Dec 04, 2007

Cheetahs, Free Trade, Growth and Subsidies: Is this African Boom Different?

by Laura Starita

There is plenty of good news coming from Africa these days—not least of which is that average economic growth on the continent exceeds world average growth by more than a percentage point (5.4% vs 4.2%). Growth is projected to pick up pace while other areas of the globe are projected to stall. As investors the world over look to allocate capital, more and more is flowing to African countries because of these growth rates. While much of the growth is driven by the global commodities boom, there is even more encouraging news: more than half of sub-Saharan African countries, according to the World Bank’s Doing Business report implemented reforms designed to make it easier to start and run a business.

According to a recent article by the Associated Press’ Chris Tomlinson, much of the growth in sub-Saharan Africa is being driven by a new generation of African entrepreneurs, powered by these reforms, access to credit and such programs as the U.S.’ African Growth and Opportunity Act (which allows for free trade with U.S. for African manufactured goods). George Ayittey, a Ghanaian economist, refers to these entrepreneurial leaders as “cheetahs”—fast, flexible, and aggressive in exploiting newfound opportunities.

Another side of this positive story is told by Celia Dugger in the New York Times, who writes of bumper crops in historically hungry Malawi. The difference, explains Dugger, is that the government “decided to follow what the West practiced, not what it preached,” by subsidizing fertilizer. Farmers in the West benefit from massive subsidies to cover the cost of chemical fertilizers. Meanwhile, the international aid organizations have been encouraging developing nations to drop such subsidies in favor of free markets. The explanation for this clash of advice and practice is that subsidy programs in many developing countries have been derailed by corruption—the subsidies went not to poor farmers but to friends of government officials. The most important change in Malawi is that the subsidy program has been well-administered. Even more encouraging is that the government plans to further devolve responsibility for the subsidy program to the village level—each village will determine for itself how to allocate fertilizer subsidies. While it’s possible that this will enable low-level rather than high-level corruption, it’s more likely to generate transparency and self-governing behavior that will benefit the whole country by reinforcing democratic mechanisms.

And that will be good news indeed. Because when the inevitable downturn in commodity prices comes, the “cheetahs” and local democracy just might be entrenched enough to keep sub-Saharan Africa growing.

World Bank: Doing Business 2008

Washington Post: Ghana Reflects Progress in Africa

New York Times: Ending Famine, Simply by Ignoring the Experts

Beyond Philanthropy: Top 5: Books About Africa (features George Ayittey’s latest book discussing the cheetah generation)