Are Bad Habits Stifling Africa’s Economic Potential?

by
Are Bad Habits Stifling Africa’s Economic Potential?


Ever since the start of their post-colonial era, problems such as corruption, poor governance, ethnic divisions and poor infrastructure have continued to haunt several African economies in their quest for sustained economic growth. Can these issues be overcome and will Africa live up to its promise?

I was recently in Tanzania and it was interesting to observe the similarity in the living standards of the Tanzanian majority and the Kenyan majority. While Tanzania practiced socialism for a long time under its founding president, the late Julius Nyerere, Kenya, on the other hand, had always been a moderately free market economy with private property rights and a fair bit of competition.

But In the 1980s and 1990s, both countries also opened up their economies through privatization of state corporations, liberalization of markets and deregulation. Despite this however, both nations experienced mixed results that really haven’t pulled the masses out of poverty.

A Vicious Cycle?

Often, gains made through economic liberalization are severely hampered by political allocation of resources. When politics becomes the main criteria for allocating resources, the incentives under which free markets work are changed substantially – to the extent that market equilibrium is no longer achievable. Under these conditions, markets are characterized by low productivity, corruption, nepotism, trade imbalances, monetary instability and a host of other systemic problems that limit economic growth.

Further worsening the situation is a political culture based on negative ethnicity, idolization (personality cults), favour seeking, weak legislation and ignorance. This feeds a vicious cycle that perpetuates legacy issues inherited from successive regimes.

Although Afro-optimists often paint a very rosy picture of Africa’s future, they do not appreciate the delicate nature of our loosely integrated nations. The reality is that economic growth today can quickly be erased by an election gone bad tomorrow. We have numerous illustrations across the continent of nations with massive potential that have been dragged into the abyss overnight.

Additionally, Africa also habitually clings on to ideologies of the past. For instance, African leaders, tired of working under the Western microscope of good governance, are now fashionably looking east to China for development partners. During the cold war era, Africa, like other developing regions, was conveniently provided with development assistance by the West without much emphasis on good governance; and so it’s fair to say that we are still suffering from a ‘Cold War Hangover’. We want assistance but without the accountability. 

Related: Africa Economy: Solid Growth, Investment, and Trade, but at a Cost

Africa’s Resource Curse

Our resource wealth has also gone a long way towards blinding us. Although Africa has traditionally been a major supplier of raw material, we forget that the only way to truly benefit from our resources is to reduce exports of unprocessed raw material and instead increase exports of finished products. Our focus has to be value addition.

To date politicians and politically connected individuals skim revenues generated from the sale of our resources. This habit wouldn’t be so damaging if the diverted revenue was reinvested in our economies but that does not happen. The proceeds are swiftly transferred abroad further depleting the continents wealth.

We can stop this counterproductive behaviour by paying civil servants and bureaucrats well. We lose more money to corruption than we save from underpaying civil servants. The only way to fight corruption is to reduce its incentives. Civil servants are the administrators of public finance, if they are well compensated more of them will diligently protect the public’s interests.

The popular notion is that public service is some kind of higher calling that justifies low pay but the truth is humans are very sensitive to value and incentives. If we feel we are bringing more value to the table than we are receiving, we will readdress the imbalance through any means necessary.

Related: Can Africa Break Its Resource Curse?: Joseph Stiglitz

Related: Will Africa’s Wet Dreams Turn Into A Nightmare?

Overcoming The Socio-Economic Challenges

In order for us to overcome all these socio-economic challenges, we must replace our myopic view based on our ethnic identities too – with a new identity based on our humanity. As idealistic and rosy as it sounds, we have to create a socially cohesive, multi-racial society that rewards effort, initiative and courage. It is disheartening to note white Kenyans and Asian Kenyans are not adequately represented in parliament or government. It is only through social integration that the foundation of trust (upon which economic activity is based) emerges. With a firm foundation of trust all other challenges become less daunting.

Beyond social cohesion issues, infrastructure is another critical area that has to be managed well. We say time is money and the characteristic of poor infrastructure is endless delays that slow the whole economy. Poor infrastructure lowers productivity, increases waste, increases production costs, increases transaction costs, prohibits trade, reduces population mobility, slows supply chains and increases the counter-party risk of our landlocked neighbours like Uganda.

Africa’s development is pegged on inheriting manufacturing jobs from Asia. China is projected to shed 85 million manufacturing jobs in the next decade, for us to inherit these jobs we must invest heavily in world class infrastructure, namely roads, ports, energy, mass public transit systems, rail, pipelines and more. It is worth noting that no region in the world has managed to lift its people out of poverty without some form of industrialization; so while it is nice to talk up knowledge-based industries like IT, we must appreciate that currently the masses can only be absorbed into labour intensive industries like manufacturing and large scale agriculture. Only through time, as automation takes over and further improvements in education, will we enhance the productive capabilities of our population and transform us into a knowledge-based societies.

Related: Africa Rising: Can “The Dark Continent” Outshine Its Former Colonial Masters?

Related: The Future of Renewable Energy in Africa: Promising or Precarious?

Overall I’d say there are a lot of positives, more positives than negatives. As long as we remain aware of the obstacles we must overcome and implement good strategies & sound policies the future is bright.

By John Seno

John Seno is a Kenyan businessman who run several companies including Random Group Limited and OTB Africa Limited. Seno is also a strategic adviser to Kehl Design Agency, which specializes in Branding and Web development. Read more of John’s Seno Perspective at his blog.

Got something to say about the economy? We want to hear from you. Submit your article contributions and participate in the world's largest independent online economics community today! 

See also: Africa Rising: Can “The Dark Continent” Outshine Its Former Colonial Masters?See also: Africa Economy: Solid Growth, Investment, and Trade, but at a Cost