Bucking the Global Trend: Africa’s Economic Growth

Europe’s economic funk continues. Japan’s aging society is struggling under a huge pile of public debt and slow GDP growth. Recovery in the United States is about what can be expected from a post-financial crisis expansionary cycle. And in China, Communist Party leaders are adjusting to much slower growth. In much of Africa, though, growth prospects are strong, if we can believe aid agencies such as the World Bank and USAID.

On April 15th, the Washington-based World Bank issued a periodic check-up on Africa’s near-term growth prospects. Partly fueled by high commodity prices – especially for energy resources and minerals – continental growth is forecasted to be more than five percent per year over the period 2013-2015. The optimistic forecast also highlights the impact of increased consumer spending in many countries south of the Sahara, including places like Ethiopia, Angola, Ghana, and Mozambique. Indeed, many sub-Saharan states have seen above-average growth rates for more than a decade, leading to some reduction in still-high poverty rates. The diffusion of mobile phones and more predictable macro-economic conditions are key factors leading to better growth prospects.

USAID and the World Bank are probably right about continued high commodity prices. Even if some of this new African wealth is squandered through corruption, better terms of trade will lift many ordinary people out of poverty. A cautionary word is in order, though. Enclave-based development – especially if it involves oil or high-value minerals – can facilitate political instability and armed conflicts. Think diamonds in Sierra Leone and Angola, numerous precious resources in eastern Democratic Republic of Congo, and oil in Nigeria. In short, over-reliance on mineral and energy exports can lead to so-called “rentier states” (and failed states) that do not necessarily promote broad-based human development. Careful observers of the DRC and Nigeria know about the “resource curse” all too well.

So, boosting international trade between Africa and other continents is set to grow significantly in coming years. With luck and better governance, many states will avoid the worst excesses of the resource curse.

The perennial problem of limited inter-state trade in Africa also requires urgent attention. Vast distances, colonial legacies, poor governance, and under-investment in transportation infrastructure have all contributed to high costs of trade throughout much of the continent. As USAID indicates,

Trade among African countries makes up only 10 percent of the region’s total trade volume. In East Africa, it costs 50 percent more to move freight one kilometer than it does in the United States or Europe, and in landlocked countries transport costs can be as high as 75 percent of the value of the goods they are trying to export.

Like South Asia (India and its neighbors), Africa possesses huge potential for growth in intra-regional trade and investment. This potential will only increase if Africa’s middle classes continue to swell.

The economic news out of Africa is relatively good, particularly compared to the world as a whole. Still, it is worth remembering the continent’s patchwork pattern of progress on governance, peace, and economic reforms. The overall trend is clearly positive, but recent news out of the Central African Republic (CAR), Mali, and the DRC reminds us that progress is geographically uneven.

Weak States and Global Economic Development

This post was written by a guest blogger, Evelyn Robinson

Human suffering and insecurity worldwide is being caused by fragile states and violent conflict, a world leader has said. Finland’s Under-Secretary of State for International Development, Anne Sipilainen, spoke out at the opening of the recent conference into conflict and the post-2015 development agenda in Monrovia, Liberia.

Ms. Sipilainen said more than 1.5 billion people live in countries that are in constant battle with violence and political wrangling. She added that peace processes are being demolished by criminal violence and countries’ inability to generate security, justice and economic development.

The minister said: “Environment suffers, education suffers, the most basic health care cannot be provided, child mortality increases, women are not heard… in this kind of condition, it is very difficult to work on long term development challenges and goals.”

The conference was co-hosted by Liberia and Finland’s governments in the latest United Nation-led push to involve societies in issues surrounding disasters, conflict and security and how a universal framework can be created. A new approach must be taken to see the development of fragile states, Ms. Sipilainen added. Only then would we see the international partners coming together and witness international money transfer, equality and aid across the globe.

Also speaking at the conference, Liberia’s Finance Minister Amara Konneh said almost half of all civil wars and political upheaval in the world between 1990 and 2005 took place in Africa, and its war-related deaths far exceeded all other conflicts in the world. He highlighted the importance for leaders at the conference to agree on how conflict, violence, disaster and fragility hinder development around the world and how solutions must be met.

It is recognized that conflict, violence and disaster are huge obstacles which lie in the way of the Millennium Development Goals (MDGs) being met in many countries. The eight aims of the MDGs involve: eradicating extreme hunger; universal education; gender equality; child mortality; improving maternal health; combating HIV and AIDS; environment sustainability; and global partnerships.

Are Jobs In Kenya Being Killed By Corruption?

The reality of leaving school with an education only to find there are no jobs is one frustration many young Kenyans have to deal with. But imagine how it must feel to realize that about 250,000 jobs may never be created because of corruption in your country.

The World Bank has revealed in its latest report “Kenya at Work” that the loss of resources at the hands of fraud amount to that quarter of a million number. As the economic climate stands, about 50,000 youths leaving education gain employment, out of a total of 800,000 graduates every year.

The World Bank country director, Johannes Zutt, said: “Nepotism, tribalism, sexual harassment and corruption determine who gets these jobs leaving the rest to find their own means of survival.” The World Bank’s research says firms pay up to 12 per cent value of government contracts in order to win them, and four per cent of their sales goes towards bribes.

The organization concludes total bribes on government contracts are Sh36 billion, while another Sh69 billion is paid in other kickbacks. The report suggests: “Kenya stands out for its high level of business-related corruption.”

The country’s growth is below the African average and substantially below the growth of its neighbors in the East Africa Community. Mr. Zutt said other obstacles in Kenya’s job creation are access to electricity and poor infrastructure. General election shocks and the Euro crisis have left Kenya’s economy in a “stable but vulnerable” state.

The report says: “Kenya’s economy is out of balance and the external position has become even more vulnerable as the country’s current account deficit has skyrocketed and could reach 15 per cent of GDP in 2012. This is among the worst external balances in the world and poses a significant risk to Kenya’s economic stability.”

An imbalance in import and export has struck over the past ten years, as the fragile state’s imports have grown faster than its exports and the top four exports not making enough to pay for oil imports alone. The World Bank report recommends that manufacturing capacity should be boosted. And, critically, Kenya must deal with the negative effects of corruption on farmers.

Business Environments in Failed States

Though it has many critics, the World Bank Group fulfills many key roles in the global system. One key role is provision of data to policy makers, citizens, and investors. One closely watched index is the “Doing Business” survey, which assesses how easy it is to start and operate a company in different countries. The index formally measures 10 indicators. Examples of these indicators include: ease of registering a new firm; accessibility of consistent electricity supply; credit availability; ease of trading across international borders; and the quality of courts. Each country receives an ordinal ranking, between 1 and 183, and a lower number indicates greater ease of doing business.

The Doing Business survey is another important way to assess the effectiveness of governance in various parts of the globe. While it is possible to have a middle ranking and still achieve strong economic growth (e.g. China, Brazil), states that perform poorly on this survey are generally stagnant. Following is a list of the worst 20 performers, starting from the very bottom:

Chad (183rd out of 183 states), Central African Republic, Republic of the Congo,

Eritrea, Guinea, Democratic Republic of the Congo, Venezuela, Guinea-Bissau, Benin,

Haiti, Niger, Angola, Zimbabwe, Djibouti, Burundi, Timor Leste (East Timor),

Cote d’Ivoire, Uzbekistan, Laos, and Iraq.

Many of these bottom 20 states have already been directly highlighted elsewhere in this blog. All on this list, however, have been indirectly discussed. Common struggles include: authoritarian tendencies in governance, lack of the rule of law, high levels of corruption, poor infrastructure, and arbitrary judicial proceedings.

Even so, some critically weak or failed states perform somewhat better on this World Bank survey. Though hardly excelling, Afghanistan is just outside the bottom 20, at 160th. Pakistan has a middle ranking (105th), and Nigeria (133rd) has made some significant progress since the end of military rule in 1999.

Other low-income and/or modestly weak states also perform fairly well in the ranking. These include: Georgia (16th), Colombia (42nd), Rwanda (45th), Mexico (53rd), Ghana (63rd), and Zambia (84th).

What are your thoughts about the Doing Business survey? Is it a helpful tool for assessing governmental effectiveness? Is the survey unduly biased towards free market-oriented principles? Do you have personal reflections that relate to doing business abroad?

*** Did you like what you read here? You might be interested in the new book by this blog’s author, Failed States: Realities, Risks, and Responses.

The Digital Divide

The phrase has been circulating for at least a decade now. Once Internet access became widespread in developed countries, concerns about a “digital divide” emerged. Some talked about the “fast world” and the “slow world,” with regard to information flows. Over the past decade, this divide has narrowed sharply, at least in terms of basic access to the Web. (A newer version of the digital divide is concerned with the speed of connections.) The World Bank reports that the percentage of the world’s people with access to the Internet increased three-fold over the period 2002-2010, from 10 to 30 percent.

Access rates in developed regions – typically exceeding 70 percent – do still skew the global average. Even so, growth in Internet access is mostly occurring in developing countries. Nigeria, for example, experienced a four-fold increase in access in just three years (over 2007-2010). Nigeria’s rate (28%) is now comparable to the world average, with obvious implications for society, economy, and politics. Kenya, the world’s leader in mobile money usage, experienced a three-fold jump over the same three-year period (for a rate of 26%). Other key developing countries like Vietnam and the Philippines have experienced similar surges in information access.

Yet, the digital divide persists. Even a casual glance at the World Bank data indicates very uneven growth in access to the Internet. At the very low end of access, a few dozen countries have only tiny proportions of their societies online. In places like Bangladesh, Cambodia, Papua New Guinea, Afghanistan, Ethiopia, and the Democratic Republic of Congo, less than five percent of the population has access to the Web. In Ethiopia (with 90 million people) and the DRC (with 70 million people), fewer than one percent of the population has access to the Internet.

ICTs (information and communications technologies) are not the panacea for economic development that some claim. As Padraig Carmody (of Trinity College Dublin) has argued, low-income households sometimes spend too much of their budgets on information access through a kind of conspicuous consumption. And better access to information is no guarantee of better job prospects for all.

Even so, it is striking that some low-income countries are surging ahead in this area. And it should come as no surprise that a supportive governance environment is a key to this progress. Some authoritarian regimes (notably North Korea) still greatly restrict access to information. Even in more democratic contexts, legal and bureaucratic obstacles can limit growth in mobile phone usage and telecommunications investment. Nigeria, for example, went through a dramatic period of liberalization in the 2000s, which has led to its remarkable rise in Internet access. As just one indicator of this growth, a significant minority of this blog’s readers reside in Nigeria.

*** Did you like what you read here? You might be interested in the new book by this blog’s author, Failed States: Realities, Risks, and Responses.