Why Doesn’t Africa’s Economy Grow?

Kenneth Bell

Economics Major

Computer Skills for Econ 3250:226

September 11, 2005

In this article I will attempt to look at the factor’s that keep most of the African continent a third world environment. What things keep Africa’s economy growing at the rate it should so that people can improve their station in life? I will attempt to show what the factor’s are that play a role in all this, from foreign aid to domestic affairs.

When people think of Africa they tend to think of HIV/AIDS, food donations, medicine donations, and billions of dollars given every year by the UN, US, Europe and many private benefactors. Many countries in Africa are in need of constant aid from outside sources. This aid generally comes year after year, in the amounts of billions upon billions of dollars. Why does Africa constantly need so much aid each year? This year alone $191 million dollars are needed to continue for this year the United Nation’s World Food Program for many of the countries in southern Africa. 8.5 million people in Lesotho, Malawi, Mozambique, Swaziland, Zimbabwe and Zambia will be affected this coming season unless the money needed can be found soon. Southern Mozambique is expected to be hit the hardest if $19 million dollars is not found soon to keep food going for 430,000 people. (Mozambique, UN News) This much aid is necessary just to provide for the basic needs of these people.

The best way to continually reduce this type of aid is for these countries to grow economically and become more self sustaining. The questions arise over how can this be done and why is it not taking place already? Well for one people can be so poor that they cannot do anything about it. They have no jobs, no way of securing jobs, and no way of securing money to even buy the things necessary to improve. The Grameen bank in Bangladesh began loaning out money to the local poor people so that they could improve their ways, by buying a cow, or starting a business. The Grameen bank is investing in the poor people so that they improve their own lives and it is working for them. Many countries grow much more quickly by trade with other countries. Certain SE Asian countries saw significant growth in the late 1970’s and early 1980’s by opening up their borders to international trade, with the production of inexpensive textiles, electronics and toys. The growth of these countries was significant and highly noticed by economists and other nations around the world.

A free trade environment would certainly help the growth of many countries in Africa. As we can see though, this is not the case. Many countries in Africa have trade restrictions with one another and with other more developed nations. However the Island of Mauritius is taking a different route by following the example the SE Asian countries by creating a tax free zone to entice foreign investors to set up textile, clothing and jewelry factories for export. The plan worked allowing Mauritius to experience growth. Lately however due to more international trade the prices of sugar and textiles, Mauritius’s main exports, have dropped in price, slowing the county’s economic growth. To combat this slow growth Mauritius’s government has proposed that duty free shopping be created to attract tourists. While this would promote growth the government would also loose about $135 million a year in revenue it already collects on duties. So it is up to Mauritius to discover if they will not only make more than they would lose, but if they will experience enough growth that they can continue to create new jobs every year. (Ackbarally)

In Zambia they are looking for trade as a way to increasing their economy. President Levy Mwanawasa believes that improving trade creates the pathway for improving his country’s economy. He also believes that an aggressive private sector in the economy is the key. President Mwanawasa wants his country to increase their export trade, by using the government with Public Private Partnerships it would help promote a collaboration to diversify export trade beyond their lead exports of copper and cobalt. (Chellah) President Mwanawasa believes that the effort of all this would be rewarded with economic growth for his country.

Promoting trade is not enough. To trade each country needs to have something to export as well as import goods. Finished goods, agricultural products and raw materials are just a few of the things that a country may export. Most of these things require some sort of investment. The government may invest, foreign institutions, or local people can get loans or use their own money to invest in an industry for exporting. Many of African’s governments are too poor to invest in such things. They can only help create the environment that helps promote trade. The local people themselves are generally too poor to invest in or create an industry for export. Many of them rely on foreign aid just to receive basic sustenance. So this means that outside banks or financial institutions need to loan money to help with the growth. Indeed many institutions (like the World Bank) and government agencies (like the United Nations) loan money and give aid. The bulk of this money however is used to provide basic needs to people. Very little if any is used to help people dig themselves out of their economic poverty holes.

That is where institutions like the Grameen bank need to become involved. Professor Muhammad Yunus created the Grameen bank specifically to loan money to poor people. Nobody else would do it, since poor people have no assets and therefore nothing to use as loan collateral. Professor Yunus however began loaning money to the poor people despite this, and created groups where each member in the group becomes responsible to make sure every other person in the group stays honest and pays their loan back on time. This institution has worked very well and spread to include five million borrowers.

It is quite feasible that an institution such as this would be very beneficial to the people living in even the poorest of African countries. Many of these people have no money, and no way to acquire money. One could still give basic aid, but would it not be prudent as well to give assistance for growth. It could be possible to loan out money, or give out tools for farming, knowledge of mining, or equipment to begin creating textiles. More can be done than just the United Nations Food Program, and other similar benefit organizations. If African countries would do more to promote trade for economic growth, and if investors would contribute resources that would create more export and import industries then we can see some real economic growth on the African continent.

The following graph shows the GDP growth as a percentage for the countries of Lesotho, Malawi, Mozambique, Swaziland, Zimbabwe and Zambia.

List of Referenced Articles

Ackbarally, Nasseem, Mauritius: A Duty Free Island in the Making, International Press Service News Agency, 12 September 2005,

Chellah, George, View Trade as Vehicle to poverty reduction- Levy,The Post (Zambia Newspaper), 10 September 2005,

Mozambique: Funding Shortfall threatens hundreds of thousands with hunger, United Nations News Center 9 September 2005,

Kenneth BellPage 111/13/2018