/* Written 10:42 AM Jan 18, 1996 by apic in igc:africa.news */
/* ---------- "Africa: Econews Africa" ---------- */
From: "APIC" <apic@igc.apc.org>

Who Gains and Loses from Globalisation of the Economy

By Wagaki Mwangi. Econews Africa, Vol. 4, no. 20, December, 1995

There is some euphoria among the small and medium-sized business sectors in East Africa following market liberalization. The excitement is particular evident among young and middle-aged people who have opted to open up small businesses rather than go into full time employment. This change has largely been brought about by freeing of the foreign exchange controls packaged in Structural Adjustment Programmes.

But as was noted during a consultation between non-governmental organizations and the United Nations agency, UNCTAD (United Nations Conference on Trade and Development), Sub-Saharan Africa is losing out in the process of market liberalization and globalization.

Yilmaz Akyuz of UNCTAD defined globalization as the process through which national markets get integrated. For instance Kenyan traders are able to access Ugandan and Tanzanian markets and vice versa. Akyuz, noted that when discussions on liberalization begun in the mid-1980s, governments considered the process a good vehicle for all nations to bring about greater equality. Liberalisation targeted three areas: trade, capital flows and investment.

It was then argued that liberalization would result in opening up of trade markets both in the South and in the North, a move that would accrue economic benefits to countries such as Africa that depend heavily on commodities. Additionally, by freeing capital markets, the much-needed foreign exchange would be available in developing countries thus reducing the need to borrow. A further advantage to developing countries would be the stabilisation of local currencies.

Based on the experiences of South Korea, Taiwan and Malaysia, removal of non-tax (non-tariff) related barriers to foreign investors, would be present greater chances for foreigners to invest in developing countries, which would then offer better foreign investment returns.

Several participants noted that this has not happened particularly in sub-saharan Africa as investors are not as keen on Africa as they are on Asian markets. They tend to provide manufactures based on cheap labour in the South which does not guarantee poverty alleviation.

Second, markets for African products have not increased significantly particularly in commodities where the South is advantaged and the North is greatly protected. Further where developed countries can delink the prices of their goods from developing countries, the South cannot delink prices of its goods from the Northern market.

Akyuz noted that the only sector in which growth is noted is in capital flows. But these have also resulted in other problems. Increased financial mobility has resulted in increased financial instability as fiscal trade is increasingly based on speculation. This explains why commercial banks in most countries have fluctuating interest rates, which increases risk of taking loans from such institutions a high risk for the local person.

Another associated problem is that the liberalization of local fiscal markets makes the market vulnerable to changes and shocks. For example, the impact of activities at Barrings Bank in Singapore and more recently, the Japanese Daiwa Bank in the US, had an impact on capital markets all around the world.

Another constraint is that although trade in finances has had its returns, it does not require infrastructural investment in developing countries. Besides, the rate in fiscal industry is high and many African countries lack the necessary tools to regulate it or even reap substantial benefits. Akyuz summed his observations by noting that the gains from liberalization has mainly proceeded in high skill intensive manufactures, financial and service sectors, where the developed countries have a comparative advantage.

[article to be continued in next issue of Econews Africa]

EcoNews Africa is an NGO initiative that analyses global environment and development issues from an African perspective and reports on local, national, and regional activities that contribute to global solutions.

EcoNews Africa is a joint project of the Africa Water Network (AWN), Climate Network Africa (CNA), the Environment Liaison Center International (ELCI) and the International Outreach Program of KENGO. It is supported by the Humanistic Institute for Cooperation with Developing Countries (HIVOS) and NGONET based in Montevideo, Uruguay. Editing and production of this issue: Susan Odede, Wagaki Mwangi, Wangu Mwangi, Samuel Mutinda and Mercy Wambui. Thanks to Miles Goldstick for assistance on the EcoNews World Wide Web site.

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