Why Are Some African Economies Growing and Others Not? | African Economy | Econ

Summary

In recent decades, African economies have experienced remarkable growth, shifting from extreme poverty to emerging markets with diverse economic models. Countries like Rwanda and Mauritius show that strong governance, sound economic policies, and institutional resilience can lead to sustained development, while nations plagued by corruption and poor governance, like Zimbabwe and Madagascar, have struggled. Despite challenges like rapid population growth and lack of skills, Africa's regional trade, internal investment, and rising education trends are creating optimism for the continent’s future, with many nations entering a virtuous cycle of development.

Takeaways

• 😀 In the 1990s, economists were skeptical about the growth of developing countries, but global trade's explosive growth in the late 1990s changed that, reducing global poverty significantly.
• 😀 From 1990 to 2022, the share of people living on $1.90 or less a day fell from 36% to less than 10%, with a notable decline in extreme poverty in Africa, despite rapid population growth.
• 😀 African economies have become some of the fastest-growing in the world, driven by significant economic and social changes positioning the continent for greater global influence.
• 😀 Growth in Africa is divided into two groups: strong growth (5% or higher) and weak growth (below 5%), with 18 countries showing strong growth between 2013 and 2023.
• 😀 African countries with strong economic growth, especially non-resource-intensive economies, have outperformed expectations despite challenges like commodity price volatility.
• 😀 Rwanda's economic success is attributed to good governance, low corruption, and a functional government, contrasting sharply with Burundi's struggles marked by political instability.
• 😀 Economic policies play a vital role in Africa's development, as seen in the differing fates of Kenya (embracing free markets) and Tanzania (adopting socialist policies).
• 😀 Botswana's success story contrasts with Zimbabwe's downfall, where Botswana thrived under a strong economic agenda and anti-corruption measures, while Zimbabwe faltered under Mugabe's leadership.
• 😀 Mauritius exemplifies how sound economic policies, foreign direct investment (FDI), and strong institutions can lead to sustainable growth, overcoming historical challenges.
• 😀 Corruption, mismanagement, and the 'resource curse' are major issues affecting African economies, as seen in Nigeria's struggles despite its oil wealth. Countries with lower corruption, like South Africa, have had more diversified and successful economies.

Q & A

What caused the shift in Africa’s economic outlook in the late 1990s?

In the late 1990s, global trade experienced explosive growth, which led to a rapid closing of the gap between rich and poor countries, significantly reducing poverty across the globe, including in Africa.

What is the trend in Africa's poverty rates between 1990 and 2022?

The share of people living on less than $1.90 a day fell from 36% in 1990 to less than 10% in 2022. Additionally, the proportion of Africans living in extreme poverty decreased from 53% to 35%, though population growth increased the total number of poor Africans.

What are the two main categories used to assess the growth of African economies?

African economies are categorized into two groups: strong growth (5% or higher) and weak growth (less than 5%). Each group is further subdivided into non-resource-intensive countries, oil exporters, and other resource-intensive countries.

What factors influence the economic performance of African countries, based on the script?

Economic performance is influenced by governance, economic policies, corruption, resource management, and the functioning of state institutions. Countries with better governance and sound economic policies have performed better, while those with corruption and mismanagement have lagged behind.

Why has Africa's reliance on commodities been both a strength and a weakness?

While Africa is rich in natural resources, such as minerals and oil, it has faced economic instability due to fluctuating commodity prices. High commodity prices led to growth, but declines in prices triggered economic downturns, highlighting the vulnerability of commodity-dependent economies.

What lesson does Rwanda and Burundi’s comparison teach about governance?

The comparison between Rwanda and Burundi shows that having a functional government and low corruption can drive economic success. Rwanda has seen significant income growth due to better governance, while Burundi’s political instability and corruption have led to economic decline.

How did Kenya and Tanzania's differing economic models affect their growth?

Kenya embraced free-market policies and investment-friendly reforms, leading to 80% higher income levels than Tanzania, which adopted socialist policies and nationalized industries, stifling growth. This highlights the importance of sound economic policies.

What distinguishes Mauritius as an economic success story in Africa?

Mauritius' economic success is due to sound policies, resilience of institutions, and strategic foreign direct investment (FDI). Despite predictions of failure, the country shifted from a mono-crop economy to diversified growth, averaging 5% annual growth from 1980 to 2000.

What impact did Madagascar's socialist policies have on its economy?

Madagascar’s socialist policies, including nationalization and state control, led to economic collapse, unlike Mauritius, which attracted foreign investment and expanded its sugar industry. Madagascar’s approach resulted in expulsion of investors and poor economic outcomes.

How does Nigeria's oil wealth contribute to its economic challenges?

Nigeria’s oil wealth has led to corruption and inefficient governance. The reliance on oil revenues has hindered diversification of the economy, leading to lower public investment in services like education and infrastructure, and creating instability in both the political and economic sectors.

What trends provide reasons for optimism in Africa’s future?

Several positive trends, including rapid urbanization, increased migration and remittances, rising educational enrollment, and expanding regional trade, offer hope for Africa’s future. These trends are interconnected and reinforce economic growth, providing a foundation for a brighter future.