The world's worst economies

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The world's worst economies

by Fisher, Forbes.com

Wednesday, June 9, 2010

Ghana has the world's largest manmade lake and the 1-gigawatt Aksombo

Hydroelectric Plant, built to supply electricity to Africa's largest aluminum

smelter. But the smelter has been idle since 2009, a casualty of low aluminum

prices and persistent electricity shortages that have forced the government to

divert the power elsewhere.

Ghana is a typical example of the world's worst-managed economies: It's a

country that shouldn't be poor, but it is. The West African nation's gross

domestic product per capita fell 9% last year to US$621, ranking it 154th out of

184 countries tracked by the International Monetary Fund, below

resource-impoverished Haiti. With a US$3 billion trade deficit last year and

$4.9 billion in external debt, Ghana is struggling to pay its bills even as it

sits on some of the world's biggest reserves of gold and bauxite, as well as

considerable amounts of offshore oil, which is being developed by Anadarko

Petroleum and others.

" Ghana's problems are mostly homegrown, " said Allum, the IMF's mission

chief to Ghana, in February. Forbes ranks Ghana ninth on our list of the world's

worst economies.

As the world focuses on Greece and the rest of the so-called PIIGs--Portugal,

Italy and Ireland--in their fight to reverse years of irresponsible fiscal

policies, another group of nations make them look positively well-managed.

Forbes screened IMF data for countries that have low and declining per-capita

GDP, high trade deficits and high inflation, all indicators of bad economic

management regardless of the country's inherent wealth.

All have at least one trait in common: Their governments discourage private

investment--and economic growth--through policies of crony capitalism,

expropriation or arbitrary enforcement of the laws. That makes it hard to

generate hard currency to pay off government debt and discourages citizens from

investing in education to improve their own economic lot.

" Most of these vulnerably low-income countries are in a trap, " said Otaviano

Canuto, vice president and head of the World Bank's Poverty Reduction and

Economic Management Network. " The climate is not conducive to investments, not

only in factories and agricultural improvements, but in education. "

No surprise as to the winner of this race to the bottom: Zimbabwe, a country

where the annual inflation rate hit the surreal level of more than 500 billion

percent in late 2008 as the government of dictator Mugabe tried to print

his way out of his own mistaken economic policies. Before the fever broke last

year, Zimbabwe restaurants felt compelled to post signs reminding patrons not to

use the nearly worthless dollar bills as toilet paper. Zimbabwe's inflation rate

has since dropped to around 5% as the country abandoned its currency and allowed

transactions to be conducted in U.S. dollars and other currencies. But it still

was forced to import 500,000 tons of maize last year to make up for shortfalls

in its once-bountiful agricultural sector.

Ranking fifth on the list is Nicaragua, the only Latin American country to show

such a poisonous combination of poverty and stagnant growth. Nicaragua's

inflation-adjusted GDP fell 1.5% in 2009 and foreign investors have shunned the

country since 1980s socialist President Ortega returned to office in

2007. Textile manufacturers have closed and European aid agencies balked at

supporting the Ortega government after flawed elections in 2008. One reliable

source of income in this socialist paradise: remittances from expatriates, which

represented 13% of GDP in 2008.

In eighth place is Liberia, another resource-rich nation that has mismanaged its

way to poverty through decades of corruption and civil war. The country has been

relatively stable since 2005 and may achieve 6% GDP growth this year. But that's

a GDP of less than $900 million, with rubber exports the single largest source

of foreign currency at $170 million. Registrations of foreign ships brings in

another $18 million, hardly enough to make a dent in the country's US$3.4

billion debt. Last year commercial creditors agreed to call it even at 3 cents

on the dollar, possibly allowing Liberia to begin the cycle of borrowing and

defaulting anew. Some economic growth is expected after Arcelor Mittal begins

shipping iron ore from the Yekapi complex in 2011.

Eritrea also has a history of war, which might explain its per-capita GDP of

US$363, ranking it 176th out of 185 countries and seventh on Forbes' list of the

world's worst economies. Bad government plays a role, too. The agricultural

sector employs 80% of the workers in this East African state, which gained

independence from Ethiopia in 1993, but generates only 12% of GDP. The ruling

PFDJ party has " imposed an arbitrary and complex set of regulatory requirements "

that discourage foreign and domestic investment, and frequently expropriates

property, the U.S. State Department says.

" Poverty by itself is not a sufficient condition for conflict, " said Canuto of

the World Bank. " But whenever you have a situation of conflict and poverty

together, the country is trapped. "

Sixth-place Burundi, like many of the countries on this list, has another big

problem: bloated government payrolls. The IMF estimates government wages account

for 12% of GDP, but 63% of the population remains undernourished. The country,

still recovering from years of civil war, needs $5.8 billion in infrastructure

but will be hard-pressed to pay for it with just $68 million in exports--most of

it coffee--and $275 million in imports last year. A 24% domestic inflation rate

doesn't help.

The global financial crisis does offer some signs of hope that perennially

mismanaged countries can change their ways. Other than Nicaragua and Venezuela,

most of the Latin American nations muddled through the crisis without their

historical reliance on hyperinflation and default.

" That had a lot to do with macroeconomic policies, " said Canuto, who cited

Mexico, Brazil and Uruguay as being particularly well managed. " Latin America

has learned a hard lesson on the benefits of cutting this serial default

behavior. "