Learn how the World Bank Group is helping countries with COVID-19 (coronavirus). Find Out

Speeches & Transcripts

Why the G-20 Should Be Interested in the Development of the G-160 +

June 4, 2010

Ngozi N. Okonjo-Iweala, Managing Director, The World Bank World Bank-Korea Conference on Post Crisis Growth and Development Busan, Korea, Republic of

As Prepared for Delivery

Korea:  From Poor to Prosperous

Good morning, and welcome to this High-Level conference on Post-Crisis Growth and Development organized jointly by the Government of Korea and the World Bank.  I would like to pay tribute to our host country and to thank Doctor  Il Sakong and all those who have worked hard to make this happen.  This conference is timely. Tomorrow, Finance Ministers from the G20 group of nations will meet here in Busan and in November, Korea will become the first non-G7 country to host the G20 leaders’ summit.

I want to commend President Lee Myung-Bak for his leadership in the G20 process and his foresight in helping ensure development issues are on the G20 agenda even as the whole world remains preoccupied with a smooth exit from the most serious economic and financial crisis since the Great Depression.

In the space of less than half a century, Korea transformed itself from a poor nation into an industrialized country by building on its comparative advantage – in the face of scarce natural resources – moving to export oriented industry and investing in its people.

The World Bank played a role in Korea’s development effort, through economic analysis, policy advice and a diversified lending program that responded to the changing needs of a fast growing economy.  This was a clear win-win. We learnt from Korea’s development experience, gaining lessons in areas such as planning and investing in scientific and technological excellence in education, industrial sector restructuring, technology acquisition and financial development.

In 1973, Korea graduated from IDA, the International Development Association, the arm of the World Bank which helps the 79 poorest countries on the globe, which it had joined in 1961.  It became an IDA donor in 1977.  In the last replenishment round, Korea pledged a welcome US$285 million.  In January this year, Korea became the first country to advance from being one of the original recipients of aid from IDA to join the DAC, the Development Assistance Committee of the OECD.

Korea’s remarkable history should serve as a reminder at the G20 table of the importance of development, even though the G20 we see today was a child of the global financial and economic crisis.  This crisis has exacted a heavy toll on poor people everywhere.  The World Bank estimates that an extra 64 million people will be living under US$1.25 a day by the end of 2010 as a consequence of the crisis.  These are people who live not just in the poorest countries in the world, but also in middle income countries – now home to 70 percent of the world’s poor.

Weathering Crises 

When called on to play a historically large role to protect the poor and lay the foundation of recovery, the World Bank Group has risen to the challenge.  Between July 2008 and May 2010, our financial commitments amounted to a record US$105 billion.  Learning from past crises, we have targeted this support toward social safety nets for the most vulnerable; productive investments in agriculture, infrastructure, and innovation; and assistance to the private sector as an engine of growth.

We have devised new ways to help our clients—from the food crisis response to the IDA Crisis Response Facility and IFC’s special vehicles for trade finance, microfinance, bank capitalization, infrastructure and distressed debt.  Many of these involve close partnerships with donors, including Korea.   

While huge rescue packages by wealthy countries staved off another Great Depression, we are now confronting the hangover of fiscal imbalances. Gross general government debt in many rich country economies is projected to rise from an average of 75 percent of GDP at the end of 2007 to 110 percent of GDP at the end of 2014, even assuming that the crisis-related stimulus measures are withdrawn in the next few years.

Confronted with this, many governments are rushing to reduce their budget deficits, which unfortunately, could jeopardize the already weak global recovery.

High levels of debt in parts of the Euro zone, sparked by Greece, pose the risks of contagion, not just within Europe, but beyond, as shown by movements in asset prices all over the world. This represents a new threat for the global economy. 

Just when we thought we had turned the corner, there are new clouds on the horizon. Nelson Mandela, who is no stranger to overcoming adversity, warned that “After climbing a great hill, one only finds that there are many more hills to climb.”

Engines for Growth in The Developing World

The G-20’s objective is “strong, sustainable and balanced growth.” With the inevitability of a large fiscal consolidation in the advanced economies and renewed uncertainty as a result of the European debt crisis,  the economic resilience of emerging economies as well as low-income countries  is vital to achieving the G-20’s aims.

The strong growth already evident in emerging and developing economies should serve as a reminder to all of us of the increasing power and potential of these countries on the global stage. There are dynamic poles of growth in Latin America, Asia and Africa that need to be recognized – even if they are not at the G- 20 table.

Asia offers a powerful example.  The region’s share of global output in purchasing power parity terms has tripled in less than two decades, increasing from 7 percent in 1980 to 21 percent in 2008.   The region’s stock markets now account for 32 percent of global market capitalization, ahead of the United States at 30 percent and Europe at 25 percent. And the share of developing countries as a whole in global output in purchasing power parity terms has increased from 34 percent in 1980 to 43 percent in 2010. 

We know almost half of global growth now comes from developing countries.  The statistic alone illustrates the changing dynamics of the world economy.  That is why I want to talk today about why the G-160+ matters to the G-20.

Why the G-160+ Matters

Let me give you four concrete reasons why the G-20 should be interested in the G-160 +.  

First, while some of the increased global demand needed to sustain global output and jobs can come from emerging G-20 economies, a big chunk of it can also come from low-income countries!  Let me give you some numbers from Africa to make the point.

  • Incomes are rising. GDP per capita GDP growth went from 0.7 percent per year over 1996 to 2001 to 2.7 percent per year over 2002 to 2008.
  • Sub-Saharan Africa has a growing consumer market. Its population rose from 672 million in the year 2000 to 820 million in 2008. It is only a matter of time before it rivals that of China and India.

The same dynamics of rising incomes and increasing demand is being reproduced in many low income countries around the world, who can now play a role as new sources of global demand.

Secondly, there is money to be made!  Increasingly companies investing in low income countries are reaping disproportionately higher returns, compared to those investing in traditional markets. New research by the Boston Consulting Group shows that “….Africa’s top 40 companies are emerging as competitors on the global stage, propelled by economies whose performance now rivals the BRIC nations.”[1] – Brazil, Russia, India and China. We can now begin to envision not just East Asian tigers, but African lionesses.

With Africa’s recent growth, it should be in the interests of G20 policymakers to get the word out to their own multinationals about new opportunities, not just in the African Lionesses like Mauritius and South Africa — but also in other fast growing low income countries like Ghana and Armenia.

Another vital area of focus is trade.  Advanced economies need extra sources of demand to support recovery and create jobs.  But they also need inputs for their products such as minerals, agriculture and fossil fuels. And developing countries need access to overseas markets in order to grow faster through expansion and rising productivity.  This can be a win-win situation, but we need to work hard to make it happen.

The global contours of trade have been changing.  Developing countries have accounted for about half of the increase in world import demand since 2000.  Many low income countries are more open today than they were in 2000.

Five years ago, at the G8 meeting in Gleneagles, Scotland, world leaders launched a global initiative on “aid for trade”  to help the integration of developing countries into the global economy through initiatives to expand trade.  Delivering on these commitments has proven difficult. There is currently no central entity or global financial coordination mechanism that takes the lead on or is the focal point for delivering aid for trade. Yet, as you’ll undoubtedly hear today, this is crucial not only to improve productivity of firms and farmers in poor developing countries, but also to foster global growth.

Developing countries need to play their part too.  They tend to have more and higher barriers to trade and investment in services. Removing such restrictions can generate substantial benefits, leading to lower cost and higher quality producer services for firms and farmers in these countries.

Another reason the G-20 should be interested in the G-160 + relates to the pervasive and costly effects of climate change in our globally-linked world.  While all countries will be adversely affected, the biggest impact will be on the poorest countries and the poorest people within them.  Even if efforts to reduce greenhouse gas (GHG) emissions succeed, some degree of global warming and climate change is unavoidable.  South and Southeast Asia have huge floods, while storms will have their greatest effects in the hurricane belt of the Pacific and Indian Oceans.  Sub-Saharan African countries are expected to suffer the most from drought and reduced agricultural productivity. 

The costs of adapting to a changing climate will increase over time. A recent Bank study  estimates that the cost of adaptation by low-income countries will be around US$24-26 billion per year over the next ten years (in 2005 prices). But these costs could be offset by increases in productivity over time, job creation and technology transfer from countries like Korea and Japan to those in need.  It’s better to act now than pay more later.   In Bangladesh, for example, the cost of reinforcing embankments and dykes in coastal areas is small compared to the expected damages.  Similarly, the cost of addressing Bolivia’s irrigation challenges today is lower than if kept for later.

Weather changes in developing countries, including those in the G-20, could slow growth not only for these countries, but also for their neighbors and possibly the developed world.  Imagine the potential impact on businesses in the developed world of a potential shortage of soybeans or coffee from Brazil, cotton from Egypt and Central Asian countries or rice from Thailand, Bangladesh or India.  Therefore, it is in the G-20’s interest to act early on climate change to help low income countries secure sustainable long term growth.

In this context, I want to commend Korea’s commitment to green growth, both via its Green New Deal Stimulus Package—regarded as the greenest among all stimulus packages--and its plan to launch a Global Green Growth Institute during the East Asia Climate Forum later this month.

Grappling with Key Constraints Like Infrastructure, Education and Skills

To enhance the G-160+’s contribution to the global economy even further, it will be important to remove some constraints to growth. Here too there can be win wins for the G-20, for example, investing in infrastructure.  This is about a $900 billion plus business, which is estimated to be the total annual infrastructure investment and maintenance needs in developing countries, representing about six to eight percent of developing countries’ GDP.  Nearly every investment climate survey for a developing country points to the lack of infrastructure as a constraint on private investment and the competitiveness of private firms.   But action does pay off.   We’ve all heard about how Information and Communications Technology (ICT) and the widespread availability of cell phones have transformed the lives of poor people working in agriculture, forestry or fishing by giving them access to information about market prices and demand from nearby markets.  

But the basics – the lack of paved roads, electricity power and ports are a problem.  In some cases, if you fix the roads, you avoid losing goods to spoilage because they cannot get to market on time.  Countries like Cambodia, Laos, Tajikistan  all provide examples where investment in infrastructure can give a much needed spur to growth, helping those countries on the way to realize their potential.

The second major constraint has to do with education and skills.  The developed world benefits if there’s an educated, skilled workforce in the developing world.  Governments of developing countries  can play a role here, by investing more in education and improving its quality.  Quality is critical because it is cognitive skills and learning, not years of schooling that matters.  [2]

Governments must also ensure their workforce is adequately trained and the young people leaving secondary school are employable.  This requires investment in technical and vocational education training.   If governments hope to attract foreign direct investment in labor-intensive manufacturing, such investments are critical.  Large investments in education and skills underlay the growth miracles in Korea and other East Asian nations.  Developed countries have a stake in this.   One of the main motivations for firms to offshore services internationally is the lower cost of workers.  And as we know, increased Foreign Direct Investment flows in this area are a win-win for both developed and developing countries. 

The big question is how to finance the needed investment in infrastructure, education and skills.

Clearly, developing countries need to increase their own domestic resource mobilization.  But the G-20 can also help with additional sources of  funds.  These provide important leverage for supporting public sector basic service delivery in all low income countries.   I call upon the G-20 to throw its full support behind the upcoming IDA-16 replenishment round.  These resources are needed to support the development agenda in the 79 poorest countries in the world.  The replenishment comes at a time of significant fiscal constraints in many donor countries and renewed uncertainty about the global economic recovery.  But these difficulties need to be weighed against the imperative of supporting the fragile recovery in these  IDA countries and the need for redoubling efforts in pursuit of the Millennium Development Goals, with the overall aim of halving poverty by the year 2015.

The G-20 can also help by exploring new modes of front loading and delivering development finance for infrastructure, as the donor community has done through the Advance Market Commitment (AMC) mechanism for vaccines and other mechanisms that effectively eliminate uncertainty about financing essential development services.  In a similar vein, exploring development bonds, diaspora bonds or other forms of securitizing assets can help deliver the large resources needed for infrastructure in developing countries.

An important spinoff  of such approaches could also be changes in perceptions about doing business in low income countries and in particular in Sub-Saharan Africa.

Finally, we must not overlook the repatriation of public monies back to low-income countries that were corruptly stolen and sitting in the financial centers of developed countries and emerging markets.  This is an important issue for the G-20 and for developing countries alike.

Big sums are involved.  By conservative estimates, every year around US$20 to US$40 billion is stolen from developing countries through bribery, misappropriation of funds and corrupt practices.  For example, US$20 billion can finance about 48,000 km of two-lane paved road in an average low income country.   Preventing  such theft and repatriating stolen public assets stashed abroad can be a significant source of development finance—especially at a time of fiscal constraint in rich countries.  That’s why the World Bank Group has been partnering with the United Nations Office on Drugs and Crime on the Stolen Asset Recovery (StAR) initiative to go after corrupt gains.

As part of its anti-corruption agenda, the G-20 can support the StAR initiative by adding “no safe havens for the proceeds of corruption” to its cause.

Sink or Swim Together

In conclusion the G-20 needs the G-160 + for reasons of self interest.  G-20 countries need new sources of demand. The developing world has the potential and the people. They can help in the building of a world of jobs, not joblessness; hope, not  hopelessness.  The G-20 must recognize this and give development a central place in its agenda.  

Aid needs to move more in the direction of assistance for investment and long-run growth in developing countries.  This reorientation is not going to happen overnight; and it might take a whole generation to deliver tangible results.  But as an ancient Korean proverb reminds us, "A 1000-li journey starts with one step." [3]  When we look back on events 20 years from now, this conference with its rich agenda spanning topics from growth, to the development lessons from Korea, to aid-for-trade and inclusive finance – to mention a few topics—could be that one step.

Once again, then, let me thank our hosts for these excellent arrangements and the tremendous hard work and organization that have gone into this conference in this beautiful city.  I’m sure we will be provoked and enriched as a result of this conference, which is taking on issues of global import at a critical juncture for the world economy.   Thank you.

Api
Api