Will Africa finally take off?

This article originally appeared on The Becker-Posner Blog: A Blog By Gary Becker and Richard Posner (06-06-2010)

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.

Source: Gary Becker Will Africa Finally Take Off? The Becker-Posner Blog: A Blog By Gary Becker and Richard Posner

For text: http://uchicagolaw.typepad.com/beckerposner/2010/06/will-africa-finally-take-off-becker.html

FMF Policy Bulletin / 15 June 2010