It wasn’t all that long ago when virtually all of sub-Saharan Africa’s exports were destined for Europe and North America. But the winds of Africa’s trade have shifted over the past decade. There has been a massive reorientation towards other developing countries, in particular China and India. Like Janus, the Roman god, Africa’s trade is now, as it were, facing both east and west. Our latest Regional Economic Outlook for sub-Saharan Africa looks closely at these developments and its policy implications. In addition to the well-known gains from international trade, Africa’s trade reorientation is also beneficial because it has broadened the region’s export base and linked Africa more strongly to rapidly growing parts of the global economy. These changes will help reduce the volatility of exports and improve prospects for robust economic growth in Africa.
My core takeaway from all these events is that the underlying sense of optimism in the promise of the Arab Spring is very much there, but there is also a growing recognition that managing the short-term transition will be even more difficult with the persistence of economic pressures and rising social expectations.
When I traveled to Reykjavik in October 2008 to offer the IMF’s assistance, the situation there was critical. The country’s three main banks—which made up almost the entire financial system—had just collapsed within a week of each other. The sense of fear and shock were palpable—few, if any, countries had ever experienced such a catastrophic economic crash. Today, three years later, it is worth reflecting on how far Iceland―a country of just 320,000 people―has come since those dark days back in 2008.
With economic growth expected to continue at a reasonably good clip this year and next, it’s all too easy to think there’s not much to worry about. Even as Diwali celebrations begin across India, the outlook for the world economy is fairly uneven and uncertain. More worrisome than the subdued global growth outlook, risks are building up especially in Europe—and these include an extreme scenario with financial disruption. Although India’s economy has generally been less prone to external forces than many others, we still need to contend with the larger than typical risks in the global economy. These risks harken the need for a new wave of reforms. What does the more somber darker global outlook mean for India? And exactly what policies are needed?
One of my biggest (and heartening) takeaways was that there were more young people bubbling with ideas and entrepreneurial spirit (ready to take risk) than ever before at this regional forum—which reflects a growing recognition of their current role in the Arab Spring and the role they will have to play in the future as drivers of economic change.
By Bas Bakker
As the crisis in Europe deepens, it is worth asking how it all went wrong in the first place. In the past decade there have been stark differences in per capita GDP growth in Europe. Growth rates have ranged from close to zero in Italy and Portugal to more than 4 percent in the best performers. Why do some countries in Europe grow much faster than others? And how can those falling behind catch up before it is too late?
In part, these differences reflect “convergence”. It is much easier for poor countries to grow faster than it is for rich countries because they can import technology they do not already have. It is much more difficult to grow fast if you are already rich and at the technology frontier—now you can only get richer by innovation.
A clear lesson is that even rapid economic growth cannot be maintained unless it is inclusive, creates jobs for the growing labor force, and is accompanied by social policies for the most vulnerable. F from the Arab Spring is that economic reforms to be sustainable, their gains must be broadly shared, not just captured by a privileged few. Widespread corruption is not just an unacceptable affront to the dignity of citizens, it also deprives them of the economic benefits. And the absence of transparent and fair rules of the game will inevitably undermine inclusive growth.
Suddenly it's the thing everyone is talking about. Income inequality. In North Africa and the Middle East, jobless youth sparked the Arab Spring. In the United States, the growing gap between rich and poor is the “meta concern” of the Occupy Wall Street movement. Worldwide, frustrations appear to be on the rise. And, in sub-Saharan Africa, sustained economic growth may have produced tremendous advances, but a large proportion of the population is still living in poverty. Here, the underlying situation is a little more complex. In July, I wrote about the importance of inclusive growth and whether economic growth was a necessary or a sufficient condition for poverty reduction. Our latest Regional Economic Outlook for Sub-Saharan Africa takes that thinking a step further, with new analysis that looks at how living standards for the poorest households have actually been changing in some countries in the region.
For the past two or three decades, rising inequality—inequality of incomes, of economic outcomes and of economic opportunities—has taken a back seat to the goal of boosting overall growth. But growing discontent with the fallout of the global financial crisis has put inequality back on top of the policy agenda. While the symptoms may be different, tackling inequality is no less an issue in Asia. Indeed, research shows that inequality can be counterproductive to sustaining longer-term growth. So, in increasingly turbulent global economic times, this gives added importance to promoting shared—or inclusive—growth in Asia that is more likely to be sustained. This has been a major focus our latest Regional Economic Outlook, which we presented in Manila today. A great challenge for the government here, and for other countries across the region, is to raise living standards for a wide section of their populations.