We are not rich because Africa is poor (and vice versa): Part 1
I took serious issue with the statement, tried to make my case, but was unable to convince the participants that Africa’s poor economic performance cannot exclusively be blamed on western exploitation. I consider the statement to be completely uncontroversial. Someone even suggested that I might be a racist (!) after I insisted the point.
So, I make part of my case here, with the caveat that I am going to talk about Africa. It’s debatable whether all “developing countries” can be generalized through Africa, but it’s not debatable that there are a lot of developing countries within Africa.
Going that route, we have to subject any conversation about Africa to a bit of skepticism. Africa’s diversity rivals that of even diverse Europe or Asia. Home to thousands of languages, one of the most diverse ecologies on the planet, a large landmass with a non-uniform distribution of resources, a multitude of governmental systems, histories and peoples, Africa is probably the most difficult to generalize area of the planet.
Not unlike Asia, what the countries and peoples of Africa do share, is a history of warfare, political upheavals and colonization. In contrast to Asia, the economy of the continent as a whole has fared poorly for much of the past 50 years.
I will not develop a deep history of the continent and its economic woes. I will, however, in three posts,
1) dispel the common myth that Western exploitation is exclusively to blame for Africa’s generally poor progress using Botswana as a test case,
2) show that growth in East Asia in the past decades has not resulted in a depressive effect on developed economies, showing that the West does not lose when others gain,
3) finally, argue that the west loses more from a poor Africa than it gains.
So here we go. Though I feel that I will gloss over a lot of points (for space), I also recognize that this can get really long and windy, so forgive me.
Rather than focus on Africa’s failures, which, on the surface, seem entirely deterministic in nature, let’s for a moment focus on its successes. This approach will make sense, since we can learn a lot about failures from the things that people get right.I want to take us to Botswana. Bostwana was born facing some serious challenges:
1) it’s landlocked so it has trouble trading goods
2) it’s mostly desert so it can’t really grow anything
3) it has hardly any people so it can’t draw on large amounts of human resources.
Botswana was formerly colonized by the Brits, gained independence in 1966 and, at the time, held the dubious distinction as one of the poorest countries on the planet and even Africa (per capita GDP of $70 (current)). At independence, it was in the bottom ten of all economies in the world, had only 12 km of paved roads, and a nearly 80% illiteracy rate.
Worse yet for Botswana, is that is cursed with ample reserves of diamonds and other minerals. But where other resource rich countries such as Angola descended into warfare and economic chaos, Botswana claims consistent growth since the time of independence and is now an upper middle income country with a per capita GDP of nearly $16,800 in 2012, 6000km of paved roads, and a nearly 90% literacy rate. Bostwana’s Gini index is still quite high and it’s been hit hard by HIV, but despite the negatives that every country has, it can still claim to be one of the most successful countries on just about every indicator in all of Africa.
How did Botswana maintain consistent economic growth while (almost) every other country in Africa has approximately the same GDP in 2013 as it did in 1960?
A *really, really* simple list:
1) It reinvested its money. Bostwana leveraged its diamond resources to develop infrastructure and human resources all across the country.
2) It created systems which fortified property rights among its citizens, reducing the likelihood of conflict.
3) It maintained a policy of saving of surpluses to hedge against inherent volatilities in commodity prices.
4) It actively encouraged the development of other sectors, making the assumption that one day, the diamonds will run out.
5) It managed its banking sector to benefit its population. The Bostwanan central bank lends considerable amounts of money at favorable terms to encourage various sectors. It can do this because of 2) (collateral) and 3) (money to lend and decreased risk to the state’s finances) and which supports 4) (diversification of the economy).
Note that all of these are policy decisions. Even if Botswana were receiving unfavorable terms from mining companies, Botswana, with its policies of transparent banking, government reinvestment and the maintenance of savings would still have allowed it to maintain consistent growth over time. Remember, Botswana started from the bottom. ANY gain, even at the most exploitive level of terms, would have been an improvement and would have led to consistent growth.
It’s worth also noting, that, since the Botswanan government is more effective, that it can also leverage better terms with potential investors. It’s also important to note that Botswana’s resource boom didn’t come until the 80’s, when it signed a contract with South African diamond mining giant De Beers. It had more than 14 years before its diamond boom to get it right, and it did.
The moral here?
1) African countries are not doomed to poverty.
2) Pro-development government policies are possible, even in economies which rely on resources.
3) Most salient, even if De Beers had offered the most awful and exploitive of terms, Botswana’s economy would still have grown consistently over the past five decades due to Botswana’s pro-development government.
4) Assuming the successes of Botswana can be extrapolated to the failures of other resource rich countries (like Angola and the DRC), resource exploitation is not the reason African countries’ economies have been (mostly) stagnant for past decades.
I’m convinced that metal is associated with economic growth (you need electricity to have metal) and Botswana has it.