| Despite its abundance in natural wealth, Sub-Saharan African (hereafter Africa) is the poorest region of the globe. Absent of adequate government implements to foster a healthy, capitalist economy, Africa has lagged further behind in terms of economic development. The liberal western nations blame Africa’s governments. They urge these Third World Nations to adopt International Monetary Fund and World Bank reforms. The central aim of these reforms is to increase investment; reasoning increases in investment equates increases in capital. Capital increases augments productivity and thereby gross domestic product. African intelligentsia, however, do not embrace foreign investment and IMF policies. In reaching an economic solution for Africa, we must examine the social structures that deter economic development, the reasons for foreigners’ reluctance to invest, and the flaws that are especially obvious to Africans concerning IMF or World Bank policies.
A central issue deterring development in Africa is property rights or the lack thereof. The lack of property rights is an obstacle to economic development because landowners are not able to mortgage homes to raise start-up capital. Mortgaging homes is the most common way to raise money for entrepreneurship in the United States, in Africa, often times this is not an option because less than 10% of the continent’s land is formerly owned.
For example, in Mtandire, a Malawian slum, a sturdy brick bungalow costs about $300. That is a large sum by Malawian standards; nearly twice the average annual income. But home-owners in Mtandire have enormous trouble making their assets work for them. One explained that she wanted to borrow $200 to expand her goat slaughtering business to meet a ravening demand for goat stew, but no bank would accept her house as collateral. Like the other houses in Mtandire, it was built on “customary” land. She had bought it from peasants who had farmed it for generations. The only proof that they had owned it was the say-so of the village chief. Banks need more surety than that, so the homeowner’s butchering business seems likely to stay small for the foreseeable future. (The Economist, January 17 2004)
A system of universally acknowledged property rights would benefit Africa by transforming the denizens’ lands and housing into capital. These capital can be used (by mortgaging or other means) to create new capital and promote production. As the Mtandire village example is not a rarity, it is clear how several million of these incidences would wreck havoc upon an economy.
Secondly, the economic policies of many African governments deter economic growth or render it precarious. Oftentimes, the governments' treatment of natural wealth benefits just a select few. The generated wealth from the resources are not allocated to the common citizens and hence do not allow demand propelled economic growth to initiate. Nigeria, for example, sits upon lucrative petroleum. Politicians and elite businessmen have squandered the profits of this resource. Rather than infusing these monies into the hands of the general populace to allow the growth of consumer demand, these bearers of African wealth have wasted these funds on “ludicrous prestige projects benefiting only a handful of entrepreneurs and foreign interests. Billions were directed towards junk factories which have since closed down. There are five lorry and car assembly plants in Nigeria, none of them operating.” (Hadjor, 75)
Some African governments’ policies endanger their economic states. Nigeria, upon receiving wealth from its oil resources, has begun importing food produces. These imported food products are competing with domestic farming industries; this competition has led to lower agriculture prices throughout Nigeria. Domestic farmers cannot compete at the newly created market price level and many have left their farms. The cheap food imports have destroyed Nigeria’s former self-reliance in food.
African economic policies that render a nation’s wellbeing precarious include heavy reliance on a single export commodity. Nigeria’s reliance on oil revenue makes the nation prone to sudden changes in the gasoline market. This country suffers the same problem facing OPEC nations: they lack other industries to absorb oil price shocks. Of course, Nigeria is only one example of a nation relying heavily upon a single commodity. Other African nations have developed other crutches; “Zambia gets 90 per cent of its foreign earnings from copper, Mauritius gets about 90 per cent of its earnings from sugar and Gambia gets about 85 per cent of its earnings from groundnuts and groundnut oil exports”. (Hadjor, 58)
A prime factor in economic growth is investment. Investment creates new capital; more capital generates more output. Foreign investment has played a tremendous role in developing countries’ economies. However, it is hindered in Africa by several factors. Investments occur when projected risk is low and projected returns are high. Foreign investors are reluctant to invest in Africa because of this continent’s volatility and high risk. Many foreign investors avoid Africa because of unpredictable inflation. This instability is often the result of a government burdened with self-interest.
You must be logged in to add tags.
This user has not written anything in his panorama profile yet.
You must be a TakingITGlobal member to post a comment. Sign up
for free or login