One of the most important lessons of the global economic meltdown is that no society, developed or developing, is ever safe from the vagaries of human agency. Developed economies had for long been regarded as immune to major breakdown. We now know differently.
Decades of structural challenges, coupled with poor financial controls and sheer human greed, have left Europe and the US with, as Harvard economist Dani Rodrik rightly puts it, “debilitating challenges”.
That’s bad news for the citizens of developed countries. The crisis poses challenges for us, too. However, this also presents a unique opportunity to close the gap between developing and developed economies. Rodrik says: “In such an environment, rapid growth in the developing world is the only thing that could propel the world economy forward and generate increasing demand for rich-country goods and services – the only silver lining in an otherwise dreary future.”
I agree with Rodrik. Africa and Asia have the potential to become the epicentre of the global economy. Our immediate aim must be to fully unlock that potential.
The questions we must now pose ourselves are the following: what are the drivers of unprecedented growth in Africa and Asia? And what must Africa and Asia do now to capitalise on this historic opportunity to converge on developed economies?
The central thought I want to build a case for is that global economic power is shifting, albeit slowly, from Europe and North America to Africa and Asia.
Africa and Asia have already learnt the important lessons of the debt and financial crises of the 1970s, 80s and 90s. African and Asian economies learnt, through bitter experience, the importance of sound macroeconomic management. They also came to appreciate that the state and the market needed to work in partnership, and that the liberalisation of capital accounts and markets was not a panacea for growth.
But, more is required to sustain growth levels, and it is worth exploring what else might ensure Africa and Asia soon become the dominant players in the world economy.
First, I want to examine the nature of competitiveness. Second, I want to explore which facts about Africa and Asia should be harnessed to achieve sustainable levels of high growth. And finally, I will conclude by reflecting on the policy choices that governments face to ensure that we achieve not just growth, but also equity.
What are the factors that cause a country to be globally competitive? The World Economic Forum recently released its 2011/12 Global Competitiveness Survey which provides useful empirical data. It is clear from this data that competitiveness is hard to achieve, in part because the range of factors that determine it are many.
They include stable macroeconomic policies, high levels of trust in the body politic, decent levels of technological penetration, a labour force equipped for a competitive economy, solid public and private institutions and good governance.
I will share the results of the top two achievers on the survey, and one of the poor performers, to give a sense of how these drivers can help, or hinder, a country.
Switzerland retained first place with notable strengths in innovation, technological readiness, and labour market efficiency.
Singapore moved up one place to second position. The country’s institutions continue to be seen as the best in the world, ranked first for their lack of corruption, coupled with their display of government efficiency. Singapore also places first and second, respectively, for the efficiency of its goods and labour markets and leads the world in terms of financial market development. The country also has world-class infrastructure (third). This is reinforced by a strong focus on education, providing individuals with the skills needed for a rapidly changing global economy.
Toward the other end of the spectrum, Nigeria unfortunately retains the same 127th place this year. The country has a number of strengths on which to build, including its relatively large market (34th), which provides opportunities for economies of scale. Nigeria’s businesses are also sophisticated by regional standards (64th). On the other hand, the institutional environment does not support a competitive economy because of concerns about the protection of property rights, ethics and corruption, undue influence, and government inefficiencies. Also, the country is not harnessing the latest technologies for productivity enhancements.
It is clear from these three examples what the factors are that separates economic success from economic struggle.
Surveys are never perfect, but we can, roughly, take surveys like this as a proxy for assessing whether or not Africa and Asia are closing the gap between developed and developing economies. This requires us to examine the facts about Africa and Asia that could best be harnessed to realise this potential for closing the gap.
Fifty years ago most of Asia was at least as poor as Africa. South Korea had the same income level per capita as Sudan and Ghana’s citizens were richer than virtually all the Asians. In the last 20 years per capita incomes in Africa have slightly more than doubled, while incomes in developing Asia jumped by nearly 11-fold.
China has achieved what no country in history has done, doubling per capita incomes every 10 years over a period of 30 years. Through concerted leadership, China is transforming from a rural to a manufacturing economy which has meant that over a period of about 25 years, roughly 600 million people were lifted out of poverty. This meant a drop in poverty rates from 85 percent to 15 percent.
Currently Africa accounts for 2 percent of global gross domestic product (GDP) and Asia 25 percent, but by 2050 Africa’s contribution will be about 5 percent and Asia’s 50 percent so together they will account for well over half.
Over the next five years Africa is likely to take the lead with the highest average growth rates and will become the fastest growing continent. This trajectory stays the same even on a slightly longer view. Over the next decade many economists forecast that Africa will grow at an average of 7 percent a year,.
It is natural to wonder what the sources of these growth forecasts are. Organisation for Economic Co-operation and Development countries have never achieved these levels of growth for even a five-year period. This points to deep differences in the sources of growth. It is critical that we be wary of cutting and pasting solutions from one region of the world to other regions without taking full cognisance of structural differences. Indeed, even talk about “Africa” and “Asia” belies the reality that different economies within these regions themselves differ in salient respects.
Part of the growth spurt is linked to significant differences between Africa and Asia, on the one hand, and Europe and North America, on the other. Some of the differences include Africa’s demographic transformation – the doubling of the population in the coming decades, rapid urbanisation and a youth bulge; the extent of arable land on the continent; and the extensive and accessible commodities which, in turn, create significant manufacturing, trade and investment opportunities.
Africa’s demographic trends count powerfully in favour of sustained growth. Africa’s workforce will be be the world’s largest by 2040. Africa is in the position to reap the demographic dividend of a bulging youth population, at a time when other regions are entering a period of dramatically increasing dependency ratios.
There are, fortunately, already positive signs of human potential in many developing countries being successfully harnessed to achieve demonstrable economic output. The number of engineers produced in India, for example, leave Europe and North America with little hope of competing with India for scarce engineering talent.
What we need is for the human potential of all the citizens of Africa and Asia to be similarly developed. Pockets of excellence must be replicated across the regions.
The point to be taken to heart is a strategic one: an educated, healthy, highly skilled and self-sufficient workforce must be the foundation of an emerging markets success story.
Education is critical. Health is critical. Partnership between governments, civil society and the private sector, glued together by a mutually beneficial vision of an alternative reality for Africa and Asia, is crucial.
So, Africa’s and Asia’s demographic transformations, if exploited with appropriate policy interventions, can be the catalyst for bringing about the growth forecasts given earlier. Africa’s GDP is approaching $2 trillion (R15.4 trillion), larger than Brazil’s, with its consumers spending about $900 billion a year. Within 10 years its GDP will have grown by a further trillion, consumer spending will be close to $1.5 trillion and the population will be well over 1.5 billion
We were recently reminded by development economist, Esther Duflo, that economic growth does not guarantee equity. If our aim is not only to grow the economies of Africa and Asia, but also to ensure that the poorest citizens share in the proceeds of economic boom, then we need to think through policy mechanisms that can ensure that the bigger economic pie we are building is not unfairly distributed.
But here is the challenge: government policies must be conducive to economic growth, while ensuring that there is an improvement in the welfare of the poorest.
Duflo rightly points out that we should be less concerned about what the sources of economic growth are in a society; and rather be more concerned with ensuring that once growth happens, a larger number of economically disenfranchised citizens are brought into the economic fold.
Yet, even this interesting hypothesis, however, is subject to debate. What, for example, are the policy tools that will ensure that kind of outcome?
The least uncertain policy intervention that can aid both growth, and equity goals, is to invest in education. In our country the amount of money spent on education is already a large part of the GDP, by international comparative standards, and the next question for education experts to resolve is how to spend this money more effectively to ensure that the education system plays a positive role in reducing structural unemployment, and that it contributes to a reduction in inequality.
These policy discussions are politically and economically difficult to negotiate. But they are unavoidable: growth without equity leads to a wealthier, but less just, society; equity at the expense of growth leads to a more just, but less wealthy, society. We must aim to get the balance right.
I am optimistic about Africa and Asia, not as a matter of blind citizenship loyalty, but precisely because the empirical facts about the economic directional changes we have undergone, are real.