Light for Africa?

June 12, 2008

Getting rid of the Three Scourges of humanity lamented in our past Dark Ages- Strife, Famine and Pestilence – is a lengthy and messy process. Big parts of humanity have done important strides on this front and are going further on the rocky road towards what in the West is termed Development. Let’s call it Peace, Prosperity and Freedom. This progress has been strong in Asia. So far, Africa has been considered a hopeless case. Afropessimism is still pervasive. And the news are full of horror stories in Sudan, Somalia, Zimbabwe, to name the worst.

Ideological battles on what has to be done are raging. Here an old overview. Proponents of unleashing the forces of markets and of unfolding of what Keynes coined people’s “animal spirits” blame government intervention and predation, as well as protectionism. Openness and good governance is what you need. William Easterly has recently yet again indulged in an exercise of “epater le bourgeois” by slaying the last World Bank Growth Commission Report and saying that the development experts are the (almost) 7 billion inhabitants of this planet. In order not to have only White males in American universities involved in the talks, let me introduce you to the Imani Centre in Ghana and their views along the lines of Easterly. There is also AfricanLiberty.Org (OK, supported by The Cato Institute, Washington), a website bringing together the opinion of African “libertarians”. Very vocal Rejoice Ngwenya, from Zimbabwe, and regular contributor to the website, apart from being an excellent read, has a few things to say. For example:

“What we need is democratic space, real space, to exercise our collective creative genius to produce even without Brettonwoods institutional support. We want more freedom, not hand outs. These so-called revolutionary liberators are suffocating us with their pro-poor crap.”

Others, like Jeffrey Sachs, are still on the old-fashioned “Big Push” aid line. Martin Wolf discusses his last book, Common Wealth. Economics for a Crowded Planet in his latest column and touches explicitly on that issue.

In terms of policy coming from the rich West, a synthesis emerged in the 1990s, made of old-fashioned aid policies, but linked with promotion of markets and governance via conditionality. This has not worked very well.

Yet suddenly Africa is on a growth path again. Hedge Fund manager Francis Beddington in the FT today informs us:

“Unnoticed by the media and much of the investment community has been a step-change in Africa’s economic performance in the past five years. Real growth in gross domestic product in sub-Saharan Africa (SSA) averaged 4.1 per cent in 1997-2002; by 2007 it had risen to 6.6 per cent. More importantly, real incomes are rising and Africans are getting richer at an unprecedented rate. In 1997-2002, real GDP per capita rose at a rate of 1.8 per cent per annum. This was up to 4.6 per cent in 2007. At 1.8 per cent per annum, it takes 39 years for real incomes to double, but at 4.6 per cent per annum real incomes double within 15 years.”

Who is right on why this is happening? Proponents of markets or proponents of aid? In fact, it seems that there is both, with an important role of business, i.e. markets, even if often distorted. What do I mean?

  • China entered the fray. Here a first systematic economic NBER study by Besada, Wang and Whalley on China’s involvement in Africa. It’s a mix of active business such as no Westerner would ever dare to do, government corruption and lavish aid. I.e.: The Chinese are not running away from the Heart of Darkness cyring “the horror!”. An it seems to be working to some extent: “China is (…) seemingly a highly positive story for Africa” conclude the authors of this study. But China is not the only emerging market becoming actively involved in Africa: India and Brazil, Russia, are active there as well. These countries aren’t afraid of the Darkness either.
  • But Darkness itself is receding. Politics, Governance are improving and economic reform is bearing fruit in some places. This is what Beddington tells us today in the FT as well:

“At the heart of the economic performance is a better policy environ-ment. Governments have ceased financing themselves by printing money and have -privatised many state enterprises. Most central banks target inflation. As a result, inflation has fallen to global norms and exchange rates are more stable.

Economic stability has seen a resurgence of private-sector investment, both domestic and foreign. In the late 1990s, investment as a proportion of GDP had fallen significantly below 20 per cent almost everywhere on the continent. Since then, investment has risen sharply and is approaching 30 per cent of GDP in most countries. In some, such as Ghana, Madagascar, it has passed into the mid-30s.

A new feature of this has been the involvement of other emerging markets as sources of FDI. China, India, Russia, Brazil and South Africa have been investors in sectors as diverse as mining and telecoms.”

We will have to wait and see how matters evolve in the next years. But things are stirring. And this is good news.

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