Secrets of a nations' success

By DENIS COYLE

Are we any closer to knowing what makes some economies grow and others languish? It's the question at the heart of economics, and it seems particularly timely to raise it again amid all the attention economic development is receiving at this week's summit in Johannesburg.

The United Nations fact sheets on growth and trade prepared for the summit imply that there's a straightforward answer.

Item one on its development agenda is more official aid from the donor countries. The total has fallen from nearly US$60 billion ($126.7 billion) in 1990 to US$43 billion ($90.8 billion) in 2000, declining as a share of donors' GDP from 0.33 per cent to 0.22 per cent - compared with a supposed target of 0.7 per cent of GDP.

World Bank research has found that development aid can increase growth and reduce poverty if it goes to countries with good economic policies. But the trouble is that it is highly politicised and a lot has gone to countries with bad policies, where it does no good at all.

What's more, aid is now dwarfed by private investment in developing countries. Foreign direct investment (FDI), the useful kind involving new businesses and jobs, into developing countries has climbed from US$36 billion ($76 billion) in 1991 to US$178 billion ($376 billion) in 2000. The UN would like to see it grow even more.

But out of a global annual total of more than US$1 trillion ($2.1 trillion), little investment favours developing countries at all, and the World Bank points out that four-fifths of the FDI into the developing world has gone to only 10 countries, mainly in East Asia. Direct investment by the United States in China and Hong Kong combined, two of these 10, was last year lower than the amount American businesses invested in Ireland.

So on to the third big focus of the UN's attention, external trade. Although severely dented by the current slowdown, world trade has grown much faster than world GDP for many years. The value of world trade in goods and services has doubled over the past decade, and the developing country share of the total is now nearly a third.

There is no doubt that increased trade is tremendously important for growth. Again, though, not all countries have benefited. Africa, in particular, has lagged behind.

The message from this development shopping list - aid, foreign direct investment, exports - is therefore not encouraging. While all can help to boost growth, in theory and practice alike they have worked for only some countries. They are certainly among the ingredients of successful development, but do not amount to the full recipe.

Nor do they help to explain why some East Asian countries have, despite the setback of 1997-98, experienced a complete transformation in fortunes within a generation while sub-Saharan Africa has seen scarcely any growth for a decade.

Is stagnation in Africa a consequence or a cause of the lack of foreign investment, for example? If the latter, then simply exhorting the business participants in Johannesburg to invest more in Africa will have no effect.

Better clues come from looking at the great diversity of economic trends within Africa, a diversity that is almost always ignored. Some problems are indeed widely shared - HIV/Aids and dependence on commodities in particular.

Yet, according to the invaluable African Economic Outlook published by the OECD's Development Centre and the African Development Bank, GDP per capita in sub-Saharan Africa ranged from $4085 in Gabon in 2000 right down to $100 in Ethiopia. Average annual growth rates from 1995-2000 varied between Equatorial Guinea's 31.6 per cent (turning it into one of the continent's richer nations within half a decade) and 1.3 per cent in Zimbabwe.

Equatorial Guinea is a special case because its new wealth has been due to oil discoveries, which pose big challenges. The report notes it lacks the organisational capacity to measure its oil revenues, never mind use them wisely to reduce poverty or improve health and literacy.

However, number two in the league table, Mauritius, is a genuine success story. Its GDP growth has averaged nearly 6 per cent for two decades. It has diversified its economy away from agriculture and commodities, and exports have grown faster than GDP.

Its problems in the near future will be those of relative success: for example, continuing to thrive in international markets as rising real wages push up costs, and as its duty-free access to European markets expires. It is now looking to expand its tourism and financial services industries.

Turning to the countries that have not been growing, one thing stands out: all have experienced conflict or serious political tension and tend to have repressive governments.

Zimbabwe's slow growth since 1997, for instance, could be analysed in terms of its large government budget deficit and 56 per cent inflation, weaker commodity prices following the global financial crisis and a reduction in overseas loans. But the implosion of its agriculture and manufacturing can, like the macroeconomic failures, obviously be blamed on the increasingly severe political crisis.

So the answer to the basic growth question for these extremely poor African countries is indeed pretty straightforward, although it is not the one set out by the UN. Rather, it is: deliver political stability, run broadly sensible macroeconomic policies and then build up the capacities of the population through improved healthcare and education.

During the Cold War the malign attention of the great powers could be blamed for political turmoil and conflict. The imperial legacy in terms of the uneven distribution of land, the lack of administrative capability, and in some cases also the unhelpfully arbitrary location of national borders, also remains a serious obstacle.

However, the developed countries have no direct interests of their own at stake in the continent's future now. The responsibility for achieving political stability lies with each African country's own government, not its aid donors or potential investors or even UN summits.

Compared with the past, that may well be an improvement; but accepting the responsibility seems to be the hard part.

- INDEPENDENT

Johannesburg Summit