World Bank Report Suggests Strategy For African Growth Based On Mapping Of Economic Geography

Washington , DC , November 7, 2008 – History shows that severe crises can cause nations to become inward-looking, sometimes with negative consequences. The World Development Report 2009: Reshaping Economic Geography, released today, argues that policies that facilitate geographic concentration and economic integration, both within and across countries as well as within the global economy, will promote long-term growth. This is key in Africa, where accelerated growth is critical for poverty reduction in the years ahead.

“Growth does not come to every place at once, with markets favoring some places over others,” said Indermit S. Gill, Director of the report. “To encourage prosperity, governments should facilitate the geographic concentration of production, rather than fight it. But they must also institute policies that make the provision of basic needs—schools, security, streets, and sanitation—more universal.”

The report notes that Sub-Saharan Africa today faces the triple challenges of low density or scarce and scattered populations; long distances between remote areas and centers of economic activity; and deep divisions in national, religious, and ethnic terms. These dimensions of economic geography reduce connectedness between economic agents within the region, as well as with the rest of the world.

“In Sub-Saharan Africa, we can reduce the disadvantages of our poor economic geography through better urbanization, more domestic specialization, and more regional integration,” said Shanta Devarajan, Chief economist of the World Bank’s Africa Region. “Regional cooperation, labor mobility, investments in trade, communication and transport infrastructure, and peace and stability need to remain high on our agenda, even as countries work to contain the spillover effects of the global financial crisis.”

It is commonly assumed that economic activities, within a country or region, must be spread geographically to benefit the poorest and most vulnerable. However, the WDR emphasizes that trying to spread out economic activity can hinder growth and is not effective in fighting poverty. For rapid, shared growth, governments must promote economic integration which, at its core, is about the mobility of people, products, and ideas.

“Contrary to what many believe, if urbanization is done right, it can help development more in Africa than anywhere else,” said Gill. “Living standards are much higher in Africa’s cities than in rural areas, and so if this process is managed better, there could be great gains in productivity and poverty reduction.”

While investing in agriculture remains important, t he report suggests that Africa must only sparingly use incentives intended to attract industry to lagging areas because this approach has not proven effective in other parts of the world. In Africa’s lagging, landlocked countries, investments should be in people—education, health, and other social infrastructure—rather than in places, while in leading coastal countries, the emphasis should be on physical infrastructure and better integration with global markets.

“Western Europe, today a highly integrated region, started small and kept expectations realistic,” said Katherine Sierra, World Bank Vice President, Sustainable Development. “In Africa, infrastructure projects—such as hydroelectric power, transport, and ICT projects—are a good place to start.”

The report suggests that Africa would benefit from “Regional Economic Areas” that would bind together the economic interests of leading and lagging countries and provide a framework for providing regional public goods. Appropriately designed, such Regional Economic Areas would also facilitate continent-wide integration. Labor, capital, goods and services could then be helped to flow more smoothly within these areas, while access routes between landlocked countries and trade outlets are maintained and protected.

Such a strategy would combine institutional cooperation, investment in regional infrastructure, and coordinated action among countries, the report says. In exchange, development partners could commit to increasing financial assistance for better living standards and development of human capital in lagging countries, as well as for growth-sustaining infrastructure, and to preferential access for African exports.

Action on this front is already under way. For example, in 2007, the U.K. allocated $1.4 billion over the coming decade to aid efforts by Burundi, Kenya, Rwanda, Tanzania, and Uganda to revitalize the East African Economic Community. All donors could be bolder in their approach, the report suggests.

KEY FACTS

• Growth requires geographic transformations. Africa is the world’s least urbanized continent, with only one-third of the population living in urban areas in 2000. The region faces very long physical distances within countries— Africa has one of the lowest road densities in the world. On the global scale, Africa is about as physically close to world markets as East Asia, yet the cost of transporting goods to, say, the east coast of the U.S. is twice as high from Arica as from other regions. Access to regional markets is also costly, with an African exporter taking about 40 days to cross the border into a neighboring country, compared to 22 days for a Latin American counterpart. In Western Africa, borders between countries are four times as thick as those in Western Europe—restricting the flows of goods, capital, people, and ideas. The report suggests the following ingredients for rapid and shared growth: rising density as cities grow, shorter distances as people migrate and transport costs fall, and lower divisions as nations ‘thin’ their economic borders.
• Living standards converge with development. Rural poverty rates are almost everywhere higher than in cities.Countries home to the “bottom billion”—many in Sub-Saharan Africa—have 12 percent of the world’s population but less than 1 percent of its GDP. But location matters less and less for living standards as nations prosper.Estimates from over 100 living standards surveys show that households in the most prosperous areas of developing countries like Ghana have an average consumption nearly 75 percent higher than that in their lagging areas. In wealthy countries, this difference is less than 25 percent.
• Economic activity concentrates as places prosper. Half the world’s production fits onto less than 5 percent of its land, an area smaller than Algeria. Tokyo, the world’s largest city, is home to 35 million—a quarter of Japan’s population—but stands on just 4 percent of its land. Cairo produces more than half of Egypt’s GDP, using just 0.5 percent of its area. Brazil’s three south-central states comprise 15 percent of its land, but more than half its production. North America, the EU and Japan—with less than a billion people—have about two-thirds of the world’s production.
• Prosperity demands mobile people and products. Korea went from more than 80 percent rural to more than 80 percent urban between 1950 and 1990, as its per capita income grew from present-day Benin’s to more than Portugal’s. The United States, the world’s largest economy, is also among the most mobile, with about 35 million people changing their place of residence every year. In China, more than 150 million people moved to coastal areas during the late 1990s. Falling transport costs encourage specialization and trade between economies at similar stages of development. Intra-industry trade—the exchange of broadly similar goods and services—is now half of global trade, up from about a quarter in the 1960s. Because this trade is especially sensitive to transport costs, East Asia, North America, and Western Europe account for much of it.

The report and related materials are publicly available at: http://www.worldbank.org/wdr2009.