Europeans and development cooperation: there are opportunities too!
by Stelios Christopoulos
If politicians in Europe see jobs as their primary concern, it
is probably because the citizens regard unemployment as their most serious
problem. In the Europe of the Fifteen, the average unemployment rate was about
10% in 1985 dropping to 7.5% in 1990. By 1994, it had risen to a record high of
more than 11%. By contrast, unemployment in the United States fell below 6.5% in
1994 and the figures for 1995 reveal a continuing downward trend. In Japan, the
proportion of people without work remained below 3% in 1994. Assuming there is
no change in current trends, the most recent demographic projections suggest
that there will be 70 million people over the age of 65 in the EU by the year
2020, out of a total population of 348 million. This is 18 million more than
there are today. The proportion of over-65s is, thus, projected to rise from 15%
at present to 20% in less than 25 years. These two elements - an ageing
population and ongoing structural unemployment - clearly reveal that European
society lacks a degree of dynamism compared with its competitors.
In an attempt to address this problem, albeit partially, the
President of the European Commission, Jacques Santer, launched a European
employment pact in April 1996. There are three underlying reasons for this
initiative - Europe's endemic unemployment, the need to reestablish a climate of
confidence as a prerequisite for renewed investment and consumption, and the
need to fit the creation of the single currency into an overall economic
strategy aimed at increasing growth, competitiveness and employment in Europe.
'I'm young, help me find a job', is the heartfelt plea of many
of young Europeans. But what chance is there that their cry for help will be
answered in a difficult global environment?
We have seen the globalisation of strategic relationships in a
range of key areas including the environment, the management of energy
resources, health, demography and security. The trend has been accelerated by
rapid technical progress in the fields of transport and telecommunications. This
process has not taken the big multinational companies by surprise - they were
already free of the constraints of sovereignty or space, and were quick to
globalise their structures. These enterprises have become more competitive by
taking advantage, wherever possible, of the most favourable production
conditions, particularly regarding raw materials and employment conditions. More
spectacular still has been the growth of international trade: in 1990, the
volume of world trade was 11.5 times as great as it had been 40 years earlier.
During the same period, global production only increased fivefold.
What this means nowadays is that employment in the EU Member
States is directly affected (and some would say threatened) by the world
situation. Productivity and growth conditions in Europe are no longer sufficient
to ensure full employment. Competition from developing countries, with their low
wage bills and undervalued currencies, is too great for countries in the EU.
Their position is not the same as that of the multinational companies. They do
not have the structures to deal with swiftly evolving events, nor are they
capable of controlling the process of globalisation. This is demonstrated, inter
alia, by their inability to respond to the financial speculation which turns
capital away from productive investment. Today, for example, for every US dollar
in circulation, there are at least 30 dollars which are the product of financial
speculation. This is not money from productive work by any particular person,
but money which is the product of a financial 'virtual reality' and which is
usually reinvested in financial speculation.
Countries are beginning to realise the need to pool their
national skills and cooperate at a regional level, in order to enhance their
business competitiveness and take on the challenges of the globalised trading
system. But the level of integration implied by this strategic choice must be
sufficiently comprehensive if it is to make up for the reduced capability of
countries to respond on an individual basis. This process of regionalisation may
well be a prerequisite for regulating the world economy in such areas as
exchange parities and financial speculation.
And what of Europe in particular? Despite having a head-start on
other regional groupings (such Asean, Nafta and Mercosur), the situation is not
too rosy. Owing to the lack of a full internal market, Europe is unable to
compete on equal terms with the United States or Japan. The internal market
still comes up against blocks in important areas, as evidenced by problems over
the European employment pact. And there are a number of other defects which make
the internal market insufficiently competitive in the context of globalisation.
It is true that a more coherent environment has been created for European
companies, with common regulations and rules of competition enabling them to
distribute their goods and services among the EU's consumers. But despite the
appearance of a domestic, or single, market, it is one which is devoid of a
genuine internal policy in keeping with its size. This is what distinguishes it
from the internal markets of the United States or Japan.
The explanation for the disparity may lie in the fact that the
most recent moves towards the single market, through 'Single Act', date from
1987. This was before the upheavals which so decisively signalled the
globalisation trend. Despite the criticisms sometimes levelled at it, it is a
genuine single market which is largely open to the outside world (with only a
few exceptions, notably as regards the Common Agricultural Policy, where it is
recognised that there is a need for progressive adaptation). But there is still
no single currency, nor is there a genuine common commercial and economic
policy. The EU is unable to react to change at world level in the same way as
its competitors. The common customs tariff, together with protective measures
such as the anti-dumping regulations, are still not sufficient to solve all the
Union's problems. What is needed on top of this is an active common policy
Yet, as the European employment pact makes clear, the EU holds a
trump card in an increasingly interdependent world. The proviso is that it must
speak with one voice, enforce multilateral rules and open up new markets for
itself, because, as the document points out 'exports create jobs...'
In 1994, the developing world received 37% of global direct
foreign investment ($84 billion) as against less than 20% at the beginning of
the 1980s (the flow of foreign exchange is regarded nowadays as the principal
factor influencing development). This is a spectacular increase but the
resources are not 'fairly' distributed from the point of view of either the
investing countries or the recipients. For example, southeast Asia is currently
the world's most dynamic region. Yet, not to put too fine a point on it, it is
virtually ignored by European investors. Only 3% of European overseas investment
is directed towards this zone. Likewise, Europe's market share in the region is
no more than 5%. The US has invested between two and three times more in
south-east Asia while Japanese investment is four times higher.
In 1994, sub-Saharan Africa attracted just 0.8% of direct
foreign investment ($1.8 billion). And there is no evidence that Europeans have
invested more than the Japanese or Americans in this region. This is despite the
highly optimistic outlook for the situation in Africa offered by the late Ron
Brown, the former US Trade Secretary. On returning from a tour of Africa with
American businesspeople in February 1994, he remarked that major opportunities
were opening up in that continent, with spectacular returns on investments - at
the time, the best in the world. His regret was that so few people were aware of
the situation. Undoubtedly more significant still was the declaration made in
Washington before his departure for Africa to the effect that the United States
would no longer leave African markets exclusively to the former colonial powers.
So although others are beginning to explore the possibilities
offered by Africa, Europe is still sceptical. A similar scepticism prevailed
during the 1960s when it was assumed that the lot of south-east Asia would be
famine, and few development prospects. Given the historical links between Europe
and Africa, the geographical proximity of the two continents, and the pressing
problems faced by the 'old' continent vis-is its competitors, such an
attitude appears difficult to explain. In the years since the former European
colonies in Africa gained independence - and despite the creation of an
institutional cooperation framework (the Lomonvention, which many regard as a
model of development cooperation) - many Europeans clearly no longer wish to be
involved in Africa. The explanation for this lack of interest may be the
difficult conditions within African countries - obstacles preventing access to
markets, the lack of liberalisation or political instability.
But this analysis in not entirely convincing. More ACP countries
are democracies than ever before in the post-independence era. As for Africa - a
much-debated ACP region - it is wrong to talk purely in terms of internal
conflict, famines or the AIDS epidemic. There are countries in this continent
with growth rates of between 5% and 6%, and several examples of where European
companies have successfully penetrated local markets.
The need to highlight the existence of genuine business
opportunities in ACP countries and to make the European public aware of
development aid success stories, were among the main conclusions to come out of
the first meeting of a television delegates' network, organised by the European
Commission's Development Directorate-General on 31 January 1996.
Any European company chairman interested in expanding into an
ACP country - thereby enlarging the company's market and enhancing its
competitiveness - is likely to acknowledge the possibilities, if offered back-up
from the EU or from national governments. But they will then probably point to
the complications which remain - and with some justification.
With this in mind, it is worth reiterating the fact that
specialised institutions exist for facilitating contact with the ACP countries.
In 1995, for example, the Centre for the Development of Industry (CDI) was
involved in 367 projects, assisting, free of charge, in the expansion or
rehabilitation of industrial companies in ACP countries, in partnership with
European business. Although the number of such projects is constantly increasing
(190 in 1993,229 in 1994), it is still a long way short of what is needed. But
it should be stressed that the CDl's approach, which involves promoting the
creation of networks, appears to work. The establishment OF ACP contact networks
in ACP countries makes it easier to identify potential areas for involvement and
to prepare better for European institutional and sectoral networks. There are
several successful projects which have led to the creation or safeguarding of
jobs in Europe.
Also in 1995, the European Investment Bank (EIB) granted ECU 430
million in loans to businesses in various sectors in 29 ACP countries. This
includes an increase in the Bank's activity in Africa over previous years.
What, then, of the effect of Europe's development cooperation
policies on the European market? According to the most conservative estimates,
for every ECU 100 granted in aid, the Community 'gets back' ECU 48 in the form
of jobs, supplies and technical assistance. This figure does not take account of
additional 'secondary' business generated by, for example, the supply of spare
parts or the provision of technical advice. This business can be quite
significant given the degree of penetration achieved by European companies in
the markets of many developing countries. Nor does the estimate include any new
business opportunities directly arising from the links established between the
companies involved in aid projects and the recipient countries. Thus, it is
clear that when a project is set up, it may well have extra beneficial effects
for Europe through additional flows of goods and services.
The 'return' on aid is even greater in Member States' individual
bilateral programmes. For example, tied aid from countries such as Belgium,
Italy and the United Kingdom leads to a payback of more than 70%. Another point
is that as Europe's industrial rules are harmonised, the success of a single
European company in penetrating a particular developing country market may pave
the way for companies in other EU Member States, thus benefiting the Union as a
whole. Tied aid creates favourable conditions for setting up European companies
and for placing European goods and services in other markets.
While the return on aid may be described as satisfactory, the
same is not true of the number of companies that benefit or of the actual
turnover involved. One wonders whether this weakness is due to a lack of
information about existing resources and facilities, or whether there still a
lack of confidence about countries which, despite the progress they have made,
are still politically unstable and therefore unpredictable.
One might also wonder whether the time is right for investment.
Our answer would be that, even though financial speculation is currently
governed by global economic considerations, which prevent productive targeting
of capital, this situation cannot last. There is a worldwide move to rectify the
We all need to be aware that time is no longer on our side. In
many sectors, European companies still have a competitive edge over businesses
from third countries, owing to their degree of specialisation and technological
expertise. But if they are to survive, they must take on a worldwide dimension.
In particular, they should pay attention to the comparative advantage that they
have in the ACP countries on account of their special skills, historic links,
geographical location and, above all, the institutional connections between
these developing nations and the 'old' continent.
Although problems do exist and although both European and ACP
bureaucracy can sometimes discourage private operators from exploring the
potential of the developing world (and more particularly the ACP region), they
should not give up. Europe's challenge is to help them to exploit this potential
whilst not raising false hopes.
Nothing can take the place of the shared experience and
confidence which arises spontaneously in full knowledge of the facts. In this
regard, we feel, there is still much to be done. In both Europe and the ACP
countries, one way to succeed is to increase the number of networks representing
industrial, economic and financial interests at various levels, and to assist
them in identifying opportunities more effectively. This would help to create a
new dynamism and renewed vigour in