Africa Can Harness Globalisation--A Commentary

January 13, 2000

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A Commentary
By Michel Camdessus
Managing Director of the International Monetary Fund

Business Day (South Africa)
January 13, 2000

Reproduced with permission of Business Day (South Africa)

Economic growth and poverty reduction can accelerate if continent follows IMF and World Bank prescriptions, writes Michel Camdessus

There is an old African proverb that has become more widely known of late: it takes a village to raise a child. In the new millennium we could say that it takes a global village to raise that child up from poverty.

What are Africa's chances of harnessing the benefits of globalisation, achieving more rapid poverty reduction and faster growth in living standards? I believe the prospects are good for several reasons:

  • Much of Africa has made significant economic progress in recent years. Real gross domestic product (GDP) growth averaged nearly 4% a year in the past five years--a clear improvement from the 1980s and early 1990s--with some countries reaching average growth in the 5%-8% range. Per capita incomes are on the rise and average annual inflation is in single digits, sharply down from an average of 40% in the first half of the 1990s;

  • The world economic environment is improving. The economies afflicted by the financial crises of recent years are recovering, global inflation remains low and worldwide growth, which fell to 2.5% in 1998, is expected to reach at least 3.5% this year; and

  • The global village has been listening to Africa's plight and is ready to act, including through a new approach to poverty reduction recently adopted by the International Monetary Fund (IMF) and World Bank. This amounts to a unique window of opportunity for achieving the faster poverty reduction and faster growth.

Growth in per capita incomes is still far too slow (it remains negative in several countries) and the depth and prevalence of poverty remain unacceptable. We are still a far cry from the Copenhagen Declaration pledge to reduce by half the proportion of people living in extreme poverty by 2015.

The proportion of the globe's people living on less than $1 a day is only just below the 29% estimated in the early 1990s. For economic growth, the 7% that Asia has averaged in recent decades may be a reasonable target for Africa.

But the faster progress that Africa needs in growth and poverty reduction will depend on a new partnership between Africa and the international community.

A large part of what Africa needs to do is familiar. It includes:

  • Pursuing sound macroeconomic policies to boost confidence, investment and growth in the private sector;

  • Reforming the financial sector and legal and regulatory frameworks to remove impediments to efficiency and competitiveness;

  • Stepping up trade and exchange liberalisation, and price liberalisation--including removing biases against agriculture and the diversification of exports--to open up economies to competition and deepen their integration into the world economy;

  • Giving a decisive boost to regional integration efforts;

  • Strengthening public institutions, improving governance and rooting out corruption; and

  • Increasing the efficiency of public spending to free up more resources for the poor, including cutting military outlays.

There are also some important changes in emphasis in the international community's new approach to poverty reduction.

One is a greater emphasis on policies that attack poverty directly.

We have long known that sound economic policies promote poverty reduction. But we are now much more aware that causation also runs in the other direction. Policies that benefit the poor directly--such as investing in health, education and rural infrastructure--also boost growth.

How are these insights being translated into actions? First, the new approach puts poverty reduction at the heart of programmes to be supported by the IMF and World Bank in the 75 poorest countries. The objectives of the IMF's concessional lending facility for low-income countries have been broadened to include poverty reduction. this change, the ESAF has been renamed the Poverty Reduction and Growth Facility.

To ensure the focus on poverty reduction, the strategy in each country will be set out in a poverty reduction strategy paper to be drawn up by the government, with the broad participation of civil society. This will provide a focused policy agenda, promote government accountability and foster a national dialogue on economic and social policies.

Moreover, since the paper will form the basis for the financial support of the IMF, World Bank and eventually other creditors and donors, it should ensure better coordination of external assistance and more effective use of debt relief. To further help the heavily indebted poor countries, most of which are in Africa, the international community recently agreed to provide deeper and faster debt relief, which is expected to be available to more countries (perhaps 36 instead of 29).

The external debt burdens of these countries, in aggregate, will be cut by more than half, reducing their debt to sustainable levels and freeing up more resources for poverty reduction. More is also being done with technical assistance and training.

How can the industrial countries help Africa through their own policies? On the trade front, they should take bolder steps to give exports from the poorest countries unfettered, tariff-free and guaranteed access to their markets.

They should boost aid flows from their current low levels, make medium-term commitments to aid provision, channel help to countries pursuing the right policies, ensure that debt relief is truly additional and not financed out of existing aid budgets, and simplify procedures. They should also bolster their efforts to help Africa bring peace to its war-torn regions.

A good start would include strongly supporting Africa's efforts to build peace, resolve and prevent conflicts; exercising restraint in arms sales; ending the provision of export credits for military purposes; encouraging reductions in military expenditures to below 1.5% of GDP; and joining international efforts to counter the smuggling of raw materials and natural resources to finance armed conflict.

Africa now enjoys a new opportunity to mobilise the international community behind its growth and development efforts through the new approach to poverty reduction. Let us join hands in a new partnership--a partnership in which Africa itself will have to play the pivotal role--so that history records the dawn of the new millennium as the ushering in of an African renaissance.

Camdessus is departing IMF Managing Director.