Economic strategies for Africa
Paul Collier - World Bank/Centre for Study of African Economies and Michael Holman, Former Director, Africa, Financial Times
Hugh Bailey MP
- Paul Collier spoke to his paper, 'Primary Commodity Dependence and Africa's Future'. He defined a (not the only) key question in Africa as being how to get growth going. At heart, this meant how to make a market economy work. There was no future for Africa in a socialist model, nor in a model which depended on subsistence agriculture or import substituting industrialisation. The African market was small, and it would have to look outwards for growth. At present, however, Africa was "stuck" in primary commodity dependence. For the developing world as a whole, 80% of exports were manufactures and 20% primary commodities, but for Africa the reverse was true.
- There were three big disadvantages to dependence on primary commodities. The markets were very prone to large shocks. Primary commodity dependence tended to be associated with poor governance (this was because governments became dependent on taxing export sectors and lost the connection with the electorate). And, thirdly, primary commodity-dependent countries were very prone to conflict. Africa, therefore, needed to diversify.
- It was important to ask why Africa had not industrialised. Some explanations stressed factor endowment, but Paul Collier rejected these - Indonesia was an example of a country with large natural resource endowments but which had industrialised successfully. Some explanations stressed the sufficiency of manufacturing capacity in the world, but he also disagreed here: Africa had some good manufacturing locations, for example the west coast of Africa. Paul Collier's own explanation was that a poor investment climate raised the cost of doing business in Africa, especially in transaction-intensive sectors like manufacturing and agricultural processing. It was for this reason that agriculture, which had low transactions content, tended to be where Africa specialised. However, it was also true that the service sector had low transactions and had potential for Africa. It was important to note that Africa had the highest cost of doing business in the world.
- What then were the future scenarios? If the policy climate could be improved, but only a little, then the comparative advantage would remain in agriculture and services. Agriculture was not a road to rapid growth, but there was scope for services; in fact this was the main long-term prospect for land-locked economies. There were some requirements, however, particularly good telecommunications and good tertiary education. With stronger reform, it would be possible to bring down the cost of manufacturing. There was particular potential in coastal countries. However, it was important to pay quite detailed attention to port efficiency, telecommunications, electricity supply, water, and roads. None of these worked efficiently at present. One option was to start locally with export promotion zones in which good infrastructure and service provision could be guaranteed.
- For the G8 Agenda, Paul Collier suggested three items:
- Making sure that the environment for primary commodities was more "liveable", by providing compensation for price shocks and by increasing the transparency with which taxation was paid to government;
- Providing temporary preferential market access (similar to that provided under the US American Growth and Opportunities Act (AGOA)); and
- Providing more aid as budget support rather than through projects.
- Michael Holman acted as discussant. He was pessimistic about some of the avenues sketched by Paul Collier. Many countries still had a lower GDP than at independence (for example, Uganda, a "success story" cited by Paul Collier). He thought it was important to understand exactly why Africa had not developed in the same way as Asian countries, for example South Korea or Indonesia, and noted that this question had not been addressed so far.
- He then turned to the question of growth prospects for Africa. There was indeed a problem with management capacity, and with African self-confidence, but he thought that there were three key areas of action: (a) land reform, (b) telecommunications, and (c) a shift in culture in which Africans were not patronised, and all parties, including the donors, accepted their responsibility for the abysmal economic performance of the continent.
- A number of issues were raised in discussion:
- Some speakers emphasised the importance of agriculture and rural development in growth trajectories for Africa. The position was not as bad as Paul Collier had suggested. For example, work in Rwanda, building on insights by John Mellor, suggested that a virtuous circle of poverty reduction could be set in motion through investment in agricultural productivity.
- Another speaker pointed out, however, that as agriculture developed, it became increasingly "transations-rich", in the sense described by Paul Collier. For example, in West Africa, population had increased enormously and food needs were largely being met by local suppliers. They needed roads, marketing systems, input services, and the like, in the same way as industry or agricultural processing.
- The emphasis on budget support at the expense of projects was questioned. In the end, producers in Africa needed infrastructure and services, and this meant projects, whether funded by government or donors.
- External constraints to African development were emphasised by many speakers. Agricultural protection was the most frequently mentioned constraint. Paul Collier noted in reply to a question that the World Bank had put trade liberalisation very high on its analysis and advocacy agenda.
- Other factors mentioned with an important external element were conflict and corruption in Africa.
- The comparison between Africa and east Asia was discussed. An example was the difference between Nigeria and Indonesia. Both were oil economies. In Nigeria, this had let to currency appreciation and dutch disease. In Indonesia, by contrast, the government had realised that its manufacturing costs were high and had worked determinedly to bring down the exchange rate. As a result, it had industrialised.
- The role of the World Bank and other donors was noted, by some, as an impediment to progress. However, Paul Collier made a point of praising DFID in particular, for its leadership on the Millennium Development Goals, PRSPs, and better programme aid and budget support.
This event is a discussion on how do overall economic strategies impact on poverty, inequality, opennessm, sectoral priorities and what the prospects for agricultural-led growth and rural development are.