Economic growth rates in many African countries have soared in recent years. But real development is still sorely lacking argues Rick Rowden in this guest post for our blog
Recent high growth rates and increased foreign investment in Africa have given rise to the popular idea that the continent may well be on track to become the next global economic powerhouse. A recent cover story in the Economist for instance pointed to Africa’s recent high GDP growth rates, rising per capita incomes and the explosive growth of mobile phones and mobile phone banking as evidence that Africa is ‘developing’. It also cited the growth in the number of African billionaires and the increase in Africa’s trade with the rest of the world.
But these indicators only give a partial picture. Rich countries figured out long ago that if economies are not moving out of dead-end activities that only provide diminishing returns over time (primary agriculture and extractive activities such as mining, logging and fisheries) and into activities that provide increasing returns over time (manufacturing and services), then you can’t really say they are developing.
What’s not mentioned in this and similar articles is the disturbing absence of manufacturing in Africa and the extent to which the idea of development as industrialisation has been completely abandoned in the last few decades. Free market economics has come to advise poor countries to stick with their current agriculture and extractives industries and ‘integrate’ into the global economy as they are. Today, for many champions of free markets, the mere presence of GDP growth and an increase in trade volumes are euphemisms for successful economic development. But increased growth and trade are not development.
For example, even if an African country like Malawi achieves higher GDP growth rates and increased trade volumes, this doesn’t mean that manufacturing and services, as a percentage of GDP, have increased over time. Malawi may have earned higher export earnings for tea, tobacco and coffee on world markets and increased exports, but it is still largely a primary agricultural economy with little movement towards increased manufacturing or labour-intensive job creation.
Less flattering picture
A recent UN report paints a far less flattering picture of Africa’s development prospects. It finds that, despite some improvements in a few countries, there has also been a decline in the importance of manufacturing in Africa’s exports. Africa remains heavily dependent on natural resources-based manufacturing, which is an indication of both its low level of economic diversification and low level of technological sophistication in production.
The African Development Bank makes a similar point. “Africa’s growth tends to be concentrated on a limited range of commodities and the extractive industries,” its report states. “These sectors are not generating the employment opportunities that would allow the majority of the population to share in the benefits. This is in marked contrast to the Asian experience, where the growth of labour-intensive manufacturing has helped lift millions of people out of poverty...”
This point was also not lost on recent Ghanaian presidential candidate, Nana Akufo-Addo, who warned: “About 30 years ago some African nations, beginning with Ghana and Uganda, implemented liberal economic reforms to stop their economic decline. But in many cases we opened our markets to global competition when, beyond the extractive industries, we had nothing to compete with.”
Today many African countries need to use industrial policies, such as temporary trade protection, subsidised credit and publically supported research and development if they are ever to get their manufacturing sectors off the ground. This is true for all the same reasons that it was true for the UK and other nations that have industrialised successfully. According to today’s ideology of free trade and free markets however, many of these key policies are condemned as ‘bad government intervention’. Bilateral and multilateral aid donors advise against them and structure loan conditions accordingly. Regional free trade agreements (FTAs) between rich and poor countries frequently outlaw them.
Critics of industrial policies are correct to cite some historical cases where industrial policies have misfired in developing countries. But these critics are often selective in their criticisms, ignoring successful cases and neglecting to explain why industrial policies worked so well in the United States, Europe and East Asia while failing so badly in Africa and elsewhere.
This problem of the lack of necessary ‘policy space’ was noted in a recent report by the Africa Progress Panel, which expressed concerns about the European Union’s proposed Economic Partnership Agreements (EPAs), which seek to make access for African goods into European Union markets conditional on Africa eliminating or lowering tariffs on 80 per cent of imports from the European Union.
Despite the important gains in services industries and per capita incomes, Africa is still not rising and services alone will not create enough jobs to absorb the millions of unemployed youth in Africa’s growing urban areas. Instead, steps must be taken to revise WTO agreements and the many trade agreements and bilateral investment treaties currently being negotiated so that Africa has the freedom to adopt the industrial policies it needs in order to make genuine progress.
Rick Rowden is a former advisor to UNCTAD and author of The Deadly Ideas of Neoliberalism (Zed, 2009). A longer version of this piece appeared in Foreign Policy magazine.
Join the debate
Is there any cause for hope in Africa’s GDP growth? Does having an ‘industrial policy’ imply the kind of industrialisation path that so-called developed countries followed? What are the implications of the climate crisis for the kind of development Africa should pursue? If ‘primary agriculture’ is really a dead end, what does that mean for food sovereignty? Join the debate in the comments section below...