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Why Africa Fails: The case for growth before democracy (2012)

Presented to International students

at Uganda Christian University Mukono Uganda

By the AuthorElly Twineyo Kamugisha

www.twineyo.com

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Why Africa Fails – Elly Twineyo Kamugisha

Copyright © 2012 Elly Twineyo-Kamugishahttp://www.tafelberg.com

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Introduction

• Africa is not suffering poverty of resources• DRC alone has currently US$ 22 trillion worth of resources

( what is the current GDP of USA ==== US$ 15 trillion and is the No.1 economy in the world – Africa requires sustained rapid economic growth: More than growth, it

requires economic transformation to achieve inclusive growth.– More exports.– Trade matters for Africa. Trade not merely aid ‘handouts’. Aid has failed

to boost SSA’s growth. – Colonization no longer a viable excuse for Africa’s poor growth

• In this book, we focus on SSA: For Arab North Africa, we look at the causes of the Arab spring

• Growth and democracy:– We discuss the Asian(now referred to as the Chinese) Model: Growth

before Democracy – Asian countries before China took same route

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AFRICA: Key figuresPopulation 1 Bio (2011 UNECA)

Africa’s total GDP USD 1.150 trillion

Middle class 355 mio (AfDB) 34 percent of Africa’s pop. (2011)Elected governments More than 20 (incld’g new govts of Egypt, Tunisia & Libya)

Average per capita Central Africa $466; West Africa $441; East Africa $303

Countries that have had internal strife, conflict or war in SSA

More 70%Sudan, Uganda, Rwanda, DRC, Nigeria, Madagascar, Angola, Mozambique, Burundi, Somalia, Kenya, Ethiopia, Eritrea and Zimbabwe Only Tanzania, Botswana, Swaziland and Mauritius have had long periods of peace.

FDI US$ 35 Bio (2009); $ 41 Bio (2010)

Remittances US$ 40 bio (2010) === 2.6 Africa’s GDP

Countries that have had internal strife, conflict or war in SSA

More 70%Sudan, Uganda, Rwanda, DRC, Nigeria, Madagascar, Angola, Mozambique, Burundi, Somalia, Kenya, Ethiopia, Eritrea and Zimbabwe Only Tanzania, Botswana, Swaziland and Mauritius have had long periods of peace

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Unjustifiable excuses/ and some blame game • Colonization is responsible upto now for Africa's poor

economic showing• We are landlocked. But Switzerland is landlocked too.• Ending diseases burden • Lack of technology • Many ethnic groups • Land tenure systems • Leaders staying too long in power • Lack of ‘western’ style of democracy

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Colonization no longer an excuse

• More than 50 years since independence for most countries

• Even Ethiopia? Liberia, Sierra Leone? Were they colonized?

• History is not destiny • Other developing countries eg in Asia were also

colonized. How come they are developed

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Why Africa Fails

• Lack of Leadership • Corrupt; and rent seekers – Use clan, sub-ethnicity and ethnicity and region for selfish

motives– Use religion for political advantages – Not patriotic or nationalistic– Brutal and Dictators – A leadership to encourage private sector led growth; and

promote exports – A leadership to unit ethnicities in diversity– A leadership to regulate the economy– A leadership to find good partners for FDIs

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Leadership Question – Leaders not committed to their nations and people– They fail manage diversity of ethnicity (I hate the

word ‘tribes’) by enhancing Patriotism and nationalism

– Poverty; diseases; wars – to share the national cake;– Disease and the silent leadership on Aids/HIV;

Mbeki – HIV not the cause of Aids; King Mswati attending reed dance to pick a young wife;

– Regular elections and multiparty democracy has been a sham in Africa

– Does duration of leader in power matter?

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Lack of institutions• Lack of institutions and policies as a structural

challenge • Institutions: Political , legal, economic • Lack of institutions – To promote and protect private sector

investment– To promote private property rights – To promote exports

• Lack of policies for creation of an enabling environment

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Attitude change pro prosperity • Attitude towards prosperity – Prosperity is choice – Attitude is a predisposition; related to perception (‘the way we see the world around us’)– Work hard pays – Free things don’t build nations – An attitude of ‘we will never make it’ is wrong and

pessimistic• An attitude of ‘we need help to survive’ • This kind of attitude has been observed in some places

in Africa

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Lack of Patriotism/nationalism• Is patriotism/nationalism relevant to growth?

– I say YES– Commitment to your country is paramount – for both leaders

& citizens

• Chinua Achebe (Kamugisha, 2012, p.33 ) cited in tells us in The Trouble with Nigeria: – “A patriot is a person who loves his country. He is not

a person who says he loves his country. He is not even a person who shouts and swears or recites and sings his love of his country. He is the one who cares deeply about the happiness and well-being of his country and its people”. (Achebe, 1984: 15–16).

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A capital problem

• Capital in Africa not easily available • Limited access to affordable sources of

capital for private sector (aid is to gov’t; aid is to the public sector)

• Few sources of loanable finances locally• It is expensive • Banks think Africans are risky to lend: they

then charge high interest rates (e.g 18-22 percent in Uganda before the global financial crisis)

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Aid not a solution

• Foreign aid: the total sum of both concessional loans and grants. This definition refers only to official development assistance.

• Since 1970, Africa has received at least $300 billion– Has this aid helped get us out poverty. Big NO

• The government could cut the fleet of vehicles given to ministers and other top civil servants.

• Aid is attractive to leaders and technocrats. – It is easy to steal and ‘account for’. Public servants can

‘cook the books’ and show that money was spent according to plans and without waste.

– the budgetary needs to be covered by aid can be inflated.

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Aid is not working

• It is public expenditure yet Africa needs private capital & technology

• Associated causes:– Inflation– Enhances corruption – Future public debts– Gov’ts forget to be accountable to the citizens (the

key stakeholder is the donor)

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Little Trade – and few export receipts• Africa accounts for about 2.5 percent global imports; 2.3

percent exports • Slow or lack of industrialization • Slow growth and lack of economic transformation• Infrastructure problems • Quality problems ; Quantity problems • Management of the global value ( and supply) chains • Unfair trade terms – Developed countries restrict entry into their market ( = protectionism)– Developing countries restrict entry into their market( = protectionism)

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Continued copying of policies and systems from developed countries

• Aided by IMF and World Bank– Washington consensus– Economic liberalization– Trade liberalization– Sell of state owned enterprises (SOE)( But china has SOE!)

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Way forward for Africa ? 1. Capital solution– Attract more FDI and encourage domestic

investment – Target and attract remittances from African diaspora– Ensure and protect property rights ( e.g land titles)– Encourage stock and capital markets– Strong campaign to encourage people to keep their

money in banks (people still keep their money in their homes)

– Create a middle class ( at 355mio Africans (2011))• Avoid politically created middle class

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3. Institutions matter • Build institutions to promote private sector

competitiveness; • for law and order; • for democratization – Protection of investors, their property, and earnings

matter

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Leadership matters• Committed and visionary • Patriotic and nationalistic• Some benevolence is important ( see what

benevolent leaders achieved for Asian tigers)• Values the role of the private sector

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2. Reduce the large size of the informal sector

• Aid exit strategy (trade and markets instead of aid). Produce and exports

• Fight corrupt: – with political will – Make laws and enforce them – Avoid rewarding ‘looters’ with fat positions in

government – make corruption an expensive venture e.g apply

time value of money charged on those convicted

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4. Population control strategies How about quality of Population?• Traditional drives for more children at family level?

– Labour– Bride wealth – Insurance: just in case diseases kill some; some may remain

• Population control strategies – At family level in SSA a big population enhances the

family’s poverty) – Need for quality population to provide labour and be

consumers ( a market)– Health and Education matter

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Population & Wealth of nations • What matters?• Population numbers?• A healthy population?• Employable and employed?– Quality of population matters– Quality of education matters– Dependency ratios are high – few bread winners but many mouths to feed – Unemployed youths causing insecurity

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5. Trade and Markets are important

• Markets are important both at domestic and international levels.

• The markets in West are more lucrative…….BUT these markets are not OPEN!!

Trade • Value addition and Exports • Access to lucrative markets vital (EU,USA, etc)• Regional integration (EAC, SADC, ECOWAS) Africa

wide economic community?)

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6. Foreign Aid exit strategy

• Free money is bad for growth of a country– In accounting it becomes different to explain free

money. • Hard earned money is valued • Hard earned money makes the earners proud• Aid? The need for an aid exit strategy is

urgent.

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7. Role of Gov’t during growth & democratization

• Create an enabling environment for the private sector to operate ( to do biz)– Facilitate– Influence – Regulate ( very important)

• In the event of market failure:– Come in but don’t interfere– Establish expensive venture ( later sale them)– Public Private Partnership (PPP)– Letter of support to funders of the key private

players

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8. Economic diplomacy & image building Economic diplomacy by African gov’ts: • Relationships to promote trade and markets and

investment; • A positive image of a country is influenced by key

stakeholders: the media, diplomats, government and the private sector.

• A fair and balanced reporting is vital for Africa. Don’t say that Africa has no challenges on the continent. (It is important to explain the current issues and the steps being taken to address them).

• Politics will remain important, too. – Western governments will continue to require African

countries to make strides towards democratization and more progress in their observance of human rights

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Growth and Democracy Model?• The case for growth before democracy model • The Asian Model: democracy after growth; e.g Japan,

S. Korea, Taiwan, and Singapore. And now China • Democracy evolves gradually (same thing happened

in the west?)– Growth first ( higher levels of per capita); reduction of

absolute poverty– Build institutions– Growth makes people demand for democracy – The middle class requires protection, good laws and

ultimately democracy– The power of the middle class and the literate will force the

gov’t in power to democratize

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Some research the relationship between growth & democracy

• What nations need are:– Maintain rule of law– Free markets and institutions that promote competitiveness– Small gov’t consumption – High human capital

• Analysis: Once the variables and the initial level of per capita growth are held constant, the effect of democracy in growth is weakly negative.

• The analysis implies that, once these variables are in place, growth can occur in different types of regimes.

• It growth happened in Chile under Augusto Pinochet)… the country achieved high levels of growth without a fully developed democracy

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Growth before democracy model for Africa? • The case for growth before democracy? Or growth &

democracy? See my position in the book pg.48 para.1• Democracy and the regular elections in Sub –

Saharan Africa– Have been a sham; Elections are bought, rigged;

Flawed processes – Some causes: greed by politicians takes advantage

of the levels of illiteracy and poverty influence the outcomes of the vote

• Ignorance of what the citizens themselves want:– Who knows what the candidates manifesto means to the

future of their countries?

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Role of other key stakeholders

1. Role of individuals / private sector

• Work and earn incomes – Save – Invest – Pay taxes

• Have affordable families (because there is no one willing

to shoulder your family)– Plan your families – Educate them

2. The Civil Society • Undertake policy research • Organise dialogue • Disseminate information

to the public • Expose corruption • Promote good causes • Reduce theory – and

recommend working solutions

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Devt partners ( Donors?)Want to engage with Africa? • Trade • Tourism • Invest – FDI• Trade related infrastructure • Keep dialoguing on efforts at democratization• Understand the situation in Africa– There are lesions to learn from the Arab spring for both the SSA

and the West– support efforts by the African to choose they gov’ts they want – Democracy must be related to the conditions mainly that are

endogenous within a country – China still faces challenges but gives lesions to African countries

Role of other key stakeholders

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I come from Uganda….

I could be a descendant of people from South Africa..or Zimbabwe…or Zambia… or Tanzania…..or Rwanda. But am a Ugandan. Above all I love Africa………and am an African

THANK YOU FOR LISTENING TO ME