28 November 2018

African governments’ failed policies are holding the continent back


More than 60 years ago, in March 1957, Kwame Nkrumah proclaimed the independence of the British Gold Coast. Nkrumah, educated at British and American universities, was convinced of two things: first, that only independence would allow African peoples to succeed and second, that the ideal vehicle to do so would be a special kind of African socialism that he called consciencism.

As soon as he came to power, he adopted the title of “Osagyefo” (the redeemer) and changed the name of the country to Ghana, which in Akan means “warrior king”. He also secured absolute power and, although he did not sympathise with those who spoke dialects different from that of his own, he believed that the entire African continent should be united under one single flag.

In the West, Nkrumah was very popular. Kings and presidents celebrated him at receptions and competed for his company. Charismatic and often claiming to have the infallible remedy “against poverty and disease”, he became a brutal dictator. Supported by the Soviets, Nkrumah planned his country’s economy with disastrous results. Ten years after the independence of Ghana, one of the most prosperous British overseas colonies had become visibly impoverished and associated with militarism.

The sad history of Ghana was repeated in practically every African country south of the Sahara.

The cold data leaves little room for interpretation. Africa’s GDP is 70 per cent lower than Asia’s and 80 per cent lower than the GDP of Latin America. Many reasons have been given to explain Africa’s underdevelopment. It has been said that their colonial past and neocolonialism prevents them from developing. But the same could have been said of Vietnam, which also suffered 20 years of civil war. Today, however, it is a country whose economy is growing and looks set for a bright future.

Poverty has been blamed on a lack of infrastructure and human capital. No poor country has good infrastructure before it emerges from poverty. Infrastructure is financed by prosperity and, regarding human capital, the West has earmarked billions of dollars in vocational training programmes to prepare local workers.

African politicians often blame the rest of the world: either because it does not open its borders to African products or because it opens them too wide and Western products flood its markets. The truth is that the world has not marginalised Africa — it has opened up its markets to the continent and contributed with financial aid for development projects.

Both the United States and the European Union have given preferential access to African products. The African Development Bank, financed by the United States and Europe, has allocated $50 billion to the continent since 1980 in credit operations. In 2016 alone, the European Union injected 21 billion euros into African countries, to which must be added another 1.6 billion in educational programmes — twice the Marshall Plan, in just one year.

But, despite this continued support, African governments have been obstinate when it comes to their generally misguided and always opaque development policies. They have done exactly the opposite of what should have been done. Because of the low capitalisation of these economies and the string of regulations with which their governments impose on them, productivity remains low.

Opening a business in almost any African country is an uncertain, lengthy and costly process that often ends in countless bribes. To travel across the continent is to encounter police posts every few kilometres that check visas and claim their tips, in countries with almost no rule of law. If that happens to a motorcycle adventurer, it also happens to an investor who wants to set up a food processing plant.

All these obstacles to the creation of wealth have not been imposed by the former colonial powers, but by the governments that arrived later. The main cause of Africa’s chronic poverty has been an endless chain of bad decisions made by its leaders over the past half-century. The continent’s proverbial natural wealth has been of little use. Much has been squandered.

Nigeria, for example, has only earned around half a trillion dollars since independence in 1961 from the sale of oil — the coveted Bonny Light oil, which is extracted from the Niger River Delta deposits. Its rich oil reserves could have allowed this nation to take off like so many other countries in the past that started its developing path selling commodities. But sadly, that is not the case.

According to a report from the Brookings Institution, Nigeria has already overtaken India in the number of people living in extreme poverty (people who live on less than $1.90 a day). In India the number is 70.6 million — in Nigeria, it is at least 87 million.

The logic of some seems to predict that, if a country has an abundance of natural resources, it should demonstrate high levels of development. However, as counter-intuitive as it may seem, the performance of a large number of countries abundant in these commodities does not support this hypothesis, and Nigeria is not an exception.

In his book Resource Abundance and Economic Development, Professor of Economic Geography Richard M Auty emphasises that the presence of large quantities of natural resources is no guarantee of wealth. Referring to what he describes as the “resource curse” or paradox of plenty, he argues that countries with a large abundance of these commodities, such as fossil fuels and certain minerals, tend to have less economic growth, less democracy, and worse development outcomes than countries with fewer natural resources.

According to his study, this problem generally tends to stem from the economic decision of the use of the revenues from extraction and commercialisation of these natural resources. Auty describes how the revenues from these businesses in undeveloped nations seem to make it easier for politicians and authorities to waste them on unprofitable investments and conspicuous expenditures, which very often leads to corruption. This “voracity effect”, as Auty calls it, through the misuse and abuse of public funds, almost always results in the stagnation of growth.

Poverty in Africa is a global problem that will have to be solved in the coming decades. There will be a lot of work to be done. Nkrumah-style African socialism has failed miserably, as did the mercantilism sponsored by the region’s dictators and bureaucrats over the past 20 years, which only enriched the elites and spread corruption, nepotism and wars all over the continent.

Of course, the roots of the African poverty are most likely deeper than all the previously mentioned factors, but perhaps it remains to be seen what catapulted countries like South Korea or Taiwan, which were very poor in the 1950s, into the state they are today.

Perhaps the unresolved issue is for African nations to open up their economies, embrace globalisation, secure a legal framework for investment to flow and establish the rule of law. Though, of course, the last of those is easier said than done.

Jorge C Carrasco is a journalist based in Brazil.