 
Toronto Skyline
Source: Ohcanadagail
Nwakego Eyisi of Afribiz’s Toronto information bureau attended the G8/G20 Toronto Summit in June 2010. She shares her insights on the forum and how businesses and African countries should prepare and position themselves in the next six years.Â
The G20 Toronto Summit focused on how to re-balance growth globally. There were three distinct agreements with implications for global trade in developed and emerging markets. First, the G20 countries(advanced countries) in an attempt to strike a balance between endangering a fragile recovery and ensuring long term sustainable growth decided to commit to fiscal plans that will halve deficits by 2013 and reduce government debt to GDP ratios by 2016. However, countries like Japan with serious fiscal challenges are expected to enact reforms sooner. Each country will move according to their own capacity.
Second, countries with unsustainable deficits like the United States and the United Kingdom  are expected to increase savings. They will also boost exports whilst maintaining openness and competitiveness. In essence, these countries will be restructuring their economies away from being consumption-driven.
Third, surplus economies like Germany and China will do the opposite of countries will unsustainable deficits. They will induce their citizens to consume more and save less, and become less export-driven.
Implications of Halving Deficits by 2013 and Reducing Government Debt by 2016
This implies that anemic economic growth will continue globally, especially in the G8 region from now till 2016. A key characteristic of this anemic economic growth is a jobless recovery, which has been a concern and becoming more obvious.
For African countries, this six-year period can leverage progress made around growth and reform so they will be able to better compete when the world is expected to return to sound growth.  Also, African countries can capitalize on Europe’s and North America’s current weakness to attract greater investment to spur growth.
More specifically, interest rates will probably remain low in most of the G8 countries to sustain recovery. This means that capital will continue to move away from regions of low returns like North America and Europe to regions higher returns like emerging markets, including Africa.
Lower interest rates leads to inflation and debasement of paper money. The demise of paper money, especially the US Dollar has long been speculated. This might happen eventually as a worst case scenario. This would increase demand for commodities like copper, gold, oil, and food. Africa has great potential for all of these commodities, which would cause investors to shift more investments to Africa.
Right now, in fact,  Canada, South Africa, and Australia, who are traditional suppliers in this space can only meet short-term demand. If the devaluation of the dollar and demise of paper money becomes a long-run situation, Africa is positioned to gain tremendously because of its abundance in metals. Africa offers comparative advantage due to sheer abundance, virgin territory and underdeveloped mining sectors, which will guarantee higher returns on investment.
Africa also has to consider that this period of anemic growth may cause export revenues to be stagnated, which would affect many African countries in their current economic models. However, if Africa can adapt their economic models to take advantage of other factors, they can move beyond anemic growth. These factors include expected increased consumption from China, industrial expansion in emerging markets which would need African commodities, regional trading blocs, low debt profiles and budget deficits, better monetary and fiscal policies, and Africa’s growing consumer population.
Implications of Re-Balancing Global Growth
Excess consumption in the West and excess savings in China has fed this recession, which needs to be corrected for the global economy to grow again. Excess Chinese savings has gone into buying US debt and propped up excessive consumption there. By 2016, the world is expected to return to sound growth.
As Europe and North America consume less and save more, China’s export-driven economy will hurt in the short run.  It means that production will fall in China, which in turn will hurt oil and commodity exports from Africa. Â
However, as Europe and North America positions itself for exports by saving more and consuming less it will force China, Germany, and other countries to increase consumption. This will increase demand for African commodities again, but with different end consumers.
It is also important to note that there is an emerging consumer profile in Africa with little or no debt. African countries can increase trade amongst themselves to make up for the shortfall in global demand. Since U.S. trade with Africa only represented 10% to 14% of African trade, there is no reason increasing intra-Africa trade could not make up for the shortfalls in this area.
Also, Chinese savings that has been utilized inefficiently to buy US debt will be recycled into China and elsewhere to support production due to increased consumption demand in China and other parts of the world. Â The flexibility and appreciation of the Yuan will set this in motion.Â
This increased consumption in China and other surplus economies, as well as increased savings in the West,  will increase demand for commodities across Africa. Both from an investor and trade perspective, we should see a  redistribution of wealth, capital, etc.. to commodity producing regions like Africa.
In the meantime, Africa , as it is expected to do so, needs to continue to pursue growth-oriented policies, as well as develop infrastructure, finance, agriculture, and rule of law. This will increase the region’s  competitiveness and position her to reap handsomely from the re-balancing of global growth.
For further discussion and insights, listen to the two-part radio conversation between AfribizTalk host, Lauri Elliott, and Afribiz writer, Kego Eyisi. Listen to part one here. Download part two here.
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What the G20 Toronto Summit Declaration Means for Business in Africa originally appeared on Afribiz.net on July 12, 2010.
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