Sunday, June 20, 2010

African economic growth

The McKinsey Quarterly takes a look at the factors behind improved economic growth taking place in Africa. Their conclusion? While the exports of natural resources plays a significant role, much of the credit is due to smarter macroeconomic policy -- lowered inflation and reduced budget deficits -- and market liberalization:
The key reasons behind this growth surge included government action to end armed conflicts, improve macroeconomic conditions, and undertake microeconomic reforms to create a better business climate. To start, several African countries halted their deadly hostilities, creating the political stability necessary to restart economic growth. Next, Africa’s economies grew healthier as governments reduced the average inflation rate from 22 percent in the 1990s to 8 percent after 2000. They trimmed their foreign debt by one-quarter and shrunk their budget deficits by two-thirds.

Finally, African governments increasingly adopted policies to energize markets. They privatized state-owned enterprises, increased the openness of trade, lowered corporate taxes, strengthened regulatory and legal systems, and provided critical physical and social infrastructure. Nigeria privatized more than 116 enterprises between 1999 and 2006, for example, and Morocco and Egypt struck free-trade agreements with major export partners. Although the policies of many governments have a long way to go, these important first steps enabled a private business sector to emerge.
Reduced deficits, privatization, lower taxes and free trade -- that's not just smart policy for Africa, that's smart policy for everyone. We could start here in the US by privatizing Amtrak and the US Postal Service, lowering our own sky-high corporate tax rate, reducing spending and passing free trade agreements with South Korea, Colombia and Panama which are gathering dust in Congress.

Related: Economist Paul Collier makes the case for investing in Africa.


Ben said...

and "strengthened regulatory and legal systems."

Colin said...

I would be surprised if this applies to these countries in the same way it does for developed countries. One pervasive problem in developing countries are problematic legal systems. As one paper notes:

In countries where formal legal systems are weak—for example, in some developing countries and countries in transition from central planning—laws may exist only on paper, and may not be known or respected by the public or enforced by the state. Both violent
crime and white-collar crime may be prevalent. Corruption in citizens’ dealings with government may be widespread. Judicial institutions may be slow or unpredictable, with few links to the real world. As a result, there may be an enormous gap between what is written in law and what happens in practice.

In this context, I -- and almost all libertarians I imagine -- are for strengthened legal systems.

I imagine, although I cannot prove, the same applies to the regulatory aspect. Most developing countries have a thicket of regulatory agencies, such as India with its "license raj" before reform measures were introduced. They are rarely examples of laissez-faire anything goes capitalism.