Resilient Pro-Poor Growth: The Role of Trade and Investment

Apr 30, 2010
The creation of a conducive economic environment for resilient pro-poor growth is one of the critical needs facing African economies today.
In this context, the role of trade and investment as prerequisites of sustainable economic development and poverty reduction cannot be overemphasized.
Forecasting Africa’s economic growth prospects, Goldman Sachs, an investment firm, predicts that Africa’s real growth output for the continent as a whole could accelerate to 5% during the next ten years, decline to 4.6% for five years and then have close to a 4% growth rate until after 2030. If these predictions prove to be correct, this projected growth rate will have a major impact in reducing poverty and improving the quality of life for Africa’s citizenry.

On the one hand, trade can be a powerful tool for promoting sustainable economic growth and poverty reduction, if it contributes to a process of development through which a country’s resources are effectively used to create wealth and raise living standards. Bangladesh provides an example of “virtuous trade” whereby export expansion accompanied by growth in private consumption has translated into increases in living standards for over a decade (1990–2000).

Aid can effectively deliver pro-poor growth when properly targeted and administered. However, while donor countries should pursue practices that increase the impact of their official development assistance (ODA) such as untying aid, increasing transparency, and sourcing goods and services in recipient countries, LDCs should make concerted efforts to integrate ODA into their national planning frameworks and budgets as well as monitor its effective use. ###MORE###

On the other hand, sustainable investment, both domestic and foreign, is needed to accelerate economic growth and reduce poverty. Although development assistance and debt relief are important drivers of investment, they are insufficient to achieve sustainable economic growth. Areas such as infrastructure, extractive industry, tourism, agribusiness and ICT are particularly important drivers of development, and require support from development partners in order to attract further investors. New forms of cooperation for improving the investment climate in Africa, such as the Investment Climate Facility (ICF) and the Infrastructure Consortium for Africa (ICA), with their focus on investment in infrastructure, will further boost investment.

Diversifying investment options for domestic and foreign investors calls for support for the development of capital markets – particularly at the regional level ¬– which will also contribute to macroeconomic stabilization and help to increase the accessibility of financing for the local economy. Alongside this is the financing of SMEs, women entrepreneurs, the poor and artisans, which requires more flexible access to commercial bank credit and a wider range of products and specific micro-financing initiatives.

Resilient pro-poor growth thus requires a movement away from dependence on only a limited number of alternatives. Managing a prosperous economy involves pragmatic judgements about what more can be done to enable markets to deliver, and exactly where the roles and responsibilities of governments lie. The development work of African governments and their development partners should therefore be focused on promoting local and regional trade, effectively administering aid and diversifying domestic and foreign investments. Prof. William Lyakurwa is the Executive Director of the African Economic Research Consortium (AERC).

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