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| | November 1997 |
Africa's dilemma
Much of Africa's population is still engaged in farming. This has long suggested to development economists that agriculture-led growth should play a key role in the continent's development. But this strategy has not helped many African countries escape from poverty: disease, poor soil, unreliable rainfall and pests more often than not prevent an agriculture-led departure. Agriculture's frustrating record in Africa has led many development experts to suggest that the continent should be fed by temperate-zone food exports, while Africans earn their way through manufacturing and service exports, rather than primary ones.
To help determine if this is feasible, the UNU's Helsinki-based World Institute for Development Economics Research (UNU/WIDER) held back-to-back meetings in Uganda for two of its Africa-focused research projects: "Growth, External Sector and the Role of Non-traditional Exports in Sub-Saharan Africa" and "Liberalization of Foreign Exchange and Financial Markets in Sub-Saharan Africa." Many papers and information-rich case studies were presented at these 16-20 June events.
Especially interesting were the papers that said Africa should copy what countries like Hong Kong, Indonesia, Malaysia, the Republic of Korea and Singapore have done.
South-East Asia has relied on manufacturing as well as tropical agriculture as the path out of poverty. These countries all created profitable conditions for labour-intensive manufacturing exports, through realistic exchange rates, moderate tariffs, duty-free access for exporters to capital and intermediate goods, attention to infrastructure such as ports and telecoms and so on.
But is the South-East Asian model really relevant to African economies?
According to Jene Kwon, Professor of Economics at Northern Illinois University, the answer is yes. "A backward economy needs all the resources it can get," he said, adding that "it needs to put those resources to work to escape the poverty trap." He said that African countries should follow two common factors that have been the key to success for South-East Asian economies. One has been a good stock of human capital that can quickly learn and apply technology. The other has been stable and outward-oriented governments.
South-East Asian countries have also had good development plans - ones involving government, business and academics. The most important part of these plans, Dr. Kwon said, is estimating the resources needed to carry them out: "African countries must decide how they are going to mobilize domestic savings and induce much needed foreign capital." He claims that import substitution needs to be an integral part of each country's export promotion policy: find an export niche in several product areas and build confidence.
Dr. Kwon went on to suggest that African countries should not push financial liberalization at an early stage. Instead, such liberalization should follow sometime after economic take-off. In fact, according to Nguyuru Lipumba, a senior research fellow at UNU/WIDER, deregulating financial markets on the continent may not be such a good thing to do at all. "Free-floating exchange rates are not good for many African countries because their foreign exchange markets are very thin: they are dependent on earnings from unstable commodity markets and unpredictable amounts of foreign aid," Dr. Lipumba said. He further suggested that a better alternative for most African countries is a crawling peg exchange rate system that incorporates trade, aid and debt servicing.
And Andrea Cornia, UNU/WIDER's Director, warned that free financial markets in African economies are not all they are cracked up to be. "Often the benefits of such deregulation bypass the needs of small-scale farmers and small business owners - the ones that produce 80 per cent of Africa's total output," he said.
Dr. Cornia went on to say that if African countries find that deregulating financial sectors or interest rates is necessary, then they must do three things in advance. First, they need to build strong financial institutions. Second, they must correct any flaws in their financial markets. And third, they need to develop solid and reliable legal systems.
Economic policy rather than geography explains most of South-East Asia's relative success. Changes in policy - towards openness, fiscal rectitude, and the rule of law - could also make a huge difference in Africa.
This may be true, but it is easier said than done. According to Kwadwo Tutu from the University of Ghana: "The big problem in African countries is a lack of skill development. For this reason, industrialization will still elude most of them." He went on to say that the contribution of light manufacturing exports in most African countries is so small that the traditional sectors remain by far the economy's backbone. The overall share of manufacturing in African exports actually fell from 1980 to 1990, from 27 to 22 per cent.
Gerald Helleiner, a professor at the University of Toronto, thinks that Africa's endowments of abundant natural resources and relatively scarce human skills offer it little hope of developing significant manufacturing exports in the future. "Investment in human capital has a very long gestation period, and even if Africa could accelerate it, it would be decades before its relative factor endowments would alter significantly," he said. He also explained that "Africa's comparative advantage lies unquestionably with primary production."
Dr. Helleiner disagrees with many development experts who say that exporting labour-intensive products is Africa's fast track out of poverty. According to him, an agriculture-led departure is the continent's only hope: "The greater the growth in agriculture, the better the prospects for more-than-proportionate growth in manufacturing." He thinks that the best thing the positive and the negative. This is an advantage latecomers can use to quickly catch up.
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