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Challenges Of Globalization Essay Free


Mohammad Abo Gazleh

International Conference on Malaysia and Globalization, Kuala Lumpur: University of Malaya, 2001.


Globalization has today become a major sort of debate among academicians, policy makers and NGOs. Its impact is profound. Despite the continuing emphasis on promoting global prosperity and achieving a more “just world,” negative aspects of globalization remain rife in our globe. Poverties, inequalities, injustices, starvations, backwards and marginalizations are all serious problems many societies are still experiencing. The purpose of this paper is to examine the positive and negative aspects of globalization and realize how one could successfully deal with the challenge it poses. The study shows that though globalization is a process by which capital, goods, services and labor cross national borders, and acquire a transnational character, it is often accompanied by the flow of related lifestyles, tastes, ideas, and even values across boundaries which help reshape local political institutions, cultural patterns and social relations. It also creates new opportunities for many peoples to increase their wealth and enhance their prosperities. On the other hand, the potential for people of different cultural and religious backgrounds to know and understand one another owing to this process is greater than ever before. Therefore, it is important that one not reject it totally. Instead, as a short and medium-term strategy one should try to inject ethical and moral considerations into some of the dominant economic institutions, activities and goals associated with the process.

Many peoples in this world have hoped that they would enter the 21st century with more equality and less poverty. They thought, with the rapid growth of world economy and the vast development of productive technology associated with the process of globalization terrible features of our globe would be eradicated or remarkably reduced. Many international conferences have been held, a large number of approaches have been adopted, and scores of studies has been produced, but not much has been achieved. In spite of all calls launched here and there to achieve a peaceful and ‘just world,’ negative aspects of globalization remain rife in our globe. There is also a common fear that attempts to create a globalizing ‘modern life’ will involve displacing the poorest and the most powerless societies to make way for ‘new roads and buildings’ for the rich. The problem in fact lies in the sharp differences and inequalities between haves and have-nots. This process in its current features and aspects presents not only a moral crisis, but also the potential for economic disaster and civil unrest in many areas in the world. The purpose of this paper is to examine the process of globalization and to explore its effects on the various aspects of human life.

I. The Concept of Globalization

Globalization is an ambiguous term. It means different things to different people. It may mean different things to the same person. So what does globalization mean? Is it a new stage in human civilization that goes beyond national borders or native cultures? Could it lead to a universal entity within which criteria of race, color, religion, class, language … etc, would disappear? Or is it just another transformation in world economy? Is it a means of dominance or another face of neocolonialism intending to control people’s minds and lifestyles, or to make their future dependent upon the actions and behaviors of market whales and business groups?

With the rise of Japan and Germany as main economic powers in the beginning of 1960s, scholars started to deal with the term as a merely economic phenomenon (Soubbotina & Sheram, 2000). But after the “withering” of Communism and the end of the Cold War, the term becomes the ‘buzzword’ of our time and its meaning remains elusive. It is now no more an economic phenomenon or a merely mental state as perceived during the Cold War, but it transforms into a movement being enhance through concentrating on (a) global common principles such as democracy and human rights, (b) growing interdependence between states, and (c) unprecedented revolution in information technology (Pilger, 2002: 1-5). The quantitative and qualitative effects of this process are seen in many aspects of human life. Within these perspectives, globalization becomes a process of reshaping human life through globalizing certain values which include economic patterns related to free trade, production, consumption and distribution; cultural patterns related to entity, language, and lifestyle; and political patterns related to democratic process and human rights.

II. Instruments of Globalization

There are many instruments by which globalization is being promoted and enhanced. But the most important instruments influencing this process are the multinational corporations and the new revolution of information technology.

1. Multinational corporations are main instruments of globalization. They possess huge capitals and assets. As profit maximizers, they establish their factors in many developing countries where cheap workers and raw materials are found. Because of their size and their contributions to national economies in terms of taxes and employments, they influence decision-making processes in those countries. Once they established, none has the ability to stop them from withdrawing their investments or moving their capitals from country to another whenever it is in their advantage to do so. In spite of their contributions, the given privileges are not without price. Their activities usually leave serious effects on many host economies; they even sometime create civil unrests. This is because these companies control not only markets, but also peoples (Wooldridge and Micklethwait, 2000).
2. New Information Technology, which is a product of the industrial revolution, is another instrument of globalization. Its aspects, in particular the Internet and multimedia, remarkably contribute to the spread of globalization due to their rapidity, easiness and availability. In spite of its huge benefits, the revolution is still possessed and controlled by some advanced nations, which might use it as a means of cultural influence and informational hegemony.

III. Globalization as a Process to Reshaping Human Life

With the end of the Cold War, liberalist nations have become more interested in promoting the free trade principle, where market mechanisms must be dominant, and governments must not interfere in economic activities. The economic and military strengths of these nations assist them to pursue this objective through convincing many other countries to conduct structural changes in their economic, political, cultural and social spheres. As a result, this process has brought profound impacts on the various aspects of human life in many societies, particularly of those involved. Not only it changes many types of lifestyles, but also involves the bridging of temporal, spatial, and cultural distances in new ways, and that these processes tend to be driven by the revolutions in transport technologies, communications, the internationalization of capital notions of the world system, and post industrialism.

In spite of all these changes associated with globalization, a large number of peoples and scholars do not trust this process. Some, who may be described as conservatives, are skeptical about the role of globalization in human life, and view it as a phenomenon which may bring destructive effects on all human beings. Radicalists, on the other hand, argue that the process is not without great benefits to all peoples; its effects may reach all spots of the earth. Still others view this process as any other historical human experience which may have its positive and negative affects. (Yaapar, 2001: 2)

Regardless of these stands, it is wrong to view the process from an economic perspective only because it is increasingly involving political, cultural and technological fields and is remarkably being reinforced by the huge development of communications and information technologies. The significance of these developments does not only lie in the rapid communications or flow of information among peoples, but also in its role in changing the nature of the lives of all social classes, ‘the rich and the poor.’ Therefore, its importance manifests in the fact that its effects are not limited to the ‘macro’ social systems such as economic or financial systems, but exceed that to affect other social sub-systems such as family structures and individual private patterns (Giddens, 2000: 50).

Positive and Negative Affects of Globalization

The previous introduction shows that globalization has both positive and negative effects on the various aspects of human life.

A. Positive Effects of Globalization

There are some positive effects brought with the process of globalization:

1. In the education field, some of the new communication and information technologies, which are of course linked to the globalization process, have enabled students, researchers and young people in distant and to access ideas and information from the best libraries in the world. They are able to peruse through libraries in different countries without having to travel. Globalization from this point of view assists people in the dissemination of values related to knowledge, and in the promotion of values related to health care etc.
2. Globalization has made communication much easier and cheaper than before. The number of subscribers and users of the Internet are now increasing remarkably.
3. The potential for people of different communities, countries, cultures and religions to know and understand one another is greater than ever before. Knowing and understanding each others are very important to promote and establish common values among people of different communities. Globalization also makes it possible for people to demonstrate their sympathy and compassion for the victims of natural calamities and man-made tragedies all over the world regardless of religions, lands, languages, colors, cultures etc. (Muzaffar, 1998: 181-182 )
4. Globalization has also brought to the fore issues such as the rights of women and children.

All these aspects promote globally certain common values such as equality, human rights, justice, democracy and moral values.

B. Negative Effects of Globalization:

While there are some positive aspects of globalization, its negative effects are ‘overwhelming.’ It almost affects all aspects of human life.

1. Globalization and culture: Globalization affects human cultures from various perspectives:

a. Globalization represents a challenge to cultural and local languages. United Nations’ study (Al-Jazeera, 2001) shows that half of local languages in the world are expected to disappear. This could lead unenthusiastically to marginalizing many local cultures. Scientific and economic superiority of the US and the flow of information technology assist in imposing certain languages in particular English as a second language in some developing and developed countries, and as a first language in some others. There is no doubt that language has significant impact on cultures and, therefore, the dominance of English could contribute to the emergence of a global and intercontinental culture which may wipe out traditions, customs, and values of many societies and marginalizes their cultures .
b. Globalization has significant impact on local entities. Its complexity takes decisive dimensions in particular with regard to its effects on labor immigration from the South to the North. In many cases this problem not only has political reflections, but also social dimensions. For example, when the Algerian football player Zaindeen Zaidan has appeared as a star in the French team in World Cup 1998, French Right Wing started to criticize the presence of non-aboriginal French in the national team (Mittelman, 2000: 71). At the same time, Algerians in both France and Algeria were so pleased and looked at Zaidan as an Algerian hero, despite the fact that he was born in France and still resides there. So globalization in this sense is reshaping the identity of many peoples particularly migrants.

2. Globalization and developing countries: Globalization has serious effects on many developing countries:

a. Although developing countries contribute in away or another to this process, yet they do not yield the benefits of this contribution. Indeed, they remain far away from what we might call ‘the impact point’ to influence its truck or contribute to its direction. In contrast, the process destroys many aspects of life in these societies. The irresponsible behavior of some multinational corporations toward the environment of those countries, or more dangerously marketing expired products and other illegal goods are examples of this destruction. So globalization in this context changes the world to become a “global pillage instead of being a global village” (Giddens, 2000: 50).
b. The widening gap between the North and the South at international level, and between haves and have-nots at national level is another serous aspect of globalization. In fact, the real test to globalization is through its success in reducing the gap between the rich and the poor at local, national and global levels.
c. Globalization has forced many countries in various parts of this world to regulate to a lower league the most fundamental needs of their peoples (Muzaffar, 1998: 183). The equitable distribution of food, adequate health care facilities, and the quality of education are no longer priority concerns the political agendas of the governments in these countries.

All these indicate that poor societies in the third world not only remain far away from benefiting from globalization, but also they continue to suffer from its calamities, pitfalls and misfortunes. It then contributes to laying the foundation of injustices and social inequalities, and moreover preventing the growth of new markets in these countries because they are unable to compete with the advanced markets. Here, competitiveness seems to be unequal and its result under all circumstances remains in favor of the strong and those who control international markets. So instead of filling up the gap between the rich and the poor, globalization in its present formula widens this gap (Aulakh, 2000: 123).

3. Globalization and religions: Although globalization might benefit religions through the easier exchange of information and different opinions about these religions, it however represents a source of harm to many religious and spiritual values (Falk, 2001). Globalization, through its cultural and informational aspects and the promotion of consuming patterns and value corruption, challenges religious systems (Aulakh, 2000: 233). In fact, it is gradually replacing these values with pure secular systems within which certain religious values will lose their influence on peoples’ behaviors.

4. Globalization and morals: The immoral character of globalization is becoming even more serious and its negative impacts in this context have different aspects:

a. Globalization has internationalized crimes. Drug trafficking and the trafficking of women and children have become much more difficult to control because of their international character. Not only crimes are globalized, but also disease (Muzaffar, 1998: 186).
b. Another aspect of this problem is that most users of Internet in cyberspaces are adults and they waste a lot of time using the Internet for unnecessary purposes. One of the most dangerous effects of globalization on young people is the immoral usage of the Internet. Studies show that the number of adults and young people who use web sites containing immoral materials are increasing in particular among schools and universities’ students.(Yaapar, 2001: 3)

5. Globalization and international politics: The collapse of the Soviet Union has led to the US control of the global system and international relations. This provides the US with many opportunities to defend its own national interests globally and to challenge international legitimacy through marginalizing the role of the United Nations and ignoring the international law. Power and interests become the main characteristics of interstate interactions.

6. Globalization and economy: Globalization as an economic movement has significant effect on national and global economies. Although many trade blocs were established and many industrial and economic nations have emerged as a response to this process, the rules of this process have contributed to the collapse of many national economies. The emergence of what can be called ‘electronic trade’ though the Internet is another negative aspect of globalization. Piracy is also reinforced by this process.

7. Globalization and science: Although globalization contributes remarkably to new scientific revolutions in many fields including computer and space sciences, these revolutions are accompanied by new sciences that may be used for immoral purposes or to damage the dignity of man whom the Almighty God honors. Example of these sciences is Genetic Engineering Science, which leads to the emergence of Cloning Science.

8. Globalization and societal structures: The free economy and the development of technology have negative impact on laborers. As known, twenty percent of the world population is producing the needs of all population in this world, while most of the rest 80% are unable to find a suitable source of income. This is serous because underprivileged people are expected to revolt against their bad conditions. This is possible with the growing decline of state’s power to the favor of private sectors, on one hand, and to the growing decrease of the governmental expenditures on social and public services such as heath, education etc., on the other (Barlow, 2000: 7). In this, globalization is a source of social instability and class disparity. Figure (1) shows the global strata according to World Capitalist-System theory.

Abbildung in dieser Leseprobe nicht enthalten

Figure (1): Global Strata according to the World Capitalist-System Theory.

9. Globalization, motivated by economic and technologic progress, has also popularized a consumer culture among people due to the flow of goods and products. Since the desire to consume more and more can never really be satisfied, the consumer becomes addicted to shopping to a point where the spiritual, moral and intellectual dimensions of his/her personality do not grow or develop. These are actually due to the business corporations, which produce the wide array of consumer goods and the media, which advertise them. This aspect could eventually create what is called “homogeneous global culture” and, therefore, lead to the decline of diversity and variety among peoples.

10. Globalization and prosperity: Globalization poses serious questions about peace and prosperity: Is there any relationship between the process and peace or prosperity? Could the implementation of free market principle globally enhance international peace and security or prevents wars, as globalists argue? Prosperity, welfare and economic progress which market economy is expected to achieve could enhance or create some opportunities for political stability; but it does not necessarily ensure peace or social stability. It is true that market economy has contributed to social and political stability in liberal states and to peace among them, but it does the opposite in many developing countries. Asian economic crisis of 1997 is a case in point. The free market forces allowed manipulators to control stock markets and to transfer large amount of money just to maximize their profits, while they were destroying the economies of many Asian countries. Indeed these activities have destroyed the social structures of those societies, and furthermore, created what might be called potential social unrests in the region. That is why globalization in its current formula does not necessarily ensure social and political stability, and therefore will not lead to a more peaceful world, particularly if market forces continue to dominate the mechanisms of power without restrictions. There is also no guarantee that economic crises and social unrests will not spread to advanced nations. The largest demonstrations against globalization are usually held in these countries.

All these negative aspects of globalization pose real challenges not only to many developing countries as usually emphasizes, but also to all human beings who should, if they have to manage these problems, inject religious, ethical and moral considerations, activities and objectives associated with the globalization process. Indeed, peoples should globalize themselves within the religious sphere and common values to build a more just world.


Globalization emerged as an economic phenomenon in the 1960s. But with the development of communications and the vast technological revolution brought by liberal systems, it has become an extension to the world capitalism, which seeks to create a liberal global community within which liberal values prevail. If we are to reflect upon the credit and debit sides of the process, we would realize that whatever advantages have come out of it, they are to a large extent accompanied with unintended effects of a process the basic motivation of which is the expansion of market economies, the accumulation of wealth and the maximization of profits. While the current mechanisms of globalization provide certain opportunities to achieve technical progresses, and might push toward democracy and political rights, or even open unprecedented ‘horizons’ for the freedom of information, the process, on the other hand, paves the way for injustices and inequalities in the distribution of wealth among and within societies. The most serious effect of this process on human life lies in its role in widening the gap between the poor and the rich, not only at global level, but also at local/national levels. Therefore, injustices and inequalities associated with this process, and its various consequences on societies, religions, cultures, moral systems, and even sciences, could undermine its claim that it is a harbinger of a new age of global solidarity. In contrast, the process in its current formula could destroy the social systems of less power societies and threaten the future of human civilization. However, and regardless of our attitudes toward globalization, it is our moral responsibility, as proponents or opponents; individuals or groups; NGOs or governments, to rethink the process of globalization in a manner that enhances its advantages and reduces or eradicates its negatives.


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Camilleri, Joseph A. and Muzaffar, Chandra, eds. (1998). Globalization: The Perspectives and

Experiences of the Religious Traditions of Asia Pacific. Kuala Lumpur: International Movement for a Just World.

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Mittelman, James H. (2000). The Globalization Syndrome: Transformation and Resistance. New York: Princeton University Press.

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Perspectives and Experiences of the Religious Traditions of Asia Pacific. (Camilleri, and Muzaffar, eds), pp. 179-190. Kuala Lumpur, PJ: International Movement for a Just World.

Muzaffar, Chandra. (1997). Cultures Under Attacks. In ISIS Focus. Kula Lumpur: Institute of Strategic and International Studies.

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Soubbotina, Tatyana P and Sheram, Katherine. (2000). Beyond Economic Growth: Meeting the Challenges of Global Development. New York: World Bank.

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Al Jazeera accessed on 10 February, 2001.

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The Challenges of Globalization for Africa --Alassane D. Ouattara

May 21, 1997

Address by Alassane D. Ouattara
Deputy Managing Director of the International Monetary Fund
at the Southern Africa Economic Summit
sponsored by the World Economic Forum
Harare, May 21, 1997

Globalization has become a major topic of discussion and concern in economic circles since the mid-1990s. It is clear that the trend toward more integrated world markets has opened a wide potential for greater growth, and presents an unparalleled opportunity for developing countries to raise their living standards. At the same time, however, the Mexican crisis has focussed attention on the downside risks of this trend, and concerns have arisen about the risks of marginalization of countries. All of this has given rise to a sense of misgiving, particularly among developing countries.
So what is "globalization"? What are its implications for the conduct of economic policy, particularly in Africa? What are its potential benefits and risks? What will developing countries have to do to benefit from it, to avoid its downside risks? Is there any good reason to fear globalization? To answer these and other questions, it would be useful first to explain what globalization is, and what it is not, what has caused it, and what effects it has had. Situating the discussion in this context will make it easier to identify the benefits and the true risks of the trend to global integration and, in turn, to determine the correct policy response.

What is globalization?
In most basic terms, the globalization of the world economy is the integration of economies throughout the world through trade, financial flows, the exchange of technology and information, and the movement of people. The extent of the trend toward integration is clearly reflected in the rising importance of world trade and capital flows in the world economy. An increasingly large share of world GDP is generated in activities linked directly or indirectly to international trade. And there has been a phenomenal growth in cross-border financial flows, particularly in the form of private equity and portfolio investment, compared with the past. In addition, the revolution in communication and transportation technology and the much improved availability of information have allowed individuals and firms to base their economic choices more on the quality of the economic environment in different countries. As a result, economic success in today's world is less a question of relative resource endowments or geographical location than it used to be in the past. Now, it is more a question of the market perception of the orientation and predictability of economic policy.

Globalization is first and foremost a result of the expansion, diversification and deepening of trade and financial links between countries, especially over the last ten years. This reflects above all the success of multilateral tariff reduction and trade liberalization efforts. The Fund has played a key role in encouraging current account convertibility as a basis for the expansion of world trade, and more than two-thirds of the Fund's member countries have committed themselves to this principle by accepting the obligations of Article VIII. Also, economic thought itself has evolved over time, toward the general acceptance of the fact that outward- oriented and open economies are more successful than closed, inward-looking ones. Consequently, more than at any time previously, individual countries in all parts of the world are liberalizing their exchange and trade regimes in the conviction that this is indeed the best approach for growth and development. Moreover, there is a deeper commitment of national authorities throughout the world to sound macroeconomic policies, and to creating a more stable environment for investment and the expansion of economic activity. Finally, with the increasing liberalization of financial markets, and their growing sophistication, capital markets have become integrated, and capital flows are now largely driven primarily by considerations of risk and return.

The benefits of these developments are easily recognizable--increasing trade has given consumers and producers a wider choice of low-cost goods, often incorporating more advanced technologies, and facilitated a more efficient use of global resources. Greater access to world markets has allowed countries to exploit their comparative advantages more intensively, while opening their economies to the benefits of increased international competition. The rapid increase in capital and private investment flows has raised the resources available to countries able to attract them, and accelerated the pace of their development beyond what they could otherwise have achieved.

Moreover, greater openness and participation in competitive international trade have increased employment, primarily of skilled labor, in tradable goods sectors. With the expansion of these sectors, unskilled labor has found increased employment opportunities in the nontradable sectors, such as construction and transportation. The expansion of merchandise trade may also have lessened migrationary pressures. On the other hand, the movement of labor across national boundaries has in many cases lessened production bottlenecks, raising the supply response of recipient economies, and increasing income in the supplying countries through worker remittances. Openness to foreign expertise and management techniques has also greatly improved production efficiency in many developing countries.

But there are also risks to globalization. The ability of investment capital to seek out the most efficient markets, and for producers and consumers to access the most competitive source, exposes and intensifies existing structural weaknesses in individual economies. Also, with the speedy flow of information, the margin of maneuver for domestic policy is much reduced, and policy mistakes are quickly punished. Indeed, increased capital mobility carries the risk of destabilizing flows and heightened exchange rate volatility, in cases where domestic macroeconomic policies are inappropriate. And finally, it is clear that countries that fail to participate in this trend toward integration run the risk of being left behind.

Who benefits and who loses?
It is important to recognize that globalization is not a zero-sum game--it is not necessary for some countries to lose in order that others may gain. But to take advantage of this trend, countries will have to position themselves properly through the right policies. Clearly, those economies that open themselves to trade and capital flows on a free and fair basis and are able to attract international capital will benefit the most from globalization. Open and integrated markets place a premium on good macroeconomic policies, and on the ability to respond quickly and appropriately to changes in the international environment.

Success in open markets, and in attracting new investment and advanced technology, also means that the structure of economies is changing more rapidly than ever before. As with any structural change, there will be some segments of society that are at a disadvantage in the short term, even while other segments, and the economy as a whole, are benefiting. This does not mean, however, that countries should seek to isolate themselves from globalization. Rather, governments must fully embrace globalization in awareness of its potential risks, and seek to provide adequate protection for the vulnerable segments of society during the process of change.

While globalization raises the rewards of good policy, it also accentuates the costs of poor policy. Credibility of economic policy, once lost, has become more difficult to regain. What is now critical is the perception of markets that economic policy formulation and implementation is consistent and predictable. This underscores the importance of flexible and well-informed policy-making, of solid, well-governed institutions, and of transparency in governance. Countries with a poor or inconsistent policy record will inevitably find themselves passed by, both from expanding trade and from private capital flows for development. These are the countries that run the risk of marginalization.

What policy response to globalization?
The question of what policies are needed to benefit from globalization has preoccupied economic thinking in recent years. In fact, this topic is a central theme of the most recent edition of the IMF's World Economic Outlook. We studied those economies that have made the most economic progress in recent years, and have profited the most from recent trends. We found that success is closely linked to an appropriate combination of policies with three main objectives: (i) achieving and preserving macroeconomic stability; (ii) promoting openness to trade and capital flows; (iii) and limiting government intervention to areas of genuine market failure and to the provision of the necessary social and economic infrastructure.

More importantly, no one set of policies is a sufficient condition for success--indeed, experience shows that poor policies in one area can obstruct progress, even if policies in other areas are good. The three objectives of policies complement and reinforce each other:

  • macroeconomic stability, embodied in low inflation, appropriate real exchange rates and a prudent fiscal stance, is essential for expanding domestic activity, and is a precondition for benefiting from and sustaining private capital flows;
  • openness, in the resolute pursuit of policies to rationalize and liberalize the exchange and trade regimes, is vital in international competition. This forces the economy to fully exploit its comparative advantage through trade;
  • and finally, the primary role of the government should be the creation of an enabling environment that encourages foreign and domestic investment, and of a solid infrastructure to support an expanding economy. The government must also implement policies that eliminate the structural weaknesses that would be exposed by the heightened international competition. Not surprisingly, these elements are generally central to the policy dialogue between the International Monetary Fund and its members.
The Challenges of globalization for Africa
Globalization will continue to reinforce the interdependencies between different countries and regions. It can also deepen the partnership between the advanced countries and the rest of the world. And to support this partnership in a mutually beneficial way, the advanced countries could help to further open their markets to the products and services in which the developing world has a comparative advantage. In addition, the reform efforts of the African countries will need to continue to be supported by adequate financing on concessional terms. In this regard, I am pleased to note that the Fund has put the ESAF, our concessional lending facility, on a permanent footing, so that it can continue to support reform efforts of the poorer countries, especially in Africa. Moreover, the Fund and the World Bank have recently begun implementing the framework for action to resolve the external debt problems of heavily indebted low-income countries (HIPC), including their large multilateral debt. Three African countries--Burkino Faso, Côte d'Ivoire, and Uganda--are among the first countries to be considered under the Initiative.

The challenge facing the developing world, and African countries in particular, is to design public policies so as to maximize the potential benefits from globalization, and to minimize the downside risks of destabilization and/or marginalization. None of these policies is new, and most African countries have been implementing them for some time. In particular, sub-Saharan Africa has made substantial progress toward macroeconomic stability:

  • there has been continued improvement in overall growth performance. Average real growth has increased from less than 1 percent in 1992 to over 5 1/2 percent in 1996, and this positive trend is expected to continue;
  • there has been some success in bringing down inflation--many countries have already achieved single digit inflation rates, and for the region as a whole, average inflation is expected to fall from the peak of 60 percent in 1994 to 17 percent in 1997;
  • countries have also reduced their internal and external imbalances. The external current account deficit has fallen from an average of 15 1/2 percent of GDP in 1992 to about 9 percent projected for this year, while the overall fiscal deficit has been cut from almost 12 percent of GDP to 6 percent over the same period.
African governments have also made considerable strides in opening their economies to world trade. A good indicator of this is the fact that 31 Sub-Saharan African countries have accepted the obligations of Article VIII of the Fund's Articles of Agreement, almost all of them since 1993. Most countries have moved ahead with trade and exchange liberalization, eliminating multiple exchange rates and nontariff barriers, and also lowering the degree of tariff protection. A recent qualitative study by the African Department of the Fund indicates that the number of countries in Sub-Saharan Africa with a "restrictive" exchange regime declined from 26 in 1990 to only 2 in 1995, while the number of countries with a "substantially liberal" trade regime rose from 26 to 38 over the same period.

Finally, the restructuring of many African economies is gaining momentum. Throughout the continent, government intervention in economic activity is on the wane. Administrative price controls are being reduced and agricultural marketing has been widely liberalized. The process of restructuring and privatizing state enterprises has been underway for some time in most countries, though with varying speed and degrees of success. And finally, fiscal reform is gaining ground--African countries are taking firm steps to rationalize their tax systems, to reduce exemptions, and to enhance administrative efficiency. At the same time, they are also reorienting expenditures away from wasteful outlays towards improved public investment and spending on key social services, particularly health and basic education.

But, as I pointed out earlier, it is essential to achieve the right combination of policies. While Africa is clearly on the right track, there is still some way to go. I see five main areas where African countries need to achieve greater progress in order to speed up their participation in globalization:

  • maintaining macroeconomic stability and accelerating structural reform
    As the continent enters the "second phase of adjustment", the emphasis must be to maintain economic stability and to reinforce the implementation of structural policies that will make the economies more flexible, encourage diversification, and reduce their vulnerability to exogenous shocks. These include further reforms in the areas of public enterprise activity, the labor markets, and the trade regime. Governments must also ensure that public services--including transportation networks, electricity, water, and telecommunications, but also health services and education--are provided in a reliable and cost-efficient fashion.
  • ensuring economic security
    Establishing the right framework for economic activity addresses the second requirement of policy--removing the sense of uncertainty that still plagues economic decision-making in most of Africa. The direction and orientation of future policy must be beyond question. This requires the creation of a strong national capacity for policy formulation, implementation and monitoring. Moreover, the transparency, predictability and impartiality of the regulatory and legal systems must be guaranteed. This goes well beyond the respect of private property rights and the enforcement of commercial contracts. It also involves the elimination of arbitrariness, special privileges, and ad-hoc exemptions, even where these are intended to encourage investment.
  • reforming financial sectors
    As the Interim Committee observed during its April meetings in Washington, an open and liberal system of capital movements is beneficial to the world economy. However, rising capital flows place additional burdens on banking regulation and supervision, and require more flexible financial structures. This aspect of globalization thus confronts developing countries with a new challenge--to accelerate the development and liberalization of their financial markets, and to enhance the ability of their financial institutions to respond to the changing international environment. Much remains to be done to reform and strengthen Africa's financial systems, many of which are weak and poorly managed.
  • achieving good governance
    National authorities should spare no efforts to tackle corruption and inefficiency, and to enhance accountability in government. This means reducing the scope of distortionary rent-seeking activities; eliminating wasteful or unproductive uses of public funds; and providing the necessary domestic security. Many African countries will also have to undertake a comprehensive reform of the civil service, aimed at reducing its size while enhancing its efficiency. In short, governments must create confidence in their role as a valued and trusted partner of private economic agents.
  • a partnership with civil society
    Finally, African governments will need to actively encourage the participation of civil society in the debate on economic policy, and to seek the broad support of the population for the adjustment efforts. To this end, governments will need to pursue a more active information policy, explaining the objectives of policies and soliciting the input of those whom the policies are intended to benefit.
Globalization and regional integration
With closer economic integration, each country has an interest in ensuring that appropriate policies are followed in its partner countries. This could be achieved by coordination the relevant national policies within a regional context. Throughout the continent, African governments are coming together to coordinate components of their policies, and virtually all countries are now members of regional organizations. Efficient regional cooperation allows the economies of Africa to overcome the disadvantages of their relatively small size and, by opening access to larger markets, to realize economies of scale. The obligations of membership in some of these organizations also make it easier for each individual country to achieve further progress in regulatory and judicial reform (as is the case in the CFA franc zone); to rationalize payments facilities and to relax restrictions on capital transactions and investment flows (as in the Cross-Border Initiative); and to develop the mutual economic infrastructure (as in the SADC). Enhancing the trade links among themselves naturally also strengthens their ability to participate in trade on a global scale, and could lead toward further progress in the direction of nondiscriminatory multilateral trade liberalization.

The challenge for the future will be to ensure that these regional organizations are perceived as effective vehicles for the integration of African countries into the world economy, providing mutual support to their members in their reform efforts. They should not be considered as defensive mechanisms, intended to ward off the "negative" aspects of globalization. Common regional objectives should be set in terms of international best practices. And the regional organizations should seek to push through reforms in the areas of the legal and regulatory frameworks, financial sector restructuring, labor and investment code reform, and exchange and trade liberalization that seek to reach international standards as quickly as possible. The pace of progress should be what is feasible, not what is comfortable for the slowest member.