Economy of Africa
2007 Schools Wikipedia Selection. Related subjects: Economics
| Population: | 887 million (14%) |
| GDP ( PPP): | US$1.635 trillion |
| GDP ( Currency): | $558 billion |
| GDP/capita ( PPP): | $1,968 |
| GDP/capita ( Currency): | $671 |
| Annual growth in per capita GDP: |
0.74% (1990-2002) |
| Income of top 10%: | 44.7% |
| Millionaires: | 0.1 million (0.01%) |
| Population living on under $1 per day: |
36.2% |
| External debt as a percent of GDP |
60.7% (1998) |
| External debt payments as a percent of GDP |
4.2% |
| Foreign aid revenue as a percent of GDP |
3.2% (2001) |
| Estimated female income |
51.8% of male |
| Numbers from the UNDP and AfDB. Most numbers exclude some countries for lack of information. Since these tend to be the poorest nations, these numbers tend to have an upwards bias. Numbers are mostly from 2002. | |
| See also: Economy of the world - Economy of Africa - Economy of Asia - Economy of Europe - Economy of North America - Economy of Oceania - Economy of South America | |
The economy of Africa consists of the trade, industry, and resources of the peoples of Africa. As of July 2005, approximately 887 million people were living in 54 different states. Africa is by far the world's poorest inhabited continent, and it is, on average, poorer than it was 25 years ago. Of the 175 countries reviewed in the United Nations' Human Development Report 2003, 25 African nations ranked lowest.
Africa's current poverty is rooted, in part, in its history. The transition from colonialism has been shaky and uncertain. The Cold War and increased corruption and despotism have contributed to Africa's poor economy. While China and India have grown rapidly and South America has experienced moderate growth, lifting millions above subsistence living, Africa has stagnated and even regressed in terms of foreign trade, investment, and per capita income. This poverty has widespread effects, including low life expectancy, violence, and instability, which in turn perpetuate the continent's poverty. Over the decades, attempts to improve the economy of Africa have met with little success.
Regional variation
While no African nation is wealthy enough to join the ranks of the developed nations in the Organisation for Economic Co-operation and Development ( OECD), the entire continent is not utterly impoverished and there is considerable variation in its wealth. The richest areas are the far north and south of the continent. Arab North Africa has long been closely linked to the economies of Europe and the Middle East. South Africa is by far the continent's wealthiest state, both in GDP per capita and in total GDP, and its neighbours have shared in this wealth. The small but oil-rich states of Gabon and Equatorial Guinea round out the list of the ten wealthiest states in Africa.
West Africa, with its long pre-colonial history of trade and development, has tended to be wealthier and more stable than the continental average. Island nations such as the Seychelles, Cape Verde, and Mauritius, have remained wealthier than the continental nations, although the unstable Comoros remain poor.
The poorest states are those engaged in or just emerging from civil wars. These include the Democratic Republic of the Congo, Sierra Leone, Burundi, and Somalia. In recent times the poorest region has been the Horn of Africa, although it had historically been one of the wealthiest regions of sub-Saharan Africa. Ethiopia in particular had a long and successful history. The current poverty of the region, and the associated famines and wars, have been a problem for decades.
There is considerable internal variation within countries. Urban areas, especially capital cities, are generally wealthier than rural zones. Inequality is pronounced in most African countries; an upper class has a much higher income than the majority of the population.
History
Before the Roman Empire, Ancient Egypt was one of the world's most prosperous and advanced civilizations. The port of Alexandria, founded by Alexander the Great in 334 BC, was a hub for Mediterranean trade for centuries. Well into the 19th century, Egypt remained one of the most developed regions outside Europe.
South of the Sahara conditions were different. Internal trade within the continent, hindered by thick forests and massive deserts, was always difficult. Prosperity in sub-Saharan Africa was rare, excepting Nubia, Ethiopia, Mali and Ghana, which had trade routes north to the Mediterranean world and Middle East.
New technologies and the development of civilization made trading easier. For most of the first millennium AD, the Axumite Kingdom had a prosperous trade empire on the eastern horn, where the modern states of Ethiopia and Eritrea lie. Axum had a powerful navy and traded as far as the Byzantine Empire, India, and possibly China. The introduction of the camel by North African Arab conquerors in the 10th century opened trade across the Sahara for the first time. The profits from the gold and salt trades created powerful empires in the western Sahel including the Kingdom of Ghana and the Mali and Kanem-Bornu Empires, where travellers reported vast wealth. Arabs helped build a maritime trade along Africa's east coast, which prospered as Swahili traders exported ivory and slaves across the Indian Ocean.
Further south empires were less common, with the notable exception of Great Zimbabwe. In the Great Lakes region, states such as Rwanda, Burundi, and Buganda became strongly centralized, due to its high population and agricultural surplus.
In the 15th century, Portuguese traders circumvented the Saharan trade route and began to trade directly with Guinea. Other European traders followed, rapidly boosting prosperity in Western Africa. States flourished, including the Kingdom of Benin, Dahomey, and the Ashanti Confederacy. Loose federations of city states such as those of the Yoruba and Hausa were common. However, this wealth was principally based on the slave trade, which collapsed following the abolition of slavery and later European colonization.
Although Europeans were ostensibly committed to developing their colonies, colonial rulers employed a laissez-faire strategy during the first decades. It was hoped that European companies would prosper if given a secure operating environment. This only occurred in a few areas with rich resources; the colonial economies hardly grew from the 1890s through the 1920s. The colonies had to pay their own way, receiving little or no development money from Europe. Only in the 1930s, with the rise of Keynesian economics, did the colonial administrations seriously encourage development. However, new projects could not transpire until after the Great Depression and the Second World War.
African economies boomed during the 1950s as growth and international trade multiplied beyond their pre-war levels. The insatiable demand for raw materials in the rebuilding economies of Asia and Europe and the strong growth in North America inflated the price of raw materials. By the end of the colonial era in the 1960s, there was great hope for African self-sufficience and prosperity. However, sporadic growth continued as the newly independent nations borrowed heavily from abroad.
The world economic decline of the 1970s, rising oil prices, corruption, and political instability hit Africa hard. In subsequent decades Africa has steadily become poorer compared to the rest of the world; South America experienced solid growth, and East Asia spectacular growth, during that same period. According to the World Economic Forum, ten percent of the world's poor were African In 1970; by 2000, that figure had risen to fifty percent. Between 1974 and 2000 the average income declined by $200. Beginning in 1976, the Lomé agreements and Cotonou agreement between the EU and ACP countries, including Sub-Saharan Africa, have structured economic relations between the two regions.
Sectors
Agriculture
The African economy relies more on agriculture, which employs 60% of labourers, than any other sector. About three-fifths of African farmers are subsistence farmers. They till small plots of land to feed their families, selling a minimal surplus for other goods. They make enough to stay alive but not enough to gain anymore wealth. Larger farms grow cash crops such as coffee, cotton, cocoa, and rubber. These farms, normally operated by large corporations, cover tens of square kilometres and employ large numbers of labourers.
Exporting crops to the West while millions on the continent starve has been blamed on Japan, the European Union and the United States. These countries protect their agricultural sector by high import tariffs. Subsidies to their own farmers leads to overproducing such commodities as grain, cotton and milk. This lowers the global price of such products until Africans are unable to compete, except for cash crops that do not grow easily in a northern climate.
Due to these market forces, in Africa excess capacity is devoted to growing crops for export; thus, when civil unrest or a bad harvest occurs, there is no food saved and people starve. Excess foodstuffs grown in developed nations are often destroyed, as it is not economically viable to transport it across the oceans to a market poor in capital. Ideally, cash crops can expand a nation's wealth, but not when their production leads to famine.
Mining and drilling
Africa's most valuable exports are minerals and petroleum. A few countries possess and export the vast majority of these resources. The southern nations have large reserves of gold, diamonds, and copper. Petroleum is concentrated in Nigeria, its neighbours, and Libya.
While mining and drilling produce most of Africa's revenues each year, these industries only employ about two million people, a tiny fraction of the continent's population. Profits normally go either to large corporations or to the governments. Both have been known to squander this money on luxuries for the elite or on megaprojects that return little value.
In some cases, these resources have turned out to be a curse. Although Congo is rich in minerals, the country remains one of the poorest countries in the world. This is historically due to ownership fights over these minerals, tracing back to the early 1900s. After Congo's independence from Belgium, the colonial government hesitated to leave behind these resources. Congo solicited UN help against Belgium, but that turned out to be a bad idea. In an attempt to get out of the quagmire, Congo sought Soviet assistance. This led the country into deeper trouble, as the country separated into two and a long proxy war between the West and East began.
Manufacturing
Africa is the least industrialized continent; only South Africa has a substantial manufacturing sector. Despite readily available cheap labour, nearly all of the continent's natural resources are exported for secondary refining and manufacturing. According to the AFDB, about 15% of workers are employed in the industrial sector.
The multinational corporations that control most of the world's major industries and their financiers require political stability before erecting an expensive factory. An educated populace, good infrastructure and a stable source of electricity are essential to investments. These factors are rare in Africa. Other developing regions of the world such as India and China have been more attractive to companies looking to build a new factory or invest in a local enterprise.
Many African states used to limit foreign investment to ensure local majority ownership. Close governmental control over industry further discouraged international investment. Attempts to foster local industry have been hampered by insufficient technology, training, and investment money. The paucity of local markets and the difficulty of transporting goods from major African centres to world markets contribute to the lack of manufacturing outside of South Africa.
Investment and banking
Banking in Africa has long been problematic. Because local banks are often unstable and corrupt, governments and industry rely on international banks. South Africa alone has a thriving banking sector, aided by the international sanctions of the apartheid era, which forced out the once-dominant British banks. In the years after independence, African governments heavily regulated the banking sector and placed strict limits on international competition. In recent decades, banking reform has been a priority of the IMF and World Bank. One important reform was obtaining permission for increased penetration by foreign banks. South Africa has been the most successful in attracting local operation of foreign banks.
Encouraging foreign investment in Africa has been difficult. Even Africans are reluctant to invest locally; about forty percent of sub-Saharan African savings are invested in other markets. Foreign governments who invest may have ulterior motives not in the best interest of the African economies. The IMF and World Bank only lend money after imposing stringent conditions such as austerity policies.
There are two African currency unions; the West African Banque Centrale des États de l'Afrique de l'Ouest (BCEAO) and the Central African Banque des États de l'Afrique Centrale (BEAC). Both use the CFA Franc as their legal tender.
Determinants
The intractable nature of Africa's poverty runs counter to modern economic theory, leading to debate concerning its root causes. Endemic warfare and unrest, widespread corruption, and despotic regimes are both causes and effects of the continued economic problems.
Geography
Africa's geography is unsuited to trade, hampering its economy. In the centre of the continent, on the western side, an almost impenetrable rainforest impedes the transit of people and goods. Wealthy parts of South Africa are blocked from the rest of Africa by the Kalahari Desert, and the Sahara creates an obvious barrier to trade from the north. Although Africa has great river systems such as the Nile, Niger, Congo, and Zambezi, they do not link the continent into trade routes effectively as happens in Europe and China. Rapids and cataracts block African rivers, requiring development projects to allow navigation. The wet terrain of the interior complicates transport. Few roads are paved and during the wet season unpaved tracks become impassable mud.
Countries in Africa are cut off from the sea more than those on other continents. Africa has more landlocked nations than any other continent, which support a high population density compared to the steppes or plains of North America and Asia. The ridge running from Zimbabwe to Ethiopia has superb volcanic soils and the higher altitude produces a more temperate climate. These enable more interior settlement, but the lack of access to the sea makes international trade harder.
The majority of the world's population and wealth is found in the temperate zone. Historically the vast expanse of Eurasia, almost entirely in the temperate zone (except for the vast tracts that are dry and hot such as the Arabian Peninsula; cold tundra such as in North Asia, and tropical such as subcontinental India, Bangladesh, Thailand, Laos, Bhutan, Burma, Cambodia, Vietnam, Malaysia, and Singapore) was linked by land routes, allowing technologies and ideas to spread from one area over time, aiding innovation. The agricultural techniques and medicines designed to work in the northern climes may fail in the tropics. This theory could partly explain why temperate South Africa is by far the wealthiest part of Africa, even though South Africa is in fact not temperate, and why other tropical areas in South America and Indonesia share Africa's poverty, though tropical Singapore and Brunei do not. There are no tropical countries in the OECD, apart from Mexico and Australia which have significant tropical sections, and only a handful have a GDP per capita above the world average, again apart from Singapore Brunei, Malaysia and Thailand. A tropical latitude is not a guarantee of poverty, but globally there is a definite correlation between wealth and climate, though this said theory is far more complicated than simply considering "tropical" vs. "non-tropical" countries or regions. Variations of this theory of geographic determinism date back to Montesquieu, though these theories have been simplistic and unscientific until they have recently been revived and refined by academics such as William Masters and Jeffrey Sachs and popular writers such as Jared Diamond.
Africa is well-endowed with natural resources, including gold, diamonds, and oil reserves, but due to poor governance, few African countries have materially benefited from their mineral wealth. Africa is as well suited to agriculture as any other continent; the volcanic soils of the Great Lakes region are—by some measures—the best in the world.
Sub-Saharan Africans have historically not built structures from stone. Pre-colonial civilizations built mainly out of mud brick, leaving few lasting ruins except Great Zimbabwe. Finding no architectural monuments, European explorers and historians long concluded that pre-colonial sub-Saharan Africa was devoid of civilization, as in Europe all great civilizations left an indelible mark in stone ruins.
Disease
Related article: AIDS in Africa
Closely linked to geography is the problem of disease in Africa. The tropics are more hospitable to disease than the colder climates. The most significant illness has long been malaria. A new problem of vast magnitude is the rise of HIV/AIDS in Sub-Saharan Africa. AIDS, whose spread correlates with poverty, has nevertheless hit hardest in some of the wealthiest African countries, including Botswana, Swaziland, and South Africa. AIDS has decimated or will decimate the working-age population of many states.
The healthcare costs, including those of importing anti-retroviral AIDS drugs from the West, is a new burden on many African states, leading to the challenging of drug prices and the manufacture of cheap generic alternatives. Tropical diseases can be just as expensive to cure, assuming a cure exist. Since the tropical regions are poorer, pharmaceutical companies are reluctant to invest in curing the diseases of the region. Disease not only reduces the work force and creates a burden on health care, but also has harms agriculture and transportation, as most forms of livestock cannot survive the diseases of the region. Historically, sub-Saharan Africans could not use pack animals for trade or work horses for labour, limiting the continent's development.
Africa is in the midst of major AIDS epidemic. The cost of vaccines and medical supplies compounds the economic cost of the labour force becoming medical dependents. As parents die or become unable to work, their children must find care elsewhere, adding to the burden of already struggling families and states.
Colonialism
The economic impact of the colonization of Africa has been debated. Africa acquired its greatest relative wealth in the 1960s, just prior to decolonization. African countries have yet to return to those levels of wealth. Some see this as evidence that colonialism helped local economies, while others argue that colonialism left these economies unable to sustain themselves.
To achieve wealth during the colonial period, imperial overseers geared the economies of Africa towards exporting raw materials. Egypt produced cotton, Ruanda-Urundi was almost completely dedicated to growing coffee, and Upper Volta specialized in palm oil. Basing an entire nation's wealth on one commodity in this way would have debilitating effects later. These monocultures left national economies extremely vulnerable to price swings, making economic planning difficult. Some writers, such as Walter Rodney in his influential book How Europe Underdeveloped Africa, argue that these colonial policies are directly responsible for many of Africa's modern problems. Other post-colonial scholars, most notably Frantz Fanon, have argued that the true effects of colonialism are psychological and that domination by a foreign power creates a lasting sense of inferiority and subjugation that creates a barrier to growth and innovation.
European culture in the late 19th century brought racism and social Darwinism. The elevation of the white race above blacks had lasting repercussions in lands with significant European immigration, notably South Africa and Rhodesia. Even more damaging was the introduction of the idea that northern Hamites such as the Ethiopians and Tutsi were racially superior to other Africans. This division of society into rival ethnicities would have long-lasting negative effects, especially in Rwanda and Burundi.
In those areas that were colonies rather than protectorates, colonizers acted quickly to ensure all the top members of society were Europeans. This included not only the rulers but the lawyers, doctors, and academics. The colonial rulers looked upon educated native populations, such as in the Gold Coast and the Maghreb, with great suspicion as probable nationalists and anti-imperialists. Colonial regimes therefore did not invest money or effort in creating a local elite. While they funded education, this was almost entirely elementary skills such as literacy. Once independent, African states saw an exodus of European administrators and consequently lacked individuals with the training or education to operate the government they had inherited. For instance, the massive area of French Equatorial Africa was divided into four independent nations, but was home to only five locals who were university graduates.
One method of gauging the effects of colonialism on the economies of Africa is to compare the results of different colonial policies implemented by the European powers. Regions where the economy was plundered, such as the Raubwirtschaft policies of Leopold II in the Congo Free State, have not prospered. The long reluctance of Portugal to surrender its colonies, leading to long wars of independence, had an obvious negative effect on Mozambique and Angola. The countries formerly under French control have fared much better, and those under British dominion were the most successful. This inequality may be due to other factors than economic policy. Britain, at the time of the Scramble for Africa, was the world's greatest power and could thus cherry-pick the wealthiest parts of the continent. The French, with their mighty navy, could also occupy prosperous areas, while the Belgians were forced to take the economically disadvantaged interior.
Africa as a whole has not prospered compared with other colonised regions in Asia and South America. At the end of the Second World War South America was economically the strongest of the colonised regions; in the span of one generation, former colonies in Asia have become economic powerhouses.
Cultural and linguistic diversity
In the Scramble for Africa, national boundaries in sub-Saharan Africa were established by Europeans using latitude and longitude rather than natural borders. This separated population centres from their supplies of food and natural resources. The artificial borders of modern African states cut across cultural, tribal, linguistic and religious boundaries, creating ethnic and religious cleavages which impede national unity and faciliate internal violence.
However, those states that preserved pre-colonial boundaries have been no more successful. Few countries in Africa have more troubled recent histories than Rwanda and Burundi, although their borders are almost identical to those of the prosperous kingdoms from which they are descended. The ancient and only briefly occupied state of Ethiopia is one of the poorest on the continent, and ethnically unified Somalia has failed so completely that it no longer exists in any real sense.
Africa is a much divided continent with many small countries. Successful economic growth requires regional cooperation, which political tensions make difficult. To be effective, foreign aid must be multilateral, making it harder to base aid upon the performance of local governments.
The African peoples speak over 2,000 languages. In 2005, six of the world's ten most linguistically diverse countries were African. The nearly 26 million people of Tanzania alone speak 127 distinct languages. The primary language of government, political debate, academic discourse, and government is often the language of the former colonial powers—English, French, or Portuguese. Only an elite minority speak these European languages fluently enough to participate in these institutions without intermediaries, further disenfranchising the majority population.
Governance
The political situation in Africa perpetuates the intractable nature of African poverty. Democracy in Africa has not been historically successful, almost always supplanted by centralized authoritarian rule such as military dictatorships. Alhough some rulers worked to improve the lot of their nation's citizens, others used power purely for their own benefit. Among the most notorious was Mobuto Sese Seko of Zaire, whose regime has been called a kleptocracy due to its looting of the nation's wealth. According to international measures, the economies of Africa generally rank among the most corrupt. Bribery and graft abound, due to poverty and poorly handled de-colonization, and the superpowers' (Soviet Union and United States) practice during the Cold War of supporting any ruler with the desired political alignment, regardless of their managerial practices or human rights records.
Dependency theory asserts that the wealth and prosperity of the superpowers and their allies in Europe, North America and East Asia is dependent upon the poverty of the rest of the world, including Africa. Economists who subscribe to this theory believe that poorer regions must break their trading ties with the developed world in order to prosper.
Less radical theories suggest that economic protectionism in developed countries hampers Africa's growth. When developing countries have harvested agricultural produce at low cost, they generally do not export as much as would be expected. Abundant farm subsidies and high import tariffs in the developed world, most notably those set by Japan, the European Union's Common Agricultural Policy, and the United States Department of Agriculture, are thought to be the cause. Although these subsidies and tariffs have been gradually reduced, they remain high. This theory, however, overlooks the heavy hand of the State in several African nations that can even prevent their own exports from becoming competitive.
Although Africa and Asia had similar levels of income in the 1960s, Asia has since outpaced Africa. One school of economists argues that Asia's superior economic development lies in local investment. Corruption in Africa consists primarily of extracting economic rent and moving the resulting financial capital overseas instead of investingat home; the stereotype of African dictators with Swiss bank accounts is often accurate. Asian dictators such as Suharto often take a cut on everything, necessitating bribery, but enable development through infrastructure investment and the social stability created by law and order. University of Massachusetts researchers estimate that from 1970 to 1996, capital flight from 30 sub-Saharan countries totalled $187bn, exceeding those nations' external debts. This disparity in development is consistent with the model theorized by economist Mancur Olson. Because governments were politically unstable and new governments often confiscated their predecessors' assets, officials would stash their wealth abroad, out of reach of any future expropriation.
Corruption encouraged social inequality, because the wealthy elite not only avoided investing at home, but also imported most of its consumption. Desirable luxury goods were generally not locally available. This hindered the development of national markets. Historically, economic development is closely linked to the creation of a middle class with enough income to save and invest but limited influence on governance. In countries without such a middle class, development is all but impossible, except the illusory and destructive development based on extracting resources like oil.
War
Since independence, Africa has seen dozens of wars, both civil and international. This has contributed to poverty because states have spent their scarce resources on military equipment and supplies. Development has suffered, since warfare has scared off foreign investors, destroyed infrastructure, and created lasting animosities.
Much conflict was instigated by the Cold War. The countries of the Western and Eastern blocs leveraged foreign aid money to coax countries into their camp. Aid was tied to the purchase of military weapons, and donor countries ignored misappropriation of the funds. Corruption became endemic, hampering economic development. Proxy conflicts erupted in Africa when each bloc would fund and assisted rebel or sectarian groups under the control of the opposing bloc.
Violence in Africa has increased following the Cold War, despite the slashing of foreign aid spending in developed countries. Civil wars have raged throughout the Great Lakes region, Somalia, Sudan, Mozambique, Liberia, Sierra Leone, Ivory Coast, and Guinea-Bissau. International wars include the First and Second Congo Wars between the Democratic Republic of the Congo and its neighbours, and conflict between Ethiopia and its former province Eritrea.
Effects of widespread poverty
Africa's economic malaise is self-perpetuating, as it engenders more of the disease, warfare, misgovernment, and corruption that created it in the first place. Other effects of poverty have similar consequences. The most direct consequence of low GDP is Africa's low standard of living and quality of life. Except for a wealthy elite and the more prosperous peoples of South Africa and the Maghreb, Africans have very few consumer goods. Quality of life does not correlate exactly with a nation's wealth. Angola, for instance, reaps large sums annually from its diamond mines, but after years of civil war, conditions there remain poor. Radios, televisions, and automobiles are rare luxuries. Most Africans are on the far side of the Digital Divide and are cut off from communications technology and the Internet. Quality of life and human development are also low. African nations dominate the lower reaches of the UN Human Development Index. Infant mortality is high, while life expectancy, literacy, and education are all low. The UN also lowers the ranking of African states because the continent sees greater inequality than any other region. The best educated often choose to leave the continent for the West or the Persian Gulf to seek a better life.
Catastrophes cause deadly periods of great shortages. The most damaging are the famines that have regularly hit the continent, especially the Horn of Africa. These have been caused by disruptions due to warfare, years of drought, and plagues of locusts.
An average African faced annual inflation of over 60% from 1990 until 2002 in those few countries that account for inflation. At the high end, Angola and the Democratic Republic of the Congo both saw triple-digit inflation throughout the period. Most African states saw inflation of around 10% per year.
There are no reliable numbers for unemployment in most African nations, but it is an important problem. Major cities like Lagos and Kinshasa have large slums of the unemployed and underemployed.
Environmental degradation occurs on many fronts. Farmers on the verge of starvation are unlikely to be concerned about the fate of the rainforest in their pursuit of new land, and starving people do not often consider the rarity of an animal before eating it (see bushmeat). Along the length of the Sahel, deforestation and overgrazing has caused increased desertification as the Sahara spreads south. Profits from the sale in the West of rare animals, ivory from elephants, and timber encourage illegal poaching. Local governments have little money to devote to protecting the environment.
Attempts at promoting growth
The relative economic failure of Africa has long been an important issue both in Africa and abroad. Many attempts at solving Africa's poverty have been attempted, but few have had any great degree of success.
Socialism
In the years immediately after independence many nations saw the rapid industrialisations of the Soviet Union and China under communism as models to follow. This led to command economies and major investment in heavy industries such as coal and steel production to stimulate growth, but this approach had little success. Only a handful of states formally adopted socialism and even fewer turned to outright Marxism. Everywhere government intervention in the economy was seen as necessary for growth, especially since private companies and investors were unlikely to invest in the region.
Often the approach of governments in Africa was to borrow heavily from abroad and use this aid to grow the economy to a level that the loans could be paid off. Sporadic growth during the years after independence continued. The countries focused on exports to pay for these development efforts. The 1973 energy crisis hit sub-Saharan Africa as hard as anywhere in the world. While some nations were net exporters, most were heavily reliant on imported fuels. Economies quickly began to falter and events such as famines hit Africa in the 1980s. The collapse of the Soviet Union, which had supported socialist and collectivist projects throughout the continent, undermined the legitimacy of such an approach, while it also meant that there were no longer any sources of international aid to help pursue this approach.
Liberalism
Thus in the 1980s, socialist ideas were discarded throughout almost the entire continent as "capitalism" became seen as the route to salvation in what became known as the Washington Consensus. By 1990, forty of the nations of Sub-Saharan Africa had agreed to follow rigorous IMF restructuring plans. IMF recommendations saw the continent's currencies drop by an average of 50%, the selling off of government-owned industries, and the slashing of government spending. After twenty years, however, these methods have seen as little success as the socialist approaches of the previous era. Average growth increased from 2.3% per annum to 2.8%. Only a handful of African states reached new levels of wealth, and many others became poorer over the course of the 1990s. Today there is a great deal of controversy on why this failed. One school of thought is that the reforms failed because they were only economic in nature and without democracy and the rule of law development cannot occur.
Yet another school of thought attributes some of Africa's problems to insufficient liberalization. It has been pointed out that while the developed world has insisted that Africa open its markets and eliminate public subsidies, this has been one-sided as the developed world has not opened its markets to agricultural goods from Africa nor has it eliminated agricultural subsidies. At the GATT free trade talks, the African leaders repeatedly request that the developed nations abolish the subsidies they provide their farmers and open their markets to African agricultural goods. It has been argued that the abolition of the subsidy would have three beneficial effects for the developing world and Africa:
- The developed nations would produce less food locally, therefore providing a larger export market for developing countries.
- Food prices would rise without the artificial subsidy and therefore would increase profits for food exports from the developing world.
- The developing nations could adopt a more balanced agriculture policy, producing food and grain for export; this would provide a surplus that would shield countries from famine.
Autarky
The pursuit of self-sufficiency as advocated by dependency theory has been given limited trials in several African countries. In the 1980s, Nigeria banned the importation of many foodstuffs to stimulate domestic production. The Lagos Plan of Action of 1982 called for Africa as a whole to block imports from the rest of the world, but few countries followed through on the idea. Eventually even Nigeria agreed to limited liberalization.
Foreign aid
Since independence there has been a constant flow of foreign aid into Africa. The benefits of this aid have been mixed. In many cases much of this aid was misappropriated by unscrupulous leaders. During the Cold War the main goal of much of the aid money was to win the allegiance of these rulers, and so their misappropriation of the aid was at the very least overlooked. Since the end of the Cold War almost all developed countries have slashed foreign aid spending. Many also allege that the aid that was not stolen was long misdirected. For many decades the leading notion of development was government supervised mega-projects; today many believe that small grants to local businesses would be more effective. One example of foreign aid which has come under considerable criticism is food aid. In some circles, it is believed that food aid does not solve any fundamental problems and can also lead to a dependency on outside assistance, as well as hindering the development of indigenous industries. Food shipments in case of dire local shortage are generally uncontroversial; but as Amartya Sen has shown, most famines involve a local lack of income rather than of food. In such situations, food aid - as opposed to financial aid - has the effect of destroying local agriculture and serves mainly to benefit Western agribusiness which are vastly overproducing food as a result of agricultural subsidies. Historically, food aid is more highly correlated with excess supply in Western countries than with the needs of developing countries.
Debt relief
Advocacy for debt relief has become widespread. Each year Africa sends more money to Western bankers in interest on its debts than it receives in foreign aid from these countries. Debt relief is not a panacea, but relieving some of the burden, especially of debts that were run up by regimes for their own benefit, may help the economies of Africa grow and prosper. However, arguments against full and unconditional debt relief exist.
First, debt relief punishes nations which have managed borrowing well and do not need debt relief.
Second, unconditional debt relief will not necessarily cause nations to spend more in social programs and services, on the one hand, or to solve their financial problems without stifling the economy with the need for more taxes, on the other hand.
Finally, debt relief may make it more difficult for nations to receive credit in the future.
It has been suggested that any debt relief policy be conditional upon a commensurate reduction in aid. The Heavily Indebted Poor Countries initiative was launched in 1996; if implemented, it would greatly affect Africa's economy.