News & Broadcast - Globalization Can Work For AfricaWorld Bank study outlines actions needed to make globalization work for the poor

WASHINGTON, December 6, 2001Global integration is already a powerful force for reducing poverty and must be harnessed better to help poor countries in Africa and around the world to improve the lives of their citizens, says a new World Bank research report published yesterday.

The report offers new evidence on the pace and impact of globalization in Africa and proposes an agenda for action to help the region integrate and benefit from the global economy. It looks at different groups of countries according to how they have coped with globalization: from those that have managed best, to countries that have been marginalized, where poverty has grown. Many countries in Africa and the former Soviet Union are found in this poor performing category. Exceptions include Uganda, where policy changes in the 1990s have led to rapid integration with the world economy, and to improvements in growth and poverty reduction: poverty fell by about 40% during the 1990s and education levels doubled.

The study, Globalization, Growth and Poverty: Building an Inclusive World Economy, shows that developing countries that increased their integration into the world economy over two decades ending in the late 1990s achieved higher growth in incomes, longer life expectancy and better schooling. These countries, home to some 3 billion people, enjoyed an average 5 percent growth rate in income per capita in the 1990s compared to 2 percent in industrialized countries.

Many of the less "globalized" countries are in Africa. The study offers several explanations for their slower integration with the world economy including weak investment climates, inadequate infrastructure, high transport costs and poor economic policies and institutions. Some countries in Africa suffer from serious geographic and other disadvantages, such as being landlocked or having high rates of malaria and HIV/AIDS.

To illustrate the infrastructure shortfalls, the report notes there are just 55 kilometers of rural roads per thousand square kilometers of surface area in Africa, compared to over 800 in India, and there are only one tenth the telephones per capita in Asia. Freight rates by rail are on average around double those in Asia and air transport is four times more costly.

"The extent of poverty in Africa," says Ian Goldin, Director of Development Policy, "makes decisive action on removing tariff and other barriers to foreign trade and investment, all the more urgent."

While other developing regions have diversified their exports, many African states remain dependent or even increased their dependency on a few primary commodities, such as mineral ores, diamonds, lumber, rubber and coffee or tea. Dependence on commodities has been linked to a higher incidence of civil war, probably because it provides an easy source of finance for rebel groups. And the report associates the risk of conflict with deteriorating economic performance. Growing global trade in small arms and other weapons, particularly since the end of the Cold War, has also contributed to rising levels of conflict, the report says.

Migration is another aspect of globalization that has proceeded differently in Africa than in other developing regions. In both India and China, internal migration from the landlocked provinces to the coasts and from rural areas to towns and cities has been a significant factor in poverty reduction. In Africa, however, the large number of small countries mean that similar movements are hindered by national frontiers. The report foresees the emergence of additional manufacturing or service-producing agglomerations: in Africa these would be located on trade routes - given favorable economic environments - and would absorb workers migrating from rural to urban areas. "Globalization, Growth and Poverty" also advocates the mutual benefits of migratory movements for both rich expanding economies with ageing workforces and for poor economies suffering from "brain drain" and burgeoning unskilled workforces.

Seven-point plan of action

The report points out that an expanding global market has been a positive force for growth and poverty reduction worldwide and outlines an agenda for growth. For Africa, this would be:

Progress in trade liberalization The recent WTO meeting in Doha signals a big step towards bringing down trade barriers and countries in Africa stand to gain the most from this. Dramatic reduction of agricultural subsidies in rich countries - which currently stand at US$350 billion a year, roughly seven times what rich countries spend on development aid will particularly benefit African producers, in agriculture and natural resources. African countries would also benefit from better access to each other's markets - barriers between them are still higher than the barriers they face in rich countries.

Improving the Investment Climate Countries that have prospered in the current globalization are those that have created good investment climates in which firms, particularly small domestic firms, can start up, prosper and expand. The report points out that encouraging investment and creating jobs requires good economic governance measures to combat corruption, better-functioning bureaucracies and better regulation, contract enforcement, protection of property rights, and connectivity to other markets within the country and globally. This is especially important for small and medium-sized firms and farms which are key to job creation and to raising living standards of the rural poor.

Improving Delivery of Education and Health Services The developing countries that have gained the most from integrating into the world economy have shown impressive gains in primary education and infant mortality. If poor people have little or no access to health and education services, the report notes, it will be very hard for them to benefit from the growth spurred by integration into the regional or global economy.

Provide Social Protection to a Changing Labor Market Tailoring social protection to the needs of a changing economy helps individual workers adjust to the challenges of a more open economy. The report recognizes the fact that while integration has on average been a positive force for growth and poverty reduction, there are inevitably winners and losers, especially in the short run. Better social protection will enable workers and entrepreneurs to take more risks and to avail themselves of new opportunities.

Rich Nations Should Increase Foreign Aid Evidence shows that private investors can be slow to respond when low-income countries improve their investment climate and social services. It is precisely at this stage when large-scale, better managed foreign aid can have a great impact on growth and poverty reduction. Foreign aid has, however, fallen to 0.22 percent of donor countries' GDP its smallest proportion since it was first institutionalized with the Marshall Plan in 1947.

Support Debt Relief for Reformers Reducing the debt of the most marginalized countries, especially in Africa, will enable them to participate more in globalization and the benefits it can bring. Debt relief is particularly powerful for those countries that improve their investment climate and social services. Debt relief packages are now in place for 24 countries under the enhanced HIPC Initiative for which total committed assistance is estimated at more than US$36 billion. It is critical, though, that further debt relief should not come out of the shrinking pie of foreign aid, which would simply move aid resources around. Debt relief must come in addition to foreign aid.

Tackling Greenhouse Gases There is broad agreement among scientists that human activity is leading to potentially disastrous global warming, and that these changes in climate will be especially burdensome for poor countries and poor people. The report urges more effective international cooperation to address these problems.

For the full text of the report, see
http://econ.worldbank.org/prr/subpage.php?sp=2477

For more information on the World Bank and Africa, go to the web at www.worldbank.org/afr or email africainfo@worldbank.org

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Globalization Can Work For AfricaWorld Bank study outlines actions needed to make globalization work for the poor