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Globalization, Growth, and Poverty in Africa

by Machiko Nissanke and Erik Thorbecke

African countries have benefited relatively less from the positive effects of globalization than other parts of the world in terms of economic growth and development. Following largely an inward-oriented development strategy in the early decades of the post-independence period, the majority of African countries failed to take advantage of the opportunities provided by the dynamic growth impetus associated with globalization in the 1970s and 1980s. Instead of becoming more integrated into the world economy, they were largely marginalized and experienced slow growth and stagnation.

As a result the incidence and depth of poverty has risen in the region. The number of poor, measured in income poverty based on the US$1 a day international poverty line, increased in Africa, almost doubling from 164 million in 1981 to 313 million in 2001. In terms of the headcount ratio, the poverty incidence in Africa is 46 per cent in 2001—the highest in the world. Poverty in Africa is both most prevalent and severe in rural areas. Poverty measured in terms of nonincome indicators such as health and education has not improved much either over the past 15-20 years in the region. The overall picture gives little cause for optimism that Africa will soon reap the benefits of the process of globalization, unless it scales up efforts in a number of fronts including adopting a more pro-poor pattern of growth and increasing the provision of public services in the social sector. Further, the degree of income inequality in Africa has increased sharply in the last two decades. Today, many countries in Africa suffer from a relatively high intra-country inequality which is among the highest in the world.

With growing recognition of the need to grow faster, most African countries have increasingly searched for ways to accelerate their participation in the global economy over the past two decades. Indeed, most economies in Africa significantly liberalized their trade and investment policy regimes as part of Structural Adjustment Programs since the mid-1980s.

However, in spite of this Africa’s share of total world trade has fallen between 1980 and 2002: Africa’s share of world exports falling from about 6 per cent to 1.5 per cent, and imports from 5 per cent to 1.5 per cent. Many countries in Africa have also intensified their efforts to attract foreign direct investment with various fiscal and other incentive measures. Yet, foreign direct investment (FDI) flows to the region so far have been largely limited to extraction of oil and other natural resources. Africa attracted only around 6 per cent of total net FDI inflows to developing countries in 2000-4.

The recent upturn in economic growth recorded in many natural resource-rich economies in Africa is closely associated with the price hike of oil and mineral commodities in the world markets. The sustainability of growth rates of 6-7 per cent recently observed in these economies will be dependent on the degree to which commodity booms are used purposely for diversification and transformation of economic and trade structures. 

Indeed, today, several decades after gaining political independence, the high primary commodity-dependence remains one of most conspicuous characteristics of the trade pattern of countries in Africa with the rest of the world. The failure of these economies to diversify and undergo structural transformation, and hence, to benefit from the technology-driven, highly dynamic aspects of on-going globalization has entailed a high cost to the region not only in terms of low economic growth but also in persistent poverty. In particular, the past neglect—if not overt exploitation—of agriculture in many African countries short-circuited the development process as agriculture is the only potential engine of growth at an early development stage.

There is no doubt that sustained poverty reduction requires economic growth. However, the pattern of growth does significantly affect the rate of poverty reduction. In this context, it can be argued that Africa’s growth has been distinctly against the poor not only in terms of its ability to deliver the required growth rate to ensure that the poor could benefit from economic growth, but also in terms of its structure. Economic growth in Africa, where it has occurred, has not been translated into significant poverty reduction. Critically, the nature and pattern of integration into the global economy in Africa as well as domestic conditions has not been conducive to generating virtuous cycles of globalization-induced growth as generally observed in Asia. Africa has paid a high price for its neglect of agriculture which continues to be the Achilles’ heel hindering the takeoff into sustained growth in many of the poorest and least developed countries.

In most of East Asia, the structural transformation of their economies has been considerably facilitated by the integration/globalization process (see Nissanke and Thorbecke 2008). The growth—accompanied by a substantial reduction of abject poverty—in East Asia can be explained in terms of the region-wide comparative advantage recycling in production and export of labour-intensive goods. The process involves a strong demand for unskilled and semi-skilled labour, driven by exporting labour intensive goods and pro-trade FDI through effective technology, knowledge and skill transfer. Most of the East and South-East Asian economies have successfully gone through the structural transformation of their production and trade structures with continuous upgrading of their human skill endowments and technology/ knowledge base. By relying on their dynamically evolving comparative advantages these countries were able to maximize the benefits from dynamic externalities. Specialization in sectors with large spillovers and dynamic externalities is more apt to engender a pattern of equalizing growth.

Moreover, in most of East Asia, the pro-poor pattern of public expenditure in favour of the rural poor and the agricultural sector during early stages of development produced and sustained the ‘shared’ growth process. There were concerted efforts on the part of governments to facilitate building primary assets of the poor through such measures as an equitable distribution of land (through appropriate land reforms); extensive public provision of free and universal primary education; promotion of small-scale enterprises and development of rural infrastructure – roads, irrigation, schools, agricultural support outposts, health stations, and irrigation systems.

In contrast, the high susceptibility and vulnerability to exogenous shocks through its fragile trade linkage may have left Africa behind and suffering from vicious cycles of globalization-induced decline. Many parts of Africa remain isolated from global markets and the global community as the region’s access to information and technology is limited. There is some evidence to suggest that in Africa ‘globalization may be associated with increasing inequality and (hence) with an increase in poverty’ (see Round 2007). 

In short, while globalization has made some contribution to economic growth in Africa, it has not yet facilitated the process of structural transformation required for countries in Africa to reach the take-off stage and accelerate economic development and poverty reduction. Instead, globalization has tended to increase intra-country inequality and has done very little to reduce poverty. Naturally, the impact of globalization on poverty is extremely context-specifi c. In general, however, the limited scope of globalization in Africa appears to be the result of a combination of poor initial conditions, such as fundamental disadvantages of location (disease-prone tropical countries with a harsh environment); inadequate political institutions; extremely under-developed physical infrastructure, and a related high risk investment climate. Progress on all these fronts will be necessary if Africa is to enjoy the potential benefi ts of globalization. 

Readings

Nissanke, M. and E. Thorbecke (2006) ‘Channels and Policy Debate in the Globalization-Inequality-Poverty Nexus’, World Development, Vol. 34 No. 8 pp. 1338-1360, in the Special Issue: The Impact of Globalization on the World’s Poor.

Nissanke, M. and E. Thorbecke (2007) The Impact of Globalization on the World’s Poor: Transmission Mechanisms, Palgrave Macmillan.

Nissanke, M. and E. Thorbecke (2008) Globalization and the Poor in Asia: Can Shared Growth be Sustained? Palgrave Macmillan.

Round, J. (2007) Globalization, Growth, Inequality and Poverty in Africa: A Macroeconomic Perspective, WIDER Research Paper RP2007-55.​

Machiko Nissanke is Professor of Economics at the School of Oriental and African Studies, University of London. She previously worked at Birkbeck College, University College London and the University of Oxford.​

Erik Thorbecke is the H.E. Babcock Professor of Economics, Emeritus, Graduate School Professor and former Director of the Program on Comparative Economic Development at Cornell University. The Foster-Greer-Thorbecke poverty measure has been adopted almost universally by international organizations.

Machiko Nissanke and Erik Thorbecke are the co-directors of the WIDER project on The Impact of Globalization on the World’s Poor.