African Prospects
A new study finds that pouring more money into Africa will not fix its problems.
“Low Investment Is Not the Constraint on African Development” by Shantayanan Devarajan, William R. Easterly, and Howard Pack, in Economic Development and Cultural Change (April 2003) University of Chicago, Judd Hall, 5835 S. Kimbark Ave., Ste. 318, Chicago, Ill. 60637.
Experts have long argued that the key to fixing Africa’s economic woes is to increase public and private investment. It’s true that during the period from 1960 to 1994, African countries invested just 9.6 percent of their gross domestic product (GDP), significantly less than the 15.6 percent average among other developing countries worldwide. But the authors of this study—Devarajan with the World Bank, Easterly with New York University and the Center for Global Development, and Pack with the University of Pennsylvania—insist that “higher investment in Africa would not, by itself, produce faster GDP growth.”
After analyzing the effects of both government-sponsored and private investment in sub-Saharan countries, the authors found that such investments paid off in only one: Botswana. Through “pursuit of good policies, including exceptionally able management” of its lucrative diamond exports, and aided by an absence of ethnic conflict, Botswana achieved phenomenal growth in GDP per capita—almost 800 percent in the 1960–94 period. The diamond wealth wasn’t the difference; oil-rich Nigeria became an economic basket case over the same interval.
To those critics who suggest that the problem in Africa is that not enough money has been invested, or that aid money comes with too many strings attached, the authors respond, in essence, “been there, tested that.” Easterly, for instance, calculated that if all aid given to Zambia had gone directly into investment, according to standard economic models it ought to have yielded a per capita income of $20,320 by 1995; the figure the country actually managed was just $600. Why such a difference? Because aid never gets translated dollar for dollar into jobs, but rather gets diverted to other uses, worthy (such as buying food) and unworthy (such as lining the pockets of government officials).
The authors zero in on Tanzania’s manufacturing sector—textiles, printing and publishing, and wood products—as a case study. Not atypically, investment in the East African country between 1975 and 1990 grew even as labor productivity fell. The authors’ statistical analysis produces only a partial explanation: Bad management practices (e.g., running only single shifts) account for only one-sixth of the decline.
That mystery is the very point, the authors say. Until economists and others can identify more of the reasons why so much investment in Africa is wasted, it’s unwise to pour more capital into the stricken continent.