Africa’s much-celebrated growth will just be a myth unless we industrialise

For the past decade or so we have been hearing rosy predictions about Africa’s economic prospects and how the continent, like many Asian countries, is finally set to become a financial powerhouse.

Just last week the World Bank released a report that shows that Ethiopia, Rwanda, Tanzania, and Kenya are among the fastest growing economies in the region.

However, a recent article by Rick Rowden in Foreign Policy titled Africa’s Boom is Over offers a much more pessimistic forecast for the continent.

The author argues that Africa’s growth is not sustainable because it is based on export of raw materials rather than industrialisation, which led to phenomenal growth in emerging East Asian economies such as China.

He says that as long as manufacturing does not account for an increased percentage of GDP of African countries, and as long as these countries do not add value to their products, the continent’s economic prospects remain grim.

This is because African countries are “de-industrialising” while they are still poor and because African leaders hastily adopted free markets and free trade without considering that some forms of State intervention are beneficial in the long term.

Thanks to the neoliberal policies advocated by international financial institutions, African countries abandoned industrialisation policies that supported protectionism, subsidised credit, preferential taxes, and publicly supported research and development.

Yet these are the very policies that Europe, North America, and emerging Asian economies adopted to boost growth and reduce poverty.

Mr Rowden’s ideas echo those of development economists such as Ha Joon-Chang, who argue that international financial institutions and organisations such as the World Trade Organisation fail to consider that industrialisation cannot occur without State support and intervention.

LIBERALISED ECONOMY

These organisations also fail to point out that some of the richest countries today continue to protect their farmers through subsidies and safeguard their industries through preferential taxes and other incentives.

Mr Rowden admits that industrialisation policies in many African and Latin American countries failed in the 1960s and 1970s, but this was because they were inward-looking, focused on small domestic, and governments based their support for companies and industries on corruption and nepotism rather than efficiency.

Interestingly, the conservative Economist magazine has also been relaxing its “Africa Rising” narrative in recent months, not because it believes that free markets are bad for Africa but because it believes that the markets are not free enough.

In a recent edition, the magazine cites the example of Ethiopia as a country that has soaring economic growth rates in the absence of liberalisation.

It says that if Ethiopia liberalised its economy, growth rates would rise even more.

Apart from infrastructure challenges, Ethiopia is among those African countries with the lowest mobile phone and internet penetration and banking remains in the State’s hands.

Ethiopia is also averse to multi-party democracy and free speech.

It is an economy very much similar to China’s, with State capitalism under the control of a dominant political party.

It does not tolerate dissent and has a poor record in protecting journalists.

HUMAN RIGHTS IMPEDIMENT

Its markets are not completely free, nor are its people, yet its economy is booming.

Kenyan economists have argued that in a more open society like Kenya’s, the State is restricted from carrying out plans that may boost growth because of other considerations, such as human rights.

So, for example, it cannot bulldoze a village to build a road or a city, as China does, because in democracies the State has to make a negotiated compromise with the people.

This may be true, but it is also true that while Kenya has undoubtedly been the manufacturing capital of East Africa, today countries such as Ethiopia and Tanzania are catching up and may even overtake Kenya on that front.

In addition, the manufacturing sector does not receive State support in terms of improved infrastructure or funding for research and development.

On the contrary, the private sector and industries are strangled through punitive taxation and a culture of corruption and kickbacks.

So there is a free market economy and democratic institutions, but corruption holds the economy back.

In the next decade it will be interesting to see which economic model — growth under an authoritarian system or growth under a corrupt democratic system — will prevail.

[email protected]