Economic decline in Africa

July 31, 2012

Free Market Foundation

Africa is an economic disaster. In sub-Saharan Africa, per capita gross domestic product (GDP) is now less than it was in 1974, having declined over 11 percent. As a result, hundreds of millions of Africans have become poorer, according to a study published by the National Bureau of Economic Research in the U.S.

The direct cause of these countries’ impoverishment is the lack of investment. Over the past 40 years the investment rate has fallen:

Since 1975 the investment rate has declined to 8.5 percent of GDP.

This compares to 20 to 25 percent for the average developed nation and 30 percent for East Asian economies.

Furthermore, most African investment was directed to inefficient and corrupt public sector projects.

Another problem is that Africa is sorely lacking in human capital, especially education and health:

In the 1960s, the overall primary school enrolment rate averaged 42 percent, compared to a nearly 100 percent rate in rich nations and East Asian countries.

If Africa had enrolment rates at developed nations’ levels during the 1960s, its average 0.9 percent growth rate would have been 2.37 percent and per capita incomes would be 2.5 times larger.

If Africa’s life expectancy matched developed nations’, its annual growth rate would have been 2.07 percentage points higher.

The authors point out that massive aid programmes have not helped much. Instead, they suggest that new initiatives may be needed. For example, more research could be focused on the devastating health problems because Africans themselves have neither the resources nor the expertise to discover the vaccines that prevent AIDS or malaria.

Source: Les Picker, The Economic Decline in Africa, NBER Digest, January 2004; based upon: Elsa Artadi and Xavier Sala-I-Martin, The Economic Tragedy of the XXth Century: Growth in Africa, National Bureau of Economic Research, Working Paper No. 9865, July 2003.

For text http://www.nber.org/digest/jan04/w9865.html
For study text http://papers.nber.org/papers/w9865
For more on Africa http://www.ncpa.org/pi/internat/intdex9.html

FMF Policy Bulletin/ 13 April 2004