http://blogs.ft.com/beyond-brics/2014/09/10/africa-rising-for-whom-and-for-how-long/
Africa rising: for whom, and for how long?
Sep 10, 2014 8:00am
by Alan Beattie
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Africa is, or has been, rising: on that most people seem agreed. The question is: which parts, and for how long?
The two-decade period of growth enjoyed by many sub-Saharan African economies has raised hopes and doubts in equal measure. It could be another episode of temporary natural resource earnings fuelling growth, which will fall as commodity prices drop and interest rates rise. (The
travails of Ghana and Zambia provide some support for this notion.) Or has there been the kind of genuine diversification that could survive a serious shift in the terms of trade?
On the plus side, growth certainly looks a lot sounder than it did during sub-Saharan Africa’s previous period of optimism – the decade or two that followed the independence wave of the 1960s. That expansion ultimately turned out to have been based very heavily on natural resource exports, and when commodity prices fell back, many economies collapsed under the weight of foreign debts.
The manufacturing sectors that African countries had built up with the help of high trade tariffs may have looked impressive at the time. But productivity and competitiveness were poor, and they essentially collapsed when those protective walls were dismantled during the 1980s and 1990s, largely at the behest of the IMF and the World Bank.
With trade protection in sub-Saharan Africa having remained low, we can be surer that any diversification is likely to survive a downturn in commodity prices or indeed the global economy. And with monetary and fiscal policy frameworks in much better shape – together with a big continent-wide drop in armed conflict and increase in democracy – the potential for a catastrophic stop is much lower.
However, the honest answer to the question of exactly how much diversification (and even growth) there has actually been remains “Dunno”. As has been
detailed on this blog, data for African economies are weak and partial. The fact that Ghana was rapidly declared to be a middle-income country on the basis of a
60 per cent upward revision in the level of GDP does not encourage trust in reported growth rates. (Rich economies have
GDP levels revisions as well, but not of that size.)
That fairly chunky caveat aside, the best answer seems to be that sub-Saharan Africa has seen some of the classic development pattern – workers moving out of low-productivity agriculture into manufacturing and services – familiar from east Asia and, to a lesser extent, Latin America. However, as far as we can tell, that movement has been
relatively slow and small. It has also been accompanied by less impressive gains in productivity in agricultural, manufacturing and service sectors.
Even research by optimists for Africa like the
consulting firm McKinsey implies that most of the progress is in the north rather than the sub-Saharan parts of the continent. In classifying development, McKinsey categorise African countries into oil exporters, pre-transition, transition and diversified economies. But with the middle-income exceptions of South Africa and Mauritius, only two sub-Saharan countries, Namibia and Cote d’Ivoire, make it into the “diversified” camp.
The manufacturing sector’s share of GDP and employment across sub-Saharan Africa
seems to average 10 per cent or less, and much of that is in small-scale informal businesses whose growth potential is weak. In theory, workers could go into services instead of manufacturing as part of the development process of higher growth. But high-productivity service sectors like IT generally require advanced levels of education and training which cannot be whistled up quickly.
Given the weakness of cross-country data, case studies can be valuable in teasing out differences with other regions. In a
study published earlier this year, the IMF looked at Mozambique in comparison with Vietnam. Both countries had emerged from armed conflict and had deregulated their previously centrally-planned economies, and both had growth take-offs around the same time (Vietnam in 1989 and Mozambique in 1992), which saw per capita GDP rise by 50 per cent in the next five years. They experienced similar falls in the share of agriculture in GDP – by 11 percentage points in Mozambique and 12 per cent in Vietnam.
However, Vietnam saw large increases in farming productivity and a fall in agricultural employment as workers left for the booming industrial sector, which created around 2m jobs. Mozambique added a lot of coal, gas and later aluminium production, but as many workers as before remained stuck in low-productivity agriculture. Mozambique created around 160,000 industrial jobs, less than half as many relative to population as in Vietnam, and only about 40,000 were formal salaried positions. Mozambique’s natural resource and metals industries generated a lot of profits and GDP growth but not much work.
Perhaps the contrast is just a function of the stage of development. Controlling for levels of income,
some research shows that the manufacturing and agriculture shares of Africa’s economies are pretty much where we would expect them to be compared to the experiences of other regions. Looked at like this, Africa’s apparent underperformance is simply a matter of excessive expectations.
Stumbling through the fog of inadequate data to reach a conclusion about the African growth miracle, it seems that it isn’t just about natural resources. However, it has a great deal further to go if it is to produce the sort of sustained poverty-reducing growth seen in other regions of the world. Moreover, how far confidence and growth in other sectors will survive a fall in natural resource earnings is anyone’s guess. It can’t be good for the rest of the Ghanaian or Zambian economies, for example, that their governments are going to have to cut spending heavily because of excessive borrowing on the back of commodity exports.
Sub-Saharan Africa has been rising, for sure. But the rise has been partial, and its durability remains unclear.
