Has Africa really turned the corner?

by on March 26, 2012 at 7:30 am in Economics | Permalink

The paper shows that between 1975 and 2005 the size, diversity and sophistication of industry in Africa have all declined.

That is from a recent study by John Page, gated version here.  The growth has come largely through commodities.

Hat tip goes to @ClaireMelamed.

Mike Huben March 26, 2012 at 7:41 am

Isn’t this what we should expect from free trade being forced upon African nations?

Cliff March 26, 2012 at 10:12 am

No

UnlearningEcon March 26, 2012 at 12:32 pm

Of course not Mike. Factories in developed nations produce factories elsewhere. Global supply chains are never asymmetric.

ohwilleke March 26, 2012 at 6:09 pm

It has far more to do with the matter of decolonialization being horribly botched giving rise to decades of political instability, war and general mismanagement by whomever managed to be in power. Issues like free trade simply don’t figure into the equation until issues like ongoing wars, complete political system failure, kleptocracy, and widespread illiteracy are addressed.

Many of these nations, despite having been part of global trade networks during the colonial era and before the colonial era, and then afterwards, through economic ties to former colonial powers. These countries also have no governmental bureaucrarcy sufficiently efficient to provide a meaningful barrier to black market smuggling of any kind at a grass roots, small-medium sized business level, regardless of official customs and tariff policies (cf. Afghanistan’s opium export based economy with a similarly impotent set of customs/tariff barriers). Limits on exports don’t matter much in countries with $37 per capita (on average) of manufacturing production, some of which is for domestic consumption. Limits on imports don’t matter much in countries when large percentages of the population of subsistance farmers and herders or slum dwellers in sprawling megacities who are barely able to afford to eat and most people don’t even have latrines, let alone indoor plumbing.

These nations look bad even compared to countries like North Korea and Cold War Albania that deliberately severed their trade ties to the outside world in favor of dictatorial economic planning and autarky. A constant problem for Africa is that outside development economists try to foist economic issues that are meaningful at home on economies where those issues are irrelevant. In regions full of subsistance farmers and share croppers who are part of village barter networks, monetary policy is irrelevant (FWIW, most of West Africa and Central Africa’s economy operates on a multinational currency tied originally the the French Franc and now to the Euro at a fixed rate). These are nations that are having a hard time pulling themselves up by their bootstraps because most people are barefoot as a matter of economic necessity.

It is hard to run a factory in a country where the power is out one day out of four and the next ruler is likely to be the guy who shot the current one. One African lawyer I know reminds us of the basics: in an American court, the judge is not going to order you to be shot no matter what you say or who you represent.

So Much For Subtlety March 26, 2012 at 11:01 pm

In what sense was decolonisation horribly botched? It did what it was supposed to do – gave power to a tiny number of vocal and armed political radicals. What was the alternative precisely?

I am unconvinced that it gave rise to decades of political instability either. Places like Zaire were politically stable for decades. It has been since the end of the Cold War that serious instability has set in. On-going wars, of which there have been few, and kleptocracies make free trade even more critical than before. In fact the former usually results in a default to free trade – even in the West as you see with Black Markets. While the latter is limited the more free trade is.

It is a mistake to think that the bureaucracy African states have is not sufficient to place large impediments in the way of free trade. And if you think otherwise I warmly encourage you to go to Africa and try to import something. Small, valuable, commodities such as heroin aside. Limits on exports matter a great deal when they are used to force, for instance, cocoa growers to sell their produce to the State which pushes down the prices farmers get for it to maximise the opportunity for corruption officials gain. Of course limits on imports matter when they are that poor. As with exports, such limits probably matter more than they would in the West. Go there. Ask.

In what way do these countries look bad compared to North Korea? North Korea may have recently starved a tenth of its population to death. Which African country has come close in recent times?

Much of French Africa is tied to the Franc and now the Euro in a way that benefits French exports. I think that monetary policy does matter for such poor farmers as they can never export at a realistic rate. That matters.

It is true that the infrastructure is so weak that it is hard to know where to start. But giving the State a monopoly on power generation is probably not the way to go if you want to fix it. Nor is banning imports of better generating capacity unless the Minister’s cousin is paid off.

Paul Rain March 28, 2012 at 2:22 am

North Korea is full of smart people who would be quite capable of rapid industrialization at a trajectory similar to, if a little retarded by poor education, that which the South previously followed. South Korea had some pretty tyrannical rulers too- didn’t hurt them.

Tim Worstall March 26, 2012 at 8:06 am

I wouldn’t say that I was entirely convinced. Starting the measurement at the peak of the import substitution madness seems rather odd.

It can easily be argued that Africa really doesn’t need 54 iron works (I exaggerate, but that was one of the things that every newly independent country thought it needed) and that having 10 or 15 regional ones might be a better idea.

But by the measuring stick being used this is a reduction in industrialisation, even if a good idea in itself. Just as, by this measuring stick, regional specialisation would be a reduction in industry even if that were also desirable.

ohwilleke March 26, 2012 at 6:17 pm

It is one thing to be post-industrial in the sense of moving on to a focus on service production at a point where you produce enough goods to let everyone live in abundance by global standards. But, when reduced industrialization means going from making something with local resources, to making nothing with local resources whatsoever, the worm turns.

One can’t even begin to think meaningfully about how many iron works you need, until you have an economy where people are engaging in some sort of substantial value added economic activity. There are Iowa counties that have more agricultural production than entire African countries. The entire industrial sector of some African countries would almost qualify for an SBA loan. One can imagine a scenario where less industrialization in Africa could be a good thing, but none of those scenarios remotely resemble the last thirty years of the Subsaharan African economy.

ElamBend March 26, 2012 at 10:39 am

I’d love to know what the result would be if you excluded South Africa and then South Africa and Zimbabwe combined. Mostly because I am assuming that I large amount of de-industrialization occurred there, in comparison to the rest of the continent. (of course, both were and are significantly more industrialized than other areas)

Ronald Brak March 26, 2012 at 11:52 am

That’s an odd thing to assume. The stituation in South Africa and Zimbabwe are poles apart. South Africa has averaged a modest 1.8% growth per capita over the past 18 years while Zimbabwe’s economy has shrunk by perhaps 40% since 1990. Currently the average income in South Africa is about 15 times higher than in Zimbabwe.

Paul Rain March 28, 2012 at 2:25 am

Yeah, it is handy for the present mob that rule South Africa that their lucrative mineral export business isn’t constrained by the same sanctions that the previous limited democracy faced. If Southern Rhodesia was sitting on the same pile of gold easily converted into gold-plated Mercs for the country’s dictator, then the ‘Zimbabwean’ economy would be following the same slow-brain drain pattern as South Africa.

wiki March 26, 2012 at 10:53 am

+1 for ElamBend

Wake me up when an African nation achieves Korean style 8-9% growth for over two decades or achieves the equivalent in 30 years time. Until then, it’s just fishing for less depressing news.

Ronald Brak March 26, 2012 at 11:59 am

Wake up! Botswana averaged 9% growth for 33 years from 1966 to 1999.

Rahul March 26, 2012 at 12:14 pm

How do they quantitatively measure industrial “sophistication”?

Aaron March 26, 2012 at 12:30 pm

From the paper: In this work the degree of sophistication of a product or export is measured by the per capita incomes of the countries that ‘intensively’ produce (export) it. If mostly high-income countries produce (export) a product, the income level associated with the product is high and the product is classified as sophisticated. Products mainly produced (exported) by low-income countries are classified as unsophisticated. Developing countries that produce and export a high proportion of products that are mainly produced by richer economies grow faster.

Maybe try reading somethign before asking

jva March 26, 2012 at 12:25 pm

Summary is not the same as paper.

Summary:
The paper shows that between 1975 and 2005 the size, diversity and sophistication of industry in Africa have all declined.

Paper:
Between 1975 and 2005, the sophistication of the manufacturing sector in 16 of the 18 African economies in the UNIDO database declined, *relative to predicted values*.

The Other Jim March 26, 2012 at 12:37 pm

There you go, wrecking a perfectly good study by reading it.

Next you’ll tell me that “US Federal budget cuts” means “relative to the huge increase we were planning on.”

libert March 26, 2012 at 2:00 pm

The CBO baseline is current spending plus inflation; that is, constant spending in real dollars. In order for a budget to to get counted as a spending cut, it has to cut the budget in real dollars. The assertion to the contrary is a distortion that unfortunately keeps getting spread throughout the blogosphere.

JWatts March 26, 2012 at 5:06 pm

“The CBO baseline is current spending plus inflation; that is, constant spending in real dollars.”

That’s malarky. CBO baseline is based upon previously passed budgets. It is not based on current spending plus inflation.

From the CBO:

“Each year, the Congressional Budget Office (CBO) issues baseline projections of federal spending and revenues for the following 10 years. Those projections are not intended as a
forecast of future outcomes; rather, they are estimates of spending and revenues under the laws that are in effect at that time and are designed to provide a benchmark against which
to measure future policy changes.”

http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/121xx/doc12187/changesbaselineprojections.pdf

You are the person propagating a distortion.

NAME REDACTED March 26, 2012 at 5:12 pm

That is incorrect.

Marian Tupy March 26, 2012 at 4:33 pm

Over the last few years, I have grown more optimistic about the general trends in Africa (at least the Anglophone bit, which I know better than the rest). According to a well-known report “What’s driving Africa’s growth” that was published by McKinsey in 2010, “resources accounted for only about a third of …[Africa’s] newfound growth. The rest resulted from internal structural changes that have spurred the broader domestic economy.” Those structural changes included:
• Reduction of inflation from an average of 22 percent in the 1990s to 8 percent in 2000s.
• Reduction of foreign debt by one third.
• Reduction of budget deficit by two-thirds.
• Improvement of the business environment.
• Privatization of (some) parastatals.
• Reduction of corporate taxes.
• Reduction of barriers to trade.
• Improvement of the legal environment.
Furthermore, Africa has been improving (albeit slowly and gradually) on the Fraser Institute’s Economic Freedom Index and on the World Bank’s Doing Business report. Anecdotal evidence seems to suggest that Africans are finally becoming serious about trade liberalization (SACU, EAC, COMESA) and massive expansion of Western companies (GE and Coke have recently opened large new HQs in East Africa) will help with expertise, better business practices, etc. Fingers crossed.

Steve Sailer March 26, 2012 at 5:37 pm

I’ve been tracking the “Made in” label on my shirt collars for a third of a century to see who is getting their foot on the traditional first rung of the industrial ladder. They used to say Made in Hong Kong or Made in Singapore. Now, I see some shirts made in various African countries, which is good.

On the other hand, China is so dominant in so much that it’s hard to get started these days.

So Much For Subtlety March 26, 2012 at 7:48 pm

At least some of this – if it is happening at all – will be the decline of Zimbabwe. But a lot more will probably be the rise of China. Africa used to have factories that relocated to take advantage of preferential access to the American market. The labor was cheap, but not very productive. A lot of those factories have relocated to China where labor is more expensive but a lot more productive.

Now Chinese wages are too high so some of those factories will be re-locating. I wonder if they will go to Africa? I would opt for Vietnam myself. Maybe even Cambodia. But who knows.

Ronald Brak March 26, 2012 at 10:02 pm

Just because Africa has reduced the size, diversity, and sophistication of manufacturing like Australia has doesn’t mean that the continent will follow Australia’s economic success. So I won’t suggest that this paper is evidence that Africa has turned the corner, I consider it more neutral.

Hans March 27, 2012 at 1:53 am

jva makes a good point above.

Another issue is the choice of date ranges. Around the 1980s, many African countries were pushing an import substitution industrialization policy, which superficially would have pushed up the metrics being studied in the paper, but ended up collapsing in debt.

Steve Sailer March 27, 2012 at 3:39 am

Traditionally in Africa, women do the majority of the work. So, that’s a metric to watch. If we see men in Africa taking on more of the load, that’s either a sign of progress, or of Africa bumping up against the Malthusian limits that pushed men into being good providers in most other agricultural civilizations.

Tmex12 March 27, 2012 at 7:33 am

Women do majority of the work?

Steve Sailer….racist twit

Contemplationist March 27, 2012 at 1:37 pm

Tmex12 – proud commissar and idiot

Jim March 27, 2012 at 11:13 am

The average IQ in Sub-Saharan Africa is about 70. End of story.

Ronald Brak March 27, 2012 at 11:22 pm

No, not the end of story at all. Impoverished people tend to have lower IQs, but all rich regions of the world were at one time impoverished and presumably had lower IQs. Jelte M. Wicherts et al have an estimate of an average IQ of 82 for sub-Saharan Africa. Lyn & Vanhanen came up with an average IQ of 81 in 2002 in India. India has 8+% growth and on average sub-Sarharan Africa has 5+% growth, so there doesn’t seem to be much of a relationship between IQ and economic growth. (Note there’s usually a lot of variation in estimates of average IQ for regions in the non-rich world.)

Paul Rain March 28, 2012 at 2:34 am

Um.. yeah, that’s one pretty sophisticated model. Think you could stretch to oh, maybe two whole factors? Obviously, countries like North Korea fail to achieve insane economic growth only because of their failed economic system. Even quite nice places like Argentina can be ruined by mob-rule-driven economic systems. By the same token, a British-Australasian force could invade Southern Rhodesia tomorrow and institute a rational economic system, and it’d still be a failure. Any country in Africa without a mineral resource only abundant in that particular country will always be dirt poor relative to European and East Asian countries.. that’s just common sense.

Ronald Brak March 28, 2012 at 10:04 am

I’m somewhat impervious to common sense. Why are African countries without an abundant mineral resource doomed to always be relatively dirt poor when being resource poor didn’t stop countries such as Japan, South Korea, and Taiwan becoming relatively rich?

Jim March 27, 2012 at 12:09 pm

To Tmext12 – Personal vituperation does not constitute a rational argument.

Chris Durnell March 27, 2012 at 6:09 pm

What immediately comes to mind is what were these previous industrial complexes and why do they no longer exist? In the early 1970s, when there was still a commodity boom but before oil prices really escalated, many African countries used the proceeds of its commodity exports to support a large number of uncompetitive “industrial” complexes. The net result was the destruction of wealth as it denied the private sector agricultural producers their profits, and used it to fund state indutries which did not provide anything of equal value. This was the result of “African socialism”. In this case, the “decline” of industry is probably a good thing for Africa as it means less wealth is being destroyed.

On the other hand, if there were competitive industries in Africa that used to exist, but don’t anymore, then this is a bad thing. Then again, this is probably because countries of Asia have developed better – Africa’s loss is Asia’s gain.

The only thing I can think of that might be the cause of the West is the preponderance of aid! I believe Africa used to have a textile industry, but the arrival of so many discarded clothes from the West from charities has effectively destroyed it. In which case, the best solution is for the West to stop “helping” Africa (except for humanitarian disaster relief where the issue is death from starvation, and even here it’s important to act carefully lest you displace indigenous agriculture).

Probably the best thing we can do is to stop “helping” Africa, especially the worst countries. Instead, look to the few African success stories (South Africa, Botswana most of all, with a few others in West Africa or East Africa that generally do well but have their ups and downs like Kenya) and ask them what are the obstacles preventing them from doing better (or potential perils) and what can we do to remove those obstacles (instead of providing “positive” assistance). Once there are enough examples of African success, it’ll be obvious to everyone what works and what doesn’t, and the kleptocrats who have impoverished their countries won’t have many excuses. And Africa can finally find the areas of their competitive advantage. With China and Asia industrializing and placing themselves out of the marketplace, Africa will eventually be able to benefit from the move of industries provided they can establish the rule of law, end corruption, and provide decent public infrastrcture and basic education.

Jim March 28, 2012 at 10:33 am

To Paul Rain – What abundant mineral resources does Japan possess? Sub-Saharan Africa has lagged way behind the rest of the world for thousands of years. Black African descended populations all over the world are generally at the bottom of the societies in which they live in SES. In contrast East Asian descended populations are nearly always near the top even when they are very tiny minorities.
Human populations are the result of very diverse and complex evolutionary histories. These evolutionary histories involve in addition to the selective forces of different environments a high degree of randomness. Recent research indicates also a significant amount of genetic introgression from non-sapient populations. As much as 15% of the genome of Sub-Saharan Africans may be the result of non-sapient introgression.

The US educational system has spent lavish funds on education for many decades. The result of this experience has shown that different racial and ethnic groups vary greatly in their average capacity to learn. Blacks are generally difficult to educate while East Asians are easy.

In the middle of the 19th century the Japanese discovered that they were hundreds of years behind Europeans in science and technology. They learned Western science and technology within an astoundingly short time. Black cultures existed alongside the boundaries of Ancient Egypt, the Roman and Byzantine Empires for thousands or years and picked up almost nothing.

Ronald Brak March 28, 2012 at 11:24 pm

Jim, do you think there is a genetic reason why some regions are poorer than others? If so, which gene alleles do you think are responsible, what are their correlations with IQ or other measures, and what is their distribution? I’ll be interested if you have any solid canidates for as far as I am aware, despite all the research that has been done into the human genome, no one has come up with anything yet.

Jim March 29, 2012 at 9:30 am

Ronald,
The comment I just submitted didn’t go through so I will try again.

The only plausible explaination for the profound intellectual and psychological differences between human populations is genetic. If I were to make a list of the top 1000 mathematicians of the twentieth century 30-40% would be Ashekenazi Jews an extremally small proportion of the world’s population. I doubt that this is caused by their wearing funny skullcaps and eating Gefilte fish.

Some truths hit you in the face.

Ronald Brak March 29, 2012 at 9:43 pm

Looking further into this, I see that children in a region of Kenya increased IQ by 11 points from 1984 to 1998. Obviously this is too rapid to be the result of genetic change.

http://www.thefreelibrary.com/IQ+gains+may+reach+rural+Kenya%27s+kids.+(Harvesting+Intelligence).-a0102275178

Ronald Brak March 29, 2012 at 8:55 pm

Jim, we know that IQ differences between people in sub-Saharan Africa and rich nations are either not due to genetics, or that the genetic component is small. Three simple examples demonstrate this. Firstly, in the US the gap in IQ between people of sub-Saharan ancestry and the general population has been closing too rapidly to be accounted for by genetic change. Secondly, in the US much of the gap disapears for children of sub-Saharan ancestry adopted by Americans of European ancestry. Thirdly, people from Jamaica of sub-Saharan ancestry in the UK have IQs over 20 points higher than people of sub-Saharan ancestry in Jamaica. And finally we know that malnutrition, iodine deficiency, aneamia, parasites, and disease can all reduce IQ and are prevalent in sub-Saharan Africa.

Jim March 30, 2012 at 9:53 am

US blacks produce many of the best athletes in the world and they are on average bigger and taller than whites and other groups so I don’t think that malnutrition plays much role in the US. Throughout history food has generally been abundant in Sub-Saharan Africa. Nevertheless Black African cultural achievements are meager not only in comparison with Eurasian populations but also in comparison with Amerindian cultures. Historically Northern Europe has been much more subject to famine than Sub-Saharan African but cultural achievements in Northern Europe have been far higher for many thousands of years.
Virtually all accounts of travelors both European and Arab of Sub-Saharan Africans remark on their lack of intelligence. On the other hand virtually nobody – Indians, Persians, Europeans, Arabs who encountered the Han Chinese has not been impressed in fact generally stunned.
East Asians have produced some of the greatest civilizations on Earth since at least the Shang Dynasty.
Racial groups differ not only in intelligence but also in many other personality traits. Rates of Black crime in the US compared with whites and Asians are simply stunning. I work for a company which is owned by Han Chinese and we have many Han Chinese employees including many from Mainland China. They are virtually a different species from US blacks. I have observed how similar they are to each other and how consistenly they differ from whites and particularly blacks. I have known Han Chinese born near the Mongolian border and others born in Vietnam. One women I met had been a Vietnamese boat person . She told me stories of being attacked by pirates and how her family had lived as refugees in Thailand trucked from camp to camp and treated like dirt by the Thai soldiers.
I met another lady who grew up in Manchuria under Mao and she told me stories of how the Red Guards had invaded her home when she was a child and taken every possession of any value her family had. She was just about to be sent into the countryside when Mao died and Deng Xiaoping ended this program.
Despite their difficult and povertystricken childhoods both of these ladies were typical Han Chinese – intelligent, industrious, conscientious,
ambitious, non-individualistic. The same basic Han Chinese personality showing up consistently in people some born in Singapore on the equator and others born far to the northeast of Beijing near the Mongolian border but much more similar to each other than to the Malays,
Filipinos and other South East Asians.
In the US Ashkenazi Jews and European descended gentiles differ only trivially in environment and culture but the average difference in intelligence and personality is striking. This is true whether we are talking of religious or completely secular Ashkenazi. I think it is ludicrous to believe that these profound difference do not have a genetic basis.

Ronald Brak March 30, 2012 at 11:02 pm

Jim, do you understand that an 11 point change in IQ over a 14 year period cannot be the result of genetics, as genetic change does not occur that fast?

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