Africa’s ‘Impressive Economic Growth’ Paradox

| April 8, 2014 | 0 Comments

Africa’s ‘Impressive Economic Growth’ Paradox

More questions less answers!!!

Economic growth ratings/projections are a flirtatious venture in development economics, this is more so as those making the ratings/projections often than not base them on hypothetical statistics due to lack of reliable data mechanisms. Nonetheless they provide us with a glimpse into what to do or expect in the future. Even though some freelance economic forecasts have said that “Sub-Saharan Africa registered the highest GDP growth rates in over 30 years during the period 2000-2010, and rebounded quickly from the global financial and economic crises to resume its path of growth performance.

How true is this forecast/rating? What is this prolonged commodity boom that Africa has seen since the beginning of the 21st century? What are Africa’s benefits from the acclaimed sustained growth trend in the last decade and half? With these new development opportunities and challenges for Africa, what are the multiplier effects of ‘growth without jobs’? Isn’t this so-called economic growth characterized and shrouded in illicit financial flows consisting of the movement of illegally transferred assets or value and funds earned through illegal activities? If really this rating is practically true, when will Africans use Africa’s latest economic ratings to rise against unemployment, poverty, illiteracy, corruption, diseases, and infrastructural underdevelopment? What is the most infuriating thing about Africa’s latest so-called “impressive economic growth” profile?

In spite of the so-called Africa’s ‘impressive economic growth’ profile in the last ten (10) years in the (politics, economics, social-integration etc), poverty with its five (5) big factors (ignorance, disease, dependency, apathy, dishonesty) and the rising rate of unemployment still stares Africa in the face and remains a great development challenge of the 21st century. Fundamentally, this challenge requires Africa to safeguard the right of generations today and those in the future to live healthy and fulfilling lives.

So why is Africa’s job growth so weak while its economic growth outlook is just fine, even robust? The fundamental reasons are technically structural in nature and three-fold.

First, much of that ‘robust’ or ‘impressive’ economic growth in the past decade in Africa has been driven by export of raw commodities or natural resources. The problem with commodity-driven growth is that it is not labor-intensive, but rather capital-intensive. Wealth from wells and the ground — which then travels to far-flung places in pipelines — tend to bypass people thereby denying people of employment opportunities. In addition, let’s remember that economic development springs from adding value to resources, not merely exporting them crude. This is why economic analysts say Angola’s economy grew at about 11% percent for the decade of 2001-2010, the fastest on earth, much of it from oil exports, while 60 percent of Angolans live under extreme poverty. Therefore, it is worth noting here that African countries need to make deliberate choices to facilitate growth in key labor-intensive industries.

Second, Last October, the African Development Bank declared, rightly so, that “Industrialization is a precondition for Africa’s economic transformation.” Manufacturing contributes less than 10 percent to Africa’s GDP and employs even less of that percentage, an unhealthy structure for many resource-rich countries. Agriculture share in GDP is just 12 percent, according to OECD estimates, while it employs over 60 percent. There is no industrialization, not even in agricultural production, taking place when it should. It is getting expensive to manufacture products in Asia because of growing labor costs there and this presents unprecedented opportunities for Africa to venture into the manufacturing sector, a labor-intensive industry which could potentially solve the persistent and pervasive problem of joblessness. What this shows is that wealth in Africa is not where people are. That is the paradox of Africa’s ‘impressive’ economic growth, and a continuing sluggish job market.

Third, while Africa needs investments in sectors such as infrastructure, technology and education, much of its finances keep leaking out to the rest of the world. In May 2013, a joint study by the African Development Bank and the Global Financial Integrity showed that between 1980 – 2009 Africa lost $1.2 to 1.4 trillion in illicit financial outflows — in corruption, tax evasion and bribes. This amount is more than three times the total amount of foreign aid received in the same period and twenty-eight times higher than the annual foreign direct investments to Africa which, according to the United Nations Conference on Trade and Development (UNCTAD), was at 50 billion in 2012. If this trend was reversed, Africa would be able to solve all of its economic woes with no outside assistance. One bane of Africa’s underdevelopment is: Illicit financial outflows.

Though as a beneficiary of many development programs, sub-Saharan Africa still hosts some of the world’s poorest UNDP Human Development Indices (HDIs). Question is why?

One answer may lie in the fact that Sub-Saharan Africa looses more than double what it gains through development assistance because of illicit financial outflows from the continent via multinational and trans-national entities. It was estimated by the AU that 30 per cent of sub-Saharan Africa’s annual GDP is siphoned to tax havens. Between 1970 and 2008 the continent lost US$1.8 trillion through illicit outflows according to Global Financial Integrity report.

Illicit Financial Flows is Bleeding Africa dry

How much longer can the globe stand by and watch this injustice take place? It is true that illicit outflows occur in almost all nations on earth but truth is developing nations such as are found in Africa feel its bite the most because they are bled of the very little capital they could have had to make ends meet. It’s easy to point fingers at petty corruption by petty politicians in Africa but it can be argued that the type of corruption being discussed here has done way more harm to Africa and most developing regions than any petty corruption ever has. Having been bled of such colossal sums of capital, is it any wonder that development aid alone has not been able to make a dent in the drive to spur development on the African continent?

In May 2013, Global Financial Integrity (GFI), in collaboration with the African Development Bank (AfDB), produced a report showing that Africa was a net creditor to the world to the tune of $1.4trn over the period of 1980-2009. In other words, during this period more money flowed out of Africa than into it. Illicit financial flows were, in varying degrees, the main culprit behind the net drain of resources from African countries and not other commonly cited financial flows like debt repayments. Such financial outflows involving the cross-border transfer of the proceeds of corruption, trade in contraband goods, criminal activities and tax evasion have long been the bane of Africa. It is pertinent to note here that Sub-Saharan Africa, particularly West and Central Africa, dominates the pattern of illicit outflows. The net result of inflows and outflows is called the net resource transfer. These inflows of capital include official development assistance ((ODA), remittances, foreign direct investment (FDI) and commercial loans contracted at market rates of interest. Apart from purely economic consequences, massive illicit outflows can create the conditions for civil unrest and heighten risks to national security.

Speaking at an International Monetary Fund (IMF) event in Washington DC last year, Helen Clark, the administrator of the United Nations Development Programme (UNDP), noted that illicit flows drain foreign exchange reserves, reduce tax collection and worsen poverty in the poorest developing countries. The destabilizing role played by massive illicit flows in the face of entrenched poverty and high unemployment – which led to social and political upheaval in Egypt, Libya and Tunisia – is well known. Africa needs to be vigilant on all these fronts. On the one hand, some African countries have managed to attain higher rates of economic growth in recent years. However, that growth has not been inclusive, leaving vast majority of their populations in abject poverty.

On the other, massive illicit flows together with endemic corruption and political instability have pushed other African countries to become failed or near-failed states.  Simple elementary economics dictates that “faster rate of economic growth is not a panacea to corruption, illicit financial flows, illiteracy, diseases, unemployment, and poverty…this is because weak governance and inadequate social benefits typically result in growth enriching only a tiny number of the population while poverty and unemployment continues to ravage the majority”.

Youth Unemployment in Africa

The recent economic growth profile of Africa is more of absurdity and contradictory. Real life economics is that “employment is a standard index in measuring economic development in underdeveloped societies”, unfortunately Africa’s impressive economic growth profile is just the direct opposite.

Last May, the African Development Bank warned governments of “political instability” due to soaring youth unemployment.  It is estimated that around 12 million young people join the labor force each year in Africa and so far, only one fifth get jobs. As Africans aren’t you worried why every month or so, we watch in horror desperate young people drowning in the Mediterranean trying to cross to Europe for greener pastures? Isn’t the world taken by shock the Arab spring whose foot soldiers were mostly youth, which toppled governments in Tunisia, Libya and Egypt?  Isn’t it correct analytically and realistically to say that these reactionary manifestations are due to disturbingly high unemployment among young people?

A new report from the World Bank projects Sub-Saharan Africa to grow at 5.3 in 2014, up from 4.7 in the past year. The paradox of the past several years of impressive economic growth in Africa is that it has been accompanied by little in job creation, more in corruption and illicit financial activities, and this trend is set to continue.

Many reports have documented the extent to which economic growth has failed to translate into real employment and development in Africa. Weak job growth has remained stubbornly high during the past decade of sustained economic growth. The International Labour Organization classifies 82 percent of African workers as poor, because they are stuck into the informal sector of self-employment and have no good wage-paying jobs. A new United Nations report on Global Economic Outlook warns of the danger of this paradox which is an issue in many countries around the world, albeit, at differing degrees and for different reasons.

With the so-called ‘impressive economic growth” for Africa in the last decade, poverty rate is not declining as fast as it should and those in extreme poverty, around half of Africa’s population, can’t find food nor quality education as the media bombards with news headlines of ‘impressive economic growth’.  According to Economic Intelligence (EI) which posited in its assessment of Africa between 1980 -2010 while looking at the negative effects of structural adjustment programme (SAP) of the IMF that “extreme poverty declined from 52 percent in 1980 to 48 percent in 2010, while the World Bank estimates, a mere 4 percent decline of extreme poverty in 30 years within the same period under review.

Growth without jobs

According to ILO Deputy Regional Director for Africa at as the World Economic Forum on Africa meets in Addis Ababa. (May 2012)  “Improving the employability of young people, putting in place pro-employment macroeconomic policies, providing finance and venture capital and public works schemes, as well as investing in quality jobsare central to transforming Africa’s growth story into shared opportunities for present and future generations.”

Simple elementary economics teaches us that “no real growth without jobs”and “employment is a standard index in measuring economic development in underdeveloped societies”,. It is important to note here that macroeconomic policies, investments, works schemes and youth programmes aimed at promoting employment are essential ingredients of real economic growth if Africa is to make a head way and sustain its recent economic growth

Africa a continent is described by many in recent time as the “continent of poverty in the midst of plenty”. Every part of Africa is been blessed by Almighty God immeasurably yet lack, denial, hunger, suffering and oppression abounds and continues to elude us overwhelmingly. If not, how else do you explain the recent economic growth rating of Africa side by side the unprecedented poverty, hunger, diseases and alarming state of unemployment?

Tackling this complex issues will take time, years or even decades, but first policymakers need understand its root causes and the limits of committing to create a ‘certain number’ of jobs by the government every year as a response to the crisis. Can African governments fight unemployment and poverty in the midst of this ‘impressive economic growth?  The answer would have been yes, but African leaders and governments went far too early into the publishing business; publishing fictitious ratings and narratives about how well it is doing, when the entire world can see the contrary.

That is why, alongside the boom in corruption, there is such mediocrity, such forgetfulness, such lack of commitment, such inconsistency in policies, such chaos, and such voluminous number of unemployment, and poverty.
In effect, Africa is now a porous canvass shot through with bullet holes in every corner. Nobody outside the circle of government officials in Africa with their praise-singers and western collaborators believes a word that Africa’s ‘impressive economic growth’ is creating employment, because nobody can identify the jobs.  The problem is not that African governments do not know there is a serious problem.  The reason why nothing is going to change soon even though with the ‘impressive economic growth’ is that most African governments are founded on the false foundation of power, not service and not development.  

The governments in Africa cannot move forward, let alone lead anyone, if it cannot do anything about the corruption that is eating us alive.  Therein are the integrity and the funds we need to boost the private sector and industry and commerce, which will create jobs alongside the public sector.

In Conclusion

My position from these assessments is that Africa’s development is as slow as it can get in the 21st century even with the abundance of technological possibilities which, if harnessed, propels countries, as it did with those in Asia, to leapfrogging.

It has been a continuous argument by scholars, development experts, activists and economists that aside leadership as a problem for Africa, deceit has been identified as a tool used by competing interests of elite groups or international interest exploiting and pillaging Africa’s resources through the instrumentality of deception. Africa’s leadership deceives not just the subordinate classes but also the ruling class, such that the art of deception has been elevated to the national and continental level across Africa using purchased economic growth ratings. Yet this act of deception wasn’t an African thing, it was learned of recent from global economic interests who used it to permeate Africa, unfortunately it’s now been practiced and perfected by our African leaders. The act of deceit through economic ratings for Africa manifests at various levels and in different shades ranging from misguided expert advisors hinged on delusory foreign assistance with controlled western economic systems; these levels are international, continental, regional, national and even communal. The international system now operates on the basis of deceit.

Finally and finally, the origins of these economic theoretical fallacies are not difficult to identify.  Leading economic institutions continue to make assertions that the rising economic growth experienced in Africa will create jobs/employment; that it will provide even distribution of wealth and income; that it will open up windows of opportunities allowing foreign direct investment; and a lot more. These claims of Africa’s ‘impressive economic growth’ have not been able to create jobs for the millions of teaming/able and educated youth in Africa. The way forward: Africa’s recent economic growth profile/rating can only be real and not theoretical if and only if:

  • The ‘impressive economic growth’ is not just a commodity-driven growth but a labor intensive growth. Africa must begin to add value to their products by manufacturing finish goods to meet local and foreign markets thereby benefitting from the value chains. In addition, let’s remember that economic development springs from adding value to resources, not merely exporting them crude.
  • The ‘impressive economic growth’ is driven by industrialization and operated by labor. Anywhere around the world industrialization is a precondition for economic transformation.
  • The ‘impressive economic growth’ is completely devoid of illicit financial flows (both inflows outflows), and total absence of financial leakages. What Africa needs is investments in sectors such as infrastructure, technology, education, and agriculture whose multiplier effect all through the value chain is human capital intensive/employment and a resultant goods and service extensive.

It’s pertinent to note here quickly that that the sustained economic growth has not generated sufficient economic diversifications, jobs growth or socio-economic development to create productive wealth and lift millions of Africans out of poverty and unemployment. Also, that the boom has not contributed positively towards Africa’s socio-economic transformation. No more, no less.

 

Yusuf Yahaya is a Broadcast Engineer (Nigerian Television Authority), a Freelance Journalist @ www.nigerianewsline.com (UK based Online News website), National Resource Person, MDGs Advocacy Project (Nigeria) with support from the office of the Senior Special Assistant to the President on MDGs, and  an Associate Researcher/Member of Governing council, at Certified Institute of Development Studies (CIDS), Nigeria.  ntayusuf@gmail.com, ydawah@yahoo.com.

Category: Viewpoint

Culled from :Here

We enjoin our readers to send their stories/articles/reports, including pictures to story@riversstatenews.com

Comments

comments

Category: Viewpoint