Simon P. Anderson
Jeffrey D. Sachs
Sub-Saharan Africa’s opportunity to escape from poverty is real and opportune, but the delayed demographic transition to low mortality and low fertility poses a serious risk. Without a faster demographic transition, Africa is likely to experience an unmanageable surge of population, youth dependency, etc. The demographic transition would combine greatly improved health outcomes with a large, rapid, and voluntary reduction of fertility rates. A low-fertility trajectory has the characteristics of a lower population growth rate and youth dependency ratio; and a higher ratio of arable land to population, rate of urbanization, level of schooling, level of human capital, total factor productivity, and GDP per capita. Accelerating the demographic transition would make it possible to limit the rise in Africa’s future population substantially, and thereby accelerate urbanization, schooling, technological advance, and economic growth.
Célestin Monga and Justin Yifu Lin
This introductory chapter of the second volume of the Handbook discusses Africa’s changing economic policy and institutional frameworks, and presents the ways forward. It starts with a chronicle of the rise and fall of the main economic strategies adopted by most African countries after independence, and highlights their rationale and shortcomings. It then draws some lessons to be learned from failures and successes, and stresses the inappropriate tendency of African policymakers to take as reference models the most advanced economies and try to replicate their strategies and policies mimetically. It argues that economic policy in developing countries be primarily conceived as an exercise of strategic selection, and concludes by insisting on the need for humility in the quest for relevant knowledge.
This article explores Africa’s new economic opportunities, paying particular attention to two economic prospects that are better than at any time since Africa gained independence. More specifically, it considers the exploitation of recent resource discoveries as a major source of revenues for Africa and the continent’s realistic chance at industrialization as China shifts its more labor-intensive manufacturing offshore. The article first assesses the implications of China’s economic growth both for middle-income countries globally and for low-income Africa, especially in terms of demand. It then looks at Africa’s distinctive geography and its important consequences, citing how resource endowment and location generate a simple but useful two-by-two categorization of Africa’s countries: coastal resource-scarce countries; landlocked resource-scarce countries; landlocked resource-rich countries; and coastal resource-rich countries. Finally, the article examines how Africa’s resource-rich and ethnically fragmented societies have influenced political allegiance.
Margaret McMillan and Kenneth Harttgen
This chapter examines Africa’s structural transformation, from its prolonged period of weak economic growth since the 1970s to the period of stronger growth over the past decade. It first describes the nature of structural change in Africa over the period 1960–2010 and compares structural change in Africa to that in other regions such as East Asia and Latin America over the same time period, paying particular attention to average incomes and level of employment shares across sectors including agriculture, manufacturing, and industry. It then considers evidence showing that structural change contributed positively to economic growth in Africa between 1960 and 1975, but negatively between 1975 and 2000 and positively again between 2000 and 2010. The chapter also reflects on the “data problem” and describes an empirical approach for understanding structural change in Africa.
M. Freire, S. Lall, and D. Leipziger
This chapter examines Africa’s urbanization and the challenges and opportunities it presents, with emphasis on what it will take to make African cities efficient, sustainable, and inclusive. Using economic geography as an organizing framework, it proposes policies that not only support agglomeration benefits but also manage congestion costs. The discussion begins by sketching key elements of African urbanization (heterogeneity, income levels, capital investment, etc.) followed by a review of recent literature on urban growth models and how they apply to Africa’s urbanization process. It then considers what should be done to encourage efficient and inclusive African cities, while taking into account the diversity of countries as well as the continent’s geographical and social division.
Célestin Monga and Justin Yifu Lin
This introductory chapter presents the objectives of this volume and discusses the challenges of producing relevant knowledge. It starts with an exploration of the reasons why Africa has remained neglected in economics, despite its important contributions to the discipline. It then highlights Africa’s enduring intellectual influence on some of the world’s leading economists. It discusses the traditional reasons why that deep positive influence is little known and rarely acknowledged in mainstream economics. It also offers a different explanation of the neglect of Africa as a rich source of economic knowledge, highlighting the fact that economic thinking on Africa has generally mirrored the general evolution of macroeconomics and the dominant frameworks of analysis of the continent’s low-income countries have always been fraught with analytical sins and mimetic choices.
Mark R. Thomas and Marcelo M. Giugale
African economies did not accumulate serious debt until the 1980s, when unprecedented export credits and development lending combined with slowing exports to send debt ratios climbing. This build-up became exponential in the 1990s. Influenced by defaults elsewhere, particularly in Latin America, early discussions of debt relief for Africa emphasized attracting private capital rather than writing off debt outright. The original 1996 Heavily Indebted Poor Countries (HIPC) initiative reflected this gradualism; only upon its 1999 enhancement did Africa receive real relief. By 2005, and the announcement of the Multilateral Debt Relief Initiative (MDRI), HIPC relief approached US$40 billion. By 2014, African debt relief in total was of the order of US$120 billion, with tangible effects on economic stability and on anti-poverty spending. This newfound economic stability has in turn ushered in increased mineral exploration and discovery, with a resulting boom in spending and borrowing on international markets, which could yet lead to new debt distress.
This chapter examines the role of Development Banks (DBs) as national and regional financial institutions that provide medium- to long-term capital for investment in various sectors of the African economy, particularly those that private commercial lenders are unwilling/unable to reach. More specifically, it considers the case for and the historical roles of DBs in financing Africa’s economic development. After presenting the generic case made for DBs, the article traces the history of DBs in Africa and discusses policies and practices across the region since independence. It then analyses why the economic rationale for DBs has been apparently unsuccessful in the presence of bottlenecks such as rent-seeking and political patronage. The article also evaluates alternative sources of development financing before concluding with a summary of lessons that can be learned from Africa’s experience with DBs in terms of development economics.
Alexander Moradi and Kalle Hirvonen
African adult populations are remarkably tall for the low income levels that prevail at the country level. The average African woman is about 158.5 cm tall, whereas the low gross domestic product per capita would lead us to expect a mean height more similar to the shortest populations in the world, about 4 cm shorter. This is the case in spite of the fact that indicators of socioeconomic status and height are positively correlated within each country. The chapter also shows that the physical stature of African children fit well into the global income–height relationship. Hence, we conclude that the anomaly in the income–height nexus at country level appears to originate between childhood and adulthood. We present evidence for considerable catch-up growth involving entire populations. We discuss possible reasons for this catch-up growth including genetics, and, above all, better nutrition and health conditions during adolescence.
Augustin Kwasi Fosu and Eric Kehinde Ogunleye
This chapter provides a panoramic view of the conceptualization, design, and implementation of growth strategies in Africa, from the pre-colonial period to the present. These strategies have been shaped by different schools of thought, interests, and emerging issues prevalent at the time. They have varied chronologically: from the colonial strategy of exporting commodities to feed Northern industries, the immediate post-independent import substitution, the Washington Consensus and the Post- Washington Consensus, to the current country-specific and regional cooperation strategies. Going forward, African countries need to craft growth strategies that ensure sustenance of the impressive growth recorded over the last decade. The growth must be more inclusive, through the optimal use of fiscal and natural resources as well as effective governance to improve job creation, and reduce inequality and poverty. In addition, any future strategy must be mindful of the environment and technological advances, and should entail strengthening regional integration and South–South cooperation.
This chapter discusses the experience of African countries with monetary unions, focusing on the CFA Zone where that experience has been the longest and the deepest history of integration. It briefly discusses how the intellectual legacy of colonialism led to distorted expectations and the neglect of the exchange rate—a crucial tool for improving the standards of living in open economies. It then provides the analytical framework for understanding why trade reforms did not yield positive results in the fixed exchange rate environment. The chapter also draws some lessons from that macroeconomics of masochism, which consists in pegging the exchange rate of small, poor economies to a strong currency. Finally, it reexamines the criteria for assessing the validity of monetary unions regardless of whether they peg their currency or not.
Salomón Salcedo, Fernando Soto-Baquero, José Graziano Da Silva, Rodrigo Castañeda Sepúlveda, and Sergio Gómez Echenique
Structural reforms implemented at both the macroeconomic and sector levels beginning in the 1980s played a fundamental role in the formation of Latin America's heterogeneous agricultural sector. Nearly all countries in the region embraced the same reform principles. Typically, these reforms saw unilateral trade liberalization, the elimination of subsidies, the privatization or closure of state-owned firms, the dismantling of research and extension institutions or a significant curtailment of their activities, and the deregulation of markets for agricultural goods and services. This chapter reviews these reforms, the challenges each country has faced in their implementation, and their impacts on the agriculture sectors of Latin American countries, and also considers the role of the state in agriculture and rural development.
Bart Minten PhD, Thomas Reardon, and Seneshaw Tamru
Ethiopia’s agricultural markets are quickly evolving, driven by major contextual changes including high population growth, rapid urbanization, major infrastructure investments, income growth, diet change, and policy reform. Agricultural supply chains are rapidly growing, and they are an increasing source of employment in the country. Agricultural markets are found to be better integrated and marketing margins and seasonal price amplitudes to have become smaller over time, but we also see an increase in prices of nutritious high-value foods, and this is in contrast to staple cereal prices. Although food imports and the number of food aid beneficiaries have not reduced over time, Ethiopia remained a net agricultural exporter, in value terms, for all but one year in the decade before this study, illustrating at the national level the relatively good performance of the agricultural sector.
Stefan Dercon and Douglas Gollin
This chapter discusses the role agriculture has played in growth and economic transformation in Ethiopia since the 1990s. Ethiopia’s dominant development strategy narrative since the 1990s has been Agricultural Development-Industrialization (ADLI), which takes its inspiration from dual-economy models of linkages between sectors. We use the theoretical perspectives of these models and of ADLI to discuss progress in growth and poverty in this period. We find that ADLI offered a plausible and seemingly successful strategy for Ethiopia at an earlier stage of its growth and transformation, but it has serious limitations. In more recent years there appears to have been more emphasis on urban and industrial growth and this may also have the potential to boost value added and labour productivity in agriculture—reversing the sectoral dynamics of the ADLI approach. Looking forward, we posit that to make further progress in agriculture, there is a need to acknowledge and facilitate the transmission of urban and international demand, thereby encouraging higher-value crops and higher value addition.
Ousmane Badiane and Tsitsi Makombe
This chapter reviews the evolution of development theory and practice, the role of agriculture therein, and the pace of structural transformation in Africa over the last 50 years. The evolution has involved shifting roles of industry versus agriculture and that of government and the public sector versus markets and the private sector. Government intervention in favor of industrialization in the 1960s and 1970s resulted in the neglect of agriculture, poor growth performance, and a productivity-reducing structural transformation, characterized by an increasing concentration of low productivity labor in the informal service sector. The chapter suggests a move away from the dual economy to a three-dimensional model that pays greater attention to the large informal segment of the service sector. A successful transformation will require accelerated agricultural productivity growth, a modernized informal service sector, and effective industrialization strategies, with balanced roles for government, markets, and the private sector, all supported by country-led, evidence-based strategies.
Peter Quartey and Gloria Afful-Mensah
Some authors have stressed the importance of aid in boosting growth, given that poverty levels in most aid recipient countries (particularly sub-Saharan Africa) have continued to worsen in the presence of increasing aid, others have questioned the relevance of aid in enhancing growth. The chapter briefly looks at the trend in aid by the major donors to Africa and the aid architecture in Africa. This is followed by a presentation on the varying arguments in this controversial topic by looking at some issues raised in the development discourse. Given that aid is viewed as a “cultural good” in Africa such that some governments are even evaluated based on their ability to attract aid inflows, a clear consequence of the financial crisis is that many donors have sent signals of cutting down aid which obviously a wake-up call for aid dependent economies (particularly Africa) to look for alternatives sources of finance.
Tony Addison, Saurabh Singhal, and Finn Tarp
This chapter explains how official development assistance (ODA) can help achieve the structural transformation of African economies, and thereby inclusive growth, employment and peace. It begins by looking at research on the link between aid and economic growth and considers how aid can assist Africa better integrate into the global economy. It then discusses the role of aid in Africa’s development strategy after 2015 and argues that investing in more infrastructure, especially for regional economic integration, will make aid a useful instrument to improve both growth and equity across the region. The chapter also highlights the role of infrastructure in building climate change resilience before concluding with an assessment of the future role for aid to Africa.
This chapter examines the role that public policy initiatives—specifically anti-poverty transfers—have played in the reduction of poverty and inequality in Brazil. A number of anti-poverty initiatives are considered in turn, and not just the widely known Bolsa Familia conditional cash transfer program. The analysis establishes that such transfers—including conditional cash transfers—have proved surprisingly effective, even helping to tackle long-standing income inequality. It is recognized that explicit anti-poverty initiatives were not the only drivers of the reduced incidence of poverty and inequality: factors such as growth and improved access to labor markets also played a role. However, progress is now threatened by the recent economic and political crisis.
Enrique Dussel Peters
This chapter focuses on the effects of Mexico’s export-oriented industrialization (EOI) strategy, which replaced the previous import-substitution approach. It argues that since the implementation of an export-oriented approach, GDP growth in Mexico has lagged behind much of Latin America. The country has maintained a trade surplus with the United States, but has had growing deficits with the European Union and Asia. Section 1 of this chapter examines the theoretical and policy proposal of the current EOI developed in Mexico since the late 1980s, also relevant for the implementation of NAFTA in January of 1994. Section 2 analyzes the general trends in the mentioned variables since EOI strategies took place, and particularly for its most export-oriented sector, manufacturing. In this general context, section 3 discusses the structural changes of a specific sector, the yarn–textile–garment commodity chain, in order to understand the conditions and challenges of a concrete sector. This chain will also be useful to understand the specificities of EOI to the United States and the characteristics of Mexican exports in terms of linkages, inputs, and learning processes. Finally, section 4 outlines conclusions and proposals for Mexico’s socioeconomy in the current context of an open and globalized economy.