China Research

Africa – a continent of future “growth lions” ?

Some minutes ago, I listened to Toto’s wonderful song “Africa “ from the early 1980s. Good music and jogging often lead to new ideas. So why not changing the topic of my blog contribution a little bit and writing some lines on the economically and politically lagging – but wonderful and kind – continent of Africa?

Sure, I have visited Sub-Saharan African countries to a much lesser extent than all the Asian “growth tigers”. But I read also all over the years all the discouraging reports on Africa and – more or less – most individual Sub-Saharan countries. Just a few countries proved to be a little bit more future-oriented than all the others since the 1980s. In quite a number of countries, economic conditions have even worsened considerably in the past decades. The rest of the Sub-Saharan countries remained more or less unchanged on low economic and social levels, at least during the past decade.

Now – finally – Africa is increasingly “in” – particularly in the eyes of many politicians and analysts/strategists in our part of the world. Positive messages are spread all over the world, more lately also by the Swedish minister of finance. Africa is more and more praised as the continent of the future.

I really do hope that these conclusions turn out to be right. Looking at the African country-wise GDP-growth for the past decade, however, does not reveal any major acceleration of growth rates. According to the African Development Bank (AfDB), GDP-growth rates have been more and more less unchanged during the past decade, something like stable 5 ½ percent on average (Morocco, Tunisia and Libya included) – without major volatility. Also on country levels, growths fluctuations were quite limited in the past ten years. Positive outliers are, for instance, Ghana, Togo and Zambia, whereas South Africa, Sudan and Uganda are characterized by a weakening growth trend.

Some of the Sub-Saharan African countries have achieved structural improvements in the past 10-15 years or so. What may be even more important is the fact that also foreign investment interests in Africa has been growing. However, there are still only six Sub-Saharan countries among the leading 100 countries when it comes to the World Bank’s/IFC’s ranking of business conditions out of totally 189 countries (Mauritius on number 20, Rwanda [!] 32, South Africa 41 (only!), Botswana 56, Ghana 67, Zambia 83, Namibia 98 – and 20 countries are among the last 25 countries on the list of “Doing Business 2013”).

All in all, things have been moving (somewhat) in the right direction all the same. However, by far too many African countries south of the Sahara still have not created satisfactory political and institutional conditions for a sustainable upward trend. Modern definitions of institutions are quite broad and include also traditions and habits, both the good ones and the bad ones. The bad habits and traditions include even factors like corruption, lagging application of existing laws and insufficient statistics. Badly working institutions may exist within the political, social and financial sector, government administration, property rights, etc. Both researchers and practitioners know that it usually takes a long time to change institutional shortcomings to the better. This includes also health care, the environment, more broadly anchored education, etc.

It is, of course, positive that the economies in a number of Sub-Saharan countries probably have entered a more positive – or less negative – stage of their economic development. In certain cases political progress can be noted as well. But these specific cases do not allow putting all Sub-Saharan African countries in the same promising basket. Africa has to be analyzed country by country and case by case – and not so much by using general conclusions that unify developments to the “African economy”. Similar – misguiding – aggregated views were already created after the fall of the Berlin Wall and the Iron Curtain by summarizing all the reforming countries to “Eastern Europe” – and not to forget the BRICS countries which nowadays definitely do not manifest themselves as a homogenous group of countries.

In many ways, impressing developments in China are often taken as an argument against the quite common view that institutions mean a lot to economic growth – as, for example, institutional economists like Douglass North, Dani Rodrik and Daron Acemoglu so strongly are pleading for in their research. In other words: Opponents to the strong supporters of institutional economics normally use China’s on average poor institutional standards and its simultaneously good economic growth as the most prominent example for their skeptical position (result from our very recent China Survey Panel for Chinese institutions on a scale from 1-10: 4.1 , 10=very good).

On the other hand, we have noticed more recently that also China must do much more for a sustainable future good GDP growth than in the past (which is reflected in the official documents from the Third Plenum last November). There is no doubt that also China has to improve its institutional standards substantially in the next five to ten years for not be being caught in the so-called middle-income trap.

Thus, the main conclusion of this article is that Africa south of the Sahara should not be analyzed in the aggregated way as it’s mostly done these days. Analysis and investments there should be made country by country – even if the currently more positive mood for the continent may help. Hopefully, China can manage its growth problems smoothly – also because of most African countries´ dependence on commodity prices (where Chinese demand usually is the main price driver). But more value-added production should be created in Africa, too. Hopefully, trends in the world economy are moving to a new kind of equilibrium that favors the whole global economy, Africa included.

Right now, there is at least a starting point for more hope, supported by a better psychological mood on Africa outside the one-billion people continent. GDP growth around 5-5 ½ percent means that at least the younger lions have entered the global economic growth scene – like the young Asian tigers did young some 25-35 years ago. However, we have to understand that lions and tigers are very different – like the fundamentals for the Asian and African economies. But this should not refrain from hoping for Africa’s best while the young lions are growing up! They will have a long way to go …

Hubert Fromlet
Visiting Professor of International Economics, Linnaeus University
Editorial board

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