William Mwanza, tralac Researcher, comments on the recently-concluded World Economic Forum Annual Meeting 2014 in Davos and the discussions on Africa’s economic prospects

The 44th annual meeting of the World Economic Forum (WEF) was recently held in Davos, Switzerland, from 22 to 25 January, 2014. Held under the theme “The Reshaping of the World: Consequences for Society, Politics and Business”, the Forum again brought together global leaders in politics and business, heads of international governmental and non-governmental organisations, religious leaders, young global shapers, and thought leaders in various fields such as science and economics.

In an increasingly interconnected, complex and fast-moving world, the Forum provides a platform for debate on some of the immediate challenges that are being faced as well as looking at how opportunities could be leveraged in the year ahead, as well as into the short and medium term.

In this regard, the subthemes that ran through the more than 250 sessions held at this year’s meeting included moving forward on a track of inclusive growth, with particular focus on youth unemployment; embracing disruptive innovation in the face of advances such as 3-D manufacturing and printing and personalised medicine; meeting societies’ new expectations, in light of low levels of trust in the public and private sectors due to recent global and regional crises; as well as looking ahead to how a population of 9 billion people by 2050 can be sustained, with this year being important for making progress in climate change and a sustained and enhanced multi-pronged approach to tackling poverty among other crucial matters.

Two sessions at the Forum that encapsulated these four themes well in the context of Africa’s prospects given the current global context were on the global economic outlook for 2014, and thoughts on Africa’s next billion.

Beginning with the former, it was worth noting that for the first time in five years, the discussions were not overshadowed by ongoing economic crises on the global stage and in Europe as has recently been the case, as there seems to be some optimism with regard to the global economy regaining stability. At the global level it was highlighted by the IMF that economies are recovering at different rates. Although the recovery of advanced economies is weak, it has been at a slightly faster rate than initially envisaged. Economic growth in emerging economies has been a bit slower than anticipated, and that of low income countries has proceeded strongly. However, there are some noted risks including the approach to tapering in the United States of America (USA). Accommodative monetary policy is seen as necessary to continue, and reforms in the financial sector and product and service markets will need to continue in different parts of the world to ensure sustained stability of the global economy.

Within different selected regions, the Eurozone is showing signs of stabilising. Inflation is subdued and is expected to remain so over the next two years, although there are more risks of deflation the longer this trend continues. An accommodative monetary policy continues to be pursued, and among ongoing structural reform initiatives is the asset quality review, which aims at determining the actual state of the banking sector in Europe and to increase transparency within the sector, which is also seen as an important step in efforts towards consolidation of a banking union, with common rules on supervision, restructuring and assistance when banks are in distress, among other areas.

In India, slow post-crisis growth has been noted as a source of concern and it is noted to be more due to domestic constraints than on global factors. Structural reform has been ongoing in the past year, such as in regulatory clearances, and it is envisaged that reforms will also be rolled out in the financial sector during 2014. Although it is an election year in India, these are not seen as a significant risk to investors as the broad developmental consensus is seen to remain relatively the same in spite of changes in government.

In Japan, the economy continues to rebound strongly on the basis of the current government’s approach to monetary policy and significant structural reform in various sectors termed ‘Abenomics’. The country seems to be exiting the negative spiral of deflation that has negatively affected returns to private firms and household incomes over the past ten years. Inflation has gone from negative to positive figures, and is expected to reach a target of 2% in the next two years.

In the United Kingdom, improved performance of the economy is seen to be on account of repair of the financial sector, increased debt servicing by households, and a reduction in uncertainty. There is progress towards a targeted inflation rate of 2%, and although the economic environment has been one of low volatility, efforts continue so as to rebalance the economy.

In the USA, the banking system is seen to be in a good state with not much deleveraging as is the case in Europe, the capital market continues to function well, and advances in the energy sector continue to positively impact on the economy, which is expected to grow at over 3% in 2014 and 2015. It is noted however that monetary policy alone cannot be relied on, and there are other factors such as fiscal policy and politics that will determine whether effective progress is attained during the year, as will structural reform both within the USA, and in other countries such as China, whose contraction in growth continues to be a source of concern among some quarters amid fears of a possible credit crisis.

It is within this frame of some considerable progress from crisis positions in the different regions albeit with structural reforms still ongoing and yet to show their actual results that a cautiously optimistic view is being taken in the outlook on the global economy in 2014.

In the case of Africa, apart from being noted as one of the regions that has been experiencing strong growth, it did not feature prominently in the general outlook for the year ahead. This may be a reflection of the historically low share of global economic activity that the continent holds, in that since countries are starting from a lower base, the high levels of growth being experienced are not seen to be immediately having a significant impact on the global economy. Nonetheless, the sense of renewed optimism in Africa’s prospects was evident at the Davos meetings.

In spite of recording some impressive statistics including a third of its economies experiencing annual economic growth of more than 6%, and six out of the ten fastest growing economies in the world being from the continent, renewed calls for ensuring that such growth is inclusive and sustainable were made. This is particularly in view of the fact that the continent’s population is expected to double to 2 billion by 2050. By that time, the continent is expected to be home to a quarter of the global workforce. Depending on how this situation is managed, it is recognised that it could represent either an opportunity or threat to the development process within and across countries of the continent. Job creation and fostering entrepreneurship particularly among women and the youth was therefore seen as the top priority in ensuring that growth is inclusive into the long term.

At the continental level, increasing intra-African trade from currently low rates of about 12% was seen as essential for such job and wealth creation, with some areas that will require particular focus for such increased trade and for further social-economic and political progress being cited as infrastructural development, investment in education, creation of an enabling environment for private sector growth, macroeconomic stability, political stability and good governance. It was noted that while some natural resource sectors such as mining are driving growth considerably, these are normally capital intensive and so may not create many jobs. They hence need to be managed in ways that ensure that resources are invested back into economies so as to ensure that they are diversified in a sustainable way.

Based on the foregoing highlighted deliberations at the 2014 Davos meeting, it is clear that the continent is at an important point in its history in that as the global economic landscape continues evolving and as some economies on the continent continue experiencing robust growth figures, sustained efforts are required to ensure that the structure of national economies is such that the quality of growth is optimised in the long run. Indeed, various regions across the globe remain evenly poised on the road to economic recovery and various instruments of economic governance, particularly fiscal and monetary policies and structural reform continue being implemented in this regard.

Stability in developed countries is important for continued progress of African countries, more so because they are these countries traditional trading partners. Stability in the emerging economies is also important as these continue being explored as new sources of increased trade. The renewed prominence in the view that intra-African trade must increase as a share of the overall trade of African countries is, however, of significant importance. As efforts in this regard continue across the continent it again highlights the importance that sound economic governance at the national level will continue to play, and apart from other instruments for macroeconomic stability such as fiscal and monetary policy, it particularly reemphasises the importance of industrial policy in the development process.

As efforts continue in various respects towards a more interconnected continent with competitive economies that are trading more with each other, emphasis should be placed on industrial policy that is strategically designed and implemented in a way that ensures that economies are effectively diversified, while fully incorporating developments in various regions of the global economy, linking existing producer and consumer markets and establishing new markets depending on respective comparative advantage, ensuring that economies foster such trade while promoting inclusive growth in the long run, and ensuring that such industrial policy efforts towards higher intra-African trade and inclusive growth are in sync with requirements and efforts for further integration into the global economy through agreements with other global regions or through the multilateral trading system.

At the inter-country level questions should continue to be asked as to how best regional and continental cooperation should be proceed not least on some crucial areas like financing of regional infrastructure to enhance competitiveness and interconnectedness of African economies. At the national level, specific questions that will require sustained focus include, among others, how development plans are adapting or should adapt to global changes and technological advances to ensure that national economies are effectively engaged in regional and global trade; how finances are raised and prioritised to ensure the translation of such development plans into projects that enhance the structure of economies towards such increased trade; what institutional measures are required and how are these coordinated and implemented to ensure that the private sector continues thriving; and, indeed, how economic and political governance are being fostered to ensure that these and various other measures are effectively implemented on a path of inclusive growth.

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Sources:

Based on ‘Pre-Annual Meeting Press Conference’ and ‘Global Economic Outlook 2014’ and ‘Africa’s Next Billion’ sessions at the 2014 World Economic Forum meeting. Webcasts available online at http://www.weforum.org/events/world-economic-forum-annual-meeting-2014