Conventional wisdom has long been negative on African growth. Sub-Saharan Africa is commonly regarded as destined to remain poor either because of its geography (including its unique disease burden) or its ethnolinguistic fractionalization (leading to repeated conflicts) or its deep-rooted corruption. The precise mechanisms vary, but a standard argument has been that Africa’s economic prospects are not bright because its longstanding problems are hard to fix.
In contrast, some more optimistic recent views hold that Africa either is improving by itself and/or could improve dramatically if more foreign aid were provided.1 Again, the precise mechanism varies, but these views are unified by much more positive assessments of Africa’s growth potential (although they disagree on how much additional funding through aid is desirable).
There is no doubt that Africa has done badly, on average and for the most part, not just over the past 20 to 40 years, but in fact since the beginning of modern economic growth in the 19th century. It is also indisputable that much of Africa is currently doing quite well—for the region south of the Sahara, growth in total GDP will likely have exceeded 5 percent in 2006 for the third straight year and per capita growth is running in the range of 3.5 to 4 percent in recent years.2 The controversy rather lies with how to think about the last decade or so, as well as the current situation and immediate future. In particular, are there indications that parts of Africa can sustain growth at rates that are consistent with lifting entire countries out of poverty—as East Asia did in the decades after 1960?
The key word here is “sustain.” Is today’s growth likely to be sustained for 10 or 15 or more years? We know that what is associated with growth accelerations is not necessarily what keeps growth going—for example, an increase in commodity prices sparked growth in much of Africa during the 1960s, but this growth proved hard to sustain as political conflicts developed.
There is not yet a unified theory of sustained growth. As a consequence, there is also not an accepted equation into which we can plug values to obtain the likely duration of a rapid growth spell. However, there are at least three plausible views regarding what is associated with crises and derails growth, that is, what tends to cause decelerations.
First, while weak economic and political institutions do not appear to prevent growth episodes, they are very much associated with severe crises and the derailment of growth (Acemoglu and others, 2003; Satyanath and Subramanian, 2007). It is hard to escape bad institutions. Good leaders can make a difference for a while, but when they leave office, countries with weak institutions (that is, autocracies) will often suffer a relapse (Jones and Olken, 2005a).
Weak institutions are associated with and arguably manifest in high degrees of inequality (Acemoglu, Johnson, and Robinson, 2005a). Inequality can curtail expansions both because societies with unequal distributions handle the distributional consequences of adverse external shocks poorly (Rodrik, 1999). Berg, Ostry, and Zettelmeyer (2008), looking at a broad panel of post-1945 accelerations, find that the duration of such episodes is negatively related to initial income inequality. Moreover, the effects seem to be very large, with each percentage point of the Gini coefficient raising the annual risk that a growth spell will end by between 7 and 15 percent, relative to the baseline.
Second, a greater propensity to experience conflict or civil strife might also prove to be a key factor curtailing growth accelerations. This might be part of weak institutions or, in some cases, it may be that formal institutions are strong while society remains deeply divided—and these divisions are sometimes manifest in damaging conflict.
Third, bad macroeconomic policies (particularly inflation), protectionism, and/or overvalued exchange rates may choke off growth in the tradable goods sector.3 This may make it harder to find profitable opportunities in the economy as a whole, or it may draw resources into imports in a way that proves unsustainable. Across a variety of methodologies, for example, overvaluation is robustly correlated with crises, even when controlling for deeper determinants of problems, such as inequality and institutions (Acemoglu and others, 2003; IMF, 2003 and 2005 and Johnson, Ostry and Subramanian, 2006).
In addition, there are at least two other possible explanations for poor longer-term growth performance that are particularly relevant for Africa: inadequate education and poor health.4 Both are symptoms of insufficient physical capital (that is, not enough schools and clinics) and initial levels of human capital that are “too low” to allow accumulation of further human capital (that is, not enough teachers and doctors to develop skills in healthy young people). Both of these factors could conceivably limit the returns on productive private investments—for example, some minimum amount of skill or a basic road network may be necessary to support a modern manufacturing sector. Perhaps there are temporary booms, based on commodity prices, and then collapses when prices fall because skills have not developed further.
What is the threshold level at which any of these indicators signal a potential problem with sustained growth? This is hard to know in the abstract and presumably depends on the context, including the interaction between various indicators. One plausible benchmark, however, is the recent (post-1945) experience of countries that started with weak institutions (and relatively low income levels) but nevertheless were able to sustain rapid growth. (There is, of course, not one definition of “rapid” growth; we look at various alternatives below.)
Relatively few (we count no more than 12—see below) initially poor countries have managed to sustain rapid growth (and improve their institutions) to an extent described below in the past 50 years. Almost all of these countries experienced a rapid growth in exports; in most cases the rapid increase in exports was of manufactures.5 In this paper, we examine whether any African countries show new signs of breaking away from the poverty path (through exports of any kind, or in some other way).
The data that would allow such a comparison (from the right time period—early in sustained accelerations) are not readily available; one contribution here is a data set that others can use (and criticize and, hopefully, improve).6 We therefore present our data in considerable detail, documenting the years covered by available sources and discussing the weaknesses.
The good news from this comparison is that, in terms of the standard concerns, the prospects for sustained African growth are not unfavorable. Broadly defined, institutions have improved. In some cases they have improved dramatically—this reflects the end of civil war (which often has destabilizing effects on entire regions) and, in some places, the strengthening of democracy. There is also widespread macroeconomic stability and there has been a great deal of trade liberalization (in the sense of opening to imports).7
However, the benchmarking suggests three important caveats to this positive assessment. First, in terms of specific economic institutions, as measured for example by the World Bank’s Doing Business project, there remains a wide gap between Africa and most other developing countries. In particular, the regulatory costs of exporting are high in much of Africa. These numbers have to be used with care because (1) we do not (and will likely never) know what these indicators were when East Asia took off, and (2) there are no data over time, so perhaps these measures have also improved in Africa. Still, this is a key issue for the future.8
Second, some African countries seem to have experienced significant real exchange rate overvaluation; there are also pressures for further appreciation (for example, due to higher commodity prices or aid inflows). In contrast, almost all the East Asian (and other) success stories avoided any episode of significant overvaluation during the entire period of sustained growth.9 There is a definite warning here for Africa, especially since there may be a need for these countries to diversify out of commodity dependence and to increase manufacturing exports as the East Asian countries did so successfully.
Third, health indicators in Africa are much less robust today than they were in most of the benchmark countries were when they started to grow. In part this is due to weaker public health systems, but in part it may also be due to the disease environment in Africa—for example, malaria has long been a particularly intense problem. Improving health is a first-order issue for its own sake; the impact on growth, however, remains unclear (Acemoglu and Johnson, 2006).