Development in Africa: How to make it last
10 March 2014
The Economist
EVERY boom has its boosters and detractors. So it is with sub-Saharan Africa's economic advance in the past 15 years. GDP across the region has risen by an average 5.1% a year. The IMF forecasts further growth of almost 6% this year and next. Optimists say growth now has an unstoppable momentum.
But naysayers point out that a similar spurt in the 1960s and early 1970s gave way to two decades of stagnation. How can Africa make sure it does not repeat that dismal pattern?
A version of this question was posed by Yaw Ansu, chief economist of the Africa Centre for Economic Transformation (ACET), an Accra-based think-tank, as he unveiled a detailed report on Africa's progress and prospects.
The answer from Mr Ansu, who worked for 26 years at the World Bank before joining ACET, is that Africa must focus on "economic transformation" or put more simply "growth built on solid grounds".
His study draws on the experience of eight middle-income countries (six from Asia plus Brazil and Chile) that were as poor 30-40 years ago as Africa is now. The lesson is that GDP growth is not enough. For prosperity to last, economies must also become more diverse, export-oriented and const antly upgrade their technology.
This is a familiar wish-list. But unlike many development blueprints, the ACET report is grounded in economic reality. The road out of poverty, it says, must be linked to Africa's endowment of abundant cheap labour, land and minerals.
For instance the way to ensure that oil, gas and metal deposits are a blessing and not a curse, says ACET, is first to be sure to get the best deal for exploiting minerals and then to use the money well. That means countries should invest in geological surveys so they know as much about their mineral deposits as prospectors do.
Cutting a back-room deal for a mining concession is to invite a rip-off. So rights should instead be sold by auction. Countries such as Norway and Chile can be tapped for their know-how in collecting mineral revenue and salting it away.
All too often a natural-re source boom works against lasting development. The mining industry uses lots of machinery and creates relatively few jobs. In good times the foreign earnings from mineral sales push up the value of the local currency making it harder for other kinds of exporters to survive.
And mineral-rich countries can become too dependent on a few sources of income which can dry up when world prices suddenly change. A lack of diversity in earnings is a big concern for Africa. The ACET report shows that five exports account for 64% of all exports in Africa compared with an average of 44% in the eight middle-income countries used as a benchmark.
A strong message from the ACET report is that Africa needs more factories if it is to keep up its progress. Manufacturing has greater spillovers for the rest of the economy than mining does and gives variety to export income.
While there are gulfs between Africa and richer countries in a wide variety of indicators, the lack of manufacturing muscle is one of the largest. Its share of Africa's GDP was around 9% in 2010 compared with 24% among the eight middle-income countries.
Africa has lots of surplus labour. What it needs are jobs-intensive industries, such as garment-making and component assembly, to soak it up. The growing middle class in Africa should make this an easy sell to multinational firms.
A businesses would be "crazy not to consider building a processing plant in Africa just to supply the local market demand," says one of the executives surveyed by ACET. Indeed there are recent signs of a manufacturing revival in Africa.
But the same executive goes on to say "the challenges are too large for us to be comfortable to invest." Business folk surveyed by ACET spoke of unhelpful policies, shortages of skills and the small size of markets as particular barriers.
Among the fixes for these ills suggested by ACET are special economic zones (in which some rules are relaxed); training colleges to cater to specific company's needs, such as the ones run in Kenya and Nigeria by Samsung, an electronics giant; and more effort to cut tariffs within Africa's regional trading zones.
Indeed there is no shortage of advice for Africa's would-be lions. The lessons from the success of Asia's tigers are fairly well understood. The tricky part is to implement them.
Category: General