Notes on economic development in Africa

I have been doing some reading on economic development in Africa recently. The continent, if it is even possible to lump its many diverse nations together when discussing development, which is probably unwise, gets some bad press. But as development economist Ha-Joon Chang has said in his bestselling book, ‘Africa is not destined for underdevelopment‘.

That is refreshingly optimistic, and I humbly concur. Having said that, Chang thinks it is all about policies, but for me this is only part of the story. Why do bad policies persist? This is what we need to study. Poor nations whose people want things to improve via economic and social development need pragmatic and effective governments who can implement policies appropriate to their particular national contexts. These will vary from country to country, and over time.

Below I will share some of the ideas I have gathered which mainly draw on the work of political economists who have studied development processes across the African continent.

The incomplete emergence of capitalism in Sub-Saharan Africa

The historical record for Sub-Saharan Africa (SSA) shows that capitalism has indeed emerged in many nations. During colonialism and the early post-war period, commodity production or production for sale on the market grew significantly, as did the volume of exports.

Just as significantly, a class of wage labour, selling its services in the labour market to a capitalist class, also began to develop. These are key aspects of a capitalist system.

Following independence, and the formation of new nation states, there was the opportunity for policies to accelerate industrialisation. Many governments tried a policy of import substitution (ISI) and infant industry protection. This had mixed results, and many sectors and firms failed to ‘grow up’ sufficiently to export successfully on the world market.

To some extent, pre-independence colonial factors had left countries without a sufficiently large emerging entrepreneurial or capitalist class to help drive development. In addition, and compared to countries in East Asia such as South Korea and Taiwan, ISI programmes were poorly implemented.

Despite this, economic growth in SSA from 1960-75 was reasonably strong. This was followed by a ‘lost decade’ and more which lasted from the 1980s to the mid-90s. Into the 2000s, growth picked up once again.

SSA has thus been through cycles of recurring growth and stagnation. Many nations remain dependent on primary commodity exports and have failed to diversify production into manufacturing. The latter is vital to broad-based growth in productivity and output and raising living standards.

Measures of average growth over many decades hide these cycles, and the periods of success. When economists employ econometric analysis to try to identify the causes of Africa’s relatively poor performance, the aggregate data can be misleading, and fails to get to grips with the historical contexts of particular countries.

Some social indicators in Africa, including SSA, have improved since the 1960s, but economic performance in many countries has deteriorated overall.

The problem of enclaves

Many SSA nations are dependent on commodity production, as already mentioned. This need not be a problem for development and industrialisation if part of the returns from commodity exports can be used to encourage the diversification of production.

In other words, it is necessary to establish ‘linkages’ from currently successful sectors to newer sectors with the potential for rapid growth in productivity and output. Linkages are a form of spillover or externality, a connection between firms or sectors which causes one sort of output to lead to another in a different firm or sector. They might occur spontaneously or with the help of state intervention.

An example of a linkage might be the state supporting the development of steel production, which would encourage the establishment of sectors using steel as an input. This was tried successfully in South Korea, and less successfully elsewhere. Depending on state capacities, less ambitious policies to encourage linkages could be tried.

One of the problems in many SSA nations is the lack of linkages, leading to the preponderance of production enclaves. Thus even where certain firms and sectors are relatively successful, this does not lead to the spread of success across industry as a whole.

The problem of aid

Aid continues to flow to SSA in various forms, and this is often disparaged. Aid can fulfill an important function in development by providing finance for investment in the presence of insufficient national saving, the so-called ‘savings gap’. Globally foreign direct investment (FDI) tends to be concentrated in particular countries, and it is relatively lacking in SSA overall.

Foreign aid can be a great boost to development, if it is managed well. In the post-war period, Western Europe, Japan, South Korea and Taiwan all received aid from the US, which supported rapid industrial expansion.

The problem in SSA is not so much the aid itself, as its management. Since this is perceived as a problem, donors have tried to manage the use of aid themselves. This can undermine state capacity and national ‘ownership’ of the outcomes and hinder the ability of states to promote development in the longer term.

From the Washington Consensus to the good governance agenda

During the 1980s, World Bank and IMF policy was dominated by the Washington Consensus, which deified the market while promoting the retreat of the state through its Structural Adjustment Policies (SAPs). When foisted on developing countries experiencing crises and requiring external funding, these involved liberalisation, privatisation, tax and public spending cuts and reduced trade protection, seemingly irrespective of history or context.

Given the poor performance of many SSA nations during the 1980s and into the 90s, it is arguable that the SAPs were not a great success.

More recently, policy prescriptions have changed to promote the ‘good governance’ agenda, which seeks to emulate institutions and policies prevalent in already rich nations, such as anti-corruption drives, democracy and the rule of law, and clearly defined property rights. While these aims are laudable, they are typically very difficult to apply in poor countries going through processes of primitive accumulation and the emergence of capitalism.

It is also the case that today’s rich countries did not have such policies and institutions while they themselves were developing. It is therefore unrealistic to expect today’s poor countries to emulate processes that historically never took place.

As Mushtaq Khan has repeatedly argued, poor countries that developed rapidly and caught up with the advanced nations of today were only able to enforce these outcomes at a relatively high level of development. Policies which promoted rapid growth came first.

Only after these countries had made the successful transition to capitalism and the associated economic and social transformation, were governments able to enforce the aforementioned Good Governance outcomes.

Khan argues that what is therefore needed in late developers is growth-enhancing governance rather than good governance reforms. Building state capacities to promote and sustain development is important, but in some countries even this may be difficult in the absence of a sufficiently large capitalist sector which allows the mobilization of resources from taxation.

The adoption of a pragmatic, experimental approach to policy on the part of the state, on a small scale if necessary, and targeting sectors which have growth potential and can be disciplined to promote learning-by-doing processes in the adoption of existing technologies is vital.

Industrialisation in Mozambique: a brief case study

Mozambique provides a useful case study of the difficulties faced by many SSA nations. From its place as a Portuguese colony through independence and central planning to liberalisation, successive governments have been unsuccessful in accelerating diversified industrial growth.

Some manufacturing emerged led by the Portuguese colonials, but they failed to train and educate the locals. Upon independence in the 1970s, when the colonials left the country, technical skills were absent among the indigenous population.

The new government adopted an industrial policy in the form of central planning and a heavy industry push, but it ultimately failed. A process of liberalisation, privatisation and the retreat of state intervention followed. This undermined state capacity and left a narrow industrial base with a lack of diversification and linkages and weak future prospects.

A new focus on the ‘business environment’ has tended to neglect key government support for developmental capabilities which history shows are essential to a sustained growth ‘take-off’.

Fragmented and uncoordinated support has also undermined the industrial policy infrastructure, while the donor community has frowned upon industrial policies which would promote a more successful development trajectory and broad-based industrial development. Key skills and technical capacity in the Mozambique economy unfortunately remain weak.

The evolution of development economics and the case for political economy 

The evolution of development policy, not least in SSA, has in part reflected changes in development economics itself. The latter became a distinct body of thought after the war and was influential as new nations were created following independence.

The old (classic) development economics emphasised the study of systemic and contextual factors, alongside class, power, conflict and the state. This has evolved through an anti-state bias with a focus on promoting (perfect) markets, to a new emphasis on the study of institutions and other factors which result from market imperfections. This latter kind of theory is associated with the work of Nobel prize winner Joseph Stiglitz.

There has also been a shift away from the interdisciplinarity of development studies to a widespread application of neoclassical microeconomics, universally applied without sufficient attention being paid to history and context.

I agree with those political economists who see this as a mistake. In order to gain a deeper understanding of development processes and to reduce global poverty and injustice, it is surely necessary to draw on the approach of the old development economics and an interdisciplinary political economy.

I realise that the above ideas remain at quite a general level, but I feel that they provide a useful overview of at least some aspects of what I feel is a neglected global region. I will be exploring further more specific and detailed country development experiences in future posts.

References

Jerven, M. (2015), Africa: Why Economists Get It Wrong

Norman, A., K. Botchwey, H. Stein and J.E. Stiglitz (2012), Good Growth and Governance in Africa

Padayachee, V. (2010), The Political Economy of Africa

Sender, J. and S. Smith (1986), The Development of Capitalism in Africa

 

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