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Private Investment Spurs Growth in Developing Countries


The World Bank says 2005 was a very good year for private investment in developing countries. It says net private capital flows reached a record high of $491 billion. The World Bank has released its annual Global Development Finance report.

China and India led the way among developing countries in economic growth, which is determined by the GDP, or Gross Domestic Product. It measures all the goods and services a country produces. China has a GDP rate of nearly 10 percent, while India is at 8 percent.

Nevertheless, many African nations are faring well, according to Hans Timmer of the World Bank’s Global Trends team.

“For the third year in a row, we have more than five percent growth. And one of the factors that we point out is indeed the capital that is coming from outside into Africa. And especially capital not from high-income countries, but from other developing countries. So especially China is investing a lot of money in infrastructure in Africa. And it’s one of the reasons why we see productivity growths that we haven’t seen for 20 years in Africa.”

Timmer says African nations have much to offer other countries, such as China.

“To a large extent natural resources that China needs a lot. It’s minerals. It’s oil. There are many new oil-producing countries in Africa. But more and more, it’s also agricultural products. It’s cotton in some of the African countries. And what is very encouraging is that as a result of this development you see in many African countries also a diversification towards manufacturing,” he says.

But The World bank report says developing countries that must import oil will see their growth restrained somewhat by high prices, as well as rising interest rates over the next two years.

Timmer says, “Basically, what they have to do is spend a larger part of their budget on oil consumption and they give that to the oil exporting countries. That’s a serious problem also for the oil importing countries in Africa. Although they continue to grow at five percent, their real income growth is only around three percent because they have to pay higher prices for their oil.”

The World Bank official says African nations have taken steps to make themselves much more attractive to investors.

“Their import tariffs are now are only one-third of what they were 15 years ago. They really opened their borders and integrated into global markets. They have much better monetary and fiscal policies, the macroeconomic policies. There’s much less inflation at the moment in Africa than what we saw 15 years ago. And very, very important also is that we see less civil strife in Africa countries,” says Timmer.

Of course he says there are some exceptions, citing political problems in Zimbabwe and Ivory Coast as examples. And he says the continent still has some image problems.

Timmer says, “It’s still a continent that is very dominated by large problems. There’s still extreme poverty. You still come across corruption. There is still a long way to go. But also you can say that this might be a turning point for the continent. What we are experiencing now might be the start of a real revival of Africa.”

The World Bank report says one way to help developing countries maintain their economic growth would be to increase their access to international credit.

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