Can WEF Africa deliver inclusive growth?

Paul Clark, Africa Portfolio Manager at Ashburton Investments.

Critics are quick to label meetings of the World Economic Forum (WEF) as talk shops where nothing gets done.

At the very least of course a get together of government and business leaders together with non-governmental organisations and development finance institutions in a non-hostile and solution seeking environment must shape policy outcomes in some way.

What many people are not aware of is that the work of the WEF carries on behind the scenes in between meetings. Many research papers are commissioned, blogs written and focus groups interact under the umbrella of this not-for-profit foundation. In a world where many people are feeling left behind by a more globalised and hi-tech world, economic inclusion has become an important agenda. This is true for highly advanced economies, but even more critical for low income and developing countries - and that means most economies in Africa.

In the past, the key focus for economic observers has been GDP growth and especially GDP per capita growth in order to measure progress and prosperity. These measures however do not give any indication of the distribution of the wealth and benefits within societies. The (previously) widely held view that the “trickle-down effect” will create wealth for all as long as the economy is growing is no longer the key thesis for economic development.

In order to address the need to understand and measure the key determinants of inclusive growth and to provide guidelines the WEF’s economists developed a framework that, in their words, “provides a practical guide for policymakers and stakeholders seeking to build a strategy to capture greater synergy between economic growth and more broadly-based progress in living standards in their countries”.

The results of this study are published in the WEF’s “Inclusive Growth and Development Report 2017”. In order for countries to benchmark themselves and monitor progress on the inclusiveness of their economies a set of Key Performance Indicators (KPIs) is proposed which allows countries to measure their “bottom line” performance of economic inclusiveness and benefits to the population rather than just the “top line” performance of GDP growth.

For example, these KPIs include employment levels, life expectancy, poverty rates and Gini coefficients in order to better measure the relative strength, inclusiveness and sustainability of economies. These KPIs are then combined into an Inclusive Development Index that can be used to indicate relative level of inclusiveness and the recent trend for each country.

Most importantly the report provides a policy framework that can guide individual countries on how to make their economies more inclusive, while stressing that these policies need to be tailored to each individual countries circumstances and needs. The report divides these policies into seven pillars that cover areas such as Education and Skills, Infrastructure, Corruption and Fiscal Transfers (taxes). Economic thinking about how to deal with tax revenues and transfers from richer to poorer citizens especially through social security payments has been changing and some developed countries are now considering a basic income for all its citizens.

Considered unaffordable for many developing countries in the past, social security payments are now part of the economic framework being considered to create inclusiveness. Ultimately these payments can improve future economic growth as this support can improve education levels and ultimately labour productivity.

To show how policy can impact longer term growth one can compare Kenya with Nigeria. Although neither economy is perfectly managed, Kenya has consistently invested more of its resources in improving its infrastructure than Nigeria. This sets it up for a more sustainable growth path over the next five years while Nigeria still plans to invest heavily in the near term. Of course, if growth is not inclusive, it can lead to significant unhappiness amongst the population and unrest - another factor to take into account when making investments across Africa.

This framework is also a practical tool for investors and in our view an outcome of the WEF that shows that it is not just a talk shop but that it can influence policy decisions that will ultimately lead to inclusive growth.