Why you should care
It’s dangerous to assume that economic growth across Africa is actually improving the lives of Africans themselves.
By the books, it’s rising. Africa had six of the world’s 10 fastest-growing economies in the 2000s. Minerals, metals and oil are nourishing long-starved government coffers. In January, Kenya’s Revenue Authority said it had collected too much money in taxes over the previous six months — 24 percent more than during the same period the year before.
But don’t go telling your friends Africa is no longer poor. The raw numbers are misleading, and “much of Africa’s celebrated growth is vulnerable,” according to the first Africa Transformation Report, published last month by the African Center for Economic Transformation (ACET). According to ACET, African economies have failed to transform in ways that would ensure long-term gains.
In that argument, ACET joins a burgeoning subfield of economists trying to explain the discrepancy between fast economic growth and slow human progress in some African countries. Their ranks include Dani Rodrik and other development economists, but ACET’s report may be the most prominent. They hope their ideas change how we think about national success.
Source: Thierry Roge-Pool/Getty
The Transformation Report’s argument against GDP growth is simple: In many African nations, gains from extractive industries and rising commodity prices inflate GDP growth. That kind of growth is fleeting, as oil and mineral prices tend to bust over the long run.
“This time the question is: How do we ensure that growth lasts?” Yaw Ansu, ACET’s chief economist, told an interviewer in March.
“Transformation” is trickier to measure than GDP growth, though. Indeed, one reason GDP has become a metric of choice is that it’s so neat —a single number that aims to measure the total value of goods and services in a country. The Transformation Index, by contrast, considers an array of metrics: economic diversification, export competitiveness, productivity, technology and something it calls “human economic well being.”
By these measures, the Transformation Index arrives at unflattering conclusions about the fastest-growing African nations:
- Nigeria overtook South Africa this year as the continent’s largest economy, but it sits at the bottom of the Transformation Index. Its oil-dependent economy is not diversified.
- Rwanda has long been championed by the U.S. State Department and others for its rapid improvement in health indicators, education and GDP — despite the anti-democratic tendencies of President Paul Kagame’s government. It too ranks near the bottom of the Transformation Index.
- Ghana and Ethiopia don’t score highly, either, despite recent strong GDP growth. For them, growth has failed to translate into jobs and shared gains.
Source: Kelly Gilblom/Corbis
Besides using GDP growth as one of many metrics, the index factors out the extractive sector. No income from oil, minerals or gas. The idea is that exploiting nonrenewable resources makes no lasting contribution to progress.
“If you look at the structure of African economies over the 40- or 50-year period, really nothing has changed,” Ansu told OZY. “If all you do is have foreign companies come dig for you and give you a check, that’s not transformation.”
The Transformation Index and a few other alternate indices show that Africa needs more than simple GDP expansion.
In the meantime, easy, short-term gains can handicap other sectors. It’s easy to see why. Pretend America’s entire economy were based on monthly checks from, say, Saudi Arabia, in exchange for pumping Alaskan oil. Would the U.S. bother investing in research universities, agriculture and other prerequisites for long-term growth?
Africa’s second largest nation, the Democratic Republic of Congo, illustrates the often tenuous relationship between GDP growth and prosperity. Since its second civil war ended in 2003, Congo’s GDP has grown steadily between 4 and 8 percent per year, fueled by mining of copper and other minerals.
But that GDP growth means little to most Congolese. Last January I visited the crowded capital city, Kinshasa, where I met a community of fishermen along the Congo River who were struggling to feed themselves and their families. Just across the water, a private city was rising to house Congo’s 1 percent — the few who benefit from Congo’s growing mining, banking and construction sectors. As in cities around the world, growing revenues by governments haven’t translated into shared gains by their people.
Nations that have grown over the long-term, like Brazil or South Korea, have much more in the way of fundamentals. Their exports are competitively priced, they adopt new technology quickly, and their workers are getting ever more productive. They’re also large, by geography and population. Most African countries are comparatively small, some with populations of only several million. As a result, “African countries need to be much more ingenious to leverage their advantages, abundant labor and natural resources to promote exports,” says Ansu.
To be sure, steady, single-digit GDP growth beats a shrinking economy — which many African nations have experienced over the past half-century. But while no index yields a perfect measure, the Transformation Index and a few other alternate indices show that Africa needs more than simple GDP expansion.
The U.N.’s Human Development Index, for example, takes into account life expectancy, educational attainment and income. In its most recent ranking, African nations and Afghanistan took all the bottom 25 places.
Perhaps Robert Kennedy voiced the most eloquent critique of GDP in 1968:
Gross National Product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate, or the integrity of our public officials.
It “measures everything, in short,” Kennedy concluded, ”except that which makes life worthwhile.”