Africa not doomed to remain under-developed

Whether you read the press or academic journals, you get the impression that Africa is destined to remain under-developed.

The problems are multifarious. A poor climate leads to the proliferation of tropical diseases. ‘Bad geography’ is also thought to hamper development: for example, many African countries are landlocked poor economies surrounded by other poor economies prone to violent conflicts.

And Africa is not being held back just by its nature, but also by its history. African nations are ethnically too diverse, which makes people distrustful of each other and transactions more costly. The history of colonialism has produced low-quality institutions, as the colonisers did not want to settle in countries plagued by tropical diseases, so set up the minimum necessary to extract resources. Some commentators have even ventured that African culture is bad for economic development, as the people are lazy, don’t save and don’t cooperate with each other.

All these structural handicaps are used to explain why, unlike other regions of the world, the continent has failed to grow even after significant market liberalisation during the 1980s. Sub-Saharan Africa’s per-capita income today is more or less the same as it was in 1980. Africa is doomed to remain on foreign aid ‘disability benefits’ forever.

However, what those who believe African is doomed to remain under-developed don’t tell you is that it has not always been stagnant. In the 1960s and 1970s, when all the supposed impediments to growth were also there (and often more pronounced, like the post-colonial legacy), Africa posted decent growth. Moreover, many of the above-mentioned structural handicaps have been present in most of the world’s developed nations, yet these countries have developed despite them. Africa’s structural problems are real and do impede development, but they are not insurmountable and the continent is not doomed to remain under-developed.

The earlier period of growth and development strongly suggest that Africa’s recent poor record is due not to inherent problems but something more transitory: the real cause of African stagnation in the last three decades is free-market policies forced on the continent during that time. Unlike history or geography, policies can be changed. Africa is not destined for under-development.

Africa has not always suffered from the economic torpor and backwardness associated with it today. During the 1960s and 1970s, per-capita income in sub-Saharan Africa grew at a respectable 1.6% a year. While this is nowhere near the ‘miracle’ growth rate enjoyed by Southeast Asia in its heyday of 5-6%, or even that of Latin America of around 3% during the same period, it is still compares favourably with the 1-1.5% growth rates in the now developed countries during the Industrial Revolution (roughly for a century since the 1820s).

The fact that Africa grew at a respectable rate before the 1980s suggests that the structural factors are not the root of the problem. African growth collapsed after the 1980s and this must be explained by something that happened around then; the prime suspect is the dramatic change in policy direction around the time.

Starting with Senegal in 1979, sub-Saharan African countries were forced to adopt free-market, free-trade policies under conditions imposed by the World Bank and International Monetary Fund’s Structural Adjustment Programmes (SAPs).

Contrary to conventional wisdom, these policies are not good for economic development. By suddenly exposing immature producers to international competition, these policies led to the collapse of whatever industrial sectors these countries had managed to build up during the 1960s and 1970s.

As a result, African nations were forced to turn to exports of primary commodities, such as cocoa, coffee, and copper, for income and became exposed to the wild fluctuations of the commodity markets and lumbered with the stagnant production technologies that characterise these industries.

Furthermore, when the SAPs demanded a rapid increase in exports, African countries, hobbled by the limits on their technological capabilities, were forced to turn to similar export products such as coffee and cocoa or new low-tech products like cut flowers. The result was often a collapse of prices in those commodities due to a large increase in their supplies.

The pressure on governments to balance their budgets led to cuts in expenditures whose impacts are slow to show, such as infrastructural investments. Over time, the deteriorating quality of infrastructure disadvantaged African producers even more, making their ‘geographical disadvantages’ bite deeper.

The result of the SAPs – and their various later incarnations, including today’s PRSPs (Poverty Reduction Strategy Papers) – was stagnation and the absence of growth in per-capita terms over three decades.

During the 1980s and 1990s, per-capita income in sub-Saharan Africa fell at the rate of 0.7% year. The region finally started to grow in the 2000s, but the contraction of the preceding two decades meant that the average annual growth rate of per-capita income in sub-Saharan Africa between 1980 and 2009 was 0.2%. So, after nearly 30 years of using ‘better’ (that is, free-market) policies, its per-capita income is basically at the same level as that in 1980.

Structural factors have been blamed for this disaster, but really they are scapegoats, wheeled out by free-market economists. Seeing their favoured policies failing to produce good outcomes, they had to find other explanations for Africa’s retrogression. Thus the structural problems have been invoked in an attempt to save free-market economics from embarrassment.

That is not to say the structural problems are irrelevant. Poor climate can hamper development. Being in a ‘bad neighbourhood’ does limit export opportunities and makes cross-border spill over of conflicts more likely. However, none of these problems are irresolvable nor are these outcomes inevitable.

The success of developed countries to overcome these self same problems is proof that solutions are on offer. Europe is as culturally and ethically diverse as any region on earth. It is home to countries with extreme (cold) climates and has been plagued by wars for most of its history. As for landlocked countries, few economies in the world have done better than Austria and Switzerland, both of which are cut off from the sea; the Scandinavian countries used to be landlocked during winter, before ice-breaking ships were invented. The only problem Europe doesn’t suffer from is the resource curse, but the experiences of countries like the USA, Canada, and Australia suggest that rich resource endowment can be good for economic development.

Thus Africa’s problem is largely one of policy, not nature. Much of its alleged ‘growth tragedy’ since the 1980s owes to the imposition of free-market policies that are not suited to the developmental needs of the continent, rather than structural factors like history and geography. Especially with growing political stability, many African countries are now poised to realise their vast potential based on natural resources and agricultural production. However, they can achieve it on a sustainable basis only if they abandon free-market policies and adopt those that develop national productive capabilities through the protection of ‘infant’ industries, investments in education and training, and infrastructural investments.

Ha-Joon Chang teaches economics at Cambridge University. He is the author of “23 Things They Don’t Tell You About Capitalism”, which was excerpted for Renaissance Asset Managers.