WELFARE EFFECTS FROM
MULTILATERAL AGRICULTURAL TRADE LIBERALIZATION
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OTHER CONSIDERATIONS

• Environmental consequences of deforestation, such
  as water supply problems, droughts and
  desertification. Both logging and agricultural
  development are being encouraged as means to
  promote economic development in Africa.
• Politics and ongoing conflicts over resources in
  Africa fuelled by foreign interest in minerals

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MOVING FORWARD

• Increased policy space Countries need to be
  able to choose/design their own development
  strategies as well as to develop implement
  appropriate development policies.
• Removal of debt overhang of poorest countries
  through debt relief.
• Prolonged and massive increase in ODA, which
  could contribute to accelerated growth and, in
  the longer term, reduce the resource gap of the
  region and its dependence on aid (UNCTAD).
• Universal reach of enhanced social expenditure
  may require selective targeting affirmative
  action to overcome discrimination, neglect.
  However, progress towards MDGs may still bypass
  poor.

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Thank You