South African Minister of Finance Trevor Manuel says the challenge nations face today is to translate the potential benefits of globalisation into real gains for the poorest in the world.
Delivering the Oxford University Inaugural Global Economic Governance Lecture in the United Kingdom, Manuel said on Monday night that globalisation “presents a critical challenge to sound economic governance in all states and in particular African states”.
“Growing our economies requires us to create and support effective regional institutions that are credible interlocutors for national governments. This means that they are backed by appropriate economic and political governance mechanisms, both internal to the regional institution and at the national level.
“They should be able to ensure public sector-led provision of market infrastructure and foster the private sector. As the cornerstones of the African Union, regional economic communities must be strengthened to provide the framework for developing cross-border market infrastructure, addressing externalities, and forming common policies and regulations.”
The challenges that faced the African continent are immense, Manuel noted.
“The gross domestic product of Spain is roughly equivalent to that of Africa as a whole. Approximately one in two people on the African continent survives on less than $1 per day. A more disturbing statistic is that the GDP [gross domestic product] per capita on the African continent in 1998 was the same as the GDP per capita in 1960.”
For centuries under colonialism, the economic system imposed on Africa was one where raw materials were extracted, taken to Europe, processed and resold to the colonies. Labour, too, was drawn from the continent in significant quantities.
He said in the context of inconsistent growth and widespread poverty, the globalisation challenge “can tip states in the wrong direction — away from good governance, effective regulation, and pro-growth policies and toward rent-seeking, the stifling of the private sector, and the further weakening of already inadequate social policies and institutions”.
“At the same time, Africa has been slow to develop the sort of international institutions capable of assisting in the policy and sectoral adjustments needed to benefit from globalisation.”
But Manuel said Africa is now making “great strides”, noting that one of the larger globalisation challenges is the extent to which governments need to adjust macroeconomic and microeconomic policies to achieve more rapid economic growth in an open-market environment.
“Most African economies retain fairly high trade barriers, largely due to weaknesses in revenue collection from other forms of taxation, the reduction of which would require significant economic adjustment in the domestic economy.”
Manuel stressed the importance of growth of microeconomic policies that facilitate the shifting of people from old and non-competitive industries to new industries and new forms of economic activity. This requires reskilling, high-quality education and access to social and other forms of capital in open environments “in which individuals can take advantage of new economic opportunities”.
Manuel said while economic growth is negatively affected by bad policies — an increase in deficit or inflation and the imposition of high trade barriers — the reverse effect is not necessarily true.
“Countries reducing their deficits, lowered inflation rates and liberalised trade regimes did not necessarily perform better after the reforms.”
He noted arguments that there is no positive correlation between public or private investment and growth in Africa. Aid flows have not had a discernable effect on growth either.
Manuel argued that globalisation could be addressed “in regional and global institutions in such a way as to increase the power of states and better reflect the social and economic preferences of their citizens”.
He said the development of regional communities and of accountable institutions, such as the Pan African Parliament and the African Peer Review Mechanism, “will contribute to Africa’s ability to address the pressures of globalisation”.
The New Partnership for Africa’s Development “enables us as Africans to better manage what we get out of the international financial and developmental architectures, whilst pursuing domestic reforms aimed at maximising the benefits”. — I-Net Bridge