Why has Africa not taken off?
The above facts show that Africa has not taken off. Let us first consider some simple economic explanations that have been advanced. One argu- ment is that Africa is exposed to a secular decline in its terms of trade because prices of commodities, which Africa tends to export, have risen by less than prices of manufactured goods and services, which it tends to import. Although African terms of trade are not significantly worse now than they were in the 1960s, we may note that during the period when it underwent its structural adjustment programmes, that is in the 1980s and 1990s, there was a significant decline in its terms of trade. This has not made adjustment easier, and may have held back economic recovery. A second problem with the dependence on commodity exports is that prices swing a lot, which creates problems of its own even if there is no secular decline. This pattern of price fluctuations is a particular risk in the African environment and puts impossible demands on economic policy manage- ment (Bevan et al, 1990). It is hard to deal with both positive and negative shocks.
Another problem that African countries have to deal with during the adjustment phase is the large debt burdens that were built up during the vain attempts to manage economies without adjustment in the 1970s (Andersson, Bigsten, Persson, 2000). Although the total debt in dollars is not very large for Africa, in terms of its share in GDP it is much higher than that in other regions (Table 11). This debt has, of course, made adjustment efforts much more complicated in Africa than they otherwise would have had to be. The recent debt relief (HIPC) initiative is trying to deal with this problem by writing off part of the debt for countries that have a cred- ible development strategy.
There are further exogenous factors that have been suggested as hold- ing back growth in African economies. One is that the countries are small, so they cannot exploit scale advantages. This has some validity, at least as long as African economies are not well-integrated into the world economy. Another factor is that the level of risk tends to be high in Africa. This means that investors require very high returns there, and estimates also show that the return on capital in Africa is extremely high (see e.g. Bigsten et al, 2000b). Money is not flowing in, since there are few projects that can generate sufficiently high returns, which means that investment becomes low. Other factors that have been mentioned are that Africa is located in a climate zone that is not optimal for agriculture, and there is also a high prevalence of malaria, AIDS and other costly diseases. Many countries are landlocked or have poor transportation networks that make it expensive to trade.
We have already discussed various aspects of the choice of economic policies, particularly with regard to the countries’ external policies. The first observation that follows from the discussion above is that Africa has been too closed to the world economy (see the evidence in the survey by Collier and Gunning, 1999). But there is also the whole spectrum of dis- tortions due to ineffective economic policies, and which countries have tried to revise during the last two decades. These were on the one hand general macroeconomic distortions such as overvalued exchange rates, budget deficits and excessive money supply growth. On the other hand there were problems of a more institutional character such as excessive govern- ment control and regulation, state ownership of firms, poorly functioning financial markets and an ineffective (or corrupt) government sector.
There has been progress on these fronts during recent years, but it could be argued that the reforms are still insufficient. Once they are fully in place, the response may be more significant. This argument has some validity, but it begs the question of why reforms are not effectively imple- mented. The root of this has to be sought in the way policy-making func- tions in Africa, that is the political process. Is there anything in political processes in Africa that hinders the realisation of its economic potential?
Policymaking depends on the interaction between interest groups in different ways. In Africa, political processes, even in the more democratic set-up that currently prevails, are unusually dependent on the actions of special interest groups. There is extensive corruption and mismanage- ment, and the interaction between politics and ethnic rivalries makes it hard to establish long-term stable and undistorted strategies (see Bigsten and Moene, 1996). It may also be argued that apart from the ethnic dimen- sion, economic structures tend to influence political outcomes. For exam- ple, standard trade theory suggests that a country should optimally adjust its economy according to its comparative advantages. However, what if the comparative advantages imply a policy that is counter to what is politically desirable? For example, if a country is abundant in land (or natural resources) it may be inappropriate to let the wages of labour increase too fast, while we know that higher urban wages have been politically desir- able in Africa (see Bigsten and Kayizzi-Mugerwa, 2000).
But why are there no effective forces that can guarantee good gover- nance? There is obviously also a lack of democratic control in the countries that have been (partially) democratised. The government in power often tends to look to the interests of its core supporters rather than the welfare of the country as a whole. The external pressure for democratic change has also been weak until recently, but it is possible that economic reform pro- grammes to some extent have contributed to political openness. It has been argued that what is lacking are agents of restraint that can force gov- ernments to behave responsibly and to introduce sensible economic poli- cies and stay on track. The increased openness and debate in most African countries may in the longer term contribute to a change in this direction, but so far one cannot say that there in general has been a major change in government behaviour. Therefore much remains before the political process can produce effective government and policy making.
What is the way forward?
Africa’s growth performance has been very poor since independence. Is this because Africa has not been blessed by the forces of globalisation? Is Africa delinked, and therefore poor? We have argued that one can look at the integration into the global economic network in two ways. When it comes to the extent of interchange of goods and services, we find that Africa is highly integrated into the global economy. More so than many other regions of the developing world. However, when it comes to pursu- ing an open economic policy with low tariffs and where world prices are reasonably reflected in the domestic prices, most African countries have been delinked or closed, at least until very recently. This paper argues that inward-orientation has hurt African growth. The high levels of tariff and other protection have lead to inefficiency, and have also opened one more avenue for rent-seeking and corruption.
When it comes to financial flows (other than aid) Africa is largely delinked. Or rather, the financial framework is there, but little money is flowing in and unusually large amounts are flowing out. In terms of the flow of ideas and information at least the African elites are well connected to the world, and policy making has in the recent few years been much influenced by ideas from the outside.
We have argued that certain types of economic reform are desirable and we have also pointed out that some of those are hard to implement in the African context. When they are formally implemented, they are often done so in a biased and ineffective way, which means that the outcomes will not be as expected.
One may, of course, take the discussion one step further and ask why the level of protection has been so high. Essentially it was started as an attempt to industrialise and to pursue an infant industry policy. This did not work and eventually the policy was taken over by vested interests that wanted continued protection for inefficient industries. Whatever the cause, it was the export-oriented farmers who paid the price in terms of lower incomes. In the longer term most groups have suffered because of the lack of growth. The average African is barely richer today than 30 years ago.
So what is the way forward? Globalisation is not a panacea for develop- ment! It can help, but for the effects in terms of economic growth of open- ing-up to be substantial, other aspects of the economy also have to be in order. Macroeconomic policies must be right as well as the institutions supporting the economy. Excessive corruption, poor policies or poorly implemented policies will negate the effect of attempts to open up and integrate into the world economy. Will opening up also help systems to reform themselves in the more domestic dimensions? This is hard to prove one way or the other, but it does not seem unreasonable to believe that a more open environment will make it harder to be corrupt and to pursue counter-productive policies.