just1World
Economic Issues Facing Developing Africa
Just 1 World analyses the economic issues facing developing Africa and offers a long-term perspective and a range of proposals for progress. Use the buttons below to navigate the discussion points in this topic.
Globalisation
Globalisation is defined as the breaking down of geographical, financial, trade and information barriers that exist between different countries which should create more opportunities for everyone in a modern world of instant communications. And the process appears irreversible. But while people in the richer countries in the North can take advantage of globalisation, too often, people in poor countries in the South are left marginalised in what can only be described as GLOBAL-ISOLATION.
Everywhere we turn in the North there are reminders that we live in a global village. On supermarket shelves are products from all over the world as a visit to Tesco, Carrefour or Walmart will underline. Then through the medium of television we can watch 'The Simpsons' from the US, 'Neighbours' from Australia or watch round the clock global news from the BBC, CNN, Sky or Al Jazeera based in Qatar, all of which adds to the view that English is the unofficial global language. Then, coronavirus notwithstanding, having booked a foreign holiday, packed our suitcases and flown to another part of the global village, we are met everywhere by international brands such as BP, HSBC, Chanel, BMW, Microsoft, Nike, Coca-Cola, and Johnnie Walker all of which underlines the fact that we live in just1WORLD!
In the south
But in the South the situation is very different. The global village is literally the village you live in because the next village is probably several miles away and difficult to get to over a rutted, overgrown track. Often there, people witness at first hand the problem of global warming as the creeping footprint of the desert expands relentlessly southwards devouring their pastures.
People living here are more likely to view global companies as making mega-profits from their own natural resources but doing little to aid local people in their struggle to make ends meet, whilst paying as little tax as possible on their profits. As for news, local gossip is hard to beat! The advent of the ubiquitous mobile phone though now allows people even here to keep in touch with family and friends, not just in the countryside and towns, but across the world. However, in 2024, there is still a huge digital divide across the world as it is estimated that there are 3.3bn people - 40% of the global population - who don't have access to reliable broadband internet.
Countries in Africa with the lowest internet penetration are: South Sudan with only 7.9%, Eritrea 8.3%, Burundi 9.7%, Somalia 10.7%, and Ethiopia 17.8%. All in all only 22% of the population in Africa have internet access.
Thanks to a combination of the dismantling of trade barriers and the desire for well-made and ever cheaper goods, globalisation has played a large part in raising living standards in high- and middle-income countries in the last 35 years. However, for one or more of the following reasons, globalisation has barely touched the lives of ordinary people inhabiting the world's poorest countries: -
*Most people living there are subsistence farmers living on <$1.90 per day,
*Electricity supplies are often either not available or eccentric,
*AIDS, TB and malaria continue to take their toll,
*Illiteracy is widespread,
*Impure water and inadequate sanitation spread diseases whilst
* Incompetent governments stifle enterprise and fail to invest in public services whilst corrupt leaders 'rob' people of their future.
Conflicts, too, rage in many poor nations which largely tend to be ignored by the outside world. Caught up in the middle of this drama people can suffer unimaginable hell on earth as rampaging militias raid towns and villages randomly killing anyone who opposes them and often raping the women and plundering food, clothing, money and weapons leaving nothing but devastated lives in their wake.
But here, in these catastrophic situations, also lies danger for the North.
For one country's war becomes another's asylum seekers.
One country's illicit crop growing becomes another's drug problem.
One country's terrorist threat becomes another's security problem.
One country's excruciating poverty nurtures young economic migrants determined to access a better life somewhere in the rich world - at any cost!
This interconnectivity means that all the world's nations are affected in one way or another by what is happening in poverty-stricken countries. Surely, then, it is time for constructive engagement, partnership and co-operation between nations in what former US President Bill Clinton would call 'sharing the benefits and shrinking the burdens.' For that is the real challenge for globalisation as we move further into the third decade of 21st century.
At a time when we can send a controlled space probe, the Philae lander, on a journey of 3.75bn miles lasting 10 years, to reach comet 67P out near the orbit of Jupiter, in order to test soil samples which will give scientists a clue to the formation of the solar system, surely it is ridiculous that millions of families living on our planet are still dirt poor and cannot access safe water/proper sanitation, enough food nor a functioning education or health system. This situation is surely morally indefensible and should be an ongoing concern for all of us in the rich world. However, the remedy needs concerted action as well as a radical approach.
More than 50 years on from gaining independence it can be said that most governments in sub-Saharan African have let their people down - big time. And, as most African autocratic governments are firmly in control of their own destiny, shamefully, there is nothing to suggest that things are going to change any time soon. 50 years wasted years may have happened in Africa but let's take a look over the Atlantic Ocean to Central America. Here, after 175 years of independence, life in countries like Guatemala, Honduras, El Salvador and Nicaragua is still a challenge as inequality is pervasive. So if we in the North really want to 'Make Poverty History' it is time to tackle this gross inertia across the developing world and, as a carrot, offer poor countries a new radical 'Partnership for Progress.'
This new approach would best be done one-to-one and would see rich countries offering partnerships to governments in poor countries, e.g. Finland with Burundi, UK with Ghana, France with Cote d'Ivoire, with the aim of setting about to provide the basics of life for all inhabitants. To be truly effective, however, there needs to be a realisation that this will need to be an equal partnership with 50:50 input. Into this partnership rich nations would bring finance and technical expertise whilst governments in poor countries would supply the manpower and authority to get things done as well as promising to become less profligate and autocratic. In so doing, in no way would rich countries seek to change the culture of the country insisting only that development has to be made nationwide.
Among the first tasks should be to ensure that supplies of food are adequate and guaranteed. Experts suggest that, on average, three times more food could be produced in the developing world if farmers had access to essential inputs: improved seeds, fertilisers, irrigation. At the same time encouragement should be given to families to place their plots of land into local co-operatives which would lead to larger fields, increased mechanisation, greater harvests whilst freeing-up children to go to school.
Steps should also be taken to source and secure water supplies, improve sanitation and encourage good hygiene. It is reckoned that every US$1 spent on water, sanitation and hygiene in the developing world gives a return of US$5 - mainly through better health. Staying with health plans should also be developed that seek to establish medical facilities throughout the entire country as soon as enough nurses and doctors can be found or trained. Education is vital and initially plans should be drawn up to ensure that ALL children have access to free primary school education and eventually secondary schooling.
Infrastructure, too, should be upgraded so that good transport and communications can be established which would allow food supplies to be easily moved around the country. Power shortages should also be tackled. Every family, too, should be able to register their own home and plot of land: having a fixed address allows families to borrow money to improve their homes/smallholdings as well as alerting the authorities to where schools and medical facilities are needed. In this way, by giving people the 'basic tools', this 'Partnership for Progress' will help to unlock the potential of entire nations.
But corruption, too, will need to be tackled if funds invested in these ambitious partnerships are going to be used to deliver maximum results. In order to remove this blight the president/prime minister should set an example by setting up an independent commission with power to investigate anyone at any time including himself/herself and all government ministers/civil servants. This will reassure the people and any would be international investors that the government is working earnestly for the good of the country. A free press, too, would further help expose corrupt practices whilst helping to keep the government on its toes. At the same time of the rule of law must be inviolate.
Governments should also strive to reduce wasteful bureaucracy and to free up the economy. In his book ‘The Mystery of Capital’ Hernando de Soto relates his experience in trying to set-up a small garment workshop in Peru. Getting a group of his students together, they set to work to find and complete all the necessary documents that were needed to set up a small business on the edge of Lima. After many days of painstaking work and bus journeys to numerous government departments, they finally managed to register the business as a legal entity after 9 months. And the cost of establishing this one man operation - over US$1,200 (£1,000) or about 30 times the average monthly wage. Is it any surprise then that most businessmen/women in developing countries find it too time consuming and expensive to register thus losing the advantages of becoming a legal entity which include being able to borrow money to expand. Setting up businesses is vital for jobs which in turn will grow the economy whilst bureaucracy like this is ludicrous and needs to be rewritten in user friendly terms.
Fledgling businesses/entrepreneurs/ordinary people need access to loans which often can be difficult to find. To this end banks and microcredit institutions should be encouraged to expand throughout the country.
All of this will not be readily achieved and there will be countless times when these 'Partnerships for Progress' will be questioned as to how effective they are. But the two sides should stick with their promises and in time the tide will be seen to be turning. And then, at last, some of the world's most deserving people will be able to look forward to a life less dull and exhausting.
Sadly, though, it seems there is more chance of finding life on another planet than any real and constructive collaboration of this kind happening!
UNITED NATIONS 2030 SUSTAINABLE DEVELOPMENT GOALS
To replace the United Nations Millennium Development Goals, in 2015, the UN adopted the Agenda for Sustainable Development. In doing so they set down no fewer than 17 goals and 169 targets to be achieved by 2030. In adopting these goals and targets the UN set out a supremely ambitious and transformational vision. It envisages a world free of poverty, hunger, disease and want, where all life can thrive; a world free of fear and violence; a world with universal literacy; a world with equitable and universal access to quality education at all levels, to health care and social protection, where physical, mental and social well-being are assured; a world with universal access to safe drinking water and sanitation and where there is improved hygiene and where food is sufficient, safe, affordable and nutritious; a world where human habitats are safe and resilient and where there is universal access to affordable, reliable and sustainable energy. The new Goals and targets became effective in January 1, 2016.
GOAL 1 End poverty in all its forms everywhere
GOAL 2 End hunger, achieve food security and improved nutrition and promote sustainable agriculture
GOAL 3 Ensure healthy lives and promote well-being for all at all ages
GOAL 4 Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all
GOAL 5 Achieve gender equality and empower all women and girls
GOAL 6 Ensure availability and sustainable management of water and sanitation for all
GOAL 7 Ensure access to affordable, reliable, sustainable and modern energy for all
GOAL 8 Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all
GOAL 9 Build resilient infrastructure, promote inclusive and sustainable industrialisation and foster innovation
GOAL 10 Reduce inequality within and among countries
GOAL 11 Make cities and human settlements inclusive, safe, resilient and sustainable
GOAL 12 Ensure sustainable consumption and production patterns
GOAL 13 Take urgent action to combat climate change and its impacts
GOAL 14 Conserve and sustainably use the oceans, seas and marine resources for sustainable development
GOAL 15 Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss
GOAL 16 Promote peaceful an inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions for all
GOAL 17 Strengthen the means of implementation and revitalise the Global Partnership for Sustainable Development
GOAL 18 Promote effective, accountable and transparent government and ensure justice and the rule of law applies to all
Sadly this 18th Goal, and fundamentally the most important of all in speeding up development, was omitted from the final version at the insistence of African leaders. Wonder why!
For more on the UN http://www.una-uk.org/
Trade
In the last 70 years world trade volume has multiplied by a factor of 43 and in terms of value it has grown by 347 times whilst world output has risen 20-fold. In this period trading in goods and services has helped bring ever rising living standards to people living in north America, western Europe, and east Asia where the bulk of trade takes place.
In 2021, after Covid-19 had struck, in terms of US dollars, the total value of goods traded in the world was US$22.3 trillion (£18.6 trillion). The world's top exporters of goods are China 15.2%, [EU 11.6%] US 8.1%, Germany 7.2%, Netherlands 3.7%, Japan 3.4%, Hong Kong 3%, South Korea 2.9%, Italy 2.7%, France 2.6%, Belgium 2.4%. After Brexit the UK* has slipped from 10th place in 2019 to 14th in 2021 with 2.1%. The top importers of goods are US 13%, China 12.1%, [EU 11.2%] Germany 6.3%, Japan 3.4%, Netherlands 3.4%, France 3.2%, Hong Kong 3.2%, UK* 3.1%, South Korea 2.8%, India 2.6%. (*Ships still carry 92% of Britain's exports/imports)
Trade in Africa
Africa, with 15% of the population of the planet, has only a tiny 2.75% share of world trade and of this total sub-Saharan Africa accounts for 2.0%. However, even this 2.75% of world trade generates ten times the amount received by the continent in overseas aid. Therefore, expanding trade is vital for Africa where an 1% increase in the share of world trade would generate an extra US$180bn (£150bn). The top African exporting nations are South Africa, Nigeria, Egypt, Algeria, Morocco and Angola. Africa's exports consist mainly of oil, minerals (gold, diamonds, cobalt etc.) timber, coffee, cocoa, cotton products and primary agricultural products. (Tiny Singapore with a population of 4.3m people still accounts for more in exports than all the 49 countries of sub-Saharan Africa put together with a population of 900m people.)
The above figures relate to internationally traded merchandise or visible goods. But commercial services, banking, insurance, intellectual property, classed as invisibles, are also bought and sold throughout the world and these have grown 60% faster than trade in goods over the past decade. The total value of services traded amounted to US$6.03 trillion (£5.02 trillion). The top ten exporters of services in 2021 were: - US 13.7%, UK 6.8%, Germany 5.5%, China 4.7%, France 4.6%, Netherlands 4.3%, Ireland 3.9%, India 3.5%, Singapore 3.4%, Japan 3.3%. The top ten importers were: - US 9.9%, China 8.6%, Germany 6.3%, Ireland 5.6%, UK 4.8%, France 4.5%, Netherlands 4.3%, Japan 3.5%, Singapore 3.5%, India 3.1%.
Embracing international trade offers countries the chance to grow their economies rapidly which creates more jobs and leads to higher incomes which through taxation means more money is available to invest in healthcare, new schools, infrastructure, modern technology, greater food choices, clean water, and improved sanitation. And, in recent times, no other international process has done more to generate prosperity for hundreds of millions of people throughout the globe.
Singapore is an excellent example of a nation which has embraced international trade in order to promote economic advancement. With no natural resources, in the 1960's, the government of prime minister Lee Kuan Yew (1959-90) encouraged international companies to come and set up in Singapore. At the same time his government set about providing the educational system and investment climate needed to attract foreign enterprises. And so far has Singapore come in the last 55 years that it is now not only a successful trading nation but one of the wealthiest countries in the world with Gross National Income (GNI) per capita rising from $400 (£300) in 1959 to $64,010 (£53,340) in 2021.
China, too, has played a strong hand in international trade in the last 20 years with exports growing by a factor of 30 helping the country to generate economic growth of 9% per annum over that period lifting an estimated 360m people out of poverty.
Conversely those countries which shunned trade and contact with the outside world failed to even keep up with their neighbours. South and North Korea both started from the same base in 1950 but today the outward looking South Koreans enjoy per capita incomes 22 times greater than their cousins living in the hermit kingdom in the north where emergency food aid often has to be delivered. Similarly, incomes in export-oriented West Germany were also many times greater than in the inward-looking Communist state of East Germany when the Berlin Wall came down in 1989.
And now even Africa is looking to advance trade. The African Continental Free Trade Area (AfCTA), which all members of the African Union bar Eritrea intend to sign up to, commenced on 1 January 2021. It is the most ambitious trade zone project in the world opening up a market of 1.2bn people with a combined GDP of US$3 trillion. No other region has tried to fuse 54* countries into a single market and eventually a full customs union. To date 47 out of 54* member states have ratified the agreement but only 9 of those have introduced the domestic legislation that will permit trading to happen. (*Eritrea has refused to join AfCTA)
Under this trade deal, tariffs on 90% of goods will be phased out within 10 years. This will be done in stages and could take up until 2035. Currently intra-African trade stands at 13% of total trade compared to 59% across Asia and 68% across Europe. Impeding progress here though is also transport costs and pot-holed roads.
Though international trade has expanded rapidly in the last 70 years after the banking crisis of 2008, world merchandise trade slumped by 12% in 2009 followed by a record-breaking 14% surge in 2010. Then in 2011 world trade volume increased by 5%, in 2012 by 2.5%, in 2013 by 3%, by 2.5% in 2014, by 2.3% in 2015, by 1.6% in 2016, by 4.6% in 2017 and by 3% in 2018. In 2019, despite slowing world economies and trade tensions between the US and China, it increased by 0.4%. With the arrival of Covid-19 in 2020 world trade held up amazingly well and fell by only 5% before bouncing back by 9% in 2021.
But now in 2023 globalisation seems to be stalling as tribalism is now beating the drum. With the Russian invasion of Ukraine the western world has frozen Russian assets whilst cutting off all trading arrangements. Meanwhile with China's sabre-rattling over Taiwan and the fear that China was using hi-tech companies to steal a march on the west there is now a move for western economies to disengage with China. And now President Biden has moved to abandon free markets for an aggressive industrial policy by unleashing vast subsidies amounting to US$465bn for green energy, electric cars and semiconductors but only for production at home. All of which can only hinder world trade.
International trade is a vital tool in advancing economic prosperity and many developing countries are keen to expand export opportunities. However, even with the reduction in trade rules and regulations which have taken place over the last 65 years, there are still too many restrictions in place today. And worryingly the situation seems to be regressing as the use of protectionist measures is increasing, particularly in the US. The reason for this is that governments feel it necessary to appease internal pressure groups in order to protect domestic industries, particularly agriculture, from international competition. As a result, in developing countries where the bulk of the population still work on the land, these measures severely dent the opportunity for people there to trade their way out of poverty. It is estimated that developing countries could benefit by as much as $200bn(£166bn) annually if rich countries removed all trade barriers.
International trade then is an emotive issue which seems to provoke endless debate amongst governments, multilateral organisations and development agencies with bandwagons often being mounted and often rational thinking sidelined. Below then just1WORLD attempts to clear the air as well as analysing the three main ways in which rich countries play the restrictive trade card.
Tariffs
TARIFFS are taxes placed on imports which have the dual purpose of raising revenue for a country whilst at the same time protecting its domestic industries. By levying tariffs it leads to a situation where it is cheaper to produce goods in the home country even though the same goods are cheaper to import because tariffs make them more expensive.
Average tariffs on agricultural products in the EU are today around 22% whereas on manufactured goods they have dropped from an average of 40% to around 4%. In manufactured goods the EU member countries set tariff barriers against each other but those set against the developing world are 4 times greater. And in another show of solidarity against poor countries, tariff escalation means that rich countries maintain higher tariffs on imports of processed commodities than on raw materials thus depriving poor countries of revenue and preventing them from adding value to their exports e.g. it is easier for poor countries to sell cocoa beans to Europe rather than in the finished product of chocolate.
Non Tariff Measures
NON TARIFF MEASURES include safeguards, anti-dumping measures etc. but mainly take the form of quotas. Quotas are a quantitative restriction on the amount of goods of any one kind that are allowed to be imported. Here a ‘barrier’ will descend as soon as the numbers imported are reached. In January 2005 a major breakthrough occurred in this field when the Multifibre Arrangement (MFA) on quota limits on textiles from the developing world was abolished allowing open access everywhere.
However, such was the increased volume of cheap imports, particularly from China, that domestic producers in EU countries immediately complained and regrettably, even after 10 years to prepare for the abolition of textile quotas, the EU sought to appease their clothes manufacturers by re-introducing limits. This, however, in turn provoked EU retailers to complain that they would be penalised for orders which had not yet been delivered whilst, at the same time, customers would be faced with higher prices. And so a compromise was agreed with China agreeing to 'limit' exports.
Subsidies - 2 kinds - PRODUCER AND EXPORT.
PRODUCER SUBSIDIES come in the shape of support prices which subvert the workings of the international trading system. There is no better example of this than the EU Common Agricultural Policy. Established in 1962, this keeps food prices in Europe high above world levels and operates throughout the EU to boost farming productivity, guarantee food supplies and ensure a 'fair' standard of living for farmers. For example it is estimated that every cow in the EU is subsidised to the extent of £1.50 per day - the same amount as almost half the world's population lives on. As a result those heavily subsidised cows go on producing record amounts of milk. Also, in 2018 the average UK farm made just £2,100 from agricultural activity but this increased to £27,200 with subsidies added. (Currently UK farmers produce 63% of what the country consumes.) One of the most contemptible examples of producer subsidies being used to appease a domestic pressure group was in the US in 2002 when President Bush caved in to the 25,000 cotton farmers there and granted them support totaling £2.3bn per annum in order to compete in price with cotton farmers in Burkina Faso.
EXPORT SUBSIDIES are the final guarantee that farmers in rich countries do not make a loss even when they overproduce. In the case of surplus milk production this is made into dried milk powder and dumped on the world market forcing prices down and throwing thousands of poor farmers in countries like the Dominican Republic out of business and into the cities.
According to the Food and Land Use Coalition in 2019, government support for farmers across the world was put at $619bn (£503bn), well up from $350bn (£284bn) in 2003. Main culprits here are China, US, Japan and the EU whilst New Zealand, Australia and Chile hardly subsidise their farmers at all.
All in all support in rich countries adds an extra £15 to the weekly shopping basket of a family of four in the EU, increases taxation, provides no guarantee of food quality and produces surpluses which are regularly dumped on world markets putting farmers in poor countries out of business. Furthermore, 70% of support for farmers goes to the largest 25% of the farms and to cap it all the whole system is so bureaucratic that EU auditors recently discovered that only 40% of farm support actually reached its destination.
Some Positive Developments
In recent years some tentative progress has been made by the richest countries in opening up their markets to the poorest nations.
*the US African Growth and Opportunities Act (AGOA) signed in October 2000 offers tariff and quota free access to the US for a range of goods, mainly oil, textiles and manufactures, from Sub-Saharan Africa. Qualifying countries currently number 36. Leading exporters here are South Africa, Chad, Angola and Nigeria. Although oil is still the main ingredient here this pact has also allowed other exports from other African countries to the US grow quite rapidly e.g Lesotho where the textile industry has flourished and now exports US$400m worth of garments to the US annually. Currently Ethiopia and Zimbabwe are excluded.
* the EU through the Lome Convention offers some of the same to a list of poor countries. Here in an 'Everything But Arms' policy all imports are allowed in free of all tariffs and non-tariffs from these mainly African, Caribbean and Pacific (ACP) countries.
* in the EU farmers are now encouraged to concentrate on quality; grow less popular crops; look after the countryside e.g. maintaining hedgerows, leaving strips at the sides of fields uncultivated for wildlife; diversify into tourism, country crafts etc.
* the North America Free Trade Area (NAFTA) which comprises Canada, US and Mexico was expected to result in a mass of jobs being exported across the Rio Grande. The Mexican economy has boomed since NAFTA was set up in 1994 but the US has also created 11m new jobs in that period. Under President Trump this agreement was renegotiated.
* numerous bilateral trade agreements have been signed and encouraged by countries like Singapore, US, Morocco, New Zealand and Chile.
*
at a WTO meeting in Nairobi in December 2015 it was agreed that export subsidies in developed countries would be reduced by half by the end of 2017 and eliminated altogether by 2020. Most have been but some still remain.
All of the above agreements certainly help to increase export opportunities but in a world context they represent only a trickle in the river of trade. And so it is important that a new round of world trade talks under the auspices of the World Trade Organisation (WTO) should be set-up reach a successful conclusion.
This was last attempted in 2001 when the WTO launched the Doha Development Round of trade talks with a target date for completion of December 2005 which, ridiculously, was later extended to 2015. But this round never really got off the ground as China pleaded to retain its developing country status, the US caved in to its farm lobby which demanded increased market access abroad in return for subsidy cuts at home whilst India and Brazil refused to reduce their high tariff rates on imports. An opportunity wasted due to petty nationalism!
But change needs to happen as trade, as we have seen, is vital in challenging and defeating poverty so the WTO should attempt to launch another trade round. And, this time, if it ends in deadlock just1WORLD offers this constructive solution to break the logjam -
ALL rich countries would have to reduce all subsidies/ tariffs/ non-tariffs but only by 5% per annum. This would have a double beneficial effect - it would give producers in rich countries time to adjust and it would mean that all trade support by rich countries would be eliminated in 20 years. Developing countries would be expected to do the same.
New paragraph
The above may be a rational way forward but you can just imagine the furore - US farmers would scream about losing their traditional livelihoods, President Macron would - certainement - not be too happy at the thought of French farmers having now to compete to sell their produce on world markets as the CAP came to an end and the Japanese government would protest that Chinese rice imports would overwhelm domestic producers. However, the important outcome would be that world trade in general, and developing countries in particular, would be given a tremendous boost. At the same time in rich countries taxpayers would benefit from the elimination of subsidies, consumers would have more money to spend thanks to cheaper food and EU auditors might finally get to grips with the EU accounts!
In the coming months then hopefully common sense will prevail and there will be a new round of trade talks involving every nation on the planet. However, even the most positive of outcomes is unlikely to help the least developed countries mainly to be found in sub-Saharan Africa for the following reasons:-
- in most of sub-Saharan Africa over 70% of the people living there are subsistence farmers working with basic tools on tiny plots consisting of barren soil. Agricultural production in Africa has stagnated in the last 20 years
- countries in most of Africa have neither the expertise nor the capital to take immediate advantage of more open trade opportunities.
- the costs of transport by air and sea, bad roads and railways, poor communications, convoluted customs procedures and delays, refrigeration for meat products and insurance all add to the cost of sending imports abroad. For example, the World Bank has calculated that it can take up to 25 days for a container of car parts to pass customs officials into the Democratic Republic of Congo. At the same time these problems preclude intra-African trade which represents only 9% of overall African exports.
- minimum standards, health legislation and quality controls will all have to be met before consumers in rich countries make their choices. The poorest countries then, most of which are in Africa, will initially suffer and governments there will need outside help both with finance and expertise in order to be able to start to take advantage of a more open trading environment. Thankfully rich countries are already aware of this and more of their overseas aid budgets are being directed towards helping poor countries increase crop yields and improve infrastructure. But we as consumers can also help farmers in the developing world by buying fairly traded goods.
- Fairtrade is an independent consumer organisation set up by a group of charities in 1992 in order to offer fair terms of trade to farmers and workers in the developing world. In return for meeting certain standards in production Fairtrade currently pays more than 1,900,000 farmers/workers in 71 poor countries above market prices for their produce thus enabling them to improve quality and to provide for all the needs of their families. Fairtrade goods currently are sold in 125 countries. The Fairtrade mark appears on over 4,500 different products including tea, coffee, bananas, sugar, fruit juice, chocolate, flowers, nuts, rice, yoghurts, wines, beer and footballs many of which are available in most supermarkets. Although Fairtrade products cost that little bit extra more and more consumers seem willing to pay this premium. Sales in 2018 in the UK - the world's largest market carrying the Fairtrade mark representing 33% of the total - reached £1.60bn. In the UK, Fairtrade now accounts for 45% of the bagged sugar market, 40% of all bananas sold, 10% of all tea, 27% of all ground coffee and 12% of all chocolate confectionery. Large brand manufacturers committing to Fairtrade sugar include Cadbury's, Kit Kat, Maltesers, and Ben and Jerry's ice cream. In 2019, 20.8 million litres of Fairtrade wine were also sold. And to cap it all Fairtrade now sells Fairmined gold!
By the end of 2019 there were a total of 600 Fairtrade Towns, 1,178 Fairtrade Schools and 150,000 supporters. see www.fairtrade.org.uk
According to Tony Blair's Commission for Africa Report in 2005 'trade barriers are politically antiquated, economically illiterate, environmentally destructive and ethically indefensible.' We agree. And the sooner all trade restrictions are lifted the better for the following reasons:-
1. to bring an end to the scandalous waste, overproduction, inefficiency, bureaucracy, corruption and expense they bring just to placate pampered pressure groups like farmers that governments, for the most part, are too frightened to stand up to.
2. because they hinder farmers and their families in the developing world in their fight against poverty, rampant disease and lack of education.
3. in order to encourage these same farmers, exasperated by low prices and a lack of trading opportunities, from potentially moving into growing proscribed crops like coca and heroin
4. because poverty makes people desperate and spawns the conditions for conflict and terrorism which all too often end with carnage and major refugee problems which the whole world has to deal with.
Economics
Economics is the study of managing the resources of a people and government encompassing the laws of *production and distribution of wealth according to Adam Smith, 18th century Scottish economist and philosopher who penned the 'Wealth of Nations', the first masterpiece in economics.
(*Factors of production include labour, land, capital and enterprise.)
Economics is a dynamic subject which studies changes in an economy and which itself changes as old and new ideas battle for influence. And it is the economy which is held by many to hold the key to any Western government's re-election prospects as US president Bill Clinton knew all too well when asked about the chances of securing a second term in 1996 'it's the economy, stupid!'
It is not intended here to visit all the complexities of economics but instead set out what are considered successful measures in laying the foundations for strong economic development which is necessary for producing the revenues which can be used to spend on social welfare and infrastructure.
However, first let us look at make up of the world economy and recent developments.
GDP measures the value of all goods and services produced in a country.
GNI measures how much of that value stays in the country.
World totals for both will be the same.
According to the World Bank, in 2021, the total value of the world Gross Domestic Product (GDP) was $96,100,000,000,000 or simply $96.10 trillion (£78.13 trillion). In 2020 it was US$84.91 trillion having fallen from US$87.65 trillion in 2019 due to Covid-19. With an estimated world population of 8bn people GDP per capita works out at $12,102 (£9,765). The composition of world GDP is made up as follows - services 63%, industry 31% and agriculture 6% whilst the world labour force is occupied - 32% in agriculture, 45% in services and 23% in industry. (In rich countries only 1-3% of the labour force work in agriculture)
The largest economy in the world is that of the US with GDP valued at US$23tn followed by China with US$17.7tn and Japan with US$4.9tn. In fourth place comes Germany with US$4.2tn followed by UK and India with US$3.2tn and France with US$2.9tn. Then comes Italy with US$2.1tn, Canada with US$2tn and South Korea and Russia with US$1.8tn. Brazil is logged at US$1.6tn ahead of Australia with US$1.5tn, Spain with US$1.4tn and Mexico with US$1.3tn. What this means that US is responsible for 24% of total world GDP up from 22.5% in 2014. In the same comparison China has increased to 18.4% from 13.3%. The countries comprising the European Union have 22.1% down from 22.7% in 2014. Another grouping which has gained prominence recently are the BRICS (Brazil, Russia, India, China and South Africa) which currently represents 25.7% of world GDP.
The ten largest economies by GDP in Africa in 2021 were Nigeria with US$441bn, South Africa US$420bn, Egypt US$404bn, Algeria US$168bn, Morocco US$133bn, Ethiopia US$ 111bn, Kenya US$110bn, Ghana US$78bn, Angola US$73bn and Tanzania US$68bn.
*According to the World Bank, in 2021, the following countries had the highest GNI per capita in the world (in US$) :-
1. Bermuda 116,540
2. Liechtenstein 116,440
3. Switzerland 90,360
4. Norway 84,090
5. Isle of Man 83,920
6. Luxembourg 81,110
7. Ireland 74,520
8. USA 70,430
9. Denmark 68,110
10. Channel Islands 66,220
11. Iceland 64,410
12. Singapore 64,010
13. Cayman Islands 63,370
14. Sweden 58,890
15. Qatar 57,120
16. Australia 56,760
17. Netherlands 56,370
18. Hong Kong 54,450
19. Finland 53,660
20. Austria 52,210
21. Germany 51,040
22. Belgium 50,510
23. Israel 49,560
24. Canada 48,310
25. Macao 46,730
26. Japan 42,620
27. Andorra 46,040
28. UK 45,380
29. New Zealand 45,340
30. France 43,880
SUB-SAHARAN AFRICA
- Seychelles 13,260
- Mauritius 10,860
- Gabon 7,100
- Botswana 6940
- South Africa 6,440
- Equatorial Guinea 5,810
- Namibia 4,550
- Eswatini 3,680
- Cape Verde 3,330
- Djibouti 3,300
47. Mozambique 480
48. Somalia 450
49. Burundi 240
At the turn of the millennium world economic growth slowed after the frenetic technology boom of the late 1990's and the attack on the USA on 9/11 (2001) leading to large declines in most world stock markets. However, thanks to a combination of low inflation and easy credit, economic activity soon picked up again in the North. At the same time in the South, led by China and India, many developing economies were growing rapidly sparking a huge demand for raw materials and commodities. As a result the world economy has probably never seen such balanced growth as it did in the years 2003-7.
This universal fast-track growth, however, began to show worrying signs of coming apart towards the end of 2007 with easy-lending, particularly in the US, provoking a sub-prime mortgage crisis. Encouraged by politicians, many US banks literally threw lending criteria out of the window as they fell over each other to lend money to people who would not normally qualify for a mortgage in the mistaken belief that the laws of economics had been usurped and there would no longer be cycles of boom and bust. Where the US leads, other advanced countries are not usually long in following, and property lending exploded in the UK too. With so much new business coming through the banking system and profits booming, US banks now started to 'splice and dice' their mortgage books in order to give other banks a part of the action and to pass on risk. This was literally pass the brown paper parcel big time and when the music stopped some of the most respected banks in the world had been found to have failed to realise what they had been buying into, and share prices slumped. Some banks like Lehman Brothers in the US were allowed to go under. Others like the Royal Bank of Scotland, a bastion of conservative banking in Scotland since 1727, but run by megalomaniac Fred Goodwin, who lacked any banking qualifications, suffered the ignominy of being baled out by the UK government and now, some 16 years on, UK taxpayers still hold 36% of that reckless bank now renamed Nat West.
The resulting credit crunch affected most rich countries and led to dramatic cuts in interest rates in the West along with huge government support for the ailing banking sector. Meanwhile commodity prices which had risen to record levels started to fall back rapidly from the third quarter of 2008 leading to a huge fall in inflation throughout the world. With low interest rates in place coupled with benign inflation, and with China and India still expanding rapidly, OECD countries slowly started to pull out of recession. However, the debts built up by Western governments through the 'naughties' were now becoming unsustainable and investors started to become concerned for their investments.
Some countries in the Eurozone (Italy, Greece, Ireland, Portugal) now had debts which exceeded annual GDP and there was concern, too, about Spain being able to service its loans. Dramatic cuts in public expenditure were now the order of the day leading to a sharp increase in unemployment and civil unrest in those European countries bordering the Mediterranean. Before the advent of the Euro these Mediterranean countries would have devalued their currencies as part of a solution but being part of the Eurozone this was no longer an option. Instead huge cuts in public services were demanded by northern Eurozone members in return for massive amounts of bailout funds delivered through the European Central Bank. With the Euro crisis still simmering below the surface and with many nations in the Eurozone still trying to reduce budget deficits, the pace of economic growth across the region became sclerotic.
During this period of low interest rates the US and UK economies picked up a head of steam though China, looking to increase domestic living standards, started to slow from annual double digit growth to 5-7%.
Then in early 2020 along came the coronavirus pandemic which shook economies rigid. In mid-March world stock markets panicked and central banks and governments were forced to turn on the liquidity taps full throttle. This saw stock markets do a massive U-turn and led by Wall Street, some a reached record levels. But additional government debts which will have to be dealt with by raising taxes.
In the West, in normal times, most governments seem to take the view that the revenue generated from taxation is not enough to provide the services they believe their people need and want. This means resorting to borrowing. But in so doing they could be said to be giving their people a standard of living which they are not entitled to for borrowing can only ever be taxation deferred: for governments can only ever repay money borrowed from future taxation which means that future generations will have to pick up the bill. In many countries in the West this borrowing binge has now become excessive and, with little or no economic growth, the burden is now reaching the limit for many lenders. For example, in 2001 the UK's debt-to-GDP ratio stood at 30%; and in 2021 it was 97%. In 2019 the debt-to-GDP ratio in Germany was 81%, in France 84%, in the US 100% and in Japan 225%. These nations too will see their ratios move up substantially. And to compound the problem the US has just lost its prized AAA rating from US credit rating agency Standard and Poor's which the country had held since 1917
The best way to promote economic growth is considered by most economists to be in the form of a mixed market economy where government provides the essential services like health, education and infrastructure and private enterprise is encouraged to set up businesses. In order for private enterprise to flourish it is considered that the capitalist system based on private ownership of property, business and industry directed towards making the greatest possible profits will create the largest number of jobs and provide the tax revenues needed by governments to invest in social services. In this way it is left to individuals and companies to decide what to produce, how to do it and for whom. And the best way to forge strong working relationships in companies is to pay workers a fair wage, provide good working conditions and to keep employees motivated and informed.
As well as providing essential services governments also have the duty to regulate both the private and public sectors ensuring that quality controls are in place and that the rule of law is always adhered to. At the same time governments must guard against monopolies being created where lack of competition means that consumers pay exorbitant prices. Governments should also seek to help enterprise to flourish by keeping taxes low and fair and balancing budgets over the economic cycle. But the hand of government should be as light as possible for the freer the economy, the higher the growth and the richer the people. And monetary policy which incorporates adjustments in money supply, controlling inflation and setting interest rate levels is best left to an independent central bank so that politics does not get in the way when, for example, a general election approaches.
The World Bank produces annually a set of world governance indicators including one which assesses the ability of individual governments to formulate and implement sound policies and regulations that permit and promote private sector development. And the following countries are considered to have the firm but lightest of touches in facilitating and regulating economic activity:- Denmark, Luxembourg, Hong Kong, Singapore, UK, Ireland, New Zealand, Netherlands.
At the other end of the scale stand those countries where Communism or state control raises an iron fist over most aspects of economic activity:- North Korea, Zimbabwe, Burma, Turkmenistan, Eritrea, Cuba, Afghanistan, Timor-Leste, Iran, Belarus, Venezuela. In these nations, with most industries under state control, innovation and enthusiasm for work is limited and pay is usually unified across each sector.
A further comparison can be made here if we look at West and East Germany in 1989 after 40 years of separation under 2 different systems from the end of World War II. The capitalist West Germany was a modern dynamic country whereas East Germany, through state direction, produced second-rate goods for markets which no longer existed. Further comparisons can be made between South and North Korea which have been separate countries for 70 years. GNI per capita in free South Korea is $34,980 whereas in totalitarian North Korea, where hunger is a recurring problem, GNI per head is just $600.
Capitalism, then, as an economic system has much to recommend it but there does seem to be a problem - capitalism doesn't seem to export successfully to poor countries. Numerous attempts have been made but most have ended with failure. So what can the problem be?
In his book ‘The Mystery of Capital’ economist Hernando de Soto suggests that the main problem for the developing world in trying to establish capitalism is the actual raising of capital itself. And yet he goes on to say that the poorest people in the developing world are sitting on phenomenal amounts of savings. However, they are generally held in imperfect forms in the shape of homes built on pieces of land which are not recorded, crops growing in fields with no title deeds and businesses set-up outside the law.
He compares this situation to life in rich countries where every house, business and piece of land is registered and therefore recognised under the law. As a result, loans and mortgages can be raised against them thus enabling owners to inject life into their fixed assets.
Countless millions of people in the developing world live in makeshift homes in great urban slums on government owned land. Most of these homes are probably unregistered and even if anyone wanted to come within the law, it could take years to cut through all the red tape and probably cost too much. So, these people perch perilously side-by-side on the wrong side of recognition, destined to remain in poverty. Even in many villages, homeowners cannot get title to their home as the land is only lent to them by the chief for, as all land is owned by the tribe, he has no authority to dispose of it.
A permanent recognised address is important for other reasons too. It gives access to credit, insurance, and utility services. It also acts as an indicator to the authorities about where there is a need for schools and medical centres.
In conclusion, de Soto estimates that as many as 80% of the people in developing countries may hold assets that are unregistered by the authorities. Keeping this potential capital locked-up out of the system is a huge drag on improving living standards throughout these countries. Poor countries should work to free up the system, recognise these unofficial homes and bring order and potential benefits out of chaos and decrepitude.
(The average size of the informal sector in sub-Saharan Africa is estimated at 42% of Gross Domestic Product, reaching 60% in Nigeria, Tanzania and Zimbabwe according to the '2018 Mo Ibrahim Forum Report: Public Service in Africa.')
Reform
There also needs to be land redistribution in many countries - it cannot be right for 1% of the people to own 50% of the land whilst 50% of the people often only own 1%. Many of these large estates include land that is perfectly able to be farmed but is left barren. Here, these tracts of land should be purchased by the state for a nominal price and divided up amongst interested families. Encouraging people back into villages with the promise of a plot of land will help ease urban squalor whilst at the same time increasing the supply of food and giving the promise of a better quality of life to those willing to move. The worst culprits here are Namibia, South Africa, Comoros, and Seychelles.
Carrying through these reforms should help desperately poor countries lay the basis that will enable them to develop mixed market economies. However, it will not be easy, and success will require strong leadership by government ministers and civil servants. But the rewards are huge and there are no greater success stories of mixed market economies alleviating poverty than the recent transformation of China and, to a lesser degree, India.
In the 30-35 years since it opened up, the Chinese economy has grown 8-fold, incomes have quadrupled, and the rate of absolute poverty has fallen from 88% to just 2%. When the agricultural communes were disbanded, the Chinese government started to separate business from government and encouraged the setting up of small companies. The economy flourished with economic growth for the period from 1980 to 2010 averaging over 10%. China has also achieved huge current account surpluses with low inflation. With its extraordinary pool of labour and educated graduates and a social welfare programme to help those thrown out of work, this momentum behind the Chinese economy has now made it the second largest in the world.
In the same time frame, in India absolute poverty has fallen from 50% to 20% in a country that has never quite embraced the same enthusiasm for mixed market economics as its near neighbour.
*Citigroup has recently produced estimates for 2050 of countries with the highest GDP per capita (in US$)
1. Singapore 137,710
2. Hong Kong 116,639
3. Taiwan 114,093
4. South Korea 107,752
5. United States 100,802
6. Saudi Arabia 98,311
7. Canada 96,375
8. U K 91,130
9. Switzerland 90,956
10. Austria 90,158
Looks like the balance of world economic power could be shifting east!
