Friday, May 21, 2010

The African Century

I WON’T go back to Dar es Salaam for a long time,” said one prominent South African after returning from the World Economic Forum Africa meeting that was held in the Tanzanian city earlier this month.

I’m certain she wasn’t serious. Dar es Salaam is a bit chaotic — highways without proper storm-water drains and a power supply held hostage to a recent drought can be annoying — but hospitable, gentle people, five-star hotels, and an air of excitement and achievement make it more than worthwhile if you are there for business. If you are on vacation, there are many more rewards.

The World Economic Forum meeting had a slightly schizophrenic tone. Some Africans and Afrophiles continued their pleas for the foreign investors and donors to take an interest in Africa, to increase foreign aid and to consider investments. Others, the Afro-optimists (Kenyan Prime Minister Raila Odinga introduced the term), were a little embarrassed by these old-fashioned views.

For the Afro-optimists, Africa’s future is much brighter, and it is in our hands. Africans’ correct posture, for the Afro- optimists, is not on our knees, but shovel in hand, building our own future. The donors and the investors will respond accordingly. During the depths of the economic crisis, many believed that African countries were the most vulnerable. Indeed, the leaders’ statement at the London Group of 20 summit made special provision for measures to protect least-developed countries.

These measures were welcome, and some were well used. As it turned out, however, African countries escaped the economic crisis remarkably unscathed. In fact, other than SA and a few damaged states, very few countries in Africa actually experienced an economic recession.While the world’s economy shrunk by about half a percent last year, Africa’s grew by 2%, on average.

One explanation is that a significant number of small African economies are not well integrated into the world economy, and therefore escaped its ructions. But this raises the question: on what basis were they growing if not for the production of exports? We will leave that question for now and get back to it. More important is that fact that many African countries have adopted prudent macroeconomic policies over the past 20 years. If one looks at budget balances, government debt, inflation, and foreign reserves — African policies are in a different, far better place, compared with the haphazard policies of the early postcolonial decades.

But it is not only good macroeconomics. Regulatory reforms have greatly improved the investment environment. African economies are starting to diversify quite rapidly into manufacturing and services. Prices for key inputs such as communications services have fallen fast in a several African countries that have adopted good policies.

And — getting back now to the earlier point about delinking — domestic production and consumption is increasingly contributing to economic growth in Africa. This points to effective microeconomic reforms, and bodes well for economic and social development. Is this a flash in the pan? Will African economies revert to (caricatured) type? In the pre-crisis decade, African growth averaged nearly 5%. A few oil exporters grew faster and a few weaker or crisis-ridden states, such as Côte d’Ivoire, Zimbabwe and Somalia, grew much slower or shrank.

But the general performance was steady and strengthening. For the medium-term future, sub-Saharan Africa will be the third-fastest growing region in the world, after China and India, according to the International Monetary Fund. Africa is expected to grow at nearly 5% this year, and at 5,5%-6% next year and beyond. Good macroeconomic policies allowed many African countries to use stimulatory fiscal and monetary policy measures to steer through the crisis.

There is no doubt that Africa’s performance through this crisis has been more impressive than at any other time since colonialism. During colonialism, Africa was usually used as a source of cheap finance by the colonial powers during economic crises. So, its performance in the 2008-09 economic crisis is probably better than at any time since Africa was integrated into the world economy. Why is it better now? One important factor is that African governments are more accountable today than they have been before.

According to the Freedom House index, a particular view of political freedom in Africa, less than one-third of African countries were free or partially free in 1990 . Today, two-thirds of African countries are free or partly free. It’s not surprising that more accountable governments got through the crisis better. The Harvard economist Dani Rodrik found, against many presumptions, that accountable governments get countries through crises better than authoritarian governments. The evidence for a link between democracy and long-term growth is not as strong, but Africa does seem to be providing that evidence right now.

Can these economic and democratic gains be reversed? Of course they can, but the link between democracy and better economic performance does seem to have had an effect on the thinking of African leaders and the citizens of African countries. The positive gains of democratic policy reforms underwrite their own future.

The 2010 World Economic Forum Africa in Tanzania was very well attended. It is not surprising. While most of Africa remains less than a straightforward proposition for business, the returns and the potential returns remain high. Now the risk is slowly declining, and yet the rewards remain very attractive. With a population of more than 1-billion , and with incomparable natural resources, the odds on this being the African century are steadily strengthening.

- Hirsch is deputy director-general: policy in the Presidency.