African Economic Development: Opportunities And Challenges On The Way

Introduction

The following essay takes as a departure point the article “The path to economic development is growing more treacherous, again”, published on The Economist, to analyse whether the way to economic development is, in fact, becoming more “treacherous”, i.e. more difficult, unpredictable or even deceptive.

So, what is economic development? It is “the process whereby simple, low-income national economies are transformed into modern industrial economies”. Such process typically entails improvements in availability and quality of housing, average life expectancy, rate of literacy of the population, environmental standards, access to healthcare services and, finally, income per capita. The article claims that economic development is usually built on industrialization accompanied by the opening up of the country’s or region’s borders to trade and the development of industries that allow for exports. In addition to this, other ways to foster development, albeit more limited, include the export of business services or the exploration of natural resources.

Developing nations have benefited tremendously from global supply chains, by offering low-wage labour and proximity to big markets. These characteristics make them very appealing for foreign companies, who, by building plants there, drive their industrial development. While this has led to a huge development in Eastern Asia, the author of the article suggests that the tendency towards wage increases in that region will possibly lead manufacturers to turn to Africa. This will depend on the wage gap being big enough to compensate for poor infrastructure and low productivity in this continent. Africa also comes with other challenges, such as its unreliable and, often times, corrupt governments, the subpar education system and the barriers to trade and migration.

As the article presents Africa as being a region that will possibly face major economic development in the future, some of the African challenges presented in that article will be further explored in this essay to answer the question introduced earlier. Further sources will also be analysed.

Corruption

Corruption has been one of the major obstacles to economic development in this region, allowing, among other things, for inefficiency to persist. Bureaucrats and other public officials, by way of briberies, embezzlement, extortion and others, often allow very important projects for economic development to operate at minimum capacity or even be abandoned. In the article “Corruption in Africa South of the Sahara: Bureaucratic Facilitator or Handicap to Development?”, Okori Uneke mentions that Nigeria possesses four oil refineries but, because of negligence and very low levels of maintenance, such refineries are barely functional, and some have even been abandoned. Consequently, Nigeria imports refined oil products, even though it is the sixth largest exporter of oil in the world. The author states that this happened because important resources are diverted to other projects that merely serve the interests of some elites, while other important projects, such as highways, industrial factories or dams, are discarded. These projects would be essential, for example, to improve transportation means or the infrastructure available, therefore facilitating trade within the continent, but because they are abandoned or operate at minimum levels of capacity, they end up not contributing to the development of this continent, which has tremendous potential.

Education System

“Give a man a fish and he will eat for a day. Teach a man to fish and he will eat for a lifetime.” This sentence said by Laozi (Chinese writer and philosopher of ancient times) perfectly illustrates the idea that education is an important and powerful tool when it comes to the economic development of a country, as it provides people with skills that are essential to perform a certain job and make a living out of it.

Even though the importance of education is a widely accepted fact, according to a 2018 World Bank Report, about 50 million children in Africa don’t attend school. In addition to this, the report also shows that learning levels are severely low: among second grade students tested on basic maths in various Sub-Saharan African countries, 75 percent could not count beyond the number 80 and 40 percent could not do a one-digit addition problem. As for reading, between 50 and 80 percent of children in second grade could not answer any question based on a short passage they had read, and a large proportion could not read at all. Some reasons given for this are that classes often have too many students and there is a lack of consistent policies in regard to the language of instruction. Another major problem is that the curriculum is not tailored to the current situation of African society, with some materials used to teach in Sub Saharan Africa dating back to the 1970s.

Furthermore, it is crucial to invest in university education to foster further economic development and growth. Kwabena Gyimah-Brempong, an Economics professor at the University of South Florida, found that “higher education may create greater tax revenue, increase savings and investment, and lead to a more entrepreneurial and civic society. It can also improve a nation’s health, contribute to reduced population growth, improve technology, and strengthen governance.” He also mentions India as an example of an economy that was able to become a global player through its “decades-long successful efforts to provide high-quality, technically oriented tertiary education to a significant number of its citizens”.

Barriers to Migration and Trade

When it comes to migration, Africans still face tremendous difficulties if they want to pursue opportunities outside of their country, especially if it is within the continent. The same applies to non-Africans wanting to settle in Africa.

A study involving multinational companies operating in seventeen African countries has looked at the migration constraints within Africa. These involve visa requirements (the Democratic Republic of the Congo, for instance, requires different visas for entry, exit and for working establishment, which the surveyed companies found too demanding and time-consuming), quotas (some African countries have established quotas for foreign workers – maximum 10% in Gabon, for example – which the companies believe to be “unnecessarily prohibitive” and hurt the supply of talent available to them), national procedures (applying for, processing and renewing visas and work permits were considered to be too difficult and troublesome, often due to the lack of organization and high fees imposed by the offices responsible for these procedures) and the lack of skills and/or staff in migration offices.

Regarding barriers to trade, these exist for trade within and outside of Africa. As per Valentine Rugwabiza, Deputy Director-General of the WTO until 2013, such barriers make Africa one of the most expensive regions to conduct business with. Inside Africa, these barriers are mainly non-tariff based and make it extremely costly to engage in trading activities, due to the import permits and other documents required. According to Rugwabiza, Shoprite Pty Ltd, a South African food retailer, spends approximately 20,000 USD a week to obtain import permits to distribute its products to Zambian stores, with the number of documents reaching 1,600 for some of the retailer’s trucks crossing SADC (Southern African Development Community) borders. As for barriers to trade outside Africa, these come in the form of strict regulations meant to protect consumers against health hazards, which most African countries are not able to meet due to resource and technical constraints. For example, according to studies conducted in Kenya, farmers would need to increase their spending tremendously to meet EU health and safety standards. This has led to the accusation that the EU uses such regulations as protectionist measures, as it sometimes uses regulations that are stricter than the international standards.

A Turning Point for African Economic Development?

As it was mentioned earlier in the essay, in the past, the path to economic development has typically relied on industrialization, especially manufacturing. However, this may be changing, especially for African countries.

African economies have been developing and growing at an unprecedented rate for some time now, but what puzzles researchers and academics is that this growth and development doesn’t seem to be related with industrialization. As a matter of fact, manufacturing in Africa appears to be stagnated, with its contribution towards GDP remaining approximately the same since the 1970s. As such, how can we explain African economic development? According to the book “Industries Without Smokestacks: Industrialization in Africa Reconsidered”, it can be explained by the development of sectors such as agro-industry and horticulture, tourism, and business trade and services, which are some of the most rapidly growing sectors of the global economy and are very important to various African countries. Ethiopia, for example, has become an important global player in the flower export market. Other horticultural goods such as fruit and vegetables could also be a viable option; however, the strict regulations imposed by developed countries when it comes to food products remains an obstacle. South Africa, for instance, is very important in the tourism sector of Africa, with 36 percent of jobs connected to the food and beverage industry of the country being directly related with tourism. Other African countries which rely strongly on tourism are Rwanda and Tanzania.

Over all, the growth of services exports and services trade in general has been crucial for the growth of Africa. This is so mainly because this continent has many landlocked countries (sovereign countries entirely surrounded by land, or whose only coastlines are located next to closed seas), which means that the transportation costs of physical goods would severely increase export costs, unlike what happens with the export of services.

Conclusions & Implications for Global Business

Regarding the challenges explored in this essay, there is no doubt that they are hindering African economic development, keeping Africa out of the global market. In fact, fighting challenges like corruption or the poor education system requires large investments and deep structural reforms, which is difficult given the high levels of debt across many African countries, namely Mozambique (public debt accounts for more than 200 percent of GDP) and Ghana (public debt corresponding to 120 percent of GDP). We can also find challenges outside the continent’s control, namely the strict regulations imposed by the EU regarding African goods, which some consider to be a way to protect trade among EU nations. For instance, before there was a European free trade area, the United Kingdom mainly imported canned peaches from South Africa; after that, it started importing those goods from Southern European countries. As for barriers to migration, these are still quite limiting for Africans; furthermore, such barriers have also been prejudicial for companies operating in Africa, as overcoming them proves costly, time-consuming and keeps them from attracting foreign talent or conducting intra-corporate transfers.

So, I believe that the path to economic development is, in fact, becoming more treacherous for Africa. However, although facing a more difficult and unreliable path, Africa is working its way to bypass some of the challenges it faces. It has done so not by developing its manufacturing sector, as economists would expect, but by developing other sectors such as tourism and services, which have become prominent in today’s global economy. In spite of this, Africa is still a long way from reaching the level of economic development achieved by other developing nations, such as China. Consequently, Africa, currently, is hardly a viable option for business investment, as there are still too many obstacles.