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World Bank Releases Report On Global Economic Prospects

The World Bank says in 2004 developing countries saw the biggest rise in economic growth in three decades. But while sub-Saharan Africa saw growth this year, it lagged behind other developing regions. The World Bank has released its annual Global Economic Prospects report.

Richard Newfarmer, lead author of the World Bank report, calls 2004 a “fabulous year” for developing countries.

He says, "This year we expect growth rates to be on the order of 6.1 percent with growth having increased in virtually every region, every one of the six major regions around the world. And because growth is so high, we expect an easing of that, a moderating of that, next year to maybe on the order of 5.4 percent for developing countries."

He says the high growth rate is due to a number of factors.

"First of all, the investment cycle coming off of the 2001 recession has picked up steam steadily in 2002, 2003 and kind of looks like its peaking about now. So that’s helped out developing countries considerably. Secondly, associated with that has been low interest rates and that has been good for debtor countries. And thirdly, the very strong performance in the United States has helped pull up the economies around the world," he says.

East Asia Pacific leads the way in economic growth with 7.8 percent for 2004, followed by Europe and Central Asia at 7 percent. Latin America and the Caribbean grew at 4.7 percent, as did the Middle East & North Africa. South Asia grew at 6 percent, with Sub-Saharan Africa at 3.2 percent. The World Bank forecasts a bigger increase in sub-Saharan growth in 2005, with a 3.6 percent growth rate.

The World Bank economic adviser explains why Africa lags behind the other regions in economic growth.

He says, "The investment climate in Africa has been hampered by conflict in many countries. The rules have been much less stable over time in many countries. Furthermore, the level of development and infrastructure has been a problem historically in Africa. So, it takes time for products to get from the hinterland through to the ports to the external markets."

The Global Economic Prospects report also looks at the rapid growth in regional trade agreements – an eight-fold increase since the 1980’s.

He says, "Regional trade agreements are proliferating at a very rapid pace. We estimate that more third of international trade is covered by some sort of preferential trade agreement, like NAFTA (North America Free Trade Agreement), like the US/Chile arrangement or the EU/South Africa arrangement. These kinds of arrangements may be good for the countries involved, but they discriminate against other countries that don’t benefit from those preferences."

The report says “nearly all regional trade agreements have adverse consequences on excluded countries.” Mr. Newfarmer says such agreements can improve prospects for rapid poverty reduction, but only if developing countries make them part of a strategy to liberalize trade.

"Some agreements are not designed very well. They may have very high levels of external protection and divert trade from the most low cost source, which may be a country outside the region, to a country inside the region. And while that creates intra-regional trade, it does so at a very high cost and a cost that actually may cost developing countries national income," he says.

The World Bank official says, “Joint reforms of customs at the border can cut costs of trading. For example, he says, “Delays at the border between South Africa and Zimbabwe still cost the same as shipping cargo from South Africa all the way to the United States.