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Sub-Saharan Africa’s expectation gap
Lee-Roy Chetty   Mar 24, 2013   Ethical Technology  

Sub-Saharan Africa (SSA) exhibited significantly better economic and social indicators than Asia in the immediate post-independence era in the 1960s. Existing historical records and evidence suggest that the region had higher average per capita income and better human development indicators.

In addition, it enjoyed favorable economic outlook, particularly in light of its impressive size of arable lands and excess natural resource endowment.

As a result of these favorable initial conditions, its growth and development prospects were seen as superior to those of the overpopulated Asia by many experts.

However, over time the overwhelming majority of Sub-Saharan African countries failed to capitalize on these favorable initial conditions to achieve the levels of growth required for income convergence and overall improvement of welfare, however.

Instead, growth rates fell far below expectations.

After initial spells of output expansion, growth faltered with the first oil shock in the early 1970s. However, the 1974 oil crisis was just the first in a series of recurrent negative terms of trade shocks and balance of payments crises that will later undermine growth prospects in most countries across the region.

As a result of these adverse shocks, many countries experienced extremely high growth volatility and negative economic growth in subsequent years.

SSA’s GDP per capita entered a long-term decline after the 1974 oil crisis, falling to negative 0.5% in the late 1970s, negative 1.2% in second half of the decade between 1980 and 1985. Later in the first half of the 1990s, growth rates dropped even more sharply, falling to negative 1.5%. In the face of this protracted recession, poverty increased dramatically in the region, rising from 48% in 1970 to more than 60% in 1995, a 25% increase.

This growth reversal triggered by the first oil shock and sustained by recurrent adverse terms of trade in subsequent years had lasting effects in the region and globally. Within the region, most countries have been caught in poverty traps—self-reinforcing mechanisms whereby unfavorable institutions and policies adversely shape development outcomes and cause poverty to persist.

In spite of the positive growth rates experienced in recent years, poverty has remained widespread in the region.

Projections suggest that most countries will miss the first millennium development goals of halving poverty by 2015.

The combined dismal growth performance and widening income gap with other regions of the developing world over the past decades further marginalized SSA within the global economy.

Still expectation gaps have been even more pronounced in SSA’s conflict-affected countries, where growth rates averaged negative 3.7% in the first half of the 1990s, significantly below the average across the whole region.

The poor economic performance of these countries may be largely explained by their significantly lower investment rates and higher incidence of macroeconomic instability, owing in part to political instability-induced risks and uncertainty, and the diversion of limited resources towards unproductive and low-returns investments.

Indeed, SSA’s conflict-affected countries experienced a significantly higher frequency of hyperinflation and recurrent balance of payments crises, which partly explain their relatively larger stock of external liabilities.

However, nowhere in the continent have expectation gaps on the development path been more obvious than in the Democratic Republic of Congo (DRC), one of the wealthiest countries in the world, which over the past decades has been mired in recurrent conflicts and political instability.

According to recent estimates, the DRC has mineral reserves in excess of US$24 trillion— equivalent to the combined GDP of Europe and the US. Yet it is listed as one of the poorest countries in the world on the UN Human Development index.

Interestingly, its poor ranking on this composite index is also consistent with other quantitative indicators of welfare. Since 1974, its income has fallen by more than 70% in real terms.

Contrasting SSA growth tragedy, Asian emerging market economies which experienced robust and sustained growth in the post-independence saw their income grow unabated.

Across Asia, the remarkable success achieved by Singapore is not an isolated case, however.

The emergence of Asia has been illustrated by increasing reference to the shift of power from the West to the East in recent years. In practice, this emergence has been made obvious by a number of quantitative indicators, including the strong net foreign asset positions via current account surpluses, and impressive scale of foreign reserves.

Also indicative is the extent and distributive nature of growth across the whole Asia region, and very short and limited episodes of crises.

As a result of that strong economic performance, Asia has accounted for an increasingly large share of the global trade. Panel A depicts the contribution to global trade, contrasting SSA and China. While China’s contribution to global trade has grown almost exponentially over the last three decades—to the point where China now accounts for over 10 percent of global trade—the contribution of SSA has declined significantly over the same period.

China’s share of global trade is more than six times that of SSA, though the latter accounted for a significantly larger share of the global trade up till the late 1980s. The contrast with SSA conflict affected countries is even more impressive. In spite of their extremely large endowment in natural resources and increasing demands of these resources during the globalization era, the contribution of these countries to world trade has declined even more dramatically.

However, SSA’s declining contribution to global trade does not necessarily reflect its decreasing volume of exports. Instead, it is the consequences of the changing globalization landscape increasingly dominated by manufactured goods. Since the 1980s, the manufacture content of developing countries exports has increased dramatically, rising from 25% in 1980 to more than 80% in the late 1990s.

Hence, under this new globalization landscape, the combined net barter terms of trade effects of primary products and deficit of economic diversification may largely explain the widening income gap between Asia and SSA.

The emergence of Asia is not a mere reflection of its superior economic performance over SSA, however.

The impressive growth rates and inherent sizable share of global trade achieved by Asian economies have changed the global economic landscape inherited from the postwar. According to IMF estimates, China and India made the largest country-level contributions to world growth in PPP terms in 2007. Their combined contribution exceeded 40%, with China alone accounting for over 30%, significantly above the US share.

Several attributes have been used to characterize Asia’s impressive economic performance, including the reference to Asian Tigers and Miracle. The reference to miracle reflects the extraordinary long virtuous cycle of economic growth and aggregate output expansion fueled by strong investment rates under a well-crafted export-led growth model. For decades, these countries have consistently enjoyed some of the higher rates of gross capital formation, over twice the average across SSA.

At the same time the much lower rate of investments in SSA’s conflict-affected countries suggests that recurrent political instability might have exacerbated the growth collapse in the region, with the negative spillover effects of political instability magnifying perceived risks in neighboring countries.

Invariably, the majority of SSA countries consistently operated far below their potential, experiencing significantly lower growth rates than their Asian counterparts. Nevertheless, the potentially adverse effects of recurrent political instability remain far greater in conflict-affected countries, which experienced significantly lower rates of capital formation.

Lee-Roy Chetty holds a masters degree in media studies from the University of Cape Town and the University of Massachusetts, Amherst. A two-time recipient of the National Research Fund Scholarship, he is currently completing his PhD at UCT and an economics degree with Unisa.



COMMENTS

  Let me sumarise the diference between Asia and Africa.

  At a civil servant’s conference in an Asian country , a guy is showing a civil servant from Africa how he lives. He has a nice large mansion, the children are in private school.
  -How do you afford this on a civil servants salary? says the African

  -See that ten lane highway?

  -I only see eight lanes.

  -That’s because I took 20%.

  Latter there is another civil servant conference bun in Africa this time. the African shows the Asian guy how he lives: Huge palace, the children at school in Switzerland

  -So how do you afford this? asks the Asian guy

  -See that ten lane highway ?

  -There’s only a dirt road there.

  -I took 100%

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