Africa pushes aside post-colonialism

The world can no longer simply be divided between North and South, developed and developing countries. To understand the complexity of the shift, this report takes and develops James Wolfensohn’s concept of a “four-speed” world of Affluent, Converging, Struggling and Poor countries according to their income and growth rate relative to the industrialised powers (Wolfensohn, 2007). This reveals a new global growth map: some developing countries are beginning to catch up with the living standards of the affluent, others are struggling to break through a middle-income “glass ceiling”, while some just cannot shrug off the weight of extreme poverty.

Two distinct time periods emerge. For most developing economies, the 1990s were another “lost decade”, hampered by financial crises and instability (Figure 6.1). Some African countries continued to stagnate. Northern and southern Africa struggled, as Latin America did, with growth responding only weakly to reform.

In the 2000s, before the economic crisis, much of the developing world enjoyed its first strong growth in many years (Figure 6.2). The new millennium saw Africa’s per capita incomes rise faster than high-income countries for the first time since the 1970s. The number of converging countries – those doubling the average per capita growth of high-income OECD nations – rose from 12 to 65. The number of poor countries fell from 55 to 25. China and India grew at three to four times the OECD average during the 2000s.

In Africa, while a group of poor countries – mostly in western and central Africa -- continued to underperform, it is striking that 19 countries made it to the converging category in the 2000s, compared with only two in the 1990s. Most countries which made the leap are still struggling to contain poverty and inequality. However the map below still illustrates a dramatic change in Africa’s average growth performance compared with the rest of the world.

Looking at the years when OECD countries fell into recession produces an even more striking picture: about half of Africa’s economies graduated to the converging group (Table 6.1). This change should be treated with caution as the size of the gap in economic performance between affluent and other economies in 2009 arguably distorts the medium-term picture. The data reveal, however, that the crisis significantly accelerated the global wealth change and Africa captured much of the benefit. Whether this becomes a durable shift, or whether new growth in the OECD sends some nations back toward divergence, remains to be seen.

The story of Africa and its emerging partners is a key part of the recalibration of the world economy over the past decade. Building on improved policies, the continent has benefited from extra investment, trade and aid, as well as from macroeconomic, political and strategic advantages from the rise of the large emerging countries. 

The rapid integration of emerging partners into the world economy started in the 1980s and accelerated with China becoming a member of the World Trade Organization in 2001. China, India and others have enjoyed high growth, rising economic clout and seen a massive reduction in the number of poor people.

There has been a global and bilateral impact on growth and poverty in other poor countries, including Africa. The global dimension includes the impact on wages, interest rates, manufactured goods and raw material prices, on global imbalances and net investment. This global dimension is rarely addressed in the context of poverty reduction. Most analysis concentrates on the links between China and Africa: raw materials, trade, investment, export credits, aid and migration.

Indeed, emerging partners do not benefit all African countries. While oil- and mineral-rich countries have benefited disproportionately, others – especially those that do not have diplomatic links with China – have hardly benefited at all.

The “growth engine effect” was documented and analysed by Garroway et al. (2010). While in the 1990s the Group of Seven nations led growth by developing countries, in the 2000s the impact of China’s growth on low- and middle-income countries has risen significantly. Over the period, a 1% change in China’s growth rates will result in a change of about 0.3% in low-income countries and 0.4% for middle-income countries. The impact of OECD countries decreased over the same period. Whether that growth, spurred by China’s currency peg to the US dollar, is right for poor countries’ development is an ongoing debate. Rodrik (2010) argues that it heightens the reliance of poor countries on exports of unprocessed raw materials, and – through the undervalued Chinese currency – undercuts their industrialisation. Conversely, Garroway et al. (ibid.) argue that the growth engine effect, by sustaining world demand for goods that poor countries export, has benefited oil and non-oil producing countries alike.

A steady rise in world demand has triggered a “super cycle” in raw material prices (Standard Chartered Bank, 2010). Speeding urbanisation and a rapid growth in the middle classes in emerging countries have a big impact on commodity demand. Urbanisation is particularly commodity-intensive and commodity consumption increases rapidly as incomes approach a level deemed “middle class”.² On top of this rise in demand, global imbalances have helped push commodity prices higher. Until 2006, the investment of rising foreign exchange reserves in US treasury bonds by the new players depressed global interest rates, boosting commodity prices. Africa has benefited disproportionately as it produces the commodities whose prices are likely to rise most and it holds the highest share of unexploited resources (Collier, 2010).

The boom, if sustained, should generate more benefits for Africa. As emerging countries become advanced economies – notwithstanding any radical change in their growth – as they become richer and demographically more mature, their success will improve export opportunities for Africa. Once the poor share the new wealth, over 2 billion more people will live in countries that import labour-intensive goods and fewer in countries that export them, opening up further opportunities for African goods. The sustained growth of the emerging giants may thus have negative short‑term effects on African productive sectors, but it could improve long-term prospects (Chamon and Kremer, 2006). Provided barriers to business and trade are further reduced, African economies stand to gain from the relocation of production away from today’s emerging economies.

The International Monetary Fund (2011) believes that changing production patterns in large emerging economies such as China can help low income countries diversify into new products. The experience of Malaysia, Indonesia and Chile, it argues, shows that poor countries with rich natural resources can diversify exports as they grow, provided resource revenues are used to build up productive capacity, including infrastructure and human capital. In addition, Africa needs to promote private sector development, as successive editions of the African Economic Outlook have argued. Relations between Africa and its emerging partners thus need to be understood in the context of the global shift in wealth.