Taking Care of Business
| Author | Michael Klein |
| Position | Chief Economist of the International Finance Corporation |
Creating a better business environment is crucial for bolstering growth in Africa
In mid-2006 the World Economic Forum held an Africa regional meeting in Cape Town. The opening panel featured three presidents: Thabo Mbeki of South Africa, Armando Guebuza of Mozambique, and Jakaya Kikwete of Tanzania. A little over a decade ago, the presidents of these countries might have discussed apartheid, civil war, and alternatives to the market economy. This time around they discussed policies to promote economic growth and support the private sector as the engine of growth. Pointed questions from young Africans in the audience-unencumbered by any apprehension about African "big men"-were about term limits for heads of state.
The debate in and about Africa has changed, and so has the reality on the ground. Although performance varies from country to country, and there are still plenty of laggards, macroeconomic policy has much improved, fiscal deficits are under better control, inflation has come down dramatically, debt levels are substantially reduced, and the share of international trade in the economies has risen. Coupled with these improvements, the number of conflicts across the continent has dwindled-down to about half a dozen from about 20 reported by the International Peace Research Institute as recently as 1999 (Gleditsch and others, 2002).
About that time, Paul Collier, Oxford's eminent observer of African economic development, surmised that peace and macroeconomic stability would give African economies positive per capita income growth. In fact, 3 percent per capita growth would not be too hard to achieve if economies also started opening up and allowed businesses to flourish (World Bank, 2000). But Collier was too cautious. Peace, macroeconomic stability, and a small dose of business-friendly policies have brought annual per capita growth of 3-5 percent to more than a dozen African countries, home to more than one-fourth of Africa's population. Moreover, there has been an acceleration of growth across the continent, with Africa growing faster than Latin America for several years in a row. This is quite a turnaround from the last three decades of the 20th century, when per capita income, on average, shrank slightly.
Of course, the same growth slowdown occurred in Asia in the decades preceding the 1950s (see Chart 1), before it took off with spectacular growth. Can Africa now effect a similar takeoff? Given the scope for catching up with more advanced economies, analysts believe that African economies technically have a good chance to achieve growth rates approaching 10 percent (assuming population growth of a bit over 2 percent annually). Thus, it is conceivable that Africa could, on average, reach the income level of recent entrants to the European Union by 2050. Were this to happen, today's children in Africa would leapfrog all of history's stages of development in a lifetime. To make it happen, however, Africa desperately needs major improvements in its business climate-long seen as deterring mainstream investment-combined with long-term policies to strengthen education and develop infrastructure. At the same time, it will need to maintain well-founded macroeconomic policies.
[ GRAPHICS ARE NOT INCLUDED ]
One of Africa's biggest problems is that, in general, growth is not being...
To continue reading
Request your trial