When you look at figures regarding international migration, the movement of people from developing to developed countries is most talked about and is the most common of the four types. Figures issued by the McKinsey Global Institute estimate that 120m people have made this move – see graphic below:
The second largest move is from developing to developing countries with just under 80m. This flow has been a popular option as people leave a poor country for a somewhat less poor country in search of higher wages. For instance the World bank estimated that 1.5m migrants from Bukino Faso live in the Ivory Coast which is proportionately larger than Indians in the UK, Turks in Germany and Mexicans in the US. The Ivory Coast is a poor country but not as poor as Burkina Faso and with wages double what they are in Burkina Faso migration is an attractive proposition. The World Bank estimates that $343m in remittances flowed from Ivory Coast to Burkina Faso in 2015 and accounts for 87% of all remittances.
Another example of movement from a developing to developing country is India and Bangladesh with an estimate of 20m Bangladeshis living in India. The World Bank estimates that more money is remitted to Bangladesh from India than from any other country – $4.5bn in 2015.
Why is developing to developing becoming more prominent?
- Neighbouring countries tend to share currencies meaning money can be moved more easily in ways that officials do not notice.
- Poorer people cannot afford travel to the West or the Gulf
- The poorer people are the shorter the distance they can travel so neighboring countries might be attractive
- Neighboring countries often share a language
- Tribes often span borders of developing countries
- In developed countries most jobs require legal documentation and authorisation. In the developing world informal work is seen as the norm.
- More less-skilled work is available in developing countries.
- The West does not have enough jobs for those from developing countries – African, Asian countries may offer more opportunity.
Sources: McKinsey Global Institute, The Economist.
Commodities have been the engine of growth for many sub-Saharan countries. Oil rich nations such as Nigeria, South Africa and Angola have accounted for over 50% of the region’s GDP whilst other resource-intensive countries such as Zambia, Ghana and Tanzania to a lesser extent.
I have mentioned the ‘resource curse’ in many postings since starting this blog. It affects economies like in sub-Sahara Africa which have a lot of natural resources – energy and minerals. The curse comes in two forms:
- With high revenues from the sale of a resource, governments try and seek to control the assets and use the money to maintain a political monopoly.
- This is where you find that from the sale of your important natural resource there is greater demand for your currency which in turn pushes up its value. This makes other exports less competitive so that when the natural resource runs out the economy has no other good/service to fall back on.
However it is the fall in commodity prices that is now hitting these countries that have, in the past, been plagued by the resource curse. As a lot of commodities tend to be inelastic in demand so a drop in price means a fall in total revenue since the the proportionate drop in price is greater than the proportionate increase in quantity demanded.
The regional growth rate for 2016 is approximately 1.4% but it is not looking good for commodity driven economies:
- Nigeria – oil – 2016 GDP = -2%
- Angola – oil – 2016 GDP = 0%
- South Africa – gold – 2016 GDP = 0%
In 2016 resource rich countries will only grow by 0.3% and commodity exporting countries have seen their exports to China fall by around 50% in 2015. Furthermore, public debt is mounting and exchange rates are falling adding to the cost of imports. With less export revenue the level of domestic consumption has also decreased.
It is a different story for the non-resource countries of sub-Sahara. It is estimated by the IMF that they will grow at 5.6%. By contrast they have been helped by falling oil prices which has reduced their import bill and public infrastructure spending which has increased consumption.
As is pointed out by The Economist numbers should be read wearily as GDP figures are only ever a best guess, and the large informal economy in most African states makes the calculation even harder. Africa may have enormous natural reserves of resources, but so far most Africans haven’t felt the benefit. In Nigeria, for instance, what’s seen as a failure to spread the country’s oil wealth to the country’s poorest people has led to violent unrest. However, this economic paradox known as the resource curse has been paramount in Africa’s inability to benefit from resources. There is a gravitation towards the petroleum industry which drains other sectors of the economy, including agriculture and traditional industries, as well as increasing its reliance on imports. What is needed is diversification.
Major central banks around the world have maintain interest rates at record low levels since the global financial crisis in 2008. However, yesterday the Bank of Ugandan (Central Bank) increased its benchmark interest rate by 150 basis points to 14.5% in order to protect the currency and ease inflationary pressure. However interest rates did reach 23% in January 2012. The Bank of Uganda has intervened in the foreign exchange market to the extent that foreign reserves have decreased in the last year by 17% to US$2.8 billion but have been forced to increase interest rates as an alternative. Uganda is Africa’s biggest exporter of coffee with a current inflation rate of 4.9%. How some developed countries would love to have a bit of inflation.
Source: Trading Economics
A common feature in the labour market of many Africa countries is the high rate of low-productivity and under-employment in their economies. Furthermore firms in southern Africa take on 24% fewer employees than is the norm in other countries. So what are the constraints in these countries that put a stop to firms hiring more workers?
One of the main reasons is the informal economy that exists in many of these countries. It is estimated that nine out of ten workers have cash jobs, mainly in the primary sector, and therefore are not part of the employment figures. Their choice makes it harder for Africa to reduce poverty because increases in revenue in this sector do not mean that wages will also become greater. The size of firms will also impact on employment numbers as small firms will want to maintain that status. A firm below 50 workers is classified as small and therefore will not have the burden of government regulations that a large firm (over 100 workers) will have to contend with. In Nigeria and Liberia firms with more than 100 employees have to spend 14% longer in its communication with government officials than their smaller counterparts. Additionally where a company has fewer employees government officials are less likely to allocate time in search of tax fraud and bribes than would be the case with large firms – the latter being more inclined to pay up.
Labour in Africa should be cheap as income levels are very low – World Bank Classification low income country is less than US$766 per person. However unit labour costs on average are higher in Africa than in China as the productivity of the workforce is much lower. In comparison to other countries of less developed status outside Africa, the wages are 80% higher which makes employers less inclined to hire more workers.
The issue of trust between employer and employee is another reason for the low employment numbers. As firms start to grow bigger they switch away from family-only employees to those in the labour force and this lack of trust can play a role in limiting the size of the firm.
The above is a brief extract from an article published in this month’s econoMAX – click below to subscribe to econoMAX the online magazine of Tutor2u. Each month there are 8 articles of around 600 words on current economic issues.
Here is another documentary type movie which has had some very good reviews. Produced by the Directors of the award winning documentary “Black Gold”.
On the front line of China’s foray into Africa, the lives of a farmer, a road builder, and a trade minister reveal the expanding footprint of a rising global power. A historic gathering of over 50 African heads of state in Beijing reverberates in Zambia where the lives of three characters unfold. Mr Liu is one of thousands of Chinese entrepreneurs who have settled across the continent in search of new opportunities. He has just bought his fourth farm and business is booming.
In northern Zambia, Mr Li, a project manager for a multinational Chinese company is upgrading Zambia’s longest road. Pressure to complete the road on time intensifies when funds from the Zambian government start running out.
Meanwhile Zambia’s Trade Minister is on route to China to secure millions of dollars of investment.
Through the intimate portrayal of these characters, the expanding footprint of a rising global power is laid bare – pointing to a radically different future, not just for Africa, but also for the world.