AfDB Group in North Africa in 2013: Promoting Resilience and Inclusive Growth
The African Development Bank (AfDB) encourages North African countries to find ways of building resilience against crises that could threaten economic and social stability.
In its 2013 Annual Report on North Africa, the Bank stresses the need to focus on inclusive development in order to tackle the long-standing socio-economic problems that have destabilized the region in recent years.
The report introduces a new and innovative resilience framework to gauge the impact of the recent crises (e.g. food crisis, financial crisis, Euro-debt crisis, Arab Spring) on North African countries and to critically assess government interventions aimed at minimizing their effects and identifying options for policy makers. The proposed crisis resilience framework considers crisis vulnerability as a product of ‘structural’ or ‘nurtured’ factors, and argues that a country’s ability to cope during crises is largely determined by its ‘adaptive capacity’ – that is its access to and control of resources to deal with shocks or stresses. The report argues that a country’s structural vulnerabilities can, in the absence of a strong adaptive capacity, produce nurtured vulnerabilities which render an economy susceptible to the impacts of crises.
While analyzing how the recent crises are intertwined, the report highlights that North African governments’ responses to the 2007 food crisis were slow, not well targeted towards those most affected by soaring food prices, and included measures that could not be easily terminated once food prices began to ease. Nurtured vulnerabilities – greater sensitivity to fluctuations in international prices, financial transfers and investments -- were all reinforced during this period. Despite this, North African economies demonstrated good macroeconomic resilience during the subsequent 2009 global financial crisis. However, the effects of the crisis were detrimental at microeconomic level, particularly for SMEs, informal sector workers and poorer households. Using the fiscal space created prior to the crisis, North African countries were able to implement countercyclical fiscal policies. Yet, these crisis responses deepened the nurtured vulnerabilities as they were a mere expansion of the measures introduced in response to the world food crisis. Moreover, a sizeable portion of the countries’ fiscal stimulus packages was directed towards supporting international trade and export firms, rather than domestic companies or national development. The 2011 Arab Spring forced North African governments to become more responsive to the needs of the poor and unemployed, although poorly-targeted public policies continued to benefit mainly the affluent, further reinforcing the growing nurtured vulnerabilities.
Based on international best practices, the report makes a series of recommendations for promoting resilient growth in the Short to Medium Term:
- To strengthen adaptive capacity the report highlights the need for countries to continue to exercise monetary and fiscal restraint; redesign social policies and programs to firmly target vulnerable households; reform education systems and support state institutions to restore trust and inclusiveness.
- To reduce systemic vulnerability, the report insists on the need to diversify trade and financial partners; invest in agriculture and alternative energy; and, support SME development.
- To expand the drivers and distribution of growth the report indicates that countries should continue to pursue trade liberalization and privatization while ensuring that measures are in place to lower the risks associated with global integration; remove the legal and regulatory impediments to formal private sector growth, innovation and employment; and, promote sectorial diversification for more broad-based economic growth.
These policies can be financed through the involvement of a wider range of local and international partners as well as innovative funding sources, such as ‘diaspora bonds’.
The report deals extensively with two themes which are central to the reinforcement of resilience growth in North Africa, namely strengthening food security and promoting regional integration.
To improve food security at both national and household levels, the report argues that North African economies should (a) improve access to foods through better integration into global food markets and increased credit and financial resources to small and poor farmers; (b) improve agricultural productivity through higher government expenditure on the agricultural sector and related Research and Development activities; and, (c) reform social safety nets, particularly by moving away from regressive universal subsidies on food and fuel towards more targeted subsidies.
To enhance regional integration in North Africa, the report recommends the following policies : (a) elimination of nontariff measures; (b) improving cross-border trade facilitation and logistics; (c) reducing the cost of infrastructure (notably transportation and ICT); and, (d) giving a prominent role to the private sector. These, together with an alignment of policies and procedures related to investment and labor mobility, are meant to significantly improve regional integration and better protect the countries against global economic and financial crises.
Adoption of a resilient growth strategy is critical for turning political transitions in North African countries into decisive and tangible socio-economic gains. Such a growth strategy, which is also at the core of African Development Bank’s new ten-year strategy, will pave the way for a more stable and equitable growth trajectory, which addresses the reclamations at the very heart of the Arab Spring. The report reiterates the African Development Bank’s obligation to accompany the North Africa Region in its development journey, in the fulfillment of its responsibilities as the continent’s premier development finance institution.