Tuesday, December 18, 2007

Will Africa Ever Be Able To Replicate Successful Economies?

Are there signs of economic growth in Africa? Are the green shoots of growth visible? Should African leaders and policy makers be applauded for finally realizing that Africa has lagged behind for too long and that this status is no longer tenable, that it is no longer acceptable to the millions of Africans who have to survive on a dollar a day? Some reports indicate that African economies have turned the corner and are moving to faster and steadier economic growth whilst other reports indicate that the pace of growth is extremely slow and that, in some instances, there is stagnation and stagflation.

A 2007 World Bank Africa Development document stated that “something decidedly new is on the horizon in Africa, something that began in the mid-1990s.” There are some signs of change occurring, of that there is no doubt.

Any signs of growth must be put into perspective. What is clear is that perhaps, finally Africans, tired of being last in every human and development index are beginning to take some positive actions to reverse this trend. Will this be converted into tangible movements of investment growth, foreign direct investment, rise in productivity, increase in real GDP, reduction in poverty, investment in infrastructure, technology, education and health and real steps to tackle corruption?

Will Africa replicate the economic successes of India, Ireland, China, Hong Kong, Singapore and Japan? Economic growth in some parts of South Asia has more than doubled the world’s average. Growth rates for 2008 are projected to be above 5% for China, Japan and India. These countries faced economic challenges forty to fifty years ago, but they now enjoy sustainable long-term economic growth. How were other countries in similar predicaments able to overcome economic stagnation? Which policies are conducive to creating and sustaining long-term economic growth?

In much of Africa, very little economic growth has occurred over the past fifty years. Some countries are even poorer today than they were thirty years ago. Sub-Sahara Africa has had the lowest Gross Domestic Product (GDP) for decades. Gross domestic product is the total of all goods and services produced by a country in year. GDP gives us the ‘big picture’ and is the first systematic way of measuring economic performance.

According to J. Bradford Delong, University of California, Berkeley, “The twentieth century has been the century of increasing wealth in the industrialized economies: in material and standards of living,” but for the majority of Africans, it has been an era of negative growth, wars, and lower standards of living.

The UN established eight Millennium Development Goals in 2002 for the world to meet by 2015. The UN GOALS are:  

  1. Eradicate extreme poverty and hunger
  2. Achieve universal primary education
  3. Promote gender equality and empower women
  4. Reduce child mortality
  5. Improve maternal health
  6. Combat HIV/AIDS, malaria and other diseases
  7. Ensure environmental sustainability
  8. Develop a global partnership for development

In September 2007, a BBC article entitled ‘Why Can’t Africa Tackle its Poverty’ asserted that “halfway to the UN poverty goals deadline an interim report concluded that many developing countries are unlikely to meet any of the poverty-busting goals, nor the benchmarks on education, health, and women's empowerment”, that “Africa is likely to be left behind unless further investment and aid is given.” 

Some have argued that the UN goals are unreasonable targets for Africa. Another BBC article asks “Why is Africa falling so far behind in the fight against poverty, is there the will in the West to help?” Aid and development funds can improve Africa’s economic activity, but aid is not a panacea for Africa’s growth, and not every problem can be solved by aid. For instance, aid cannot solve the problems associated with corrupt governments, and, in fact, can exacerbate the problem without adequate controls.

In October 2007, a confidential Presidential audit in Sierra Leone revealed that there is widespread corruption in the country. Aid must be directed and administered properly. Some African countries are adopting market reforms and increasing trade with the West in order to boost their economy. In 2003, Madagascar, Uganda, Ghana and Burkina Faso recorded average growth of more than 5%.

Other countries, for example, Sierra Leone which had weak performance and crumbling infrastructure before the war experienced negative growth, mainly as a result of corruption and the disruption caused by the 10 year civil war. Much has been written recently about the Irish miracle. How was Ireland, a country with 4.1 million people (July 2007), able to transform to an economic success story? In the 1970s and 1980s Ireland was regarded as a poor country. In 1982 unemployment levels were around 18%, but in 2006, Ireland’s unemployment rate is 4.3%. Ireland is seen as an economic miracle. There were external and internal factors that played a part in the transformation.

It is evident that Ireland is a major beneficiary of being part of the European Union, having access to markets in Europe and having attracted Foreign Direct Investment. However Ireland had to take other steps to transform the economy. Ireland embarked on a series of policy reforms, such as pro-market reforms, and a tripartite act between employers, government and trade unions which helped to produce much needed reforms. In addition, Government became more transparent and able to better monitor public funds. Ireland invested in education, which is a major factor to a highly skilled labor force. Ireland invested in infrastructure: good airports and telecommunications systems. It is expected that the Irish economy will grow by 5.4% in 2007, more than double the average in Europe.

Japan and Hong Kong have negligible natural resources. Japan is rugged and mountainous, and Hong Kong is mountainous with steep slopes. These two countries are examples to the idea that the existence and abundance of natural resources does not guarantee economic success. Whilst it is evident that natural resources have an effect on wealth, for example the Middle East with its enormous deposits of oil, some resources nations: for example, Nigeria, are ‘poor.’ Africa is endowed with natural resources yet poverty abounds, and performance has been dismal.

GDP per capita is GDP divided by the population. It measures the ability of the average person to buy goods and services. Fifty years ago, Japan and Hong Kong were relatively poor. In 1960 GDP per capita income for the two countries was $5,000 and $3,750 respectively. Today, they are two of the world’s dynamic economies with GDP of $33,100 and $37,300 respectively. They adopted market reforms, encouraged Foreign Direct Investment, invested in health and education for their citizens, and invested in infrastructure, physical assets and telecommunications. 

Singapore, with a population of 4.5 million (July 2007), became a British colony in 1867. Sierra Leone became a British colony in 1808. Whilst Singapore is very developed and business operates in a corrupt-free environment, Sierra Leone, with a population 6.1 million, (July 2007 est.) endowed with substantial mineral, fishery and agricultural resources, is extremely poor, and corruption is endemic in the society.

Singapore did not experience the instability and devastation of civil war, and even though Singapore suffered some economic set backs between 2001 and 2003, the country was able to invest in medical technology, information technology and stable prices to enable them to have a GDP per capita income of $31,400 compared to Sierra Leone’s GDP per capita income of $900.

There are a number of other countries that have experienced positive growth over the past two decades, including South Korea that achieved growth within a relatively modest period. In South Korea’s case, growth was achieved within thirty-five years. According to the Central Intelligence Agency, for four decades, South Korea’s GDP per capitia was “comparable with levels in the poorer countries of Africa. In 2004, South Korea joined the trillion dollar club of economies.” China is one the world’s fastest growing economies. China’s real GDP has been growing steadily at a rate of 6.5% over the past twenty years. China has been moving slowly in implementing reforms to transform its economy from a centrally planned system to one that is more market-driven. Chinese workers are more productive today mainly due to investment in human capital and technology.  

India’s economy has been expanding significantly over the last decade. Investment in infrastructure, education and technology as well as reduction in controls on foreign trade resulted in strong growth rate of 10% over the past decade. 

Columbia has a flourishing floriculture business, is a major exporter of flowers, and is the second largest exporter of flowers in the world. The economy has been growing steadily and despite the fact that the country faces other challenges, GDP per capita is $8,600 (2006 est.) up from $1,610 in 1975. 

Kenya is one of the few countries in Africa with a rapidly growing floral industry, estimated in 2002, to be worth approximately $110 million to the Kenyan economy. 25% of flowers imported to Europe are from Kenya. Other African countries can develop this industry, however, The Flower industry is capital-intensive, and would require investment from international companies.

The Bahamas, with a population of only 305,000 (July 2007est.) has a very successful tourist industry, and has the highest GDP per capita in the Caribbean. Tourism accounts for approximately 60% of the economy. The Bahamas is one of the most popular destinations for Americans, due to its proximity to the United States. 

African Path