good markets crisis japan poverty does countries poor oecd his can financial time china investment developing asia years globalization country government www now growth world how people between through global other state economies change trade economy new east much economic europe human should foreign social development asian international billion africa
|Why is Africa so poor?|
|Sunday, 15 February 2009 08:37|
Africa has always been poor. Indeed, for most of human history, the whole world has been poor. It was really only in the 18th century with the industrial and agricultural revolutions that North Western Europe, especially England, started to lift itself out of poverty. It is a case of Western exceptionalism.
Why this occurred is a complex story. But the rise of democratic government, openness to trade and investment, and the development of science and education are part of the story. And as Western Europe developed offshoots in North America and Australasia, prosperity spread with it. Japan then followed with the Meiji Restoration in the 19th century. But, then it was not until recent decades that much of the rest of East Asia started to develop rapidly. Again, globalization and good economic management are an important part of this story.
So, the question is why has Africa not been able to develop in the same way that Western, and East Asian countries have been able to do so.
In reality, in the period until the 18th century, when all the world was mired in poverty, Africa's economic performance was even worse than other regions. Why? Perhaps climate and geography played roles. For example, Africa has always been afflicted by tropical, contagious diseases, in contrast to the more temperate countries of Europe. Unstable and harsh climate, and poor soils limit the potential for agriculture. And a lack of navigable rivers and natural inlets hampers trade.
Why has African economic performance been relatively weak over the past 200 years? Africa is after all very rich in resources. Africa, particularly its coastal areas, always had contacts with the rest of the world. But the 19th century saw the colonisation of almost all of Africa by European countries in search of ivory, nuts and palm oil (selling in return rifles). This colonisation gradually led to a political destabilisation of African society. European leaders then drew country boundaries as they shared these new African colonies between them. Some 10,000 pre-existing political units were amalgamated into some 40, and at the same time other African communities were bisected and often trisected. In most cases, the nations of modern Africa are the direct successors of these colonies.
From the colonial capitals in Africa radiated out the colonial infrastructures of roads and raliways, posts and telecommunications. Such infrastructure was design to link colonies to the homes of their colonial masters in Europe. Travel between African countries was usually (and still is) much more difficult.
Following the second World War, decolonisation started, often peacefully. Despite the enthusiasm for independence, there was a massive lack of educated and trained manpower to goven these new countries which were unprepared for independence (today Africa loses an average of 70,000 skilled personnel a year in brain drain to developed countries). They were also bereft of basic infrastructrure and public health facilities. Ethnic relationship was an important factor in many government appointments. While governments often started with democratic systems, many quickly became authoritarian and the military became a major force, This may have helped consolidate these new countries, but it was not so favourable to their economic development. It was also a source of conflict within and betwen nations.
The Cold War was fought partly in Africa as both the US and the USSR provided massive assistance to certain regimes (often dictators). This usually fostered corruption and weakened governance more generally. Also, both China nd Taiwan, and also South Korea, supported corrupt dictators to gain their political support. Corrupt political leaders put billions of dollars into private Swiss bank accounts. Independence in Africa coincided with a period when many development economists recommended state planning and a large state sector. This overstretched government capacities and led to overborrowing and indebtedness.
Africa also underwent a demographic explosion as life expectancy increased thanks to modern medicines and improved hygiene, improved food production and distribution, and a high birth rate. Africa may have had a population of less than 100 million in 1900, by 1960 it had risen to 200 million, by 1990 to 450 million and today over 700 million. Food production could not keep pace, so that large amounts of food now have to be imported.
Many countries have also suffered from the curse of natural resources, with Nigeria being the classic case. As oil prices and revenues rose massively, Nigeria went on a spending spree to finance questionable projects, including through major borrowing. Today, Nigeria is even worse off, being poor, corrupt and unstable. Overall, Africa's rich natural resources (notably diamonds and coal) have been more of a source of conflict than prosperity.
The majority of African countries are dependent on imported oil. The 1970s oil shocks had disastrous consequences as many African countries borrowed to such a point where they could neither service existing loans or obtain new credit. IMF and World Bank structural adjustment programmes only worsened the situation.
Should we worry about Africa? Yes, for at least five reasons: humanitarian; security reasons --failed states can be a source of terrorism etc; global bads like the spread of contagious disease; enormous migration pressures; if Africa develops like Asia, it will provide markets for us all.
What does Africa need? Good governance, peace and security, investing in people, economic growth and poverty reduction, more and fairer trade, more financial resources, and better partnerships with developed countries. Western countries have promised to double aid to Africa, but have not been keeping this promise. Also, African countries suffer form Western protectionism. European cows recieve subsidies of $2 a day, while Japanese cows receive subsidies of $4 a day -- in both cases more than African GDP.
What hope for Africa? In recent years, Africa has been growing by 5% a year, though largely thanks to increased demand for oil and natural resources from China and other emerging economies. Private sector entrepreneurship is improving. But, while there are more and more open elections taking place, most Africa democracies are very flawed.
Africa has long been the continent of eternal hope, with the international community hoping and praying for a renaissance. While this is laudable, it is important to be realistic about Africa. Africa's share of world trade is only 3% compared with over 7% in 1948. Most of that trade comes from South Africa and African oil and gas producers. Crude oil comprise more than half of Africa's exports. In two-thirds of Sub-Saharan African (SSA) countries, one or two products account for at least 60% of the country's total exports. Only 3 African countries are in the world's top 50 exports -- South Africa (39th), Algeria (42nd) and Nigeria (43rd). Africa's share of global FDI is a mere 3%. Is it possible to argue that Africa is losing from globalization? No, it is rather a case of globalization passing Africa by.
Some more sobering indicators follow. South Africa and Nigeria account for 54% of SSA's GDP. 45% of SSA's population live in extreme poverty (compared with 41% twenty years ago) -- this is the highest of any continent. And a further 30% live in moderate poverty. Life expectancy in SSA is 47 compared with 69 for East Asia and 78 for developed countries.
According to surveys, African countries are the most difficult in the world in which to do business. Access to finance, infrastructure, institutions and skills are the most severe constraints cited by entrepreneurs. African countries have the highest levels of corruption. Africa has a large number of failed states.
To some extent, Africa is the continent of lost hope. Most African countries seemed to be a much better starting position 50 years ago than the East Asian economies. While Asia exceeded all expectations, Africa dashed its hope.
Commission for Africa Report, 2005 -- www.commissionforafrica.org
The World Economy: A Millenial Perspective by Angus Maddison, OECD, 2001
The End of Poverty: Economic Possibilities for our Time by Jeffrey Sachs, 2005