Why is africa_poor_cato_institute_2010

december 6, 2010 ● no. 6 Why Is Africa Poor? by Greg Mills Executive SummaryS ub-Saharan African countries have not fulfilled globalization and trade with the rest of the world. African their potential since independence. While other countries must also make their business environment developing countries and regions have grown over much friendlier to domestic and foreign investors. Thethe past 50 years, much of Africa has stagnated. African political elite, which benefits from the status quo, is theleaders have become adept at externalizing blame, holding main obstacle to reform. The spread of democracy on theothers responsible for Africa’s failings. Yet African lead- continent—haphazard though it is—will make African gov-ers—not a lack of capital, access to world markets, or tech- ernments more responsive to the needs of the populace, butnical expertise—are to blame for the continent’s underde- Western governments must also help—by ending or reduc-velopment. ing foreign aid to African regimes. That move could help As Asian countries have shown, African countries must establish a better link between governments and citizensliberalize their economies to grow. Africa must embrace and reduce disincentives to necessary reforms.Greg Mills is the director of the Brenthurst Foundation, which is based in Johannesburg, South Africa. He is the author of Why Africa Is Poor—and What Africans Can Do About It (Johannesburg: Penguin, 2010). the cato institute 1000 Massachusetts Avenue, N.W., Washington D.C. 20001-5403 www.cato.org Phone (202) 842-0200 Fax (202) 842-3490

African place quickly and for far less money than leaders have Insufficient Reasons for improvements to infrastructure.become adept at African Poverty Africa’s poverty has not been caused by the lack of necessary technical and development externalizing With a per capita income 50 percent less expertise. Those can be bought on the interna- than that of the next poorest region (South tional market—as many Asian countries have blame, Asia), sub-Saharan Africa’s growth has lagged chosen to do. Such expertise could even have holding others since independence some 50 years ago. Many been accessed for free via donors. Africa has, responsible for reasons have been put forward for the however, been highly possessive about the region’s slow development—a lack of human direction and control of its development. ThatAfrica’s failings. and government capacity, poor infrastruc- is partly due to an innately skeptical view of ture and trade access, the effects of too little outsiders, but also because Africa has been able (or too much) foreign aid, the legacy of arbi- to get away with pursuing bad economic poli- trary colonial boundaries, low productivity, cies through subsidies from rich countries. the Cold War, climate, and geography. Many Africa is not poor because its people do African leaders blame the rest of the world not work hard but because their productivity for African poverty, implying that solutions is too low. For example, subsistence agricul- to underdevelopment are out of their hands. ture, from which many Africans derive their But the world has not denied Africa the livelihoods, creates very little value added. markets and financial means to compete. Far Unfortunately, without institutional and from it. The contemporary era of globaliza- policy changes, there can be only a limited tion has afforded unprecedented opportuni- expansion of large-scale farming and of the ties to billions of people in emerging markets. industrial and service sectors of the economy. Globalization may have suffered a setback Nor is Africa poor because it lacks natural recently, but the current recession does not resources. Compared with Asia, it is a treasure- alter the fact that global wealth has tripled trove of natural resources from agricultural since 1990.1 It is the varying abilities of gov- land and precious metals to wildlife and ernments to translate such opportunities into hydropower. Yet, with few exceptions (Bot- development and prosperity that has account- swana is one), those resources have been used ed, in large measure, for the widening inequal- only to enrich elites, spread corrupt practices, ities within and between countries. and divert development energy and focus. And Africa is poor not because of aid per se, Africa’s people are poverty stricken not because although large inflows of foreign aid have the private sector does not exist or has been almost certainly been a disincentive to reform unable to cope with difficult conditions. The for many African governments. Nor is African problem is that the private sector is often not poverty solely a consequence of poor African “private” at all. Rather, it is an elite-linked sys- infrastructure or trade access. Africa has tem of rent-seeking. Even where there is a enjoyed preferential access to international degree of private-sector independence, govern- markets, yet the continent has slipped behind ment attitudes toward truly private businesses other, less favored, competitors. True, much of range from suspicion to outright hostility—not Africa’s infrastructure has deteriorated and least since politicians in some African coun- fallen behind that found elsewhere in the tries fear that economic autonomy will be fol- world. But there have often been vested inter- lowed by political autonomy. ests—like local monopolies—that had no interest in making infrastructure more efficient. Similarly, many African countries have avoid- African Rulers Deserve ed putting in place policies and procedures Most of the Blame that would facilitate more exports. Those policies and procedures could have been put in The main reason for African poverty is the 2

bad choices made by African rulers. The $33 to $325 between 1965 and 2000. Yet therecord shows that countries can grow their number of Nigerians living on less than oneeconomies and develop faster if leaders take dollar per day rose from 19 million in 1970 (ofsound decisions in the national interest. That a population of 70 million) to 90 million (of ais as true of the Vietnamese leaders before population of some 120 million).4 Instead ofand after the failure and reform of Vietnam’s fueling development, oil has tainted gover-command economy as it is of African reform- nance and accountability across Africa.ers from Ghana to Botswana. Africa’s agriculture potential has similarly Africa’s positive economic growth record been squandered. Many African states possessin the 2000s illustrates that better choices agricultural land in abundance. Yet, 35 out ofcan be made. True, African growth has tradi- 48 sub-Saharan African economies were nettionally mirrored the ups and downs of nat- food importers at the end of the 2000s.5ural resource prices, but Africa’s growth in Africa’s share of world agricultural exportsthe 2000s has also reflected better gover- halved since 1970, to under 4 percent.6 Thoughnance and more widespread democracy on agriculture was responsible for only one-fifththe continent.2 of the continent’s economic output in the late The economic success of countries in other 2000s, two-thirds of Africans (the majority ofregions offers many good examples that them women) lived in rural areas and were Africa is not poorAfricans can learn from. In assigning blame dependent on farming for their survival.7 It because its peoplefor not seizing the opportunities of globaliza- doesn’t take much to work out why productiv- do not work hardtion to African leaders, it is important to rec- ity in that sector is so low. The agricultural sec-ognize that those leaders have often taken tor was ruined through taxation that was but because theirdecisions under difficult circumstances. No meant to fuel Africa’s centrally planned indus- productivity isone disputes that African politicians face big trialization drive. Today, Africa is neitherchallenges. Yet in other parts of the world, industrialized nor self-sufficient in food pro- too low.those challenges are usually regarded as obsta- duction. Instead, the continent relies mainlycles to be overcome, not as permanent excuses on export of natural products.for failure. For in a half century of independence,Africa has not realized its potential. Instead, Enabling Bad Leadershipits greatest natural assets have undermined itsprosperity. Africa’s youth, for example, is not If Africa’s dismal economic performancebeing regarded as a huge source of talent and can be put down to bad choices by Africanenergy to be harnessed. Rather, this group is leaders, then we have to ask: Why have thoseregarded as a destabilizing force because it is leaders made those choices? The key reason islargely unemployed and uneducated. This is that Africans and the international commu-not only a threat to Africa’s security. By 2025, nity have enabled them to do so. The formerone in four young people worldwide will be have typically believed that they lacked thefrom sub-Saharan Africa.3 Most of those means to change the status quo, whereas theyoung people will be living in Africa’s cities latter have been too ready to “help” Africa forwhere, by then, the majority of the continent’s reasons ranging from self-interest to altru-citizens will be located. And if they do not ism and pity.find employment on the continent, they will African leaders have successfully man-seek it elsewhere. aged, with the help of donors, to externalize Far from being the font for development, their problems, making them the responsi-Africa’s oil wealth has served instead to enrich bility and fault of others.elites. For example, Nigeria has received an Donors have typically lacked the tools orestimated $400 billion in oil revenues over the political will to manage their relationship withlast 40 years. Oil revenues per capita rose from African leaders and the flow of money to 3

Africa according to the democratic, economic- University of Oslo argue that “in most African reform, and public-goods-delivery record of countries, the state is no more than a decor, a the recipients. Nowhere has this been more pseudo-Western facade masking the realities the case than with the many so-called “fragile” of deeply personalised political relations or “failed” states. Governments in those coun- [where] legitimacy is firmly embedded in the tries have frequently abrogated the responsi- patrimonial practices of patrons and their net- bility, but not the authority, for rebuilding works.”9 their countries to others. Too often, donors Africa’s traditional land holding structures have taken up the challenge of rebuilding fail- have also been an impediment to entrepre- ing states, thus weakening the already tenuous neurship. Communal land holding has im- link of accountability between the govern- peded the collateralization of land value ment and its people. through individual ownership and mortgage The fact that African leaders were permit- schemes. There has been little interest among ted to get away with ruinous, self-interested the leadership of many African countries to decisions must be attributed, in large part, to a reform the system. At the same time, a disas- relative lack of democracy (or to single-party trous “reform” took place in Zimbabwe, where dominance) in Africa. There has been little land was seized and redistributed on the basis bottom-up pressure on leadership to make of political allegiances. better choices, although there has been The top-down imposition of states and bor- encouraging growth of civil society in parts of ders on Africa’s rich ethnic and sectarian tapes- the continent over the last decade. This appar- try by colonial powers has institutionalized ent passivity of the populace in the face of bad weak governance structures. African states leadership must, at least in part, be attributed were both formed and maintained not by rais- to a neo-patrimonial culture. In that culture, ing taxes and ensuring public goods, as was the the “big man” rules and dispenses favors. He case in Europe, but by colonial fiat. Over the uses all manner of tools to bolster his rule— past 50 years, however, the Organization of from traditional governance structures and African Unity and the African Union have been kinship ties to witchcraft and the church. adamantly opposed to changing Africa’s colo- The system that many African leaders have nial boundaries. preferred thrives on corruption and nepotism. Finally, and perhaps most importantly, Corruption is not particular to Africa, of bad choices have been made because better course. But leaders from other societies where choices in the broad public interest were in corruption is also a problem—Asia in particu- very many cases not in the leaders’ personal lar—have displayed a commitment to popular and often financial self-interest.10 welfare that is lacking in African leadership. African societies, in contrast, have over- whelmingly been run along the lines of the The Sad Case of Zambia “politics of the belly”—a primordial lust for wealth and power along crude racial, tribal, Zambia is an example of a country that has party, and familial lines. In this system, gov- suffered from this sort of policy malaise. There ernment officials and politically connected is probably no country as studied by develop- The main business elite use their positions and influence ment consultants as Zambia. A darling of to enrich themselves and their families or kins- donors since independence in 1964, countless reason for men. Personal wealth, Jean-François Bayart of World Bank and other reports have been writ-African poverty is the Centre for International Studies and Re- ten on every conceivable topic—from trans- the bad choices search in Paris writes, “is one of the chief polit- port and tourism, to regulatory reform and ical virtues rather than being an object of dis- mining. made by African approval.”8 Similarly, Patrick Chabal of King’s Thus, it’s not as if Zambians shouldn’t rulers. College London and Jean-Pascal Daloz of the know what to do when thinking about how to 4

deal with economic and other development The government says that it is constrained As Asianproblems. For nearly half a century they have by politics and needs to move slowly on countries havedebated how to diversify their economy away reforms out of a risk of appearing too “reac-from mining into agriculture, tourism, and tionary.” Government officials claim that shown, Africanmanufacturing—so far with marginal effect. In democracy has made economic choices polit- countries mustfact, most of the reports have been languish- ically risky. Others point to the deleteriousing on dusty shelves in government offices— effect of aid, which comprises one-third of liberalize theirtheir often replicate proposals seldom read government expenditures. Aid blunts the economies toand virtually never acted on. risks associated with policy inertia. Zambian grow. In some ways, Zambia’s economy has done politicians know that the donors will bewell during the 2000s. Privatization of its around to pick up the pieces. Aid also pro-principal export asset, the copper mines, has vides a source of rent-seeking income andresulted in more than $4 billion in inward removes the incentive to expand the domesticinvestment.11 Annual national copper pro- productive sector and tax base.duction has climbed threefold in 15 years. It is But some observers highlight deeper under-now nearly back to its peak of 720,000 tons in lying causes, though similarly political and cul-the mid-1970s.12 The economy has grown at tural. Hichilema says that lack of reforman average rate of more than 5 percent per should be attributed to the country’s havingyear during the 2000s.13 Lusaka’s traffic is one been ruled for 27 years between 1964 and 1991illustration of the rise in living standards and by a socialist-inclined leader, Kenneth Kaunda.the emergence of a middle class in Zambia. During that time, the state became the largest But Zambia needs to do even better. High employer, the regulator of first and last resort,unemployment, especially among young peo- and, as a result, it became corrupt.ple, is no recipe for long-term stability. “Their Kaunda’s socialism has created a civil ser-army of numbers will, one day, make Zambia vice geared to protectionism and regulation atunviable,” Hakainde Hichilema, a leading all costs, and a private sector attuned to work-opposition figure, told me.14 Zambian infra- ing within a system that rewards insiders andstructure is rickety and costly to business. It discourages independent entrepreneurship.takes a week to get exports out via road to (We should not underestimate the fact thatSouth Africa and at least four times longer by this system, a feature of most African coun-rail. A power shortage looms even though the tries, works just fine for the elite).country has abundant hydroelectric potential.Despite the quality and quantity of its naturalendowments, the mining sector is undevel- Africans Must Liberalizeoped compared with other copper producers,such as Chile. Tourism facilities remain clus- Yet this is a very good moment for Africantered around Victoria Falls, in spite of extraor- leadership to push ahead with reforms.dinary offerings elsewhere from the Lower Commodity prices are high, allowing a freshZambezi to Lake Tanganyika. range of policy choices. Investors have an Overall, the country has not performed to appetite for high-growth emerging markets.its considerable potential. There is little ur- And many tough macroeconomic reformsgency in government to execute sound plans. have been carried out across the continent.And, at times, the government has made this But to take matters to the next level, Africamore difficult for itself through ill-consid- will have to carry out sweeping regulatoryered actions, such as the hurried adoption of reforms. For example, Zambian tourism in-farmland rent and windfall taxes on mining vestors should not require 33 different licens-companies. Those measures threatened to es to operate.15 Such reforms will have to bebankrupt producers in both agriculture and matched by attractive tax regimes across themining before they were repealed. continent. To achieve those goals, the elites 5

must be willing to prioritize economic growth (I should add that Georgia had also adopted a over political power. They have to stop seeing policy that did away with work permits for for- foreign investors as predators snatching away eigners.) their birthright. To do better, Africa has to sig- Getting to Africa is difficult. Moving nal that “business as usual,” in which politics around in Africa is similarly onerous. My team presides over economics, is truly over. and I have conducted a number of route diag- I spent much of 2008 in Rwanda as Presi- nostics—essentially sitting on a truck and dent Paul Kagame’s strategy adviser. Frank, doing time and motion studies. We spent one our driver there, had a great idea for a taxi third of the duration of our journeys at bor- business, but he was not able to get financing ders and police checkpoints. The other two for it. He lacked not only a financial system thirds we spent traveling, resting, and eating. that could cater to his needs, but also demand Africans often bemoan the state of the infra- for his business. Rwanda’s tourism industry structure on the continent. Yet it would take has been stunted by the cost and difficulty in no donor money to keep borders open around accessing that beautiful country, and also by the clock, thus making the best use of existing the lack of tourist attractions—apart from resources—if the idea is to improve openness Rwanda’s world-famous gorillas. While the and trade, of course.It would take no government has rhetorically been open to Or, take another example. It takes an aver-donor money to increasing the number of visitors, it has been age of eight minutes to clear each of the 30 keep borders less open to investors, including those in the million containers that move through the city- tourism business. There is a clear tension state of Singapore annually. The minimum open around between African governments’ desire to con- average time in Mombasa is 72 hours per con- the clock, thus trol their societies and the understanding that tainer. Yet, this main East African port handles stability and growth ultimately depend on lib- only 600,000 containers annually.17making the best eralization. The answer to the question of African use of existing Tourism is one of the underutilized advan- poverty lies in the difference between success resources. tages that Africa possesses. Global tourism is a and failure in worldwide trade. This differ- business that caters to nearly one billion peo- ence can be found in policy choices—the dis- ple. Yet Africa has just a 4 percent share of that tinction, to take another example, between market. To increase its share of the tourism Vietnam before and after its own reforms. business, Africa will have to liberalize air flight And the explanation behind the choices that and visa regimes. In the formerly communist African governments make lies in politics. country of Georgia, for example, it is not nec- Indeed, the principal challenge to African essary to acquire a visa for visitors who come economies is political. To succeed, African from countries with a GDP per capita of governments must, like the governments of $10,000 or more. Compare the Georgian sys- Southeast Asia, put people and ideas rather tem to the difficulty of entering many African than narrow-minded political interests at the countries or, for that matter, the difficulty of heart of development. leaving African countries like the Democratic Republic of Congo, where one has to run a gauntlet of security and other checks—infor- Notes mal and formal. 1. Fareed Zakaria, The Post-American World (New I wonder how many visitors from rich coun- York: W.W. Norton, 2008). tries to Africa have been put off by the challenge of just getting to the continent or getting 2. For an assessment of the spread of democracy in Africa, see Tony Leon, “The State of Liberal a visa. Yet I suspect that few, if any, overstay Democracy in Africa: Resurgence or Retreat?” their welcome. The number of tourists to Cato Institute Development Policy Analysis no. Georgia has nearly quintupled from 2003 to 12, April 26, 2010, http://www.cato.org/pubs/ 2009—a war with Russia notwithstanding.16 dpa/dpa12.pdf. 6

3. Based on analysis conducted by Genesis Analyt- cials, conducted in Ndola, Zambia, in Decemberics on behalf of the Brenthurst Foundation, 2008. 2009.4. Nicholas Shaxson, Poisoned Wells: The Dirty 12. Ibid.Politics of African Oil (London: Palgrave, 2008), p. 4. 13. World Bank, “Data: GDP Growth,” October5. “Africa: The Commodity Warrant,” Credit Suisse 26, 2010, http://data.worldbank.org/indicator/New Perspectives Series, April 14, 2008. NY.GDP.MKTP.KD.ZG/countries/ZM?display=g raph.6. Ibid. 14. Interview with the Zambian opposition leader7. Brenthurst Foundation. Hakainde Hichilema, Lusaka, Zambia, March 2010.8. Jean-François Bayart, The State in Africa: The 15. Ibid.Politics of the Belly (London: Longman, 1993), p.238. 16. Department of Tourism and Resorts, Repub- lic of Georgia, “Arrivals of Non-resident Visitors9. Patrick Chabal and Jean-Pascal Daloz, Africa at National Borders of Georgia by Country ofWorks: Disorder as a Political Instrument (London: Residence,” November 18, 2010, http://www.dotr.James Currey, 1999), p. 16. gov.ge/files/files/Statistics/2000_2009vizitorebi ing.pdf.10. For a discussion of how predatory politicalelites keep Africans poor, see Moeletsi Mbeki, 17. Kenya Ports Authority, “Port Performance for“Underdevelopment in Sub-Saharan Africa: The Year 2008,” October 26, 2010, http://www.kpa.Role of the Private Sector and Political Elites,” co.ke/InfoCenter/Performance/Pages/default.aspCato Institute Foreign Policy Briefing Paper no. x; and Maritime News, “Shanghai Can Be Seen85, April 15, 2005. Falling 14%, in TEUs, January 2, 2010,” http:// bestshippingnews.com/transport-news/shang11. Interview with First Quantum Minerals offi- hai-can-be-seen-falling-14-in-teus/. 7

BOARD OF ADVISERSANNE APPLEBAUMWASHINGTON POSTGURCHARAN DASFORMER CEO, PROCTER& GAMBLE, INDIA he Center for Global Liberty and Prosperity was established to promoteARNOLD HARBERGERUNIVERSITY OF CALIFORNIAAT LOS ANGELES T a better understanding around the world of the benefits of market-liberal solutions to some of the most pressing problems faced by developing nations. In particular, the center seeks to advance policies that protect humanFRED HU rights, extend the range of personal choice, and support the central role of eco-GOLDMAN SACHS, ASIA nomic freedom in ending poverty. Scholars in the center address a range ofPEDRO-PABLO KUCZYNSKI economic development issues, including economic growth, international finan-FORMER PRIME MINISTER OF PERU cial crises, the informal economy, policy reform, the effectiveness of official aidDEEPAK LAL agencies, public pension privatization, the transition from socialism to the mar-UNIVERSITY OF CALIFORNIAAT LOS ANGELES ket, and globalization.JOSÉ PIÑERA For more information on the Center for Global Liberty and Prosperity,FORMER MINISTER OF LABOR AND visit www.cato.org/economicliberty/.SOCIAL SECURITY, CHILE OTHER STUDIES ON DEVELOPMENT FROM THE CATO INSTITUTE “Freedom and Exchange in Communist Cuba” by Yoani Sánchez, Development Briefing Paper no. 5 (June 16, 2010) “The State of Liberal Democracy in Africa: Resurgence or Retreat?” by Tony Leon, Development Policy Analysis no. 12 (April 26, 2010) “Reflections on Communism: Twenty Years after the Fall of the Berlin Wall” by Paul Hollander, Development Policy Analysis no. 11 (November 2, 2009) “Socialism Kills: The Human Cost of Delayed Economic Reform in India” by Swaminathan S. Anklesaria Aiyar, Development Briefing Paper no. 4 (October 21, 2009) “An International Monetary Fund Currency to Rival the Dollar? Why Special Drawing Rights Can’t Play That Role” by Swaminathan S. Anklesaria Aiyar, Development Policy Analysis no. 10 (July 7, 2009) “The False Promise of Gleneagles: Misguided Priorities at the Heart of the New Push for African Development” by Marian L. Tupy, Development Policy Analysis no. 9 (April 24, 2009) “El Salvador: A Central American Tiger?” by Juan Carlos Hidalgo, Development Policy Analysis no. 8 (March 9, 2009) “The Benefits of Port Liberalization: A Case Study from India” by Swaminathan S. Anklesaria Aiyar, Development Policy Analysis no. 7 (December 3, 2008) Nothing in this Development Briefing Paper should be construed as necessarily reflecting the views of the Center for Global Liberty and Prosperity or the Cato Institute or as an attempt to aid or hinder the passage of any bill before Congress. Contact the Cato Institute for reprint permission. Additional copies of Development Briefing Paper are $6 each ($3 for five or more). To order, contact the Cato Institute, 1000 Massachusetts Avenue, N.W., Washington, DC, 20001, (202) 842-0200, fax (202) 842-3490, www.cato.org.

Why is africa_poor_cato_institute_2010

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