Speech
‘Growth commission’s European consultation London’ - Speech by International Development Minister Shriti Vadera
10 December 2007
Thanks you and welcome to London. I am particularly pleased to have you here. Your presence in a European donor capital is an opportunity to redress the balance of what some Africans have expressed to me as the over dominant focus on aid and basic social service expenditure of European donors.
I don’t believe in a ‘growth alone’ model of development. But I am concerned that sometimes we lose sight of the simple fact that, without growth, sustainable human development is a largely theoretical proposition. The work of the commission, reflecting its individual commissioners, is welcome and impressive in its depth, breath and quality.
The country case studies and visits by the commission provide striking evidence that growth is the most important driver of poverty reduction. Countries that are growing rapidly are on-track to achieve most of their millennium development goals, and those that are not are failing. Three decades of rapid growth will reduce poverty levels in East Asia outside of china from 30% to an estimated 3% by 2015
As the UK development minister responsible for Africa and given what we know about the continent’s particular problems with growth, poverty reduction and meeting the MDGs, I make no apology for the fact that my focus is very much on Africa. Ndulu has suggested that it is Africa’s slow productivity growth that distinguishes it from the rest of the world. Perhaps for the first time we have a sense of optimism in Africa with many, if not all, countries growing at better rates than ever before. Some of course fuelled by commodity prices. An average growth rate of 5% is the highest since the 1970’s. But we know it is easier to initiate growth than to sustain it. Although there are many constraints to growth, you don’t need to remove them all at the same time to initiate growth. This was one of the things that the Washington consensus got wrong. It assumed that you needed to get everything right at once. The result was policy and project shopping lists that were beyond the capacity and means of the country to implement. Great effort was put into activities and reforms that were not that important for growth. We know the results: Africa experienced only half of the growth accelerations in the 1980’s that it did in the 1970’s.
Challenges of sustaining growth in Africa.
The challenge that we, as donors to Africa, have to worry about is the more difficult one of sustaining growth. Statistically, in any 10 year period, countries have a 1 in 4 chance that they will initiate a growth spurt. Though there have been over 80 such growth spurts since the 1950s, relatively few were sustained beyond 8 years.
I have a sense of urgency as we arguably get beyond the half way point of Africa's growth spurt. And in many countries this growth has been driven by higher commodity prices rather than domestic reform or rising productivity. Not enough policy makers on the continent and amongst donors have sensed that the success of African growth in the past few years cannot be a guide to the future and business as usual will not sustain this success.
There are two reasons why growth can be hard to sustain:
One is that it often runs into bottlenecks. A large part of the trick behind sustaining growth is to continue doing what was needed to start it: remove the different and new constraints and bottlenecks as they appear. But while necessary, this won’t be sufficient.
Sustaining growth also requires business innovation. Countries can often initiate growth by improving productivity through doing old activities better. Sustaining that growth, requires those who deliver it – the private sector – to constantly move into new activities.
This is best illustrated by East Asia, where successful countries are continually shifting their comparative advantage. In 1975 textile exports made up 44% of South Korean exports. By 1994 that dropped to 23% as South Korea shifted its comparative advantage towards electrical goods. No country has sustained high growth for a long period without export growth. About 60% of export growth takes place in goods and services new to a country, rather than through exporting more of its existing products.
There is a second major challenge which is ensuring that growth delivers poverty reduction. Growth isn’t always as transformative as we might like. From the commission’s country analysis we can see how the impact of growth can be affected by existing conditions, such as low levels of skills or high inequality.
Creating opportunities that help poor people
Despite India's status as a high growth globally competitive economy, almost half the children under three are undernourished.
In Uganda, if inequality had not increased between 1992 and 2002, the poverty rate would have been 8% lower.
I do not believe that poorer developing countries can plan for growth that is simultaneously high, sustained and pro-poor. They need to explore how to create opportunities that help poor people participate in it.
Making growth more inclusive also helps sustain it. It’s possible to get fast growth for a time by targeting a few places, people or sectors. But sustained per capita growth requires that the entire economy be put to more productive work.
Work by the commission and by DFID has shown that we can help countries make growth more inclusive in a number of ways.
Markets are the heart of growth and making markets work for the poor is key – in particular access to land, finance and services. Development agencies have a role in supporting countries to facilitate the improvement of market operations and access.
Vulnerability also affects individuals’ ability to access market opportunities and explains much of the low impact of growth on poverty in some countries. Environmental, political, health related shocks regularly wipe out poor people’s assets, productive capacity and even infrastructure. In Ethiopia, not only have almost 80% of rural households been severely affected by a harvest failure in the last 20 years, but the short-term measures they adopt to manage these risks – selling assets, pulling children out of school - often undermine their livelihoods and their ability to participate in future growth.
Ensuring access to quality education can support growth, tackle imbalances and reduce inequality. This is still a challenge in Africa. While enrolment into primary school has been a marked success, the share of those finishing school with basic literacy and cognitive skills is still below 1 in 10. Opportunities for vocational and technical education are also severely limited.
The right environment for growth
Labour is the main asset of poor people and that needs skills as well employment creation. Because of rising populations, developing countries need to increase employment by nearly 50 million jobs per year just to maintain current levels of employment.
Addressing discrimination of all types is also essential. For example, the commission’s recent work highlights the benefits for firms, economies and markets of getting more women into the work force and management.
In the state of Karnataka in India, a small rise in the ratio of female to male workers would increase per capita output by up to 37%. If this high female to male ratio in managerial positions was common across all Indian states, total output could increase by 35%.
Finally, I must mention one other dimension of the quality of growth. Perhaps the biggest challenge today is to work out how the world is going to secure the low carbon growth we need. Almost all countries have significantly reduced the carbon intensity of their gni, but not enough. Reducing overall global emissions will require rich countries to cross this carbon transition, and we need to help poor countries find non fossil fuel intensive paths to growth. This is a huge challenge and merits its own discussion. We need to agree what carbon justice means and we need to get as much poverty reduction as possible per dollar of growth.
What DFID is doing to sustain growth
As DFID we will be more responsive and develop long term partnerships with countries that have a commitment to growth.
We are working with governments to identify the specific practical measures they should adopt to remove the constraints to growth. The key to this work is ruthless prioritisation of policy reforms and implementation. We must avoid at all costs growth strategies that are long and imprecise shopping lists. Our first growth analytics was launched with the government of Rwanda two weeks ago and should be completed by mid 2008.
Where these analyses conclude that the constraints lie in, for example, poor regulation, inadequate infrastructure or weak skills, we can help countries rectify these weaknesses, through both support for policy reform, and where necessary, financial support;
We are also helping countries make their growth more inclusive in a number of ways: we have supported analysis of the distributional aspects of growth and are sponsoring world-class research into how to make growth more inclusive; we can help countries make their markets work for the poor; and support programmes to reduce the risks the poor face and help them protect their assets.
Promoting more inclusive growth
And finally, we should work closer with the private sector – the wealth creators – to help enable them to grow in ways that promotes more inclusive growth. An example of this is a recent project DFID funded with Vodafone which uses mobile telephony to reduce the cost of banking transfers.
We would like the outcomes of the growth commission to help guide us in our work. There are a few things i would like to see coming out of the growth commission’s work.
- The first is to swing the development debate in certain parts of the development community back to an appreciation of the importance of growth for poverty reduction. Development agencies have not always kept pace with demands from governments in Africa and South Asia to prioritise growth in order to take us beyond aid dependence.
- The second is a better framework to help us think about growth. This framework needs to be flexible, recognising that the future challenges for growth – such as climate change – may require different solutions.
- The third thing I'd like to see from the commission’s work is some practical evidence-based answers to the key questions we and developing countries are asking. I look forward to hearing what Mike Spence will say in his opening presentation on this.
Finally, we need to think about the systems needed to support developing countries who want to act on the commission’s findings and recommendations. We can’t afford the commission’s work to end up collecting dust. It must be put to work. Central to this will be supporting developing country leadership on growth with the best tools and policies based on the best available evidence.
This could be the lasting impact of the growth commission. And we have a joint responsibility to make sure that this important work does have that lasting impact.
