Although there are now signs of progress in an increasing number of African countries, determined efforts are needed to accelerate the region’s integration into the world economy, promote rapid economic growth, and substantially reduce poverty. To review Africa’s current situation and challenges in an increasingly interconnected world economy, the IMF Institute organized, in the context of its program of activities with the Joint Africa Institute (JAI), a high-level seminar on globalization and Africa, which was held in Tunis on April 5-6. The seminar, cohosted by the Central Bank of Tunisia, brought together ministers, central bank governors, and other officials from 14 African countries (including 3 North African countries), representatives of a number of regional organizations, IMF Executive Directors representing African countries, and senior IMF staff.
Issues and challenges
In an opening session, chaired by Michel A. Dessart, Director of the JAI, the basic issues and challenges were laid out by the Governor of the Central Bank of Tunisia, Mohamed Daouas; IMF Executive Director Abbas Mirakhor; and IMF Institute Deputy Director Saleh M. Nsouli. Governor Daouas remarked that globalization is a “multidimensional reality” that offers great economic and other benefits but also entails many risks. The challenge was to make globalization a process of full integration, rather than one of exclusion, among nations. Recognizing that most African countries needed to catch up with other developing countries in terms of economic growth and living standards, he called for the implementation of improved policies and reforms, especially with a view to boosting private investment and human resource development. Daouas emphasized that Tunisia pursued such policies and reforms with considerable success and remained committed to a strategy of openness to the global economy. Mirakhor welcomed Tunisia’s economic and social progress, and expressed confidence in Africa’s ability to meet the challenges of globalization. Looking ahead, he underscored a number of critical issues facing developing countries, including the need to increase their influence in international forums. For his part, Nsouli highlighted the importance of more concerted efforts by developing countries and the international community to make globalization work better for the benefit of all the peoples of the world.
The challenges of globalization were set out in a broader framework in a paper presented by Nsouli on behalf of Michael Mussa, Economic Counsellor and Director of the IMF’s Research Department. In that paper, Mussa noted that, in general, globalization has been associated with rising real living standards, but it has never been and is not likely to become an entirely benign phenomenon. Empirical research has shown that relatively open policies toward international trade are generally associated with stronger rates of economic growth. At the same time, a series of financial crises, he explained, have provided significant reason for concern about the instability of international capital flows, especially short-term credit flows to emerging market economies. But Mussa argued that appropriate measures are available to reduce the risk and lessen the damage of such capital flow instabilities (especially through responsible government debt management and prudent regulation and supervision of financial institutions), without countries’ resorting to draconian efforts to resist the increasing integration of international capital markets.
Explaining Africa’s experience
Focusing on the issues of globalization in Africa, S. Ibi Ajayi, Professor of Economics at the University of Ibadan, explained that African countries had lagged behind other developing countries for various reasons, including adverse external conditions, heavy dependence on primary products, macroeconomic policy errors, lack of financial depth, deficient infrastructure facilities, and ethnic and tribal divisions. For all these reasons, Africa has been unable to reap the benefits of globalization. However, Ajayi indicated that globalization alone could not solve all of Africa’s problems. African countries must grow much faster to reduce poverty and, hence, need to create a stable macroeconomic environment, reliable institutions, and good and responsible government structures.
Policies and reform
Evangelos A. Calamitsis, former Director of the IMF’s African Department, joined Ajayi in calling for a strengthening of the policy environment in sub-Saharan Africa to improve the region’s competitiveness, accelerate its integration into the global economy, promote rapid economic growth, and make a real dent in poverty. To reach the International Development Goals for 2015, especially the goal of reducing extreme poverty by one-half, African countries have to raise their real GDP growth to 7-8 percent a year on a sustained basis; they also have to significantly improve social conditions, including addressing the HIV/AIDS pandemic. Although each African country will have to formulate a development strategy that best suits its circumstances and the will of its people, Calamitsis suggested that most countries would probably need to implement policies and reforms designed to consolidate macroeconomic stability, enhance human resource development, improve basic infrastructure and spur agricultural development, accelerate trade liberalization and reinforce economic integration, promote a sound banking system, foster private investment, and ensure good governance in all its aspects.
In the area of trade reform, many African countries have made considerable progress since the early 1990s. Nevertheless, in general, the trade regimes of African countries are still more complex and restrictive than those of other regions. Robert L. Sharer, Assistant Director in the IMF’s African Department, argued that further trade liberalization is essential but, to be successful, it should be coupled with market-oriented domestic policy reforms. He added that regional integration could improve economic efficiency and increase market size; however, it could not substitute for the liberalization of trade regimes vis-à-vis major trading partners, which should continue to be an important element of sound reform programs.
To facilitate Africa’s full integration into the global economy, Seyni Ndiaye, Senegal’s National Director of the Central Bank of West African States, emphasized that most countries would also have to undertake far-reaching institutional reforms. Notably, they should limit the role of the state to delivering essential public services; promote a dynamic private sector within a liberal and transparent regulatory framework; and strengthen the role of civil society, which could contribute importantly in fighting poverty and protecting the environment. Ndiaye further stressed the need to improve the human condition through education and health care and expressed the hope that African countries could count on external technical assistance, particularly in the use of the latest information and communication technologies.
The seminar covered a number of specific cases, which served as a reminder that African countries can indeed be successful in joining the global economy and substantially reducing poverty. In presenting one such case, Arvind Subramanian, Division Chief in the IMF’s African Department, noted that Mauritius has made remarkable economic and social progress since the early 1970s. Although Mauritius has defied in some respects the “Washington consensus” through heavy intervention and targeting in trade, including by creating export processing zones, its overall experience attests to the importance of stable macroeconomic policies, neutrality of incentives between tradable and nontradable sectors, and an efficient services sector. More decisive perhaps, according to Subramanian, is the role of the country’s institutional development. He argued that domestic considerations, such as the extent of democracy, the quality of public institutions, and the inclusiveness and transparency of participatory processes, may well hold the clue to Mauritius’s favorable economic performance compared with most African countries.
Tunisia and a Mediterranean strategy
Abdellatif Saddem, Tunisia’s Minister of Economic Development, explained that Tunisia’s own experience highlighted the benefits of sound macroeconomic policies and structural reforms, including closer integration with Europe, Africa, and the Arab world. He added that the association agreement with the European Union, concluded in 1995, is an important component of Tunisia’s development strategy, though it now poses new challenges as Tunisia has to adjust to the next stage of trade liberalization and to the European Union’s increasing openness to other trading partners. Although interregional cooperation is essential, Saddem stressed that it cannot be a substitute for continued domestic reform efforts.
Paul Chabrier, Director of the IMF’s Middle Eastern Department, said Tunisia provided a good example of a “Mediterranean strategy in the context of globalization.” But, commenting on the North African region as a whole, he said that, to be successful in boosting private investment and growth, such a strategy should be based on three pillars: liberalizing domestic and foreign trade, as well as the services sectors; concluding bilateral association agreements with the European Union as a first step toward multilateral trade liberalization; and coupling association agreements with cooperation arrangements among North African countries.
IMF support of regional integration
Turning to the role of the international community, G.E. Gondwe, Director of the IMF’s African Department, emphasized that the IMF was making every effort to help Africa better position itself to take advantage of the benefits of globalization. An important goal is the promotion of efficient regional integration, which featured prominently in the discussions of the Managing Director of the IMF and the President of the World Bank with African heads of state during their joint visit to Africa in February 2001. Gondwe said that the IMF was supporting regional integration by encouraging strengthened national economic stability and performance, increasing the emphasis on regional issues in IMF-supported programs, intensifying regional surveillance efforts with a view to enhancing regional policy coordination and institutional harmonization, and providing technical assistance. The IMF also intends to help promote investment by facilitating the establishment of regional investment councils.
Strengthening financial architecture
On a much broader scale, the IMF and its members have been taking steps to strengthen the international financial architecture, with a view to avoiding or reducing the risks of major disturbances and crises in the world economy. Saleh M. Nsouli and Françoise Le Gall, of the IMF Institute, noted that reform of the international financial architecture was the linchpin for spreading the benefits of globalization more widely. They reviewed progress made on the major building blocks of the new architecture, namely, transparency and accountability; international standards and codes; the strengthening of financial systems; capital account issues; sustainable exchange rate regimes; the detection and monitoring of external vulnerabilities; private sector involvement in forestalling and resolving crises; and IMF facilities and initiatives, including the enhanced Heavily Indebted Poor Countries (HIPC) Initiative and the Poverty Reduction and Growth Facility. They stressed that the new architecture could help African countries take advantage of the opportunities provided by globalization while minimizing the risks, thus fostering an environment conducive to increased investment and growth. African countries have already made some progress on various elements of the new architecture, but the work agenda remains largely unfinished.
In a roundtable discussion chaired by Mamoudou Touré, former Minister of Economy and Finance of Senegal and former Director of the IMF’s African Department, speakers exchanged views on the challenges of globalization and the policies and initiatives required to extend its benefits in Africa. There was a consensus that, more than ever before, Africans were keenly aware of the need for strong programs to foster growth and reduce poverty, based on an open, transparent, and participatory approach that ensures national ownership of the requisite policies and measures.
Alexandre Barro Chambrier, IMF Executive Director, summed up the proceedings by emphasizing that sound macroeconomic policies and structural and institutional reforms, coupled with good governance in all its aspects, were required for African countries to successfully reap the benefits of globalization, accelerate growth, and reduce poverty. But, Barro Chambrier added, Africa also needs peace and security. Thus, urgent steps must be taken to prevent conflicts and resolve disputes promptly.
Finally, Barro Chambrier noted that, to be successful, the reform efforts of African countries should be supported more strongly by industrial countries and multilateral institutions. The international community could make a vital contribution to Africa’s welfare by maintaining steady noninflationary growth in the world economy and strengthening the international financial architecture; actively supporting efforts to restore peace and security in affected countries; giving poor countries free access to industrial country markets, especially for agricultural products; providing deeper and faster debt relief to all eligible countries under the enhanced HIPC Initiative; and increasing official development assistance.