adminMonetary Fund projects 5,5 percent annual growth from this year to 2017, making sub-Saharan Africa the second-fastest growing region in the world after Asia.
There are many reasons for sub-Saharan Africa’s robust economic performance.
These include increased democratisation, better governance and better economic policies. Important, too, has been the dramatic increase in commodity prices since 2003. Commodity output has also grown, mainly as a result of substantial foreign investment in infrastructure.
Surprisingly, the benefits for Africa of higher commodity prices are often not recognised by commentators. This is because many economists continue to view natural resources as a “curse” for developing economies. This stems from the 1997 work of Harvard University’s Jeffrey Sachs and Andrew Warner, comparing economic growth of countries in the 1970s and 1980s with their natural resource endowment.
Countries with high resource endowment generally grew more slowly than countries that lacked resources.
Several reasons explain this finding. Mining and oil production require concentrated sites of economic value, which corrupt politicians often plundered for personal gain.
Because natural resources are mainly exported, they can drive up exchange rates. This, the so-called Dutch disease, harmed the development of other sectors. Foreign-owned natural resource firms often paid better wages than local industries, making high-level jobs in other areas less attractive for skilled and entrepreneurial locals.
The fact that commodity prices fell in real terms by 40 percent during the period of the study was largely ignored.
Confronted by such a dramatic fall in the prices of their major products, it was inevitable that major commodity-producing countries would experience poor economic growth.
Nonetheless, the Sachs and Warner findings triggered important policy responses. Special investment guidelines applying exclusively to extractive industries were put in place by development agencies such as the World Bank.
Heightened scrutiny around the developing world prompted global natural resources companies to co-operate with global non-governmental organisations. Increased transparency on the part of major foreign operators made it more difficult for corrupt politicians to plunder tax revenue, allowing the benefits to accrue more fully to the population.
Policymakers in resource-rich countries also learnt from past mistakes and took steps to prevent exchange rates from becoming over-valued. One mechanism to achieve this was the establishment of sovereign wealth funds to house foreign currency earnings during periods of high commodity prices.
This reduced upward pressures on exchange rates and provided sources of funds for governments to buffer the effects of future commodity prices falls or declining production.
From 2003, commodity prices started to rise strongly, mainly because of increased demand from China. Rising prices, as well as the improved policy and institutional frameworks in commodity-producing countries, changed the previously negative relationship between growth and natural resource endowment. Using the same countries as Sachs and Warner, Rhodes University student Jasi Kassami found that from 2000 to 2007, there was a positive relationship between economic growth and natural resource endowment. Instead of a curse, natural resource endowment is now a blessing.
It is this positive relationship that accounts for much of sub-Saharan Africa’s improved economic performance. Recent findings of large oil deposits in Uganda and gas in Mozambique have dramatically improved their growth prospects.
Foreign direct investment is again flowing into Africa as Chinese, Indian and Brazilian companies vie to participate in unlocking its resources.
Unfortunately, South Africa has largely excluded itself from this boom. The benefits that lifted sub-Saharan Africa have largely passed us by. Falling gold production is the major reason, while policies poorly designed to achieve the objective of more equitable ownership complicated matters further. Mining output is therefore falling at a time of high prices.
As a result, overall growth in sub-Saharan Africa is now being held back by the sluggish growth performance of its largest economy, South Africa. We are not poised to share in our neighbours’ bonanza and South Africa’s share of economic activity in Africa is falling fast.
It is not too late to reverse this decline. But there is little evidence of the political will to do so. — Businessday.
Online Reporter