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Al-Ahram Weekly On-line 12 - 18 October 2000 Issue No. 503 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly On-line 12 - 18 October 2000 Issue No. 503
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Elections Palestine International Economy Opinion Culture Books Interview Travel Living Sports Profile People Time Out Chronicles Cartoons Letters Lucky strike
By Gamal Nkrumah
Development economists are usually regarded as worrywarts, obsessed with the prospect that, however promising overall growth trends, underneath lurk all kinds of political snares and socio-economic dangers. Leafing through the Least Developed Countries 2000 Report released today by the Geneva-based United Nations Conference on Trade and Development (UNCTAD), one is left with the conviction that the challenge of financing development is indeed a much more complex problem than previously thought. The report makes it clear that liberalisation of short-term capital movements brings very little in the way of net flows of capital, while provoking significant financial, economic and socio-political instability.
The least developed countries (LDC's) are not just the poorest countries in terms of per capita income, but most of them also have by far the lowest human development indicators. Two-thirds of the LDC's are located in Africa, the rest are mostly tiny island-nations with a few notable Asian exceptions like Bangladesh, Myanmar, Nepal, Afghanistan and Yemen.
This eagerly-awaited report is dotted as ever with caveats, balanced observations about the performance of LDC'S economies and warnings about possible hazards. According to the newly-released report, "three features give cause for concern." First, economic growth has been too slow in most LDC's to yield significant improvement in the unacceptably high rates of poverty. Second, the rates of social progress have generally lagged behind international standards set by global summits held in the 1990s. Third, almost a quarter of LDC's are caught "in a downward spiral in which economic regress, social stress and violent conflict mutually reinforce each other."
But perhaps the gravest unwritten worry, if you read carefully between the lines, is that the Bretton Woods institutions -- the World Bank and the International Monetary Fund -- are setting the agenda for LDC'S development. Thirty-three out of 48 LDC's have undertaken policy reforms under the IMF-financed Structural Adjustment Facility (SAF) or Enhanced Structural Adjustment Facility (ESAF) programmes since 1988. LDC's have even gone further than other developing countries in the area of pricing and marketing reform. Not surprisingly, the Bretton Woods institutions' plans for helping the poorest debtor nations are viewed suspiciously. It is one of the abiding clichés of the remedies prescribed by the two Bretton Woods institutions that domestic economic deregulation coupled with the globalisation of commercial and financial institutions inevitably leads to improvement of living standards through a trickle-down effect.
However, at the IMF and World Bank meetings in the Czech capital Prague, UNCTAD Secretary-General Rubens Ricupero made the following sobering remark. "Two big global economic forces are competing for the world's attention. On the one hand, the promise of a 'new economy' underpinned by information and communications technologies is exciting policy-makers, including those from the world's poorest countries. On the other hand, growing instability and uncertainty linked to globalisation has left policy workers deeply worried about the impact of financial shocks on growth prospects. So far, only the United States furnishes the outstanding example of a country able to turn these forces to its advantage," said Ricupero.
On a more upbeat note, the UNCTAD report assures us that, "A radical rethinking of international development cooperation, of profound significance to the LDC'S'Ss, is under way." This rethinking aims to redress the grandiose expectations associated with the two major trends of the 1990s. The first involves globalisation and liberalisation; the second is the uneven distribution of the costs and benefits of these two. The overall suggestion is that, with a bit of luck and some sensible judgments, the tables could be turned and LDC'S'Ss might escape the vicious cycle of economic decline, social unrest and political instability.
Are there common factors uniting the best-performing LDC'S'Ss? The reason for their success vary considerably, but the elements involved include a buoyant energy sector. For instance, it is possible for countries with a fairly lacklustre record to achieve a decent position in the table if they suddenly strike oil. The three LDC'S'Ss, which recorded the highest economic growth rates in the 1990s, Equatorial Guinea, Sudan and Myanmar, ironically scored high on the political instability index. Equatorial Guinea, a tiny West African country, which has recently experienced tremendous economic growth as a result of the commercial exploitation of enormous oil and gas reserves, is in a class of its own. Sudan, too, is now commercially exploiting its oil reserves.
But for the majority of LDC'S'Ss that are net oil importers, the current double blow of collapsing primary commodity prices and rocketing fuel import bills is especially debilitating. The bulk of the world's poorest and least developed countries are lagging far behind other developing countries. "The problems facing much of Africa are of a different order. The basic policy challenge for much of the continent remains how to overcome savings and foreign exchange constraints and to raise investment to the level required for growth of at least six per cent per annum. The current level of private capital inflows is too small to fill the resource gap but still big enough to make many African economies vulnerable to the arbitrary arithmetic of short-term capital outflows," explained Ricupero.
Foreign exchange movements inevitably exert an enormous influence on LDC'S'Ss rankings. Foreign Direct Investment (FDI) remains the largest source of external finance for developing countries and the LDC's have not been as successful in attracting FDI as other developing countries. FDI flow to Africa increased to $10 billion from $8 billion last year. This figure pales in comparison with FDI inflows to Asia, which totalled $106 billion and those to Latin American countries like Brazil with $31.4 billion, Argentina $23.2 billion and Mexico $11.2 billion. However, not all developing nations managed to attract such huge sums of FDI -- the comparable figure for India was only $2.2 billion. These figures were revealed in a previously-released UNCTAD publication:The World Investment Report 2000.
Some LDC's like Ethiopia, Mozambique, Tanzania and Uganda were considered attractive FDI destinations. According to the report released on 3 October, 70 per cent of total FDI into Africa concentrated in five countries -- Angola, Egypt, Nigeria, South Africa and Morocco. Only one, oil-rich Angola, is an LDC'S, and investments in its oil and mining sectors remain the mainstay of Angola's war-ravaged economy.
FDI must be measured not just in absolute figures, but in terms of gross domestic capital formation. Angola, Equatorial Guinea, Lesotho and Zambia -- all LDC's -- rank first according to that yardstick.
The report conceded that the overall negative external image of Africa acts as a serious disincentive for foreign investors. FDI outflows from South Africa in 1999 fell to $1.1 billion from $1.7 billion in 1998, while FDI outflows from all other African countries rose to $935 million in 1999 from $648 million the previous year. Privatisation played a major role in attracting FDI. South Africa with $1.4 billion worth of businesses privatised topped the continent's privatisation league. Second came Ghana with $769 million and third was Nigeria with $500 million. Zambia and Ivory Coast came in fourth and fifth place with $420 million and $373 million respectively. Kenya, Nigeria and South Africa are preparing for massive privatisations in the next couple of years offering tempting opportunities for FDI in power, telecommunications and transport industries. Africa's airlines are, likewise, up for grabs.
In the final analysis, poverty reduction strategies must focus on Africa -- the world's poorest region. Widening trade deficits and falling or stagnant growth rates augur ill for the continent.
How can Africa's poor benefit from the little increases registered by foreign direct investment (FDI) inflows to Africa? Do you believe in the trickle-down effect?
Although inflows of FDI into Africa (including South Africa) rose by 28 per cent, from $8 billion to $10 billion in 1999, this was not enough for Africa to increase its share of global FDI inflows. That share remained at the low level of 1.2 per cent in 1999, compared to 2.3 per cent in 1997. If this pattern continues, it is unlikely that FDI will emerge as the main source of external finance, and its impact -- especially in terms of transfer of technology and skills, the promotion of trade, the development of domestic supply capacity and the eradication of poverty through linkages and the trickle down effect -- will remain marginal. [However] if a country is enjoying a high and sustained rate of growth, there is no reason why the trickle-down effect should not be operative.
Many Africans fear that regional economic groupings such as COMESA, SADC and ECOWAS are means of speeding up the continent's integration into the production networks of transnational corporations (TNCs) and are therefore essentially put in place to serve TNCs -- not Africa's interests. How do you feel generally about Africa's regional economic groupings?
In fact, this month's session of UNCTAD's Trade and Development Board (9-20 October 2000) includes a high-level segment specifically to discuss this subject more precisely: the impact of regional integration on political considerations, as well as such economic aspects as trade in promoting development or eradicating poverty. However, if properly managed and complemented with appropriate national and regional policies, regional groupings could make a significant contribution to development within the region and to integrate the region into the multilateral trading system. The regional groupings in Africa must be viewed in this context.
Freer markets, deregulation and privatisation entail greater public vigilance and stronger and better governance. How can these be properly implemented when Africa is so short of resources?
The management of the economy in an increasingly globalising world requires not only appropriate policies and efficient institutions to implement these policies, but also active participation by the various stakeholders in the formulation and implementation of policies. There is a growing awareness of the importance of the participatory approach to economic management, at both the national and multilateral levels. The role of the media in promoting awareness of these complex processes is vital.
Do you support Africa's quest for writing off its debt?
UNCTAD has consistently argued that the debt overhang in African countries needs to be dealt with swiftly and effectively. Writing off Africa's debt will, no doubt, help the continent to break out of the vicious circle of low growth and poverty. It is important to note that most of these debts are unpayable. Moreover, writing off debt alone is not enough. Growth in Africa must be supported by a steady increase in official development assistance (ODA). Indeed, we at UNCTAD believe that the only way to end Africa's economic problems and release the continent from the aid dependency chain is to launch a massive aid programme and to sustain rapid growth for a sufficiently long period, so as to allow domestic savings and external private flows gradually to replace official flows. This proposal is explained in detail in a recent UNCTAD publication on capital flows and growth in Africa.
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