Mr. Stanley Fischer, Mr. Ernesto Hernández-Catá, and Mohsin S. Khan
This paper examines the experience of Sub-Saharan Africa (SSA) to answer the question of whether the region is at a turning point in its economic fortunes. The improvement in growth reflects in part a rise in the utilization of existing capacity. To be sustained, however, a high rate of growth will require an increase in investment rates and/or an increase in total factor productivity—i.e., an improvement in the technological, political, administrative and economic factors that raise the rate of return on both capital and labor. The close link between investment and growth in developing countries over the long term is evident in the empirical growth literature. For developing countries in general, the elasticity of growth with respect to the investment/GDP ratio has been found to lie within the range of 0.3–0.5. Although increasing investment is crucial, action is also needed in many complementary areas in order to raise productivity and growth.
Improving market access in industrial countries and retaining preferences have been Africa's two key objectives in the Doha Round trade negotiations. This paper argues that African negotiators may have overlooked the potential market access gains in developing countries, where trade barriers remain relatively high and demand for African imports has expanded substantially over the past decades. As reductions in most-favored-nation tariffs in industrial countries will inevitably lead to preference erosion, African countries need to ensure that the Doha Round leads to liberalization in all sectors by all World Trade Organization (WTO) members, so that the resulting gains will offset any losses. Such an outcome is more likely if African countries also offer to liberalize their own trade regimes and focus on reciprocal liberalization as a negotiation strategy rather on preferential and differential treatment.