Wed, Aug 26, 2015
Economies south of Sahara, long considered as the poster child of sluggish growth, have recently and suddenly surged, posting some of the most impressive growth rates in the world.
Africa's economic woes once seemed intractable. Not anymore. Economies south of Sahara, long considered as the poster child of sluggish growth, have recently and suddenly surged, posting some of the world's most impressive growth rates. For the past 15 years, they have grown an impressive 5 percent each year and future projections are even brighter. The challenge is how to keep growing while spreading the benefits of this newfound growth.
A report by the Africa Center for Economic Transformation (ACET), a think-tank based in Accra, offers a blueprint for responding to that challenge. It calls it "African Transformation" or "growth with depth." The report's main premise reckons:
African economies need more than growth -- if they are to transform, they need growth with depth. That is, they need to diversify their production, make their exports competitive, increase the productivity of farms, firms, and government offices, and upgrade the technology they use throughout the economy -- all to improve human well-being.
That, of course, is easier said than done. The problem in development discourse is that progress seldom follows any blueprint. What worked in Singapore is unlikely going to be replicable, say, to Lesotho or The Gambia, because development is a cocktail of many variables and those variables tend to be specific to each country.
Nevertheless, comparisons do help. The report compares Africa's performance to eight earlier transformers -- a group of countries that transformed their economies in other parts of the world: Brazil, Chile, Indonesia, Malaysia, Singapore, South Korea, Thailand, and Vietnam. Forty years ago, the report tells us, "their economies had features that today characterize many African countries -- widespread poverty, low productivity, low technology, and limited exports".
Today these earlier transformers are either upper middle-income or high-income countries while Africa largely lags behind at lower-income range. The reason, we are told, is because "they ignited and sustained long periods of high GDP and export growth, economic diversification, technology upgrading, and productivity increases and greatly improved the lives of their people." So, how does a country go about achieving these desirable outcomes?
The report humbly concedes that its recommendations are not mechanical and advises countries to pursue strategies appropriate to their individual circumstances. In development, lessons are good as long you are able to discern what to take and what to reject -- for you can't import a development model. There is no formula for economic development. But we know that if a country is at war or lack institutions, its economy is doomed. We know that if a country relies on exporting crude minerals, without adding value, its economy is doomed in the long-run. We know that if a country doesn't invest in modernizing its agriculture, its people are prone to famine and insufficient nutrition, which impact on human capital and creates a vicious cycle. This basic knowledge offers us some room for at least a partial blueprint of at least a partial economic success: escape from extreme poverty by spreading the benefits of growth.
The report identifies "four promising pathways to transformation" based on strengths and challenges found in Africa. Recent surge in growth rates, the report says, was based on a number of facts: better economic policies, end of decades-long debt crisis, high commodity prices, rising discovery and exports of oil, gas and other minerals, and new information technologies. But overall, it seems, the structure of most economies have not changed that much since the dawn of independence. Here are the four, crudely broad, pathways the report recommends:
First, the report identifies labor-intensive manufacturing. Africa's population is young and unemployed or underemployed. By 2050, the report notes, Sub-Saharan Africa will have a larger and younger workforce than China or India. In addition, wages are still competitive than other regions. This two-fold trend, coupled with abundant natural resources, makes Africa's potential for manufacturing huge and transformative.
Second, agroprocessing. Africa's agriculture has barely modernized, even during the higher economic growth of the past decade or so. It is still majority subsistence farming with little use of modern methods of farming such as fertilizers or irrigation. This has led to lower agricultural yields in Africa compared to other regions. As the New York Times reported recently, "Africa's agricultural yields are less than half the global average, and about 25 percent of what they could potentially yield. Agricultural productivity in Africa is growing at about half the rate the population is growing." Agroprocessing, the report reminds us, offers a step up in generating employment, income, and foreign exchange.
Third, Oil, gas and other minerals. It is no secret that Africa is endowed with unparalleled natural resources which is the envy of the world. But these resources do not mean much if all you do is extraction and exports. You need to follow the value chain or else you benefit little, as the report notes:
The upstream part of the value chain is often in an enclave with few links to the rest of the economy, and the concentration on unprocessed products exposes countries to volatile prices and thus volatile revenues. This, coupled with the fact that extractive resources tend to be exhaustible and nonrenewable, makes sustainable development particularly challenging for countries highly dependent on them.
To be useful, natural resources must be more than government revenues. According to the report, they must lead to higher productivity, technological upgrading and growth in other economic sectors.
Fourth, tourism. This is perhaps a little surprising as it is unrelated to the structural nature of the first three pathways. But the report gives the sector weight because it has potential to increase "foreign exchange to finance imports, create jobs and increase local material inputs." In fact, a new report by the African Development Bank calls tourism in Africa an "untapped goldmine," with just 8.2 million direct jobs as of 2012. Africa receives just 3 percent of world tourism, the report shows, while representing 15 percent of world's population, and growing. Globally, according to the World Travel and Tourism Council, tourism contributes directly or indirectly to 8.8 percent of the world's jobs (258 million), 9.1 percent of the world's GDP (US$ 6 trillion), 5.8 percent of the world's exports (US$ 1.1 trillion) and 4.5 percent of the world's investment (US$ 652 billion). But to tap into it, immense investment is needed in infrastructure development such as roads, railways, hotels, airports and tourist sites.
Obadias Ndaba writes on development, African affairs and economy. His articles and views have appeared in The Standard, The New York Times, The Huffington Post, and The Africa Review, among other publications. He has worked in micro-finance and commercial banking in Rwanda, and in nonprofit in Kenya and the United States.This article was first published in French in Libre Afrique.
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