Africa’s growth12 min read

This is an essay that I have written for an economics essay competition, it does provide some good points, ideas and facts that are relevant to A level H2 economics.

Africa is well placed to achieve rapid and sustainable development. Do you agree?

Africa has the potential to achieve rapid and sustainable growth but there are many obstacles to be addressed first. Economic development depends on the country’s quantity and quality of resources namely land, labour, capital, entrepreneurship, and technology to be put to good use for rapid and sustainable growth. As a continent rich in natural resources such as petroleum and minerals, human resources and with many of its states enjoying strategic geographical locations that have untapped potential for trade. Yet Africa is also the continent with the poorest people due to mismanagement of resources, political corruption and civil wars.

The current economic sectors in Africa are not fully utilizing its available resources. Stiff competition from other developing countries can compound its difficulties in developing rapidly. 60 percent of African workers are employed by the agricultural sectors but are currently stuck with traditional farming methods involving a lot of manual labour, with about three-fifths of African farmers being subsistence farmers. Most farmers are poor and could not afford proper tools and sophisticated machineries to increase productions. Subsistence farms provide a source of food and a relatively small income for the family, but generally fail to produce enough to make re-investment possible. The remaining two-fifths of farmers tend to grow cash crops such as coffee, cotton, cocoa and rubber for exports. Farmers trapped in subsistence farming are not growing enough to earn more and achieve higher standard of living. Clearly, an agricultural revolution is needed to give African countries’ primary industry the head start it needs to grow. The governments of African states will need to invest a substantial amount of capital into farming technology, infrastructure and even research and development to improve the quantity and quality of their agricultural produce for export purposes. The sustainability of the growth also depends on it. Competing countries may impose tariffs on African exports and limit the growth of Africa’s export sector. They will impose high import tariffs and offer subsidies to their domestic farmers, suppressing global prices and threatens African Farmers to go out of business.

Africa’s development depends on harnessing the relevant technology for the growth of their industrial sectors. In modern years countries such as Brazil, which has experienced great progress in agricultural production, have agreed to share technology with Africa to greatly increase agricultural production in the continent to make it a more viable trade partner. The Africa-Brazil Agriculture Innovation Marketplace initiative started in 2010 has promised to engage in the exchange of research and farming innovations to benefit both parties. Increased investment in African agricultural technology the will greatly decrease poverty and increase employment in Africa. Africa definitely has the potential to be the food basket of the world, and this will level the playing field for African states with other countries in the global market.

Africa’s most valuable exports are minerals and petroleum and the proper management of these materials is Africa’s passport to rapid and sustained growth. The southern nations have large reserves of gold, diamond and copper. Petroleum is concentrated in Nigeria, Angola and its neighbors Libya. While mining and drilling produce most of Africa’s revenues each year, these industries only employ about two million people, a tiny fraction of the continent’s population of 922 million. The country itself is poor and not able to undertake capital-intensive projects such as large-scaled industrial mining.. Despite having such valuable raw materials, many are still untapped, Africa lacks the technology and capital to refine the resources, and manufacture goods from them. The country is now heavily dependent on other countries to help them with refining and manufacturing. Political instability has deterred many Multi-National Companies (MNC) from investing capital and technology in Africa. As such, this valuable minerals and petroleum resources also require strong stable governments with foresight to manage for Africa’s mining industries to grow.

Financial sectors in Africa further add the difficulties in sustaining rapid development. Banks in general channel savings for productive uses by lending out to businesses, for productive ventures. Unfortunately, banking and financial sectors in Africa has long been problematic, since local banks are often unstable and corrupt. This causes bank failures and loss of savings and public faith in financial sectors. In 2009, the illegal transfer of BEAC money by senior bank officials of the Bank of Central African States was a scandal that almost crippled the bank and battered its credibility with investors. As such local banking in Africa has lost its credibility, and businesses a source of funding for investments, which is a key for economic development.

Furthermore, African states have high unemployment rates and lack a skilled workforce due to poor education standard. As a result, many are stuck with low-income jobs and are unable to move up to higher income brackets. The tertiary sector in African countries is under developed. Lack of skills hinders productivity and affects output and development. High unemployment is a cost to the country in terms of lost output and social problems. Labour resources are untapped and not fully utilized for rapid development. Africa’s tertiary sectors’ sustainability depends on MNCs investments for job creation and improvements made in the education system.

Saharan African states are hindered in development by the scarcity of water and other vital resources. Water is a strategic resource that not only supports agriculture and life, it is also an important for industrial growth, trade and development of tertiary sectors such as tourism. Only Egypt has thrived due to the River Nile that runs through Egypt which enables it to produce crops and build Aswan Damp for recreational purposes. The Suez Canal in Egypt has allowed them to tax ships traveling through.  Other countries such as Mauritius are blessed with beautiful beaches and natural attraction like Victoria’s fall which attracts a large number of tourists. While other country that are along the coast have access to trade from other countries from other continent.

The social diaspora among the people in Sub-Saharan Africa also hinders the development engine. While many people in states like Kenya and Tanzania are mostly nomadic and are often averse to adopting modern ways because they consider them to threaten their traditional way of life, others want progress and higher standards of living that mirror developed nations. Many people of the bush are generally against the idea of development and progress along what they considered to be ways of the west and refuse to work in industries and even move to urban areas, while others in other parts of the country clamour for jobs, schools and hospitals to be built in their towns. For African state to move forward in terms of development, they would first have to address the divided opinions that the people have regarding development versus tradition.

It is a mistake to think that Africa is a homogenous continent, far from being a collective cluster of economies like Europe, Africa is made up of wealthier North African state like Morocco, Libya and Egypt which is close to the Mediterranean Sea and Europe. Oil rich state such as Gabon and Guinea also enjoy high development and income. These states co-exist with the poorer sub-Saharan tropical state like Congo, Burundi and Somalia often associated with famine, political strife and corruption. For Africa to achieve rapid and sustainable development would seem impossible by a stretch. Not only do they differ in development, they also differ in religion. North Africa and West Africa is mostly Islam, while southern and central Africa is mostly Christian, with some countries that are still mostly nomadic. The African states also speak different languages; it will not be very likely for them to develop as an integrated unit like ASEAN and European Union.

The most challenging obstacle to date for Africa to overcome is to set up a stable political system and environment that will make it attractive to foreign investors. By far, the complexity of Africa’s political situation can be blamed for poverty in Africa. Democracy has been unsuccessful in most of the African state as it has been suppressed by military dictatorship. Democratic elections although carried out have been mostly charades because most elected leaders end up using power for their benefit. As such the constant ousting of military dictatorship and elections of new leaders has created an inconsistent political environment. Within this environment, it is difficult for African states to sustain economic policies for a steady growth. Africa can sustain stable economic growth if like Asia it can curb domestic corruption, and focus on local investment. The African government should start to focus on local investment. The African governments need to start investing economic rent in local business, infrastructure and human development instead of keeping them for official’s personal gain. After all, capital flights in many sub-Saharan states have contributed to Africa being outplaced by Asia in development by 1980s. A stable government would also attract valuable foreign investment capital to boost the domestic manufacturing sector and increase employment rates and not to mention importing skills and technology from abroad.

Once a stable political environment is being set up it will be easier to attract MNCs into the country that will bring in investments and African nations will be able to learn the ropes from successful firms. MNCs will be attracted to African nation mainly because of its cheap labour. The goal of many firms is to maximize profits and this could be done by reducing cost of production and Africa currency happens to be low and this will attract MNCs to start a factory to earn more profits. This will create more job opportunity for the people and income tax can be incurred to gain revenue. With a none corrupt government, the government will rechannel the funds back into the country through improving infrastructure, healthcare, education and many other facility. This will become a virtuous cycle as better facilities will attract more MNCs into the country. Tax holidays for MNCs will be able to attract MNCs as this will allow the worker to be more skilled. Also the government has to ensure that the workforce is disciplined and will not disrupt economic activities. The power of trade unions have to be managed to collaboration with the state government, to ensure the workforce is disciplined, content and productive.

Social problems such as crime and civil and tribal disputes have to be addressed, before development can take flight. High crime rates, lawlessness and inter-tribal feuds deter MNCs from investing. Civil unrest and ethnic cleansing has caused high death rates, and bring all economic activities to a grinding halt. In 1994, Rwanda wars rocked by ethnic conflicts that were fought between the Hutu and Tutsi people. This has caused a toll of about 800000 people in 100 days. With such violence, MNCs will be reluctant to invest in the country. Singapore has low crime rates and many racial and religious groups co-exist harmoniously, Singapore has become a hub for investors and has thrived as a result. If Africa is able to achieve social stability, it will become the success story of development in the 21st century.

Once rapid development has been achieved, the next challenge is to maintain it.

The obstacle Africa is going to face is the increase in African currency due to development. It is inevitable that a country’s currency increases due to development. Once currency increases, Africa will lose its main attraction to MNCs-cheap labour. This will cause a loss in revenue for a country, as MNCs would rather invest in country with cheaper labour such as China and India. Another obstacle is that they run out of raw materials, there is a finite amount of mineral that can be obtained from the land, once it has run out, African nations will lose the main source of its income, affecting the country’s economy heavily.

The last problem will be coping with pollution of industrial activities when MNCs set their factories up. Pollution will cause the country’s environment to be destroyed and cause the sanctuaries and natural beauty of the country to be destroyed. This will cause a loss of revenue from tourism, also global warming has caused the Aswan Damp to dry up as water level has begun to decrease and has reached its all-time low. Pollution will also affect the local’s health, making them ill thus reducing productivity.

In order to achieve sustainable growth, Africa has to diversify its economy before it runs out of resources. Africa has to educate its people and shift from secondary based economy to more tertiary based economy to export services rather than manufacturing goods, farming and mining. This will enable the country to have a new source of income for the country. The next problem is to help to set up local firms and not be too heavily dependent on MNCs, once price of labour in African country increases, MNCs will lose interest, leaving many people unemployed. The jobs will then have to come from local firms to meet the demand of jobs. Also the government has to pass policy to make sure that the factories install filter system and not emit their waste into water bodies to pollute the water supply to protect attractions such as beaches, Aswan Dam and Victoria Falls. Furthermore abandoned mines can also be turned into a recreational Centre as another attraction for tourists. For instance in Malaysia, Kuala Lumpur the abandoned iron mine was turned into Sunway lagoon and it has brought back huge returns for the country and has helped sustain development as revenue was loss from export of iron.

Africa should exploit its comparative advantage in its natural resources endowments, its proximity to Europe, Middle East and Asia, as well as its cheap labour force to engage in production of goods and services at lower cost than her competitors. This will ensure that African state have a sustained source of revenue.

In conclusion Africa has the potential to achieve sustainable and rapid development, if and only if the following criterion meets. Firstly, measures have to be taken to resolve the problems that Africa is currently facing. Secondly, Africa should become an integrated unit, the more developed African nation should help those that are struggling to keep up with the pace of development. Lastly, other countries should help by investing capital and sign free trade agreements with Africa. Therefore it is possible for Africa to develop.

Written by: Kenneth

Sources:

^The global remittances boom: billions pour into Africa

^Though making ‘very good progress,’ Africa still faces challenges, says UN official

^The global remittances boom: billions pour into Africa

http://www.economist.com/node/21541015

^http://www.economist.com/node/21541015

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