Monitoring decline in domestic investment
Context: In a great many countries gross domestic investment actually declined during the 1980s, and that pattern clearly must be reversed if even minimum growth objectives are to be attained. During the period 1980-1986, investment increased at an extraordinarily rapid rate in China (19.3% per annum) and at a modest rate in India (4.6% per annum). In the other low-income economies as a group, however, investment increased only 0.4% per annum, which implies a heavily negative rate of growth in per capita terms. In the middle-income economies the growth of investment was negative, and the lower middle-income economies fared worse than the upper middle-income ones. The most serious situation as regards investment occurred in two overlapping groups of countries - sub-Saharan Africa and the highly indebted countries. In sub-Saharan Africa gross investment declined at an annual rate of 9.3% a year, and in the highly indebted countries it declined by 6.3% a year.
Claim: The stock of capital per head of the population obviously declined sharply in many third world countries and it should be an object of public policy to recreate conditions for higher levels of investment. Unfortunately it is not enough merely to raise the rate of growth of investment in view of the fact there was a tendency throughout the developing world for the efficiency of investment to decline in the 1980s. In the coming decade it will be important for governments to take what steps they can to increase the efficiency of investment so that it at least regains the levels experienced in the 1970s. In addition to a restructuring of output, this may require reform of investment procedures within central government ministries, improved criteria for investment decisions in public sector enterprises and price reforms designed to channel private investment in more socially optimal directions. State-owned enterprises, in particular, have tended to serve limited interests, have been inefficient and have often operated at a loss and thereby constituted a drain on resources available for development. Whether such enterprises are retained in the public sector or privatized, they should be forced to become more competitive by increasing their exposure to market forces.
Type Classification: F: Exceptional strategies