June 6, 2010
Is Sub-Saharan Africa at a Turning Point?
Is Sub-Saharan Africa at a Turning Point? Posner
Sub-Saharan Africa became and remains the world's poorest region in the post-colonial era. This is generally attributed to bad governments and to foreign aid, the latter because it enables countries to defer necessary reforms and enriches (and thereby helps to entrench) the countries' generally bad (inept, vicious, corrupt) governing class.
Beginning in the mid-1990s, however, economic growth rates in the sub-Saharan countries rose briskly, reaching 6 percent in the 2000s (and this after having dropped between 1980 and 2000). This rate is not as impressive as it seems, because the sub-Saharan African population is growing by more than 2 percent a year. The increase in per capita income (less than 4 percent) is a more meaningful indicator of economic development. The economic growth rate dropped to 2 percent in 2009 as a result of the global economic crisis, which means that there was a decline in per capita income, but it is expected to reach 4 percent this year. (On the economic improvement in Africa since the mid-1990s, see Jorge Arbache et al., "Is Africa's Economy at a Turning Point?" (World Bank Feb. 2008), http://www-wds.worldbank.org/external/default/WDSContentServer/IW3P/IB/2008/04/14/000158349_20080414093531/Rendered/PDF/wps4519.pdf; on the impact of the current crisis on the economies of the sub-Saharan African nations, see "Sub-Saharan Africa: Back to High Growth" (IMF Apr. 2010), http://www.imf.org/external/pubs/ft/reo/2010/afr/eng/sreo0410.pdf.) Sub-Saharan Africa was not hit as hard by the economic crisis as the other regions of the world because its financial sector is small. Most of the capital that flows into the region comes in the form of foreign aid or foreign direct investment, rather than loans, and so the region was less affected by the credit crunch that followed the banking crisis of September 2008 than the rest of the world was.
A major factor in the region's increased growth rate since the mid-nineties has been increased demand for commodities, such as oil and gold, which are major African exports, by China, India, and other rapidly developing countries; the increased demand has resulted in higher prices for these commodities. Many sub-Saharan African countries are net importers of commodities, and thus have been hurt by the higher prices. The countries that are the major commodity exporters, such as Nigeria, Angola, and South Africa, have grown at faster rates on average than the other countries of the region. Some of these other countries, however, have had fast rates of economic growth as well, and this may be due mainly to improvements in their governments in the areas of protection of property rights, curtailment of corruption, encouragement of private enterprise, and management of monetary and fiscal policy.
Will sub-Saharan Africa, having as I said weathered the global economic crisis rather well, take off economically and catch up with other regions of the world, such as East Asia, which a half century ago was poorer than sub-Saharan Africa? Perhaps so, but I have my doubts. To begin with, I have no idea how accurate these countries' economic statistics are; the Greek debacle has reminded us of the importance of determining the accuracy of economic statistics before opining on a country's economic performance.
Moreover, the higher growth rates of the sub-Saharan African countries in recent years may be in part an artifact of the very substantial increase in foreign aid (roughly a tripling between 2000 and 2008) to those countries. And exports of raw materials (other than farm products) are not a very promising route to prosperity. Often they do not create a great many jobs in the exporting nation, in which event most of the income from the exports go either to the owners, many of whom are foreign, or to the governments of the exporting nations—and this means, in corrupt governments, into the pockets of government officials. Commodity prices are volatile, moreover, and no one can know whether they'll be higher in real terms a decade from now.
Levels of education and health are very low in sub-Saharan African countries; life expectancy is low and is actually declining; productivity is very low; fertility though declining remains very high; poverty of course is widespread; ethnic conflict (often violent) and political violence are common; corruption is endemic; opportunities for women are meager. These impediments to economic growth will probably change very slowly because they are deeply rooted in African culture. And the rest of the world will not stand still while they change.
Will Africa Finally Take Off? Becker
After many decades of hopelessness, there are finally grounds for believing that sub-Saharan Africa may be close to taking off toward sustained economic growth. Africa has rebounded from the worldwide recession faster than many other nations. The International Monetary Fund estimates that African GDP rose by 4.7 per cent in 2009, and the Fund forecasts that Africa's growth will increase still further to almost 6 per cent in 2010. The rate of economic progress is not uniform in all the African economies, but these are impressive figures for a continent that has disappointed for so long.
Several factors explain why Africa's future looks rather bright. Probably number one is the continuing discovery in Africa of minerals and fossil fuels that are demanded by China, India, and other countries as world economic growth picks up. Experts estimate that the recently discovered coal deposits in Mozambique are the largest new coal reserves since the major finds in Australia during the 1960s. Oil reserves in Nigeria, Ghana, and other parts of Africa constitute more than 10% of the world's reserves of oil, and South Africa has 40% of the world's gold. Africa also has about one third of the world's cobalt- a mineral used to prepare magnetic, wear-resistant, and high-strength alloy s- and many other minerals.
Africa exports natural resources primarily to the rapidly developing countries like China, and to the US. For example, Africa's trade with China has multiplied several fold during the past decade to reach more than 12 percent of total African exports, on par with Africa's trade with the US. Trade with India, Korea, and Brazil, although much smaller, is also growing at fast rates.
Governments in many African countries generally adopted a socialist approach to direction of their economies when they became independent nations after World War II. At that time, even many economic experts considered socialism and government management of an economy, as practiced very differently in the Soviet Union, China, and India, to be the best approach to economic development. Yet government control led to widespread inefficiency and corruption in Africa (and elsewhere) since these governments had neither the skills nor the incentives to conduct honest and effective public administration of the economy.
However, attitudes of African leaders toward markets and private business began to change a couple of decades ago, in part because the socialist approach failed. Also important was the rapid economic growth experienced by the Asian tigers, China, India, and Chile as these nations shifted toward greater roles for the private sector and smaller economic roles for government. Democracy has also become stronger in some African countries, although strongmen and other undemocratic leaders still are prominent in many African countries.
While some optimism about Africa's future is warranted, its future is not assured because Africa still faces important problems. Yes, the private sector in mobile phones, natural resources, and elsewhere has grown a lot in many African countries, but the expansion of private companies has often taken the form of crony capitalism rather than competitive capitalism. By crony capitalism I mean that governments give special protected positions to favored companies in important sectors of the economy rather than allowing competition among companies to determine who are the winners and losers. Crony capitalism is partly the result of a continuing excessive role of the government in the economy. At the same time it encourages government corruption because companies compete politically to obtain these favored positions, partly by bribing government officials to favor them. Crony capitalism may be better than socialist direction of an economy, but is is far inferior to competitive capitalism.
During the past 30 years, fertility has fallen in all regions of the world, including Africa. But the typical African women still has 5 children over her lifetime; a number that far exceeds that in every other region of the world. Families with many children do not have the resources to invest much in the education, health, and other human capital of their children. As a result, for example, the World Economic Forum's index ranks South Africa at the very bottom in both math and science education out of over 100 countries considered.
Moreover, high birthrates eat up economic progress and limit the magnitude of increases in per capita incomes. However, if African economies continue to grow at a high rate, parents will begin to reduce rapidly the number of children they have in order to invest more human capital in each child, as has happened in every other country that experienced sustained economic progress.
Most African countries have enormous health problems due to the heavy incidence of malaria, Aids, and other diseases. For example, life expectancy in South Africa declined from 65 years at 1990 to just about 50 years as the prevalence of Aids among 15-49 year olds grew to about 20%. Yet great progress is possible in improving health in this region. Foreign assistance can be important in the health field through the provision of medicines, knowledge, and medical personnel,as long as the aid mainly goes to NGOs and other private African organizations rather than through corrupt governments.
Africa still gets too much foreign aid that raises government spending at the expense of the private sector. Net official aid to Africa has risen sharply since 1970 as shares of both government spending and GDP. In 2008, such aid constituted more than 30% of government spending and 4% of African GDP. India discovered during its first 40 years of independence that foreign aid-India used to be the world's largest recipient of foreign aid- only slowed down the necessary adjustments toward a smaller government sector and a larger competitive private sector. Africa needs to learn the same lesson.
Clearly, for these and other reasons, economic progress in Africa is not assured. Yet the evidence provides grounds for far greater optimism about Africa's future than at any time during the past 100 years.