World Bank Report Highlights Need For Success At Cancun Trade Talks - WTO Breakthrough Would Help Africa to Reduce Poverty

News Release No. 2004/067/S
Contacts: Amy Stilwell
202-458-4906
astilwell@worldbank.org
Lawrence MacDonald
202-473-7465
lmacdonald@worldbank.org

The report Global Economic Prospects 2004: Realizing the Development Promise of the Doha Agenda presents a detailed overview of the world economy, and the near-term outlook. It also offers a rigorous analysis of global trade issues, particularly those that head the agenda for discussion at the WTO meeting this month.

The latest GEP projects anemic growth of 1.5 percent in 2003 in the industrialized world, well below potential. It foresees better performance next year, as industrial countries' growth rises to 2.5 percent. Developing countries are somewhat more buoyant than industrial countries, growing at 4.0 percent in 2003, and, if the recovery stays on track, will grow at 4.9 percent in 2004. (Growth forecasts in table on final page). World trade is projected to grow by 4.6 percent, slightly more than last year, but still less than half the rate in 2000.

However, Sub-Saharan Africa, suffering from weak growth in Europe and low commodity prices, continues to under-perform other developing regions. Growth in the region is expected to remain relatively flat at 2.8 percent this year, as the external environment provides only modest support, with exports rising 2.9 percent.

Although faster than in the 1980s and 1990s, today's growth in Sub-Saharan Africa is still too slow to make a significant dent in poverty or to achieve the Millennium Development Goals in reducing poverty.

Prospects for the forty-seven countries in the region are quite diverse. Some of the countries will do much better than the average, while others will do worse. Outcomes in individual countries depend weather conditions, the composition of exports, the presence or absence of civil strife, and the quality of economic governance.

"Sub-Saharan Africa should benefit from a more rapid expansion of European imports thanks to the appreciation of the euro, but the 4.1 percent increase in euro area import demand anticipated over the next two years is barely half the pace of the late 1990s," says Alan Gelb, World Bank Chief Economist for Sub-Saharan Africa.

Removing barriers to developing countries' exports would accelerate their growth

The report points to inequities in the world trading system that drag down export growth in developing countries in general and Africa in particular.

According to the Bank report, a significant WTO agreement would increase trade, and eventually raise incomes around the world, leading over time to a substantial reduction in global poverty. As the report notes, the trade talks are stalled over disagreements on agriculture, tariff reductions on manufactures, special treatment for developing countries and drug patents in poor countries. For Sub-Saharan Africa, lowering agricultural subsidies and opening markets to agricultural products is of particular importance, since the majority of Africa's poor live in rural areas and their income is to a large extent dependent directly or indirectly on agriculture.

For example, the study points out that cotton subsidies of $3.9 billion to U.S. farmers depress world cotton prices and push out poor but efficient farmers in West Africa. These subsidies are three times U.S. foreign aid to Africa. Liberalization of the groundnut market would increase profits in the five major African producers by $124 million annually.

Labor-intensive manufactures have been the most dynamic market segment for every major region, including Africa; yet many developing countries find that their exports meet obstacles in foreign markets-high tariffs, quotas, specific duties, and "antidevelopment tariff structures that discourage adding value in poor countries."

This is particularly true of agricultural products. For example, raw cocoa faces virtually a zero tariff in the European Union and Japan, while final products made of cocoa face tariffs of 30.6 percent and 21.7 percent respectively, making diversification up the product chain difficult.

Sub-Saharan Africa can compete in world markets given the right incentives and opportunities. For example, non-traditional exports from the region to the United States under the African Growth and Opportunity Act were sharply up in 2002: textiles and apparel more than doubled from 2001, while transportation equipment and agricultural products increased 80 percent and 38 percent respectively.

The report argues that a "good" WTO agreement could produce about $290 billion-$520 billion in income gains to both rich and poor countries, lifting an additional 144 million people out of poverty by 2015.

Medium and Longer Term Economic Outlook

Sub-Saharan Africa's economic performance in the medium term should benefit as the global recovery consolidates. However, the pick-up will be slower than the rest of the developing world, as only moderate gains in commodity prices and sluggish European growth play a role. For the region as a whole, growth is expected to accelerate to rates of 3.5 percent in 2004 and 3.8 percent in 2005.

Under a set of favorable, but plausible assumptions, developing countries are expected to experience an acceleration of per capita income growth through 2015 leading to a halving of poverty on a global basis (from 29.6 percent in 1990 to a projected 13.3 percent by 2015). For Sub-Saharan Africa over the long term, per capita growth is expected to average 1.5 percent - a substantial improvement on long run historical trends, though still well below what is needed to achieve the Millennium Development Goals.

The region continues to face immense development challenges from HIV/AIDS, low savings and investment, poor infrastructure, shortages of human capital and negative perceptions of international investors. In this regard it is important for a positive outcome to trade negotiations, including allowing access to cheap retroviral drugs for sub-Saharan countries in order to help fight AIDS and other infectious diseases which threaten African economies and peoples over the long run.

In the end, however, the region's most critical need is to re-establish civil order, where needed, and to raise standards of governance and policy making, since these are the most powerful predictors of economic performance. Here there is encouraging progress to report, with signs of institutional strengthening at both the country and regional levels. On balance, assuming a continuation of this trend, the forecast of positive, albeit moderate growth for the region should be achievable.

For more information, see http://www.worldbank.org/prospects/gep2004