AFRICA: Poor Excluded From Benefits of High Economic Growth

• by Julio Godoy (paris)
• Monday, June 20, 2011
• Inter Press Service

This is how economist Jan Rielaender explains the finding of the African Economic Outlook 2011 report (AEO) that during the past decade, especially in the fastest growing economies in Africa, good economic performance due to investment in oil and other extractive industries has had little effect on poverty.

Rielaender works at the Organisation for Economic Cooperation and Development (OECD) Development Centre and is co-author of the AEO.

Around 75 percent of foreign investment in Africa has been in oil-rich countries and in so-called extractive industries with few links with the rest of the domestic economy or with poor people.

Rielaender said that the weak response of 'poverty reduction' to economic growth was caused partially because growth was not strongly linked to activities and economic sectors where the poor are. Numerous African countries are therefore trapped in a contradiction of resistant poverty despite high economic growth.

The AEO reports that high fuel and mineral commodity prices have strongly influenced economic growth in many of the fastest growing African economies in the period from 1996 to 2008, given that fuels and minerals account for the largest share of Africa’s exports.

But this growth and its limited impact in reducing poverty creates a vicious cycle, for higher poverty diminishes even further the effects of economic growth in reducing poverty, the report says.

The report, released in June, is a joint effort by the OECD, African Development Bank, the United Nations Development Programme and the United Nations Economic Commission for Africa.

From 2001 to 2009 only three of the 14 African countries, where the annual gross domestic product growth rates were higher than the regional average of 5.3 percent, registered substantial poverty reduction rates.

In an interview with IPS, Rielaender said that the lack of correlation between growth and poverty reduction in African countries should force 'African governments to concentrate their immediate efforts in creating jobs, invest in basic social services and promote gender equality'.

The AEO 2011 points out that most of the African oil or mineral-exporting countries with high growth rates experienced 'low growth elasticity of poverty' — that is, economic growth with little impact on reducing poverty. 'On the other hand, oil producers with high growth elasticities of poverty have low growth rates,' the report says.

To tackle this lack of correlation between 'growth and poverty reduction', the AEO also encouraged African governments to 'take simultaneous actions on several fronts. Economic growth will improve human development only if it is inclusive and pro-poor.

'Investing in social sectors will produce sustainable human development, if investment is accompanied by efforts to create more economic opportunities that benefit a large segment of population.'

The AEO 2011 also recommends regional development policies that promote different economic sectors and reduce reliance on commodities such as cash crops and minerals.

Rielaender told IPS that, 'industrial policy in the pharmaceutical sector could be one appropriate policy measure to create employment and simultaneously achieve social objectives in Africa', by locally produce generic medicines.

International development agencies, such as the U.N. Commission on Trade and Development (UNCTAD), and humanitarian nongovernmental organisation, such as Médecins sans Frontières, have recently urged selected African countries to launch a process of industrialisation to locally produce generic medicines indispensable in fighting epidemics such as HIV and AIDS, malaria, and tuberculosis.

By so doing, African countries would benefit from present exemptions from international requirements on intellectual property, such as medicines patents which expire in 2016.

Rielaender said that such a policy is feasible in selected African countries. 'When you talk about industrial policy in developing countries, you are also talking about infant industry protection,' he explained. 'But the local industries created this way should be efficient enough to avoid the misallocation and waste of quite scarce resources.'

So far, he believes, Africa has managed the regional impacts of the global economic crisis relatively well. However, he warned that the political turmoil in the Maghreb region and inflation in food and fuel would again slow down the continent’s growth to 3,7 percent this year.

He argued that African recovery after the slowdown caused by the global economic crisis was primarily based on the shift that has taken place in global economic activities away from the OECD countries in Europe and North America and towards emerging economies in Asia and South America.

This shift is reflected in African international trade. In 2009 China surpassed the U.S. and became Africa’s main trading partner. In general, the share of trade conducted by Africa with emerging partners has grown from approximately 23 to 39 percent in the last 10 years.

Africa’s top five emerging trade partners are now China (38 percent), India (14 percent), Korea (7,2 percent), Brazil (7,1 percent) and Turkey (6,5 percent).

Another factor supporting the African economy is overall 'good macroeconomic management' during the last decade, he added: 'Inflation has remained relatively low, and high commodity prices have led to increased revenues in the continent.'

© Inter Press Service (2011) — All Rights ReservedOriginal source: Inter Press Service

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