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Sunday, March 3, 2013

Africa's Economies Growing on Quicksand

The Economist this week characterizes Africa as aspiring, rising and hopeful. Africa’s lion economies are on the prowl.

The average decline in infant mortality in Africa is now faster than what was achieved in China in the early 1980s. In the US State of Mississippi infant mortality declined by 17.5%, from 11.4 deaths to 9.4 deaths per 1,000 in last decade. Over the same period, Senegal cut infant mortality rate by 38%, from 121 to 72.

Progress in education is heartening. In Burundi, Uganda, Tanzania and Rwanda, the Gross Enrollment Ratio in secondary school has increased from less than 10% to nearly 35% between 2000 and 2010. Similarly, University enrollment among the East African Community member states grew by 98-365% between 1999 and 2005. According to McKinsey Global Institute, Africa is set to reap the demographic dividend, adding 122 million people to the workforce between 2010 and 2020. By 2035, Africa’s labour force will top 500 million, surpassing China or India.

According to the 2011 growth estimates by the International Monetary Fund, seven African countries were among the world’s 10 fastest growing economies, each with annual growth rates greater than 6.5%. Trade between Africa and the rest of the world has increased by 200% since 2000. The United Nations Conference on Trade and Development (UNCTAD) estimates that Foreign Direct Investment (FDI) in Africa increased to $46 billion in 2012, up from $15 billion in 2002.

I hate to rain on Africa’s parade. But I think Africa’s growth could run out of steam if the fundamentals for sustainable economic growth and social stability are not put in place. Here are some issues Africa’s politicians and technocrats must grapple with.

About 300 million Africans earn $700 annually and  a majority of them are employed in subsistence agriculture and informal self-employment. Incomes from such sources are inherently unstable and livelihoods vulnerable. Natural resource sectors (gas, oil, mining) will contributions significantly to national revenue but will not create huge numbers of well paying stable jobs by 2035 for 500 million people. Without well stable incomes, 500 million discontented people are a formidable powder keg for social and political instability.

We can and must learn from other emerging economies. Experience from Brazil, India and China show that job creation strategies must remove barriers to growth along industry value chains and provide infrastructure, financing and human capital for priority sectors to thrive. With the right policy and business environment incentives, African governments can spur growth in globally competitive labor-intensive sectors, which can create thousands of stable jobs.

Holding elections in countries where democracy is weakly institutionalized have disastrous social and economic consequences. During the 1990s, electoral conflicts represented an average of 7.6% of all conflicts, while in the 2000s that number increased to 10.1%. Kenya tops the league table of the most violent elections between 1990 and 2010. More than 1,100 people were killed and 600,000 were displaced. Elections and the economy are tightly coupled. For instance, following the mayhem of Kenya’s 2007 elections growth dropped from 7.1% to 1.6% in 2008.

But Africa deserves credit; today, nearly all of Africa’s 1 billion people now vote in regular national elections. Regular elections, however flawed are a luxury that 1.5 billion Asians, with all their economic power, cannot afford. What must engage us is why the simple act of casting a ballot would trigger an evil orgy of death and plunder.

Weak human capacity is at the core of state incapability and institutional failure among African countries. Liberia’s civil service would take hundreds of years to reach the capability of a country like Singapore and decades to catch up with a moderate capability country like India. A 2011 audit revealed that less than 10 % of Kenya’s civil servants have tertiary education. Similarly, in 1998, less than 3% of the national public administration staff of Mozambique had received higher education. In their essay “Africa’s Growth Tragedy: Policies and Ethnic Divisions”, William Easterly and Ross Levin suggested that ethnic cronyism in public service explains a significant part of most of the factors that contribute to state incapacity and institutional dysfunction that stymie Africa’s socio-economic and political progress.

Africa’s current growth is built on quicksand.  No amount of plaudits by The Economist can substitute for Africa’s lack of capability. Africa will persist in an eternal trap of potential, aspiration and hopefulness as long as her human resources remain week, undermining the efficacy of public and private institutions.

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