The Economic Decline in Africa

Summary of working paper 9865
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One half of the African continent lives below the poverty line. In sub-Saharan Africa, per capita GDP is now less than it was in 1974, having declined over 11 percent.

While the rest of the world's economy grew at an annual rate of close to 2 percent from 1960 to 2002, growth performance in Africa has been dismal. From 1974 through the mid-1990s, growth was negative, reaching negative 1.5 percent in 1990-4. As a consequence, hundreds of millions of African citizens have become poor: one half of the African continent lives below the poverty line. In sub-Saharan Africa, per capita GDP is now less than it was in 1974, having declined over 11 percent. In 1970, one in ten poor citizens in the world lived in Africa; by 2000, the number was closer to one in two. That trend translates into 360 million poor Africans in 2000, compared to 140 million in 1975.

In The Economic Tragedy of the XXth Century: Growth in Africa (NBER Working Paper No. 9865), authors Elsa Artadi and Xavier Sala-i-Martin review both the deteriorating economic status of the African continent and the ways in which rich nations, as well as the African nations themselves, might help the poor nations of the continent.

Using the robust econometric determinants of economic growth in a cross-section of countries, the authors pinpoint the most important factors behind the tragedy. The first culprit has been the lack of investment. Over the past 40 years the investment rate in Africa has fallen. Since 1975 the investment rate has declined to 8.5 percent for the whole continent, compared to investment rates for the average-performing OECD economy of between 20 and 25 percent, and for East-Asian economies of 30 percent. Furthermore, most of the investment was skewed in the direction of the inefficient public sector. Recent reforms in Africa have raised the investment rate, but only slightly.

For the two major determinants of human capital, education and health, Africa fares equally poorly. In the 1960s, the overall primary school enrollment rate averaged 42 percent, compared to a nearly 100 percent rate in OECD or East Asian countries. If Africa had enrollment rates at OECD levels during the 1960s, its average 0.9 percent growth rate would have been a much healthier 2.37 percent and per capita incomes today would be two-and-a-half times larger than they actually are. Improved enrollment rates since 1960 mean that economic growth prospects are brighter now.

Life expectancy in Africa in 1960 was just above 40 years, with corresponding values for OECD countries and East Asia of 67 and 62, respectively. If Africa had a life expectancy similar to the OECD, its annual growth rate would have been 2.07 percentage points larger. Similarly, if Africa had no malaria over the past 40 years, its annual growth rate would have been 1.25 percentage points larger.

Citing the fact that massive aid programs have not helped much, the authors suggest that new initiatives may be needed. For example, more research could be focused on the continent's devastating health problems. Africans themselves have neither the resources nor the expertise to discover vaccines that prevent AIDS or malaria. Yet rich countries have little incentive to invest in these lines of research because the discoveries will help people with little ability to buy the products. The authors believe that if international aid financed by bilateral donors and multilateral institutions were redirected towards these health problems, then the situation in Africa might improve.

The economic situation in Africa also would improve if the military conflicts that have plagued the continent over the past half-century stopped. And, other important factors could contribute to African economic growth: these include the maturation of institutions that guarantee the rule of law and property rights; greater investments in education; the reduction of policy distortions that make investments excessively expensive; and the reduction of wasteful consumption expenditures.

Opening up the African economies to market forces of trade and technological diffusion is also important. While African governments could do a lot to open their economies, Europe, Japan, and the United States could also contribute by facilitating the access of African products to their markets and by reducing subsidies to their agricultural products.

One of the key consequences of Africa's economic stagnation is that income inequality has increased, while it has decreased worldwide. This income inequality exists whether one looks at between-country or in-country measures. That is because richer nations on the continent have grown faster and because rich citizens within each country have benefited more than poor citizens. A prime example is Nigeria where the incomes of the poorest 80 percent of the citizenry have declined, while the incomes of the richest have increased. That situation provides little incentive for the rich and powerful to make meaningful policy changes.

-- Les Picker