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.

Comments

[Al]

It is refreshing to see academia blogging about Africa and I think many people will agree that a lot of research isn't available on Africa's latest socioeconomic progress.
Three reports just released last week by McKinsey, Boston Consulting Group, and Chatham House offer a different perspective on Africa most people including those in academia aren't aware of.
I will leave it to you all to draw your own conclusions.

- McKinsey Quaterly - What's Driving Africa's Growth:
https://www.mckinseyquarterly.com/Whats_driving_Africas_growth_2601#AboutTheAuthors

- Chatham House Report - Our Common Strategic Interests: Africa's role in the post G8 world
http://dev.chatham.sov.m-w.co.uk/publications/papers/download/-/id/888/file/16704_r0610_africag8.pdf

- Boston Consulting Group - African Challengers: www.bcg.com/documents/file44610.pdf

- Africa Progress Panel:
http://www.africaprogresspanel.org/report/

[Orion Jones]

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[Dan S.]

Today, foreign assistance is largely concerned with making effective business environments. At USAID, for instance, the emphasis is on creating economic growth through pragmatic free market reforms. In fact, there is a consensus in the economic research community that foreign assistance is conditionally effective – conditional on macro-governance, strength of property rights, and other aspects of “good” governance. Posner comments pertain more to foreign assistance as it was in the 80s – providing below market rate financing to questionable regimes.

It’s also worth noting that foreign assistance is a small fraction of total economic activity in Africa. Hence, current levels of foreign assistance would probably not allow leaders to delay reforms. For instance, if we imputed a hypothetical 15% rate of return on past foreign assistance dollars (1995 – 2007); the total only equals about 7% of the economic growth over that same period. However, it bears repeating that these funds are normally administered through independent programs that support better business environments.

[Gambling88]

Thanks very much to both of you

[S]

"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."

The Robert Bates Model tends to view such income sources as producing political stability. The critical factor in determining civil war outbreak seems to be revenue loss or political uncertainty. The interesting thing is that if Robert Bates is right the "more promising routes to prosperity" are not actually such; African governments have almost zero tax infrastructure and thus are only able to tax exports/imports, other forms of economic growth that do not contribute to government coffers do not contribute to political stability, and without such economic progress is bound to be cannibalized in civil war.

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African governments have almost zero tax infrastructure and thus are only able to tax exports/imports, other forms of economic growth that do not contribute to government coffers do not contribute to political stability, and without such economic progress is bound to be cannibalized in civil war.

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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.

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