South Sudan became the world’s newest nation on 9 July 2011, making it Africa’s 54th country. Independence brings enormous opportunities to South Sudan to increase its integration into the regional economy but also substantial challenges to put in place a policy and security regime that facilitates cross-border trade. The 2005 peace accord that ended Africa's longest-running civil war has led to a significant growth in demand in South Sudan, ushering in a new era of increased regional trade, in particular, with Uganda. A new Africa Trade Policy Note highlights the recent patterns of trade between South Sudan and Uganda, and draws attention to significant constraints that are limiting the prospects for enhanced cross-border trade.

Bilateral exports from Uganda to Sudan have skyrocketed from $60 million in 2005 to $635 million in 2008. Trade between Uganda and South Sudan is highly asymmetric with the volume of exports from Uganda being disproportionately larger than the volume of exports from Sudan to Uganda. While South Sudan lacks local production capacity, its oil revenue transfer from Khartoum, based on the wealth sharing agreement in 2005, has financed those imports from Uganda as well as from elsewhere in the region and the world. Also, imports from Uganda largely go through informal channels. However, this rapid growth in cross-border trade stalled after 2008. Formal trade declined in 2009 as a result of import controls imposed by the Central Bank of Sudan due to concerns over foreign exchange reserves. A substantial drop (55 percent) in informal trade occurred in 2010 following violence and harassment against Ugandan traders in South Sudan and fears of insecurity during the general election (April 2010) and in the run-up to the referendum (February 2011).

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The global economic crisis uncovered many of the vulnerabilities of an increasingly integrated world. So much so, that even though we are now well on the path to recovery, many questions persist regarding the future risks of economic integration and openness.

There are reasons for a broad reassessment of economic integration. A crisis that started in the industrial world suddenly spread to developing countries that had nothing to do with the casino-like financial practices taking place in the world’s financial centers. Spreading rapidly through financial and trade channels, the crisis brought about a sudden collapse of capital flows and a freeze in trade credit lines. The blow was so severe that the world experienced the largest drop in global trade volumes since World War II, with world trade of goods falling by 23 percent in 2009.

Now trade is growing again. In 2010, trade volumes increased robustly by 20 percent. But this doesn’t mean we can just put all the drama behind us and move on as if nothing happened. On the contrary, it is now time for countries to learn lessons from the crisis, and make sure they are in better shape to counteract external shocks in the future.

Globalization and economic integration do create vulnerabilities. But not all open economies are equally exposed. As a new World Bank study shows, openness is not the whole problem; rather, troubles ensue when exports are concentrated in very few products and markets. As Managing Openness: Trade and Outward-Oriented Growth after the Crisis indicates, export diversification reduces the vulnerability of countries to global shocks by moderating the impacts of market volatility.

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The world of presumed stable monetary and financial conditions was severely shaken by the recent global financial crisis. And with that, the separation in some quarters of financial supervision and monetary policy that reigned supreme over the past decades might also be coming to the end.

Before the crisis, the policy paradigm used to look like this: central banks around the world would focus on inflation-targeting and on setting interest rates, while financial regulation would be left to specialized, ad hoc agencies. Central banks’ primary role would be enough to maintain price stability and economic growth. On their side, financial regulators, through so-called “microprudential” rules, would ensure the soundness of financial institutions and protect depositors.

We all know what happened to this picture. The crisis tested the limits of both financial regulation and monetary policy acting individually. The existing regulations were insufficient to contain the spillover effects of the collapse of financial institutions to the rest of the economy. Now, in the wake of the Great Recession, there’s an increasing recognition of the need for macroprudential regulation to ensure the stability of the financial system as a whole and to mitigate risks to the real economy.

In fact, prudential regulation and monetary policy are complementary. Neither one can replace the other on its own. The combined use of both tends to be more effective than a standalone implementation of either.

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The recent crisis dramatically illustrated how trade can be a powerful channel through which major external shocks are transmitted to countries, both negative and positive, as the resurgence in trade has been very robust and been a central feature of the global economic recovery.

Trade, in fact, is a powerful engine for economic growth and opportunity. Over the past three decades, world trade grew twice as fast as global GDP. But even though many countries have benefited greatly from global integration, the gains have been distributed unequally, both between countries and within them. In order to improve the inclusiveness of trade, and to promote its impacts on reducing poverty and inequality, the World Bank Group (WBG) has prepared its first Trade Strategy to guide its work over the next decade. Endorsed this week by the Board of Executive Directors, following a six-month public consultation process last year, the Strategy focuses on four pillars:

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The protests that swept through the Middle East and North Africa over the past six months have shown us what people will do to have their voices heard. Starting with the desperate act of a simple fruit vendor in Tunisia, the unrest in the region has demonstrated that people are willing to fight—and die—for their economic, political, and civil freedom.

However, the sentiment that fueled the Arab Spring and led to mass demonstrations in over a dozen countries in the region is nothing new. It was the same desire for freedom that inspired Eastern Europeans to overthrow their Cold War leaders, South Africans to end the repressive apartheid regime, and countless colonies to emerge from imperial rule after the Second World War.

In the aftermath of these events, once the protests disperse and the fighting stops, what can we expect to see? Will the emergence of more political and economic rights lead to more stability and better governance? Will more transparent and legitimate institutions be able to provide the vital services necessary to meet the needs of the people? Will more open markets allow for greater economic growth and deeper development?

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Remittances, or the money migrant workers send home to their countries of origin, are finally recovering to pre-crisis levels. In 2010, remittance flows to developing countries reached $325 billion, and they are poised to continue growing sustainably through 2013, according to the World Bank’s latest Outlook for Remittance Flows 2011-13.

This is very good news for developing countries. For many of them, money sent by their migrant workers living abroad is a very important source of external financing –sometimes even higher than the revenues obtained from oil exports or tourism. Thanks to the money being made in the U.S. by their relatives, millions of Mexican families can put food at their tables, just as Indians and Filipinos benefit the same way from the remittances sent from rich and oil producing countries in the Middle East.

But there is no time to be complacent. Individuals dependent on remittances are not out of the woods yet. For example, remittance flows to Latin America and the Caribbean, as well as to Eastern Europe and Central Asia, remained almost flat in 2010 because of the economic troubles in the U.S. and Western Europe. And although these flows started growing again in the first quarter of 2011, threats to the recovery remain.

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It’s no secret that current account imbalances exist around the world. In many cases, these imbalances may be benign and merely reflect market-driven differences in savings and investment or differences in stages of development. In other cases, persistent global imbalances may be unsustainable and may threaten growth in the long-run. Thus, it’s no surprise that addressing imbalances has been a key focus in recent G-20 discussions. Nor is it surprising that the World Bank and IMF are working with key partners such as the OECD, ILO, WTO, and UNCTAD to provide technical inputs to help coordinate economic policy among the G-20 members.

Despite a brief decline during the global financial crisis, current projections show that imbalances could widen again as the world economy recovers. In the most recent Economic Premise, the World Bank’s research series on good practices and key policy findings, author Zia Qureshi explores the relationship between global imbalances and growth. In his note, “Rebalancing, Growth, and Development in a Multipolar Economy,” Qureshi argues, “In a progressively multipolar world economy, the goals of global growth, rebalancing, and development are increasingly interlinked.” He continues, “Looking ahead, developing countries will likely continue to lead growth in the global economy.”

Indeed, the increasing role of developing countries in fueling global growth is precisely what Marcelo Giugale and I highlight in our recent book, The Day After Tomorrow: A Handbook on the Future of Economic Policy in the Developing World.

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