The Heritage Foundation

Backgrounder #1369 on Africa

May 10, 2000

May 10, 2000 | Backgrounder on Africa

The Keys to an African Economic Renaissance

During his first visit to Africa in March 1998, President Bill Clinton assured the leaders of the African nations that America remains committed to helping sub-Saharan Africa prosper. Believing such prosperity to be imminent, he painted an optimistic image of the future:

[O]ld patterns are fading away, the Cold War is gone, colonialism is gone, apartheid is gone, remnants of past troubles remain, but...nations and individuals finally are free to seek a newer world where democracy and peace and prosperity are not slogans, but the essence of a new Africa.1

President Clinton also hailed Presidents Laurent Kabila of Congo, Yoweri Museveni of Uganda, Paul Kagame of Rwanda, Meles Zenawi of Ethiopia, and Isaiah Afwerki of Eritrea as enlightened leaders of this new era and spoke fondly of a "new African renaissance" sweeping the continent.2

Just two years later, President Clinton's prediction of a new age characterized by enlightened leadership and rapid development looks woefully mistaken. Since 1998, the conflict has beset some 14 sub-Saharan African nations, including countries whose leaders were praised by President Clinton. The Democratic Republic of Congo is now a battleground involving troops from at least five foreign countries. Uganda and Rwanda, which had supported the current president of the Democratic Republic of Congo, Laurent Kabila, in his successful rebellion to overthrow former president Mobutu Sese Seko, are now supporting an insurrection against him. Ethiopia and Eritrea are locked in a conflict over disputed territory. Zimbabwe is on the brink of anarchy with President Robert Mugabe and the legislature supporting the outright theft of white-owned farms and refraining from restraining supporters even after they have committed numerous murders.

According to nearly every standard, sub-Saharan Africa is the least developed region of the world.

Per capita gross national product (GNP) in 1998 in sub-Saharan Africa averaged $535 in constant 1995 U.S. dollars, according to the World Bank--a decrease of $52 from the 1970 average of $587. The region was the only one in the world to experience a decline in per capita GNP over this period.3 (See Table 1.) In fact, sub-Saharan Africa has experienced declining rates of economic growth each decade since 1960. From 1961 to 1969, average annual growth in GNP was 4.96 percent; from 1970 to 1979, it was 3.79 percent; from 1980 to 1989, it was 2.15 percent; and from 1990 to 1998, it was 2.05 percent.4

These statistics are even worse than they first appear. When relatively wealthy African countries such as South Africa ($3,829 per capita GNP), the Seychelles ($6,810), Mauritius ($3,999), Gabon ($4,115), and Botswana ($3,460) are factored out of the analysis, per capita GNP falls to $451 for the remaining countries. In fact, 21 of the world's 30 poorest countries are located in sub-Saharan Africa. To put this in perspective for Americans, the combined economy of the 48 sub-Saharan Africa countries is smaller than the individual economies of six U.S. states: California, Florida, Illinois, New York, Pennsylvania, and Texas.

Life expectancy in the region remains far behind other regions of the world. Although life expectancy improved in sub-Saharan Africa from 44 years in 1970 to 50 years in 1998, in East Asia and the Pacific, it was 69 years; in Latin America and the Caribbean, 70 years; in the Middle East and North Africa, 68 years; and in South Asia, 62 years.

Many factors contribute to this problem, including political instability, poor health care systems, and the prevalence of disease--particularly the rapid spread of the HIV/AIDS epidemic that hit this region to a greater degree than any other part of the world. According to the World Bank, the 15 countries that have the highest incidence of reported cases of HIV/AIDS all are in Africa:5

[T]wo in every three persons and eight of every ten females presently living with the disease are from Africa. In almost half of the region HIV/AIDS prevalence among adults (15-49 years) exceeds 8 percent, but in some countries it has risen to 20-30 percent.6

This tragedy negatively affects economic production as well through increased absenteeism and a higher mortality among trained workers.

The general level of education in sub-Saharan Africa remains a drag on development. Although literacy rates among adults in this region improved from 28 percent in 1970 to 59 percent in 1998, this rate measures poorly against the rates of East Asia (84 percent) and Latin America and the Caribbean (83 percent). It is comparable to the rates in South Asia (53 percent) and North Africa and the Middle East (63 percent). A generally low level of education hinders the growth of a skilled domestic labor force and the ability of a country to take advantage of skills and knowledge more readily available in the global economy.

There are bright spots, however. The literacy rates in Kenya, Lesotho, Namibia, South Africa, and Zimbabwe are above 80 percent. Life expectancies in Mauritius and the Seychelles are over 70 years of age. And Botswana, Gabon, Mauritius, the Seychelles, and South Africa had per capita GNPs of over $3,000 in 1998. Even poverty-stricken Mozambique has experienced strong economic growth, averaging over 10 percent annually in recent years.

Unfortunately, however, these are exceptions rather than indicators of a general improvement in development prospects for this region; most sub-Saharan African countries continue to fare poorly.

Neither sub-Saharan Africa nor the United States gains through rhetoric that exaggerates the level of development in Africa and downplays the difficulties faced by the region. Instead of highly publicized visits from U.S. officials, sub-Saharan Africa needs a coherent U.S. policy that encourages and supports its efforts to increase economic growth and thereby increase the resources available for addressing its many problems. Forgiving sub-Saharan African country debt and eliminating U.S. tariffs on products made in these countries would go a long way toward improving the region's ability to succeed in these efforts.

Legislation has been introduced to advance these policy goals. For example, the Technical Assistance, Trade Promotion, and Anti-Corruption Act of 2000 (S. 2382) authorizes foreign assistance and debt relief; the Fair Competition in Foreign Commerce Act of 1999 (S. 1169) requires aid recipients to adopt anti-corruption measures and development assistance to be audited by independent third parties; and the African Growth and Opportunity Act Conference Report (H.R. 434) would reduce U.S. trade barriers to over 70 African and Caribbean nations. Congress should seize the opportunity to reform U.S. policies and promote reforms in sub-Saharan Africa that will lead to a real African economic "renaissance."

WHY AFRICA HAS FAILED TO DEVELOP

There is no innate reason why countries in sub-Saharan African should fail to develop. The region is blessed with abundant mineral wealth and fertile land. It has received vast amounts of official development assistance and official aid--$410 billion since 19607--from other countries and organizations, and has had access to the world's foremost development and economics experts for advice on how to use it. Despite such advantages, sub-Saharan Africa remains poverty-stricken and, in some ways, is worse off than it was decades ago.

Clearly, the lack of economic development in sub-Saharan Africa is not the result of a paucity of opportunity, resources, or aid. The reason why this region is suffering is that its leaders have failed to achieve three vital prerequisites for successful development:

Political stability. Political instability discourages foreign investment--the greatest source of capital for development throughout the 1990s.8 Civil unrest is more common in sub-Saharan Africa than in any other region of the world. In the past two years, one quarter of sub-Saharan African countries have experienced serious disruption in their economies due to political instability. Even relatively stable countries, such as Zambia and South Africa, are harmed by the instability of their neighbors, such as Zimbabwe. Although a democratic form of government is not a prerequisite for economic growth, a lack of democracy can substantially limit the prospects for growth if it results in political instability, undermines the rule of law, and facilitates opportunities for corruption.

Rule of law. A well-established rule of law protects private property and provides a degree of certainty to business transactions. Without a properly functioning legal system, the possibility of expropriation of property by the government or criminal elements is high and discourages long-term domestic and foreign investment. As the Zimbabwe-based Financial Gazette noted, poverty persists in sub-Saharan African countries because

rural peasants have no title deeds to their land.... They are not allowed to own fixed assets and that makes them a very disadvantaged group of people.... [B]ecause rural people could not own their land, pass it on to their families when they died or sell it, they were not as motivated to get the most out of it economically as they could, compounding their poverty.9

As Robert Barro of Harvard University observes, "property rights and the rule of law are key determinants of economic growth and investment."10

Economic freedom. An analysis of 161 countries published in the 2000 Index of Economic Freedom demonstrates a high correlation between economic freedom, broadly defined as minimal government intervention in the economy, and economic growth: The freer the economy, the better off the people at all income levels. Countries that have the freest economies had an average annual growth rate of 2.9 percent from 1980 to 1993; countries that were rated "mostly free" had an average long-term growth rate of just under 1 percent. By contrast, "mostly unfree" countries saw their economies contract over the same period by an average of 0.3 percent a year, and countries with repressive policies saw their economies shrink by an average of 1.4 percent a year over the same period. Of the 42 sub-Saharan African countries graded in the 2000 Index, not one received a rating of "free" and only seven were rated "mostly free."

An examination of economic growth and progress toward economic freedom as measured in the Index confirms a clear trend toward economic growth in those sub-Saharan African countries that improved their scores since the first Index was published.11 As Chart 1 shows, of the 39 sub-Saharan African countries graded by the 2000 Index, those that improved economic freedom also experienced greater economic growth.

Failure of Foreign Assistance. Foreign assistance, both bilateral and multilateral, often is targeted at achieving the prerequisites listed above. Indeed, multilateral institutions such as the International Monetary Fund (IMF) and the World Bank often argue that they "condition" the distribution of assistance on how well countries implement policies to bolster the rule of law, embrace a more representative and transparent government, and liberalize their economies. Unfortunately, these conditions are not strictly enforced, and many countries receive assistance regardless of their progress toward reform.

A World Bank analysis of its past loans and credits concluded that assistance "has a positive impact on growth in countries with good fiscal, monetary, and trade policies."12 However, the 2000 Index of Economic Freedom shows that countries with "good fiscal, monetary, and trade policies" are more likely to experience positive economic growth whether they receive assistance or not.13 Conversely, countries with poor economic policies will not experience sustained economic growth, regardless of the amount of assistance they receive.14

Arguments that assistance is necessary for countries to adopt policies conducive to economic growth are refuted by a World Bank study that concludes, "Aid appears not to affect policies either for good or for ill."15 In other words, aid makes no discernable difference in the policy decisions of the recipient countries.

The bottom line is that development requires domestic political commitment, not foreign assistance. A government committed to reform does not need foreign assistance to act. Without that commitment, even $410 billion in assistance could not spur development in sub-Saharan Africa. Moreover, indiscriminate assistance negatively influences private investment.16 Private creditors require countries to demonstrate an ability to service their debt before they will extend additional loans, and they retreat from countries that cannot do so.17

The most tangible impact of large amounts of assistance aimed at improving development in sub-Saharan Africa has not been higher education levels, greater health, or increased wealth, but a crippling increase in the debt burden of many of the countries. This problem is the result of poor debt management policies, the lack of commitment to policies conducive to economic growth, and a willingness on the part of bilateral and multilateral creditors to extend the loans regardless of a recipient's ability to meet its future debt obligations or willingness to implement economic reforms.18

According to World Bank data, long-term debt guaranteed by the sub-Saharan African governments totaled 78.7 percent of total debt obligations in 1995. Debt owed to bilateral and multilateral institutions was 78.9 percent of the total long-term public debt owed by these countries.

The situation actually worsened by 1998--two years after the creation of the IMF and World Bank's Heavily Indebted Poor Country (HIPC) Initiative. Long-term debt guaranteed by sub-Saharan African governments remained at about 78 percent of total debt obligations in 1998, but debt owed to bilateral and multilateral institutions increased to 81.2 percent of total long-term public debt owed by these countries. At the same time, private investment has declined. A country-by-country breakdown of the debt based on a World Bank analysis is shown in Table 2.

WHAT MUST BE DONE

There is little the United States can do to solve the serious problems that plague the countries of sub-Saharan Africa. Answers to these problems lie in the decisions and actions of their governments and in their people. Their governments must implement fundamental economic and social reforms if their citizens are to secure economic growth and build future prosperity. The impetus and responsibility for such changes lies with them.

However, America can aid the sub-Saharan African nations in this process. Washington should, for example:

  • Forgive their multilateral and bilateral debt that has failed to finance development and hinders development efforts. Thirty-two of the 41 Heavily Indebted Poor Countries19 are in sub-Saharan Africa. Forgiving their debt would greatly lessen their burden--nearly two-thirds of the external long-term debt of sub-Saharan African countries is owed to official creditors. It would also increase their ability to secure private credit and dedicate greater resources to programs to improve education and health, for example, thereby increasing their prospects for growth in real per capita GNP in the future.

The HIPC Initiative has failed to secure rapid and substantial debt relief in sub-Saharan Africa. The IMF and the World Bank have modified the HIPC Initiative to hasten and deepen the debt relief, and President Bill Clinton is urging Congress to support 100 percent bilateral debt relief for the HIPCs. However, Congress should ensure that this debt relief is accompanied by sound conditions that will prevent a recurrence of the causes of the debt problem. A long-term solution to high external debt burdens in developing countries requires economic reforms and institutions that are conducive to securing stable, strong economic growth. It also requires a self-monitoring system to evaluate the credibility of potential borrowers and avoid a re-accumulation of unsustainable external debt burdens. Congress should insist that debt relief efforts be conditioned upon a reform of the bilateral and multilateral aid institutions that contributed to the debt problem in the first place.20

  • Focus future aid on recipients' policies that increase their prospects for growth, and channel aid away from governments while subjecting it to third-party auditing. Past foreign assistance failed to promote economic growth in part because it was poorly utilized by recipients and because it was not accompanied by the three prerequisites of development--political stability, rule of law, and economic freedom. Without policies designed to build these prerequisites, growth will be constrained regardless of assistance.

Aid is not necessary for development, but if policymakers insist on giving development assistance, they should require aid recipients to institute measures that prevent it from being misused or stolen. To avoid funding unintended projects or programs and reduce the possibility of funds being pilfered by corruption or used for political patronage, loans and grants should not be funneled through government agencies. They should be awarded to the non-governmental organizations (NGOs), agencies, or businesses involved in delivering the programs after having competitively bid on a project and won the contract. Third-party auditors should evaluate the loans and grants to provide impartial oversight and guard against corruption.21

  • Reduce U.S. barriers to trade with sub-Saharan Africa. In order to speed development, sub-Saharan African countries must have access to the markets of developed countries. Currently, the United States and Europe maintain prohibitive barriers on the exports, particularly textile and agricultural goods, which these countries' economies specialize in producing. It is hypocritical for Washington to make development in these countries a foreign policy priority while simultaneously undermining their ability to compete in U.S. markets because of trade barriers.22 The United States should remove all barriers to products from sub-Saharan Africa, particularly textiles and agricultural products that are subject to the most onerous barriers, and use its influence to persuade other countries to follow suit.23

Opportunities exist to advance these policy goals, particularly through policies like those embodied in legislation like the Technical Assistance, Trade Promotion, and Anti-Corruption Act of 2000 (S. 2382), which authorizes debt relief and foreign assistance. Other measures also could enhance these efforts. For instance, the Fair Competition in Foreign Commerce Act of 1999 (S. 1169) would require aid recipients to adopt anti-corruption measures and would subject all development assistance to independent third-party auditing of procurement to increase transparency. The African Growth and Opportunity Act Conference Report (H.R. 434) adopted on May 4, 2000, by a vote of 309-110, would expand U.S. trade with more than 70 African and Caribbean nations.

CONCLUSION

If poor countries in sub-Saharan Africa are to develop, they must work to build free markets and participate more competitively in the global economy. This region lacks the capital to sustain a level of economic growth necessary to reduce its relative poverty.

Specifically, the sub-Saharan African nations should increase exports to developed countries and foreign investment in their own economies. But this will require that developed countries lower their barriers to these exports and that the leaders of sub-Saharan Africa embrace social and economic policies that will increase economic growth and attract foreign investors. The United States can assist in this process by forgiving the debt they owe. It should also reform the foreign assistance program and open America's markets to their goods.

These steps will not immediately transform sub-Saharan Africa into a region of wealthy countries or even middle-income developing countries. However, they will set the stage for economic growth--something the current system has not done despite 40 years of aid.

--Brett D. Schaefer is Jay Kingham Fellow in International Regulatory Affairs in the Center for International Trade and Economics at The Heritage Foundation.


Endnotes

1. Susan E. Rice, Assistant Secretary of State for African Affairs, "The President's Trip to Africa," remarks to the City Club of Cleveland, Ohio, April 17, 1998, at http://www.state.gov/www/regions/africa/rice_980417.html

2. President William J. Clinton, "Remarks by the President to the People of Ghana," Office of the Press Secretary (Accra, Ghana), March 23, 1998, at http://www.pub.whitehouse.gov/uri-res/I2R?urn:pdi://oma.eop.gov.us/1998/3/25/20.text.2

3. Though the per capita GNP of South Asia is less than that of sub-Saharan Africa, it nearly doubled over the comparable period, from $223 in 1970 to $437 in 1998.

4. World Bank Group, World Development Indicators 2000 on CD-ROM.

5. Callisto Madavo and Jean-Louis Sarbib, "Is There an Economic Recovery in Sub-Saharan Africa?" World Bank Group, 1998, at http://www.worldbank.org/afr/speeches/ifpri.htm

6. Ibid.

7. World Bank Group, World Development Indicators 2000 on CD-ROM, data originally provided in current U.S. dollars and converted to constant 1996 U.S. dollars using Chart B3, "Quantity and price indexes for gross domestic product, and percent changes, 1959-1999," in Council of Economic Advisers, Economic Report of the President (Washington D.C.: U.S. Government Printing Office, 2000), transmitted to Congress February 2000, p. 310.

8. Between 1990 and 1996, net private financial inflows to emerging markets increased from $41.9 billion to $246.9 billion despite the Mexican peso crisis of 1994 and 1995. See International Financial Corporation, Emerging Stock Markets Factbook 1998, World Bank Group, p. 8. Likewise, private capital flows increased $31 billion, from $255 billion in 1996 to $286 billion in 1997, despite large-scale capital flight in much of the developing world sparked by the Asian crisis, which began with the devaluation of the Thai baht in July 1997. See data from World Bank Group, World Development Indicators 1999 on CD-ROM. Official development finance has remained essentially stable since 1985, peaking at $62.7 billion in 1991 and bottoming out at $34.7 billion in 1996. See International Financial Corporation, Emerging Stock Markets Factbook 1998, p. 8. Data for 1997 are preliminary.

9. "Zimbabwe Judged Most `Economically Unfree' Country in Region," Financial Gazette (Harare), February 10, 2000.

10. Robert J. Barro, "Rule of Law, Democracy, and Economic Performance," in Gerald P. O'Driscoll, Jr., Kim R. Holmes, and Melanie Kirkpatrick, eds., 2000 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2000), pp. 31-51.

11. Not all sub-Saharan countries are graded in the 2000 Index. The countries included were Angola, Benin, Botswana, Burkina Faso, Burundi, Cameroon, Cape Verde, Chad, Democratic Republic of Congo, Ethiopia, Gabon, Gambia, Ghana, Guinea, Guinea-Bissau, Ivory Coast, Kenya, Lesotho, Madagascar, Malawi, Mali, Mauritania, Mauritius, Mozambique, Namibia, Niger, Nigeria, Republic of Congo, Rwanda, Senegal, Sierra Leone, South Africa, Sudan, Swaziland, Tanzania, Togo, Uganda, Zambia, and Zimbabwe. Equitorial Guinea was excluded as an outlier due to the recent discovery of oil, which is a driving factor behind growth. See O'Driscoll et al., 2000 Index of Economic Freedom, pp. 16-17, and World Bank Group, World Development Indicators 2000 on CD-ROM.

12. Craig Burnside and David Dollar, "Aid, Policies, and Growth," World Bank, Policy Research Department, Macroeconomic and Growth Division, June 1997.

13. See Barro, "Rule of Law, Democracy, and Economic Performance," in O'Driscoll et al., 2000 Index of Economic Freedom, pp. 31-51; Alejandro A. Chafuen and Eugenio Guzmán, "Economic Freedom and Corruption," in ibid., pp. 51-65; and William W. Beach and Gareth G. Davis, "The Institutional Setting of Economic Growth," in Bryan T. Johnson, Kim R. Holmes, and Melanie Kirkpatrick, 1999 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 1999), pp. 1-20.

14. David Dollar and Lant Pritchett, "Assessing Aid: What Works, What Doesn't and Why," World Bank Policy Research Report, 1998, p. 2.

15. Burnside and Dollar, "Aid, Policies, and Growth."

16. Ibid., p. 3.

17. Analysis of debt trends for developing countries supports this belief. As the debt burdens of the heavily indebted poor countries increased, private creditors reduced their exposure, recognizing the decreased ability of these countries to service new debt. This is in stark contrast to developing countries as a group, for which private creditors were the main source of credit every year since 1970. This assumes that international financial institutions do not imply, through policy or practice, that unwise private investments and loans will be repaid through international assistance packages in the event of a financial crisis or the inability of a country to honor its debt. Such an implication creates a "moral hazard" that undermines the essential discipline and self-evaluation conducted by banks, businesses, and investors, which are necessary for markets to operate efficiently. See Brett D. Schaefer, The Bretton Woods Institutions: History and Reform Proposals, Economic Freedom Project, The Heritage Foundation, April 2000, pp. 32-36.

18. See Brett D. Schaefer, "Debt in Developing Countries: History, Structure, and Efforts to Address Unsustainable External Debt Burdens," paper submitted to the International Financial Institution Advisory Commission ("Meltzer Commission"), January 4, 2000.

19. The HIPCs are developing countries with unsustainable debt burdens, as defined by the IMF and the World Bank, after they have exhausted other debt relief measures such as those created by the Paris Club. All HIPCs but Bolivia, Equatorial Guinea, and Guyana are low-income developing countries. After evaluation, the following countries were classified as HIPCs in 1996: Angola, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Côte d'Ivoire, Democratic Republic of Congo, Equatorial Guinea, Ethiopia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Kenya, Lao PDR, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, Nicaragua, Niger, Republic of Congo, Rwanda, São Tomé and Principe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda, Vietnam, Republic of Yemen, and Zambia. Nigeria had been classified as a HIPC but was removed from the list in 1998.

20. See Denise H. Froning and Aaron Schavey, "Breaking Up a Triple Play on Poor Countries:
Changing U.S. Policy on Trade, Aid, and Debt Relief
," Heritage Foundation Backgrounder No. 1359, April 13, 2000.

21. A similar recommendation on how to reform the effectiveness of multilateral assistance is made in the Report of the International Financial Institution Advisory Commission, Allan H. Meltzer, Chairman, submitted to the U.S. Congress and the U.S. Department of the Treasury, March 8, 2000.

22. See Froning and Schavey, "Breaking Up a Triple Play on Poor Countries."

23. See Brett D. Schaefer and Gerald P. O'Driscoll, Jr., Ph.D., "Congress Should Promote Trade in Africa and the Caribbean," Heritage Foundation Executive Memorandum No. 660, March 7, 2000, and Aaron Schavey, "Choosing to Lead: Liberalizing Trade in Textiles and Apparel," Heritage Foundation Backgrounder No. 1366, May 9, 2000.

About the Author

Brett D. Schaefer Jay Kingham Senior Research Fellow in International Regulatory Affairs
The Margaret Thatcher Center for Freedom

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