AfricaFocus (Washington, DC)

13 May 2013

Africa: Rise of the Global South

analysis

"Although most developing countries have done well, a large number of countries have done particularly well - what can be called the 'rise of the South'.

Some of the largest countries have made rapid advances, notably Brazil, China, India, Indonesia, Mexico, South Africa and Turkey. But there has also been substantial progress in smaller economies, such as Bangladesh, Chile, Ghana, Mauritius, Rwanda and Tunisia. ... For the first time in 150 years, the combined output of the developing world's three leading economies - Brazil, China and India - is about equal to the combined GDP of the longstanding industrial powers of the North - Canada, France, Germany, Italy, United Kingdom and the United States." - UNDP Human Development Report, 2013

There has been much attention focused on the rise of China as an economic world power and its impact on Africa. The BRICS grouping, including Brazil, India, Russia, and South Africa, as well as China, also often appears in the media.

But, notes this year's Human Development Report from the United Nations Development Program Programme, the focus only on specific countries understates the importance and pervasive impact of the advance of a wide range of developing countries on both economic and social measures of development.

For this trend to continue and to be expanded to other countries still falling behind, in a world of great inequality, development policies must be adapted to build on the multiple components for success and avoid a narrow focus on economic growth alone.

This AfricaFocus Bulletin contains excerpts from the summary of the report. The full report, press releases, statistical tables, and other background documents, are available on the UNDP website at http://hdr.undp.org/en/

One of the research papers prepared for this Human Development Report focuses particularly on equity and inequality, both within countries and at the global level. See "Equity, Inequality and Human Development in a Post-2015 Framework," by Claire Melamed and Emma Samman, ODI, UNDP Research Paper, February 2013 http://tinyurl.com/c2ndpdn

For previous AfricaFocus bulletins on economic issues, visit http://www.africafocus.org/econexp.php

The Rise of the South: Human Progress in a Diverse World

Human Development Report 2013

[Excerpts from the report Summary - Full report available at http://hdr.undp.org/en/]

Summary

When developed economies stopped growing during the 2008-2009 financial crisis but developing economies kept on growing, the world took notice.

The rise of the South, seen within the developing world as an overdue global rebalancing, has been much commented on since.

This discussion has typically focused narrowly on GDP and trade growth in a few large countries. yet there are broader dynamics at play, involving many more countries and deeper trends, with potentially far-reaching implications for people's lives, for social equity and for democratic governance at the local and global levels.

As this Report shows, the rise of the South is both the result of continual human development investments and achievements and an opportunity for still greater human progress for the world as a whole.

Making that progress a reality will require informed and enlightened global and national policymaking, drawing on the policy lessons analysed in this Report.

The rise of the South

The rise of the South is unprecedented in its speed and scale. It must be understood in broad human development terms as the story of a dramatic expansion of individual capabilities and sustained human development progress in the countries that are home to the vast majority of the world's people.

When dozens of countries and billions of people move up the development ladder, as they are doing today, it has a direct impact on wealth creation and broader human progress in all countries and regions of the world.

There are new opportunities for catch-up for less developed countries and for creative policy initiatives that could benefit the most advanced economies as well.

Although most developing countries have done well, a large number of countries have done particularly well - what can be called the "rise of the South".

Some of the largest countries have made rapid advances, notably Brazil, China, India, Indonesia, Mexico, South Africa and Turkey.

But there has also been substantial progress in smaller economies, such as Bangladesh, Chile, Ghana, Mauritius, Rwanda, and Tunisia.

While focusing on the rise of the South and its implications for human development, the 2013 Human Development Report is also about this changing world, driven in large measure by the rise of the South.

It examines the progress being made, the challenges arising (some as a result of that very success) and the opportunities emerging for representative global and regional governance.

For the first time in 150 years, the combined output of the developing world's three leading economies - Brazil, China and India - is about equal to the combined GDP of the longstanding industrial powers of the North - Canada, France, Germany, Italy, United Kingdom and the United States.

This represents a dramatic rebalancing of global economic power: In 1950, Brazil, China and India together represented only 10% of the world economy, while the six traditional economic leaders of the North accounted for more than half.

According to projections in the Report, by 2050, Brazil, China and India will together account for 40% of global output (figure 2), far surpassing the projected combined production of today's Group of Seven bloc.

The middle class in the South is growing rapidly in size, income and expectations (figure 3). The sheer number of people in the South - the billions of consumers and citizens - multiplies the global human development consequences of actions by governments, companies and international institutions in the South.

The South is now emerging alongside the North as a breeding ground for technical innovation and creative entrepreneurship.

In North-South trade, the newly industrializing economies have built capabilities to efficiently manufacture complex products for developed country markets. But South-South interactions have enabled companies in the South to adapt and innovate with products and processes that are better suited to local needs.

The state of human development

The Human Development Index (HDI) in 2012 reveals much progress. Over the past decades, countries across the world have been converging towards higher levels of human development.

The pace of HDI progress has been fastest in countries in the low and medium human development categories. This is good news. Yet progress requires more than average improvement in the HDI.

It will be neither desirable nor sustainable if increases in the HDI are accompanied by rising inequalities in income, unsustainable patterns of consumption, high military spending and low social cohesion.

An essential part of human development is equity. Every person has the right to live a fulfilling life according to his or her own values and aspirations. No one should be doomed to a short life or a miserable one because he or she happens to be from the "wrong" class or country, the "wrong" ethnic group or race or the "wrong" sex.

Inequality reduces the pace of human development and in some cases may even prevent it entirely. Globally, there have been much greater reductions in inequality in health and education in the last two decades than in income. Virtually all studies agree that global income inequality is high, though there is no consensus on recent trends.

A more global South

Global production is rebalancing in ways not seen for 150 years. Growth in the cross-border movement of goods, services, people and ideas has been remarkable.

By 2011, trade accounted for nearly 60% of global output. Developing countries have played a big part in this (box 2): between 1980 and 2010, they increased their share of world merchandise trade from 25% to 47% and their share of world output from 33% to 45%.

Developing regions have also been strengthening links with each other: between 1980 and 2011, South-South trade as a share of world merchandise trade rose from 8.1% to 26.7% (figure 5).

All developing countries are not yet participating fully in the rise of the South. The pace of change is slower, for instance, in most of the 49 least developed countries, especially those that are landlocked or distant from world markets.

Nevertheless, many of these countries have also begun to benefit from South-South trade, investment, finance and technology transfer.

There have, for example, been positive growth spillovers from China to other developing countries, particularly close trading partners.

These benefits have to some extent offset slackening demand from the developed countries. Growth in low-income countries would have been an estimated 0.3-1.1 percentage points lower in 2007-2010 had growth fallen at the same rate in China and India as in developed economies.

Many countries have also benefited from spillovers into sectors that contribute to human development, especially health. Indian firms, for example, are supplying affordable medicines, medical equipment, and information and communications technology products and services to countries in Africa.

Brazilian and South African companies are doing the same in their regional markets.

Nevertheless, exports from larger countries can also have disadvantages. Large countries generate competitive pressures in smaller countries that can stifle economic diversification and industrialization. But there are also instances where competitive jolts have been followed by industrial revival.

A competitive role today may easily turn into a complementary role tomorrow. Moving from competition to cooperation seems to depend on policies for dealing with new challenges.

Drivers of development transformation

Many countries have made substantial progress over the past two decades: the rise of the South has been fairly broad-based.

Nevertheless, several high achievers have not only boosted national income, but have also had better than average performance on social indicators such as health and education.

How have so many countries in the South transformed their human development prospects? Across most of these countries, there have been three notable drivers of development: a proactive developmental state, tapping of global markets and determined social policy and innovation.

These drivers are not derived from abstract conceptions of how development should work; rather, they are demonstrated by the transformational development experiences of many countries in the South.

Indeed, they challenge preconceived and prescriptive approaches: on the one hand, they set aside a number of collectivist, centrally managed precepts; on the other hand, they diverge from the unfettered liberalization espoused by the Washington Consensus.

Driver 1: a proactive developmental state

A strong, proactive and responsible state develops policies for both public and private sectors - based on a long-term vision and leadership, shared norms and values, and rules and institutions that build trust and cohesion.

Achieving enduring transformation requires countries to chart a consistent and balanced approach to development. Countries that have succeeded in igniting sustained growth in income and human development have not, however, followed one simple recipe.

Faced with different challenges, they have adopted varying on market regulation, export promotion, industrial development and technological adaptation and progress.

Priorities need to be people-centred, promoting opportunities while protecting people against downside risks. Governments can nurture industries that would not otherwise emerge due to incomplete markets.

Although this poses some political risks of rent seeking and cronyism, it has enabled several countries of the South to turn industries previously derided as inefficient into early drivers of export success once their economies became more open.

In large and complex societies, the outcome of any particular policy is inevitably uncertain. Developmental states need to be pragmatic and test a range of different approaches.

Some features stand out: for instance, people-friendly developmental states have expanded basic social services.

Investing in people's capabilities - through health, education and other public services - is not an appendage of the growth process but an integral part of it. Rapid expansion of quality jobs is a critical feature of growth that promotes human development.

Driver 2: tapping of global markets

Global markets have played an important role in advancing progress. All newly industrializing countries have pursued a strategy of "importing what the rest of the world knows and exporting what it wants". But even more important is the terms of engagement with these markets.

Without investment in people, returns from global markets are likely to be limited. Success is more likely to be the result not of a sudden opening but of gradual and sequenced integration with the world economy, according to national circumstances, and accompanied by investment in people, institutions and infrastructure.

Smaller economies have successfully focused on niche products, the choice of which is often the result of years of state support built on existing competencies or the creation of new ones.

Driver 3: determined social policy innovation

Few countries have sustained rapid growth without impressive levels of public investment - not just in infrastructure, but also in health and education.

The aim should be to create virtuous cycles in which growth and social policies reinforce each other. Growth has frequently been much more effective at reducing poverty in countries with low income inequality than in countries with high income inequality.

Promoting equality, particularly among different religious, ethnic or racial groups, also helps reduce social conflict.

Education, health care, social protections, legal empowerment and social organization all enable poor people to participate in growth.

Sectoral balance - especially paying attention to the rural sector - and the nature and pace of employment expansion are critical in determining how far growth spreads incomes. But even these basic policy instruments may not empower disenfranchised groups.

Poor people on the fringes of society struggle to voice their concerns, and governments do not always evaluate whether services intended to reach everyone actually do.

Social policy has to promote inclusion - ensuring nondiscrimination and equal treatment is critical for political and social stability - and provide basic social services, which can underpin long-term economic growth by supporting the emergence of a healthy, educated labour force.

Not all such services need be provided publically. But the state should ensure that all citizens have secure access to the basic requirements of human development.

An agenda for development transformation that promotes human development is thus multifaceted. It expands people's assets by universalizing access to basic services.

It improves the functioning of state and social institutions to promote equitable growth where the benefits are widespread. It reduces bureaucratic and social constraints on economic action and social mobility. And it holds leadership accountable.

Sustaining momentum

Many countries of the South have demonstrated much success. But even in higher achieving countries, future success is not guaranteed.

How can countries in the South continue their pace of progress in human development, and how can the progress be extended to other countries?

The Report suggests four important areas to facilitate this: enhancing equity, enabling voice and participation, confronting environmental pressures and managing demographic change. The Report points to the high cost of policy inaction and argues for greater policy ambition.

Enhancing equity

Greater equity, including between men and women and across groups, is not only valuable in itself, but also essential for promoting human development.

One of the most powerful instruments for this purpose is education, which boosts people's self-confidence and makes it easier for them to find better jobs, engage in public debate and make demands on government for health care, social security and other entitlements.

Education also has striking benefits for health and mortality. Research for the report find that mother's education is more important to child survival than household income or wealth is and that policy interventions have a greater impact where education outcomes are initially weaker.

This has profound policy implications, potentially shifting emphasis from efforts to boost household income to measures to improve girls' education.

The Report makes a strong case for policy ambition. An accelerated progress scenario suggests that low HDI countries can converge towards the levels of human development achieved by high and very high HDI countries.

By 2050, aggregate HDI could rise 52% in Sub-Saharan Africa (from 0.402 to 0.612) and 36% in South Asia (from 0.527 to 0.714).

Policy interventions under this scenario will also have a positive impact on the fight against poverty. By contrast, the costs of inaction will be increasingly higher, especially in low HDI countries, which are more vulnerable.

For instance, failing to implement ambitious universal education policies will adversely affect many essential pillars of human development for future generations.

Enabling voice and participation

Unless people can participate meaningfully in the events and processes that shape their lives, national human development paths will be neither desirable nor sustainable.

People should be able to influence policymaking and results, and young people in particular should be able to look forward to greater economic opportunities and political participation and accountability.

Dissatisfaction is on the rise in the North and the South as people call for more opportunities to voice their concerns and influence policy, especially on basic social protection.

Among the most active protesters are youth, in part a response to job shortages and limited employment opportunities for educated young people.

History is replete with popular rebellions against unresponsive governments. This can derail human development as unrest impedes investment and growth and autocratic governments divert resources to maintaining law and order.

It is hard to predict when societies will reach a tipping point. Mass protests, especially by educated people, tend to erupt when bleak prospects for economic opportunities lower the opportunity cost of engaging in political activity.

These "effort-intensive forms of political participation" are then easily coordinated through new forms of mass communication.

Confronting environmental challenges

While environmental threats such as climate change, deforestation, air and water pollution, and natural disasters affect everyone, they hurt poor countries and poor communities most.

Climate change is already exacerbating chronic environmental threats, and ecosystem losses are constraining livelihood opportunities, especially for poor people.

Although low HDI countries contribute the least to global climate change, they are likely to experience the greatest loss in annual rainfall and the sharpest increases in its variability, with dire implications for agricultural production and livelihoods.

The magnitude of such losses highlights the urgency of adopting coping measures to increase people's resilience to climate change.

The cost of inaction will likely be high. The longer action is delayed, the higher the cost will be. To ensure sustainable economies and societies, new policies and structural changes are needed that align human development and climate change goals in low-emission, climate- resilient strategies and innovative publicprivate financing mechanisms.

Managing demographic change

Between 1970 and 2011, world population swelled from 3.6 billion to 7 billion. As that population becomes more educated, its growth rate will decrease.

Development prospects are influenced by the age structure of the population, as well as its size. An increasingly critical concern is the dependency ratio - that is, the number of younger and older people divided by the working-age population ages 15-64.

Some poorer countries will benefit from a "demographic dividend" as the share of the population in the workforce rises, but only if there is strong policy action.

Girls' education, for instance, is a critical vehicle of a possible demographic dividend. Educated women tend to have fewer, healthier and better educated children; in many countries educated women also enjoy higher salaries than uneducated workers.

The richer regions of the South, by contrast, will confront a very different problem, as their population age, reducing the share of the working-age population.

The rate of population ageing matters because developing countries will struggle to meet the needs of an older population if they are still poor. Many developing countries now have only a short window of opportunity to reap the full benefits of the demographic dividend.

Demographic trends are not deterministic, however. They can be altered, at least indirectly, by education policies. The Report presents two scenarios for 2010-2050: the base case scenario, in which enrolment ratios remain constant at each level of education, and a fast track scenario, in which the countries with the lowest initial education levels embrace ambitious education targets.

The decline in the dependency ratio for low HDI countries under the fast track scenario is more than twice that under the base case scenario.

Ambitious education policies can enable medium and high HDI countries to curb projected increases in their dependency ratios, in order to make their demographic transition towards an ageing population less difficult.

Addressing these demographic challenges will require raising educational attainment levels while expanding productive employment opportunities - by reducing unemployment, promoting labour productivity and increasing labour force participation, particularly among women and older workers.

Governance and partnerships for a new era

The new arrangements promoted by the South and the resulting pluralism are challenging existing institutions and processes in the traditional domains of multilateralism - finance, trade, investment and health - sometimes directly and sometimes indirectly through alternative regional and subregional systems.

Global and regional governance is becoming a multifaceted combination of new arrangements and old structures that need collective nurturing in multiple ways.

Reforms in global institutions must be complemented by stronger cooperation with regional institutions - and in some cases broader mandates for those regional institutions. The accountability of organizations must be extended to a wider group of countries, as well as to a wider group of stakeholders.

Many of the current institutions and principles for international governance were designed for a world order that does not match contemporary reality.

One consequence is that these institutions greatly underrepresent the South. If they are to survive, international institutions need to be more representative, transparent and accountable.

Indeed, some intergovernmental processes would be invigorated by greater participation from the South, which can bring substantial financial, technological and human resources.

In all of this, governments are understandably concerned with preserving national sovereignty. Overly strict adherence to the primacy of national sovereignty can encourage zero-sum thinking.

A better strategy is responsible sovereignty, whereby countries engage in fair, rule-based and accountable international cooperation, joining in collective endeavours that enhance global welfare.

Responsible sovereignty also requires that states ensure the human rights security and safety of their citizens. According to this view, sovereignty is seen not just as a right but as a responsibility.

This changing world has profound implications for the provision of public goods. Areas of global international concern meriting urgent attention and cooperation include trade, migration and climate change.

In some cases, public goods can be delivered by regional institutions, which can avoid the polarization that slows progress in larger, multilateral forums.

Increasing regional cooperation may, however, have disadvantages - adding to a complex, multilevel and fragmented tapestry of institutions. The challenge therefore is to ensure "coherent pluralism" - so that institutions at all levels work in a broadly coordinated fashion.

International governance institutions can be held to account not just by member states, but also by global civil society. Civil society organizations have already influenced global transparency and rule setting on aid, debt, human rights, health and climate change.

Civil society networks can now take advantage of new media and new communications technologies. Yet civil society organizations also face questions about their legitimacy and accountability and may take undesirable forms.

Nevertheless, the future legitimacy of international governance will depend on the capabilities of institutions to engage with citizen networks and communities.

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