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Making globalisation work for Africa

Jun 04,2019 - Last updated at Jun 04,2019

By Ngozi Okonjo-Iweala and Brahima Coulibaly

 

WASHINGTON, DC — The current backlash against globalisation, most notably from working-class citizens in advanced economies who are worried about stagnant wages and insecure jobs, highlights how the benefits of global economic integration were oversold, and its costs undercounted. But the effects of globalisation on Africa and its citizens have received far less attention, even though the continent is projected to account for over 40 per cent of the world’s population by the end of this century.

Making globalisation more inclusive will require policies that tackle inequality within advanced economies and boost convergence in living standards between Africa and high-income countries. African policymakers, with support from external partners, can play their part by accelerating regional integration, bridging gaps in labour skills and digital infrastructure and creating a mechanism to own and regulate Africa’s digital data.

Ever since the first industrial revolution led to a surge in international trade, Africa has remained largely on the sidelines of the global economy. The main beneficiaries of early globalisation were today’s advanced economies, where industrial technologies emerged. This, in turn, led to the “great divergence” in income levels between the Global North and South.

More recently, the advent of new information and communications technology in the 1990s dramatically lowered the costs of distance and ushered in another wave of globalisation, characterised by the emergence of complex global value chains (GVCs). These GVCs contributed to the “great convergence” of recent decades by boosting industrial output in countries such as China, India, Indonesia, Poland, South Korea, Taiwan and Singapore, enabling them to narrow the gap with advanced economies.

Yet, African countries have remained excluded from this process. The continent’s share of global merchandise trade has stagnated at around 3 per cent , similar to its share of world manufacturing output.

To be sure, globalisation has brought benefits to Africa. Rising incomes elsewhere in the world have increased demand for African commodities and natural resources, boosting national economies. Globalisation has also supported knowledge transfer, enabling African countries to improve living standards by “leapfrogging” to new technologies.

But myriad challenges have far outweighed such benefits. For one thing, globalisation has contributed to premature deindustrialisation. Because advanced economies can now produce goods more cheaply, African countries have found it difficult to develop local industries that create jobs. Moreover, some multinational corporations operating in the region are dodging taxes through sophisticated, and legal, accounting mechanisms such as profit shifting, depriving governments of much-needed resources for economic development.

Globalisation is also contributing to climate change, which has a disproportionate effect on Africa despite the continent’s limited contribution to the problem. Cyclones Idai and Kenneth, which recently devastated Malawi, Mozambique and Zimbabwe, are a tragic example of what is to come.

Unsurprisingly, therefore, the economic disparity between Africa and richer countries has widened in recent decades, with the ratio of African incomes to those in advanced economies falling from 12 per cent in the early 1980s to 8 per cent today. In order to reverse this trend and enable Africa to benefit more from globalisation, the region’s policymakers should accelerate their efforts in three areas.

First, governments should promote further regional integration to make Africa economically stronger and more effective at advancing its agenda internationally. Progress so far is very encouraging. The African Continental Free Trade Agreement (AfCFTA) recently obtained the minimum 22 ratifications needed to enter into force, thus creating a single African market for goods and services. The AfCFTA, along with the Single African Air Transport Market and the Protocol on Free Movement of Persons, will help to unlock the region’s tremendous economic potential.

Second, Africa must improve its digital infrastructure and technology-related skills to avoid being further marginalised. At present, the cost of Internet access in Africa is the highest in the world, and Internet penetration is only 37 per cent, significantly below the world average of 57 per cent.

Moreover, the low-cost, low-skill labour on which Africa has traditionally relied is becoming less of a competitive advantage, given the advent of the Fourth Industrial Revolution, and the higher production standards and infrastructure requirements of GVCs. Education and training programmes should, therefore, focus more on developing digital knowhow, as well as on soft skills such as critical thinking and cognitive and socio-behavioural capabilities.

Third, Africa must create a system for owning and regulating its digital data. In the modern era, capital has displaced land as the most important asset and determinant of wealth. But in the digital economy, data will be key, as demonstrated by the scramble among global technology firms such as Facebook, Google and Tencent to control it. And, as Kai-Fu Lee argues in his book “AI Superpowers”, the abundance of data generated by China’s large population is giving the country an advantage over the United States in the field of artificial intelligence.

Africa’s population boom means the continent will also generate large amounts of data, particularly as digitisation makes inroads, e-commerce platforms spread, the middle class expands and consumer spending increases. This new data-driven wealth will accrue to those who actively harvest, own and regulate such information, leaving latecomers to play catch up.

Africa’s potential may be huge, but it faces formidable challenges. By 2030, the continent will be home to almost 90 per cent of the world’s poorest people. Unless globalisation works better for Africa than it has in the past, its promise of shared prosperity will remain unfulfilled.

 

Ngozi Okonjo-Iweala, a former finance minister of Nigeria, is chair of Gavi, the Vaccine Alliance, and a co-chair of the Global Commission on the Economy and Climate. Brahima Coulibaly, a senior fellow and director of the Africa Growth Initiative at the Brookings Institution, is chief economist of the Emerging Market Economies group at the Board of Governors of the US Federal Reserve System. Copyright: Project Syndicate, 2019.
www.project-syndicate.org

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