This is my work for a project (topic self-selected) in my economic lesson. Interested in development science, I decided to choose the topic of Africa development. After a two-week research, I finally finished this essay.
QUESTION: AFRICA HAS OFTEN BEEN DESCRIBED AS THE ‘SHACKLED CONTINENT’. IS THERE STILL HOPE FOR ECONOMIC DEVELOPMENT IN AFRICA?
FANG Ziyan
Nanjing Foreign Language School
1.Introduction
Three decades of effort on development in Africa has yielded pitiful returns, which accord with its title of ‘the imprisoned continent’[ Guest, R. (2010). The shackled continent: Power, corruption, and African lives. Smithsonian Institution.]. African economies have been stagnating, even regressing. As Chart 1A shows, the GDP per capita of Africa levelled off at about $800 before 2002, then went through steady growth and peaked at $2200 in 2014, and then showed a downward trend and ended at $1800 in 2018. The GDP has always been the lowest, or near the lowest, amongst all the continents. Map B illustrates that in 2018, European countries and North American countries had a GDP of between 1 and 5 trillion US dollars. However, there was no country in Africa whose GDP is above 0.25 trillion. Additionally, it can be seen from Chart 1C that the balance of payments (BOP) of African countries has been close to zero in the first fifteen years, followed by a large fluctuation and long-term deficit, indicating that the economy was struggling.
This article will explore the factors that have hindered the economic development of Africa in the past, examining whether they will always hold Africa back, ultimately finding that there is hope for the continent.
Chart 1A GDP per capita of Africa, from 1991 to 2018
Map 1B Global GDP in 2018 (current US$)
Chart 1C BOP of all African countries, from 1991 to 2018
(source from World Bank)
2. Analysis of the economic situation in Africa
2.1 Why has economic development been so poor?
Donald Kaberuka, who served as the president of the African Development Bank, pointed out several main factors that could be referred to explain the failure of the development in Africa.[ Donald Kaberuka. “The African Economy Fifty Years After Independence - AfDB President Donald Kaberuka.” African Development Bank Group, October 4, 2007. https://www.afdb.org/en/news-and-events/the-african-economy-fifty-years-after-independence-afdb-president-donald-kaberuka-11311.] Undeniably, geographic and environmental drawbacks are key factors contributing to the failure, such as the high concentration of landlocked countries, tropical soils, and epidemics. However, according to Kaberuka, these factors are not decisive. The factors more crucial are the history, politics, and economy of African countries.
From the mid-15th century to the 1980s, many African countries were colonies. The colonists took resources but did not leave behind the core technology and high-end local human resources. There were also few complete production chains and industrial structures designed according to the characteristics of the colonies, triggering a series of post-independence problems.[ 舒运国. (2020). 试析独立后非洲国家经济发展的主要矛盾. 西亚非洲, No.271(02), 93-112.]
In terms of politics, ethnic and border conflicts left from colonial rule triggered wars between neighbouring countries[ Dodo, M. K. (2018). Why is Africa Lagging Behind in Economic Development? A Critical Review. Journal of Asia Pacific Studies, 5(1).]. From the 1960s to the end of the 1980s, each year there were on average 12 border conflicts in sub-Saharan Africa, directly leading to about 17000 fatalities.[Resolving African Boundary Disputes. (2018, March 20). Retrieved Oct 27, 2021, from https://energycapitalpower.com/resolving-boundary-disputes-in-africa/] Meanwhile, terrorism spread, such as the “Kobo Haram” in Nigeria and the “Shabaab” in Somalia, leading to multi-party internal fighting and social instability. According to the 2012 Global Terrorism Index Report released by the Institute for Economic and Peace Research, sub-Saharan Africa is the region with the most serious threat of terrorism around the globe.
As for the economic structure, the economic lifeline of a number of large African industries is in the hands of foreigners, such as major oil companies including Mobil, BP, CITRON, Eni, and Total. Even if there are indeed local African giants, such as the De Beers mining industry and MTN telecommunications, their true controllers are still British, American, and French. This may be related to the nationality of their founders, the source of funding, and the location of consumers.
2.2 Effects of these factors
Undoubtedly, political turmoil would negatively impact African economic growth, as it might prolong production time and reduce commodity quality, resulting in a decrease in international competitiveness. Meanwhile, the uncertainty is also likely to worsen investor confidence and hence lead to falling in the aggregate demand; capital flight might also occur, which contributes to both saving gap and foreign currency gap, and therefore restrict local economic growth. For those countries suffering from civil wars or wars with neighbouring countries, the situation could even be worse. Wars not only cause damage to both human and physical capital, but also force policymakers to spend money on weapons and armies instead of investing in businesses, education, or healthcare. An outflow of economically motivated migrants might occur as well, which is known as a ‘brain drain’, leading to skill shortages and consequently worsening the economic development.
As for economic structure, years of colonization have left African countries with incomplete industrial chains, most of which still rely on a single industry and export-led growth. According to the African countries’ export commodities statistics (2015) published by the African Development Bank, there were 21 countries (39% of the total number of African countries) whose export of one product accounted for more than 50% of the total export volume. Meanwhile, from Chart 2A it can be noted that the share of raw material in exports of Sub-Saharan Africa fluctuated between 30% to 60% from 1990 to 2015, but was often the highest one among all world regions, and was always greater than the world average value of about 10%.
Chart 2A Share of raw materials in exports, by world region, 1990–2015
(Source: African Development Bank statistics and World Bank World Development Indicators and World Integrated Trade Statistics)
Nigeria is a typical example of these single-industry and export-led African countries. It experienced a recession in 2015-2016, whilst its government stated that the major inducing factor was the decline in oil revenues and the over-dependence of the economy on this single commodity[ Source from http://thenewsnigeria.com.ng/2016/09/fg-plansfiscal-stimulus-strategy-to-inject-15bn-in-ailing-economy/]. According to the Prebisch-Singer hypothesis[ Toye, J. F., & Toye, R. (2003). The origins and interpretation of the Prebisch-Singer thesis. History of political Economy, 35(3), 437-467.], the demand for primary products is less income-elastic than that for manufactured goods. That is to say, as incomes rise, the demand for manufactured goods increases more rapidly than the demand for primary products. Meanwhile, a decline in commodity prices tends to reduce revenue rather than increase it, which can be noted in graph 2B. This explains why, despite being an export-led economy, Nigeria’s current account of the balance of trade has been negative in recent years. Chart 2C shows the export and import of merchandise in Nigeria. Slow increases in both export and import can be witnessed before 2008, then they experienced a fluctuation and ended at 57 billion (import) and 35 billion (export) in 2020. However, it is notable that, during this period, the value of import is always above that of the export. In other words, the net export (X-M) of Nigeria has always been negative in recent decades, and its value has constantly worsened. Net export is a key factor of the current account.
As the net export (X-M) is also a component of aggregate demand (AD), a negative net export also represents a fall in AD, hence the economic growth is worsened. Meanwhile, the collapse in oil prices reduces confidence, leading to declining foreign direct investment from $9.7 billion by the end of the second quarter 2014, to $0.64 billion at the end of the second quarter of 20164, which might further harm local economic growth: a 1.62% fall of the annual GDP in of Nigeria was witnessed in the 2015-2016 period.
Graph 2B
Chart 2C Merchandise exports and imports from 1960 to 2020 (current US$) -Nigeria
(source from World Bank)
3. So, is there hope?
There is still hope for economic development in Africa; so long as the factors which are dragging down its economic development are overcome; the future is promising.
3.1 Ways to aid Africa
It is an undeniable fact that for years, developed countries have been consistently offering aid to help Africa develop. However, as mentioned, the local economy has not actually improved much as a result; in the past 60 years, at least $1 trillion of foreign aid has flowed into Africa, but today Africa’s real per capita income is lower than that of the 1970s. According to Dambisa Moyo, this is because donors have ignored the fact that many of the receivers do not have effective investment and taxation systems. For instance, part of the direct aid actually fell into the hands of corrupt bureaucrats and entered the consumption field, instead of the investment one.[ Moyo, D. (2009). Dead aid: Why aid is not working and how there is a better way for Africa. Macmillan.] This increased AD, leading to soaring prices and the emergence of inflation.
On the other hand, new forms of aid offered by emerging countries such as China in recent years are seemly more practical and feasible[ Campbell, H. (2008). China in Africa: challenging US global hegemony. Third World Quarterly, 29(1), 89-105.]. For instance, China invests in the construction of African infrastructure, in return for natural resources, such as rare metals, and the right to use ports. This win-win cooperation not only helps Africa develop, but also offers China benefits. Furthermore, capital inflows from China have also eased the capital outflows of African countries caused by Western investor profit remittances and international debt. Simultaneously, by investing in the real economy, China has partially solved the problem of disconnection between the financial and production sectors in the African economy.9 For instance, the local employment driven by infrastructure projects of the China Railway 20th Bureau in Africa has brought long-term productivity improvements[ Brautigam, D. (2011). The dragon’s gift: the real story of China in Africa. OUP Oxford.], improving its potential economic growth. Nevertheless, there are still some shortcomings of this aid project. For example, it was found that in reality, politically privileged regions (like the birthplace of leaders) benefit more from the aid than others. In this regard, China should refer to other aid projects that are more evenly distributed, such as the ones of the World Bank.[ Bluhm, R., Dreher, A., Fuchs, A., Parks, B., Strange, A., & Tierney, M. J. (2018). Connective financing: Chinese infrastructure projects and the diffusion of economic activity in developing countries.]
3.2 From the inside
What African countries need is not only various types of assistance, but also effort from the inside. For instance, expenditure-reducing policies could be used to reduce CAD in countries such as Nigeria. Expenditure-reducing policies include contractionary fiscal policies like increasing taxes and reducing government spending, as well as contractionary monetary policies such as increasing interest rates and reducing the supply of money. As a consequence, Nigerian households will be more willing to save money rather than spend money, hence the consumption of imports decreases. Meanwhile, the expenditure-reducing policies can also reduce demand-pull inflation, enhancing the price competitiveness of Nigerian exports, and leading to more exports sold. Consequently, X-M increases, and CAD is improved. However, these expenditure-reducing policies will inevitably reduce aggregate demand, hence a fall in Nigeria’s economic growth and an increase in unemployment. In addition, the effect would depend on the magnitude of the increase in the interest rate as well as Nigeria’s marginal propensity to import.
Some supply-side policies can also be implemented to improve their international competitiveness. For instance, reducing corporation tax, regulation and red tape would eliminate the cost of production and hence increase firms’ profit, giving them more incentive to invest in the R&D of new products. Meanwhile, local government can also provide more education and training, in other words, invest more in human capital, which helps increase productivity and also increase the occupational mobility of labour. However, it is notable that these supply-side policies would take a relatively long time to have a significant effect on the current account even if it were possible to achieve. Meanwhile, supply-side policies might involve extra public expenditure, which could contribute to the government deficit.
In the long run, establishing and improving their own economic system would be a great way for African countries to get rid of the control and influence of other countries. To be specific, they can develop secondary and tertiary industries to diversify and strengthen local economies. 6 The development of secondary industry includes industrialization, the process of transforming an economy from one that is based on agriculture to one that is based on the manufacturing of goods and other industrial activity, which improves the marginal productivity and is essential for economic growth in these developing countries (Lewis, 1955). As for the tertiary industry, developing tourism might be a great chance for those countries with special climates and geography. Tourism provides funds and attracts investments, improving residents’ living standards. Meanwhile, the income-elastic nature of tourism means that as the global economy grows, demand for the industry will increase even further, allowing the developing country to continue development. In fact, countries including Morocco, Egypt and South Africa have already benefited a lot from the tourism industry, which other countries can imitate or learn from.[ The High 5s – Tourism as a Pathway to Industrialization, Integration, Quality of Life, Agriculture, and Powering Up Africa. (2018). Africa Tourism Monitor, 5(1).] Overall, it is estimated that shifts in employment from lower to higher productivity sectors have already added about 1% to productivity growth across the region since 2000, rising as high as 4% for Rwanda, and 2-3% for Nigeria, Tanzania and Uganda,13 which means a great improvement in the international competitiveness of Africa and could contribute to its economic development.
Last but not least, in terms of structural factors such as geography and ecology, though the physical environment of Africa cannot be changed, some mitigation and adaptation methods should also be carried out. Rapid population growth has strained croplands and contributes to deforestation, putting pressure on the ability of the region to adapt to climate change and the fragile ecology of the dry lands[ Brahmbhatt M, Bishop R, Zhao X, et al. Africa’s New Climate Economy: Economic Transformation and Social and Environmental Change. London and Washington, DC.: New Climate Economy and Overseas Development Institute., 2016. http://newclimateeconomy.report/workingpapers/.]. According to Africa’s New Climate Economy(2016), to address this issue, African countries should invest in research and development of climate-smart farming practices, such as developing more drought-resistant crop varieties and better practices for soil, water and nutrient management; or planting trees on farmland (“agroforestry”), which not only provide valuable products such as fruit and timber, but they also help to hold and restore soils, retain water, provide windbreaks, and aid in carbon sequestration. These efforts on farming innovations will improve productivity and raise farmers’ incomes, and at the same time, they can help reduce environmental degradation and strengthen resilience to climate change. Another measure is to implement the energy transition, investing in renewable energy generation and improving energy efficiency, so as to provide access to the 620 million people who currently lack it and improve long term economic growth. In short, strategies which recognize the close links between economic, social and environmental priorities are helpful in the long run.
4. Conclusion
Ultimately, although many factors have hindered economic development in Africa, there is still hope. Notably, while there are solutions to the problems in theory, their implementation is by no means an easy task. The primary economic structure has taken root in African countries for a long time. It is not easy to carry out the transformation which requires sufficient technology and a large amount of capital. The settlement of social turmoil and national conflict cannot be accomplished overnight as well. Similarly, the geographical issues cannot be completely resolved in the short term.
Nevertheless, it is an undeniable fact that many countries and organizations are contributing to the development of Africa by improving aid projects or development policies. Meanwhile, the efforts made by African countries themselves are also worthy of praise. They have been boosting more prudent fiscal and monetary policies, external debt relief, and more pro-poor public spending. Governance has also become more participatory and accountable on the whole. Hence to summarize, the future looks bright.
Bibliography
[1]Guest, R. (2010). The shackled continent: Power, corruption, and African lives. Smithsonian Institution.
[2] Donald Kaberuka. “The African Economy Fifty Years After Independence - AfDB President Donald Kaberuka.” African Development Bank Group, October 4, 2007. https://www.afdb.org/en/news-and-events/the-african-economy-fifty-years-after-independence-afdb-president-donald-kaberuka-11311.
[3]舒运国. (2020). 试析独立后非洲国家经济发展的主要矛盾. 西亚非洲, No.271(02), 93-112.
[4]Dodo, M. K. (2018). Why is Africa Lagging Behind in Economic Development? A Critical Review. Journal of Asia Pacific Studies, 5(1).
[5] Resolving African Boundary Disputes. (2018, March 20). Retrieved October 27, 2021, from https://energycapitalpower.com/resolving-boundary-disputes-in-africa/
[7]Toye, J. F., & Toye, R. (2003). The origins and interpretation of the Prebisch-Singer thesis. History of Political Economy, 35(3), 437-467.
[8]Moyo, D. (2009). Dead aid: Why aid is not working and how there is a better way for Africa. Macmillan.
[9]Campbell, H. (2008). China in Africa: challenging US global hegemony. Third World Quarterly, 29(1), 89-105.
[10]Brautigam, D. (2011). The dragon’s gift: the real story of China in Africa. OUP Oxford.
[11]Bluhm, R., Dreher, A., Fuchs, A., Parks, B., Strange, A., & Tierney, M. J. (2018). Connective financing: Chinese infrastructure projects and the diffusion of economic activity in developing countries.
[12]The High 5s – Tourism as a Pathway to Industrialization, Integration, Quality of Life, Agriculture, and Powering Up Africa. (2018). Africa Tourism Monitor, 5(1).
[13]Brahmbhatt, M., Bishop, R., Zhao, X., Lemma, A., Granoff, I., Godfrey, N., & Te Velde, D. W. (2016). Africa’s New Climate Economy: Economic Transformation and Social and Environmental Change.
Original link: https://fiona-f-ang.github.io/2021/11/04/human essay/
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