What’s holding Africa back?

African countries GDP per capita compared to world average

From the 1960’s to the present, multiple Asian economies such as China, Hong Kong, Singapore and India have mobilised their economies at rates far exceeding those of already developed countries spending long periods of time which growth levels above 7%. Why is it, then, that over this same period of time sub-Saharan Africa has experienced an average decline in per capita GDP of 11% taking into account for inflation?

There are many possible explanations for Africa’s poor growth and it’s likely that a combination of many of them will be causing these poor levels of growth. In this article I’m going to outline a few of those which I feel to be most prevalent.

World banks accredit the application of neoliberal policies to the Asian tiger’s growth through the late 20th century. This means they adopted rapid industrialisation and export-led economies to drive high levels of growth along with lowering taxes and reducing welfare states to minimise costs. However it would be unwise for African economies to attempt this same strategy.

For a start the costs of production in African countries make them uncompetitive in the world market, although rich in labour and land African countries lack the crucial capital and education that many of these “Asian tigers” already had before they started exporting. As an extension to this point many of these countries are losing out from their free market policies which mean that many of their internally produced goods are undercut by foreign goods that have been produced cheaper. This discourages the startup of firms (especially those in more advanced sectors that are crucial for later development) and increases the import component of AD which also stunts growth.

Another problem faced by African economies is that of their governments. Some people say that it’s a lack of knowledge here which is stopping growth but with increased globalisation it is unlikely that this is the case because other, smarter candidates from abroad would move to these countries as they would be likely to get the jobs from their less intelligent counterparts. Also, there is currently a lot of foreign aid available to these countries which does include financial advice (such as adopting a free market which, incidentally, benefits the countries likely to be providing the advice).

Instead I propose that it is the corruption and self seeking nature of those in power which causes these abysmal growth rates. For example in 2004 Shell oil inadvertently funded poverty and conflict just by operating in Nigeria due to the countries corrupt officials. The consequences of such corruption can lower growth both directly through things like the distribution of income being heavily weighted to the rich who will have lower marginal propensities to spend and also indirectly through the deterrence to foreign investment that it provides.

So there are many problems with Africa’s economies now, but what can be done to deal with them? Many of the solutions to these problems are difficult to implement and may well be contentious among established free market economies, however many of these solutions have been used before in previously underdeveloped, now developed countries.

To solve the problem of international competitiveness governments of these countries need to impose stricter regulations to help protect their small firms. For a start there needs to be heavy taxing of foreign goods that could potentially be produced within the country but can’t be produced right now as they don’t have the technology to compete with the foreign firms on price. Of course when I’m saying this I don’t mean that African governments should tax everything coming into their countries. It would be obtuse for an LEDC African country to tax imports of computers coming into its country in the hope that its country could start up firms designing computers, there simply isn’t the infrastructure or education in place for this to be possible. However some level of regulation is required to give its firms the advantages they desperately need. Over time this will hopefully give firms within these countries the funds necessary to improve capital and education in their sectors to an extent that they are internationally competitive and the import taxes are no longer required.

Having built up this capital and education these African countries could use the extra economic growth and education to expand into more advanced sectors like technology and telecoms which previously were out of their reach. This is what happened in the Asian tigers with companies like Samsung who started out in the 1930’s as a trading company in food processing and textiles during times when South Korea  had a GDP per capita of $79, lower than those of some sub-Saharan African countries. Then, through pressuring from its government and subsidies (also provided by the government) Samsung moved into technology. Now the biggest technology company in the world by revenue and South Korea’s largest company by the same measure, Samsung is a great example of how sub-Saharan African governments can bring their firms into the modern era.

The other solution is an obvious one, reducing the corruption imbedded in African governments will allow for the implementation of policies which will help boost growth such as higher minimum wages, subsidies, better wage distribution, more effective use of foreign aid and the increased investment from foreign firms that comes with a less corrupt and therefore more stable political system. Of course there are lots more positive side effects of taking out corruption in government but those were a few which related to earlier points in the post.

Unfortunately to actually reduce corruption is a difficult process. Many of the people who benefit from the corruption are rich, influential and may well have political connections overseas. Plus many of these nations have become war torn and violent, often as a result of this corruption, which means that trying to implement political change within them would be nigh impossible. Even if you were successful in removing corruption from one country the poor border control and volume of other corrupt countries surrounding each other would mean that corruption would be likely to return after a short period of time.

So what can be done? I don’t know the answer myself although I would suggest that some international pressure could be applied not just from international bodies (UN, EU etc.) but also from corporations which have a strong interest in the de-corruption. For example many of the countries in sub-Saharan Africa are natural resource rich with a lot of oil and minerals. However the raging conflict and low levels of infrastructure have prevented much of the resources available from being extracted. If major oil and mining companies put pressure on sub-Saharan governments, by carrot or by stick, then it may yield some results. This would bring further benefits as the companies could bring in extra infrastructure and capital along with more investment.

If corruption can be stopped in Sub-Saharan governments and the right policies can be  implemented subsequently then I strongly believe it would be the first step towards the rejuvenation and modernisation of this area of Africa. As it is now, sub-Saharan Africa will remain one of the least developed and most poverty stricken places on earth.