Between 2010 and 2014, Africa’s economic growth was an over-studied phenomenon. A cursory glance at any financial publication during this period and one would have been inundated with overwhelming analysis and statistics on Africa’s progress and future potential. The topic was so ubiquitous that the global conference industry was thriving on just one subject – African development. However, by 2015 the euphoria seemed to have all but evaporated.According to an International Monetary Fund (IMF) report, the combined growth rate of Sub-Saharan Africa has dipped to 3Pct, which necessitates a drastic policy re-orientation. The report, entitled ‘Time for Policy Reset’, argues that exporting economies (both oil and non-energy commodities) such as Angola, Nigeria, Ghana, South Africa and Zambia have fared badly, clocking a growth rate of 2.25Pct, while import-driven economies like Kenya, Ivory Coast and Senegal performed better, with an annual growth of 5Pct.
For the 2016/17 fiscal year, the IMF projects sub-par growth of up to 3Pct in Sub-Saharan Africa. It wants the region’s administrators to significantly curtail fiscal deficit, maintain lower interest rates and leave the exchange rates to the vagaries of the market rather than political interventions via central banks to safeguard macroeconomic stability and enhance economic diversification. However, there is an economy and life beyond such fiscal adjustments. Most of the ills facing the continent are due to the faulty business policies being followed under the guise of an open economy or economic reforms.
Sub-Saharan African economies are going through a paradigm shift; geographically, Africa is a land-abundant continent. The key to utilising its natural resources and attaining overall economic development is investing and creating infrastructure. Sadly, the exporting economies have invested their earnings, especially petrodollars, in the bloated government machinery rather than in public assets and as a result have made their economies vulnerable to global commodity downturn.
On the other hand, importing countries are aiming to satisfy domestic demand, create a trading economy and a handful of economic elites, widening the gap between the haves and have-nots.
There is no sure-shot formula to attain economic equilibrium. Chinese economic growth, although tapered down now, is driven by large-scale infrastructure expansion at the cost of mounting public debt and exports fuelled by low-cost labour. India, on the other hand, has surpassed China’s growth figures this year by concentrating on eliminating infrastructural bottlenecks and strengthening manufacturing to generate jobs and satisfy local demand.
Learning from these fast-growing economies, one can safely conclude that inclusive growth policies appear to be missing in Sub-Saharan Africa economies. Therefore, drastic structural policy changes are necessary.
Take, for example, the ‘build–operate–transfer’ concept for infrastructure development that is being pursued by many Sub-Saharan countries. Such a conceptual framework has neither attracted world players into Africa nor has there been home-grown entrepreneurship to implement such concepts. The net result is negative growth in the infrastructure sector and high-cost growth bottlenecks. Sensing low capital formation and low savings rates, the governments should have ideally continued investing in infrastructure, owned assets and invited operating expertise.
Liberal forex laws and a hands-off banking system is another example. Instead of ramping up banking systems via capitalisation processes and creating a strong, robust framework to expand credit locally, government policies have led to lack of credit and high interest rates. As a result, none of the global banks worth their names have entered or stayed in Africa beyond having a representative office.
Built by colonisers, Africa had the world’s largest railway network – amounting to more than 82,000 kilometres. With such a head start, countries like the Democratic Republic of Congo, Mozambique, Tanzania, and Senegal, among others, should have world-class railroad companies. Alas, today less than one-third of Africa’s rail network is operational. The story of African ports is no different.
Most Sub-Saharan countries claim to spend a huge part of their public funds on the social sector – services to help overall welfare of the population. Such funds, they claim, are savings due to ‘build–operate–transfer’ policies.
However, where are the social successes? The educational and health indicators of Africa tell a story of gross failure. Governmental services are dismal and encourage no one to invest or do business on the continent. On this front, the World Bank has made a habit of drawing statistics rather than giving advice on how to improve key services like health and education, roads and electricity, water supply and sanitation.
Success does not depend on whether you are an exporting economy or importing economy. Sustainable growth largely depends on the way resources are deployed and utilised. Commodity-exporting countries had a golden chance to invest in important economic sectors; however, the export income went into non-productive financing, like paying salaries in the expanded government sector.
For instance, Nigeria, the largest exporter of oil in Africa, does not have a single oil refinery. Mozambique, the best quality coal producing country in the world, neither has a system to transport coal nor the power and steel industry to consume it. None of the resource-rich African countries have created institutions that would withstand the vagaries of a global downturn. On the other hand, controlled liberalisation by China and India has led to the birth of home-grown Fortune 500 firms that are competing globally.
Sub-par growth in Sub-Saharan Africa demands that governments eliminate structural economic policy contradictions. This can be done through executive orders and not solely by IMF and World Bank advisories or constitutional amendments. Government has to play the dynamic roll of a public investor. Investment is a planned and systematic activity, whereas dis-investment is a quick and convenient decision-making process operating under the guise of economic reforms.
4th Year • September 16 2016 – October 15 2016 • No. 43