African Economies Up to the Global Challenge

Two foreign shoe sellers were once sent to Africa in search of new customers. At the sight of locals marching barefoot, the first retreated in despair. The second rejoiced at the untapped market. He ordered thousands of shoes, sold them to locals and became a wealthy man, or so the tale goes.

There is an appealing parallel that Cheikh Sidi Diarra, the UN special adviser on Africa and high representative for least developed countries (LDCs) is willing to draw between this story and the reality of the world’s 48 LDCs (33 of which are in sub-Saharan Africa): “Despite the many ills these countries endure, the world is starting to look at them more as lands of opportunities rather than a burden,” he says.

Urging investors to consider nations associated with endemic poverty, disease and instability as a potential business magnet is a bold invitation. Yet the call is in line with the general tone of an international gathering that Mr. Diarra led in May in Istanbul, Turkey.

Since 1981 the once-a-decade UN conference has focused on the world’s most vulnerable countries (as defined by low per-capita incomes, low standards of living and high vulnerability to economic shocks). Its aim has been to mobilize support, including by encouraging developed nations to disburse more aid to LDCs. In the past, much time has been devoted to this issue. This time, however, talk about aid was not central.

That was in part a result of the budget constraints imposed on rich countries by a frustratingly slow economic recovery. A growing realization that aid alone cannot solve the fundamental problems LDCs face added to what some see as a welcome shift away from the usual debates.

Ultimately, the Istanbul Programme of Action renewed aid commitments made at the previous conference in Brussels, Belgium, 10 years ago.

Donors pledged to devote between 0.15 and 0.2 per cent of their gross national incomes (GNIs) to aid to LDCs.

Civil society groups in Istanbul criticized that as too little. “Having caused massive costs in the LDCs through financial and food speculation, unjust trade rules, illegitimate loans with onerous conditionality and ecological damage, including climate change, the developed countries have not even committed to provide more aid to LDCs,” they said. This is a charge that Mr. Diarra disputed. Although not new, this promise of aid remains an important one, he argued, adding that if fulfilled, it would likely raise the amount of aid actually going to LDCs from its current annual level of $38 billion.

The emphasis in Istanbul was on trade, investment and productive capacities. Months before the meeting, trade issues were at the centre of some of the most heated debates among negotiators. African LDCs called for the adoption of a long-debated scheme that would allow all their exports to enter developed-country markets without any duties or quotas. Such preferential treatment was considered a step too far by most developed countries, however, even though LDCs’ share of world trade currently stands at only 1 per cent. The charms of the crossroads city of Istanbul did not change any minds. Instead, there was renewal of yet another decade-old commitment: tariff-free access to developed nations’ markets for 97 per cent of LDCs’ exports.

Unfortunately for African LDCs, this arrangement provides little benefit, as the 3 per cent of exports excluded from tariff-free treatment covers some of the countries’ most important export products, including agricultural commodities such as sugar, rice, meat and dairy products.

African LDCs’ quest for more foreign investment received a stronger boost. Measures designed to encourage developed countries’ corporations to invest in LDCs were adopted, with governments expected to encourage their companies to invest in LDCs by providing fiscal incentives and special lines of credit.

In recent years the 33 LDCs from Africa have benefited most from the growth in foreign direct investment (FDI) to LDCs, which rose from $4.1 billion to $32.4 billion between 2001 and 2008. African LDCs accounted for almost half of that total. Yet not only did FDI’s eight-year growth come to a brief halt following the global recession, it also appears that FDI is mostly oriented toward just a few sectors, such as oil and minerals. As a result, few jobs have been created and strong growth in oil-rich countries such as Angola and Equatorial Guinea has yet to translate into meaningful change in people’s lives. Such trends must change if foreign investment is to help reduce poverty, which affects over half the population in the continent’s LDCs. In order for it to do so, the Istanbul Programme of Action calls for economic diversification to reduce African LDCs’ dependence on the extractive sector.

One major point of agreement among delegates in Istanbul was the need to invest in productive sectors, including agriculture, industry and infrastructure. The Programme of Action refers to these as “development multipliers,” as improvement in each area will benefit others. In an era of rising food prices, the call for further investment in agriculture is of particular interest to Africa, as the continent spends around $33 billion every year on food imports.

As the rest of the world hears calls to look at the continent in a more positive way, are the continent’s LDCs ready to seize the opportunity?

“There is no doubt many African LDCs are performing better. Sound economic policies are leading to strong improvements in various areas,” asserted Mr. Diarra. Based on their strengths and needs, more African LDCs should follow suit, he urges. If they do, the legendary foreign shoe sellers arriving in Africa may be left only with the impression that they came in far too late.