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Week Three Notes: African Economic Growth
Reading Notes
Reading 1: Growth and Transformation
T.J. Moss and D. Resnick, ch. 6 “Growth and Transformation” in African Development: Making Sense of
Issues and Actors, Rienner (2017) pp. 97-112.
At the beginning of independence, Africa’s economic prospects were considered bright. Instead, most
African economies faltered, with only a few countries making real progress. African industrialization
was essentially a complete failure, and few countries had successfully made the transition beyond a
skeleton of the inherited colonial economy. Even in countries that continue to do well, the overarching
question is whether growth can reduce poverty and generate decent employment, particularly in a
region of the world with such a sizable youth bulge.
Real GDP Growth
● Economic growth is an increase in the value of production and income for a given geographical
space.
○ Used to indicate levels of economic activity and is typically measured as the yearly
change in the gross domestic product (GDP) for a country.
■ Nominal GDP uses current prices and does not account for inflation
■ Real GDP uses constant prices and does adjust for inflation
■ To measure economic growth, you must use real GDP over time to get a sense
of the real changes in the economy.
■ Real GDP divided by the total population, giving you real GDP per capita (per
person).
○ Gross national income (GNI), which also captures income earned abroad
● None of these measures are very precise in Africa → especially since much of the real
economic activity is informal and not covered by formal GDP
○ Still gives a good indication of whether things are getting better or worse, and roughly by
how much.
● The relationship between population and growth.
○ Just because one divides total GDP by population to calculate ‘per capita’, this is not the
same as saying that the problem with Africa's low average incomes is too many people.
People undertake economic activity.
○ While many African countries have very high population growth rates of more than 2
percent, this is an economic problem only if they do not have the skills and
opportunities to use their labor productively.
Why Growth Matters
Economic growth is, of course, not the same as development,
● There are many ways to measure and define development, and there has been frequent
criticism that economists and policymakers overemphasize growth at the expense of other
indicators, such as quality of life.
However,
● Countries with fast-growing GDPs are improving and getting wealthier more quickly than those
with slower rates of growth.
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Why growth matters:
➔ Useful indicator: change in GDP is the best measure we have no matter what definition of
development is preferred, not because money is more important than other things, but because
income can actually tell us a lot about how well people live.
➔ Wealthier is better: income is closely related to other important things such as health and
education. When one rises/declines so does the other.
➔ Growth creates opportunities: If growth is creating more jobs, kids are more likely to go to
school to get training. Governments can raise more tax revenues and invest in key goods and
services such as sanitation, transport, quality of health, and education etc.
➔ Growth reduces poverty: As growth accelerates and economies expand, people get pulled out of
poverty. Historically, countries with high rates of economic growth have reduced poverty much
faster than economies with slow growth.
➔ Africa needs a bigger pie: average incomes are so low in Africa, redistribution is not really an
option, it's about growing a bigger pie.
Africa’s Growth Performance
● The 1960s: Africa's growth in the immediate post-independence period was fairly positive, with
income per capita rising about 2.6% per year during the 1960s.
● The 1970s: income per capita slowed to just 0.9% per year and became dismal afterward
● The 1980s: are often known as the “lost decade” whereby average incomes declined by 1% per
year.
● The 1990s: slower decline with income per capita still losing only 0.4% per year
● The 2000s: was a growth period, with average annual GDP p.c growth for SSA estimated at
around 2.7%.
! Great variance between individual countries.
Asia vs Africa
● Africa’s growth performance is particularly stark when compared to other developing regions that
have made much more progress.
● Between 1970-2000 Africa’s average GDP p.c. fell 0.2 percent per year → leaving the average
African poorer than they were a generation earlier.
● During that same time, the average income in South Asia more than doubled, and in East Asia,
they grew by about five times.
Example: Indonesia and Nigeria → both oil-exporting countries and their steady divergence
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Sources of Africa’s Sluggish Growth
The reasons for Africa’s disappointing growth performance are complex and not well understood * (see
Chitonge)
● Part of the problem is the lack of a universal explanation → each economy in Africa has a
variety of different starting points and faces a range of diverse constraints.
● Among the many reasons thought to be part of the story are structural factors, endowments,
policies, and institutions.
Structural Change and Economic Transformation
● Another key reason we care about growth is because of its; potential to generate jobs. This is
critically important in Africa, where unemployment is by far viewed as the region’s overriding
development problem.
● Extensive research generally concludes that much of the region’s recent growth has been
relatively “jobless” because it has been driven either by commodity price increases, by growth
in the mining and construction sectors, or by the expansion of public investment.
● This move generally has been from very low productivity subsistence agriculture to marginally
more productive retail trade services, especially in the informal sector.
● Finding ways to kick-start manufacturing industries has revamped debates over controversial
policy options that allow governments to pick and protect “winners,” with subsidies or tax
incentives.
Structural Fatalism?
● Many of Africa’s economies have not successfully diversified away from primary commodities
and colonial-era industries.
● Also, global trading rules, especially tariff escalation on manufactured goods, do tend to
discourage moving up the value chain
● Africa's history is certainly unfortunate in many ways, but by no means does the past indicate
an unavoidable destiny.
○ The great differentiation among African countries since independence suggests that slow
growth and developmental failure are far from predetermined.
Endowments
Africa appears to have several structural characteristics that impinge on growth and that governments
or outsiders can do little to change:
● Geography: Africa’s coastline is remarkably straight with few bays, inlets, or natural ports
making trade and commerce difficult. Few of the rivers are navigable very far inland, leaving vast
stretches of the continent inaccessible. This geography is especially costly for the fifteen
landlocked countries
● Climate: The climate affects health and agriculture which ultimately impact the economy
○ The tropical climate in many parts of the continent is linked to a greater disease burden,
poorer overall health, and reduced life expectancy. Malaria imposes a huge burden on
African economies.
○ Rainfall patterns, with long dry seasons followed by heavy rainy ones, are not conducive
for many kinds of productive agriculture.
○ Poor solid quality, vast stretches of desert or semiarid land, and frequent drought.
○ Perennial floods in cities along the coasts → rising sea levels in low-lying areas
contribute to perennial flooding
● Demography: high birth rates are considered symptoms of poverty and underdevelopment rather
than causes.
