Chapter 9: Continental drift: globalization, liberalization and human development in sub-Saharan Africa[1]
David E. Bloom, Mark Weston, and David Steven
Introduction
One of globalization’s most enthusiastic proponents, Tony Blair, has described Africa as a “scar on the conscience of the world”. While much of the developing world has experienced strong economic growth and improved standards of living, Africa, with very few long-term exceptions, has been left behind. Half of the continent’s population lives in poverty; nearly one adult in ten is infected with HIV (in seven countries, one in five is infected); and two out of every five of the world’s wars occur in Africa.[2] In many areas, things have been getting even worse: Growth in real per capita gross domestic product (GDP) was negative in most countries throughout the 1990s,[3] one quarter of African countries have seen human development indicators deteriorate in recent years,[4] and democracy is under threat across the continent, with Zimbabwe, Ghana, Zambia and Kenya the most prominent manifestations of the weakness of democratic institutions.[5]
Many have blamed Africa’s ills on globalization itself. International donor policies, the global decline in primary commodity prices, rich-world protection of agriculture and textile markets, and the increased mobility of people that has exacerbated the spread of AIDS have all had an impact on Africa. Although historical, geographical and internal political factors have also played a large part in Africa’s plight, there is no doubt the continent presents a challenge to globalization’s advocates.
This chapter attempts a broad summary of Africa’s development. Part one examines the state of Africa in the context of the liberalization, economic growth, and human and social development framework.[6] Part two looks at the role of geography, health, policy and the international environment in Africa’s development. And the final section makes recommendations on the strategic interventions likely to trigger virtuous development spirals.
One: The state of Africa
Liberalization
There is plentiful evidence that Africa’s failure to sufficiently open up its markets has hampered its integration into the global economy. Import-substitution strategies predominated in the immediate post-colonial era, with industries relying on protection for their survival. This strategy failed to build productive industries, and left Africa ill equipped for opening up to the global economy.[7] Although protectionist policies gave way to economic liberalization in the 1980s and 1990s, it has nevertheless been estimated that over 25 per cent of Africa’s slower growth relative to East Asia is due to its lack of economic openness.[8] While not the only factor, therefore, the relatively limited and belated liberalization of its economies has made a significant difference to the region’s prospects.
Exports make up 29 per cent of Africa’s GDP – similar to the world average of 27 per cent.[9] The region’s share of world trade, however, is less than 1 per cent.[10] Most of the continent’s exports are low-value primary goods, with manufactures making up less than 20 per cent of total exports.[11] Africa has increased its dependence on primary commodities since 1980,[12] and worldwide falls in primary product prices (prices fell by an average of 25 per cent from 1997 to 1999[13]) have magnified the effects of the continent’s heavy reliance on primary goods and highlighted the need to diversify.
High tariff barriers on imports, however, have hindered diversification. Tariffs in Africa have fallen more slowly than those in other developing regions in the past two decades: while average developing country tariff rates have been reduced by half since the early 1980s, Africa’s have fallen by just a third.[14] Obtaining the imported inputs needed for upgrading industries, therefore, is becoming easier for the rest of the developing world than it is for Africa.
Even between African countries, trade barriers have remained high. Average developing country tariffs on manufactured goods are three times higher than industrial countries’ tariffs on developing world products.[15] With one sixth of Africa’s exports going to other African countries, lowering intra-regional import duties would provide some incentive to the region’s industries and farmers to expand and upgrade their production base.
Liberalization of domestic industries has also been slow. The opening up of state-run service sectors in many areas has been either nonexistent or half-hearted. Yet greater foreign investment in services and industries could provide Africans with new knowledge, technology and skills.
While Africa’s progress on liberalization is slow, however, it is not insignificant. In most countries, restrictions on imports have been lifted, tariffs reduced and measures to attract foreign investment put in place. Foreign direct investment (FDI) in the continent rose from $834 million in 1990 to $4.3 billion in 1998 – a more than fivefold increase.[16] FDI’s contribution to Africa’s GDP has risen from 0.3 per cent in 1990 to 2.4 per cent today.[17] Exports, too, have become increasingly important, rising from an average annual growth rate of 2.4 per cent in the 1980s to an average of 4.4 per cent in the 1990s.[18] And while the region’s share of world trade remains extremely low, the steady decline that began in the 1950s has recently been halted.[19]
As well as the steady lowering of barriers to trade and foreign investment, there is also evidence of a desire to speed up regional cooperation. Trade agreements such as the Common Market of Eastern and Southern Africa (COMESA), the Economic Community of Western African States (ECOWAS) and the Southern African Development Community (SADC) have arisen in order to liberalize regional trade, although many of these blocks overlap and the system is as yet far from streamlined. Furthermore, negotiations by the “G77” group of developing countries have become increasingly effective in recent years.
A minority of African countries have already seen benefits from liberalization. Uganda’s liberalization policies have contributed to annual GDP growth since 1995 of 6 per cent. FDI, which has been particularly concentrated in manufacturing, mushroomed between 1991 and 1997,[20] enabling the country to diversify its export base, and coinciding with a rise in domestic savings from 0.7 per cent of GDP in 1991 to 7.9 per cent six years later.[21] This in turn facilitated greater investment in manufacturing and export promotion, and the share of the industrial sector in GDP has increased by one sixth since 1996.[22] Uganda has achieved impressive growth despite starting from a much weaker position than most of its neighbours. The country is landlocked, its infrastructure weak, poverty rates hover around 40 per cent and debt is among the highest in the world. Moreover, world prices for its main export – coffee – have been falling. Export promotion, however, combined with deregulation and privatization policies that are friendly to foreign investors (who receive tax incentives and may own 100 per cent of investments in companies), has helped Uganda’s people to turn the corner. Per capita GDP growth averaged 3.8 per cent from 1992-98, and poverty reduction proceeded six times faster than in the rest of Africa.[23]
Liberalization combined with export promotion and measures to attract FDI have also contributed to growth in Mauritius and Mozambique. FDI in export processing zones spurred Mauritius’ successful diversification efforts, and Mozambique, whose GDP growth since 1996 has been among the fastest in the world, has used foreign investment to boost domestic industries (the Mozambique Government responded to the global increase in the price of fertilizers, for example, by targeting foreign investment that would boost domestic fertilizer production[24]).
Liberalization has not produced benefits for all, however. Another landlocked, heavily indebted African country, Malawi, shows how liberalization by itself is not sufficient for growth, or even for integration into the global economy.[25] Malawi began its structural adjustment programme in the mid-1980s, but since liberalization began, and despite opening up its export regime, the share of exports in the country’s GDP has fallen, from 30 per cent in 1994 to 27 per cent five years later. Economic growth, not helped by declining world tobacco prices (tobacco makes up 66 per cent of Malawi’s exports[26]) and a fall in foreign investment, has slowed.[27] Foreign firms have been deterred by a weak investment climate, and liberalization has not been complemented by infrastructure improvements or the investment in the country’s human capital base needed to promote export diversification and greater productivity. Malawian firms and farmers have, as a consequence, been unprepared for the opening up of their markets to global competition.[28]
Governance of the economy has been much weaker in Malawi than in Uganda. The Ugandan Government embarked on reform in 1987, with a strong commitment to achieving macroeconomic stability. Inflation has been contained, privatisation of utilities has begun, and the exchange rate has been allowed to float. At the same time, higher salaries for public sector workers have been a key component of civil service reform, thus reducing the temptations of corruption; infrastructure has improved, with a particular focus on increasing the efficiency of the energy and transport sectors; and export promotion has proceeded apace. As a result of its strong macroeconomic performance, Uganda has become the first country to receive debt relief under the Heavily Indebted Poor Countries (HIPC) initiative, and the country’s increased attractiveness to foreign investors is reflected in the fact that Uganda’s improvement in the 1997 Institutional Investor ratings was greater than that of all other countries.[29]
Malawi, on the other hand, has failed to achieve macroeconomic stability. Annual inflation and real interest rates remain high and reform plans have not been successfully implemented. The unstable economic environment has deterred foreign investors and made it difficult for Malawian producers to diversify. Privatisation has been slow, and inefficient state-owned communications and energy utilities continue to hinder efforts to increase manufacturing productivity and facilitate trade. Although tariffs have been reduced, non-tariff factors such as price controls, continued civil service corruption, and weak physical infrastructure have kept production costs high. As a consequence, while Uganda has become an attractive destination for foreign investment, many foreign firms have left Malawi, which is rated by investors as one of the least attractive countries in Africa.[30]
Interestingly, Uganda, which has benefited so much from liberalization, has retained relatively high import tariffs on sugar and textiles. Another African success story, Mauritius, has also protected its domestic industries with high tariffs.[31] Zimbabwe and Malawi, on the other hand, saw food prices rocket after liberalization, increasing poverty and deepening poverty traps for those who were already poor.[32] Tariffs, as developed world import duties on agriculture and textiles implicitly acknowledge, protect the sectors that are most vulnerable to globalisation (many of East Asia’s successful globalizers, too, protected consumer goods while liberalizing tariffs on the imports needed to develop exports). They allow industries time to modernise and improve productivity in advance of opening up to world markets, and facilitate the diversification that is essential both for spreading risk and moving up the economic value chain. Targeted tariff reductions on inputs needed for exports and modernisation (for example, sewing machine parts, which would help more African cotton producers to upgrade to textile production) are likely to be more palatable to domestic producers than across the board tariff reduction.
Liberalization in Uganda, in sum, has been accompanied by efforts to strengthen institutions, stabilize the economy and promote exports. In Malawi, however, attempts to improve governance have been inadequate and liberalisation has been held back by continued state intervention. Both more thoroughgoing liberalization and a greater emphasis on government-led macroeconomic and institutional reforms will be required for Malawi to begin to catch up.
African governments’ efforts to liberalize have in many cases been a response to international donor encouragement. The next section will review how far these policies have contributed to economic growth, the second sphere of the development framework, and whether the overall policy environment has been conducive to growth.
Economic growth
The growing economic divide between Africa and the rest of the world is not a recent phenomenon. In 1820, per capita income in Africa was 68 per cent of the world average. Despite increasing by a factor of almost 2.5 since then, by 1992 African income levels had fallen to 25 per cent of the world average. Consistent with these figures, absolute growth was considerably slower than in other regions – per capita incomes in Asia and Latin America were 5.9 and 7.4 times higher in 1992 than they had been in 1820. In Western countries, they were 14.9 times higher.[33]
Since reaching a peak growth rate of 1.5 per cent in the 1960s, per capita incomes in Africa have declined and are now 10 per cent lower than they were in 1980.[34] GDP growth throughout the 1990s was negative and, whereas in the 1960s the continent was economically on a par with much of Asia, it is now by far the poorest region in the world. Per capita GDP, investment, exports and savings all declined between 1970 and 1997 – in the rest of the developing world these measures advanced significantly.[35] As a consequence, many African economies have become heavily dependent on loans, and by 1997 foreign debt was equal to 80 per cent of the region’s GDP.
Progress over the next decade is expected to be more encouraging, albeit slow compared to all other regions. Africa’s economy is forecast to grow by 3 per cent per annum between 2000 and 2010.[36] However, even if this forecast is accurate (notwithstanding threats such as rising numbers of AIDS deaths, war and the dangers of faltering democracies in nations such as Zimbabwe threatening its neighbours’ stability), such growth will not be sufficient to prevent an increase in poverty rates, much less promote a decline in rates by half to the Millennium Development Goal target. According to the United Nations Conference on Trade and Development (UNCTAD), a continued growth rate of at least 6 per cent will be required if a “significant reduction” in poverty rates is to be achieved.[37] In the 1990s, however, only Botswana, Mauritius, Uganda and Mozambique approached sustained growth at this level.
A failure to keep up with global markets has contributed to Africa’s slow growth. Colonialism, migration and the continent’s heavy dependence on exports have meant that Africa has historically been at least as globally oriented as other developing regions,[38] but it is now being rapidly overtaken. A World Bank study has examined the differing performances of those developing countries whose ratio of trade to GDP has risen in the last twenty years – that is, they have become more globalized – and those that have become less globalized. Although, as some critics have noted,[39] the study does not claim that the more globalized countries adopted pro-trade policies, they did have deeper tariff cuts than the less globalized group, and it is probable (although not made clear in the report) that, in at least some cases, these cuts came as part of a deliberate strategy to open up to the global economy. 43 of the 47 sub-Saharan African countries have become less globalized over the last twenty years, with significant consequences. It is estimated that the decline in Africa’s share of world trade from 3 per cent in the 1950s to less than 2 per cent in the 1990s represents an income loss equivalent to 21 per cent of regional GDP.[40] While per capita GDP growth in the more globalized developing countries outstripped that of rich countries during the 1990s, average growth in the less globalized nations was negative. And while wages increased overall in the less globalized countries, they did so at a rate less than half of that in the more globalized group.[41] Poverty declines, too, are slower in Africa than elsewhere. Fifteen of the world’s twenty poorest countries are in Africa and, while African poverty rates[42] fell by 1 percentage point to 47 per cent from 1990 to 1999 and are expected to decline further to 39 per cent by 2015, poverty rates in South Asia will more than halve during the same period.[43]