Aug 10, 2006

Can Africa Learn to Share Its Wealth?

by Laura Starita

The majority of news stories on Africa focus on the bleaker aspects of life on the continent: poverty, civil war, malaria, tuberculosis, HIV and AIDS. How refreshing, then, to hear some good news. The Economist reported earlier this summer that the Organization for Economic Co-operation and Development (OECD) estimates continent-wide economic growth in 2005 reached 5 percent, with even more robust numbers expected for 2006. This average doesn’t highlight the stars, Angola showed growth rates of 15 percent.

Now the bad news: the growth is largely attributed to the sale of commodities such as oil, minerals, diamonds and the like; industries that do not create many jobs. In short, there is money going into Africa, but its poor are not reaping the benefits.

Take the case of South Africa, as reported in the Wall Street Journal. South Africa is the continent’s largest, most diverse economy accounting for more than a third of sub-Saharan Africa’s GDP. Improved higher education coupled with affirmative action campaigns created a growing black middle class. Yet unemployment remains at above 30 percent, HIV/AIDS is spreading unabated, crime rates – especially violent and sexual crime – is high, and rising interest rates and a weak rand are challenging growth.

The article says:

The root problem is that South Africa has one of the world’s most unequal divisions of wealth. “South Africa’s distribution of income is worse than anywhere in the world, with the exception of Venezuela and Brazil,“ says Tony Twine, an economist at Econometrix, a research institute in Johannesburg.

The message is that a region can only prosper long term to the extent that its poorest citizen is prosperous. But distributing wealth equitably is not easy. If it were, everyone would be doing it. Even the developing world’s economic success stories, India and China, despite raising millions out of poverty, still have hundreds of millions more living on $2 per day.

One country that is successfully changing the equation of growth and poverty is Vietnam. According to The Economist, Vietnam has seen stellar expansion recently, with an average of more than 7.5 percent annual growth since 2001. Since the 1990s, Vietnam has gone from having a per-capita poverty rate twice the average of South Asia’s to being on par with its peers in the region. More of Vietnam’s children are in school, fewer of its babies die at birth and its people are living longer. The secret seems to be attributed to sharing the wealth, as the country has invested in infrastructure – roads, energy – and its diverse economy is providing jobs. The government has been fighting corruption, meaning more money goes to the people instead of into officials’ pockets. Africa should take note.

Economist: Africa’s Economy: A Glimmer of Light at Last

Vietnam: Good Morning at Last

Wall Street Journal: Booming South African Economy Faces Test