The Need for Stronger Domestic Policies and International Support

• Author: Evangelos A. Calamitsis
• Position: Director of the IMF's African Department

Globalization, or the increasing economic integration among nations, has accelerated sharply over the past half century, driven largely by the remarkable expansion of international trade and capital flows, as well as by the extraordinary advances in information and communication technologies. As this process has grown in intensity, it has brought great benefits in terms of worldwide economic and social development, as evidenced by unprecedented growth in global output and real per capita income and, more generally, by major improvements in human welfare.

These benefits have not been evenly distributed, however, and income disparities between rich and poor countries, as well as within many countries, have increased. Today, out of the world's 6 billion people, some 2.8 billion-or almost one-half-still live on less than $2 a day, and 1.2 billion-or one-fifth-live on less than $1 a day. The persistence of abject poverty and other problems, including those posed by the volatility of international capital flows, have been a matter of serious concern. But this does not imply that the growing openness of the world economy is the cause of income inequality and financial instability. Although it is not an entirely benign phenomenon, globalization is a powerful engine of world prosperity, and it is certainly here to stay. The basic issue is what policies and reforms are most likely to bring about sustainable economic growth for the benefit of all the peoples of the world.

Since the early 1970s, some developing countries, notably in East Asia, have made substantial progress in closing the income gap relative to the advanced economies. But in many other countries, progress has been slow, and, in still others, the gap has continued to grow. In sub-Saharan Africa, the income gap relative to the advanced economies has widened and per capita incomes in a number of countries have actually dropped, in absolute terms. There has also been an erosion of sub-Saharan Africa's share of world trade, even for its traditional commodity exports, while foreign direct investment in the region has generally remained at very low levels.

Thus, sub-Saharan Africa entered the new millennium trailing well behind other regions and facing enormous development challenges. Average real per capita income, saving, and investment are all roughly unchanged today relative to their 1970 levels. Although education and health services have improved appreciably in some countries, social conditions in sub-Saharan Africa are among the poorest in the world (see table). What is much more worrisome is that HIV/AIDS has assumed alarming proportions in an increasing number of African countries, shattering lives and posing a major threat to future economic growth and development.

Causes of inadequate growth

The basic question often asked, therefore, is why has sub-Saharan Africa's growth lagged behind that of other regions since the early 1970s? Extensive research and analysis both within and outside Africa have often highlighted the following causes:

* adverse geographic and demographic conditions;

* terms of trade and other external shocks;

* macroeconomic policy weaknesses, particularly inappropriate fiscal policies;

* structural policy failures;

* weaknesses in governance, notably poor management of financial resources stemming from the production and export of major agricultural commodities, minerals, and oil; and

* political instability and conflicts.

Adverse geographic and demographic factors, as well as terms of trade shocks, which are largely beyond the control of the authorities, have certainly affected the performance of many African countries, especially the poorest ones. But homegrown factors and policies...