The New Face of Economic Partnership

The economic weight of the global south actors over the last two decades has been unprecedented in speed and scale. Whilst growth levels of western economies plummeted following the global financial crisis, developing economies continued to grow at high rates, driven by a variety of factors, including sound industrial policies and investments in human, physical and technological capacities.

Countries of the South have been transforming their economic bases, slowly but surely, from large agrarian sectors to more diversified economies with large manufacturing and modern service sectors.

For the first time in 150 years, the combined output of the developing world’s three leading economies – Brazil, China and India – is about equal to the combined gross domestic product (GDP) of the longstanding industrial powers of the North – Canada, France, Germany, Italy, the UK and the US. This represents a dramatic rebalancing of global economic power in 1950, Brazil, China and India together represented only 10pc of the world economy, but it is estimated that by 2050, they will together account for 40pc of global output.

The impact of this shift is also evident in demography and social development. The absolute number of people in the South means that the middle class will continue to grow in size, income and expectations.

Rapid economic growth and poverty reduction, especially in China, have led to a decline in the number of poor by 158 million between 2000 and 2011. Investments in technology and innovation have led to Southern economies sometimes outpacing Northern counterparts in technological entrepreneurialism and manufacturing capabilities, producing complex products for developing markets.

As part of the rising South-South trade, the share of developing countries’ capital goods imports from other developing countries has increased steadily, from 35pc in 1995 to 54pc in 2010, rendering developing countries as the major source of capital goods for other developing countries.

Africa’s economic fortunes seem to be no different. Since 2000, its growth has been robust, with the continent showing resilience and recovering very quickly from the global financial crisis. With an impressive growth rate of five percent in 2012, the continent is projected to be the fastest growing by 2014, and 11 out of the 20 fastest growing economies globally will come from the continent.

These changes are not only limited to the economic arena. With the labour force set to reach 1.1 billion by 2040 and adult and youth literacy rates set to approach 100pc by 2063, the continent’s human resource endowment will play a major role in realising its economic potential. Of course, this will happen only if it can properly address the needs for a demographic dividend.

In spite of these achievements, challenges continue to persist on the continent – extreme hunger, youth unemployment and underlying structural causes of poverty – and stop it from making the most of its current growth. The continent seems, nevertheless, to be attracting increasing levels of foreign direct investment from southern partners, such as Korea and Turkey.

Indeed, the highest investor stock in Africa is from Malaysia, with 19 billion dollars, followed closely by South Africa with 18 billion dollars. In 2011, the rate of return on inward FDI in Africa (9.3pc) was the highest compared to other regions of the world. The world average was 7.2pc, with 8.8pc in Asia, 7.1pc in Latin America and the Caribbean and 4.8pc in developed economies. Africa is, therefore, slowly shedding its image as the poster child of poverty and destitution and becoming the new place for investors to be.

Partnerships with other southern countries are increasingly important. The continent can learn from the successes and failures of these countries and use them as building blocks to craft its own development.

For example, the Brazilian Bolsa Familia Programme – implemented under President Lula da Silva – used cash transfers to alleviate poverty, linking social development, economic improvement and education in a wide reaching process that eventually took 50 million people out of poverty. While land productivity in China, Brazil and India has grown, respectively, from 1.21tn, 1.35tn and 0.95tn a hectare, to 5.52tns, four tonnes and 2.53tns, respectively, over the past fifty years, Africa’s land productivity is stuck at 1.5tns. Hence, there is something that the continent could learn from its new partners.

Although creating partnerships with other developing countries, starting as far back as the 1955 Bandung Conference, is not new, these relationships were more political. At the end of the Cold War, Africa started new partnership arrangements with the South, driven primarily by economic, rather than political considerations. The fact that Africa’s total merchandise trade with the South (excluding intra-African trade) increased from 34 billion dollars in 1995 to 283 billion dollars in 2008, representing a third of all of Africa’s total trade, is an attestation to this.

The continent must, however, be aware of the challenges and disaantages that may accrue as a result of opening its borders to its partners. Many studies have shown the negative impact of cheap goods flooding markets and killing fragile industries. Hence, policies guiding trade must address the intrusion of cheap manufactured goods. However, cheaper imported goods from emerging markets can benefit industrialisation if they are primarily industrial inputs.

To ensure a win-win situation, carefully devising new partnership arrangements with developing countries is important. Whether on a country by country basis, through the Regional Economic Commissions (RECs) or at a continental level, it is imperative to design a workable plan for engagement with partners.

Surely, the world is not waiting for Africa to put its house in order. In 2006, China released an official China-Africa policy white paper, which covered a broad range of topics on which China will engage with Africa from aid, debt relief, the promotion of Chinese culture and language, tourism and alliance building.

It was the first of its kind in China’s diplomatic history with Africa, and it embodied Chinese long-term plan of enhancing all round cooperation with Africa. Through it, Beijing presented the world that the objective of China’s African policy is to “establish and develop a new type of strategic partnership with Africa” on the basis of aancing the fundamental interests of both sides.

Africa must also do same. Countries need to ensure that partnership with developing countries work for their transformation agenda. This has to be within and complementary to existing national and regional policies that promote integration.

Regional bodies must also work as forums to reach binding agreements amongst member states for a standard set of requirements for foreign involvement on the continent, whether with new or traditional partners. This collective action can also be leveraged, for example, to open up greater policy space for industrial investments that were utilised by the Asian newly industrialised countries during their economic transformation.

It is now time to devise a clear transformation agenda that enables Africa to shift from a largely agrarian society, with acute dependence on primary resources, towards an economic model based on industry and modern services, with significant employment generation and a more equitable distribution of income. To achieve this, we must prioritise its interaction with traditional and emerging partners, articulate its needs in infrastructural development, education and training, health, finance and other critical areas.

There is a win-win situation to be achieved. Africa has the natural resources, the land, the man power and increasingly the markets that are and continue to be of strategic interest to the emerging economies of the south. On the other hand, partners can provide the technical and expert assistance to address Africa’s growth challenges.

The story of the Asian tigers’ rise from low income countries to high and developed countries is, of course, relevant to Africa. Through a system of state planning, favourable interest rates for loans to specific exporting industries, major government investments in education, maintenance of export-led regimes and low taxes, among others, they charted a path to rapid industrialisation.

The good news is that the increasing trends in development cooperation between Africa and its new partners present the right opportunities for such enhancing growth to fuel an economic transformation. The key priorities, therefore, should be identifying the means of cooperation with partners that have the greatest potential to foster its transformation, provide sufficient domestic investments to complement this cooperation and engage external partners collectively in order to maximise the benefits of such cooperation.

Source : Addis Fortune

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