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Africa's Major Obstacles to Development

by Dr. Daniel Kendie

The major objective of this study is to investigate the internal and external causes of Africa's marginalization in the world economy.

Abstract:

Economically, since the mid-1980s, Africa has become increasingly marginalized in the world economy. In 1955 for example, the continent's share of world trade stood at 3.1%. By 1990, however, this share had fallen to 1.2%. In 1992, the combined GNP of the countries of Sub-Saharan Africa did not even equal that of the Netherlands. In 1973, Africa's debt burden was $13.1 billion. But by 1997, it had mushroomed to more than $315 billion, to the extent that the debt exceeded Africa's total GNP. Even levels of public and private assistance to Africa have considerably declined. The vacuum in assistance is being filled by the World Bank and the International Monetary Fund, whose support is contingent upon austere structural adjustment programmes which include wholesale privatization, removal of trade barriers, diminished protection for national industries, reduced corporate taxes, elimination of state subsidies on food, fuel, education, health and transport, devaluation of currency, and the scaling of bloated bureaucracies.

The Background:

Conventionally speaking, Africa, Asia, South America and some territorial pockets around these regions are referred to as the poor - the underdeveloped countries of the world, or the South. On the other hand, the nations of Europe, North America, Japan, Australia, and some others, are recognized as rich - the developed countries, or the North.

We should note that, even within this grouping, there are differences in development and income. But nevertheless, the rich countries, which are already in orbit in their economic life, have accumulated such wealth that can multiply by compound interest. The poor, on the other hand, do not only lack this motor, they have not even completed early savings, let alone move on into take-off - the transition from static, pre-industrial society, to a growing industrial one. The gap between the rich nations and the poor nations has therefore been expanding, not narrowing.

Aware of that, while addressing the 16th Session of the U.N. General Assembly, U.S. President John Kennedy had reminded the world that "political sovereignty is but a mockery without the means of meeting poverty, illiteracy and diseases, and that self-determination is but a slogan, if the future holds no hope."

In an attempt to reform the system of international economic relations, which holds so many disadvantages to them, the underdeveloped countries of the world made a series of demands, including: the creation of a huge capital fund from which they could receive grants or obtain low-interest loans; the establishment of the U.N. Conference on Trade and Development to help increase their export trade with the developed countries, so that they could earn more capital for development; the establishment of the International Development Association as an affiliate of the World Bank, to grant soft loans, i.e., no interest charges and fifty years to repay; and the creation of a New International Economic Order, which would replace the existing world economic system with one in which, the nations of the developing world would receive fairer treatment and higher prices for their commodities.

To that end, the U.N. General Assembly designated the 1960s the first United Nations Development Decade (1960-1970), at the urging of the developing countries, and convened its first session in Geneva in 1964. The role of trade in relation to economic development was its theme, but it also examined the place of international trade in narrowing the gap between the rich and the poor. While its short-term aim was the adjustment of the market forces, its long-term aim was the rationalization of the market itself.

This was to be done by way of improving the terms of international trade, and by increasing the flow of aid from the rich nations to the poor nations.

The first United Nations Development Decade had aimed at enabling the less developed countries, and those dependent on the export of a small range of primary commodities, to stabilize commodity prices, and to sell more of these products at remunerative prices in expanding markets, and to extend most-favoured-nation treatment to the underdeveloped countries. Moreover, the rich countries were expected to assist the development efforts of the poor by creating conditions for the flow of capital to reach 1% of their gross national products. This, coupled with supplementary measures in international trade, was assumed to significantly improve their conditions and even to narrow the gap between the rich and the poor.

With such rectifications, it was hoped that Third World countries would finance their own development plans from their earnings and domestic savings, that their national incomes will be increasing by 5% yearly by 1970, and that it will continue to expand at this annual rate thereafter.

It was even anticipated that personal living standards could be doubled within twenty five to thirty years, and that by the year 2,000, we could be living in a world that has overcome poverty - i.e., a world without want.

Since then, there have been a series of other UNCTAD conferences. But the possibilities of redressing historic inequities and of bridging the gap between the rich and the poor do not look bright. It was observed that the developing countries have achieved the ability to garner the votes through sheer numbers, but have failed to sway the rich nations to meet their demands, or to fund the institutions they wanted established. In this respect, over the last thirty years, three broad schools of thought have been identified. First, the dirigiste period of early 1960s. Emphasis was on growth and planning through active state involvement; (2) the distributive period of the late 1960s. This was characterized by income redistribution concerns and the basic needs approach, and (3) the neoclassical renaissance period of the 1980s, which put emphasis on free market principles and the removal of government intervention in regulating the economy. In this regard, it has been said that government actions often promote the interest of special groups: the army, landowners etc. Medium term development planning has failed in LDC’S; parasitical enterprises have been inefficient, needing costly subsidy, agriculture has been neglected. Whatever industrialization occurred was without providing due attention to efficiency; undue hostility to multinational corporations was irrational; and inward looking approach to development has been damaging. It is concluded that the free market approach is fine, but it should also accept the positive role of the state in such areas as agricultural research, the provision of extension services, and building the infrastructure etc. A more balanced, mixed economy type of approach should be more appropriate.

Sub-Saharan Africa

If we examine the situation in Sub-Saharan Africa today, it is a far cry from what was anticipated. While the African continent accounts for over 11% of the world's population, its share in world trade is small and has been declining, standing at 2% in 1991. If the oil exporting countries of the continent were to be excluded from the computation, the figure will be reduced to 0.9%.

Between 1960 and 1973, Africa's average annual rate of economic growth was 5.3%. Between 1980 and 1983, the growth rate fell to 0.5% per year. Between 1980-1990, world trade grew at an annual rate of 6%. However, the exports of Sub-Saharan Africa declined by 2.1%.

In 1960, Ghana was on par with South Korea in terms of its gross domestic product per capita. But to day, the situation is something else.

The African countries were virtually self-sufficient in food some twenty-five years ago. By 1995 however, one out of every four people in Sub-Saharan Africa were homeless and jobless. Indeed, Sub-Saharan Africa's agricultural growth rates have declined from an annual average of 2.2% (1965-1973), to 1.0% (1974-80), and 0.6% (1981-85).

The situation hardly improved in subsequent years. In fact, from 1980-1992, per capita food production declined considerably leading to an increase in food aid from 1.6 million to 4.2 million tons.

Average per capita gross national product was recorded as declining at a rate of 0.8% a year between 1980 and 1992.

Figures for the flow of exports out of Africa, and of private investment capital into Africa, suggested also that the continent had virtually dropped out of sight as a participant in the world economy. Africa's world market share of non-oil primary produce exports fell from 7% to 4% between 1970 and 1985, while returns on investment in the continent dropped from 30.7% in the 1960s to a mere 2.5% in the 1980s.

It should also be noted that the recorded gross domestic product of the whole of Sub-Saharan Africa in 1992, which was $270 billion, amounted to less than that of the Netherlands.

In 1990, the continent's total exports amounted to some U.S.$70 billion - an amount that is almost equal to South Korea's exports in the same year. Even U.S exports to Africa in 1996 were a mere $11 billion, i.e., less than half of that of South Korea's $27 billion. In fact, from the mid-1950s to 1990, Sub-Saharan Africa's share of global exports fell from 3.1% to 1.2% - a decline implying annual export earning losses of equivalent to some $ 65 billion in 1990.

In 1990, manufactured goods accounted for 11% of the exports of Sub-Saharan Africa. And according to the 1994 forecast of the World Bank, between 1994-2004, the exports of the region will increase at a lower pace than those of Asia and Latin America.

What is even more alarming is that between 1985 and 1990, foreign direct investment had increased by an annual average rate of 34% at the global level. However, in the case of Sub-Saharan Africa, it has remained stagnant. The total international investment that was globally generated was $300 billion. Yet, of this sum, Sub-Saharan African countries could attract only $11 billion.

In 1973, Africa had a debt of $13.1 billion. Currently, the debt of the 52 Sub-Saharan African countries has reached $315 billion, mostly to the International Monetary Fund, the World Bank, the African Development Bank, and individual governments. Only 14% of this total is commercial debt. The debt owed to the USA is $4.5 billion.

The situation has been aggravated by international transport costs, which have had a negative impact on exports and the location of manufacturing activity in Africa. African freight rates, are, in the main, considerably higher than those on similar goods originating elsewhere, and often conceal high rates of effective protection. Indeed, African net payments for transport services are very high relative to other developing countries and have increased over the last two decades. As such, a large share of foreign exchange earnings that might have otherwise been employed in productive capacity building investments is being utilized for payments to foreign transport services.

Moreover, the countries of Sub-Saharan Africa spend more each year on repaying their debts than they spend on primary education and health care. For example, out of the $44 billion Africa earned from exports in 1986, it had to pay $19 billion to its creditors. In 1996, for instance, Uganda spent only $3 per person on health care, while spending $17 per person on repaying its debts. Yet, one in every five Ugandan children dies from a preventable disease before reaching the age of five.

During the same period, Mozambique spent twice as much money making timely interest and principal payments on its debt as it spent on health and education. Yet, one out of four children in Mozambique dies before reaching the age of five due to infectious diseases.

In Ethiopia, debt payments are four times more than what goes for public health.

In nearly all of the Sub-Saharan African countries, especially in the Least Developed Countries, many people are starving, and still more are being ground into abject poverty. Children are deprived of education, medical care and nutrition. Societies are being strained to the verge of disintegration. These countries have the highest rate of illiteracy, the lowest gross domestic product, and the lowest net capital formation. They have the fewest doctors and the fewest hospital beds. The infant mortality rate is high and life expectancy is low. The greater number of them are unable to feed their populations. Where surpluses of any commodity are to be found, it is a formidable problem to get them where they are needed because the transport linkages are weak. Unemployment in urban areas has also reached unacceptable levels.

What hope do these nations have for the immediate future? The prospect is very gloomy. In fact, unless there is rapid action, backed by adequate resource allocations, current trends indicate that most Sub-Saharan African economies are bound for a decade of continuing stagnation, poverty, mass misery and deprivation.

The Causes of Their Poverty:

Given this background, let us then raise some disturbing questions. After more than thirty five years of international effort, even if largely rhetorical, why are Sub-Saharan African countries now being described as economies in either continued "stagnation" or "regression" ? Why are they encountering a progressive deterioration in their capacities to carry out even basic functions? Why are they experiencing commodity price fluctuations, mounting debt, dwindling investment, and a diminished share of world trade? In short, what are the causes of their marginalization in the world economy?

Economic development from poverty to wealth is not the property of any system, but rather, a process of cumulative social learning of the kind and type which increases the productivity of labour. This cumulative process depends more than anything else, on the proportion of resources, which are devoted to it, and on the efficiency of their use. Furthermore, international trade is usually referred to as "the engine of growth", in so far as it provides opportunities for further growth and development.

In Sub-Saharan Africa, colonialism created social and economic institutions and processes. Plantation agriculture, mining, and some manufacturing were also introduced by the former colonial powers. Such commercial ventures were complemented with and accompanied by the creation of ports, railroads, and financial and commercial institutions, which did stimulate growth. However, this alone could not produce much in the way of spread effect, because growth is not the same as development. Its set of indicators includes those that measure quality of life and the extent to which development really benefits people.

At the end of the day, it was discovered that political independence from colonialism had only succeeded in replacing one elite with another, which failed to meet the demands for political and economic freedom of the peoples of Africa.

Sub-Saharan Africa has, therefore, been marginalized in the world economy mainly because of its structural problems, and its dependence on primary commodities and the difficulties it has been faced with for diversification into production and exports of manufactured goods. The process of globalization and growing tendencies for regionalism has also adversely affected its international position.

There are indeed two fundamental problems, which may explain why these economies are either, stagnant or in regression: First, the changes necessary to bring economic progress to these countries that are largely internal, and secondly, the problems caused by factors that are external to these countries. The latter includes the impact of the international economic and political environment on them.

The Internal Causes:

The internal causes of the stagnation or regression of the countries of Sub-Saharan Africa include: inability to solve internal conflicts that tear at the very fabric of national unity, and which have diminished their capacity to manage domestic affairs; intra-state conflicts including border disputes that force these countries to divert scarce resources from urgently needed development projects into armaments; political instability; administrative inefficiency; inappropriate development models; unrealistic development strategies; lack of viable institutions; unreliable judiciary; the existence of governments without legitimacy;ethnicity and primordialism which interfere with the rational allocation of resources,financial,bureaucratic and political corruption; lack of transparency in public transactions and lack of accountability in public action; nepotism; financial mismanagement; insecurity of property; lack of trained people to educate and advise farmers; non-diversification of the economy; ineffective monetary and fiscal policies; lack of income distribution; adverse weather conditions, including drought, exhaustion of good soils, destruction of forests; the lack of industrial base, as well as infrastructure and capital. More to the point, numerous analysts including Robert Klitgaard, have concluded that the state in Africa has been operated to enrich national leaders, not primarily to extend the fruits of development to the general population.

In many of these countries, there is also an acute need for a private sector willing to cooperate with the government in pursuit of the shared goal of industrial development. In fact, the growth of the private sector has been retarded precisely because governments have not established the type of stable legal and economic framework necessary for markets to flourish, or to attract capital, and to help influence private investors to make long term plans.

The External Causes:

The external causes of Sub-Saharan Africa's stagnation and marginalization include: the traumatic effects of the oil price rises; policies advocated by the World Bank and the International Monetary Fund; the crushing burden of international debt and interest rates, which forces them to structure their economies in such a way so as to earn foreign exchange only to pay debts, rather than concentrate on genuine development; the lack of adequate capital flow and transfer of technology; the refusal of the rich countries to abide by the free-trade doctrine, or as the case may be, the erection of high tariff barriers or adoption of quotas to protect domestic economic interests from the competition of cheap commodities in the poor countries, are cases in point. The production of substitutes and synthetics that compete with natural products; terms and conditions of external aid; the increasing decline of aid; deterioration of the terms of trade, i.e., the amount of a given raw material they must export to get a manufactured product that keeps growing; globalization, i.e. cost reduction measures through net-working and economies of scale and production, and so on.

Moreover, since the exports of most Sub-Saharan African countries do not pay for their imports, they meet service debts, which replenish their monetary reserves. If they reduce imports, there will be shortage of essential supplies, which will affect the level of economic activity and capital formation. The deterioration of the terms of trade cancels out the financing of investment plans and production, as they make a direct transfer of resources to the rich countries as a result of the deterioration in export prices.

Imports of these countries have grown more rapidly than their exports, especially their imports of capital goods needed for their development. The resulting excess of foreign payments has been met by foreign loan. However, since the loan will have to be paid and in the meantime add a burden of interest charges, the problem of exporting sufficient to pay for needed imports remains unsolved. Moreover, falling commodity prices for most African agricultural and mineral exports have forced Africans to export twice as much to earn the same revenue. It should also be noted that the average cost of machinery and transport equipment that these countries have been importing - products that are necessary for their growth has been increasing year by year.

The rapid expansion of various man-made substitutes such as synthetic rubber and plastics for natural materials have made their condition worse than is commonly realized. These trends indicate increasing efficiency in the industrial use of raw materials resulting from improvements in technology; increased complexity of consumer products, i.e. more manufacturing work is being applied to a given amount of raw materials; technical achievements in the processing of low grade ores and the use of substitute materials as for instance plastics for metal. The Americans, for instance, can produce practically everything they need, except coffee, and chemists may even produce a viable substitute for that. The consequence of that would be a disaster for countries like Kenya, Ethiopia, the Ivory Coast and others, the mainstay of whose economy is dependent on coffee.

The technology of the advanced countries can, for example, produce a substitute for binder twine, which is only half the price of sisal. From the point of view of industrial concerns, it is economical. But for a country like Tanzania, it will be a total disaster. Thus we see synthetic fibers now competing with cotton, wool, jute and sisal. Synthetic rubber is displacing natural rubber and leather. Such trends have become serious threats to African countries, which depend on exports of natural commodities to earn foreign exchange. It diminishes the range of exports available to them. It will be unbecoming on ones part to suggest that there should not be technological changes or adjustments. However, those countries which have least economic choices, and which are least able to adjust to rapid change are making the adjustments.

If Sub-Saharan African countries cannot sell their raw materials even at such low prices and buy the capital goods that they need for their development, what will be the outcome? Does it mean that they will have to begin to produce for themselves and by themselves much of the heavy engineering products, chemicals and so on, that they had hitherto counted on being able to import from the developed countries?

There is no doubt that receipts from the exports of goods and services are the main source of foreign exchange for them, and which, to a great extent, determine the capacity of these countries to import the goods that they need to sustain and to expand their productive capacity. After all, the purpose of earning foreign exchange is, in the first place, to buy abroad goods and services, which cannot be produced so cheaply, or to such a high standard at home. Domestic savings are in local currency. They do not automatically buy goods and services in other lands. But when the possibilities of earning more foreign exchange are dwindling, should not these countries look for alternative strategies?

Economic growth is essentially the economics of capital accumulation, investment, productivity of labour and management. External investment is necessary to provide the technical, managerial and marketing know-how that is indispensable if Africa is to produce a more diversified range of goods for international markets. Foreign investment will continue to play an important role in the growth of the economies of the African countries. However, there are two problems to consider. Foreign business invests primarily for profit. No one objects to that. But the problem comes when profits are not domestically retained and re-invested but are repatriated and invested elsewhere. How would this practice assist in the task of capital accumulation? The second problem concerns the nature of the technology of the advanced countries, which has evolved from being labour intensive into being capital intensive. How would such a technology create jobs and means of employment in Africa, when the technology is shifting into automation, computers and the self-regulating machine, which uses very little labour?

to be continue next week

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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