10.09.2012

African Economies Growing(!)...but Who Benefits?


Percent Growth in GDP. Source: Africa’s Pulse
Earlier this month, the World Bank released its biannual publication, Africa’s Pulse, which examines Africa’s economic situation. The basic conclusions of this article were highly optimistic, arguing that despite the global economic downturn, African economies have been consistent in raising GDP rates over the past decade with little impact from the 2008 financial meltdown. The authors of Africa’s Pulse claim that these growth rates seem to be sustainable for the future, especially with recent discoveries of more natural resources.

The publication states that sub-Saharan Africa is one of the world’s fastest developing regions, with annual growth rates around 5-6%. Why such growth? The authors claim that it is because of discoveries in new natural resource reserves, expansionary government spending, and increased urbanization.

Africa's Fastest Growing Economies. Source: Africa’s Pulse
Great – the overall economies in sub-Saharan Africa are growing, but that does not necessarily mean the people are profiting from this growth. GDP growth rates are known to be poor indicators in increased standard of living for the obvious reason that if GDP rates rise, that does not mean the revenue is being reinvested in the general population. But this seems to be a point that this publication seems to forget in all of its praising of African economic growth.

The problem I have with this report is its claim that urbanization is one of the leading factors of economic growth. The report claims:
Together with rapid population growth and urbanization, the demands for better social and economic policies have been growing. With rapid population growth Africa is also urbanizing rapidly, with deep implications for social and economic opportunities. No country has ever reached high income with low urbanization. Today, 41 percent of Africans live in cities, with an additional one percent every two years. By 2033, Africa – like the rest of the world – will be a majority urban continent.  Urbanization and development go together. With a large urban consumer base, firms and customers benefit from scale economies.
Problem #1: Demands ≠ Action
The report claims that with urbanization there have been increased demands for social and economic policies. Sure, this may be true that the demands from those moving to urban areas are increasing, but what the report fails to acknowledge is whether these demands are being met by the government. It means nothing for those living in urban slums if they demand for better economic and social policies all day and night unless their demands are heard and acted upon.

Urbanization vs GDP per Capita. Source: The Economist
Problem #2: Urbanization ≠ Growth in GDP per Capita
The Economist recently released a chart comparing urbanization and GDP per capita in Asia and Africa. The results show that perhaps those calling for increased urbanization because it leads to more wealth may be wrong. While urbanization has been relatively synonymous with GDP per capita growth in Asia that has not been the case for Africa (especially in nations like Liberia – although there are clearly other factors at play here as well).

As Tom Murphy points on in his post about this chart, these graphs lack significant data – for example, these are only a handful of samples from each continent, which might perhaps skew the data. However, the basic trend these graphs illustrate is interesting.

Although urbanization is relatively good in areas such as decreasing ethnic animosity, it must be remembered that urbanization will not solve all of Africa’s problems.

Sure, perhaps it might be in the West’s best interest for Africa to urbanize, but it might not be Africa’s best option. This may just be completely off-based thoughts of mine, but increased urbanization in Africa would benefit the industrialized countries of the West because it means more consumers for the world’s goods – what capitalist economy wouldn't want that?

Furthermore, urbanization also means more participants in non-agrarian sectors of the economy, also a bonus for the West. But what all the praise for urbanization forgets is about making use of Africa’s agriculture. If more people are moving from rural areas to cities, then the agricultural sector will start to dwindle – not something that would be good in the long run in my opinion.

For all those who claim that urbanization is the panacea for Africa’s problems, then tell that to those living in Kibera or those living in Freetown’s slums. Urbanization does not look so shiny from these perspectives.

Middle Income Countries in Africa. Source: Africa’s Pulse
Final Thoughts
Before we celebrate the end of African poverty as we know it, we need to look past what misleading information the facts and figures might tell us and look closely at where the money is going. If it’s going into the pockets of government officials, then it obviously is not doing much good.

One such misleading figure is this map that shows the middle income countries in Africa and those projected to be middle income in the near future. Perhaps it’s just me, but this is highly misleading. According to the graph, South Sudan is middle income. My question is: Middle income for whom?! Some of the countries labeled as middle income in the graph are laughable, such as Equatorial Guinea (I’m so glad the government is living at high income standards while the rest of the population suffers as a result of government despotism).

All in all, the growth rates coming from Africa look promising for a more prosperous future for the continent. And yes, there has been undeniable growth. But we need to remember to ask ourselves: who is benefiting from the national economic growth and is the growth sustainable (i.e. not reliant on cyclical commodities like natural resources)? There are many things standing in the way of the future of economic growth across Africa, and one of those is politics. But I’ve already rambled enough for one day. 

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