United Nations Department of Economic and Social Affairs The Way Forward for African Economic Development Presentation by: Jomo Kwame Sundaram Assistant

United Nations Department of Economic and Social Affairs

The Way Forward for African Economic Development

Presentation by:

Jomo Kwame Sundaram

Assistant Secretary-General for Economic Development,

United Nations

Abuja, 14 May 2005

Conference of African Ministers of Finance, Planning and Economic Development of the Economic Commission for Africa on

“Achieving the Millennium Development Goals in Africa”

2


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.

3


ECONOMIC TRENDS IN SUB-SAHARAN AFRICA

60-65 65-70 70-75 75-80 80-85 85-90 90-95 95-00 2000-02

GDP per capita (const 1995 US$)

ann av gr rates 2.76 2.37 1.79 -0.32 -1.90 -0.40 -1.43 0.68 0.75

Exp goods & services (1995 const US$) ann av gr rates 6.91 4.25 0.81 4.46 0.18 2.86 3.28 4.73 1.79

Manufactured exports (million US$)

ann av gr rates 5.47

Indices* of Exp Price Unit Val (US$) - ann av gr rates 1.40 0.27 21.12 22.45 -4.45 -2.22 1.86 -4.17 -1.78

1960 1965 1970 1975 1980 1985 1990 1995 2000

Manuf. exp (US$m.) 4,683 29,699 38,757

* This data is for the whole of Africa

4


Slowdown from mid-1970s, unlike Asia, Latin America

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

South Asia 1.64 2.17 0.10 1.22 3.09 3.58 3.04 3.47 2.72

Middle East & North Africa 1.39 -1.87 -0.75 0.90 1.54 1.21

Sub-Saharan Africa 2.76 2.37 1.79 -0.32 -1.90 -0.40 -1.43 0.68 0.75

Latin America & Caribbean 1.99 2.94 3.79 2.95 -1.60 -0.09 1.93 1.37 -1.68

United States 3.04 2.03 1.70 2.70 2.17 2.25 1.18 2.74 0.25

Japan 8.28 10.36 3.08 3.50 2.65 4.38 1.18 1.16 0.26

European Monetary Union 2.88 1.20 3.03 1.21 2.28 0.85

E. Europe & Central Asia -5.94 2.49 3.76

World 3.48 3.33 1.63 2.01 0.82 1.91 0.64 1.76 0.38

High income 4.22 4.43 2.32 2.84 1.90 3.03 1.34 2.25 0.60

Middle income 2.87 3.35 4.50 3.38 0.37 1.28 0.90 2.72 2.03

Low income 1.28 2.20 1.21 1.68 1.87 2.72 2.09 2.08 2.33

GDP per capita (constant 1995 US$) - annual average growth rates

5


60-65 65-70 70-75 75-80 80-85 85-90 90-95 95-00 00-02East Asia & Pacific .. .. .. .. 3.38 9.08 13.63 10.03 10.33South Asia .. .. 4.86 6.60 2.66 9.34 12.62 9.44 12.21Middle East & North Africa .. .. .. .. .. .. .. .. ..Sub-Saharan Africa 6.91 4.25 0.81 4.46 0.18 2.86 3.28 4.73 1.79Latin America & Caribbean 4.73 5.52 4.48 7.11 5.35 5.65 8.34 8.97 1.99United States 5.57 6.39 6.79 7.50 0.35 11.00 7.02 7.07 -3.48Japan 14.71 17.04 9.16 9.66 7.56 3.03 3.10 5.70 0.78European Monetary Union 8.34 10.20 6.02 5.90 4.32 5.32 5.43 7.99 2.05

E. Europe & Central Asia .. .. .. .. .. .. -4.53 8.55 6.57World 6.68 8.81 5.76 6.36 4.28 6.04 5.80 7.90 2.22High income 7.15 9.36 5.95 6.68 4.35 6.17 6.01 7.69 0.95Middle income .. .. .. .. .. .. 4.43 9.17 6.82Low income .. .. 6.11 6.34 -1.76 6.07 8.82 5.68 6.59

Exports of goods and services annual average growth rates (constant 1995 US$)

6


Indices of Export Price Unit Values

annual average growth rates (US$) (IFS)

60-65 65-70 70-75 75-80 80-85 85-90 90-95 95-00 00-02World 1.07 1.79 15.71 11.21 - 2.56 6.20 1.34 - 3.78 - 1.42Industrial Countries 0.93 1.54 13.52 9.59 - 2.32 7.81 1.55 - 3.97 - 0.86 United States 1.04 3.00 12.13 8.14 2.34 2.63 1.73 - 0.77 - 0.92 J apan - 0.85 1.41 10.38 6.84 - 1.41 6.71 4.20 - 4.15 - 6.41Developing Countries 1.88 3.14 23.52 15.28 - 3.13 0.98 0.62 - 2.98 - 3.46Africa 1.40 0.27 21.12 22.45 - 4.45 - 2.22 1.86 - 4.17 - 1.78Asia 0.28 7.01 12.55 9.13 - 2.42 3.04 2.08 - 3.86 - 5.37Middle East 0.26 0.18 44.74 23.10 - 1.51 - 4.73 - 3.18 5.46Western Hemisphere 5.08 4.87 9.65 14.22 - 6.07 8.25 - 4.97 - 1.49 4.84 Oil Exporting Countries - 2.63 4.46 45.63 23.27 - 2.35 - 6.12 - 1.69 4.78 Non- Oil Developing Countries2.39 3.00 11.06 10.02 - 4.05 3.14 0.92 - 3.90 - 3.39

7


1965 1970 1975 1980 1985 1990 1995 2000 2002

East Asia & Pacific 101,844 307,352 484,725 542,003

South Asia 1,654 2,123 3,764 9,171 10,694 24,038 45,500 69,049 79,396

Middle East & North Africa 2,696 9,513 9,923 18,474 26,203 32,642 38,682

Sub-Saharan Africa 4,683 29,699 38,757

Latin America & Caribbean 1,126 2,834 9,227 20,315 28,693 57,277 120,607 198,214

European Monetary Union 47,202 88,577 242,895 519,279 492,727 1,170,338 1,672,374 1,851,803 2,007,655

E. Europe & Central Asia 217,457 257,191

United States 22,975 39,817 90,925 183,331 211,886 412,775 632,844 914,927 827,205

Japan 8,664 20,321 60,244 137,066 186,488 303,747 457,760 481,348 414,133

World 143,162 255,131 679,713 1,525,849 1,572,008 3,204,720 4,915,455 6,090,009 6,247,262

High income 118,983 221,093 573,014 1,246,492 1,322,251 2,760,420 4,116,867 4,970,918 4,942,386

Middle income 341,710 665,872 925,920 1,019,442

Low income 3,036 7,111 27,664 22,349 60,875 94,864 126,431 152,355

Manufactured Exports (US$m.)

8


65-70 70-75 75-80 80-85 85-90 90-95 95-00 00-02East Asia & Pacific 24.72 9.54 5.74South Asia 5.12 12.14 19.49 3.12 17.59 13.61 8.70 7.23Middle East & North Africa 28.68 0.85 13.24 7.24 4.49 8.86Sub- Saharan Africa 5.47Latin America & Caribbean 20.29 26.63 17.10 7.15 14.83 16.06 10.45European Monetary Union 13.42 22.35 16.41 - 1.04 18.89 7.40 2.06 4.12Europe & Central AsiaUnited States 11.63 17.96 15.06 2.94 14.27 8.92 7.65 - 4.91J apan 18.59 24.28 17.87 6.35 10.25 8.55 1.01 - 7.24World 12.25 21.65 17.55 0.60 15.31 8.93 4.38 1.28High income 13.19 20.98 16.82 1.19 15.86 8.32 3.84 - 0.29Middle income 14.27 6.82 4.93Low income 18.56 31.22 - 4.18 22.19 9.28 5.91 9.77

Manufactured exports

average annual growth rates (million US$)

9


ECONOMIC LIBERALIZATION IN AFRICABerg Report (World Bank’s 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.

10


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.

11


* IMF’s short-term stabilization programs and World Bank’s 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

12


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 US$193 bn (US$285 bn with imputed interest) in 1970-96 (Boyce & Ndikumana 2000)… compared to the combined debt (US$178 bn in 1996; higher now) (Mkandawire 2002).

Capital flight from Africa largely debt-financed (Ndikumana & Boyce 2002)

13


FDI TO AFRICA STILL MINISCULEFDI 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’.

14


CAPITAL INFLOWS TO SUB-SAHARAN AFRICA BY TYPE OF FLOW, 1975–98 (% of GNP)

Including Nigeria Excluding Nigeria

Type of flows

75-82 83-89 90-98 75-82 83-89 90-98

Total net inflows

8.6 9.9 9.3 11.5 10.0 10.6

Official inflows

4.7 6.8 7.5 7.2 8.0 9.1

ODA grants

1.7 3.3 5.4 2.6 4.0 6.4

Official credit

3.0 3.5 2.1 4.6 4.0 2.7

Bilateral 1.6 1.8 0.4 2.5 2.1 0.6

Multilateral 1.4 1.7 1.7 2.1 1.9 2.1

Private inflows

3.9 3.1 1.8 4.3 2.0 1.5

Interest payments

1.5 3.2 2.7 1.8 2.7 2.3

Profit re- mittances

1.4 1.1 1.1 1.1 1.0 1.2

Net transfers

5.7 5.6 5.5 8.6 6.3 7.1

Source: Global Development Finance 2000

15


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.

16


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).

17


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.

18


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.

19


OPTIMISTIC PROJECTED WELFARE GAINS FROM FULL MERCHANDISE TRADE LIBERALIZATION

Total Welfare Gains

Gains from Developed Countries’

Liberalization

Gains from Developing Countries’

Liberalization

Agric., Food + Other

Primary Manu-

factures

Global 254.3 139.6 114.7 167.51 86.8

Developed 146.2 96.6 49.6 121.84 24.4

Economies in transition 6.4 4.5 1.9 3.51 2.9

SSA 4.6 2.6 2.0 3.95 0.6

North Africa + Middle East 0.3 -1.0 1.2 -3.15 3.4

Latin America 35.7 17.9 17.8 23.03 12.7

Asian NICs+China 22.3 5.1 17.2 1.62 20.7

South Asia 15.4 9.0 6.4 5.72 9.7

Rest of the world 23.4 4.9 18.5 10.99 12.4

Source: Anderson, et al (2001)

20


SELECTED ESTIMATES OF WELFARE EFFECTS FROM MULTILATERAL AGRICULTURAL TRADE LIBERALIZATION

50% tariff cut

50% domestic

support cut

Elimination of exportsubsidies

Laird, et al (2003)

World 27.5 .. -4.0

Developed Countries 11.1 .. 1.9

Developing countries 8.2 .. -2.9

NICs + China 4.4 .. -0.2

South Asia 0.3 .. 0.0

SSA 0.2 .. -0.4

North Africa + ME 3 .. -2.2

Others 0.3 .. -0.2

Dimaranan, et al (2004)

Developing countries .. -0.36 ..

Asia .. -0.11 ..

Latin America .. 0.14 ..

North Africa and Middle East .. -0.27 ..

SSA .. -0.13 ..

Sources: Laird et al (2003) and Dimaranan et al (2004)

21


22


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

23


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.


Thank You

Documents

United Nations Department of Economic and Social Affairs The Way Forward for African Economic Development Presentation by: Jomo Kwame Sundaram Assistant