Making Globalization Work in Africa G

Globalization and Africa

Making Globalization Work in Africa G . E. Go n dwe

AKING globalization work in Africa is one of growth, with global trade expansion far outstripping global most urgent task facing the region's poli- GDP growth. In the 1990s alone, world trade grew at an cymakers. There is no doubt that economic annual average rate of 6.8 percent, more than double the M growth rates in sub-Saharan Africa have annual world output growth of 3.2 percent. For developing lagged far behind those of other regions and that Africa is countries as a whole, the benefits have been greater. During the region least integrated into the global economy. A grow- the 1990s, developing countries' trade increased 8.3 percent ing body of opinion also suggests that the odds for Africa's a year while annual real GDP growth increased 5.5 percent. integration are so unfavorable that its marginalization is The benefits of globalization, however, have not accrued inevitable. Our view at the IMF, however, is that African equally across countries. Africa's share in world trade has countries can and must integrate themselves into world actually decreased sharply in the past decade. As an illustra- markets if they wish to succeed. For Africa, an important tion, consider that the non-oil exports of sub-Saharan Africa intermediate step toward integration into the world econ- amounted to $69 billion in 2000. If the region's countries had omy is promoting regional integration at home. The IMF is merely maintained their export market shares of 1980, their fully committed to playing an active role in this effort. 2000 exports would have amounted to $161 billion—more Indeed, the importance of regional integration featured than double the actual outcome. This is a huge loss that has prominently in the discussions that Horst Kohler, the seriously impaired Africa's growth performance. Managing Director of the IMF, and lames Wolfensohn, the At the same time, the crises of the mid-to-late 1990s in President of the World Bank, had with African heads of state Asia and other emerging markets have overshadowed the during their joint trip to Africa in February 2001. advantages of outward-looking, liberalized economies, shift- ing the focus of discussion to the risks inherent in an Globalization's impact increasingly integrated world economy. Critics have tried to Our globalized world offers many benefits. Over the past blame the general advance of economic globalization for fifty years, trade has been a major force driving economic continuing poverty around the world, including in Africa.

Finance & Development / December 2001 31 ©International Monetary Fund. Not for Redistribution Leaders of countries in Africa and else- ments. This means that African countries where that are not yet fully integrated into must persistently pursue policies that create the world economy may therefore rightly " the conditions that attract investment, both question whether it is in their best interests If properly domestic and foreign, and enhance trade. to further expose their countries to the If properly conceived, regional integra- risks of a global economy. Is globalization conceived, tion offers many advantages for helping really good for small countries and, if so, regional African countries overcome the obstacles under what conditions? they face. Closer trading links between What is clear is that many people in integration offers African countries would strengthen their many countries have been able to lift them- capacity to participate in world trade. With selves out of poverty during the past half many advantages 48 relatively small, high-cost economies, century precisely because of the opportuni- Africa should pursue regional integration ties created by globalization. Economic for helping with a view to helping harmonize national globalization is not a cause of continued policies and creating larger markets. The poverty in Africa but rather an important African countries benefits of achieving economies of scale in part of the solution to it. What the financial production and distribution, particularly crises in Asia and elsewhere have also overcome the lower transaction costs and increased relia- shown, however, is that economic openness obstacles they bility, will enhance the efficiency and com- is not enough. Sound and transparent petitiveness of domestic producers. macroeconomic policies, a stable and ratio- face." African countries could also benefit nal regulatory and incentive framework, from the establishment of regional infra- robust financial" systems accompanied by structures, both physical and financial. A effective supervision mechanisms, and regional approach in key structural areas— good governance in the public and private such as tariff reduction and harmoniza- sectors are also required if countries are to take full advantage tion, legal and regulatory reform, payment systems ratio- of globalization and to prevent the crises that have struck nalization, financial sector reorganization, investment incen- other emerging countries. tive and tax system harmonization, and labor market African leaders made it abundantly clear to the heads of reform—enables participating countries to pool their the IMF and the World Bank, during their joint trip to resources and avail themselves of regional institutional and Africa, that African countries strongly wish to reposition human resources, in order to attain greater technical and themselves in the world economy to maximize the benefits administrative competence than they could on their own. In that have uplifted other regions. Indeed, they pointed out addition, the establishment of shared energy, power, that some African countries have already achieved significant telecommunications, and transportation systems is not only macroeconomic stability in recent years while also liberaliz- cost effective but also helps bring countries closer together as ing trade and exchange regimes, adopting market- they set common regional policies. Pursuing such a regional determined exchange rates, and removing administrative approach will, in turn, allow countries to assert their inter- controls, often with IMF advice and support. Among these ests in the international arena from stronger and more confi- countries, Benin, Botswana, Burkina Faso, Cameroon, dent positions. Mauritius, Mozambique, Senegal, Tanzania, and Uganda all Finally, the conditions and obligations of participation in achieved real annual GDP growth rates of 5 percent or more an ambitious reform program within a regional organization during 1999 and 2000 while bringing inflation down to sin- also permit national authorities to implement politically dif- gle-digit levels. Despite these gains, however, much of Africa ficult measures at home, such as lowering tariffs or institut- has not been able to take full advantage of integration into ing wide-ranging reforms of the regulatory and judicial the global economy. With its low domestic saving rates, systems—the so-called second-generation reforms. Regional endemic poverty, strong dependence on commodity exports, surveillance and dialogue between the various members of and continued lack of openness and liberalization in many the regional organization also help reduce the risks of countries, Africa still risks being marginalized. macroeconomic slippage, resulting in a more stable, pre- dictable environment—clearly a prerequisite for a flourish- What can Africa do? ing private sector. Africa's leaders recognize that globalization can facilitate Most countries already share the objective of achieving much-needed inflows of private investment and transfers of macroeconomic stability by implementing IMF-supported technology as well as increase the access of their countries' programs. Participation in a regional organization provides exports to world markets. African leaders have also made it countries with stronger incentives to implement the mea- clear that reaping the benefits of globalization depends pri- sures necessary to achieve the stability they desire. We are marily on the initiative and commitment of their own govern- already seeing evidence of the effects of such positive peer

32 Finance & Development / December 2001 ©International Monetary Fund. Not for Redistribution pressure at work in eastern and central economic policies. Fifth, the IMF is provid- Africa, where more and more countries are ing extensive technical assistance, including adopting market-based exchange rate sys- to regional bodies, in tax harmonization, the tems to improve their macroeconomies. design of convergence criteria, and the establishment of regional banking commis- How regional integration can sions. Finally, the IMF, working together succeed with the World Bank, helps to promote Attempts at regional integration in Africa investment in regions by facilitating the have a long history but a very uneven imple- establishment of regional investment coun- mentation record. The presence of too cils in strong-performing regions of Africa many different and overlapping regional that will provide for direct and regular con- arrangements, particularly in eastern and tact between potential investors from devel- southern Africa, has created confusion and oped countries and high-level government cumbersome administrative rules. officials and entrepreneurs. The real challenge is to ensure that There has been some progress to date in regional organizations are perceived as regional integration in Africa. The West effective means of integrating Africa into G. E. Gondwe is the Director African Economic and Monetary Union the world economy, fostering mutual sup- of the IMF's African (WAEMU) has made considerable progress port among members in their reform Department. in recent years in establishing a free-trade efforts. Most important, these organizations area to reinforce its common currency. With should not be perceived as mechanisms for defending estab- IMF encouragement and advice, the rates and numbers of lished interest groups. Rather, in order to truly become vehi- external tariffs have been reduced while internal tariffs have cles for global integration, they should be seen as pushing for been removed. The IMF has also helped regional authorities openness to the rest of the world. introduce both macroeconomic convergence criteria for What is needed for Africa to achieve these objectives? First, member countries and corresponding monitoring mecha- there must be the political will to pursue regional integration nisms. Assessment of and adherence to these targets are now objectives and to give them priority over domestic consider- being reinforced through the IMF's regional consultations ations. Second, a resolute effort must be made to rationalize and, increasingly, through bilateral aid programs. existing arrangements. Third, efforts are needed to coordi- While the situation in eastern and southern Africa is more nate macroeconomic policies by reinforcing peer-group sur- challenging, given that there is no history of a common veillance of national economic policies, including adopting currency on which to build, efforts are under way to establish convergence criteria, and to work more intensively to har- separate free-trade areas in the Southern African Dev- monize standards and regulations. elopment Community and the Common Market for Eastern and Southern Africa, while a task force has been set up to The IMF's role improve coordination between the two groups. By providing What is the IMF doing in this area? First, by ensuring technical assistance and advice to the regional authorities, strengthened national economic stability and performance the IMF is encouraging open trade, financial sector reform through its programs and policy advice, the IMF is making and harmonization, and the establishment of macroeco- sure that the building blocks of regional integration are nomic surveillance procedures. So far, the top tariff rates are sound. Second, it is increasing the emphasis on regional declining and the major nontariff barriers have all but disap- issues in IMF-supported programs with member countries, peared, while internal tariffs have been eliminated or sub- including commitments made under regional arrangements. stantially reduced and currency restrictions have been Third, the IMF is helping regional organizations monitor the removed. macroeconomic performance of its member countries by releasing information on individual countries, including that Conclusion gathered during its regular Article IV (of the IMF's Articles The best way for Africa to promote growth and reduce of Agreement, or charter) consultation reports. These poverty is by embracing the global economy, improving poli- reports provide the material necessary to compare country cies, and strengthening institutions. Regional integration is performance and stimulate peer pressure on weak perform- an important step in integrating Africa into the global econ- ers. Fourth, it is intensifying and expanding regional surveil- omy. These will be difficult tasks, but they can be accom- lance efforts to enhance regional policy coordination and plished, provided policymakers in Africa and the intern- institutional harmonization. In particular, IMF consultations ational community are ready to do their parts. F&D at the regional level are assisting in the specification and monitoring of convergence criteria and associated macro-