Africa is the new East Asia

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Kanishk Patel's picture

In the spring of 2000, The Economist ran a cover story on Africa. Titled “The hopeless continent”, the magazine asserted that the then-recent failure of the UN peacekeeping mission in Sierra Leone called into question the rest of the worlds’ willingness to help end the fighting in any of Africa’s many dreadful wars. Since Sierra Leone’s problems are so intractable, the magazine stated, and since they embody much of what’s wrong in Africa, it begins to look like the rest of the world is starting to give up on the entire continent. And indeed, this view, shared by much of the rest of the world, wasn’t misplaced. Political violence in Africa had, for decades, kept away foreign investment, crippled healthcare and education, and had led to increasing inequality (Asiedu, 2002). But how different is the present state of affairs from that of spring, 2000?

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Though perceptions in the minds of many outside the continent may not have changed much, the continent is quietly transforming itself. According to a recent report by the IMF, six of the world’s ten fastest growing countries in the decade ending in 2010 will be African. From 2011 to 2015, this figure shall increase to seven.  Many in the continent have stopped fighting, and political instability has reduced. Local conflicts occasionally flare up, but war in Africa in the past decade has been far less deadly. Perennial hot-spots such as Sierra Leone, Chad, Eritrea, Liberia and Sierra Leone have been largely quiet. The number of coups, which averaged 20 per decade from 1960-1990, have fallen to an average of below ten.

THE EAST ASIAN PARADIGM

Even amongst the normally divided profession of economists, nobody seems to agree on the reason for the sustained boom of the Tiger Economies of East Asia. Tenured professors with impressive credentials from robust institutions, and grey haired wonks over at the IMF and World Bank, have almost universally called the growth as “miraculous”. The general reader knows he’s in trouble when even practitioners of the dismal science have to seek recourse in a higher power.

Paul Krugman, in his famous paper in 1990, ‘Myths of Asia’s Miracle’ reflects contemporary economic thinking on the matter, when he stated that “the miracle turns out to have been based on perspiration instead of inspiration”. According to him, factor accumulation, rather than any significant advances in technology or productivity, was responsible for the East Asian boom. The employed share of Singapore’s population, between 1966 and 1990, surged from 27 percent to 51 percent. Above all, the government made huge investments in physical capital (investment as a share of output rose from 11 percent in 1966 to over forty percent in 1990. Krugman contends that these changes in Singapore, as in the rest of the tiger economies, reflect a one-time change in behaviour and cannot be replicated.

Most contemporary economists have agreed with Krugman in that capital has played a key role in the success of east Asian economies. Haq (1998) argued that an ‘education miracle’ was the reason for this ‘development miracle’. Behrman (1990) also adds to this line of development by describing progress in this region as “human resource led development”. South Korea has taken massive and deliberate steps to improve the skills and abilities of their people as a strategy to improve welfare. Nehru (et al, 1995) that South Asia has the highest levels of educational stock in that region, which has led to improved living conditions despite its large population.

THE DIMLY LIGHTED CONTINENT

Similar to what happened to the East Asian economies in the 1960’s, over the past decade, Africa, has grown by leaps and bounds in the field of human development. Secondary school enrolment has grown an astonishing forty eight percent between 2000 and 2008, and higher education rates grew by eighty percent, as many states continue to expand their educational system and scrap school fees. HIV rates have dropped over seventy four percent in the last decade, and human life expectancy has increased by ten percent.

Africa is also going out of its way to get other countries, such as China, Brazil, and India, to invest in its infrastructure. A recent report, Building Bridges, commissioned by the World Bank, states that China has emerges as the major financer of infrastructural deals in Africa. As China gradually moves up the value chain, it only makes sense for it to export production of lower value items to Africa, and it is currently investing to create infrastructure which would allow it to do so.

African governments have worked hard to improve its image for foreign investors. Rwanda, which suffered a major genocide twenty years ago, is now rated as more favourable in the world bank’s report for ease of doing business than Italy. This would help African governments in attracting more FDI, so as to improve their stock of insfrastructure.

DIVERSIFICATION

Africa, at last, finally seems to have shrugged off the resource curse, which has haunted it for decades. Its economy has long been linked to commodity cycles, and African economies have a propensity for crashing whenever the cost of oil, copper, and iron has fallen (During the 1998-99 oil price fall, Nigeria’s Naira lost eighty six percent of its value). However, in the past year and a half, even as oil prices halves, and iron and copper prices plummeted, there hasn’t been any catastrophic depreciation yet. (Ghana’s Cedi was the worst performing currency of this year having lost twenty six percent of its value against the dollar. However, the cause for its fall wasn’t the crash in commodity prices (Ghana is not an export dependent economy by African standards), it was the lax fiscal policy which the government of Ghana had run for several years).

One reason currencies haven’t taken a tumble is that growth in Africa is finally started to come from other places. Manufacturing output in the continent has improved as quickly as the rest of the economy. Services has grown even faster, at the rate of 2.6% percent per year for the decade. This would eventually help African countries in ramping up their exports. The tourism industry has also boomed to become a significant source of foreign revenue for African countries: Between 2002 and 2012, the number of tourists visiting the continent have tripled.

MILES TO GO

Twelve years after running its spring 2000 issue, The Economist ran another story on Africa. This one, titled ‘Rising Africa: A hopeful continent’ spoke of increased foreign investment, and competition amongst multinational firms to bag infrastructure deals in the continent. This volte-face by the magazine represents the remarkable change in the rhetoric surrounding the continent that has occurred over the past few years. As investor confidence increases, more money would flow into the continent, improving its infrastructure and setting the continent on a sustained, long, high growth journey.