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 alloys- 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.

 

Comments

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[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/

[Luke]

You make a number of good points and yes i agree that something must be done to tackle corruption and inefficiency, but is the answer really a smaller government sector in an unstable, insecure region?

If we want Africa to take off surely encouraging investment must be salient in order to accommodate the creation of more and better job opportunities by providing African countries with comparative advantage in profitable areas.

The disincentive to invest provided by instability (To which Africa is especially prone not only due to poor security but also as a result of abundant commodity wealth)is much greater than that provided by poor governance.

Crony capitalism may be worse than competitive capitalism, but its a dam sight better than civil war and anarchy.Smaller government means a smaller police force and a smaller army and thus a higher chance of civil war and instability. yes these institutions may be corrupt but in most instances it is better that they exist than not.

Perhaps the solution is not a smaller government but enforcing a better use of aid flows by stipulating conditions on the receival aid such as increased investment in infrastructure or education.

The problem is not that these country's receive too much aid, but too few conditions on where and how that aid is spent.

[Liu]

I'd rather give my standpoint by recommending a greater government in sourth Africa that is more important to avoid anarchy or chaos.Corruption is chronic and needs a long time to cure,in which a peaceful environment for economic growth is needed.The first step those countries should get through is a faster development but not the west style capitalism.And more to say,when considering socilism or capitalism,economic issues are far more sophisticated,I give my appreciation to the points about the birthrate ,the recources ,etc. except the discussion about superstructure.

[Orion Jones]

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[sam vinson]

Surely Becker and Posner are right as far as they go. But to travel through rural Africa is eye-opening. Farms--the overwhelming majority are very small--many less than two acres, few larger than four. It is subsistence agriculture, not market agriculture. The farms are getting smaller because of customs preferencing equal division among heirs at death. Seventy percent of the population is in farming, contrasted with 7-8% in as backward a rural economy as France and 2% in the US.

The Western European tradition of primogeniture in retrospect created accumulations of wealth that could flow into emerging technologies and lift the West. It also led to younger sons of more educated families moving into more knowledge intensive professions. Africa needs a method of concentrating land control to raise productivity, to create an available industrial workforce, and to orient the culture toward markets. Land concentration should not be done through nationalization as in the Soviet Union, but through private mechanisms that are price oriented so that wealth can be accumulated. And modern agriculture technology needs to be introduced. The tradition of sending promising kids to Fabian professors in Europe needs to be stopped. A few DeVrys need to be located in SubSaharan Africa, and some of the Chicago kids who reversed economic decline in Chile under General Pinochet need to be dispatched. Finally, inviting back in the Indians dispossessed in post-independence days with appropriate reparations as inducement would do a lot to demonstrate seriousness about real economic development.

[NEH]

Africa? Still the target of colonialism and imperialism (this time by their own tribes)Some may call it corruption. The Chinese, a business opportunity. They don't require the local power structures to clean up their acts and function like humanitarian Liberal-Democracies. Like those of us in the west require in order to gain access to the funds for development (not that they would do the Continent any good it only enriches the power elite). South Africa is gone, Rhodesia is gone, German East Africa is gone, Belgian Congo is gone, and the various other Colonial States have also gone. Looks like China is stepping into the vacuum and setting itself up as the New African Colonial Power and gaining access to all those valuable natural resources for themselves (ahh... the joys of Global Mercantilism). And I won't even mention the economic impacts of depopultion due to HIV, Ebola, and other tropical diseases.

Africa? More like a dying Continent and the vultures are simply waiting.

[Jim]

NEH says it well. Look in the front section of any issue of the Economist and you will note that the jobs are all for assistance to the power elite, I suppose hoping that trickle down economics will work in tribal Africa. In many villages, the elders won't even sanction extra-tribal marriage much less corruption of the local dialect. We might get a pleasant portrayal of Africa's progress but the substance will be less so.

[Gambling88]

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.

[gimmick]

"Africa has rebounded from the worldwide recession faster than many other nations."

Might be a good idea to clarify this as to not suggest that Africa is a "nation."

[Danny]

It's hard to imagine that any international sporting event can bring long-term economic prosperity to a third world country. Even the olympics often leave their hosting countries worst off than they were before because of the amount of debt incurred to get the city up to snuff. Kind of makes you wish there was some way to monitor those committees like we do here to cops: http://lawblog.legalmatch.com/2010/06/07/monitoring-big-brother-is-it-okay-to-record-the-police/

[NEH]

Large scale international sports venues as an economic quick fix? Only in the imagination and fantasies of short term mentality economists. The real issue is "long term" real economic development and growth (agricultural, industrial, commercial & financial) that benefits the populous, not only the power elite. Good luck!

[Miguel]

This is a great take off, I believe it will have a profound effect.

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[Nicolas]

You raise some good points, but your assumption that democracy helps an economy take off is flawed IMO. Many African countries have supposedly been democratic for decades. You'd be right to counter with the fact that such democracies were very often questionable 'crony' democracies, but then that would bring us to the point that democracy in itself doesn't do much for a country. I also strongly disagree with the assertion that a crony democracy is better than socialism for an economy that's almost totally undeveloped.

I'm only speaking in very general terms here - dangerously close to pure rhetoric actually - but when most people hardly have access to food, water, health services or employment, exercising democratic rights is probably not a great concern.
To jump to a different and equally unsubstantiated point, 'benevolent' dictatorships - socialist or otherwise - can actually be helpful in giving a kick-start to economic progress. Democracies work when a country already has the semblance of an infrastructure. Otherwise they can very easily fail, just as you cite the socialist approach as having failed.

As for riches in primary resources, those aren't always a boon. Corruption is in fact often associated with the presence of valuable resources (Congo, Angola, etc).

[Ken Ndirangu]

Nicolas, Africa countries cannot be considered democratic when they suffer such low levels of literacy and civil education.
The larger part of Africa's 'Democratic' past has been riddled with conmen (both foreign and local) colluding to loot their countries' coffers while misleading their citizens with rubbish incentives, bribes, tribalistic tirades and political hogwash.

[mbt walking shoes]

good luck for Africa.

[Nwabu Nnebe]

Africa as a term is deceptive. Several African countries have better fundamentals and benefit from higher growth rates. Those countries happen to be a mixed bag of commodity exporters (Nigeria, Angola, Mozambique) and private sector engines (South Africa, Kenya, Ghana, Rwanda). It tells you that investment is a big part of the story whether crony (commodity-related state companies) or private.

To satisfy the Chicago school which Prof Becker is obviously a loyal member of I suggest he take a look at MTN founded by the South Africans, Celtel founded by a Sudanese, Orascom founded by an Egyptian, Dangote founded by a Nigerian, and Equity Bank founded by a Kenyan - all of which are private sector stars.

If he is looking for western cowboys doing their thing in Africa there is also plenty of that too. Consider Standard Bank which has roots in Britain, is based in South Africa and is investing in the African growth story. Or he may look at Lonrho or Gateway Communications, smaller players both run by british expatriates.

Either way, Africa is growing and globalizing and joining the rest of the world in the transition towards urbanization and developing a high consumer culture.

[sesli chat]

I'd rather give my standpoint by recommending a greater government in sourth Africa that is more important to avoid anarchy or chaos.Corruption is chronic and needs a long time to cure,in which a peaceful environment for economic growth is needed.The first step those countries should get through is a faster development but not the west style capitalism.And more to say,when considering socilism or capitalism,economic issues are far more sophisticated,I give my appreciation to the points about the birthrate ,the recources ,etc. except the discussion about superstructure.

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[Chamberlain Peterside]

There's a lot of resource-base to believe that Africa should take off, but in the same token - a host of empirical evidence on ground why the time might be slipping away for Africa. I wish things were brighter and more comforting than we see today amongst the decision-makers and that lessons learnt are helping them make better and wiser policy choices - am yet to see that.

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