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Rich Nations Inhibit Growth for Developing Countries, Says South African Finance Minister

May 2004

Trevor Manuel, South African Finance Minister
Manuel

STANFORD GRADUATE SCHOOL OF BUSINESS
—First world nations are not living up to their commitments to help the developing world, including the pledge to provide up to 0.7 percent of their gross domestic product in development aid, Trevor Manuel, South Africa's minister of finance, told the Stanford Business School Conference on Global Business and Global Poverty.

"On balance, the developed world is not living up to its own commitments made at the Millennium Summit in Monterrey, Mexico, and Johannesburg, South Africa," Manuel said. "Very few come even close to achieving that [level of aid], in particular the United States, which gives a mere 0.13 percent of its GDP."

Rich nations also have failed to lower sufficiently trade barriers and subsidies to exporters of goods such as textiles and agricultural products, he said. "It becomes increasingly difficult for developing countries not to view the lack of commitment as a veiled attempt to constrain development in developing countries," Manuel told the May 19 conference organized by the Center for Global Business and the Economy at the Stanford Graduate School of Business.

The South African leader, who is a governor of the World Bank, said European countries are overrepresented on the boards of the International Monetary Fund and the World Bank. "Why is it that the managing director of the IMF must come from Europe, when almost of all of its lending, whether short or medium term, goes to developing countries?"

Developing regions must overcome economic expansion and industrial diversification barriers through extra-regional trade and financial alliances, he said, citing the examples of Brazil, India and South Africa, which have begun to build and strengthen cooperation on international financial issues and trade.

At the national level, Manuel observed, African countries need macroeconomic stability and microeconomic policies that help shift workers from old and noncompetitive industries to new industries and new forms of economic activity. Such policies require introducing new skills into the workforce, "high-quality education, and access to social and other forms of capital and open environments," he said. To qualify for financial assistance, certain countries should be required to reform their domestic policies, he said, so that the burden of economic adjustment is not continually pushed onto the poor and marginalized.

The problem, however, is that weak states are unlikely to achieve such reforms, and they often find themselves in an even weaker position when large-scale financial assistance comes with strict conditions. He urged African countries to band together to build regional economies—a main objective of the African Union. African countries have been slow to integrate regionally, in part because many African communities hold dear their recently won national sovereignty. Manuel argued, however, that the European experience of economic integration demonstrates that national sovereignty may actually be enhanced through regionalization.

"Poverty in Africa is of such scale that efforts to address it require far more than reform in individual countries. It requires a wide range of actors, reform to our multilateral institutions, their instruments and their attitudes, and a sea change in political attitudes on trade and agriculture in developed countries." In trying to globalize their economies, African nations face inconsistent growth and widespread poverty that can tip them in the wrong direction—away from good governance, effective regulation, and pro-growth policies—and further weaken already inadequate social policies and institutions.

The Asian economic crisis of the late 1990s lowered the GDP of many Asian nations and raised doubts about many institutions charged with preventing such a regional crisis. Manuel called for emerging nations to "get a handle on domestic weaknesses that make economies prone to crisis" and to strengthen regulations and oversight to prevent similar problems in the future. "We have defined a path to resolve the complex of problems associated with dependence and sustained growth, but it is time that the international system made our work easier, not more difficult," he said.

—Marguerite Rigoglioso

Stanford GSB News

Rich Nations Inhibit Growth for Developing Countries, Says South African Finance Minister

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