Wednesday, November 14, 2007

I’m (not) shrinking: African economies at the 21st century

1975. Jaws grew into a Mega-hit. Monty Python and the Holy Grail was baptized a cult classic. With Abba, we sang this tune in our green Pacers:

When you're gone
How can I even try to go on?
When you're gone
Though I try how can I carry on?

People wore this and this.

In 1975 African economic advances were leading declining indicators. GDP was modestly rising. Incomes, too. Then the bottom fell out. Afterwards, anytime the continent saw periods of growth, monumental collapses quickly followed. Researchers wondered whether the continent faced a long-term economic rut. Or, did Africa’s politics – wars, shoddy infrastructure, poor governance – have something to do with keeping its economies comatose and people destitute?

The good news is that Africa has been on the mend for much of the past decade. According to a new report by the World Bank, 10 years of expanding economies in Africa has allowed the continent to claw its way back to economic levels last seen in …1975.

Yes, thirty years ago. The World Bank researchers found that African per capita GDP in 2005 resembles snapshots of economic indicators taken from when Gerald Ford was President of the United States. In fact, the World Bank’s report points out those similarities are uncanny between the growing Africa of today and a continent once hooked on Afro-Cuban music. “Countries that started poor, stayed poor, and those that started richer, stayed richer – with few exceptions,” World Bank researchers claim.

Between 1975 and 2005:

  • At least 19 countries improved economically;
  • 13 countries remained economically the same;
  • 11 faced steep declines.

I can’t hardly wait
To understand this decade of African growth, World Bank researchers reviewed more than 1,000 indicators in fields like health, economics and private sector development. They found that between 1995 and 2005 African economies on a whole posted a 5.4 percent level of growth. Not only is Africa’s economic prowess much online with the rest of the world, but it’s the largest growth rate seen on the continent since, uh, 1975.

This finding has brought a measure of optimism surrounding Africa. "For the first time in about almost 30 years we've seen a large number of African countries that have begun to show sustained economic growth at rates that are similar to those in the rest of the developing world and actually today exceed the rate of growth in most of the advanced economies," John Page, the World Bank's chief economist for Africa, told the BBC.

Of course, not all growth is equal. The World Bank claims a country must have a sustained period of growth of at least 7 percent to pull many people out of poverty. A total of nine countries performed at this rate, including Mozambique and Rwanda. On the other hand, steep declines do happen. Gabon, Burundi, Central African Republic are just a few.

Researchers placed countries into roughly three broad groupings of economic growth. First, we have so-called Slow-Growth Economies, which include many conflict or post-conflict countries whose economies have been increasing less than 4 percent per year for the past ten years. These 17 countries include Niger and Togo and make up 36 percent Africa’s population. The World Bank terms next group the Diversified, Sustained Economies, which obtained growth at more than 4 percent per year during the past decade. These 18 countries make up some 35 percent of Africa’s population and include nations like Mali, Ghana, Burkina Faso. Finally we have the seven major oil exporters of Africa, which take care of 27.7 of the population.

Here are other highlights of the report.

  • One third of Africans live in countries that have grown at more than four percent for the past ten years;
  • Still, 41 percent of Africans live on less than $1 a day;
  • Thank oil for much of Africa's success, but the economies of non-oil producing states expanded at an average of nearly six percent during the past four years;
  • African nations are becoming more stratified amongst themselves: In 1975, the richest 10 percent of countries had 10.5 times of GDP per capita of the poorest. Today, it’s 18.5 times.

Fact Check: West Africa
Fact checking some of the work by the World Bank, I found that among 11 West African states, economic advances mostly lead declines. I reviewed statistics from the World Trade Organization, and found those 11 West African states posted an average 4.18 percent increase in GDP between 2000-2006. Burkina Faso, Mali and Nigeria all claimed a six percent growth rate during that time. On the other end, divided Cote d’Ivoire posted a less than one percent increase and Togo’s economy rose by 2 percent.

One of the reasons Africa is growing so solidly is the continent’s new-found reliance on world trade. Researchers at the World Bank report that Sub-Saharan African exports rose by a whopping 26 percent between 2004 and 2005. A few caveats are in order. For example, crude oil comprises at least half of the continent’s exports. Also, at least two-thirds of African countries rely on only one or two products for at least 60 percent of their exports. (Burkina Faso and Mali are two of those countries.)

Perhaps this is why the news coming from West Africa isn’t strikingly glowing or completely downbeat. Those 11 countries of the sub-region posted export expansion by an average of 4.33 percent. The big winners, however, were not the oil producing states. Land-locked and resource-poor Mali (at nine percent) and Burkina Faso (at eight percent) were the region’s biggest winners. Bad news came in from Mauritania (one percent decrease) and Cameroon (posting a one percent increase). Niger did not have enough data.

Oddly, at least to me, imports skyrocketed throughout the region. Until the turn of the new century, Sub-Saharan Africa often posted minor trade deficits. Since 2000, however, exports have pretty much outstripped imports across the continent. That is, until you take economic superpowers Nigeria and South Africa out of the equation; then, African imports far exceed exports. This trade deficit surely seems to be the case in West Africa, where imports increased 7.33 percent throughout the region.

There may be a few reasons for this. If I follow this report correctly, then people have more money to purchase things, so they do. African manufacturing still lags (more on this later), so people buy more imported goods, anything from average cheap plastic junk to cars to cell phones. If this is true, it may prove Africa’s growth is, maybe, trickling down to the lower economic sectors. The same can be said for machinery imports. Growing economies need machines and parts, forcing African businessmen to look elsewhere to keep their factories on line.

Or, the opposite may be true: This growth is not being felt at all levels of society. Getting by is becoming more difficult, and the continent must import more food because prices are too high and farmers cannot feed everybody.

The great big no
We can continue to party like it’s 1975, World Bank researchers confess, but Africa’s growth has its limits. Remember, we may now be living through the high times before the economies came crashing back down. A note of caution is in order: Certain sections of the continent have joined the globalized realm of capital flows and hedge funds, but many people in Africa live outside this realm, separated from good jobs and high wages and the accouterments – telephones and fax machine – necessary to do business. This is why when the World Bank mentions Africa’s globalization success stories, it relates the same tales: Ghanaians processing insurance claims for U.S. insurance companies; Senegalese working in French call centers; Kenyans exporting cut flowers.

Let’s get back to Africa’s infrastructure for a moment. Africa, as a whole, is in the process of updating its laws governing business (a big World Bank pet project), but basic infrastructure needs must also be addressed. In a big way. In this case, the researchers don’t mince words. In Africa, “the quality of service is low, supplies are unreliable and disruptions are frequent and unpredictable—all pushing up production costs, a critical impediment for investors.”

Their complaints continue. Reliable electricity service remains a problem; so is getting hooked up to the grid. Telephone service still lags behind everywhere. Even the cell phone revolution has limits. Access to clean water is up (dirty water is a health hazard that keeps people out of work); so is access to education (Africa needs more educated workers to perform complicated tasks), but completion rates have stagnated. Roads are improving, but they still need work.

All this must be confronted – and physical infrastructure isn’t cheap.

Agriculture is another sticking point. It’s Africa’s number one industry, but the problem here is non-irrigated crops, which you will find growing in 96 percent of fields throughout the continent. If a sensible irrigation system could somehow be developed in Africa, crop yields will increase and so will productivity. Agriculture-based economies will grow even more.

This is where I’ll insert a small quibble: This idea sounds like perfect development program – from 1975. Hauling in expensive equipment on shoddy roads to provide small relief for a few months before it starts to break down and then sits in the field and rusts. Hopefully, the pipes could be broken down and sold for roofs or sleds or something useful like that. You have to keep these economies expanding somehow.

Once more, with feeling
I’ve spent much of the day with this report, and I still don’t know how to take it. It’s definitely an interesting document. And granted, it’s provides a moment to bask in at least a cupful of optimism about the continent. (Business editors take note.)

However, we need to follow up on fundamental questions raised by this report. What, really, precipitated this type of growth? What about microeconomic issues: How much is the growth affecting individual countries? How much of this growth is trickling down to society? How much will the continent’s growing population affect this?

One last snarky note: Missing from my reading of the report was the irony that Africa’s supposed fall of 1975 may have coincided by a couple of years with the mounting debt problem, followed by intervention in African economies by the World Bank and …

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