The flaw in the Africa rising story

17 April 2016 - 02:00 By Jabulani Sikhakhane

Narratives about sub-Saharan Africa's economic growth have swung, during the past four decades, between two extremes: pessimism and exuberance. After much exuberance about Africa's strong growth over the past two decades, albeit driven by a few countries, the tide is turning back to despair.

This is informed by bad news from a number of African countries, including the continent's biggest economies, Nigeria and South Africa, which have stagnated, or at best slowed down.

Over and above the big squeeze in weak commodity prices, self-inflicted wounds have forced several countries to seek financial assistance from the IMF, the latest being Angola, which joins Mozambique and Ghana.

So, what went wrong? A recent report by the UN Economic Commission for Africa, titled "Transformative Industrial Policy for Africa", offers a balanced, if not sober, analysis of Africa's economic growth during the past two decades. In doing so, the report helps explain the reasons why some countries that were growing very fast even after the 2008 financial crisis are now on the back foot.

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It also explains what Africa will need to do to achieve growth that is sustainable and reduce poverty and unemployment at rates similar to what Asia and Latin America have achieved.

The report was written by University of Cambridge political economist Ha-Joon Chang, and Jostein Løhr Hauge and Muhammad Irfan, both of the Centre of Development Studies, at Cambridge.

The authors argue that a more nuanced analysis of Africa's recent growth shows that the "Africa rising" narrative missed a number of important aspects. The first is that Africa's recent growth may be impressive but falls far short of the achievements of East Asian and Pacific developing countries, whose economies have grown at a very fast clip at the same time as Africa's.

They point to growth rates per head of population as the best measure for comparative purposes. This is because Africa's birth rates have been considerably higher than East Asia's, meaning that Africa needed much faster growth to keep up with population growth. Between 2000 and 2014, per capita growth in developing countries in East Asia and the Pacific averaged 7.71%, compared with Africa's 2.09%.

Chang and his co-authors add that the bigger problem is that most African countries are unlikely to sustain the relatively modest growth performance of recent years. This is because the end of China's super-growth diminishes growth prospects for African countries most reliant on commodity prices. Countries whose economies most depend on resources account for 60% of the continent's overall economic activity, meaning that their economic fortunes weigh heavily on Africa's.

block_quotes_start We would be better off with our ministers making the pilgrimage to Ethiopia rather than Dubai block_quotes_end

Then there is the impact of growth on jobs and poverty, the so-called quality of growth. Even if Africa can maintain its recent growth levels, the low impact of the growth on jobs and poverty means it will not much change the lives of most citizens.

Recent growth has had a minimal impact on good jobs because it was driven mainly by the demand for natural resources. This has meant that most new entrants to the labour market have ended up taking up jobs in the informal sector as well as other jobs regarded as vulnerable.

Based on International Labour Organisation data from 2013, sub-Saharan Africa had the highest vulnerable employment rate (77.4%) of all developing regions. Relative to other developing regions, Africa has also performed poorly on poverty reduction, which leads the authors to question whether the continuation of Africa's growth will make a dent on unemployment and poverty.

They conclude that Africa's slower growth rate and its failure to reduce unemployment and poverty relative to other developing regions have to do with the continent's small manufacturing sector. Manufacturing as a share of the overall economy stands at 11%, the lowest of all developing regions.

In addition, most of Africa's manufacturing firms are small, informal and primarily convert natural resources into goods, characteristics that are associated with low-productivity manufacturing firms.

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The authors conclude that all countries that have defied meta-structural impediments to growth did so by reorganising and transforming their production activities. Meta-structural factors include culture, climate, geography and history, all of which have been used in the past to justify the pessimism about Africa's poor growth.

The most successful transformation of production activities has historically been through the growth of manufacturing, which has higher productivity and greater scope for productivity growth than other sectors. However, manufacturing cannot develop, specifically in a poor country, without "intelligent and coherent industrial policy".

The authors are most optimistic about Ethiopia's prospects of achieving the transformation of its production activities. This is based on what they describe as Ethiopia's impressive industrial policymaking capability as well as the orientation and organisation of the state towards development in ways that enabled the Asian tigers to achieve faster growth as well as create jobs and reduce poverty.

In short, the authors are saying that Africa's economic future is not as bright as the recent narrative of "Africa rising" has implied. Certainly not without a solid and an expanding manufacturing sector, which requires an intelligent and coherent industrial policy. In which case, we would be better off with our ministers making the pilgrimage to Ethiopia rather than Dubai.

mabheki65@gmail.com

- Sikhakhane is the deputy editor of The Conversation Africa

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