The conversation on how to reduce Africa’s poverty problem is fraught with disagreements. Aid: essential lifeline or dictator’s delight? But one thing which almost everyone agrees on is the importance of economic growth.1 Growth, the argument goes, means a “larger pie” to feed everyone with. Jeffrey Sachs (who I’ll go back to soon, I promise) makes economic growth central to his model for Africa, noting that it’s the only thing to have actually reduced poverty in rich countries: before the industrial revolution, all countries fit the profile of a modern-day poor country, with the majority of people scratching a day-to-day existence amidst disease and squalor. Africa’s poverty stems from its failure to benefit from the process of growth in the same way now-rich countries did.

Once you accept growth as a key policy goal, however, a host of disagreements spring up. How do you achieve growth? Does aid help? Is it better to pursue growth through domestic activity, or through trade with other countries? Does trade automatically reduce poverty, or are special policies required to produce that effect? Might taking action to spread the benefits of growth actually endanger it?

These are complex, highly political arguments, and much of the public debate about them is oversimplistic. But they go to the heart of the current debate about development. So it was with interest I turned to the Africa Commission Report’s three chapters on trade: one on the investments in health and education needed for growth, one on other changes needed, and one specifically on trade policy (reduced versions of the arguments can also be found in pages 42-57 of the Report’s Part 1: The Argument).

The Commission is a clear convert to the cause of growth-led poverty reduction. “Without economic growth,” it notes, “Africa cannot make substantial reductions in poverty.” To be frank, it offers no real evidence for this. It notes that Botswana has successfully turned growth into substantial reductions in extreme poverty. But it doesn’t explicitly address the possibility that reductions in poverty might be achieved without growth: for example, by wealth redistribution.2

What the report is much more concerned with is the possibility of growth. “Africa is not doomed to slow growth,” it notes:

In the last decade, 16 countries in sub-Saharan Africa have seen average growth rates above four per cent… the recommendations we are setting out should enable African countries to achieve and sustain growth rates of seven per cent by the end of the decade.

What kind of effect would this have on poverty? Well, let’s look for comparison to China, which has managed an average eight per cent growth since 1978. By 2003, that had led to an almost eight-fold increase in average incomes. The proportion of the population living on less than US $1 a day (adjusted for purchasing power parity, including inflation) dropped from 64% in 1981 to 17% in 2001.3 There are a lot of disagreements on what makes growth benefit the poor most, and the commission addresses many of them. But those figures are enough to make 7% growth something to get excited about.

So let’s take a look at the Commission’s recommendations for actually ensuring growth takes place. First of all, what are the basic conditions for an economy capable of growing at a decent rate? How can rich countries to obtain them?

Safe investment conditions

For businesses to invest in Africa, certain legal and policy frameworks need to be in place. Contracts have to be kept; things you buy have to remain your property. Governments can’t pile on regulation just to generate bribes. How can rich countries help? Put $550 million over seven years into NEPAD’s Investment Climate Facility, a public-private partnership aimed at spreading good governmental practice across the continent. And also support a dedicated fund to insure companies investing in post-conflict countries (more on post-conflict peacebuilding). And it’s about image, too. Though the investment risks in some parts of Africa are real, many areas have far better investment conditions than the business community, particularly foreign investors, generally believe. So the ICF should also aim to communicate a more accurate picture of conditions in Africa.

Better infrastructure

Like Jeffrey Sachs, the Commission sees physical barriers such as poor roads and telecommunications as a key obstacle to business development in Africa. In landlocked African countries, it notes, transport costs can eat up around 75% of the sale value of exports (in other words, you spend $100 making a lorryful of t-shirts you expect to sell for $400; and you spend $300 getting it to the port to sell to traders. Profit: nil). Another $20bn a year needs to be spent across Africa until 2015 to get infrastructure, particularly transport, to the stage where 7% growth becomes possible. How can rich countries help? Provide $10bn/yr until 2010, and then if it’s proving effective, $20bn/yr till 2015. It should be spent on a wide range of basic infrastructure, such as roads and irrigation, as well as larger projects like power stations.4

Develop the internal African market

Policies for growth through trade have tended to focus on exports to rich countries. But the internal African market, the Commission argues, has the potential to provide a large, more stable additional source of growth. In agriculture, for example, Too many farmers grow only cash crops for export, like coffee and tobacco. The more an economy depends on such exports, the more vulnerable it is to price swings.5 In addition to cash crops and subsistence crops (for the use of the family that grew them), Africa needs to develop an internal market for staple crops like maize. Resource-rich African countries could act as “breadbaskets” for countries with frequent food crises, giving rich areas a new market and reducing the need for food aid from abroad.6

Infrastructure improvements can help, but so can other steps, notable reducing burdens on export and import within Africa - both official (customs delays) and unofficial (bribery demands). African customs delays are the world’s highest, and it can take 30 days (and a mountain of paperwork) to navigate the procedures and actually bring goods in to some countries. And it’s not just between countries - to get a lorry from one side of Cote D’Ivoire to the other can cost $400 in payments and bribes. In addition to the action on corruption already discussed, improvements in customs and the development of internal African free trade areas could provide a huge spur to development - just think of it as an African equivalent to the EU’s common market. Customs revenues are a valuable source of income to governments in Africa, but the report suggests that by spurring trade and reducing smuggling, cuts in tarrifs could actually increase that income. Regulatory issues are important, as well, like standardising rail gauges (the width of railways) and truck load requirements. Perhaps the best part of this reform is it doesn’t require massive rich-country investment, although training and advice could be helpful.

Focus on agriculture

Growth is tied into industrialisation, but industrialisation tends to require a strong agricultural base to thrive. And with 80% of Africans depending on farming for their incomes, it’s agricultural growth that has the most potential to reduce poverty. In addition to the steps described above, specific actions are needed to increase agricultural growth:

  1. Irrigation. Irrigated crops (supplied with extra water in addition to rainfall) are more reliable than crops grown with rain only, and can be grown year-round. You know the starving villages that became the face of Africa in the 1980’s? That was because, in part, of poor rainfall. Irrigation can help. Rich countries can help by funding a doubling of the irrigated area of Africa by 2015.
  2. Getting crops to market. While transport problems can increase the overheads of manufactured exports, they can simply destroy agricultural exports. Up to 50% of harvests are lost on the way to market in some parts of Africa because of physical obstacles. The infrastructure programme above should include storage and roads in rural areas to help farmers sell what they grow. Small investments could quickly reap large rewards.
  3. Research and innovation. Research can herald huge steps forward in agricultural productivity, but must be geared to African needs and led by African universities.
  4. Diversify. In addition to the general measures described above to fuel the internal market, support farmers in obtaining the tools and seeds needed to diversify from cash and subsistence crops to staple foods for export to poorer African countries. Microcredit could help, as could schemes to help small farmers market their produce.
  5. Land rights. Reform laws to ensure people have secure rights to their land. Women, in particular, have a fragile grip on their land in many countries: for example, if their husband does without a will it might go to his family over them.

So there’s much that African countries can do to improve their prospects for growth, with the support of rich countries in investment and training. But there’s also much that rich countries need to do in their own economies to help Africa along the road to growth. We’ll take a look at that next time. I’m going to a party.

I’m not showing off, I’m just saying.

* Help. Seriously. Help. I’m running out of puns.

Notes

  1. I did say almost everyone. I’m aware that some believe that growth is the wrong path, pointing out that there’s more than enough money in Africa already, if it were just more evenly distributed. This was a more common view a couple of decades ago, with many African governments making self-sufficiency and equality higher priorities than growth. But arguing that growth shouldn’t be top priority isn’t the same thing as arguing against growth itself. I’ve never heard anyone actually argue that economic growth is bad. Try Googling “growth bad for Africa,” you won’t find anyone saying it. Go on, try. What you will find is a lot of people arguing against trade liberalisation. But that’s not the same thing. The report’s full chapter on growth presents this table as a neat summary of the argument that growth is at least related to poverty reduction.

    1. OK, fine, so some people do argue that growth is bad, on the basis that a paradigm of ever-greater economic activity is impossible to sustain environmentally. But that’s a whole other debate, one I’ll get to. Later.
  2. I accept this is pretty much accepted now. But I still think their non-interest in demonstrating it is interesting.
  3. Jeffrey Sachs, The End of Poverty, London: Penguin, 2005, pp.154-5
  4. This is in response to the criticism that in the past, aid has often been wasted on large, essentially useless prestige projects. I can’t find the article I read with some details, but I seem to remember one dictator building a massive steel factory in a country with no extractable iron. You get the idea.
  5. The famous example is the collapse in the 1980’s and 90’s of coffee prices, which has impoverished farmers in Africa and elsewhere, and led to the development of the Fairtrade movement.
  6. The Commission doesn’t make clear how the more malnourished African countries would pay for this food.