Geographies in Depth

How can we make globalization work for Africa? 

The buildings with the logos of three of South Africa's biggest banks, ABSA, Standard Bank and First National Bank (FNB) are seen against the city skyline in Cape Town, South Africa, August 30, 2017. Picture taken August 30, 2017. REUTERS/Mike Hutchings - RC199A8F64C0

Making globalization more inclusive will require policies that help African economies converge with high-income countries. Image: REUTERS/Mike Hutchings

Ngozi Okonjo-Iweala
Director-General, World Trade Organization (WTO)
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The current backlash against globalization, most notably from working-class citizens in advanced economies who are worried about stagnant wages and insecure jobs, highlights how the benefits of global economic integration were oversold, and its costs undercounted. But the effects of globalization on Africa and its citizens have received far less attention, even though the continent is projected to account for over 40% of the world’s population by the end of this century.

For the past 40 years, the United States and other advanced economies have been pursuing a free-market agenda of low taxes, deregulation, and cuts to social programs. There can no longer be any doubt that this approach has failed spectacularly; the only question is what will – and should – come next.

Making globalization more inclusive will require policies that tackle inequality within advanced economies and boost convergence in living standards between Africa and high-income countries. African policymakers, with support from external partners, can play their part by accelerating regional integration, bridging gaps in labor skills and digital infrastructure, and creating a mechanism to own and regulate Africa’s digital data.

Ever since the first industrial revolution led to a surge in international trade, Africa has remained largely on the sidelines of the global economy. The main beneficiaries of early globalization were today’s advanced economies, where industrial technologies emerged. This, in turn, led to the “great divergence” in income levels between the Global North and South.

More recently, the advent of new information and communications technology in the 1990s dramatically lowered the costs of distance and ushered in another wave of globalization, characterized by the emergence of complex global value chains (GVCs). These GVCs contributed to the “great convergence” of recent decades by boosting industrial output in countries such as China, India, Indonesia, Poland, South Korea, Taiwan, and Singapore, enabling them to narrow the gap with advanced economies.

Yet African countries have remained excluded from this process. The continent’s share of global merchandise trade has stagnated at around 3%, similar to its share of world manufacturing output.

To be sure, globalization has brought benefits to Africa. Rising incomes elsewhere in the world have increased demand for African commodities and natural resources, boosting national economies. Globalization has also supported knowledge transfer, enabling African countries to improve living standards by “leapfrogging” to new technologies.

But myriad challenges have far outweighed such benefits. For one thing, globalization has contributed to premature deindustrialization. Because advanced economies can now produce goods more cheaply, African countries have found it difficult to develop local industries that create jobs. Moreover, some multinational corporations operating in the region are dodging taxes through sophisticated – and legal – accounting mechanisms such as profit shifting, depriving governments of much-needed resources for economic development.

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Globalization is also contributing to climate change, which has a disproportionate effect on Africa despite the continent’s limited contribution to the problem. Cyclones Idai and Kenneth, which recently devastated Malawi, Mozambique, and Zimbabwe, are a tragic example of what is to come.

Unsurprisingly, therefore, the economic disparity between Africa and richer countries has widened in recent decades, with the ratio of African incomes to those in advanced economies falling from 12% in the early 1980s to 8% today. In order to reverse this trend and enable Africa to benefit more from globalization, the region’s policymakers should accelerate their efforts in three areas.

First, governments should promote further regional integration to make Africa economically stronger and more effective at advancing its agenda internationally. Progress so far is very encouraging. The African Continental Free Trade Agreement recently obtained the minimum 22 ratifications needed to enter into force, thus creating a single African market for goods and services. The AfCFTA, along with the Single African Air Transport Market and the Protocol on Free Movement of Persons, will help to unlock the region’s tremendous economic potential.

Second, Africa must improve its digital infrastructure and technology-related skills to avoid being further marginalized. At present, the cost of Internet access in Africa is the highest in the world, and Internet penetration is only 37%, significantly below the world average of 57%.

Image: Internet World Stats

Moreover, the low-cost, low-skill labor on which Africa has traditionally relied is becoming less of a competitive advantage, given the advent of the Fourth Industrial Revolution and the higher production standards and infrastructure requirements of GVCs. Education and training programs should therefore focus more on developing digital knowhow, as well as on soft skills such as critical thinking and cognitive and socio-behavioral capabilities.

Third, Africa must create a system for owning and regulating its digital data. In the modern era, capital has displaced land as the most important asset and determinant of wealth. But in the digital economy, data will be key – as demonstrated by the scramble among global technology firms such as Facebook, Google, and Tencent to control it. And, as Kai-Fu Lee argues in his book AI Superpowers, the abundance of data generated by China’s large population is giving the country an advantage over the United States in the field of artificial intelligence.

Africa’s population boom means the continent will also generate large amounts of data, particularly as digitization makes inroads, e-commerce platforms spread, the middle class expands, and consumer spending increases. This new data-driven wealth will accrue to those who actively harvest, own, and regulate such information, leaving latecomers to play catch up.

Africa’s potential may be huge, but it faces formidable challenges. By 2030, the continent will be home to almost 90% of the world’s poorest people. Unless globalization works better for Africa than it has in the past, its promise of shared prosperity will remain unfulfilled.

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Related topics:
Geographies in DepthEconomic GrowthEquity, Diversity and Inclusion
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