African countries, like most states at the Group of 20 summit in Seoul on 12-13 November, saw their core concerns about growing protectionism and investment flows overshadowed by the stand-off between China and the United States on trade imbalances and relative valuations of the US dollar and China’s renminbi. Given the growing economic ties with South Korea, African leaders had high hopes that President Lee Myung-bak’s pledge to make development issues the centre of G-20 concerns would mark a shift in international policy. The President has argued for a reorientation of aid and strategy. South African President Jacob Zuma, Malawi’s President Bingu wa Mutharika (Chairman of the African Union) and Ethiopia’s Prime Minister Meles Zenawi (New Programme for African Development Chairman) led Africa’s delegation to the summit.
According to Korean economist and former World Bank advisor Ha-joon Chang, there were hopes that Seoul would be able to push its own development model to replace the apparently defunct Washington consensus: ‘Korea did things that most people agree are good for economic development such as investment in infrastructure, health and education. But it also practised many policies that are now supposed to be bad for economic development: extensive use of selective industrial policy; combining protectionism with export subsidies; tough regulations on foreign direct investment; active if not particularly extensive use of state-owned enterprises; and heavy regulation of both domestic and international finance.’
Given the rapid growth in East Asian economies, these policies are gaining currency again in Africa. However, President Lee struggled to focus attention on development in any depth. Alongside warnings against competitive devaluation, the G-20’s declaration made rhetorical motions toward reducing protectionism to benefit global trade, but few concrete measures were announced.
Almost hidden in the small print was a commitment to strengthen international taxation cooperation – to compel multinational companies to report their taxation liabilities on a country-by-country basis. The aim is to reduce the capacity of big companies to shuffle off their fiscal liabilities to offshore tax havens such as the British Virgin Islands. The G-20 asked the International Accounting Standards Board to produce an action plan before the next G-20 meeting in November 2011.
New deadline for Doha
The summit also agreed a new deadline – the end of 2011 – for a successful conclusion of the Doha Round of talks under the World Trade Organisation. The date was fixed by US President Barack Obama, who pledged to push any trade agreement through Congress before the 2012 elections. Given the risks that the currency rows between the US and China could escalate into trade battles or worse, few expect progress. Some African officials believe anyway that their economies will benefit far less than stronger developing economies – such as Brazil, China and India – from the negotiating agenda in the Doha Round.
The shaky consensus on trade and currencies – sceptics dismissed it as platitudinous – will now come under the management of French President Nicolas Sarkozy, who will chair the next G-20 in Nice. Sarkozy won African support for his tax on international financial transactions to raise money for development aid. Such a levy could raise from US$30 billion to over $400 bn., its advocates say. Although France, Spain and development activists across the world back the move, the US and Britain oppose it. Asian states are yet to declare a position, although it would fit Lee’s call for a global economic rebalancing.
Obama diplomatically described the ‘Seoul consensus’ development agenda as ‘a work in progress’. Alan Hirsch, chief economic advisor to the South African presidency, rejected accusations that the summit’s conclusion was weak. ‘There were some really significant steps forward, especially in the development agenda and the reform of the IMF (International Monetary Fund),’ he told Africa-Asia Confidential. ‘We don’t expect the international process to be a sudden and immediate one, it’s a gradual process of trying to work together on these issues.’
Hirsch cited the ‘very substantial’ paragraph on African growth in the final communiqué, which said: ‘[We] commit to support the regional integration efforts of African leaders, including by helping to realise their vision of a free trade area through the promotion of trade facilitation and regional infrastructure.” The paragraph, proposed by British Prime Minister David Cameron and agreed on by all the African participants, is short on detail. The African Free Trade Zone plan launched in 2008 is not mentioned by name. Jeremy Hobbs, Executive Director of Oxfam International, said: ‘The G-20’s support for an African free trade area is no substitute for real progress on duty free, quota free access for the poorest countries to rich countries’ markets.’ Hirsch countered that Doha would be a ‘fairly strong’ lever for African exports to pry open overseas markets.
African economic integration remains a long way off. President Zuma threw cold water on the idea of a common African framework for foreign direct investment. ‘The world is too diverse for a common implementable code,’ he said. ‘It could be risky to take the simplification or elimination of rules to the extreme.’ Sarkozy has asked South Korea and South Africa to continue as a working group on development. Its priority will be to monitor progress on the nine pillars outlined at Seoul: infrastructure, private investment and job creation, human resource development, trade, financial inclusion, growth with resilience, food security, domestic resource mobilisation and knowledge sharing. Sarkozy, who squeezed the maximum kudos possible from his role as G-20 Chairman, quickly announced that he would attend the AU summit in January 2011 in Addis Ababa.
The headline issue at Seoul was that of current account balances, but little was achieved. IMF reform fared better, but the work was done ahead of the summit. On 5 November, the IMF Executive Board approved a reform of the quota system, which affects each member’s financial obligations, voting rights, and access to finance. Quotas were doubled – as were contributions to the Fund’s capital, to $755.7 bn. Over-represented countries gave up 6% of their quotas to under-represented members, and the voting rights of the poorest were upheld. Reflecting its financial clout, China became the IMF’s third-largest member, while Brazil, Russia and India entered the top ten. Europe gave up two seats on the Executive Board.
One of Lee’s goals for the summit was the provision of a financial ‘safety net’ for vulnerable economies, to help them deal with capital flight in times of financial volatility. South Korea claims extra sensitivity to the ‘stigma’ of receiving IMF help: in 1997, it received a $57 mn. bailout after its economy was savaged by the Asian financial crisis. ‘Some felt the IMF exacerbated troubles with its excessively stringent policy prescriptions,’ said Lee. Some 20 South Korean small- and medium-sized businesses went bankrupt in the wake of the crisis. New IMF guidelines seek to weave the safety net by rejigging the Flexible and Precautionary Credit Lines. These mechanisms are designed to give countries access to emergency credit and so stave off economic disaster.
The final communiqué included the ‘Seoul Development Consensus for Shared Growth’, a guide to monetary and trade policy-making that seeks to ensure balanced economic growth. It emphasises infrastructure as a key driver of development. A Multi-year Action Plan lays out a framework for development but leaves implementation mostly to existing institutions like the United Nations, WTO and the Organisation for Economic Cooperation and Development (OECD). Non-governmental organisations were critical. ODA Watch pointed out the absence of direct aid commitments and found it ‘passing on most of the responsibility and accountability for development results to the next summit.’ CAFOD welcomed the inclusion of development on the G-20 agenda, but accused it of neglecting agricultural and informal sectors.
Lee acknowledged the disappointment: ‘Korea did the best that it could, and for the future of the world economy, I believe the G-20 needs to make further efforts.’ The matter of direct aid, though, has been left for the Fourth High-Level Forum on Aid Effectiveness, an OECD initiative to be hosted by South Korea in late 2011.
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