After the “Seoul Consensus”: Ways to help sub-Saharan Africa return to pre-crisis economic performance

Peter Draper, Andreas Freytag, Matthias Bauer 16 April 2011

a

A

At their November 2010 meeting in Seoul, the G20 agreed on a “Seoul Action Plan” which addresses the problems of the poorest in the “Seoul Consensus”. It includes several commitments to avoid further tensions (G20 2010), among them the pledge to coordinate macroeconomic policies as well as a strong commitment to open markets, and the acknowledgement that the Doha Round faces a small window of opportunity in 2011 (ECIPE 2011).

There are essentially two scenarios for sub-Saharan Africa arising from the policy dissonance problem amongst the G20’s major players (Draper et al. 2011).

First, the latter could pursue a mercantilist course. This would lead to a series of negative consequences including, inter alia:

  • The US intensifies ‘competitive devaluation’ via quantitative easing, leading to an associated exit of capital flooding into emerging markets, creating new bubbles which might pop at some point in the future. Since economic growth in the OECD countries is likely to remain depressed for some time, the potential coincidence of emerging market recessions with OECD stagnation should alarm policymakers.

  • China continues with its current growth model, including an undervalued currency. Whilst Chinese growth is good for African exports and growth (Reisen 2010), the currency undervaluation constrains African diversification opportunities at the same time as it impels African countries to embrace the structural reforms needed to attract manufacturing FDI in particular.

  • Germany’s role within the EU may, according to some influential commentators, lead ultimately to the demise of the common-currency area (Wolf 2010), or at the least deflation in peripheral economies in the Eurozone with attendant implications for economic growth in Europe. Since African economies are still firmly locked into the European growth orbit, they have a strong stake in how this drama unfolds.

Second, if the actions implied by the Seoul Action Plan were actually taken then whilst the short-term problems would remain in place, in the medium term pressure on the trade front should diminish. Furthermore, if this was combined with a serious and successful push to conclude the Doha Round, and expand the purview of the WTO into those areas of interest to African economies not covered by current disciplines then the G20 would make a very important contribution to leading the world out of the very choppy waters it finds itself in, and by extension would do African economies a great service.

Third, Africa can do something itself. The Chinese demand for commodities have stimulated a European reaction. Africa is no longer Europe’s backyard, but has increased its importance as partner for Europe and other continents. It should play this card consciously. An initiative to complete the Doha Round can help to serve its interest much better than demanding special treatment and more aid (Draper and Dube 2011). A process of new thinking would not only help Africa, but also other countries.

Furthermore, there is a general concern that African policymakers do not anticipate how international policy reforms may affect their economies. Naumann (2010), for instance, states that some African countries do not appear to be actively following international policy debates and thus do not understand how international policy changes affect local producers and exporters. Consequently African policymakers are for the most part not actively engaged in recording their concerns. For sub-Saharan African countries technical knowledge and policy ownership is an essential precondition for successful negotiations at the international level.

Crucially, as things currently stand the Western – old – industrialised economies are not in a position to take the lead in initiatives to strengthen economic policy rationality on a global scale. Imagine the US administration offering agricultural market opening (which the US needs as urgently as the EU) in a global trade round – it seems impossible currently. The same logic applies to the EU. Who in France would dare to suggest a cut in subsidies for French farmers? So what is needed is a credible initiative by new players. The G20 is indeed a platform where the economically and politically (e.g. in the IMF) strengthened emerging markets should take more responsibility.

Therefore, it seems reasonable that the emerging economies start a new initiative for the conclusion of the Doha Round (Freytag and Voll 2009). This initiative could be based on the ‘Seoul Action Plan’. Thus, it would not even be a surprise, as the ‘Plan’ indeed proposes the conclusion of the Doha Round in 2011. Of course, such an initiative requires political stamina and coordination within the group of emerging economies, such as the newly constituted BRICS formation. The challenge remains that these countries still face significant domestic developmental challenges, and are probably not yet ready to step up to the plate with the kinds of “sacrifices” that such international leadership requires; furthermore their interests are not aligned on a number of issues. Nevertheless, the political signal of a balanced proposal from the organised “South” would surely be strong.

Such an approach needs to be supplemented with a concerted effort to establish the true incidence of protectionism given the divergences between the official figures collected by multilateral bodies and those put forward by the respected Global Trade Alert. This would reinforce the obvious point that the multilateral trading rules exhibit major gaps. Consequently, when the Doha round is completed, the G20 should develop a more focused future agenda for the WTO including reform of its decision-making dynamics.

References

Draper, P and M Dube (2011), “The Doha Development Agenda and the WTO can deliver on Africa’s Development Challenges”, paper to be presented at the inaugural global poverty summit, Johannesburg, South Africa.

Draper, P, A Freytag, and M Bauer (2011), “The Seoul consensus on Development: Substantial Progress for sub-Saharan Africa or Paperwork again?”, VoxEU.org, 15 April.

ECIPE (2011), “Online Symposium: The last call for the Doha-Round?”.

Freytag, A and S Voll (2009), “Liberalise now! – The only chance for emerging economies to become a major player”, VoxEU.org, 25 March.

G20 (2010), “The G20 Seoul Summit Leaders’ Declaration”, 11-12 November.

Naumann, E (2010) “AGOA at 10: Reflections on US-Africa trade with focus on SACU countries’, tralac Working Paper 05/2010.

Wolf, M (2010), “Ireland refutes the German perspective”, Financial Times, 23 November.

a

A

Topics:  Global governance International trade

Tags:  developing countries, sub-Saharan Africa, Seoul consensus

Matthias Bauer

PhD student, Graduate Program on Global Financial Markets, Friedrich-Schiller-University Jena

Director, Tutwa Consulting

Andreas Freytag

Professor of Economics, Friedrich-Schiller-University Jena; Honorary Professor; University of Stellenbosch