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Africa: Can the G20 deliver on its macroeconomic promises? 0

The clear macroeconomic priority for 2011 is for the G20 to deliver on the promises contained in the concluding statement of last year’s Seoul Summit. This will demonstrate that the commitment to enhance policy coordination and smooth reduction of global imbalances was more than just rhetoric meant to cover growing disagreement in other areas.

In 2009, the G20, which has now been elevated to heads-of-government state level, came of age. It was not perfect, of course, but the breadth of its membership facilitated a far more inclusive approach compared to that of the G8. And it got off to a promising start, with the meetings in London, and subsequently Pittsburgh, helping to avert the feared global depression.

However, while 2009 appeared to signal the new age of international economic cooperation, such hopes appeared short-lived less than a year later, amid talk of ‘currency wars’ and barely papered-over divergences of opinion. It is imperative that this dangerous trend is reversed.

Of course, this does not mean that there is a ‘one-size-fits-all’ approach to macroeconomic policy. Governments must act according to their national circumstances, but they should accept that it is in their own interests not to prevent others from doing the same.

The closed-economy model of textbook macroeconomics is no longer relevant, even for the largest economies: every export is matched by an import elsewhere, every trade surplus is balanced by other countries’ deficits, and not all currencies can depreciate simultaneously. At times during 2010, these basic truths appeared to be in danger of being forgotten.

Many G20 members face difficult challenges in restructuring and reforming their economies. The very future of the euro zone remains in doubt. There are also serious bilateral divisions, notably the simmering tension over the exchange rate between Chinese renminbi and the US dollar. It is vital for the entire global economy that these are resolved, and for the many small economies not directly represented in the G20. As the saying goes, ‘when elephants fight, it’s the grass that suffers’.

The Seoul Communiqué includes key commitments to avoid excessive currency volatility and to enhance the effectiveness of the Mutual Assessment Programme overseen by the International Monetary Fund, by agreeing benchmark indicators of global imbalances. It is these that must be delivered in 2011.

The Communiqué also emphasizes the commitment to helping low-income countries. Therefore, despite the internal challenges, members of the G20 should continue to engage actively with their African counterparts. African economies generally survived the recession in 2009 reasonably well.

The stronger-than-expected recovery in demand for commodities has helped. But, more fundamentally, macroeconomic policies were on a much sounder footing, with more resources available for countercyclical policies without recourse to negotiating emergency assistance from the IMF. Indeed, the emergency wing of the IMF has had remarkably little to do in Africa.

Nonetheless, just because, for the most part, African economies have coped with the crisis, this does not mean that they can now be left to stand alone. Indeed, the recent challenges have exposed further weaknesses, which are likely to require additional assistance, both technical and financial.

The challenges facing Africa regarding poverty, disease and hunger remain daunting.

It is essential that macroeconomic policies that support growth and employment creation (the need for a jobs-based recovery was stressed in the Seoul Communiqué) can be implemented without interruption. In this regard, we hope that, where possible, developed countries will continue to adopt an expansionary bias in their macroeconomic policies.

On the trade front, the G20 needs to help conclude the Doha round of trade negotiations. Free trade is in the interests of all economies, but warding off protectionist vested interests is a recurring challenge. Africa will continue to need aid and finance for infrastructure to accelerate its development. But its long-term success will rest on expanded trade opportunities – both globally and through improved trade links within the continent.

Africa’s exports will need to broaden from natural resources to value-added products, where those resources are used in domestic manufacturing, as well as to trade in services beyond tourism.

Effective technology transfer will also be required, including both legal and financial expertise to help African governments negotiate effectively with private-sector multinationals.

But this will not be sufficient in the context of the underlying business environment which, as was confirmed in the last Ease of Doing Business Report of the World Bank, remains sadly deficient in many African countries. Thus, there is a crucial need to find innovative ways to break this vicious circle and take meaningful steps to boost productivity and encourage a culture of entrepreneurship. Here, too, the G20 has a key role to play.

By Linah Mohohlo – Africa Progress Panel

Linah Mohohlo is the Governor of Bank of Botswana. This article is one of a series leading up to the G20 Summit in Cannes on November 3, in which eight members of the Africa Progress Panel write on what the G20 can do to help Africa fulfil its promise and contribute to global growth and development. The panel comprises a group chaired by Kofi Annan and includes the writer.

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