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December 12th, 2011

African Growth: A cautionary note

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Estimated reading time: 5 minutes

Blog Editor

December 12th, 2011

African Growth: A cautionary note

0 comments

Estimated reading time: 5 minutes

Professor Thandika Mkandawire is LSE’s Chair of African Development and heads up the LSE African Initiative. This post originally appeared in This is Africa.

Africa’s economic performance in recent years has attracted much attention, suggesting the continent has overcome the “lost decades” of the 1980s and 1990s, which bred far-reaching Afro-pessimism. This recent optimism is an effort to re-brand a continent.

What explains this turn-around, and is it in fact a turn-around at all? In some academic circles, Africa’s poor performance during the lost decades was attributed to cultural traits which, when combined with Western modernity, had produced “neo-patrimonial” governance antithetical to development.

At the centre of this order was the “Big Man” figure surrounded by a retinue of elites and complicit masses. A solution was reducing the rent-seeking opportunities upon which patronage systems survived by reducing the size of the state through structural adjustment.

Sadly, two decades of economic adjustment did not deliver the accelerated economic development the World Bank had promised in 1981. By 1995, African countries had been through multiple rounds of advice: to “get prices right”, later to “get institutions right” and finally to “get governance right” – without yielding much.

International organisations admitted that policy reforms had underestimated the structural constraints which dulled the responsiveness of African producers to price incentives, while retrenchment of the state had led to an anaemic political unit that could not perform the developmental roles it performed in Asia.

Some noted that the sequence of reforms, especially financial liberalisation, had been muddled. The assumption that the private sector would finance costly infrastructure was too optimistic, income distribution had become dangerously skewed, and finally, simply manipulating the exchange rate has not led to diversification of African economies.

Reflections on the possible short-sightedness of structural reforms appeared to end when the apparent recovery began over the last decade, with sometimes spectacular rates of growth.

What caused the recovery? International financial institutions have leaned towards the “policy reform” argument: adjustment is finally working. This is slightly disingenuous given the time lags implicit in the reform agenda and in light of the self-critical studies which preceded the recovery. National governments have also taken credit.

All this may be partly true, but exogenous factors, including improved terms of trade, debt relief, technology-driven investment in mobile phones and the end of conflicts in some areas have played an important role. Some of these are one-off gains – and do not necessarily represent new fundamentals.

Both the Afro-pessimism of yesteryear and today’s optimism share the same blind spots. Both exhibit no appreciation of the role of conjuncture in shaping African economic performance. There are important unresolved problems, especially the failed diversification over the adjustment years and the continued reliance on volatile raw materials.

Afro-pessimism was based on the false notion that African economic experience was one of unrelenting decline. This fails to account for three facts. Firstly, until the end of the 1970s, African economies had generally performed well, with an average annual growth rate of 5.7 percent. Secondly, episodes of growth in African economies have been more frequent than is generally assumed. A third perspective missing from the analysis is the role of external factors.

Meanwhile, Afro-optimism seems to ignore the continuing volatility of African economies. The physical infrastructure in Africa is still in a parlous state; the African university has yet to recover from the body blow inflicted on it in the lost decades. The state is so weak that in many cases it is unable to translate the new growth opportunities into long-term sustainable development. In a number of cases, the high growth is reminiscent of earlier periods that ultimately depended on terms of trade.

Governments must address consumption booms that have been wrongly hailed as evidence of the rise of the middle class. These booms are based on a weak domestic production base.

When Walmart goes to China, it goes to buy manufactured goods for the US market. When it goes to Africa it acquires or extends existing outlets for Chinese manufactured goods. To compound matters, these booms have been sustained by politically explosive inequality.

The recent events in high growth economies such as Tunisia suggest the model may not be always politically sustainable.

While current optimism marks the welcome end of a debilitating Afro-pessimism, it should not blind us to the enormous task that lies ahead. In particular, we need a recognition that a number of significant gains depend on exogenous factors.

It is also important to bear in mind that the “lost decades” and the policies related to it led to a deep erosion of capacities, especially of the state, that require revitalisation so that the continent can regain initiative in the management of its economies.

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