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COMMITTED TO

IMPROVING THE STATE


OF THE WORLD

While the political landscape in most of sub-Saharan Africa has improved


considerably in recent years, the long awaited renaissance of the African
economy has not yet taken place. Indeed, with few exceptions, it is difficult
to point to a single group of African economies that has experienced high,

The Africa Competitiveness Report 2004


sustained per capita income growth.

The Africa Competitiveness Report 2004 highlights the prospects for

Africa
The
growth in the region and, more importantly, the obstacles to improving Competitiveness
competitiveness in the region. Through in-depth analysis of regional trends Report 2004
and detailed country profiles, the Report assesses the comparative
strengths and weaknesses of 25 African countries. It also contains essays
from prominent academics and development experts on a variety of issues Ernesto Hernández-Catá
relevant to Africa’s development agenda. The Africa Competitiveness The Johns Hopkins University
Report 2004 is an invaluable tool for policy-makers, business strategists
Klaus Schwab
and other important stakeholders, as well as essential reading for all those World Economic Forum
with an interest in the region.
Augusto Lopez-Claros
World Economic Forum

COMMITTED TO
IMPROVING THE STATE
OF THE WORLD ISBN 92-95044-00-2
World Economic Forum
Geneva, Switzerland 2004

The Africa
Competitiveness Report 2004
Dr Ernesto Hernández-Catá
The Paul Nitze School of
Advanced International Studies,
The Johns Hopkins University
Editor

COMMITTED TO
IMPROVING THE STATE
OF THE WORLD
The Africa Competitiveness Report 2004
is published by the World Economic Forum
within the framework of the Global
Competitiveness Programme.

Professor Klaus Schwab


Executive Chairman
Dr Augusto Lopez-Claros
Director
Jennifer Blanke
Emma Loades
Philippe Sion
Catherine Vindret
Saadia Zahidi

Editing by
AmadeaEditing

Graphic design, production and printing by


Kamal Kimaoui, World Economic Forum
SRO-Kundig
Jessica Da Mata, Appi

The terms country and nation as used in this


report do not in all cases refer to a territorial
entity that is a state as understood by international
law and practice. The term covers well-defined,
geographically self-contained economic
areas, which may not be states, but for which statistical
data are maintained on a separate and
independent basis.

World Economic Forum


Geneva

Copyright © 2004
by the World Economic Forum

Published by
World Economic Forum
www.weforum.org

All rights reserved. No part of this publication


may be reproduced, stored in a retrieval
system, or transmitted, in any form or by any
means, electronic, mechanical, photocopying,
recording, or otherwise, without the prior
permission of the World Economic Forum.

ISBN 92-95044-00-2
Contents

Preface i
Klaus Schwab
Executive Summary iii
Ernesto Hernández-Catá

Part 1 Chapters
1.1 The Economic Tragedy of the Twentieth Century:
Growth in Africa 1
Elsa V. Artadi and Xavier Sala-i-Martin

1.2 Health, Economic Growth, and Competitiveness in Africa 19


Alan W. Whiteside

1.3 Africa’s Economic Morass: Will a Common Currency Help? 31


Paul R. Masson and Heather Milkiewicz

1.4 Africa’s Competitiveness and Regional Infrastructure 37


Peter L. Watson

1.5 How Should Africa Position Itself in the International


Trading System? 43
Maria A. Oliva and Luis A. Rivera-Batiz

1.6 Building Capacity to Narrow the Digital Divide


in Africa from Within 59
Ewan McPhie

1.7 How the Congo Decomposed in the 1990s 73


Philippe Beaugrand

1.8 What Does the Growth Competitiveness Index Say About


Development in Africa? 81
Augusto Lopez-Claros

Part 2 Country Profiles

How Country Profiles Work 101

List of Countries 103

Partner Institutes 205


Preface

Klaus Schwab, Executive Chairman, World Economic Forum

Amartya Sen and others have noted the welcome shift in this clear. While readily acknowledging the importance
the debate on the key ingredients of a successful of a stable macroeconomic foundation for the creation of
development strategy. Earlier neglect of “soft” concerns, an environment supportive of growth, the Forum has
such as the role of safety nets to protect the poor, or the long argued that other elements are equally important.
provision of political and civil rights, has given way to Whether the private sector and the business community
an approach that recognises their key importance and can operate in an environment with reasonably well-run
actually tries to incorporate them into the design of aid public institutions, in which the state allocates adequate
programmes and development strategies. Even in the resources to education, public health, and infrastructure,
international financial institutions—long identified with through mechanisms that are reasonably transparent—
the notion that macroeconomic stability was an all make a tangible difference in a country’s ability to
indispensable condition for sustained growth—the focus generate growth. In the age of globalisation it matters a
appears to be gradually shifting to the creation of great deal whether scarce public resources go to boost
conditions for so-called “high quality growth.” This is a Internet penetration rates in the schools, or to finance
term that explicitly acknowledges the importance of unproductive expenditures.
policies aimed at reducing poverty, improving
opportunity, tackling corruption, and protecting the The work done by the World Economic Forum in the
environment. The importance of this broadening of area of competitiveness has repeatedly shown that
intellectual horizons cannot be overestimated, for this countries that build up sound public institutions are
more inclusive approach to development, which better able to attract larger levels of investment and
explicitly recognises the relevance of factors hitherto boost their growth potential. Weak rule of law, the
largely ignored, is likely to have vast implications for the absence of economic opportunities, poorly formulated
success of development programmes. Nowhere are the spending priorities of governments—leading them to
implications of this shift in approach more consequential neglect the role of public services—represent, in some
than in Africa, a continent that has yet to fulfil its form or another, significant barriers to successful
enormous potential. development.

For over two decades now, the World Economic Forum The World Economic Forum’s Executive Opinion Survey
has been firmly identified with the notion that just and the associated annual compilation of individual
getting price signals right and adding some elements of country profiles identifying strengths and weaknesses in
liberalising, deregulating, and privatising to the policy a broad range of areas, from the quality of public
i

mix will not suffice to create conditions for rapid growth institutions, to a country’s technological readiness, to the
and increase per capita income. The competitiveness macroeconomic environment, are an important
indices produced by the World Economic Forum make contribution to a better understanding of the challenges

❚ Preface
faced by policy makers and the international community cast light on some important aspects of development in
in their efforts to better assist these countries. the region. We will continue to broaden the coverage of
our work in Africa, and to enhance the quality of the
The Forum’s ability to do this meaningfully in Africa
indicators we produce. Along the way, we expect to
was boosted last year by a significant expansion in the
coverage of our competitiveness work, which now remain fully engaged in the region, a voice for better
includes a total of 25 African countries. This year’s Africa policies, improved governance, more intelligent aid
Competitiveness Report is thus a more comprehensive efforts by the international community, and increased
attempt to place the continent in a broader international involvement of the private sector in finding solutions to
context. The Report also includes a number of analytical African challenges.
articles that address a broad range of issues at the heart Finally we would like to thank Dr Ernesto Hernández-
of the debate on how to improve the quality of life for its Catá from the Johns Hopkins School for Advanced
citizens: from finding better ways to cope with International Studies, Editor of this Africa Competitiveness
HIV/AIDS, which continues to exact a heavy toll on Report, for having generously shared his time and broad
Africa, to questions of infrastructure, trade, governance, experience. Equally warm words of appreciation to Dr
and institution building. Mamphela Ramphele, Managing Director for Human
The unfinished agenda which the international Development at the World Bank, for her support and
community confronts in Africa is complex and daunting. encouragement, and to Augusto Lopez-Claros, the
We approach these with a heightened sense of Director of the Global Competitiveness Programme, and
responsibility, painfully aware that the World Economic to his team, Jennifer Blanke, Emma Loades, Philippe
Forum’s competitiveness work is a humble attempt to Sion, Catherine Vindret and Saadia Zahidi.
ii

❚ Preface
Executive Summary

Ernesto Hernández-Catá, The Paul Nitze School of Advanced


International Studies, The Johns Hopkins University

In recent years, the political landscape in most of sub- with Mauritius and Botswana appearing to be the only
Saharan Africa has improved considerably. Duly elected permanent members of the group.
presidents came to power in Senegal and Ghana, In the lead article to this Africa Competitiveness Report,
significantly strengthening democracy in the region. “The Economic Tragedy of the Twentieth Century:
Ethiopia and Eritrea signed a peace accord, and the long Growth in Africa”, Elsa Artadi and Xavier Sala-i-Martin
and devastating conflicts in Angola and Sierra Leone characterize Africa’s dismal growth performance after de-
came to an end. The warring parties in the Democratic colonization as “the worst economic tragedy of the 20th
Republic of Congo came to an agreement that augurs century”, with most sub-Saharan African countries in a
well for a lasting solution to the problems of this state of greater poverty now than they were when they
potentially rich country. This is all good news, for armed became independent. The authors provide convincing
quantitative evidence to back their statements. Per capita
conflicts in the region have exacted a terrible human toll,
GDP in sub-Saharan Africa is now US$200 lower than in
discouraged private investment, destroyed
1974, a decline of 11 percent over a quarter of a century.
infrastructure, and hindered development.
During this same period the rest of the world was growing
In other parts of Africa, however, the political situation at an average annual rate of 2 percent, while per capita
remains unsettled. While in previously peaceful and income in many of the East Asian countries was
prosperous Côte d’Ivoire and in Liberia, fighting has converging rapidly towards advanced country levels.
stopped, partly through the efforts of international Artadi and Sala-i-Martin also show conclusively that the
peacekeeping forces, including African forces, the civil distribution of income in Africa has deteriorated, mostly
war goes on in Sudan. And while democracy continues because of a rise in within-country inequality, rather than
to thrive in South Africa, Zimbabwe has seriously an increase in inequality among countries. The Gini
backtracked in the areas of individual freedom and coefficient, a widely used measure of income
distribution, shows a pronounced trend away from
human rights, with the efficiency and the stability of its
equality during the 30-year period from 1970 to 2000, a
economy suffering greatly from self-inflicted and
period during which, in contrast, inequality declined
misguided policies. More generally, the long awaited
worldwide. Data for a comparable period shows that
renaissance of the African economy has not taken place. poverty in Africa increased dramatically, at a time when
Indeed, it is very difficult to point to a single group of
iii

it was falling rapidly in the rest of the world. They


African economies that have experienced high, sustained conclude that the only reliable way to reduce poverty in
per capita income growth. Countries will hop into and the continent is to set the economy into a path of
drop out of any such group with considerable frequency, positive, long-term growth.

❚ Executive Summary
Artadi and Sala-i-Martin offer a wide range of or, as has frequently been the case in Africa, to run
explanations for Africa’s “dismal” performance in the domestic arrears and discourage private investment.
last third of the 20th century. The most important of
Masson and Milkiewicz consider that the New Partnership
these include expensive investment goods, low levels of
for African Development (NEPAD) is a more promising
education, poor health (due in large measure to the
initiative through which African countries can exert peer
prevalence of malaria), adverse geography (as reflected
pressure to correct governance failures, and thus
in the proportion of territory located in the tropical
zone), relatively closed economies, too much public contribute to the solution of Africa’s problems. It is too
expenditure, and devastating armed conflicts. early to see if that process will be effective. If it succeeds,
monetary union can crown the achievement. If not,
As if these problems were not daunting enough, the monetary union will almost certainly fail, and highlight
onslaught of HIV/AIDS in the last ten years has Africa’s more fundamental policy problems.
seriously complicated the task of improving living
standards in Africa, including in some of the most While there are legitimate doubts about a far-reaching
successful countries, such as Botswana. In his article on extension of monetary integration, it seems clear that
“Health, Economic Growth, and Competitiveness in regional cooperation within Africa has an important role
Africa”, Alan Whiteside warns that the expected trend of to play in certain areas, and particularly with regard to
improving health, falling child mortality, and rising life infrastructure. It has been recognized for some time that
expectancy can no longer be taken for granted in Africa. improving infrastructure will favor investment, growth
He predicts that, in the absence of affordable, effective and poverty reduction. In addition, improved
and deliverable treatment, including anti-retroviral infrastructure in the areas of transportation and
therapy, health conditions in sub-Saharan Africa will communication will improve competitiveness and
continue to deteriorate. encourage exports, by reducing those “transaction costs”
that Paul Collier has long recognized as being serious
It is often said that Africa’s development problems
cannot be resolved entirely within the borders of one obstacles to private business, and especially to
country, and that they require an approach based on international transactions.
international cooperation, or even integration. Institutions In this context, the author of “Africa’s Competitiveness
such as the West African Economic and Monetary Union and Regional Infrastructure”, Peter Watson, contends that
(WEAMU) and the related Central Bank of West Africa the emphasis on regional infrastructure is well placed
(BCEAO) have already been in place for years, and the because most of the African economies are too small to
general view is that they have contributed to price generate the economies of scale that can be realized in
stability in francophone West Africa. larger markets. He stresses that “the potential for
In their article “Africa’s Economic Morass: Will a increasing economic efficiency through shared
Common Currency Help?” Paul Masson and Heather production, management, and operations, as well as
Milkiewicz examine issues of monetary integration in through hubs, development corridors or poles, is
Africa, and the ambitious plans by politicians to widen immense.” Existing studies already point to the
the membership of existing monetary unions. These possibility of substantial saving from regional
include the creation of a more comprehensive union in cooperation projects, such as the West African Pipeline
West Africa, which would link Nigeria and other for gas transportation and trade, the Nile Basin Initiative
anglophone countries to the members of WEAMU, and for water resource management, and the Southern
eventually help to create a common African currency. African Power Pool, which seeks to provide a stable
Already, there are projects for regional monetary unions, supply of electricity to member countries in southern
and the bidding process for an eventual African central Africa. However, Watson makes an important point: the
bank is about to begin. However, in their essay, Masson selection of infrastructure projects must be based on
and Milkiewicz ask a fundamental question: is a common economic, not on political considerations. They should
currency worth the effort, and will it provide an not be imposed, but solidly grounded on estimates of an
important solution to Africa’s problems? The authors adequate rate of return of the project.
argue that those problems are linked to civil conflicts The pitfalls of regional integration are also visible in
and corruption, to the absence of rule of law, to analyzing sub-Saharan Africa’s external trade and trade
undisciplined fiscal policies, poor infrastructure, and low policies. In their paper “How Should Africa Position
investment. Monetary union, they say, can address few Itself in the International Trading System?” Maria Oliva
of these problems: “At best, it can produce low inflation, and Luis Rivera-Batiz note that, except for South Africa,
but it cannot guarantee growth.” In fact, without a fiscal few African countries are significantly involved in
iv

policy that avoids large and continued government international trade. Moreover, the continent’s share in
deficits, they contend that there is no monetary policy world merchandise trade has basically stagnated at a
that will work. The government will have to accumulate very low level (2-3 percent) since 1990. Trade
foreign debt and face mounting debt service problems participation has been hindered by insufficient education

❚ Executive Summary
and skills, by the high “transaction costs” of situation quickly worsened, ultimately contributing to
transportation and communications, and sometimes by the end of the Mobutu regime”.
over-valued exchange rates, as, for example, in the
In his paper “What Does the Growth Competitiveness
French franc zone until 1994.
Index Say About Development in Africa?” which
All these factors have played a role in eroding the concludes the Report, Augusto Lopez-Claros argues that
competitive position of African producers. But Oliva and the main challenge facing development experts is to shed
Rivera-Batiz suggest that Africa’s trade policy, which some light on the factors that explain the sharply
focuses on preferential regional agreements among different growth performances of countries in the
groups of African countries and on preferences granted developing world. To gain insight into this important
to these countries by the United Sates and by the question the World Economic Forum has developed a
European Union, has not promoted trade. They stress vehicle, the Executive Opinion Survey (EOS), an annual
that the policies needed for competitive integration into
exercise which delivers a wealth of information about
large global markets are “largely inconsistent with the
the impediments to growth in more than 100 countries
customs union approach to trade integration followed by
accounting for the bulk of global GNP. This survey of
African countries up to now.” They recommend that, in
business executives aims to assess the importance of a
future, African countries consider other avenues for
broad range of factors that contribute to a healthy
penetrating the world trading system, such as
business environment, supportive of economic activity.
participation in multilateral trade negotiations for
Over the years the EOS has delivered valuable country-
products of particular interest for African producers, and
specific information about the varying strengths,
unilateral trade liberalization.
weaknesses and challenges faced by the business
Regional cooperation could also play a useful role in the community, as it proceeds to create jobs and contribute
area of communications, notably, in the area of to productive activity.
information and communications technology (ICT). In
his article “Building Capacity to Narrow the Digital The Growth Competitiveness Index (GCI) identifies three
Divide in Africa from Within”, Ewan McPhie sees ICT as “pillars” in the evolution of growth in a country: the
an effective “tool for social and economic development”. quality of the macroeconomic environment, the state of
He recalls that the New Partnership for African the country’s public institutions, and the level of its
Development (NEPAD) had set a number of ambitious technological readiness. The index uses a combination of
objectives, including bridging the digital divide and hard data, such as budget deficits, the level of internet
developing the capacity to solve Africa’s problems from access in schools, and survey data, taking the
within, with the e-Africa Commission mandated to deal “temperature” in areas such as judicial independence,
with ICT-related issues. NEPAD has also stressed the the prevalence of institutionalized corruption, and the
importance of forming “strategic partnerships” between extent of inefficient government intervention in the
the public and private sectors in the ICT area. economy. These various pieces are brought together
The key preoccupation of central banks in Africa has under several “sub-indexes”, each capturing a different
aspect of the growth process and aggregated to give an
been the avoidance of high inflation, an area in which
overall competitiveness “score.” Lopez-Claros examines
some countries in the region have been fairly successful
some of the key components of this index and comments
in recent years. The preoccupation is legitimate, and
on both the performance of African countries and the
fears that it might lead to an overly restrictive, “anti-
factors that may lie behind the relatively low rankings
growth” monetary policy have turned out to be
achieved by the majority of them. Given the importance
mistaken. The literature on this subject suggests that
of a favorable environment for private sector activity,
inflation, with its attendant uncertainty, is bad for
Lopez-Claros dwells on some of the institutional
growth and for competitiveness, and is particularly bad
requirements for an improved growth performance in
for the poorest segments of the population. In his article
Africa, with particular reference to foreign investment, a
“How the Congo Decomposed in the 1990s”, Philippe
central driver of growth in the developing world.
Beaugrand vividly recounts how an exceptionally long
period of hyperinflation led to the ruin of the Congolese The second part of the Report contains country profiles
economy, and the destruction of the country’s social and for the 25 African countries covered in the World
political fabric. Faced with over-extended financial Economic Forum’s Executive Opinion Survey. These
commitments and a crumbling political system, the profiles present some basic social and economic
regime of Mobutu Sese Seko sought an easy way out of indicators, the GCI rankings and a National
v

its problems by printing money. “The expedient,” Competitiveness Balance Sheet, providing a useful data
concludes Beaugrand, “slightly relieved financial complement to the analytical pieces contained in the first
constraints for a short period, but the macroeconomic part of the Report.

❚ Executive Summary
Part 1
Chapters
Chapter 1.1
The Economic Tragedy of the Twentieth
Century: Growth in Africa

Elsa V. Artadi, Harvard University


Xavier Sala-i-Martin, Columbia University,
Universitat Pompeu Fabra, and NBER

Growth were when their nations were born. Figure 1 displays the
path of real GDP, a measure summarizing the average
Documenting a tragedy performance of the continent in the clearest way, relating
There should be no doubt that the worst economic it closely to income per person. The figure shows the
disaster of the 20th century is the dismal growth period from 1960 to 2002, during which a substantial
performance of the African continent. The newly freed number of African countries became independent.1 We
citizens had high hopes when their countries became see that, between 1960 and 1980, per capita GDP
independent during the second half of the century, but increased slightly from US$1,500 to about US$2,000, but
most of them are substantially poorer now than they since then has stagnated at this very low level.

Figure 1: GDP per capita

5,000

4,500

4,000

3,500

3,000
US Dollars

2,500

2,000

1,500

1,000

500
1

0
1960 1965 1970 1975 1980 1985 1990 1995 2000

Africa Sub-Saharan Africa North Africa

Source: Authors’ calculations from Penn World Tables data

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa


The aggregate data for the entire continent masks the countries south of the Sahara desert became negative
fact that Northern Africa has done only slightly better 0.5% in the late 70s, negative 1.2% in the second half of
than the rest of the continent. Figure 1 also shows the the decade, and zero between 1980 and 1985. In the
evolution of per capita GDP for sub-Saharan Africa2 and first half of the 1990s, growth dropped dramatically to a
displays a number of disturbing trends. First, the level of record negative 1.5% per year. The continent seems to
GDP per capita is smaller than that of the whole have recovered slightly since then, with positive, albeit
continent. This, of course, reflects the fact that the North low, growth for the second half of the 1990s, and the
African countries are indeed somewhat richer than their first two years of the new millennium.
counterparts in the South. Second, and more
The African growth performance is dismal in absolute
significantly, the level of GDP began a long-term decline
terms, particularly if one takes into account the fact
after its 1974 peak. Today, per capita GDP for Sub-
that, during this same period, the rest of the world was
Saharan Africa is US$200 less than it was in 1974, a
growing at an annual rate of close to 2%. Moreover,
decline of nearly 11% over a quarter of a century. This
even though the growth performance of the world’s
evolution is especially worrisome, if we consider that
technological leader, the United States, was not
Africa was already extremely poor in 1974.
particularly spectacular after the oil shocks of the 1970s,
Figure 2 breaks down the per capita growth rates over the African continent has been losing ground to
various sub-periods. Prior to the 1974 oil shock, the America. Figure 3 displays GDP per capita for the
growth rates were positive: for the whole continent, African continent (and the sub-Saharan subset) relative
they were around 3% in the early 60s, close to 2% in the to the United States. The evidence of absolute
late 60s, and slightly below 1.5% between 1970 and divergence is clear: Africa has been losing ground
1974. The growth rates for sub-Saharan Africa were dramatically and has been unable to catch up, owing,
only slightly smaller. Things changed dramatically in perhaps, to the fact that it started from a relatively
the second half of the 1970s. The growth rate for the backward position.

Figure 2: Per capita growth rates

6.0

5.0

4.0

3.0
Percent

2.0

1.0

0.0
1961 - 1965 1965 - 1970 1970 - 1974 1974 - 1980 1980 - 1985 1985 - 1990 1990 - 1995 1995 - 2000 2000 - 2002

-1.0

-2.0
2

Africa Sub-Saharan Africa North Africa

Source: Authors’ calculations from Penn World Tables data

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa


Figure 3: Divergence: Per capita GDP relative to the United States

0.18

0.16

0.14

0.12

0.10

0.08

0.06

0.04

0.02

0.00
1960 1965 1970 1975 1980 1985 1990 1995 2000

Africa Sub-Saharan Africa North Africa

Source: Authors’ calculations from Penn World Tables data

Distribution of income and the politics of reform features of this figure are worth emphasizing. First, the
If aggregate or average measures show that Africa has bottom part of the distribution “shifts to the left” over
performed dismally over the last few decades, things do time. This means that the incomes of the poorest citizens
not look better when estimating individual incomes. In a of Africa have deteriorated over the last thirty years.
number of recent studies, Sala-i-Martin (2003) has Second, the top part of the distribution did not change
devised a methodology that combines individual income significantly. In other words, whereas the poorest citizens
surveys with aggregate national account data, to estimate of the continent saw their economic situation worsen, the
the entire distribution of income for each country in the wealthiest people did not suffer much of a change. Third,
world. In this paper, we borrow from this work to since the poor tend to get poorer, and the rich do not
construct the distribution for each country in Africa, seem to get poorer, it must be the case that individual
which we then aggregate to compute the distribution for income inequalities in Africa have been increasing. It is
the whole continent. Figure 4 reports the African income easy to estimate various measures of income inequality
distributions for 1970, 1980, 1990 and 2000. A number of with the data used to construct Figure 4.

Figure 4: Distribution of income in Africa

7
Poverty Line

4
Percent

0
3

10 100 1,000 10,000 100,000

1970 1980 1990 2000 US Dollars

Source: Sala-i-Martin (2004)

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa


Figure 5: Gini coefficient

0.66

0.64

0.62

0.60

0.58

0.56

0.54

0.52
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

Africa Sub-Saharan Africa

Source: Sala-i-Martin (2004)

Figure 5 displays one of the most popular measures of prevail if all citizens within each country had the same level
income inequality: the Gini coefficient. As predicted, it of income, but countries differed in their aggregate levels of
shows an unambiguous trend towards greater inequality. income per capita. Figure 6 shows that inequality in Africa
For the continent as a whole, the coefficient increases from has increased, both because rich countries in the continent
0.57 in 1970 to 0.63 in the year 2000, a rise in inequality of have grown faster—indicating that across-country
over 10%. For Sub-Saharan Africa, the numbers are 0.58 and inequality has deteriorated—and because rich citizens
0.65 respectively. It is interesting to note that most of the within each country have benefited more than poor
inequality within Africa can be accounted for by inequality citizens—showing that within-country inequality has also
within countries rather than across countries. Figure 6 increased. Of course, if both within and across country
shows an inequality measure that can be broken down into inequalities have increased, it must be the case that overall
its within-country component— measuring the level of inequality in Africa has also dramatically increased. The
inequality that would exist in Africa if all countries had the finding is particularly significant if one takes into account
same level of per capita income—and its across-country that, as shown by Sala-i-Martin (2003), worldwide income
component—measuring the level of inequality that would inequalities have been decreasing over the same period.

Figure 6: Theil Index for Sub-Saharan Africa

1.0

0.9

0.8

0.7

0.6

0.5

0.4
4

0.3
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000
Overall Inequality Across-Country Inequality Witin Country Inequality

Source: Sala-i-Martin (2004)

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa


Before leaving the discussion of the distribution of The humans behind the tragedy: poverty rates
income in Africa, it is worth mentioning one last aspect and headcounts
of Figure 4. The fact that the “right-most” part of the An additionally interesting aspect of both Figures 4 and
income distribution does not seem to decrease over time 7 is the vertical line that represents the extreme poverty
has some potentially important implications. The reason line. The first international poverty line was defined to
is that the people responsible for implementing the legal, be an income level of US$ 200 in 1970 prices (Ahluwalia,
social and economic reforms that could potentially turn Carter and Chenery, 1979). People were regarded as
Africa around are themselves members of the economic poor if their incomes were lower than that figure. The
and political elite, and do not seem to suffer much from vertical line displayed in Figures 4 and 7 represents one
the current situation. Thus, their incentives to introduce such international poverty line. It corresponds to the
change are few. This phenomenon is even stronger for a widely accepted definition of one-dollar-per-day. The
number of individual countries, where the income of the fraction of African citizens whose income is less than one
“rich” not only does not decline, but actually increases. dollar per day is represented by the area below the
The clearest example of this perverse situation is Nigeria, distribution, and to the left of, the poverty line.
whose income distribution is displayed in Figure 7. As Inspection of Figure 4 shows that this fraction has been
for most of Africa, the lower part of the Nigerian income increasing.
distribution constantly shifts to the left, meaning that the
In 1991, the World Bank adopted a definition of poverty
incomes of the lowest 80% of the population deteriorate
in terms of consumption, and proposed what is now
over time. The shocking feature of this figure is that the
widely used as the extreme poverty line: a consumption
upper part of the distribution moves to the right. In
level of one dollar per day (Ravallio, Datt and van de
other words, the richest citizens of Nigeria actually
Walle, 1991). Since the original definition used 1985
benefit from the current disastrous economic situation.
dollars and the data used to construct the distributions
From the point of view of political economy, the problem
in this paper are in 1996 dollars, we adjusted the poverty
is that those individuals whose incomes are improving
line accordingly. Moreover, following Bhalla (2002), an
may, in some cases, be the economic and political elites,
additional adjustment of 15% in the poverty line was
who will have to approve and implement the required
made to take into account the tendency of the rich to
economic and social reforms.
underreport their income proportionally more than the
poor. He suggests an adjustment of an additional 15%.
We follow his advice here. Adding up the two
adjustments, we arrive at a poverty line of 570 dollars

Figure 7: Distribution of income in Nigeria

7,000
Poverty Line

6,000

5,000
Thousands of people

4,000

3,000

2,000

1,000

0
10 100 1,000 10,000
5

1970 1980 1990 2000 US Dollars

Source: Sala-i-Martin (2004)

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa


per year. To estimate consumption poverty, Sala-i- the poverty rates to 50% for the continent as a whole and
Martin (2004) computes individual country consumption to 60% for sub-Saharan Africa. The positive growth rates
distributions for each African country. Using these data, of the second half of the 1990s implied a small reduction
we calculate African poverty rates and headcounts, and in poverty rates during those five years.
report them in Figure 8. The fraction of the African
population whose consumption is less than one dollar a The negative evolution of African poverty rates between
day was 42% in 1970. The corresponding number for Sub- 1970 and 1995 is particularly troubling given the fact
Saharan Africa was a staggering 48%: almost one of every that, over the course of these three decades, the world as
two African citizens lived in poverty in 1970. Although a whole has been improving dramatically in this
these poverty rates reflected a terrible human tragedy, the dimension. Figure 8 shows that, while African poverty
dismal economic performance over the following three rates soared, worldwide poverty ratios fell from 37% in
decades made things worse, and by 1995 actually raised 1970 to 16% in the year 2000.

Figure 8: Absolute consumption poverty rates

70
Percentage of population living on less than US$1 a day

60

50

40

30

20

10

0
1970 1975 1980 1985 1990 1995 2000
All Africa Sub-Saharan Africa World

Source: Sala-i-Martin (2004)

Figure 9: Absolute consumption poverty head counts

1,600,000

1,400,000

1,200,000
Thousands of people

1,000,000

800,000

600,000

400,000

200,000

0
6

1970 1975 1980 1985 1990 1995 2000

All Africa Sub-Saharan Africa World

Source: Sala-i-Martin (2004)

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa


Figure 9 reports the overall number of poor citizens rather In responding to this central question, the first thing
than the fraction of citizens that are poor. The figure economists are tempted to answer is that Africa did not
shows that the total number of poor in the world declined grow because it did not invest enough. They offer a
from 1.3 billion in 1975, to 900 million in 2000. During this variety of reasons to explain this answer. First, some of
period of overall improvement, however, Africa’s poor the most widely accepted economic theories of economic
increased from fewer than 140 million in 1975, to over 360 growth (e.g. Solow-Swan) suggest that investment in
million in the year 2000.3 Naturally, the implication is that physical capital plays a key role in the process of
the fraction of the world’s poor living in Africa has economic growth and development. Second, this belief
increased dramatically. In 1970, one out of every ten was reinforced by the new theories of endogenous growth
(10.5%) poor citizens in the world lived in Africa. By the developed in the 1990s. Third, international development
year 2000, the number was close to one out of every two institutions, such as the World Bank, have long believed
(or 42%). Poverty used to be an essentially Asian that physical capital accumulation was a central element
phenomenon. The excellent economic performance of in the process of economic development. This is why they
Asia, paired with the disastrous growth performance of have long used the doctrine of the “financing gap”.
Africa, has turned poverty into an essentially African According to this doctrine, the World Bank would finance
problem. the difference between the investment rate needed to
achieve a certain growth target, and the investment rate
Economic analysts tend to forget that negative growth
that the country could finance out of their own savings, as
rates have important consequences for human welfare.
if the only determinant of long-term growth were physical
The case of Africa shows clearly that, when the economy
capital investment (see Easterly (2001)).
does not grow, poverty worsens and vice versa. Indeed,
the only reliable way to reduce poverty in Africa in a
And finally, a simple look at the data confirms that the
permanent fashion is to jump start the continent and put
investment rate (the ratio of investment to GDP) in Africa
it in the pathway for positive aggregate growth. But how
was not only low, but that it declined over the last 40
can this be done?
years. Figure 10 shows that during this whole time period,
investment rates were always below 15%. Moreover, the
The role of investment rate declined after 1975, and reached record lows of 7.5%
for Sub-Saharan Africa and 8.5%, for the continent as a
To find out what could be done to lead Africa back to whole, in the first half of the 1990s. By way of comparison,
growth, we need to figure out what went wrong over the investment rates for the average-performing OECD
last forty years. The easiest way to improve is to correct economies were between 20 and 25%, whereas investment
the mistakes of the past. So the pivotal question is: why rates for the miracle East-Asian economies reached an
didn’t Africa grow? average of 30%.

Figure 10: Investment rates

35

30

25
Percent of GDP

20

15

10

0
7

1961 - 1965 1965 - 1970 1970 - 1975 1975 - 1980 1980 - 1985 1985 - 1990 1990 - 1995 1995 - 2000 OECD East Asia

Africa Sub-Saharan Africa North Africa

Source: Authors’ calculations

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa


Many analysts are skeptical of the aggregate investment ratio of private-to-public investment of 5.7 in the 1980s
rates, because they believe that it is private, rate-of- and 6.6 in the 1990s—or with the extremely successful
return-driven investment that should lead to growth. economies of East Asia—with ratios of 4.8% and 5.1%,
Public investment tends not to be productive, since respectively, in each of the last two decades. The central
projects tend to be chosen according to political or non- point is that, not only were overall investment rates in
economic preferences. Examples of public infrastructures Africa extremely low, but they were skewed in the
that had no impact on economic performance in Africa wrong direction, in the sense that a large portion of the
abound. The steel plant in Ajakouta (Nigeria) and the investments were undertaken by the inefficient public
Akosombo dam on the Volta river in Ghana are just two sector. In this sense, the information conveyed by figure
of the most famous examples of failed giant public 12, showing the private investment rate plotted for the
investment projects. (See Easterly (2001) for a colorful 1990s, provides some comfort. Although the rate is
description of the gargantuan Akosombo failure). quite low, it picked up during the decade. This increase
in overall private investment may reflect a better
Figure 11 shows that Africa did very poorly in that area economic environment, stemming from some of the
as well, as its ratio of private to public investment is reforms implemented in the 1990s, and may be one of
extremely low.4 For the overall continent, the ratio was the reasons behind the slight increase in growth rates of
1.3 in the 1980s and just above 2 in the 1990s. Breaking the second half of the decade and the first two years of
these continent-wide numbers into North and Sub- the new century. However, the level of private
Saharan regions, yields very similar results for the two investment remains too low to be a driving force for
parts of the continent. These numbers are extremely improved growth prospects over the next several
low when compared with OECD economies—with a decades.5

Figure 11: Private to public investment ratio

0
8

Africa North Africa Sub-Saharan Africa OECD East Asia

1980s 1990s

Source: Authors’ calculations

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa


Figure 12: Private investment in the 1990s

5
Percent of GDP

0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Africa North Africa Sub-Saharian Africa

Source: Authors’ calculations

Determinants of African growth: underlying risks, helps to explain the low private
beyond investment investment in the region.

In recent research, Sala-i-Martin, Doppelhofer and


Distortions and the cost of investment Miller (2003) found a number of robust determinants
A pivotal question is: why were private investment of long-term economic growth over a large sample of
rates so low in Africa? Why was the continent unable countries. One of the important variables found was
to attract the kind of investment, which might have the investment price ratio: countries in which
put it back on the road of economic growth and investment goods tend to be expensive relative to
development? Many reasons have been given in the consumption goods are those tending to have smaller
literature. For example, Collier and Pattillo (2000) growth rates. Figure 13 reports the average value of
argue that the rate of return to investment in Africa this relative price for Africa, the OECD and East Asia.
was about one third below that elsewhere. They also For the African continent as a whole, the ratio is
show that investment risk was very high for a variety slightly above 120. For sub-Saharan Africa, the ratio is
of reasons. Among them: political instability, price exactly 120, whereas for North Africa it is more than
volatility, the tendency of government to engage in 150. These ratios compare unfavorably with the ratio
sweeping policy reversals, and an uncertain of 70 found in OECD or East Asia. Thus, the fact that
macroeconomic environment. An interesting point investment goods were very expensive in Africa is an
made by Collier and Pattillo (2000), to the effect that important explanation for its low growth
the ratings of Africa may be overstating the true performance.6
9

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa


Figure 13: Relative price of investment

180

160

140

120

100

80

60

40

20

0
Africa Sub-Saharan Africa North Africa OECD East Asia

Source: Authors’ calculations

To estimate the impact of expensive investment goods if the price of investment had been at OECD levels. The
on overall growth in Africa, Table 1 uses the result is reported in the first row: the growth rate of
econometric estimates of Sala-i-Martin et al. (2003) to Africa would have been 0.44 percentage points higher
show the growth rate that Africa would have achieved, every year.

Table 1: Why Africa grew so little

(1) Name of variable (2) African value (3) OECD value (4) Foregone annual growth (%)
Price of Investment Goods 123 70 0.44
Human Capital (I): Primary School Enrollment 0.42 0.97 1.47
Human Capital (II): Life Expectancy 42 68 2.07
Human Capital (III): Malaria Prevalence 0.80 0.00 1.25
Geography: Fraction of Area in the Tropics 0.85 0.03 1.21
Openness 0.10 0.66 0.67
Public Spending in Consumption 0.16 0.07 0.40
Conflict: Ethno-linguistic Fractionalization 0.58 0.12 0.52

Notes: Column 1 displays the name of the variable. Column 2 shows the average value that the variable has for African countries. Column 3 reports the
corresponding value for OECD economies. Finally, Column 4 uses the empirical estimates of Sala-i-Martin, Doppelhoffer and Miller (2003) to compute the
additional annual growth rate that Africa would have enjoyed if, instead of the values reported in Column 2, it had had the OECD values reported in Column 3.
For example, the average relative price of investment for Africa was 123. The corresponding price for OECD was 70. If investment in Africa had been as low as in
OECD, Africa’s annual growth rate would have been 0.44 percentage points higher.
10

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa


Figure 14: Primary school enrollment

100

80

60
Percent of GDP

40

20

0
Africa Sub-Saharan Africa North Africa OECD East Asia

Source: Authors’ calculations

Human capital economic growth prospects over the next three to four
decades are brighter than they were in the 1960s.
Education
We continue to use the findings of Sala-i-Martin et al.
(2002) to pin down other important empirical factors Health
determining long-term growth rates. The next item on
The other important measure of human capital is
the list is human capital, which has two important
related to the health of the population.8 In this regard,
components: education and health. The most significant
the data showed two measures to be robust
measure of human education is the Primary School
determinants of long-term growth: Life Expectancy in
Enrollment in the 1960s.7 Figure 14 shows that Africa
1960—having a positive association with growth—and
does not score well on these grounds, relative to either
Malaria Prevalence today—with a negative correlation
OECD or to Asia. For example, Sub-Saharan Africa had a
to growth. Figure 15 shows that Life Expectancy in
primary school enrollment rate of 40% in 1960, whereas
1960 was much lower in Africa than in OECD or East
North Africa had an average rate of 56%. The overall
Asia. For the overall African continent, life expectancy
African rate averaged 42%, in stark contrast with the
was just above 40 years, whereas the corresponding
nearly 100% rates in OECD or East Asia. The second
values for OECD and East Asia were 67 and 62 years
row of Table 1 shows that if Africa had had enrollment
respectively. Table 1 shows that if Africa had had a life
rates at OECD levels, the average growth rate of GDP
expectancy similar to the OECD, its annual growth
per capita would have been 1.47% larger every year. In
rate would have been 2.07 percentage points higher.
other words, instead of the annual 0.9%, the growth rate
Life expectancy in Africa has increased substantially
would have been a much healthier 2.37% per year, and
over the last 40 years, which points to possibly
per capita incomes today would be two and a half times
increased growth rates over the next few decades. The
higher than they actually are.
problem, of course, is that life expectancy began to
However, African enrollment rates have improved deteriorate in the late 1990s due to the adverse impact
11

dramatically since 1960. This, of course, means that the of AIDS.

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa


Figure 15: Health (1): life expectancy

70

60

50

40
Years

30

20

10

0
Africa Sub-Saharan Africa North Africa OECD East Asia

Source: Authors’ calculations

Figure 16: Health (2): malaria prevalence

0.9

0.8

0.7
Percent of population

0.6

0.5

0.4

0.3

0.2

0.1

0
Africa Sub-Saharan Africa North Africa OECD East Asia

Source: Authors’ calculations

The other important measure of health picked up by the subcontinent). This is another important reason for the
12

data is malaria prevalence, with average indexes dismal growth performance of the continent as a whole.
displayed in Figure 16. Whereas OECD and East Asia Table 1 estimates that if Africa had no malaria over the
have virtually no malaria prevalence, the index is close last four decades, its annual growth rate would have
to 0.8 in Africa (and close to 0.9 in the Sub-Saharan been 1.25 percentage points higher than it actually was.

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa


In summary, public health is one of the most important Sachs and Warner (1997), Gallup, Sachs and Mellinger
challenges facing Africa today. The most effective way for (1998) and Sachs (2003) point to debilitating tropical
rich nations to help Africa would be by helping them deal diseases that reduce the productivity of workers, and
with such public health issues. Lacking both expertise and lower incentives to invest in education and health.
money for R&D, Africans cannot do by themselves. If rich Other reasons cited include the fact that agriculture
nations devoted ample resources to perform research and tends to be less productive, and that they cannot benefit
development on health issues—e.g. by reorienting current from the technological progress enjoyed by rich
aid projects that are seen as systematic failures—millions countries, whose agricultural technologies are weather-
of lives could be saved. Moreover, our estimates show specific. Finally, researchers like Acemoglu, Johnson and
that such research would also improve the standard of Robinson (2001) point to the institutions left by the
living and the welfare of those that survive. retreating colonial powers. Indeed, the claim is that the
colonial governments established “extractive
Geography: the tropics and institutions” in inhospitable countries plagued by
tropical diseases, whereas they introduced “European-
institutions style institutions”, guaranteeing the rule of law and
Another robust determinant of the rate of economic property rights, in those areas where they could actually
growth is related to geography. For example, the fraction move to live. When they abandoned the colonies, the
of a country that is located in the tropics turns out to institutions remained. And the current situation still
have a significantly negative impact on economic growth. reflects the colonial past.
For some reason, tropical weather is not good for growth.
Bad institutions seem to be especially dangerous in
Figure 17 shows that, once again, Africa does not fare
countries where natural resources are discovered. A
well in this measure, since about 85% of its territory lies
recent paper by Sala-i-Martin and Subramanian (2003)
within the tropics. Indeed, the fraction goes up to 92%,
shows that natural resources that are “easy to steal”,
considering only the Sub-Saharan countries. This picture
such as oil and minerals, turn out to have a highly
contrasts dramatically with the 3% of OECD, and 60% of
adverse impact on growth, by triggering corruption
East Asian territory located in the tropics.
chains that end up destroying institutions such as the
Researchers have pointed out various reasons why rule of law. To solve this problem, they propose that the
tropical countries may have adverse growth prospects. money generated by the sales of these natural

Figure 17: Geography: tropical area

100

90

80

70
Percent of territory

60

50

40

30

20

10
13

0
Africa Sub-Saharan Africa North Africa OECD East Asia

Source: Authors’ calculations

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa


resources could be distributed to the people directly, by of 0.83. Table 1 shows that if Africa had been as open as
making them direct owners of the oil or diamonds. OECD over the last 40 years, its annual growth rate
This way, corrupt officials would not have easy access would have been 0.67 percentage points higher.
to oil money, unless they taxed people directly. They
predict that this would have a beneficial effect on
institutions and, ultimately, on growth. Table 1 Excessive public spending
estimates that Africa’s annual growth rate was reduced
Another important variable is the ratio of public
by 1.21 percentage points as a result of the continent’s
consumption to GDP. Sala-i-Martin et al. (2003) show
disadvantageous tropical geography.
that more public spending is bad for economic growth.
This is true for both public consumption and public
investment, but public consumption turns out to be
Openness
more robust. This is hardly surprising, given that public
The next important determinant of economic growth of consumption does not tend to have direct positive
a country is its degree of openness. It is widely believed effects on economic growth. However, it is financed
that economies that are open to international forces tend through distortionary taxes, which do have a negative
to benefit from trade, and tend to have more access to effect on growth. The same argument applies to public
foreign technological progress through FDI. Figure 18 investment if it is wasteful, as it is in so many instances!
shows that African economies are quite closed. The Here again, Africa does not score well: the fraction of
index of economic openness postulated—for example, GDP devoted to public consumption spending is 0.16—
by Sachs and Warner (1997)—is 0.10 for the African 0.164 for Sub-Saharan Africa and 0.12 for North-Africa).
continent as a whole, and although slightly larger for The corresponding comparative numbers are 0.07 for
North Africa than Sub-Saharan Africa, still quite small OECD, and 0.06 for East Asia. If Africa had had a level
in both sets of countries. This compares very of public spending similar to that of the OECD over the
unfavorably with the OECD, with its openness index of last 40 years, its annual growth rate would have been
0.65, or East Asia, with an even more spectacular value 0.40 percentage points higher.

Figure 18: Openness

0.9

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1
14

0
Africa Sub-Saharan Africa North Africa OECD East Asia

Source: Index of Economic Openness, Sachs and Warner (1977)

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa


Figure 19: Government consumption share of GDP

0.18

0.16

0.14

0.12

0.1

0.08

0.06

0.04

0.02

0
Africa Sub-Saharan Africa North Africa OECD East Asia

Source: Authors’ calculations

Military conflict and ethno-linguistic Namibia, Niger, Nigeria, Rwanda, Sierra Leone, Somalia,
South Africa, Sudan, Togo, Uganda and Zimbabwe.
fractionalization Some of these conflicts have been short-lived. Others
We have left one of Africa’s most obvious problems for have lasted decades. Whether short or long, all have
last: violence. No one will be surprised to hear that war brought untold human misery in their wake. But the
has plagued the continent since independence in the tragedy goes far beyond those who suffer the immediate
1960s. Military conflicts have involved countries such as effects of the violence itself, and includes the future
Algeria, Angola, Burundi, Chad, Côte d’Ivoire, the citizens, who have to deal with the consequences of the
Democratic Republic of Congo (Zaire), the Republic of negative impact such conflicts have on economic growth,
Congo, Djibouti, Eritrea, Ethiopia, Guinea-Bissau, which brings with it inevitable deepening of poverty and
Liberia, Libya, Mauritania, Morocco, Mozambique, further misery.

Figure 20: Ethnolinguistic fractionalization

0.7

0.6

0.5

0.4

0.3

0.2

0.1
15

0
Africa Sub-Saharan Africa North Africa OECD East Asia

Source: Easterly and Levine (1997)

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa


Some of the military conflicts have to do with natural vaccines that prevent AIDS or malaria. Rich countries
resources—eg. the Sierra Leone conflict. Others reflect have little incentive to invest in these lines of research
ethnic or tribal wars, such as the internecine battles because the discoveries will help people with little ability
between Tutsis and Hutus in Rwanda and Burundi. Still to buy the resulting products. If international aid
others combine both sets of factors, such as the Biafran financed by bilateral donors as well as multilateral
war in Nigeria, or the conflict in the Congo (Zaire), with institutions were to be redirected towards the financing
the latter also involving the conflicting international of the most important global public good, health, and to
interests of Rwanda and Uganda (on the rebel side) and dealing with the epidemics currently threatening the
Angola Namibia and Zimbabwe (on the Congolese poorest continent in the world, the situation of Africa
government side). might improve dramatically.
Easterly and Levine (1997) postulate that a central Among other factors contributing to the African tragedy,
problem for most African economies has been the are the dramatic and devastating military conflicts that
unusually large ethno-linguistic fractionalization of these have plagued the continent over the last half a century.
communities. Such fractionalization could have arisen Africa’s economies will not grow until all these conflicts
from the fact that the colonial powers divided the stop.
continent in ways that were arbitrary and unrelated to
Other important factors which, if changed, will
ethnicity. But, whatever the origin, ethno-linguistic
contribute to African growth, include institutions that
conflicts tend to lead to inefficient economies.9 Of course,
can guarantee the rule of law and property rights,
the worst economic outcome occurs when ethnic
investment in education, reduction of policy distortions
conflicts lead to war. But bad economic consequences
that make investment excessively expensive, and
can also result when groups fight, through regular
reduction of wasteful consumption expenditures.
politics or through the government budget, over the
appropriation of resources. Figure 20 shows that, indeed, Opening up the African economies to the forces of trade,
Africa, and especially Sub-Saharan Africa, is unusually FDI, and technological diffusion is also important.
fragmented. The index lies around 0.6. This contrasts African governments could do a great deal more to
with the values of 0.12 and 0.20 for OECD and East Asia ensure that their economies open up. But Europe, Japan
respectively. Easterly and Levine’s insight turns out to and the United States could also contribute, by
be a robust finding as confirmed by Sala-i-Martin et al. facilitating access for African products to their markets,
(2003). Table 1 shows that if Africa had the same amount and by reducing subsidies of their agricultural products.
of ethno-linguistic fractionalization as the OECD, its
Africa’s growth performance was the largest economic
annual growth rate would have been 0.52 percentage
disaster of the 20th century. We can prevent it from being
points larger.10
the largest disaster of the 21st.

Conclusions Notes
1
The African GDP per capita is constructed by aggregating the Penn World
The economic growth performance of the African Tables Purchasing-Power-Parity-adjusted GDP data published by
continent has been tragically disappointing. We use the Summers-Heston-Aten (2002) for each country and dividing it by the total
word “tragic”, because it has had enormous population. Since the data are measured in PPP-adjusted units, it is
strictly comparable across countries and, therefore, can be aggregated.
consequences for human welfare: hundreds of millions The countries used to construct this measure of African GDP are: Algeria,
of citizens have become poor, as a direct consequence of Angola, Burundi, Benin, Botswana, Burkina Faso, Cameroon, Cape Verde,
this dismal economic performance. Central African Republic, Chad, Republic of Congo, Democratic Republic
of Congo, Côte d’Ivoire, Egypt, Ethiopia, Gabon, The Gambia, Ghana,
Hopefully, this study will contribute to an Guinea, Guinea-Bissau, Equatorial Guinea, Kenya, Lesotho, Madagascar,
Malawi, Mali, Mauritania, Mauritius, Morocco, Mozambique, Namibia,
understanding of what went wrong. Perhaps, more Niger, Nigeria, Rwanda, Senegal, Seychelles, Sierra Leone, South Africa,
importantly, it may help us understand what could be Swaziland, Tanzania, Togo, Tunisia, Uganda, Zambia, and Zimbabwe.
done to improve this situation. For example, it seems
2
The set of sub-Saharan African countries are the African countries minus
Algeria, Egypt, Morocco, and Tunisia.
clear that the massive international aid programs of the 3
Bhalla (2002) finds very similar results. He estimates that the total number of
past have not helped significantly. Easterly (2001) and poor in Sub-Saharan Africa increased by 174 million between 1980 and
the body of research led by Paul Collier provide some 2000 (see his Table 9.2).
4
Collier and Gunning (1999) point to this imbalance between public and
clues as to why international aid may have failed in the private investment in Africa as one of the reasons behind its low rates of
past and suggest some possible ways to amend the economic growth.
errors. Perhaps a more efficient way to help would be for
5
Data on private and public investment shares should be interpreted with
caution, because of the lack of consistency among countries in the
the rich to undertake the tasks that the poor cannot classification of public enterprises.
16

possibly do. One of the most important of these is the 6


Collier and Gunning (1999) reach a similar conclusion.
research needed to tackle the health problems that are
7
For econometric reasons, it is important to capture human capital at the
beginning of the period because of its endogeneity: as the economy grows
threatening to devastate the continent. Africans have over time, it acquires more human capital. To alleviate endogeneity
neither the resources nor the expertise to discover problems, econometric analyses typically use variables at the beginning of

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa


the period. Since the Sala-i-Martin et al. (2003) study refers to the period
1960 to 2000, the exogenous variables such as school enrollment were
evaluated in 1960.
8
This measure was first proposed by Jeffrey Sachs and his colleagues. See, for
example, Gallup, Sachs and Mellinger (1998), Sachs (2003).
9
Collier has noted that the presence of only two large ethnic groups in a
region, such as the Tutsi and Huttu in Rwanda and Burundi, is more
likely to generate conflict than the cohabitation of a very large number of
ethnic groups (Tanzania).
10
In addition to the variables reported here, Sala-i-Martin et al. (2003)’s list
includes other variables, such as an East Asian dummy or Spanish
Colony. Since these variables take the same value for OECD and Africa,
we conclude that Africa would not have benefited from having OECD
values for such variables. Thus, we have excluded them from our
analysis.

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and… Convergence.”
Sala-i-Martin, X., G. Doppelhoffer, and R. Miller. 2003. “The Empirical
Determinants of Growth: A Bayesian Average of Classical Estimates
(BACE) Approach.” Forthcoming. American Economic Review.
Sala-i-Martin, X. and A. Subramanian. 2003. “Addressing the Natural
Resource Curse: Nigeria.” Mimeo. Columbia University.
17

1.1 ❚ The Economic Tragedy of the Twentieth Century: Growth in Africa


Chapter 1.2
Health, Economic Growth,
and Competitiveness in Africa

Alan W. Whiteside, Director, Health Economic and HIV/AIDS


Research Division, University of Natal, Durban1

Introduction far-reaching, long term implications. It is only 22 years


since the first cases of AIDS were identified in the United
How important are healthy populations for economic States (in 1981), and only 20 years since the cause, the
growth? Which way does causality work: from healthy human immuno-deficiency virus, was isolated and
people to economic growth or from economic growth to identified. In only one African country (Uganda) has the
improved health? The answer is not simple and could be number of infections peaked and declined; in all others
debated at length by economists, planners and policy the number of infected people continues to rise.2 In
makers. The conclusion, inevitably, would be that it Uganda the level of HIV prevalence peaked in about
works both ways. 1992 and has been declining since—the number of
orphans however peaked in 2002/03 and the
Typically the debate would then move on to the
implications of so many children growing up without
measurement of the relative contributions of both
parents will not be clear for another decade or more.
aspects. Apart from its academic interest, such a debate
would have little significant impact on policy, since we The complex nature of this disease is barely understood.
would go on striving for economic growth and better For example, it is possible that AIDS is contributing to
health, together and separately, seeing both as desirable the social, economic and political turmoil in Zimbabwe.
goals. Furthermore we could expect to see the level of There is some evidence that in South Africa, the lack of
health of populations gradually improve over time, the political leadership around AIDS, combined with the
exceptions being due to natural catastrophes or human high levels of infection, is contributing to a slowdown in
ones such as war. foreign investment. There is a tendency for the private
sector to move to out-sourcing, defined contributions
But in the last ten years this debate has ceased to be
rather than defined benefits, pension plans, and, in some
academic. The expected trend of improving health, falling
instances, to more capital-intensive production, and this
child mortality and rising life expectancy can no longer be
may be partly due to the potential impact of AIDS. While
taken for granted in Africa. The onslaught of HIV/AIDS
this makes sense for particular firms, it may have
means that we are entering a period of declining health for
adverse affects on individual and nations. Employment
most sub-Saharan African countries. In the absence of
through outsourcing is generally less advantageous in
affordable, effective and deliverable treatment (including
terms of benefits for employees, and means that the costs
Anti-retroviral Therapy) the health of Africans will
of ill health must be borne by individuals and families.
continue to deteriorate. We must now ask how this will
19

Defined benefits offer greater security to employees.


affect economic growth and competitiveness.
Replacing people with machinery may be logical for the
It is increasingly evident, as the HIV epidemic companies, but in the context of high unemployment,
evolves, that it is an immensely complex problem with may not be in the national interest.

1.2 ❚ Health, Economic Growth, and Competitiveness in Africa


Health and economic growth between the rich and poor worlds, and many
preventable diseases are still widespread. Treating
Leaving aside the issue of HIV/AIDS for a moment, communicable disease, maternal and perinatal
how important is health for economic growth? This conditions and providing correct nutrition could do
question has been most recently (and exhaustively) much to reduce disease in the developing world. Clean
addressed in the 2001 report of the Commission on water alone would have a significant impact. The
Macroeconomics and Health (World Health disastrous news is the advent of HIV-AIDS, which is
Organisation, 2001). The report makes the compelling, resulting in unprecedented morbidity and mortality
but not entirely convincing, argument that investing in across much of sub-Saharan Africa.
health will increase economic growth. It provides
AIDS means that economic growth in Africa is under
evidence to suggest that good health is necessary—but
threat as never before. But it means more than this.
not sufficient—for economic growth. Historical
Individual companies have to face increased illness
evidence, going back to the development of Europe, the
and mortality among employees, declines in
USA and other OECD countries, suggests that economic
productivity and a change in the environment in
takeoff was supported by breakthroughs in public
which they do business. International aid agencies
health, disease control, and better nutrition.
must recognise that AIDS is rolling back development
The Commission argues that “societies with a heavy gains by illness as effectively as war did in Sierra
burden of disease tend to experience a multiplicity of Leone and Liberia—and as is now happening in Congo
severe impediments to economic progress” (p. 22). Most and Côte d’Ivoire. The international community is
striking is the Commission’s statistical estimate that, facing a long-term humanitarian problem which will
other things being equal, each 10 percent improvement be difficult to resolve, for, unlike drought or flood, this
in life expectancy at birth (LEB) is associated with a rise one has deep roots and no simple solution. African
in economic growth of 0.3 to 0.4 percentage points per governments are seeing increased demand for social
year (p. 24). In the high income countries, life services at the same time that their financial and
expectancy at birth is 75 for men and 81 for women and human resource capacity to provide them is being
rising, while in Sub-Saharan Africa, it is 49 for men and eroded, while the lives of millions are being made
52 for women and falling (World Bank. 2000. Statistical miserable as they face increased poverty and declining
annex). Thus, the difference in growth will be about 11.6 living standards.
percentage points per year, and this will cumulate
Although growth is understood to be essential for
rapidly. “In short, health status seems to explain an
poverty reduction, it is not neutral. Some forms of
important part of the difference in economic growth
development may assist the spread of HIV-AIDS. For
rates, even after controlling for standard macro-
example the reliance of some countries on the textile
economic variables” (p.24).
industry, employing young women at minimum wages,
The report identifies four key channels through which has created a situation in which sexual exploitation has
the disease can influence economic development: increased. Economic corruption and the long-term
❚ It reduces the number of years of healthy life nature of the epidemic mean that the free market is
expectancy; unlikely to provide viable solutions. Indeed, experience
is proving that that the social rate of return on fighting
❚ It affects parental investment in children. High levels
AIDS is much higher than the rate of return on private
of infant and child mortality result in families having
investment, and, therefore, that public investment is not
more children, in turn reducing the ability of a family
only justified but essential.
to invest in the health and education of the children;
❚ It reduces the rate of returns to business and Moreover, AIDS is making Africa increasingly less
infrastructure investment in a number of sectors; competitive, less capable of saving locally, and
increasingly less able to develop its own solutions to
❚ It can undermine social cooperation and even political
these major health problems.
and macro-economic stability.
The Macroeconomic Commission suggests that “the
population health of the developing countries in recent
decades has been a story of good news, bad news and The HIV/AIDS epidemic in Africa
disastrous news” (p.40). The good news is the significant
improvement in global public health in most low income Soon after AIDS was reported in the United States, in
countries: from 1960 and 1995, life expectancy rose by 22 1981, there were already indications that it was
years, and under-five mortality declined. The bad news spreading in Eastern and Central Africa (Shilts, 1987). By
is that the total burden of preventable disease remains the beginning of the new millennium, it was apparent
20

high; even with the gains in health, there are still huge that AIDS is the most serious epidemic to affect Africa in
differences in life expectancy and child mortality centuries (Barnett et al. 2002). Indeed, HIV seems

1.2 ❚ Health, Economic Growth, and Competitiveness in Africa


Table 1: Regional HIV/AIDS statistics and features, end of 20034

Region Epidemic Adults and Adults and Adult prevalence % of HIV- Main mode(s) of
started children living children newly rate (*) positive adults transmission (**)
with HIV/AIDS infected with HIV (in percent) who are women for adults living
with HIV/AIDS
Sub-Saharan Africa late ’70s early ‘80s 29.4 million 3.5 million 8.8 58 Hetero
North Africa & Middle East late ‘80s 550,000 83 000 0.3 55 Hetero, IDU
South & South-East Asia late ‘80s 6.0 million 700 000 0.6 36 Hetero, IDU
East Asia & Pacific late ‘80s 1.2 million 270 000 0.1 24 IDU, hetero, MSM
Latin America late ‘70s early ’80s 1.5 million 150 000 0.6 30 MSM, IDU, hetero
Caribbean late ‘70s early ‘80s 440,000 60 000 2.4 50 Hetero, MSM
Eastern Europe & Central Asia early ‘90s 1.2 million 250 000 0.6 27 IDU
Western Europe late ‘70s early ‘80s 570 000 30 000 0.3 25 MSM, IDU
North America late ‘70s early ‘80s 980 000 45 000 0.6 20 MSM, IDU, hetero
Australia & New Zealand late ‘70s early ‘80s 15 000 500 0.1 7 MSM
TOTAL 42 million 5 million 1.2 50

* The proportion of adults (15 to 49 years of age) living with HIV/AIDS in 2002, using 2002 population numbers.
** Hetero (heterosexual transmission), IDU (transmission through drug injection), MSM (sexual transmission by men who have sex with men).
Source: UNAIDS

destined to cause maximum disruption, given its deadly reminders that no country or region is shielded from the
features: epidemic. The sharp rise in HIV prevalence among
❚ A sexually transmitted disease, viewed as a stigma; the pregnant women in Cameroon—more than doubling to
prudishness and conservatism with which such over 11% among those aged 20–24 from 1998 to 2000)—
illnesses are viewed tend to silence discussion, and shows how suddenly the epidemic can surge.” (p. 21)
delay preventive social action;
For many countries, such as Angola, the Democratic
❚ A disease which lies dormant, allowing each person to Republic of the Congo, Somalia and the Central African
potentially infect many others; Republic, data are simply not available.
❚ A disease which kills most victims in the prime of
The epicentre of the epidemic is southern Africa. The
their lives, after they have completed their education,
expectations in the early 1990s were that HIV prevalence
started to work, and, in many cases, just begun to have
would not exceed 25 percent in any country. The
children.
countries of Southern Africa have confounded this. The
The African epidemic is currently the most serious in the June 2002 UNAIDS Global Report states:
world. Each year UNAIDS produces their latest
“Circulating in southern Africa (where the epidemic
estimates on infections around the world.3 At the end of
is the most severe in the world) has been the hope
2002 there were an estimated 40 million people living
that the epidemic may have reached its ‘natural limit’
with HIV/AIDS. Of these 70 percent were African.
beyond which it would not grow. Thus it has been
Characteristic of the African AIDS epidemic is that the assumed that the very high prevalence rates in some
majority of infections are transmitted through countries have reached a plateau …If a natural HIV
heterosexual contact, and more women than men are prevalence limit does exist in these countries, it is
infected. In East Africa the epidemic appears to be stable considerably higher than previously thought.”
at levels of between 5 and 15 percent among adults. This (UNAIDS. 2002. p.23)
translates into horrific numbers, however: over 2 million
The December 2002 update is even more disturbing:
Ethiopians; 2.3 million Kenyans; and one million
Mozambicans are infected. “The worst of the epidemic clearly has not yet
passed, even in southern Africa where rampant
The 2002 UNAIDS Update noted the relatively low adult
epidemics are under way. In four southern African
HIV prevalence rates in West and Central Africa, in
countries, national adult HIV prevalence has been
countries such as Senegal (under 1%) and Mali (1.7%).
higher than was thought possible in Botswana
Unfortunately, “HIV prevalence is estimated to exceed 5%
(38.8%), Lesotho (31%), Swaziland (33.4%) and
in eight other countries of West and Central Africa,
21

Zimbabwe (33.7%).” (UNAIDS. 2002. p.16)


including Cameroon (11.8%), Central African Republic
(12.9%), Côte d’Ivoire (9.7%) and Nigeria (5.8%)—sobering Figure 1 shows these results for four of these countries.

1.2 ❚ Health, Economic Growth, and Competitiveness in Africa


Figure 1: National trends in HIV prevalence

45 Botswana

40 Namibia
South Africa
35
Swaziland
% HIV positive

30
25

20
15

10
5

0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Source: UNAIDS

Basic epidemiology What also sets HIV and AIDS apart from other
epidemics is illustrated by the two curves shown in
Any epidemic will follow a similar pattern: a few initial Figure 2. With most other diseases, infection is
cases, followed by further spread, until the epidemic followed by illness within a few days, or at most
peaks at the point when all those who are susceptible weeks. In the case of HIV, the infection curve precedes
have been infected. Then, as people recover or die, the the AIDS curve by five to eight years. This reflects the
epidemic curve turns down. An HIV curve is different long incubation period between infection and the onset
because people do not recover; they remain in the pool of illness. This is why HIV/AIDS is so lethal, as
of HIV positive people until they die. This is important, compared to cholera, for example. Cholera victims fall
because it means that prevalence—the number of people ill quickly and visibly, alerting both the general
infected in the population at a given time, expressed as a population and public health professionals to the
percent of the population—may be stable while the dangers. With HIV, on the other hand, the long
incidence—the number of new infections—remains high. incubation period prolongs the time when HIV
This occurs when the number of new infections equals infected people are undetected and are able to
the number of deaths. unwittingly spread the infection.

Figure 2: The two epidemic curves


22

Source: UNAIDS

1.2 ❚ Health, Economic Growth, and Competitiveness in Africa


HIV infection moves through a population giving little economic growth in 30 African countries was made in
sign of its presence. It is only later, when substantial the early 1990s (Over, 1992). It examined the impact on
numbers are infected, that AIDS deaths begin to rise. the labour force, capital accumulation and other factors.
People do not leave the infected pool by getting better, The models were subsequently refined by other
as there is no cure for the disease. They leave by dying macroeconomists. The headline conclusion was that total
(of AIDS or other causes). This is illustrated in Figure 2. economic output would fall as a result of the disease.
in which the vertical axis represents numbers of However, the findings, on a per capita basis were either
infections or cases of illness and the horizontal axis politically unpalatable—the epidemic would leave the
shows time. At time T1 the level of HIV is at A1 and the survivors better off—or academically uncertain—the per
cumulative numbers of AIDS cases and deaths will be capita income of survivors could either go up or down as
very much lower, at B1. AIDS cases will only reach A2— a result of the epidemic.
i.e. the same level as A1—at time T2. By that time, years
will have passed, and the number of people who have An exhaustive study by the Bureau for Economic
been infected with HIV will have risen even higher. The Research (BER) at Stellenbosch University (Bureau for
figure also shows that, even if preventive actions succeed Economic Research, 2001), South Africa, offers mixed
in lowering the number of new infections, AIDS case messages. It concludes that:
numbers and deaths will continue to increase, even after
the tide of new HIV infections has been turned, if “While the economic impact of HIV/AIDS is
affordable and effective treatment is not given. negative, we are far from witnessing a doomsday
scenario. The negative impact on real GDP growth is
Beyond the point T2, the lines are hatched. This is
gradual and the economy could continue to register
because we do not know how either the HIV or the AIDS
3% average real GDP growth (or better) over the next
curves will proceed. Uganda and Thailand are the only
10 to 15 years … Having said that, the results clearly
countries where national HIV prevalence and incidence
show that the macro-economic impact of the
has peaked and turned down. We know a great deal
HIV/AIDS epidemic cannot be ignored.” (Bureau for
about HIV and AIDS. Scientific knowledge about the
Economic Research. 2001. p.5)
virus, how it works and what we need to do to combat
it, is extensive. Unfortunately, we know considerably The BER estimates that annual GDP growth in South
less about its impact on the political, social and economic Africa will average between 0.3% to 0.6%, that is, lower
well being of societies and countries, because: than it would have been in the absence of AIDS. Political
❚ The full impact has not yet been felt; the number of and financial leaders, who have other more pressing and
infected people and the number of deaths are still predictable crises to deal with—eg. exchange rate
rising, and we cannot easily predict their fluctuations, trade wars, or labour unrest—are left
consequences; sceptical and uncertain as to how to act on this
❚ It is difficult to isolate the impact of AIDS from a range information: Will growth be slower? What does a 0.3%
of other influences, such as globalisation, trade decline mean for actual policy?
agreements, international instability, and domestic
upheaval. Despite the uncertainties inherent in macro-economic
studies, there is growing interest in what the disease will
❚ There is limited research on the impact of HIV/AIDS
actually mean for economies and economic policies.
on macro-economics generally5, but virtually none on
Because of the enormous numbers of infected people in
its effect on trade and investment.
its population, most of the studies focus on South
African, with its sizable formal economy and analytical
and academic capacity.7 Of particular note, is the
renewed interest on the part of the private sector and
AIDS, economic growth, and investment advisors, who now recognise that the impact
competitiveness of the epidemic is inescapable, because:

We shall now briefly review what we actually know ❚ The scale and speed of the epidemic is worse than
about the effect of AIDS, at the macro-economic level, at expected, with the number of people infected with
the level of the firm, and that of the single household. HIV in 2000 almost twice that predicted in 1990;
We will then bring this together to assess the effect of
AIDS on economic growth and competitiveness in sub- ❚ Demographic effects now give evidence of
Saharan Africa. unavoidable economic consequences;

❚ Evidence of impact at the micro-level supports the


23

estimates of macroeconomic studies;


Macro-economic studies6
❚ The complexity, scope and consequences of the disease
The first assessment of the impact of HIV/AIDS on are better understood; e.g. the loss of key government
workers means reduced efficiency, less investment,

1.2 ❚ Health, Economic Growth, and Competitiveness in Africa


and slower economic growth. In October 2002, Standard Bank organised a workshop
on the economic implications of AIDS In South Africa, at
which a review of the impact studies was presented8.
The headline finding was that models are correct in
indicating an adverse impact of AIDS on the economy,
but the assumptions are variable and the outcome
difficult to quantify. Firstly, because modelling involves
simplification and cannot reflect how economies actually
operate. Secondly, because the simplistic “with or
without AIDS” estimations are not realistic: there is no
“without AIDS” scenario for most of Africa.

Firm level studies


From a technical point of view, the finest firm level
studies are those by from Boston University9. This work
shows that AIDS increases payroll cost, as well as the
cost of doing business. Some of the data released at the
Barcelona Conference in 2002 and are summarised in
Table 2 (Rosen, et al. 2002). The authors estimated the
cost of AIDS to businesses and the benefits of prevention
and treatment using company-specific data on
employees, costs, and HIV prevalence for five large
enterprises in South Africa and Botswana.
What is the effect of AIDS on productivity? The effect of
health on productivity in general is not well researched.
According to researchers at the Centre for International
Health and Development of the Boston University
School of Public Health, the reason for this is that, in
most settings, neither the health nor the productivity of
an individual worker can be directly observed. The
exception is commercial agriculture in developing
countries, where workers are paid according to the
amount harvested each day, and typically receive health
care from on-site, company-owned medical facilities.
These agricultural enterprises, or estates, have data on
both the daily output and the health of each worker. The
Boston team refers to studies of schistosomiasis, malaria,
and onchocercal skin disease. They are the first to
examine the impact of AIDS on productivity (Fox, M.P.
et al. 2003).

The research on a tea plantation in the Kericho district of Kenya is pioneering, but rigorous. Records of health and
output over a five year period were reviewed by the team. The principal findings are during the last three years of tea
pluckers who died of AIDS and were absent almost twice as often as other workers. More than half of this difference
was accounted for by unpaid (and unauthorized) leave. Output began to fall as early as three years before death. Over
the last three years of life, workers who were to die due to HIV infection averaged only 91 percent of “full”
productivity. During the last year before death, productivity falls sharply, to 82 percent, and 77 percent in the last three
months.
These results show that labour is more expensive as a result of AIDS. In the mining industry in South Africa, there was
speculation that the productivity impact would go beyond the sick individual. It was suggested that if one person on a
24

15 man gang were to fall ill, his workmates would tend to cover for him, with the result that productivity for the entire
team would fall. Where people are paid for piecework or quantity of harvest, the impact of AIDS on productivity is
more evident. However, Fox et al. note that their results may be confounded because tea pluckers often have family
members who assist them, or even sub-contract to others. The impact on the productivity of other workers has not been
Source: Rosen et al. (2002)

1.2 ❚ Health, Economic Growth, and Competitiveness in Africa


addressed. Of great concern is the public sector, in which Table 2: Characteristics and results from
job security is often seen as a substitute for salary. People five companies in Southern Africa10.
accept lower pay and expect to receive other benefits,
including substantial sick leave. Under normal
Sector Heav
circumstances, this can be (and frequently is) the case,
manufacturing
but AIDS is an extraordinary phenomenon, forcing Agribusiness
governments to increasingly operate with reduced Mining
inefficiency, with serious negative consequences for the Mining
business climate, competitiveness and output. Retail
Workforce size (number of employees)
>25,000 5,000
10,000
<1,000
<1,000
<1,000
Est. HIV prevalence 2002 (%) 9.9
24.4 33.6
24.1 11.2
Cost per infection by job level (present value, 2001 US$)
Unskilled/semi-skilled
32,393 4,439
10,732 9,474
4,518
Technician/artisan
50,075 6,772
17,972

14,097 11,422
Supervisor/manager 83,789 18,956 63,271 45,515 24,149
Average cost per infection (multiple of median salary) 4.3 1.1 5.1 2.9 0.9

65 Zimbabwe

South Africa
60
Botswana

Madagascar
55

Senegal
Life expectancy (years)

50 Mali

45

40

35
25

30
1950-55 1955-60 1960-65 1965-70 1970-75 1975-80 1980-85 1985-90 1990-95 1995-00 2000-05

Source: UNAIDS, 2002. Report on the global HIV/AIDS epidemic

1.2 ❚ Health, Economic Growth, and Competitiveness in Africa


Liability acquired in 2002 (future cost of incident infections) (% of payroll) 5.0 2.4 9.4 5.9 0.9
Undiscounted cost of prevalent infections in 2006 (% of payroll) n/a 4.8 18.1 12.2 1.8

Projected
80
population
75 structure
Males Females in 2020
70
65
Deficits due
60 to AIDS
55
Age in years

50
45
40

35
30
25
20
15
10
5
0

140 120 100 80 60 40 20 0 20 40 60 80 100 120 140

Population (thousands)

Source: UNAIDS

The household and public sector including the household, the extended family, and the
community. Although this subject is well beyond the
The full impact of the epidemic is being borne by the scope of this chapter, it should be noted that a growing
public sector and individual households. In those body of evidence suggests that it is here, that the full
countries having a health and welfare sector, people will impact of the disease is being felt.
turn to the government for assistance as they fall ill,
become impoverished and lose their access to private
support. However, we must recognise that in many
countries there is little interaction between the state and
its citizenry, even though it is an ostensible goal of all Human capital
governments to provide basic health care, education and
HIV/AIDS will, at a minimum, reduce the rate of
some degree of social welfare. The effect of AIDS is to
growth, in addition to reducing the population as a
increase the demand for social services, while
whole. AIDS is radically altering not only life
simultaneously reducing the state’s capacity to deliver
expectancy, but the whole structure of populations. As
these services. There is a growing body of data showing
was noted earlier, the majority of HIV/AIDS infections
that hospital beds are increasingly being occupied by
occur in young adults, who have completed their
people with HIV related disease, at the same time that
education and started their families. In South Africa, for
the nursing cadre is shrinking. Recent research provides
example, the highest mortality among women is among
shocking data on teacher mortality, indicating that, for
those aged 25 to 29, and among men, aged 30 to 34
example, in many countries, the number of replacement
(Dorrington et al. 2002. p.4). The result is that, in many
26

teachers being trained is well below those that are


countries, life expectancy will drop to below 40 years
dying.
and the structure of the population will change
When the state fails, or where the state is absent, people dramatically, as is shown in Figures 3 and 4,
have no choice but to rely on their own resources, respectively.

1.2 ❚ Health, Economic Growth, and Competitiveness in Africa


Figure 3: Life expectancy in selected African countries with high
and low HIV prevalence, 1950-2005

Figure 4: Projected population structure with and without the AIDS epidemic,
Botswana, 2020

In an earlier part of the chapter we looked at the impact of AIDS on measurable productivity. The Afro-barometer11, an
independent research project measuring the social, economic and political atmosphere in Africa through regular
surveys, analyses data about work in broader terms, including social reproduction of labour (Whiteside et al. 2002). It
Source:
providesWhiteside et al. (2002)
us with a useful indicator of public health. As a measure of physical health, it asked respondents: “In the last
month, how much of the time has your physical health reduced the amount of work you would normally do inside or outside your
home?” This question admittedly covers a wide range of non-HIV/AIDS-related illnesses. However, the potential
social, economic and political impact of AIDS on society stems not so much from the peculiar nature of the sickness
itself, but from the fact that it makes people very ill, incapacitates, and ultimately kills them. Thus, to the extent that
our chief interest is sickness (and subsequent mortality) a general measure of sickness is useful to track the socio-
political impact of the disease.
The types of disease brought on by immune deficiency not only make a person sick and lead to early death, but are
also likely to lead to high levels of anxiety and depression among its victims. In general, levels of stress and anxiety
tend to increase with illness. However, if people know or suspect they are ill with HIV/AIDS, the resulting stress and
depression is likely to be even greater. Those affected may face discrimination in the workplace, at school, in the
community, or even at home. They must worry about the possibility of infecting their partners, and women face the
Source: Whiteside et al. (2002)

additional anxiety of possibly infecting their newborn Moreover, the nature of the pandemic may raise levels
children. Eventually, most people with HIV/AIDS face of stress and mental illness even among those not
permanent physical disability and the prospect of being infected. As the pandemic progresses and mortality
unable to earn an income for themselves or their levels rise, especially among the young, significant
families. strain is put on the community’s emotional and
psychological coping mechanisms. As a measure of

mental health, the Afro-barometer survey asked respondents: “In the last month, how much of the time have you felt so
worried or anxious that you felt tired, worn out, or exhausted?” The responses reveal important cross-national variations in

0.07
Zimbabwe
Zambia
0.06
Cumulative number of deaths, 1998

0.05

Botswana
0.04

0.03
Malawi

0.02
Lesotho
Namibia
0.01
South Africa

0.00
0 10 20 30 40
27

Percent of people who are both often sick and depressed

Note: 1999 for Lesotho and South Africa


Source: Whiteside et al. (2002)

1.2 ❚ Health, Economic Growth, and Competitiveness in Africa


physical and mental illness across Southern Africa. Table 3: Physical health
(Percent of respondents answering the question: “In the
last month, has your physical health reduced the amount of
work you would normally do inside or outside your home?”)

Botswana Malawi
Namibia Zambia Zimbabwe
Lesotho South Africa
Often 15 16 9
19 31 42 7
Sometimes 29 27
37 38 27
12 25
Rarely 19 21
16 14 18
13 18
Never 36 36
36 28 23
33 49

Table 4: Mental health


(Percent of respondents answering the question: “In the
last month, how much of the time have you felt so worried or
anxious that you have felt tired, worn out, or exhausted?”)

Botswana Malawi
Namibia Zambia Zimbabwe
Lesotho South Africa
Often 15 20 8
22 36 51
12
Sometimes 34 25
36 42 29
14 32
Rarely 19 25
17 12 17
13 19
Never 32 30
37 22 16
21 37

To what extent do these measures inform us of the


effects of AIDS in particular? There is a fairly strong
correlation between physical and mental health. A
combined measure of the proportions of people in each
country who miss work often due to illness, and who
suffer from anxiety fits very closely with epidemiological
data, with the exception of Lesotho12. This suggests that
as deaths rise in number, general health among the
survivors deteriorates rapidly. This is shown in Figure 5.
This is a very significant finding because it shows that as
the disease progresses, economic activity is directly
affected.
28

Figure 5: The correlation between AIDS


deaths and physical and mental illness

1.2 ❚ Health, Economic Growth, and Competitiveness in Africa


The impact of AIDS on investment strategies, the opening and relocation of stores, lease
negotiations for stores, and employee profiles and
Will AIDS put off investors? This is a real concern. In his benefits. The report included a forecast of HIV
opening remarks to the October 2002 workshop in prevalence among customers by market segment and
Johannesburg, Iraj Abedian, Chief Economist of the store group. It concluded that the South African
Standard Bank, noted that AIDS—and the government customer base would grow slowly until 2010. Thereafter,
response to it—is the number one concern for many it predicted a decline in customers in all provinces,
foreign institutional, individual and group investors13. except the Western Cape, that other countries such as
There is no published work on the impact of AIDS on Swaziland, Lesotho and Botswana would experience a
investment flows, although the BER paper notes there reduction in market size by 2010, and that the increase in
will be a strong adverse effect on real private fixed illness and death would change consumption patterns,
investment as a result of lower levels of economic as disposable income was re-allocated.
activity, increased interest rates, lower corporate profits
The JDG report concluded that:
and savings, and a smaller pool of national savings
(Bureau for Economic Research, 2000. p.4). ❚ consumption patterns would change as households
diverted funds to AIDS care;
Four broad categories of investors may be identified:
❚ relationships between GDP, personal consumption
1. Local investors locked in to the local market, resources expenditure and durable consumption expenditure
or conditions, and having a commitment to remaining would alter;
in the country; these will, if they have information,
❚ there would be considerable social impact.
factor AIDS into their investment decisions.
2. Investors who are resource-dependent, exploiting local Although the varied impact (by age group and market
resources and unlikely to move; Botswana’s diamonds region) was anticipated to differ, JDG decided to
can be mined only in Botswana, Kenya’s tea grown reposition itself, to remain within core competencies, to
only in Kenya. Although the investors may try to leverage existing infrastructure to cater for other
insulate themselves from the impact of AIDS, resource customer needs, and to diversify geographically away
constraints mean that unless the costs increase from the HIV/AIDS epidemic. As a result, JDG
considerably they are locked in to a country. One introduced personal services as part of its product range
response is to wall off plants, mines and oilfields and and expanded into Eastern Europe.
operate in enclaves. A number of other firms have carried out, or propose to
3. Companies who are market dependent, serving the carry out, similar studies, but none has yet released their
local market, such as banks, oil companies, and findings. Other companies are hedging their options:
brewers. They will need to consider the impact of blue chip South African companies now listed on the
AIDS on their markets. Clever company managers can London Stock Exchange include Anglo-American,
do well even if the environment is not conducive to Billiton, Old Mutual, Didata, South African Breweries
economic growth – the last man standing principle. and Investec. Did AIDS and the South African response
4. Footloose investors: those (such as garment to the epidemic influence these decisions? How
manufacturers) who are attracted to a location because important a factor was AIDS, and how did it rank
of special incentives, preferential access to foreign alongside other factors such as cheaper capital, better
markets, and local conditions such as cheap or non- ratings, greater liquidity and a central location? We
unionised labour. Such companies are least likely to simply do not know.
adapt to AIDS impact and the most likely to move. The second question is problematic: whether investors
This leaves three key questions in exploring the impact are being dissuaded by the epidemic—and in some
of AIDS on investment: countries by the government’s response—because we are
trying to measure something that has not happened.
1. Are existing investors relocating to other places
How can investment flows that have not taken place be
because of the epidemic?
measured?14 The fact that Standard Bank hosted the
2. Are new investors—particularly those companies October 2002 meeting in Johannesburg clearly indicates
establishing factories—being put off by HIV/AIDS that AIDS is, in reality, having an effect on investment.
and choosing not to invest in Africa?
Investors tend, naturally, to go where the returns are
3. Is there a measurable impact on the investment
best, and will weigh many factors before deciding to
climate and investor perceptions?
invest in a particular country (Whiteside A. ed. 1989).
There is only one company that has made public the fact Clearly, AIDS is not helping the international perception
that it is diversifying its investment due to AIDS. This is of much of Africa. The headlines about declining GDPs
29

South Africa’s JD Group (JDG), which sells furniture and and the erosion of the work force must be having an
household appliances (Whiteside et al. 2000). In 1998 the impact. A short piece in Time Magazine’s ‘Biz Watch’ in
group carried out a study that looked at issues related to December 2002 was headed (in small type) “AIDS in
the development of a new product range, marketing Africa” and then (in large type) “THE WORLD’S

1.2 ❚ Health, Economic Growth, and Competitiveness in Africa


GRIMMEST TAX”.15 Jeffery Sachs, former Director of the
Centre for International Development at Harvard
University, commented in 2001 that the government’s
handling of the crisis had undermined business
confidence in South Africa, by causing bewilderment
among investors over the policy judgement of the ruling
party (Center for International Development, 2001). The
trend toward corporate reporting on HIV/AIDS,
discussed below, will have an impact on investor
perceptions.

The “AIDS tax”


Does AIDS constitute a “tax” in the true sense of the
word, rather than a simple metaphor? If so, who is
applying the tax? In this paper, it has been used as a
metaphor, something that raises the cost of trade
and investment. But there are examples of real AIDS
taxes: Zimbabwe has had a three per cent AIDS levy
on individual and company taxes since 1999.
This money is paid into a discrete fund, administered by
the Ministry of Health and Child Welfare, and is
supposed to be used wholly and exclusively for AIDS
activities. The Namibian Government is planning
to impose a special ”orphan tax” on the general
population from April 200316. It is not clear what
the effect of these taxes will be on expenditure and
investment within a country. Who bears the burden
of the taxes, real and metaphorical? Are they
30

1.2 ❚ Health, Economic Growth, and Competitiveness in Africa


Chapter 1.3
Africa’s Economic Morass :
Will a Common Currency Help?1

Paul R. Masson, University of Toronto2


Heather Milkiewicz, The Brookings Institution3

Introduction the Organization for African Unity and the African


Economic Community, the predecessors of the AU.
Africa has suffered from decades of decline and
The 1991 Abuja Treaty, which established the African
marginalization. The early hopes of rapid development
Economic Community, outlines six stages— to be
and enlightened government after independence were
completed by approximately 2028—for achieving a
dashed by poor economic policies, civil wars, and
kleptocratic rulers. This tragedy has led, first, to a single monetary zone for Africa. In the early stages,
reexamination of the effectiveness of aid by the major regional cooperation and integration within Africa were
donor countries, and second to the recognition by to be strengthened, and this could involve regional
Africans that they need to take charge of their own monetary unions. The final stage was envisioned to be
destiny. Two years ago NEPAD was launched as a the establishment of the African Central Bank (ACB)
vehicle for improving economic and political governance and creation of a single African currency and an African
by Africans, and thus of assuring donors (and private Economic and Monetary Union.
investors) that resource flows to Africa would not be In addition to establishing the African Union (AU),
wasted. Its importance for continuing aid flows from the the 1999 Sirte Declaration calls for shortening
rich countries was reiterated at the June 2003 summit implementation periods in order to speed up the process
of the G-8 countries in Evian, France. However, if for creating institutions such as the African Central
African countries do not get their macroeconomic Bank. Though the bank will not be created until around
policies right, they will not benefit from better economic 2020, the bidding process for its location is likely to
and political governance and the associated capital begin soon. Ghana and Botswana are among those that
inflows. Instead, they will continue to stagnate, and rich would like to host it. In the meantime, there are plans
countries will draw lessons from past aid ineffectiveness for creating various regional monetary unions, which
and increasingly shun the continent. would presumably form building blocks for the single
One important aspect of macroeconomic policies is African Central Bank and currency. However,
the choice of the exchange rate regime and the associated the various sub-regional groupings currently in place—
monetary policy. In this context, a policy proposal which do not necessarily correspond to those that would
currently receiving much attention addresses ultimately form the single African currency—have very
the creation of a common African currency. The project, different starting points with respect to macroeconomic
31

though not explicitly linked to NEPAD, is intimately stability, and they involve considerable intra-regional
associated with the newly-formed African Union (AU), diversity. This calls into question whether a common
the larger institutional framework within which NEPAD currency is possible, even over the fairly long horizon
operates. A common currency was also an objective of embodied in the African Union Treaty.

1.3 ❚ Africa’s Economic Morass: Will a Common Currency Help?


Why monetary union? both have also suffered from periods of instability. In 1994,
the CFA franc was devalued by 50 percent, while the rand
There are two principal reasons for the enthusiasm for has experienced a marked depreciation against major
monetary union in Africa. First, it is clear that the currencies since 1990, as well as a recent period (1998-2002)
successful launch of the euro has stimulated interest in of especially high volatility. Moreover, trade remains low
other regions. From Latin America to the Middle East and in the CFA zone—intra-CFA trade is only 7 percent of total
East Asia, monetary union is seen as a way of reinforcing trade—and the zone has not grown noticeably faster than
regional cohesion and demonstrating a commitment to neighboring countries. In southern Africa, the smaller CMA
regional solidarity. However, it is sometimes forgotten just members have tended to converge toward South Africa’s
how long the road to monetary union in Europe actually higher per capita income. Convergence was even more
was. The transition was fraught with obstacles and rapid for Botswana, which left the monetary union in 1976.
missteps, and even in official circles there were doubts,
until the ultimate day of the changeover, whether the
replacement of national currencies by euro notes and coins
in January 2002 would go smoothly. Designing new Prospects for
institutions able to deliver stability-oriented monetary regional monetary unions
policy—particularly the European System of Central
Banks—was complicated, as was the conclusion of the As mentioned above, there are already several projects for
Solidarity and Growth Pact, which provides for regional new regional monetary unions in Africa. The West African
coordination of fiscal policies. Despite the intense planning Monetary Zone is to be created in July 2005 and will lead,
process, the institutions are still the object of considerable in 2006, to a merger with the West African part of the CFA
controversy and contention. If the process was so difficult franc zone. This will bring into being a single currency for
for a set of rich countries with highly competent the 15-member Economic Community of West African
bureaucracies—countries which have cooperated closely States (ECOWAS), which includes the eight members of the
for more than fifty years—then, to be realistic, the challenge West African CFA franc zone plus Cape Verde, the
for African countries must be considered enormous. Gambia, Ghana, Guinea, Liberia, Nigeria, and Sierra Leone.
However, Nigeria will make a difficult partner for the rest
The second important motivation in Africa has been the of West Africa. Given Nigeria’s much larger size, large
desire to counteract perceived economic and political budget deficit, generally undisciplined fiscal policies, and
weakness by putting in place regional institutions, of which an export structure differing greatly from that of its
a common currency and monetary union would be potent neighbors—it exports oil while the other countries export
symbols. What is not well understood is that a common other primary commodities—Nigeria has the potential to
currency may be the symbol of weakness, not strength—as influence monetary policies, in ways that potential partners
was the case for the rouble in the dying days of the Soviet in a monetary union would find undesirable. Without an
Union, and at the time of the creation of the effective way to discipline the fiscal policies of member
Commonwealth of Independent States. A currency that is countries, and given that export and import prices in these
ill-managed and subject to continual depreciation is not countries—and therefore terms of trade—are subject to
likely to stimulate pride in the region or give the member very different shocks, a single currency for ECOWAS
countries any clout on the world stage. Moreover, would not seem advisable.
as Robert Mundell, the 1999 Nobel Prize winner in
economics, emphasized, it is great countries (or great In southern Africa, members of the Southern African
regions) that make great currencies. While the countries in Development Community (SADC) also intend to form a
the euro zone are important enough economically for the monetary union, though this is a much vaguer and more
euro eventually to rival the dollar, that is not likely to be distant project. In any case, many SADC members are very
the case for an African currency even in the best far from macroeconomic stability. The southernmost
circumstances. Africa’s Gross Domestic Product (GDP) is, countries, such as South Africa and other members of the
and is likely to remain, only a small fraction of that of Southern Africa Customs Union (like Namibia), are
Europe or the United States. In fact, at the present time, reasonably advanced and stable. However, their neighbors
it roughly equals that of Belgium. to the north include countries having not only recent or
continuing problems of civil unrest—Angola, the
Democratic Republic of the Congo, and Zimbabwe—but
also facing severe drought and deep poverty—Malawi and
Zambia, for instance. Their financial systems are generally
The state of African currencies much less developed than those of the southernmost
countries and their corresponding share of manufactures
Africa already has two functioning monetary unions:
in production and exports is low.
the CFA franc zone, (composed mainly of former French
32

colonies, with the currency linked to the euro) and the The Commonwealth of Eastern and Southern Africa
Common Monetary Area, (CMA, centered on South (COMESA), a group of countries that cuts across two
Africa’s rand). Both are longstanding and have been geographical regions, is also developing a monetary union
generally successful in providing low inflation. However, project. Three of its members—Kenya, Tanzania, and

1.3 ❚ Africa’s Economic Morass: Will a Common Currency Help?


Uganda—plan to revive the East African Community Attempts to advance on too many fronts often result
which dissolved in the decade following independence. in inaction. Disparities among COMESA countries are
These different projects illustrate a pervasive problem in as significant as those affecting SADC; however,
Africa: overlapping commitments that are not necessarily COMESA’s drawback is that South Africa, the greatest
consistent. Within the five main regional groupings pole of monetary stability in the region, is not one of
associated with the AU—the three mentioned above along its members. Various officials have suggested merging
with the Arab Maghreb Union and the Economic or closing down some regional groupings, or having
Community of Central African States— ten countries each country choose a single arrangement to which it
belong to more than one regional grouping, with the would belong. It will be important to rationalize
Democratic Republic of the Congo holding three regional commitments to maximize their effectiveness.
memberships, as shown in Figure 1.
Rather than aiming for new, ambitious monetary
unions, a more promising strategy would be to build
Figure 1: Membership in regional on the credibility of existing monetary unions,
such as the CFA franc zone and the CMA, by adding to
arrangements
them countries that have demonstrated their
commitment and ability to deliver sound economic
policies by satisfying convergence criteria for a
significant length of time. Unfortunately, the western
African CFA franc zone has been hurt by unrest in
Côte d’Ivoire, and its central African counterpart is
composed mainly of oil-producing countries with
pronounced terms of trade swings. Extending the CMA,
where South Africa is a fairly stable, developed pole,
may be a more attractive possibility in the short run.
With a few exceptions, however, South Africa’s SADC
neighbors are too far from the degree of
macroeconomic stability necessary to converge
with South Africa and share the same currency, so
many will not be candidates to join for decades.
Moreover, the strategy of making good policies a
precondition for entrance into a monetary union
is fully consistent with the principles of NEPAD,
namely peer review by African countries. This
approach, if properly applied, can be expected to be
much more effective than external pressures
AMU - Arab Maghreb Union ECOW AS - Economic exerted by donors or by international financial
Algeria, Libya, Mauritania, Community of West institutions. But it is unlikely to favor the quick
Morocco, Tunisia African States
enlargement or de novo creation of monetary unions.
Benin, Burkina Faso, Cape
COMESA - Common Market Verde, Cote d'Ivoire, Ghana,
for Eastern and Southern Guinea, Guinea-Bissau,
Africa Liberia, Mali, Niger, Nigeria,
Angola, Burundi, Comoros, Senegal, Sierra Leone,
Democratic Republic of the Gambia, Togo
Congo, Djibouti, Egypt,
Is a common African currency
Eritrea, Ethiopia, Kenya, SADC - Southern African a good thing?
Madagascar, Malawi, Development Community
Mauritius, Namibia, Rwanda, Angola, Botswana, Democratic An important motivation for monetary union
Seychelles, Sudan, Swaziland, Republic of the Congo,
in Europe was to reduce the costs of changing money,
Uganda, Zambia, Zimbabwe Lesotho, Malawi, Mauritius,
Mozambique, Namibia,
associated with trade and tourism. However,
ECCAS - Economic South Africa, Swaziland, intra-African trade is modest, and therefore gains from
Community of Central Tanzania, Zambia, Zimbabwe a monetary union deriving from lower transactions
African States costs would necessarily be much smaller than in
Burundi, Cameroon, Central
African Republic, Chad,
Europe. Consistent with the gravity model, which
Democratic Republic of the posits that a country will trade more with countries
Congo, Equatorial Guinea, that have higher per capita incomes, most African
Gabon, Rwanda, Sao Tome, trade, as shown in Figure 2, is conducted with
33

and Principe
the richer countries of Europe, North America,
and Asia and will probably remain so.
Source: Report on the Third African Development Forum,
Economic Commission for Africa.

1.3 ❚ Africa’s Economic Morass: Will a Common Currency Help?


Figure 2: Origin and destination of Africa’s of NEPAD shows that there is appropriate recognition
trade in 2000 that governance problems are fundamental, and that it is
the responsibility of African governments to put their
own houses in order. It is also evidence that peer
pressure within Africa can help in that process. There
are four priority areas where actions by African
countries are most essential:
Africa
❚ Stop regional conflicts through regional peacekeeping
Europe
Western Hemisphere forces and by making concerted regional efforts
Asia to prevent armed involvement and material support
Middle East of rebels by neighboring countries;
❚ Increase transportation and communication links to
stimulate trade and competition and to exploit
economies of scale;
Source: Direction of Trade Statistics (International Monetary Fund, 2002)
❚ Adopt sustainable macroeconomic policies by making
currencies convertible and monetary policies
consistent with low inflation, reducing budget deficits,
A second important reason to create a monetary union
and eliminating central bank financing of government
may be to improve on the monetary policies provided
spending;
by national central banks, which have typically been
❚ Promote and attract investment in infrastructure,
pressured to finance government deficits, and hence
health, and education by convincing donors and
have produced high inflation and depreciating
private investors of the ability of African countries to
currencies. There may be some advantage to delegating
provide a stable, non-corrupt environment based on
monetary policy, in order to insulate it from such the rule of law.
pressure. However, unless this occurs in the context of
a large, stable anchor country (e.g. South Africa) or NEPAD must prove itself in the above four areas, and
deliver on its peer review mechanism. If it does, and
existing multilateral institutions with a track record of
a genuine domestic consensus in favor of sound policies
independence and sound policies (e.g. the West African
emerges in African countries, Africa can benefit from
CFA franc zone’s central bank), new institutions are
more generous aid flows from donors, as was recently
unlikely to provide a durable “agency of restraint.”
reaffirmed by the G-8 countries at their Evian summit.
Instead, large countries (whose governments exert
Moreover, monetary union should then be easy to
an important influence over monetary policy actions) achieve, to crown the reality, not only the promise,
will continue to use the central bank as a printing press, of African unity. However, if NEPAD and African
directly or indirectly financing their spending. governments fail, they risk a further decline in aid flows
This was the experience before the 1994 devaluation as donors, noting a history of aid ineffectiveness,
of the CFA franc in both western and central CFA franc pull back further. Attempts to forge a grand monetary
zones. Hopefully, reinforced fiscal surveillance and union would likely produce yet another failure
the recent agreement to eliminate completely central that harms, rather than helps, regional solidarity and
bank advances to governments have solved the integration.
problem in the CFA franc zone. However, the mere The NEPAD process has just begun. As of May 31, 2003,
creation of a regional central bank will not ensure its fifteen African countries have agreed to submit
independence from fiscal policy. themselves to the African Peer Review Mechanism
Monetary arrangements cannot provide solutions to the (APRM), a self-monitoring organization comprised of
profound development problems facing many African African Union member states. The purpose of the
peer review panel, which will have between five and
countries. At best, a monetary regime supported by fiscal
seven members, is to promote the implementation of
discipline and good structural policies can provide a
policies and standards that will lead to political stability,
framework for low inflation. But it cannot guarantee
economic growth, development, and integration on a
high growth. Thus, monetary union should not be seen
regional and continent-wide level. The recently selected
as a panacea, or be driven by a grandiose political vision panel consists of six well-respected Africans from
that hopes to find a meaningful symbol of unity and various disciplines and includes Graça Machel,
stability, when the reality is otherwise. humanitarian, former first lady of Mozambique, and
wife of former South African President Nelson Mandela.
34

The way forward It has yet to be seen how the APRM will be applied.
Thus far, the signals from heads of state are not
The solution to African economic problems does not lie promising. If Thabo Mbeki cannot bring himself to
with political gestures and grand schemes. The creation condemn Zimbabwe’s excesses in both the political and

1.3 ❚ Africa’s Economic Morass: Will a Common Currency Help?


the economic realm, what hope is there for frank
discussion and finger-pointing at lesser sins, like budget
deficits over 5 percent of GDP or excessive foreign
borrowing?
On the one hand, African leaders must recognize and
assume responsibility for their current financial
problems in order to pave the way toward regional
economic integration. If, on the other, nations
throughout Africa continue to be beset by civil wars,
poor infrastructure, unsustainable fiscal policies,
and low investment, related to corruption and the
absence of rule of law, a monetary union will only
accentuate the failure of Africans to tackle these more
fundamental problems.

Notes
1
This paper originally appeared as Brookings Institution Policy Brief 121.
2
Paul R, Masson was a Visiting Fellow in Economic and Governance Studies
at the Brookings Institution when this paper was written. He is now
Professor of Economics at the University of Toronto
3
Heather Milkiewicz is Research Assistant in Economic Studies at The
Brookings Institution.

35

1.3 ❚ Africa’s Economic Morass: Will a Common Currency Help?


Chapter 1.4
Africa’s Competitiveness and
Regional Infrastructure

Peter L. Watson1, PLW Development Solutions Ltd.

Introduction Opportunities for shared production and/or


management facilities are obvious in the case of trade in
It is a well established fact2 that Africa needs to improve electricity, a good example being the Southern African
its competitive position in order to penetrate global Power Pool, which pools facilities, with the objective of
markets, its own national markets being too small to providing reliable and economical electricity to its
constitute a solid basis for sustainable growth and member countries: Angola, Botswana, the Democratic
poverty reduction. It has also well recognized that Republic of the Congo, Lesotho, Namibia, Malawi,
infrastructure is a necessary, although not a sufficient, Mozambique, South Africa, Swaziland, Tanzania,
condition for competitiveness. Improved infrastructure Zambia and Zimbabwe. It is estimated that pooling
and associated services3 reduce transaction costs that electricity generation facilities in Southern Africa could
are already high for most African countries (Bloom et generate savings for South Africa of US$80 million per
al. 1998). However, little attention has been paid to annum in operating costs and US$700 million in expansion
the issue of the role that regional infrastructure can or costs over the next 20 years (Sparrow et al. 1999).
should play.
The same applies to trade in gas, for example, by the
West African Gas Pipeline, which will transport cheap
Nigerian gas to Benin, Togo, Ghana and Côte d’Ivoire.
Why regional infrastructure? The World Bank estimates that Benin, Togo and Ghana
can save nearly US$500 million in energy costs over a
The concept of regional infrastructure is important 20-year period, as WAGP-supplied gas is substituted for
because African economies are typically too small to more expensive fuels in power generation.
generate the economies of scale that can be found in
Opportunities also exist in the areas of water resource
larger markets.
management, for example, the Nile Basin Initiative
The potential for increasing economic efficiency, through (NBI). The Nile River has tremendous untapped
shared production, management and operations, as well potential, if the ten countries: Burundi, Egypt, Eritrea,
as through hubs, development corridors, or poles is Ethiopia, D.R. Congo, Kenya, Rwanda, Sudan, Tanzania
immense. In the power sector, this is exemplified by the and Uganda, which share the river, cooperate to achieve
success of integrated power markets in Europe and it. Recognizing this, the NBI represents an
North America, and multi-country hydropower projects unprecedented example of such cooperation in Africa,
37

in Latin America. Closer to home, The West Africa Gas under which the Nile states are exploring major
Pipeline project is attracting substantial private sector cooperative investments in power generation,
involvement, and the Maputo corridor has stimulated transmission and interconnection, irrigated food
increased economic activity. production and agribusiness, navigation, fisheries,

1.4 ❚ Africa’s Competitiveness and Regional Infrastructure


and related investments in land management, watershed In terms of infrastructure-associated services, having to
protection and environmental conservation. deal with multiple, different national systems with
respect to customs, transit documents, insurance
Creating multi-country telecommunications markets
documents, etcetera, imposes a substantial burden on
would encourage the private sector to invest in the
producers and manufacturers, especially when they
latest technology to replace current out-dated systems.
create opportunities for corruption.
Railways linking coastal countries with the landlocked
hinterlands are by definition regional projects. And These are only a few examples of the benefits that can be
in the roads sector, opportunities exist to undertake expected from regional infrastructure projects. In fact,
development corridors associated with international similar examples could be given for virtually every
road projects, such as the Maputo Corridor infrastructure-related factor of production, and virtually
between Mozambique and South Africa. In the port every service associated with the export/import
and air transport sectors, they are likely to arise through business. It is no wonder that Africa’s competitiveness
the development of port and airline hubs in critical remains compromised and its penetration of global
locations to serve not only a single country, but also markets remains weak. Yet a regional approach could
its hinterland. Creating air transport hubs could provide economies of scale, and reduce both the costs of
eliminate the need for costly airport construction in production and transaction in practically every area.
every country, focusing investment on those hubs
that would carry large volumes of international and
regional traffic. The fact that the Abidjan airport
development cost US$32 million indicates the level Where are we now?
of savings that could be achieved.
In many of these areas, integrated reform agendas have
been designed, often through the regional economic
communities (RECs), such as the Southern African
Planning for regional infrastructure Development Community (SADC), or the Economic
Community of West African States (ECOWAS).
It is important to emphasize, however, that the The NEPAD Infrastructure Short-term Infrastructure
identification of such opportunities must be, first and Plan (ISTAP) sets out an impressive agenda of regional
foremost, an economic decision, rather than a political activities in the areas of
one. While a political decision will be required for ❚ Facilitation initiatives — the establishment of the policy,
implementation, the basic investment decision must rest regulatory and institutional frameworks to create a
on the economic rate of return of the project. Such suitable environment for investment and efficient
decisions should not be imposed or centrally planned, in operations;
the absence of an economic rationale. Shared production
❚ capacity building — initiatives to empower the
facilities must produce identifiable economies of scale;
implementing institutions to perform their mandates;
development corridors or poles must emerge through
competition as a result of the interplay of economic ❚ investment — in physical and capital projects;
forces. ❚ studies — aimed at preparing future projects.
The economies of scale that are sought through The Plan even includes the “Top Twenty” Flagship
regional infrastructure projects can result both from the Projects—considered by the experts who prepared the
physical provision of infrastructure and from the plan to be the highest priority regional infrastructure
associated operations and services. Clearly, it is more projects. But the program of investments and policy
efficient to build one large, efficient, low-production reforms is not being carried through to completion at
cost power station than several smaller less-efficient, the pace that is needed.
higher-cost facilities. Pooling resources across countries
Taking full advantage of electricity interchange
also tends to reduce the risk that sub-optimum market
agreements in Southern and West Africa is hindered by
structures and pricing policies will compromise the
suspicions at the national level. Attempts to develop
achievement of the economies of scale. Multiplying
water-sharing agreements on international rivers break
power generation facilities across countries increases
down into bilateral national bickering. Unilateral actions
both the staff and management required to operate them
by Civil Aviation Authorities to protect national airlines
and associated training costs.
are preventing the increases in efficiency and reductions
At the operating level, additional savings can also in passenger and freight costs that were sought under
be achieved. Cross-border rail systems that require a the Yamoussoukro Decision. The Southern Africa
change of locomotive and crew at each border crossing Transport Protocol aimed to reduce transaction costs in
38

not only create higher than necessary operating costs— the road and rail sectors, but the necessary actions from
hence, higher prices for customers. They also national ministries and operators have rarely been
create delays, increased time to market, and reduce forthcoming. SADC and ECOWAS have failed to
competitiveness. establish freedom of movement for labor and capital.

1.4 ❚ Africa’s Competitiveness and Regional Infrastructure


While progress has been made in some regions on tariff to act as a spur to African economies. Others argue that,
harmonization, the refusal of certain states to participate while investment in physical infrastructure is needed,
leaves the reform agenda incomplete. investment alone will not solve the problem—indeed,
that it is not necessarily the highest priority—since
improved physical infrastructure will not have the
desired effect on competitiveness, if African countries do
What is the problem? not recognize and address explicitly the constraints
which have stunted previous initiatives. These include,
Why, when the evidence of the potential benefits of
inter alia:
integration and cooperation seems so strong, can nations
not come together to take advantage of them, to increase ❚ extended logistics chains plagued by inefficiency;
their competitiveness and to improve the well being of ❚ over-regulation and corruption;
their citizens? ❚ the lack of popular support for reform;
To answer this question, it is instructive to look at a ❚ the complexity of structuring and enforcing multi-
micro example. In a study of Export Processing Zones, national agreements;
Jenkins et al. (1998) argued that successful entrepreneurs ❚ the power of deeply entrenched vested interests;
are those who have the ability to master a number of ❚ the complexity of managing public-private, integrated
skills: production technology, management, labor facilities;
relations, access to markets, finance. Not only that, but
❚ the need for adequate cost recovery to service debts,
the entrepreneur must master them all at once, for
maintain the facilities and attract private investors.
failure in any one domain will lead to failure of the
enterprise as a whole. The argument cannot be resolved because one side gives
greater weight to economic considerations, while the
Watson (2001) has argued that the same is true for a
other gives greater weight to socio-political
country wishing to establish a successful EPZ. The
considerations. The conflicts are illustrated in Table 1.
government must master the creation of a pro-business
environment, the provision of infrastructure and
services, international marketing, investor relations—and
must master them all at the same time. If the argument Table 1: Economic versus socio-political
applies within the geographical confines of an export considerations in regional infrastructure
processing zone, then it applies, even more, to the task of development
making a whole country competitive. Moreover, the
difficulties associated with the physical provision of Physical Removing
infrastructure are minor, when compared with the task Investments Constraints
of harmonizing infrastructure and infrastructure-related Financial Cost High Low
services across a region. Benefits to Industry Low High
Political Benefits High Low
So what is missing is management of the change process
Impact on Vested Interests Positive Negative
on a broad front. Planners and decision-makers can and
Political Cost Low High
do understand the economic benefits associated with the
integration of infrastructure at a regional level. What
they fail to master is the socio-political process that must When socio-political benefits and costs are not aligned
underpin the management of the changes required, with economic benefits and costs, experience shows that
changes that inevitably have social and political it is probable that the socio-political issues will
implications, costs and benefits, which are frequently predominate, since, more often that not, they conceal the
at odds with the economic costs and benefits. efforts of highly placed people to protect their rents and
privileges. In fledgling democracies, it is not always easy
Consider the debate in the transport sector over whether
for leaders to follow regional approaches, when they
the expensive construction of physical infrastructure is
appear to involve giving up sovereignty. After all,
more important than the low-cost removal of operational
politicians need votes, and cannot do too many things
and supply chain constraints, i.e. the numerous obstacles
contrary to the wishes of the people—at least unless
associated with moving goods, especially across borders.
the propaganda of the special interests can be countered
These obstacles include delays at border posts and
by persuasion and explanation. Even then the potential
customs, incompatible paperwork requirements,
for demagoguery is high, and hard to undermine.
unreasonable demands for local insurance and the all too
frequent “unofficial” barriers and roadblocks that What is valid for the transport sector applies equally to
hamper movement along transport corridors. The the undertaking of all regionally integrated infrastructure
39

authors of “Can Africa Reclaim the 21st Century” (World facilities and services. Overcoming the imbalance
Bank, 2001) argue that Africa needs US$18 billion per requires an organized socio-politico-economic change
year in infrastructure investment, both to improve management process, involving four critical elements:
infrastructure services and improve competitiveness, and vision, consensus, concerted action, and continuity.

1.4 ❚ Africa’s Competitiveness and Regional Infrastructure


Vision may be suspicious of the motives of their counterparts in
another country. Technicians in one country may not
It seems only too obvious that, in order to develop a
trust the competence of their counterparts in another
successful regional integration program in any area,
country. All tend to evoke the age-old issue of whether it
the countries involved must have a clear vision of where
is acceptable to put one’s country’s destiny in the hands
they are going and what they want to do. To do so
of others. Being dependent on a power generation plant
across national boundaries raises the degree of difficulty
or a port in the next-door country could devastate a
substantially. It appears easier to realize bilateral
nation’s economy if something goes wrong technically,
integration projects, than to achieve projects at the level
politically, or militarily. Given the degree of instability in
of a regional economic community, such as ECOWAS
Africa today, these are risks that must be given very
or SADC. Thus it seems fair to conclude that the degree
serious consideration.
of difficulty increases exponentially with the number of
countries involved. This goes a long way in explaining In the case of many regional economic community
why the regional economic communities have had initiatives, consensus is reached—or appears to have
limited success in bringing about integration. been reached—at the level of the heads of state or of the
ministers concerned. Yet this consensus is not
In the case of regional infrastructure, the vision must be
transmitted to those who will have to implement the
clear, resolutely pro-business, export-oriented and aimed
changes at the operating levels of the civil services. At
at a well-defined market. Without a vision, there is no
that level, there may be resentment, resistance—even
way to rally different stakeholders in different countries
outright sabotage—if the interests of the civil servants
behind a strong drive for results. If different
and other stakeholders are not aligned with the vision
stakeholders have different ideas about what the
and consensus articulated by their leaders.
objective is, then efforts will be diffused or, worse, work
against each other. It is essential to ensure that all relevant stakeholders in all
the countries concerned know what the vision and
objectives are. Building the consensus can take time,
Consensus sometimes years. But every effort should be made to
overcome any opposition to the initiative, to neutralize
However, vision is not enough. Several African countries
vested interests, and to bring into line misguided
have articulated splendid visions of export-oriented
supporters, any or all of whom have the potential to
growth. But without a consensus around the vision,
undermine the initiative. It matters little whether people
progress is at best difficult, at worst impossible. If the
act out of malice or ignorance. The result is the same,
private sector is trying to export and the public sector is
and the program will fail.
focused on import substitution, the enabling policies,
infrastructure and services will not be put in place. If the The fundamental point is that moving forward before a
Ministry of Transport is building infrastructure in the consensus has been achieved is virtually certain to be an
wrong places, entrepreneurs will become frustrated and exercise in futility.
investors will not come. If the private sector is demanding
job training and apprenticeship schemes, while the
Ministry of Education is focusing on primary education, Concerted action
an essential element for success will be missing.
It seems axiomatic that to bring about change requires
Bringing about regionally integrated infrastructure action, yet many initiatives, both national and regional,
projects and services requires change across a broad have failed because of inaction with respect to certain
front. If there is not a solid consensus around the vision, elements of the plan. This can happen because of failures
there is a high risk that critical elements will not be put regarding vision and consensus. It can also happen
in place by one or more of the countries involved, and because the people concerned do not have the ability,
the regional program will fail. Of course, failure can also or the tools, to do what they are supposed to do.
result from the inability to deal with entrenched It may happen simply as a result of inertia.
opposition to a program on the part of vested interests
Sometime, inaction stems from a lack of planning,
having something to lose, but it should not be forgotten
sometimes from a lack of political will. What is
that failure can just as easily come from the misplaced
abundantly clear is that someone needs to be in control
good intentions of people doing their best, but not
of the program of actions, and that person must have
knowing what objectives they are supposed to be
political support at the highest levels. It is not enough to
pursuing.
assume that decisions taken at a high level will be
This is difficult enough when all the actors are from the communicated to the people who need to act; it is not
same country. When the consensus must be built across enough to assume that they will act; and it is not enough
40

countries, it is that much more difficult. Issues of to assume that the decision-makers will be aware that
sovereignty arise, making the allocation of costs and critical actions have not taken place. Rigorous planning,
benefits—the question of who pays and who benefits— monitoring and follow up are required, so that actions
much more complicated. Civil servants from one country can be concerted and timely.

1.4 ❚ Africa’s Competitiveness and Regional Infrastructure


Continuity Acting as a catalyst, NEPAD could support and
encourage governments, complement the private sector,
The final critical element, continuity, ensures that those
and ensure that project development is entrusted to
responsible for the actions do not undermine or reverse
successful economic operators with regional scope,
them. Often, civil servants lose the battle to protect a
adequately supported by donors.
vested interest through one mechanism, but immediately
introduce a new mechanism to achieve the same However, a May 2003 update of the NEPAD Short-term
objective. Civil servants and policy-makers do change, Infrastructure Plan by the African Development Bank
and it is important that the newcomers do not noted a lack of progress on NEPAD regional
undermine an initiative through well-meaning attempts infrastructure projects, in the year since the production
to revamp policy or programs, or because they have of the ISTAP, and signaled the need for greater clarity on
self-serving reasons to derail the program. Policy advice roles, responsibilities and expectations, particularly on
from development partners can also vary between how NEPAD sees its own role in promoting and
institutions, or among different advisors in the same facilitating infrastructure programs and what it expects
institution. It is vital that consistency and continuity be from the RECs. The review further highlighted the need
maintained, unless there is a good reason to change, to be much more explicit about the relationships
which should involve establishing a new consensus between the RECs and the countries, and how they
around the change. Ideally, policy-makers and civil interrelate in regional project implementation. The RECS
servants should be constantly seeking to improve are urged to establish priority activities, while seeking to
policies and programs so that the initiative is continually apply the principle of subsidiarity, by delegating
strengthened. coordination and implementation responsibilities to
either the countries, or to other technical agencies.
If the obstacles to the effective development of regional
infrastructure programs could be eliminated, NEPAD
could play a critical role, by providing leadership to
resolve political issues, bringing leaders together to work
Regional infrastructure and NEPAD on overcoming these issues, reporting back to heads of
state on progress, and creating constituencies and
One of the key themes underlying regional infrastructure
alliances within Africa to translate the ideals of regional
projects is the importance of political commitment to
cooperation into reality. This could be extremely useful
having countries work together to solve common
in supporting the socio-politico-economic change
problems, and to creating shared benefits. Therefore,
management process, without which too many regional
the creation of the New Partnership for Africa’s
infrastructure and integration initiatives will be doomed
Development (NEPAD) in 2001—with precisely the goal
to failure.
of generating, supporting and reinforcing such political
commitment—is both appropriate and timing. Created
by the Heads of State of African countries, NEPAD4
recognizes explicitly that Africa’s development is in its
own hands. Reinforced by declarations committing it to
the pursuit of good governance and transparency,
NEPAD has specific objectives for infrastructure:
❚ To improve access to, and to increase the affordability
and reliability of infrastructure services for both firms Notes
and households;
1
Dr. Watson is former Director of Infrastructure and Energy for the Africa
Region of the World Bank.
❚ To enhance regional co-operation and trade, through 2
Most recently in World Bank. 2001.
expanded cross-border development of infrastructure;
3
This includes services associated with the supply chain, such as insurance,
freight-forwarding and documentation, customs, and standards.
❚ To increase financial investments in infrastructure, by 4
The New Partnership for Africa’s Development, document adopted by
lowering the risks facing private investors, especially the African Heads of State, Abuja October 2001.

in the area of policy and regulation.


Thus, one of NEPAD’s specific objectives is to provide a References
Bloom, D.E., and J.D. Sachs. 1998. “Geography, Demography and
forum, a peer group and a process for beginning to Economic Growth in Africa.” Brookings Papers on Economic Activity 2.
resolve the issues faced by African decision-makers and Jenkins, M., G. Esquivel, and F.B. Larraín. 1998. “Export Processing
their development partners, in the process of bringing to Zones in Latin America.” Development Discussion Paper 646, Harvard
fruition regional infrastructure projects. While NEPAD’s Institute for International Development. August.

modus operandi has yet to be made explicit, it will not Sparrow, F.T., and W.A. Masters. 1999. “Modelling Electricity Trade in
41

Southern Africa 1999–2000.” West Lafayette, IN: Purdue University.


implement, finance or operate infrastructure facilities.
Watson, P. 2001. “Export Processing Zones: Has Africa Missed the Boat?
It intends to act as a confidence builder, risk mitigator, Not Yet!” Africa Region Working Paper Series 17. World Bank.
catalyst, initiator, facilitator, and political leader for World Bank. 2001.“Can Africa Reclaim the 21st Century.” African
multi-country programs. Development Report, Abidjan: African Development Bank, 1999.

1.4 ❚ Africa’s Competitiveness and Regional Infrastructure


Chapter 1.5
How Should Africa Position Itself
in the International Trading System?

Maria A. Oliva, European Central Bank


Luis A. Rivera-Batiz, Columbia University, McGill University,
and University of Puerto Rico

Introduction down from 2.8 percent in 1990. Trade participation has


been hindered by the following factors:
This paper focuses on preferential agreements involving ❚ insufficient human development;
African countries. It examines why preferences granted
❚ insufficient physical capital and technological
to them by the European Union and the United States
development;
have not resulted in greater African trade and growth.
Past experience leads us to believe that Africa’s low rate ❚ poor physical infrastructure, in particular transportation,
of increase in exports and lack of export diversification ❚ dependence on commodity prices, which, except for oil,
cannot be expected to change fundamentally through the have been falling in recent years.
operation of trade preferences alone. Moreover, recent
Regional and other forms of trade associations constitute
laws prolonging agricultural subsidization in the United
one mechanism to promote trade. Indeed, the so-called
States and the European Union might hinder the Doha
New Regionalism, coinciding with the closure of the
Round of negotiations. These conditions suggest that
Uruguay Round, has given rise to a flurry of activity. With
investment, as well as trade policies broadly defined,
over 170 arrangements in place in 2002, developed and
must work hand-in-hand with each other to secure a
developing countries are moving beyond the rules and
takeoff leading to both trade and income growth.
commitments reached in the multilateral negotiations
Unfortunately, policies for competitive integration into
agreement, seeking to increase the role of trade and foreign
large global markets are largely inconsistent with both
investment. African countries are and have been very
the current initiatives of developed countries, and the
active in the trade partnership field. The Southern African
customs union approach to trade integration, followed
Customs Union (SACU), in place since 1910, is the oldest
by African countries up to now.
operating customs union in the world. There are many
In 2001, the share of developing countries in world other regional arrangements, including, for example, the
merchandise exports reached 29 percent, up from the 26 West African Economic and Monetary Union, as well as
percent level that had prevailed since 1995. However, the partnerships between African and developed countries.
bulk of developing country participation in world Preferential trading arrangements among African countries
merchandise exports is accounted for by only a few have not generally led to greater trade among themselves.
developing countries, including China and Mexico. With This may have resulted form a combination of factors, such
the exception of South Africa, there is no significant as, small markets, similar comparative advantages such as
43

African participation in world trade. Africa’s share of oil, certain agricultures and low-tech labor intensive
total world merchandise exports in 2001 was only 2.4 products (see Yeats, 1998), geographic isolation, and weak
percent, down from 3.1 percent in 1990. Africa’s share in transportation infrastructures (see Foroutan and Pritchett,
world merchandise imports was only 2.2 percent in 2001, 1993 and Limão and Venables, 2001).

1.5 ❚ How Should Africa Position Itself in the International Trading System?
In the face of such long-standing obstacles, the intra- agricultural African economies. Moreover, in 2002, the
regional trade strategy is likely to remain unsuccessful for United States passed a farm bill promising to spend about
the foreseeable future. In the short and medium term, $180 billion in subsidies over ten years, while France and
African countries could consider alternative forms of Germany agreed to extend the Common Agricultural
inserting themselves into the world trading system, Policy (CAP) until 2013. These initiatives could derail the
including participating in preferential arrangements with objective of supporting poor country development, the
the European Union and the United States, and exploiting main goal of the Doha Round of multilateral trade
one-way U.S. and EU trade preferences. This promise, liberalization, launched in 2001.
however, has not yet been fulfilled. Access to large
markets, characterized by well-developed trade
infrastructures, facilitates reaping the full benefits from
international trade. However, greater integration will Africa’s challenges in the
require negotiations aimed at eliminating some of the key international arena
factors currently preventing full exploitation of
preferences granted by large trading groups. A number of international initiatives have reinvigorated
trade relations among African countries, as well as those
Trade strategies to support participation in world markets
obtaining between them and their main trading partners,
need not be based on preferences, which have both trade
the European Union and the United States. As part of this
creation, as well as trade diversion effects. Ozden and
strengthened partnership, many developing countries,
Reinhard (2002) provide evidence indicating that trade
particularly in sub-Saharan Africa, have benefited from
preferences have delayed trade opening in developing
unilateral preferential arrangements established by the
countries. In fact, countries that have stopped benefiting
United States and the European Union.
from the United States’ Generalized System of Preferences
(GSP) have tended to reduce barriers to trade and have
liberalised their economies. The record
Despite the proliferation of preferential agreements
Alternative strategies include multilateral trade
between and among African countries, trade among them
liberalization for specific products of particular interest,
is still very low, although higher than it was in the 1980s.
and unilateral trade liberalization. Trade preferences in
The value of intra-regional trade has increased from $3
the form of customs unions, which characterize the goals
billion in 1980 to US$6 billion in 1997, and $11 billion in
of intra-African trade agreements, conflict with these
2001. The intra-regional share of total trade has increased
alternatives. In fact, countries that share an external tariff
from 3 percent in 1980 to 7.8 percent in 2001. However,
common to the customs union cannot pursue the option
the share of intra-regional trade flows in world
of unilateral liberalization, and are limited as regards
merchandise exports in 2001 was a mere 0.2 percent.
multilateral liberalization moves. Other strategies for
opening trade include the active promotion of clusters, Table 1 shows the sharp contrast between the intra-
formulation of policies to attract foreign direct investment regional trade shares of the Middle East and sub-Saharan
(FDI), the creation conditions for the successful transfer of Africa and those of other developing and developed
technology, generation of competitive advantage, and regions. Yes, they are different. The intra-regional trade
export diversification. These strategies would help to shares of Latin America and Eastern Europe are 17 and
expand manufacturing and enhance services, thus 26.6 percent, respectively. Over two thirds of Western
lessening the adverse effects of the agricultural policies of Europe’s merchandise trade takes place among EU
the developed countries, which spend some US$250 members. The major non-EU trading partners are the
billion, annually, to subsidize their farmers. The effects of United States and Asia, ranked in that order. The bulk of
these enormous subsidies—which are as large as the total US merchandise trade is also intra-regional, largely intra-
GDP of the largest preferential agreement in sub-Saharan NAFTA, followed by trade with Asia and the European
Africa—damage the competitive position of the largely Union, in that order.

Table 1: Intra- and inter-regional merchandise trade in Africa (in percent)

From/To North Latin Western C./E. Africa Middle Asia World


America America Europe Europe/Baltic East
States/CIS
North America 39.5 16.5 19.0 0.7 1.3 2.1 20.9 100.0
Latin America 60.8 17.0 12.1 0.9 1.2 1.2 6.3 100.0
Western Europe 10.3 2.3 67.5 5.9 2.5 2.6 7.8 100.0
C./E. Europe/Baltic States/CIS 4.2 2.1 55.2 26.6 1.0 2.8 6.6 100.0
44

Africa 17.7 3.5 51.8 0.7 7.8 2.1 14.9 100.0


Middle East 16.5 1.3 16.5 0.8 3.8 7.6 47.3 100.0
Asia 25.1 2.7 16.8 1.1 1.6 3.0 48.2 100.0
World 21.9 5.6 40.6 4.2 2.1 2.7 21.7 100.0
Source: Adapted from WTO, 2003

1.5 ❚ How Should Africa Position Itself in the International Trading System?
New preferences, granted by developed countries, could comparative advantages. However, it is unlikely to affect
have a substantial impact on Africa, which exports them to any great extent, except in the case of certain
mainly to developed countries. Western Europe and the grain products and beef.
United States account for 52 and 18 percent of Africa’s
total merchandise trade, respectively. Thus, the relative The second, the African Growth and Opportunity Act
importance of the major developed countries in trade (AGOA), passed in 2000, represents an eight-year
with African countries cannot be underestimated. Over commitment by the United States for major unilateral
60 percent of sub-Saharan exports go to the European trade preferences favouring countries engaged in pro-
Union, the United States, or Japan. Sub-Saharan African market reforms. As of 31 December 2002, 38 sub-Saharan
imports from developed countries accounted for over 40 countries were favoured. The impact of AGOA differs
percent of their total imports in 2002. across the sectors covered by the program. The AGOA
program has expanded textile exports, but has not
The European Union clearly dominates trade relations affected the share of machinery imports to the US.
with sub-Saharan countries. More than 30 percent of the Moreover, AGOA’s preferences are contingent upon a)
region’s exports and imports involve an EU member cost-increasing factors such as the purchase of fabrics
country. The United States is the second major trading and other inports from the US, and b) an annual US
partner, in terms of both exports and imports. Over 22 determination of progress in implementing labor
percent of the region’s exports go to the United States, standards, among others.
although imports to Sub-Saharan Africa from the United
States are lower than those from France, which has Export diversification has remained an elusive goal
developed a strong base in the region. in sub-Saharan Africa. Neither intra-regional nor
inter-regional preferences have been able to support
Trade relations between the United States and sub-
export diversification. Most countries remain dependent
Saharan Africa remain volatile. Two-way trade between
on the good and bad fortunes of the terms of trade
African countries and the US dropped substantially in
of one or a few export products. Moreover, the
2002. US exports to sub-Saharan Africa declined faster
predominance of agricultural production makes the
than their imports from the region.
economy vulnerable to natural factors such as drought,
Trade flows between the US and sub-Saharan Africa are which affects a large part of the continent, creating
concentrated in a few countries, with the bulk of US severe food shortages.
imports from the region coming from either South Africa
or Nigeria. Several key factors concerning trade and investment
marginalization of Africa constitute internally set
high barriers to trade, which cannot be addressed by
Identifying bottlenecks preferences alone. Paul Collier (1998) stresses the
In view of the above, it is clear that one of the most
productive role of social capital, meaning the norms,
effective ways to expand trade is to strengthen Africa’s
values, social interactions, cultural coherence,
relations with developed countries. However, as was
and institutions that hold together the politico-economic
pointed out earlier, this will involve dealing with a
system. Lack of trust, leading to high transaction costs,
number of counterproductive elements that partially
may be viewed as one of these social capital barriers
nullify existing preferences granted to African countries:
to economic interaction. Other social capital barriers to
low efficiency in the provision of services by African
regional and world market integration include:
governments, weak infrastructure for commerce, and
limited education, inadequate public governance
social capital bottlenecks, including attitudinal factors,
roadblocks and other extra-legal barriers which
such as the lack of market-orientation, and negative
have negatively affected trade, foreign investment,
attitudes toward foreign investment.
and therefore growth,
The long-standing Generalized System of Preferences
(GSP) exempts developing countries from the Most- Sub-Saharan African countries have made dramatic
Favoured-Nation principle, which requires non- progress in boosting enrolment and school retention
discrimination among WTO members. Developing rates (World Bank, 2001). Between 1960 and 1995, on
countries could benefit from a third arrangement, average, sub-Saharan Africa’s gross enrolment rates at
without offering reciprocity to other WTO members, i.e. the primary level doubled from 40 to about 80 percent.
from lower barriers to trade, in the form of lower tariffs Secondary level enrolment rates also surged during the
and larger quotas for certain products. same period, from 3.4 to 27 percent. Gender disparities
are also shrinking: between 1960 and 1995, the enrolment
Two major recent initiatives address the continuing rates for girls in Uganda and Malawi doubled, while
marginalization of African economies. The first, called Guinea experienced a 12 percent annual increase. Much
45

the Everything But Arms (EBA) trade preferences work still remains to be done. The average duration of
initiative, introduced by the European Union in 2000, formal schooling for adults is only 0.8 years in Mali and
grants duty-free access to the world’s 48 least-developed Niger, and 1.1 years in Mozambique and Ethiopia. Only
countries. In practice, it applies to agricultural products, 21 out of 43 sub-Saharan countries are expected to reach
for which the least-developed African countries lack the 2015 target of 100 percent primary school enrolment.

1.5 ❚ How Should Africa Position Itself in the International Trading System?
Figure 1: Corruption perception indexes for African countries (2000-2002)

7
Global
6 average

5
Regional
4 average 2000
Score

2001
3 2002

0
Botswana

Namibia

South Africa

Tunisia

Mauritius

Ghana

Ethiopia

Senegal

Malawi

Tanzania

Côte d'Ivoire

Zimbabwe

Burkina Faso
Zambia

Cameroon

Uganda

Kenya

Madagascar

Angola

Nigeria

Mozambique
Country

Source: Transparency International, 2000-2002

Another major trade-related social capital bottleneck has potential. In 2001, the share of Africa in world FDI
to do with widespread corruption, which raises the inflows was a mere 2 percent—up from 1 percent in
transaction costs of trade, encourages rent-seeking 2000—as recorded by the 2002 UNCTAD World
protectionism, and often involves the private Investment Report. The lion’s share of these investments
appropriation of fiscal revenues from trade taxes. Figure corresponded to the primary sector, accounting for over
1 shows the corruption perception indexes for African fifty percent of the total. Thus, the transfer of technology
countries during 2000-2002, a score of 10 indicating the has been reduced to a trickle and many potential trade
lowest level of corruption, and 0 the highest; in 2002, linkages remain unexploited.
only four out of the 21 African economies considered
were ranked above the average world standard (i.e. were
less corrupt than the average). Botswana is classified as The drive for preferential
the least corrupt country in Africa, and Nigeria the most arrangements: no trade, no growth
corrupt—indeed, the second most corrupt country in the
A major force behind the drive for self-reliance by means
worldwide sample. Nigeria’s abundant oil resources and
of intra-African preferential arrangements has to do with
related trade have promoted a rent-seeking society
the trade experience. African countries’ average trade-to-
characterized by monopoly of the benefits from oil
GDP ratio is close to 50 percent, close to the world
revenues, ethnic conflict over who should get the
average. Because the majority of imports are fuel and
resources, regional attempts to gain independence and
unprocessed primary sector products the trade-to-GDP is
secure a share of the oil resources, and widespread
low for trade in manufactured goods. As a result, trade
poverty.
has not generated technological change or learning-by-
The negative social and developmental impact of doing and has not been growth-promoting (Rivera-Batiz
widespread corruption is substantial. Research and Oliva, 2003). African countries are not competitive,
conducted at the African Development Bank suggests and have fallen into the static comparative advantage
that corruption could cost African governments up to 50 trap, failing to acquire the dynamic advantages stressed
percent in lost tax revenues. It also doubles the cost of by Grossman and Helpman (1991), Porter (1990), and
goods and services provided by the government, lowers Romer (1990).
their quality, and restricts their accessibility to the poor.
Given this experience, it is not surprising that trade and
The attitude toward both non-local entrepreneurs and investment strategies have stressed alternatives to trade
foreign investors is relatively tolerant in the region. In with the major developed countries. During the past
46

some places, however, the effects of within- and cross- decades, African authorities have actively sought
country ethnic strife and of nationalistic attitudes toward regional integration through preferential trading
foreign investors have been detrimental. This has arrangements, with over forty such agreements having
contributed to a reduction in FDI to well below its been signed at the intra- and inter-regional level.

1.5 ❚ How Should Africa Position Itself in the International Trading System?
Sub-Saharan Africa members are moving in irregular steps toward stated
At the intra-regional level, the race to form preferential goals, beginning with the gradual establishment of free
arrangements has created an overlapping structure of trade areas. This uncertain environment defies the
economically small regional integration groups, each attempt to promote true regional integration, coupled
having different and often contradictory rules. Olarreaga with trade liberalization.
and de la Rocha (2003) examined some of the resulting Tables 2 and 3 show the members of the major intra-
coordination difficulties and contradictions plaguing regional preferential arrangements involving African
countries which belong, simultaneously, to more than countries. Several facts are salient: the arrangements
one customs union. Moreover, these customs unions and cover small markets; they substantially overlap in terms
common market arrangements, more often than not, of membership; all the groups have been operating for
make reference to goals rather than realities. In practice, decades, thus providing a record of their impact on trade.

Table 2: Regional integration within Africa

Organization Year of Formation Members


COMESA (Customs Union) 1981, 1994* Angola, Burundi, Comoros, Democratic Republic of the Congo, Djibouti, Egypt (since 1998), Eritrea,
Ethiopia, Kenya, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Rwanda,
Seychelles, Somalia, Sudan, Swaziland, Tanzania, Uganda, Zambia, Zimbabwe
EAC (Uncertain) 1967-77, 1996, 1999** Kenya, Tanzania, Uganda
ECCAS (Uncertain) 1983** Angola, Burundi, Cameroon, Central African Republic, Chad, Democratic Republic of Congo,
Equatorial Guinea, Gabon, Republic of Congo, Rwanda, Sao Tomé and Principe
CEPGL (Uncertain) 1976 Burundi, Democratic Republic of Congo, Rwanda
UDEAC/CEMAC (Customs Union) 1964/1999**** (CEMAC) Cameroon, Central African Republic, Chad, Equatorial Guinea, Gabon, Republic of Congo,
Benin, Côte d'Ivoire, Guinea-Bissau, Mali, Burkina Faso, Niger, Senegal, Togo
ECOWAS (Customs Union) 1975 Benin, Burkina Faso, Cape Verde, Côte d'Ivoire, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia,
Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leona, Togo
UEMOA (Monetary and Economic Union ) 1994***** Benin, Burkina Faso, Côte d'Ivoire, Guinea-Bissau, Mali, Niger, Senegal, Togo
Entente Arrangement 1959 Benin, Burkina Faso, Côte d'Ivoire, Niger, Togo
IOC (Arrangement) 1982 Comoros, France (for Réunion), Madagascar, Mauritius, Seychelles
SADC****** (Customs Union) 1980 Angola, Botswana, Democratic Republic of Congo, Lesotho, Malawi, Mauritius, Mozambique,
Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia, Zimbabwe
SACU (Customs Union) 1969 Botswana, Lesotho, Namibia, South Africa, Swaziland
UMA (Arrangement to achieve Common Market) 1989 Algeria, Libya, Mauritania, Morocco, Tunisia

* In 1994, COMESA replaced the Preferential Trade Area for Eastern and Southern Africa (PTA), created in 1981.
** Originally, the East African Community. Disbanded in 1977, a year before Tanzania and Uganda entered into war. Renamed East African
Cooperation on 1996 and East African Community in 1999, when members agreed to re-establish a customs union within 4 years.
*** Largely inactive since 1991 due to finances and wars in Angola, Burundi, Central African Republic, Chad, Republic of Congo, the Democratic
Republic of the Congo and Rwanda.
**** UDEAC is a customs union since 1966, except for agricultural products. CEMAC (Economic and Monetary Community of Central Africa),
created in 1994, replaced UDEAC in 1999.
***** CEAO, the predecessor of UEMOA, was created in 1974 and dissolved in January 1994.
****** Former SADCC, created in 1980. This customs union can be traced back to 1910.

Table 3: Total exports by block (percent of world exports)

Trading Block 1970 1980 1985 1990 1995 1996 1997 1998 1999 2000
CEMAC 0.16 0.25 0.24 0.18 0.11 0.14 0.14 0.12 0.13 0.17
CEPGL 0.28 0.09 0.06 0.05 0.03 0.03 0.03 0.02 0.02 0.02
COMESA 1.61 0.56 0.53 0.43 0.35 0.38 0.35 0.32 0.32 0.40
Cross Border Initiative 0.80 0.28 0.23 0.18 0.17 0.18 0.16 0.15 0.14 0.14
ECCAS 0.60 0.34 0.42 0.34 0.21 0.25 0.24 0.21 0.23 0.30
ECOWAS 1.06 0.37 1.05 0.58 0.42 0.51 0.47 0.42 0.39 0.48
Indian Ocean Commission 0.08 0.05 0.04 0.05 0.04 0.04 0.03 0.04 0.03 0.04
MRU 0.14 0.04 0.06 0.08 0.03 0.03 0.03 0.03 0.02 0.02
SADC 2.15 1.65 1.18 1.01 0.76 0.79 0.78 0.69 0.63 0.57
UDEAC 0.16 0.25 0.24 0.18 0.11 0.14 0.14 0.12 0.13 0.17
UEMOA 0.28 0.26 0.24 0.14 0.11 0.13 0.11 0.13 0.11 0.09

Others
APEC 36.0 33.7 38.9 39.0 46.3 46.0 47.2 46.1 46.6 48.5
EU 45.6 41.0 37.8 44.0 39.8 39.2 38.0 39.9 39.2 35.9
NAFTA 21.7 16.6 17.4 16.2 16.8 17.4 18.3 18.7 18.8 19.1
47

Mercosur 1.7 1.6 1.9 1.4 1.4 1.4 1.5 1.5 1.3 1.4
ASEAN 2.3 3.9 3.9 4.3 6.4 6.5 6.5 6.1 6.4 6.6
GCC 1.9 8.5 3.4 2.5 2.0 2.2 2.3 1.7 1.9 2.6

Note that the percentages are not required to add up to 100 since the same country can be member of different agreements.
Source: World Development Indicators, 2002

1.5 ❚ How Should Africa Position Itself in the International Trading System?
The groups are also relatively small economically, French-speaking countries in West Africa are members
as measured by GDP. The two largest groups are the of both the West African Economic and Monetary Union
Common Market for Eastern and Southern Africa (WAEMU) and ECOWAS. Only a few countries belong
(COMESA) and the South African Development to only one group agreement. Ghana and Nigeria,
Community (SADC), which joins the Democratic for example, are members of ECOWAS only.
Republic of the Congo with all the countries What have these multiple overlapping preferential
in the southern part of the continent. In 2001, the GDP arrangements accomplished in terms of trade? As
of these two regions (in 1990 US dollars) was US$272 regards total trade, neither intra-African preferential
billion and US$219, respectively. The GDP of the arrangements nor those with developed countries have
Economic Community of West African States not promoted/enabled an expansion of total trade
(ECOWAS), which unites the sub-Saharan West African relative to GDP.
countries, was US$60 billion—less than half the GNP
of Belgium, a country of 10 million people.
The small market syndrome, the result of slow Figure 2 depicts the relation between the GDP of
growth experience in past decades, is a great
countries involved in preferential arrangements
disadvantage for preferential arrangements, and
and the aggregate trade to GDP ratio of these countries.
generates a vicious cycle. Small markets limit
Focusing on the largest groups, this ratio is 70 percent
the exploitation of scale economies, reduce the
diversity of available products, and make it for SADC, 60 percent for ECOWAS, less than 60 percent
difficult to support specialized skills. for COMESA, and 20 percent for Economic Community
These factors, in turn, limit market expansion. of the Great Lakes Countries (CEPGL)1. These figures
are modest by world standards and leave ample
As was pointed out earlier, most African countries space for greater expansion of trade. By way of
belong simultaneously to several preferential
comparison, the total trade to GDP ratio of Belgium
arrangement groupings; for example, Angola, Benin,
was 149 percent in 1999 and 173 percent in 2000.
Ivory Coast, the Democratic Republic of Congo, and
Kenya belong to three different arrangements. Tanzania, As regards intra-bloc trade, the preferential
which has withdrawn from COMESA, currently belongs arrangements have not been able to promote trade
to both the East African Community (EAC) and SADC, within the blocs. In fact, it is striking that in most
although most of the countries in SADC also belong to arrangements trade has actually declined relative to
COMESA. Senegal, Côte d’Ivoire and several other total member exports.

Figure 2: Major intra-regional African groups (trade as a percent of GDP to GDP)

100
90 CEMAC SADC
Trade as a percent of GDP

80 IOC ECCAS
UDEAC ECOWAS COMESA
70 CBI
60
UEMOA
50
MRU
40
30 CEPGL
20
10

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000

GDP (PPP, current international US$, in millions)

Source: World Development Indicators, 2002

Table 4: Share of intra-arrangement trade in its total trade

Arrangement Year of Creation GDP (PPP, in millions) 1970 1980 1990 1994
COMESA 1981 20,000 9.6* 12.1* 7.5 7.7
ECCAS 1983 13,000 2.4* 1.5* 2.1 2.4
ECOWAS 1975 17,000 3.0* 10.2* 7.9 10.7
48

SADC* 1980 45,000 2.6* 6.5* 2.6 8

COMESA (Common Market for Eastern and Southern Africa), ECCAS (Economic Community of Central African States), ECOWAS (Economic Community
of West African States), SADC (Southern African Development Community).
* Figures correspond to the pre-arrangement trade among the countries that participate in the arrangement (signed at a posterior date) relative to their total trade.
Source: UNCTAD

1.5 ❚ How Should Africa Position Itself in the International Trading System?
Table 4 shows total exports and the intra-group exports North African population clusters to European
of the preferential trade arrangements (PTAs) for markets, which are often closer than other North
several decades. In general, intra-block trade, as a African markets, suggests that Europe is a more
percentage of countries’ exports, is equal to, or even natural trading partner than their North African
lower than, that which existed before the arrangements neighbours.
were formed. The only block showing significant intra-
block trade expansion is WEAMU, in which current
members expanded trade among themselves from 6
percent of total bloc exports in 1970, to 15 percent in
2000. By contrast, trade among the members of Are African PTAs natural
ECOWAS, founded in 1975, represented 10.1 percent of regional blocs?
total ECOWAS exports in 1980, and 10.8 percent in
2002. The countries in the Economic and Monetary Except for the successful gradual integration of the
Community of Central Africa (CEMAC), the Economic islands in the Indian Ocean Commission (Comoros,
Community for Central Africa States (ECCAs), and Madagascar, Mauritius, Seychelles and Réunion), sub-
Central African Customs and Economic Union Saharan countries do not appear to constitute natural
(UDEAC), and COMESA, were trading more among regional trading blocs. Members of preferential trading
themselves in 1970 than in the new millennium. arrangements not only remain separated by large
distances and weak transportation infrastructures, but
Based on this evidence, we may safely say that are characterized by a thousand languages for only 500
preferential arrangements have not been successful in million people, long-standing ethnic and political
promoting trade within the region, or in stimulating animosities, and other factors. Economic growth has
export diversification. On the contrary, the data on faltered for so long, that the average country is currently
African preferential trading arrangements show that, as poor as it was before the independence wave of the
in general, they have not promoted total trade—not 1960s, in some cases even poorer.
even trade among countries in the region. Moreover,
countries’ commodity trade dependence ranges from The lack of diversification of Africa’s exports limits its
40 percent to almost 100 percent of total exports. This growth through trade within the continent. Moreover,
dependence has remained a constant feature for primary products, susceptible to exchange, are similar,
decades, and is often even greater than it was before which limits potential gains from trade.
independence from colonial masters. The experience of Africa’s existing structures of comparative advantage are
sub-Saharan countries supports the notion that trade not improved by preferential arrangements. The
and growth are positively associated. With several overwhelming majority of exports consist of
significant exceptions, the growth experience of commodities. Most of the population is engaged in
African countries has not fundamentally improved in agriculture, often subsistence farming and herding, both
decades. Growth rates have remained stagnant or of which are subject to droughts in the dry climates.
negative, while trade in value-added goods has not However, Southern Africa and coastal regions are
taken off. This experience raises the still unsettled amenable to export agriculture. Exploitable
chicken-and-egg question about the extent to which the manufacturing niches have not emerged yet—with the
positive trade-growth association reflects the effects of exception of textiles (in Egypt, Tunisia, and Mauritius),
trade on growth (see Sachs and Warner, 1997) or, vice where the Chinese competition is intense—and a few
versa, the effects of growth on trade (see Rodrik, 1999). sectors such as non-electronic office, accounting and
computing machinery (for countries in SACU and
North Africa Senegal), and chemicals (in Morocco, Tunisia, Kenya,
Because of their common language and historic Guinea, and Senegal).
linkages, the North African countries are often
Trade in product varieties and specialized inputs and
classified together with those of the Middle East,
services provide greater choice to consumers, greater
However, North Africa is more closely linked to the
input availability to producers, and permit the
European Union than to the rest of Africa or the
exploitation of economies of scale. However, trade in
Middle East. The short distance to European markets
manufactures has not yet taken off. Instead, most African
suggests that North African and European countries
are natural trading partners. Moreover, the scarcity of countries export unprocessed agricultural products,
water, coupled with the European commercial magnet, minerals, and refined petroleum. They have not
has resulted in most of the North African population developed competitive advantages in dynamic sectors
living near the Nile banks or in valleys close to the that could produce technological change and support
growth. In many cases, the export of manufactured
49

Mediterranean and the Atlantic (Morocco). About 95


percent of Egypt’s population lives within 12 miles of goods represents a single digit percentage of total trade.
the banks of the Nile River. Virtually 90 percent of the This helps to explain why regional trade between East
population of Algeria, Libya, Morocco, and Tunisia and West Africa, and trade between North and East
lives within 200 miles of the coast. The nearness of Africa, is close to zero.

1.5 ❚ How Should Africa Position Itself in the International Trading System?
Table 5: Railroad miles in Sub-Saharan Africa

Railroad Miles Countries


0 Gambia, Guinea Bissau, Niger, Central African Republic, Chad, Equatorial Guinea, Burundi, Rwanda, Somalia, Lesotho
1-499 Benin, Burkina Faso, Côte d'Ivoire, Liberia, Mali, Mauritania, Sierra Leone, Togo, Congo, Gabon, Djibouti, Eritrea, Ethiopia,
Lesotho (1.6), Malawi, Swaziland
500-999 Ghana, Guinea, Senegal, Cameroon, Uganda, Botswana
1,000-3,000 Nigeria, Kenya, Angola, Mozambique, Namibia, Zambia, Zimbabwe
3,000-4,000 Democratic Republic of the Congo, Sudan, Tanzania
4,000- South Africa (13,000)

Source: Ramsay, F. Jeffress (1999), Global Studies: Africa 8th edition, Guilford, Connecticut: Dushkin/Mc-Graw-Hill.

Historically, in the sub-Saharan region, economic activities Table 6: Delays in customs


and political power have been concentrated in the interior clearing in ports
of many countries rather than on the coasts. The
combination of a high concentration of the population in
Region Average number of days
the interior and the isolation of the interior from the coastal
North America 3.5
areas represents a formidable barrier to all trade, whether
Western Europe 4.0
local, interregional, or international. The inland
North Africa 5.5
transportation network, developed to secure access to
East Asia and the Pacific 5.6
mineral resources, was not matched by an extensive inland
network. This condition promotes continued dependence Latin America and the Caribbean 7.1

on mineral resources and inhibits manufacturing. The sub- West Africa 11.7

Saharan region has abundant water resources, but river East and South Africa 12.0
transport does not generally connect the coast and the Source: World Development Indicators (2001).
interior. Most rivers are only partly navigable. Falls, rapids
and irregularities along their paths have meant that only
Table 6 presents data on customs delays in ports. Such
the Niger River has been developed as a long navigable
path connecting the inland to the coast. delays in western, eastern and southern Africa are the
longest in the world. Moreover, fourteen countries in sub-
International trade is often favoured over interregional, Saharan Africa are landlocked; Burkina Faso, Mali, Niger,
because of the high costs of transportation. Trade across the Chad, Central African Republic, Uganda, Zambia, Malawi,
vast regions of the African continent is both hazardous and Rwanda, Burundi, Botswana, Zimbabwe, Lesotho, and
costly, and is hindered by geography and inadequate Swaziland. The area covered by these landlocked countries
means of interregional transportation—factors equally
is enormous and this factor, coupled with poor
relevant to other large regions of the world, such as China,
transportation and communications infrastructure, has
India, the United States, Europe and Argentina. In general,
been found (by Limão and Venables, 2001) to seriously
the interior and coastal areas are not well connected by
inhibit international trade.
roads and rail transportation, little enhanced by the
inadequate transportation infrastructure inherited from the The cost of providing access to the coast is exorbitant. For
colonial past. Intra- and interregional trade is also hindered example, theover 1,000-kilometer pipeline providing Chad
by natural barriers such as the Great Escarpment in the with access to the Kribi port in Cameroon will require an
Drakenberg region of South Africa and the Sahara desert estimated investment of US$4.5 billion (including wells).
region, where 25 percent of African people live, despite the The Chad-Cameroon Oil Pipeline Project will be the largest
arduous living conditions. These formidable impediments, single foreign investment in Africa. It promises large gains
at least in part, explain why the population has clustered while at the same time raising environmental risks and the
near the coasts and targeted European markets. possibility of a Nigeria-like corruption effect.
Transportation limitations within Africa are daunting. Even One particular factor found to be associated with close
the railroad, virtually ubiquitous in other parts of the trade relations is the presence of a common language and
world, has yet to reach most of Africa. The number of culture. Despite the fact that French, English and Swahili,
highway miles is quite small relative to the size of the provide some commonality in large parts of Africa, this
countries, and air transportation is scarce and costly. Table element is not present among African countries, which do
5 describes the distribution of railroad miles in Sub- not share a common language, culture, or ethnicity. In fact,
Saharan Africa. The number of railroad miles is less than linguistic and ethnic diversity is so great that there are
500 in 25 out of the 43 countries in the sample. large segments of the population within one country which
50

The condition of roads, ports, and railways has actually have difficulty communicating amongst themselves. This
deteriorated in many countries over the past two decades. condition predates colonial rule, which, was unable or
This is the result of continuing economic stagnation, unwilling to establish a solid national space with a
strained government finances, inefficient state operation of common language for all citizens. Different colonial
the transportation system, and violent conflict. heritages have led to French-, English-, Spanish-,

1.5 ❚ How Should Africa Position Itself in the International Trading System?
Portuguese-, Dutch-, and Arab-speaking regions, with
minimal commonality at the sub-regional level. Box 1: The European Union and its Web
To sum up: an intra-regional trade strategy of joining small of Arrangements
markets with similar comparative advantages in uncertain,
often mutually contradictory arrangements, which do not The European Union maintains a complex, and in cases
constitute natural trading regions, will probably remain overlapping, web of agreements with African countries
unsuccessful for the foreseeable future. The Mediterranean Partnerships are the 1976
Next, we explore the possibilities offered by arrangements bilateral partnerships with Morocco, Algeria, and
with developed countries. Tunisia, and a 1977 agreement with Egypt, which in
2010 will become a net of bilateral free trade areas
North Africa comprising a $5 billion EU assistance package.
Several studies have examined the prospects of regional
integration among North Africa and Middle East (MENA) Free Trade Areas, known as the Euro-Mediterranean
countries. The comparative advantages are similar, Association Arrangement (EMA) with Tunisia and
favouring exports of mineral fuels, labour-intensive Morocco. Other countries concerned, but still in the
manufactures (POSSIBLE TO SPECIFY?) and imports of negotiation process, include other Maghreb and
capital-intensive and technology-intensive manufactures. Mashrak countries (Algeria, Egypt, Jordan, Lebanon,
This pattern of comparative advantages is suited to trade the Palestinian Authority, Syria, and Israel). This
with the European Union, but not intra-regional arrangement is part of the "Global Mediterranean
preferential arrangements. Policy" initiated by the European Union to harmonize
the various, already operating, bilateral agreements of
the 1970s. This partnership was agreed to in 1994, and
North-South trade agreements: The goes beyond economic and financial cooperation to
EU-Africa trade arrangements include political and security aspects as well as social
African trade with the European Union and the United and human matters. The final economic goal is the
States accounts for the bulk of trade exchanges. Coe and establishment of bilateral free trade areas between the
Hoffmaister (1998) conclude that bilateral trade between European Union and the countries considered by the
sub-Saharan countries and industrial countries in the 1990s year 2010.
can be explained by gravity models. They find that it is not
The Africa, Caribbean and Pacific (ACP)
unusually low, after controlling for the variables included
Preferences are unilateral trade preferences granted to
in the gravity benchmark, which stresses the role of size
47 sub-Saharan African countries and others. The
and geography. The dynamic analysis done by
Cotonou Agreement, which replaces the Lomé
Subramanian and Tamirisa (2003) for 1980, 1990 and 2000
Convention, is both a trade agreement and a
finds evidence that Anglophone, but not Francophone
Africa, is reversing a disintegration trend in trade with development program. By 2008, these one-way
countries having advanced economies. Thus, measures preferential arrangements will be replaced by a system
taken by developed countries to ease trade relations with of reciprocal preferences similar to the bilateral
Africa could have a large impact on Africa’s performance Mediterranean partnerships. Preferential treatment on
while entailing few costs for the developed countries. sugar, bananas, beef and veal will stay, though with
some changes.
The European Union and its web of Generalised System of Preferences (GSP) exempt
arrangements developing countries from the Most Favoured National
The European Union is the most important participant in principle (requiring non-discrimination among WTO
preferential agreements falling under the scope of the members), so that developing countries can benefit
WTO. Before 1990, the European Union participated in half from lower barriers to trade (in the form of lower
of 32 preferential arrangements. With the proliferation of tariffs for certain products, larger quotas for others)
PTAs in the nineties, the EU participation increased in than other WTO members. The EU grants free access to
absolute terms, while declining, relatively, to about 65 about 3300 non-sensitive products and preferential
arrangements out of over 170 in 2002. As pointed out in tariff reductions to flat rates of 3.5 percent to about
Sapir (1998), the European Union grants Most-Favoured- 3700 sensitive products out of a total of 7,000 products
Nation status to only six countries: Australia, Canada, subject to positive duties. Textiles, clothing, footwear
Japan, New Zealand, Taiwan, and the U.S. Other countries (sensitive products subject to high tariff rates) are
are subject to some type of preferential treatment. subjected to 20 percent preference margin. In general,
The European Union maintains a complex, in some cases however, agriculture products covered under the
overlapping, web of agreements with African countries (see Common Agriculture Policy (CAP) are excluded from
Box 1). North African countries participate in two long-
51

the Agreement. Since 2001, however, the least


standing arrangements: the Mediterranean Partnerships developed countries (49 countries including 33 sub-
(Egypt, Morocco, Algeria, and Tunisia) and the Free Trade Saharan economies) are guaranteed quota-free access
Areas, called the Euro-Mediterranean Association to the EU.
arrangement (EMA), with Tunisia and Morocco.

1.5 ❚ How Should Africa Position Itself in the International Trading System?
Sub-Saharan countries benefit from the Africa, Caribbean clothing, in which North African countries have a
and Pacific (ACP) unilateral trade preferences (benefiting growing market share, are excluded from this
47 sub-Saharan countries) and the Generalized System of preferential access to EU markets. Moreover, these
Preferences (GSP). The Cotonou Agreement, which was products are subject to strict quotas determined under
signed in 2000 and replaced the Lomé Convention as the the Multi-Fibre Agreement (MFA), although this
basis for the economic partnership between the ACP and agreement is scheduled to be eliminated by year 2005.
the EU, is both a trade agreement and a development However, it is highly probably that other measures, such
program. By 2008, these one-way preferential as threats to file antidumping duties on textiles, will
arrangements will be replaced by a system of reciprocal restrict these countries’ exports to world markets.
preferences similar to the bilateral Mediterranean
According to Panagariya (2002), only three African
partnerships. The most recent initiative is the 2000
countries, Ivory Coast, Mauritius, and Zimbabwe, have
Everything But Arms Initiative for the least-developed
clearly extracted benefits from the Africa, Caribbean and
African countries, which is examined below.
Pacific (ACP) preferences. Hudec (1988) points out that
On the basis of an evaluation of these arrangements, firm one-way liberalization has the effect of induce countries
conclusions cannot be drawn about the gains achieved, to expand market access for their exports while keeping
especially those resulting from the GSP program. Out of barriers against imports.
a total of 7,000 products subject to positive duties) the
EU grants free access to about 3,300 non-sensitive
European Union and Africa:
products, and either preferential tariff reductions or flat The Everything But Arms Initiative (EBA)
rates of 3.5 percent to about 3,700 sensitive products—
The European Union has recently reformed its
defined as those requiring higher border protection.
preferential trade arrangements with the least-developed
Textiles, clothing, and footwear are classed as sensitive
countries. The Everything But Arms (EBA) Initiative,
products subject to high tariff rates and a 20 percent
adopted in October 2000, seeks to stimulate growth in
preference margin. In general, agricultural products,
least-developed countries by extending trade
covered under the Common Agriculture Policy (CAP),
interactions. It grants least developed countries quota-
are excluded from the agreement. Since 2001, however,
and duty-free access to the EU market. The agreement
the least developed countries—49 (including 33 sub-
includes all “originating” products included in the EU
Saharan) countries—are guaranteed quota-free access to
GSP system. A major factor limiting the impact of the
the EU.
program is that the EBA Initiative applies, in practice, to
The current Generalised System of Preferences applied agricultural products for which the least-developed
by the EU limits the potential benefits to be gained by African countries lack comparative advantages, such as
African countries. First, products such as textiles and sugar, cotton and bananas.

Figure 3: Agriculture products price gaps between EU and world, 1999-2000

Cheese
World Prices
EU Prices
Butter

Skimmed Milk Powder

Whole Milk Powder

Mutton/Lamb

Poultry

Pork

Beef

Tomatoes

Citrus Fruit

Bananas

Sugar

Milled Rice

Maize

Wheat
52

0 500 1,000 1,500 2,000 2,500 3,000 3,500

Euros per ton

Source: USDA, World Agricultural Outlook 2001.

1.5 ❚ How Should Africa Position Itself in the International Trading System?
Figure 3 illustrates the existing gap between EU set African exporters to the European Union. Bananas will
prices and world prices for several key agricultural not benefit from a zero tariff until year 2006, and the
products between 1999 and 2000. With the EBA zero rate will not be applied to rice and sugar until
program, few gains are expected for sensitive products, 2009. In the meantime, tariff quotas2 on rice and raw
such as bananas, rice, and sugar. Until now, only a few sugar are being expanded from 74,185 tons to 197,355
countries have exported bananas to the European Union. tons in 2009. Duties on fresh bananas are being cut by
In 1999, Cape Verde exported 10 tons of bananas, while an annual 20 percent, starting in 2002. Duties on rice
traditional exporters Somalia and Madagascar exported and sugar will be reduced by 20 percent in 2006, by 50
none at all. Rice production is dependent on ample rain percent in 2007, and by 80 percent in 2008. By 2009,
or flooding, conditions not normal for most of the least- quotas and tariffs will be completely eliminated.
developed African countries. Among the least-developed
❚ Cumbersome rules of origin legislation have become a
African countries, the only significant exporters of sugar
de facto barrier to trade, by increasing the cost of
are Sudan (with net exports of over 100,000 tons per
exports to high or prohibitive levels;
year), and Zambia, (with exports of about 80,000 tons).
❚ Requirements for “sufficient processing”—in order to
On the basis of Brenton’s (2003) follow up of the EBA be considered as a national product—make exporting
program, we can identify the following points: difficult and expensive;
❚ Many primary export products already benefit from ❚ The provision for temporary suspension of
zero most favoured nation (MFN) duties, or from preferences—in case of a massive increase of imports
substantially liberalized markets. from developing countries in relation to previous
❚ Liberalization has been postponed for products such import levels—creates uncertainty, and has the effect
as rice and sugar—of major importance to some of inhibiting export-oriented investment.

Table 7: Product liberalization under the EBA (2001)

Country Total Exports to the EU Eligible Exports of Products Exports of products liberalized
(in Euro thousands) Liberalized in 2001 in 2001 requesting access under EBA
ACP countries
Angola 1,944,630 91.0 0
Republic of Congo 941,784 7.0 0
Equatorial Guinea 754,865 0.0 0
Liberia 736,973 10.0 0
Madagascar 600,912 72.0 0
Guinea 579,518 41.0 0
Mozambique 530,174 248.5 0
Tanzania 395,283 35.0 0
Sudan 303,550 778.0 0
Mauritania 258,568 6.0 0
Uganda 242,524 116.3 0
Malawi 194,903 0.0 0
Ethiopia 159,389 12.0 0
Zambia 158,375 1,359.0 0
Central African Republic 152,804 0.0 0
Niger 119,613 6.0 0
Benin 63,698 69.0 0
Total ACP 8,634,365 3,344.0 0

Non-ACP Countries
Bangladesh 3,318,865 69.0 68
Cambodia 482,480 0.0 0
Laos 143,716 74.0 74
53

Nepal 135,119 0.0 0


Yemen 83,596 169.0 91
Total Non-ACP 4,225,518 313.0 234

Source: Brenton (2001)

1.5 ❚ How Should Africa Position Itself in the International Trading System?
Table 7 reports the countries in which the EBA administrative procedures to make market access
program is expected to have little or no impact. In effective and without extra costs, applicable sanitary
particular, several African countries will not benefit and health standards, are just some of the non-tariff
from the program, either because they are not eligible, barriers limiting the potential gains from the initiative.
or because the products exported are already subject Rules of origin on packaging could substantially raise
to a zero-rate. Countries like Angola, Central African final product costs. This is particularly true for value-
Republic, Chad, and Niger, among others, will reap added food products competing in sophisticated
few benefits from EBA, because products eligible for European consumer markets.
tariff reductions account for less than 5 percent of their
As regards the clothing sector, Brenton and Manchin
exports to the European Union, and most of their
(2002) find that the EU rules of origin entail a double-
exports already face zero most-favoured-nation rates.
step processing requirement, under which clothing
The Everything But Arms Initiative can make a made from fabric originating in third countries is
difference for Benin, Burkina Faso, Comoros, and excluded from preferential treatment. EU rules of
Zambia, for the reason that more than 30 percent of origin require clothing to be made from either locally-
their exports are eligible for preferential treatment and produced fabric or fabric from EU member countries.
thus, for tariff rebates. The drawback is that less than 5 Moreover, EU legislation foresees the possibility of
percent of African exports are actually benefiting from demanding proof, retrospectively, of the origin of
these rebates. In 2001, Lesotho was the only country previous years’ exports. For instance, EU authorities
filling requests for more than 30 percent of exports in found that about 15,308 certificates of origin for
order to maximize tariff rebate advantages. textiles and clothing items, which had been issued
between 1994 and 1996, did not satisfy EU rules of
Barriers to trade and rules of origin origin, and retrospectively, imposed full duties on
Will the dismantling of tariffs contemplated in the these items.
EBA improve market access for exports from African
countries? The answer to the issue of market access
covers more than just tariff removal, simplification of
tariff schemes, and limits to the use of tariff escalation North-South trade agreements:
practices. The EBA program gives broad discretion to US-Africa trade arrangements
EU authorities to impose safeguards against bananas,
sugar, and rice if their imports cause “serious In the 1990s, the US engaged in a flurry of trade
disturbance” to EU markets. Also, the rules of origin agreements. US preferential arrangements with
will be tightened and imports of these products will be African countries can be classified into three major
subject to monitoring to avoid fraud or transhipment, programs: First, is the Generalised System of
in which case preferences for these products would be Preferences (GSP), which went into effect in 1976. It
suspended. currently grants duty-free entry for more than 4,600
imported products from about 40 designated countries
Restrictive technical standards limit trade, and can
and territories. Second, the Trade Capacity Building
represent a stiff non-tariff barrier that should be
program assists developing and transitional economies
eliminated. UNIDO (2002) finds that the aflatoxin
in building the capacity to benefit from trade opening.
standard introduced in the EU legislation—which
In 2001, sub-Saharan countries received $192 million,
differs from the international aflatoxin standard—is
which corresponds to 14 percent of the total US
expected to have an infinitesimally small impact on
support of $1.3 billion under this program. The
health risk. The cost of such a measure, however, is
program addresses barriers to exports, such as
expected to generate a drop in African exports of
product standards that limit African exports. The
cereals, dried fruit, and nuts to the EU markets to the
third, most recent program is the 2000 African Growth
tune of some $670 million.
and Opportunity Act (AGOA), which targets the least
Rules of origin, uncertainties about derogations from developed African countries. Box 2 compares U.S. and
requirements, use of safeguard measures, EU arrangements.
54

1.5 ❚ How Should Africa Position Itself in the International Trading System?
Table 8: Ratio of duty-free exports to total
Box 2: Current Limitations of Existing exports to the US
Agreements and Preferences
Country Duty-free/total exports (percent, 1994)
Mozambique 76
The Multi-Fibre Agreement (MFA) imposes quotas Swaziland 52
until 2005. Zimbabwe 40
Namibia 23
The EU GSP excludes textiles and clothing.
Burkina Faso 16
Except for petroleum, most African countries do not Madagascar 14
exploit US GSP. Senegal 12
Sierra Leone 12
The EU’s African, Caribbean and Pacific (ACP)
South Africa 9
preferences have clearly benefited only Ivory Coast, Kenya 8
Mauritius, and Zimbabwe. Mali 8
Mauritius 7
The EU Everything But Arms (EBA) trade
Equatorial Guinea 7
preferences initiative of 2000, granting duty-free
Malawi 7
access to the world’s 48 least-developed countries,
Tanzania 7
applies in practice to agricultural products, for
Côte d'Ivoire 6
which the least-developed African countries lack Botswana 4
comparative advantages. Togo 3

The preferences under the African Growth and Total (Thirty-four SSA Countries)* 5

Opportunity Act (AGOA) are contingent on * The other countries are Benin, Cameroon, Ghana, Zaire, Central African
Republic, Uganda, Niger, Ethiopia, Gambia, Mauritania, Zambia,
preferential purchases of input such as fabric from Burundi, Lesotho, Guinea, Congo, and Angola.
the US, implementation of labor standards, and
Source: US Department of Commerce
other cost-increasing factors.

Only a few countries are exploiting the benefits of


AGOA. As of November 2002, only half of the If the reader is surprised by the figures indicating low
duty-free exports in the face of preferences given to
eligible countries (18 out of a total of 36) actually
specific countries, then the data on the impact of the
exported clothing duty-free to the US. Until now,
program on the continent as a whole will be equally
AGOA has not affected the share of machinery
striking. Most of the countries with a high percentage of
imports to the US and has had relatively little impact duty-free exports (out of their total exports to the US) do
on footwear. not export much to the US. By focusing on those
Both EBA and AGOA have stringent rules of origin countries accounting for most duty free exports, it turns
out that a single country, South Africa, accounted for
that limits the impact of the preferences.
over 60 percent of all duty-free exports to the US in 1994.
Well over two decades after it was launched, the GSP
program had scarcely affected the African continent at all.

Table 8 shows the percentage of total sub-Saharan


African exports to the United States, which entered duty- African Growth and Opportunity Act (AGOA)
free in 1994. Almost two decades after the GSP was In 2000, President Clinton signed a preferential trade
initiated in 1976, the average percentage of total exports agreement, aiming to reinvigorate relations with the sub-
entering the US duty-free was 5.4. Only four countries Saharan African economies actively engaged in market-
exceeded 20 percent: Mozambique (sugar cane accounts based reforms. This eight-year unilateral preferential
for over 90 percent of exports to the US), Swaziland, agreement, revised on an annual basis, is known as the
Zimbabwe, and Namibia. For 26 countries, the African Growth and Opportunity Act (AGOA). Greater
percentage was less than 10. By contrast, the market access to US markets is granted to those
corresponding figures for Malaysia and Thailand were countries showing progress on “best practice“ policies:
36 and 24 percent, respectively. establishing a free trade, market-based economy;
55

1.5 ❚ How Should Africa Position Itself in the International Trading System?
improving the rule of law; fighting corruption; passing then at least 35 percent of the value added must be
internationally-recognised legislation on workers’ rights accounted for by AGOA countries, or by the United
protection. On 31 December 2002, there were 38 eligible States. The sub-Saharan countries benefiting from duty-
countries out of 48 sub-Saharan African countries. free access for manufactured garments (included in the
‘Wearing Apparel’ provisions) are required to meet
AGOA extended the standard Generalized System of
more stringent requirements than those of the MFA,
Preferences—covering about 4,300 tariff-line items at
scheduled to be dismantled by the end of 2004. These
the time—to include 1,800 additional items, such as
clauses are binding in the important case of the rules of
clothing and shoes, as well as certain motor vehicle
origin that clothing exporters must comply with. For
components exported by countries in Central Africa ,
instance, with some exceptions, the use of third-country
SACU, and others. AGOA eligibility is based on GSP
non-eligible inputs is not allowed. By 2005-2008, least
eligibility. That is, out of 48 sub-Saharan countries
developed countries will be subject to the “yarn
benefiting from the standard GSP, 45 can also benefit
forward rule”.
from the new rebates as well as the clothing provisions
stated under AGOA. Mattoo, Roy and Subramanian The outcome of AGOA should be distinguished from the
(2003) estimate the cumulative medium-term benefits of effects of MFA dismantling. The first phase of the AGOA
the agreement for non-oil exporting countries to range program should end by the year 2004, the same year the
between $100 million (about eight percent of non-oil MFA is scheduled for elimination. AGOA’s first phase
exports) and $140 million (about 11 percent of non-oil gives eligible countries a temporary exemption from the
exports), depending on the restrictiveness of the rules stringent rules of origin required by AGOA. By year
of origin. These are very low cumulative figures. 2005, just as the Multi-Fibre Agreement will phase out,
eligible countries will stop benefiting from preferential
Major gains were registered by Kenya, Swaziland, and
rules of origin treatment under AGOA. Eligible countries
least-developed countries such as Madagascar and
will be required to abide by the same rules of origin
Lesotho. Following AGOA, in 2000-2001 these
applied to other economies. As a result, exports by
countries’ clothing exports increased from 47 to 83
eligible African countries will be less competitive and
percent. Restrictive rules of origin explain why clothing
thus limited, and U.S. prices will remain high compared
exports from South Africa and Mauritius increased by
to free market prices.
lower, albeit quite healthy rates of 9 to 14 percent,
respectively. Several African countries are experiencing clear gains
from AGOA, but few eligible countries are actually
Stringent rules of origin receiving the benefits available under the Act. As of
The Achilles’ heel of AGOA is the stringent impact of November 2002, only 18 out of a total of 36 eligible
the rules of origin attached to the Act. The purpose of African countries actually exported duty-free clothing to
rules of origin is to ensure that non-eligible countries the United States.
do not have access to unilateral preferences. But
stringent rules of origin often constitute non-tariff
AGOA’s record
barriers that reduce flexibility and raise production
Total U.S. imports from sub-Saharan countries dropped
costs. They do not permit the choice of inputs based on
during 2001-03, but imports under AGOA have
cost efficiency parameters, but rather on market
increased during the same period. The AGOA success is
eligibility, given the rules of origin restrictions. Mattoo,
the result of duty-free imports under the current and
Roy and Subramanian (2003) stress the limitations to
past GSP systems, textile and clothing duty-free
gains due to choosing the stringent “yarn-forward”
preferential treatment, and quota-exemptions. Including
rule— granting benefits only to the signatories of the
account oil-related imports, up to fifty percent of all U.S.
agreement, and not to third parties—rather than the
imports from the region fall under the Act. Most of these
rule of origin of the Multi Fibre Agreement, which
are petroleum products, subject to Code D under the
requires only assembly in the beneficiary countries.
International Trade Commission. Code D goods are
Least developed countries qualify for the Special Rule those having AGOA GSP eligibility. The other products
for Lesser Developed Countries that exempts them are textiles and clothing, transportation equipment, and
from all requirements until September 2004. This agricultural products. Many items that are not subject to
exemption allows using raw materials from all over the Code D are, however, still exempt from import duties,
world, without any restrictive rule regarding place of because they are eligible under GSP or because their
origin. If the Special Rule does not apply for a country, statutory import duty is zero.
56

1.5 ❚ How Should Africa Position Itself in the International Trading System?
Table 9: Sectoral analysis of AGOA

Products Imports under AGOA+GSP Imports under GSP Duty-free items added
(in percent) (in percent) (in percent)
Year 2000 2001 2002 2000 2001 2002 2000 2001 2002
Agricultural products 0 0 23.3 16.4 12.6 12.9 0 7.1 11.9
Forest products 0 0 24.7 16.4 20.6 27.3 0 0.1 0.2
Chemicals and related products 0 0 30.4 8.3 22.6 40.4 0 0.6 1.1
Energy-related products 0 0 58.3 21.0 19.0 28.4 0 47.8 58.3
Textiles and apparel 0 0 70.7 0.3 0.4 0.3 0 35.7 70.4
Footwear 0 0 21.8 0.0 0.0 0.0 0 16.2 21.8
Minerals and metals 0 0 13.8 9.9 8.3 9.1 0 3.0 5.1
Machinery 0 0 7.7 17.7 8.7 7.7 0 0.0 0.0
Transport equipment 0 0 87.7 41.5 14.9 9.9 0 60.4 77.8
Electronic products 0 0 17.8 36.9 25.7 17.8 0 0.0 0.0
Misc. manufactures 0 0 34.5 39.6 41.4 56.3 0 0.3 0.7
Spec. provisions 0 0 0.0 0.0 0.0 0.0 0 0.0 0.0
All sectors 0 0 49.4 17.7 16.1 22.3 0 36.0 45.9

Source: US Trade and Investment with Sub-Saharan Africa (2003)

Table 9 presents a sectoral analysis of imports under Finally, it should be noted that non-tariff barriers are
the AGOA program. The impact of the Agreement not a good explanatory variable in this context, because
differs by sector. Most US imports on transport they do not substantially affect the majority of African
equipment, textiles, and clothing are covered under the exports.
AGOA and GSP programs. Most of the gains from the
Act are expected to be in clothing and textiles. In
contrast, the introduction of the AGOA program has Conclusions
not affected the share of U.S. machinery imports
Solutions to the African tragedy must urgently be found.
covered by the program.
Thirteen percent of the world’s population, over 800
Why is it that the US GSP program has not been million people, live in Africa and their number is
substantially utilized? First, Olarreaga and Ozden expected to grow to 1.3 billion by 2020.
(2003) show that export incentives are limited because
Preferential trading arrangements among African
export prices have increased by only a third of the tariff
countries have not increased trade among their members
cut. They attribute this, in part, to rents obtained by
and have not led to greater overall international trade.
importers at the expense of African exporters. Second,
The attempt to form preferential arrangements among
these preferences are uncertain. In the past they have
economically small countries with similar comparative
been changed when exporters exploited them. Third,
advantages, separated by poor transportation
the exporting infrastructure is weak in Africa.
infrastructures, language, ethnicity, culture, and politics,
Government corporations control communications,
has not been successful. Reliance on intra-regional trade
transportation, and utilities throughout the region,
strategies and increasing trade aggregates are likely to
because they are deemed to be strategic and must not
remain ineffective.
be ceded to the private sector, including foreign
investors. Unfortunately, the low level of efficiency on Participation in preferential arrangements with
the part of controlling public corporations limits the developed countries shows greater promise of success at
scope of trade relations. Fourth, until the dismantling of the present time. However, this participation has
the MFA in 2005 and, with the exception of the least resulted in hub-spoke structures that have not increased
developed countries, the quotas set under the MFA openness or growth. Moreover, competitive African
limit the trade gains on clothing. Quotas restrict import agricultural products are often excluded or penalized,
volumes to certain pre-determined levels and keep U.S. since they must compete with heavily subsidized
import prices from falling. developed country agricultural production.
57

1.5 ❚ How Should Africa Position Itself in the International Trading System?
Africa remains mired in the static comparative Foroutan, F. and L. Pritchett. 1993. “Intra-Sub-Saharan African Trade: Is
It Too Little?” Journal of African Economies 2 (1). 74-105.
advantage trap. A host of past and present preferential
Grossman, G.M. and E. Helpman. 1991. Innovation and Growth in the
agreements have not been able to break this pattern. The
Global Economy. Cambridge, MA: MIT Press.
elimination of key factors currently preventing the full
Hoekman, B., C. Michalopoulos, and L. A. Winters. 2003. “Special and
exploitation of preferences with large trading groups Differential Treatment for Developing Countries: Towards a New
should result in greater trade. However, African Approach in the WTO.” Mimeo. World Bank.
countries might also be well advised to consider Hudec, R.E. 1988. Developing Countries in the GATT Legal System. London:
Harvester Wheatsheaf and Trade Policy Research Centre.
alternative forms of inserting themselves into the world
Limão, N. and A.J. Venables. 2001. “Infrastructure, Geographical
trading system, by participating effectively in
Disadvantage, Transport Costs, and Trade.” World Bank Economic
multilateral negotiations for products of interest to Review 15 (1). 451-479.
Africa, and unilateral liberalization. For example, Chile Mattoo, A., D. Roy and A. Subramanian. 2003. “The Africa Growth and
was able to take off economically through unilateral Opportunity Act and Its Rules of Origin: Generosity Undermined?”
liberalization in the 1980s. World Economy 26 (6). 829-851.
Mshomba, R. 2000. Africa in the Global Economy. Boulder, CO: Lynne
Unfortunately, customs unions impede this option, Rienner Publishers.
unless a country becomes an associate rather than a full Olarreaga, M. and M. de la Rocha. 2003. “Multilateralism and
member of the union. A good example is Chile, which Regionalism: Trade Opportunities for Sub-Saharan Africa.” Mimeo.
World Bank.
became an associate member of the Mercosur customs
Olarreaga, M. and C. Ozden. 2003. “Who Captures Tariff Rent in the
union, for the express purpose of escaping the restriction Presence of Preferential Market Access?” Mimeo. World Bank.
on unilateral liberalization. Policy strategies to break out Ozden, C. and E. Reinhardt. 2003. “The Perversity of Preferences: The
of the trap of comparative advantage can also involve Generalized System of Preferences and Developing Country Trade
the active promotion of clusters and foreign direct Policies, 1976-2000.” World Bank Working Paper 2955. Washington,
D.C.: World Bank.
investment, as well as the creation of conditions for the
Panagariya, A. 2002. “EU Preferential Trade Policies and Developing
successful transfer of technology, the generation of Countries.” Mimeo. University of Maryland.
competitive advantages, and export diversification. From Porter, M. 1990. The Competitive Advantage of Nations. New York: Free
our perspective, these alternatives contrast sharply with Press.
the route to growth by means of preferential trade Ramsay, F.J. 1999. Global Studies: Africa. 8th Edition. Guilford, CT:
arrangements, as a means of widening opportunities for Dushkin/Mc-Graw-Hill.
the fuller participation of African countries in the system Rivera-Batiz, L.A.and M.A. Oliva. 2003. International Trade Analysis:
Theory, Strategies and Evidence. Oxford: Oxford University Press.
of international trade.
Rodrik, D. 1999. Trade Policy and Economic Performance in Sub-Saharan
Africa. Stockholm: Almqvist & Wiksell.
Romer, P.M. 1990. “Endogenous Technological. Change,” Journal of
Political Economy 90, SS. 1-102.
Sachs, J. and A. Warner. (1997). “Sources of Slow Growth in African
Notes Economies,” Journal of African Economies 6. 335-376.
1
Commission économique pour les pays des grands lacs. Sapir, A. 1998. “The Political Economy of EC Regionalism,” European
2
A tariff quota is two-tiered. A lower in-quota tariff (t) is applied to the first Economic Review 42. 717-732.
units of imports and a higher over-quota tariff is applied to all additional Subramanian, A. and N.T. Tamirisa. 2003. “Is Africa Integrated in the
imports. The terms “tariff quota” and “tariff-rate quota” are employed Global Economy?” IMF Staff Papers 50 (3). 352-372.
interchangeably in the literature. Technically, tariff quota, a more accurate
UNIDO. 2002. Enabling market access. UNIDO’s engagement with
description, includes specific tariffs, while tariff-rate quota excludes them.
regional integration. Online at:
http://www.unido.org/userfiles/timminsk/UNIDO-
Enabling_Market_Access-Regional_Integration.pdf
References
World Bank. 2001. “Education Sector. Human Development Network.
Bhagwati, J. ed. 2002. Going Alone: The Case for Relaxed Reciprocity in 2001. Education for Dynamic Economies: Accelerating Progress
Freeing Trade. Cambridge, MA: MIT Press. Towards Education for All.” Washington, D.C.: World Bank.
Brenton, P. 2003. “Integrating the Least Developed Countries into the World Bank and International Monetary Fund. 2001. “Education for
World Trading System: The Current Impact of EU Preferences under Dynamic Economies: Accelerating Progress Towards Education for All
‘Everything But Arms.’” World Bank, Policy Research Working Paper (EFA).” Development Committee (Joint Ministerial Committee of the
3018. Washington, D.C.: World Bank. Boards of Governors of the Bank and the Fund on the Transfer of Real
Brenton, P. and M. Manchin. 2002. “Making EU Trade Arrangements Resources to Developing Countries). DC2001-0025. Washington, D.C.:
Work: The Role of Rules of Origin.” Center for European Policy World Bank.
Studies. Working Document 183. World Bank. 2001. World Development Indicators. Washington, D.C.:
Coe, D.T. and A. W. Hoffmaister. 1999. “North-South Trade: Is Africa World Bank.
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Working Paper 4. World Bank. Paper 2004. World Bank.
58

1.5 ❚ How Should Africa Position Itself in the International Trading System?
Chapter 1.6
Building Capacity to Narrow
the Digital Divide in Africa from Within

Ewan McPhie, bridges.org

Introduction and background outset, because their involvement and “buy-in” is


critical to empower government to make and
The countries of Africa face a diverse range of implement difficult, and at times conflicting, decisions.
challenges and obstacles as they strive to develop their Changes of the magnitude required do not happen
economies, decrease their dependence on the overnight, and all the partners in this process must
developed world, and ready themselves for work together, with a long-term vision.
participation in the global economy. Key to the
process of achieving e-readiness—defined by
bridges.org as “how ready a country is to gain the
benefits offered by ICT in terms of policy, Collecting information on basic
infrastructure, and ground level initiatives”— is the e-readiness in African countries
effective use of information and communications
technology (ICT) as a tool for social and economic The discussion of how best to harness the power of ICT
development. The New Partnership for African for development is often framed in terms of
Development (NEPAD)1 offers a vehicle for African “e-readiness”, or how ready a country is to gain the
leaders to drive the necessary changes, and within the benefits offered by ICT. There is no uniform level of
NEPAD context the e-Africa Commission has been e-readiness or socio-economic development within
given the mandate to deal with issues related to ICT. NEPAD. Each member state, and the continent as a
NEPAD has set a number of ambitious objectives, whole, must take its own path towards e-readiness, and
including bridging the digital divide and developing attempts to impose a single model would prove
the capacity to solve Africa’s problems from within. ineffective. It is important that the Commission and
Africa’s leaders recognise not only the part that ICT ISPAD have accurate, current information about
can play in development, but also the value of forming e-readiness and other factors in NEPAD countries, so
strategic partnerships with the public and private that they can frame an effective dialogue on the issues.
sectors as contributors to their efforts. The Information E-readiness strategies must be tailor-made to address
Society Partnership for Africa’s Development (ISPAD) the unique local needs, priorities and ground-level
will be the vehicle by which the private sector and realities reflected within each state and the broader
other actors can engage in the process. However, regional goals. By looking at where their countries
before anything can be achieved, there must be a clear stand on a number of basic e-readiness indicators,
59

understanding of where things stand now, of what African leaders can gain a realistic appreciation for
still needs to be done, and a realistic time frame for what ICT can—and cannot—do for their countries, and
moving forward. Moreover, ground-level stakeholders plan effectively to achieve the greatest benefits in the
must be included in policy-making processes at the context of their specific situation.

1.6 z Building Capacity to Narrow the Digital Divide in Africa from Within
The overall objective of this paper is to lay the initiatives to rectify this imbalance are under way in many
foundation for an e-Readiness Policy Programme to countries, more needs to be done to provide basic levels of
build on, and to inform, the efforts of NEPAD, and of the service to rural communities. However, there are good
Commission more generally. Throughout the life of the examples of ICT being used in Africa to overcome the
Programme, stakeholders from government, the private problems created by lack of infrastructure, such as the
sector and civil society would be invited to review this Women Farmers Advancement Network (WOFAN) in
and other information collected, and to provide updates Nigeria, which has used radio to deliver information about
and comments. Not only will stakeholder input verify agriculture and gender issues. Their programs have not
the information collected, but it can also serve as a first only empowered women, but have also helped to
step toward the creation of a group dynamic among the introduce labour-saving technology, the use of solar power,
stakeholders, and a sense of ownership over the and improved access to credit and insurance facilities.3
Commission’s efforts. While every effort has been made
to ensure that the information contained in this report is
accurate and up-to-date, information on many African Ground-level projects overview
countries is difficult to find, and sources are often There is an extensive and diverse range of ground level
unreliable. Readers who find inaccuracies or omissions initiatives underway in Africa to promote and facilitate the
are invited to provide additional data, so that this use of ICT, funded by the public and private sectors.
document can be updated. Projects to establish telecenters and ICT access points are
underway in most countries, run by the United States
Agency for International Development (USAID) Leland
Overview of basic e-readiness across Africa programme, the International Telecommunications Union
Policy environment overview (ITU), Canada’s International Development Research
Centre (IDRC), and others. There also projects in many
There is unanimous agreement among Africa’s leaders and countries related to education and training, including the
pan-African structures on the benefits that ICT can bring SchoolNet programme, Cisco’s Networking Academies,
and the impact it can have on a wide range of development intended to increase the number of ICT skilled
issues. The ICT policy reform process has begun in almost professionals across the continent, UNESCO’s community
all of the countries in Africa, but there is no uniform level based learning programme, and their science and
of progress across the continent. The majority of countries, technology in education initiative. Policy development
especially those with more developed economies, have initiatives include the U.K.’s Department for International
embarked on programmes featuring various degrees of Development (DFID) development support programme,
liberalisation and deregulation of the telecommunications and IDRC’s ACACIA policy advice programme. There are
sector. The African Information Society Initiative (AISI), also numerous health care initiatives designed to
and the National Information and Communications demonstrate and evaluate the value of ICT in health care
Infrastructure (NICI), promoted by the U.N, Economic such as the HealthNet programme, which provides e-mail
Commission for Africa (UNECA), have done much to connections to health workers, and Satellife’s evaluation of
inform the process and provide guidance and support.2 But the use of handheld devices in health care programmes in
even where there has been progress towards liberalisation, Ghana, Kenya and Uganda.
the level of regulatory influence has not kept pace with
change, and few of the telecommunications regulators in
Africa are truly independent. Policy reforms to end fixed Economic overview
line telecommunications monopolies are advanced in a There is evidence of growth in the e-commerce sector,
number of countries, and the rapid growth of mobile notably in South Africa, forecast to generate $0.5 billion
telecommunications across the continent, largely based on worth of business in 2002, and to grow to $6.1 billion by
pay-as-you-go services, serves to drive change and increase 2006. But if this rate of growth is extrapolated for Africa as
the numbers of mobile operators. Civil war and unstable a whole, then the continent’s share of global e-commerce in
governments continue to inhibit progress in a number of 2006 would only be 0.05% of the world’s total. The cost of
countries, notably Angola, the Democratic Republic of basic telephony and Internet connections remains
Congo, Burundi and Liberia. disproportionately high across the continent, a major
obstacle to economic growth. At present, it is impossible
for the vast majority of Africa’s population to pay even
Infrastructure development overview basic access costs.4 A detailed overview of the current
The state of infrastructure development across the economic situation in Africa is provided in Annex 2.
continent varies widely from country to country. While
telecommunications infrastructure plays a crucial part, it is
E-readiness assessments conducted in Africa
equally important to have stable and developed
infrastructure in the financial, transport and fiscal sectors, Information on the status of e-readiness and other socio-
as well as effective power and water distribution. For some economic factors can help governments plan effective ICT
countries, provision of these more basic needs will remain strategies to bring the greatest economic and social benefits
60

a priority, and progress towards e-readiness is dependant to their countries, and e-readiness assessment can be a
on building stable infrastructure across these sectors. There useful tool if used wisely. However, e-readiness
remains an imbalance in the level of infrastructure rollout assessments in Africa are not used effectively overall.5
between urban and rural Africa, with rural locations Many of the region’s most developed countries have been
suffering at the expense of urban development. While assessed repeatedly: 26 have been assessed at least 4 times,

1.6 z Building Capacity to Narrow the Digital Divide in Africa from Within
including Egypt (16 times), and South Africa (14 times). Framework for analysing e-readiness policy issues
While it is true that an e-readiness assessment is most
The framework for the analysis of e-readiness policy issues
effective if comparative data is collected over time and
first presented in the WEF-SADC report has been used as
milestones are reviewed, this is seldom the reason for the
the basis for examining key issues with an African
duplication of assessments in these African countries. In
perspective and drawing comparisons between NEPAD
most cases, assessments have been conducted by different
countries. This template can help policy-makers and
groups using different tools and criteria, so that the results
stakeholders frame a dialogue on issues that apply to
are rarely comparable. Moreover, few of these reports are
groups of countries at comparative levels, so they can learn
publicly available, and there is often little or no follow-up.
from relevant experience and best practice. The framework
Moreover, many of the results have limited usefulness,
is intended for use as a tool throughout the life of the
because information was collected by means of short
Programme to examine and present useful comparative
summary questionnaires, or using present statistical data
information on key issues, to inform the efforts of the
that is not thoroughly explained. At the same time, the
Commission and the NEPAD member countries.
least developed countries, which stand to gain the most
from an assessment, rarely receive one: 2 of the 54
countries have never been assessed for e-readiness at all. Framework template
The fact that these countries have never been assessed
means that those facing the most severe problems also do E-readiness policy issue
not have access to some of the key tools for comparison <title, and brief description of issue under consideration>
that might help them put ICT to work in their countries.
(a) Widely agreed policy recommendation:
These problems were highlighted in the WEF-SADC report, <description of the general consensus on how this
but new assessments continue to be carried out in countries issue should be addressed, generally taken from
that have already been assessed. Since January 2002, 8 of the international perspective>
the 14 countries that had already been assessed have been (b) Key proponents of this recommendation:
assessed again. Assessments are time-consuming and <list of the main institutions and organisations
expensive to carry out, and scarce resources must be better that recommend this agreed position on the issue>
managed. If NEPAD is going to make a concerted effort in
(c) Issues affecting application in developing
the e-readiness area, it should start by seeing to it that the
countries: <explanation of why the way forward
results of e-readiness assessments already completed are
recommended by the general consensus at the
put to better use and not duplicated, and that resources are
international level may prove to be tricky given
directed toward those countries that have never been
the realities in developing countries>
assessed.
(d) Recommended way forward:
<a suggestion of where a developing country
Creating a framework should start, once it has decided that it wants to
implement the widely agreed policy
for analysing the issues and recommendation described in (a), despite the fact
proposing country groupings that it faces the challenges outlined in (c)>

NEPAD has stressed the need for appropriate policies that


take into account the diversity of Africa’s economies and Grouping countries according to level of e-readiness
their varying levels of development. It is unlikely that In a review of basic e-readiness and a number of other
universal strategies can be designed that would be indicators for the African countries, three general levels
applicable or acceptable to all countries, yet if progress is to of e-readiness, or groupings, emerged, which are used in
be made, some common ground must be reached on how Table 1, below. The factors considered included:
to approach ICT. Dividing the African countries into
z United Nations Development Programme (UNDP)
groupings, according to their differing levels of e-readiness,
Human Development Index score and related socio-
and the various internal and external challenges they face,
economic factors;
would prove useful for making appropriate
recommendations. This would help the e-African z Teledensity (fixed and mobile);
Commission develop broad solutions, which could then be z Level of telecom deregulation and state of progress;
adapted for local conditions and requirements. z Internet penetration, bandwidth availability, and cost;
In this section, a framework is proposed, for use in z Conducive legal, regulatory, and fiscal frameworks;
analysing e-readiness issues, and a suggestion made for z Infrastructure (communications and other);
grouping African countries according to their level of e-
readiness. We then provide two examples of how the z Economic development.
framework and the groupings could be used by the Table 1 sets out ratings for each African country in a
Commission, ISPAD, and others, to examine ICT policy number of key areas, along with the number of recorded
issues, raise awareness, and build a dialogue. First, the e-readiness assessments as of December 2003. The
framework template is used to examine a relevant e-
61

country grouping assigned for purposes of this proposed


readiness policy issue and the different approaches that are framework appears in the last column. The Human
needed across the groupings. Then, one particular, Development Index (HDI) for 2000 is presented first, and
characteristic of the challenges affecting a particular ranks the countries of the world according to an index
country grouping, is examined in more detail. measuring three basic dimensions of human

1.6 z Building Capacity to Narrow the Digital Divide in Africa from Within
development: life expectancy, knowledge, and per capita three groupings there is no ranking. The “1”, “2” and “3”
income.6 The information on e-readiness and economic ratings are used to indicate where the countries stand in
status presented in Annex 2 was used to rate policy, relation to each other, rather than in comparison to other
infrastructure and ICT projects. The three categories parts of the world, with 1 being the highest level of e-
emerged in almost all of the data reviewed, although readiness. The table is based on objective criteria and
there were slight differences in the groupings, levels of human development, irrespective of the
depending on the criteria being measured. Within the ideological systems in place. 7

Table 1: African country ratings and groupings8

Country9 HDI Policy Infrastructure ICT project E-readiness Country


level level level assessments grouping
Algeria 161 3 1 1 5 2
Angola 106 3 3 2 3 3
Benin 158 3 3 3 5 3
Botswana 126 1 2 1 6 1
Burkina Faso 169 3 3 1 3 3
Burundi 171 3 3 3 2 3
Cameroon 135 2 3 2 6 2
Cape Verde n/a 2 2 3 3 3
Central African Republic 165 2 3 3 2 3
Chad 166 3 2 2 3 3
Comoros 137 3 3 2 2 3
Congo Republic 136 3 3 3 2 3
Côte d’Ivoire 156 2 2 3 4 2
Democratic Republic of the Congo 155 3 3 3 3 3
Djibouti 149 3 1 2 3 3
Egypt 115 1 1 1 16 1
Equatorial Guinea 111 3 3 2 1 3
Eritrea 157 3 3 2 3 3
Ethiopia 168 2 3 2 5 2
Gabon 117 3 2 2 3 2
Gambia 160 3 2 2 4 3
Ghana 129 1 2 2 4 2
Guinea 159 3 3 2 3 3
Guinea - Bissau 167 2 3 3 0 3
Kenya 134 1 2 2 7 2
Lesotho 132 3 3 3 2 3
Liberia n/a 3 3 3 1 3
Libya 64 3 1 2 1 2
Madagascar 147 2 3 3 7 3
Malawi 163 2 2 2 2 2
Mali 164 2 3 3 4 3
Mauritania 152 2 3 3 3 3
Mauritius 67 1 1 1 6 1
Morocco 123 2 1 2 11 2
Mozambique 170 1 3 2 6 2
Namibia 122 3 2 2 6 2
Niger 172 3 3 2 3 3
Nigeria 148 2 2 1 10 2
Rwanda 162 3 3 3 5 3
Sao Tome and Principe 119 3 3 3 1 3
Senegal 154 3 2 2 7 2
Seychelles 47 2 1 2 1 2
Sierra Leone 173 3 3 2 2 3
Somalia n/a 3 2 2 1 3
South Africa 107 1 1 1 14 1
Sudan 139 2 2 2 2 3
Swaziland 125 3 3 3 2 3
Tanzania 151 1 2 2 7 2
Togo 141 3 3 2 2 3
62

Tunisia 97 3 1 1 9 1
Uganda 150 1 3 2 8 2
Western Sahara n/a 3 3 3 0 3
Zambia 153 2 3 2 4 2
Zimbabwe 128 2 2 2 7 2

1.6 z Building Capacity to Narrow the Digital Divide in Africa from Within
Category 1: Countries with a high-level of Category 3: Countries with a low-level of
progress towards e-readiness: progress towards e-readiness:
Botswana, Egypt, Mauritius, South Africa, Tunisia. Algeria, Angola, Benin, Burkina Faso, Burundi,
Cape Verde, Central African Republic, Chad,
Countries in this category have shown a commitment Comoros, Democratic Republic of Congo,
towards the integration of ICT as an essential Djibouti, Equatorial Guinea, Eritrea, Gambia,
part of their economy, and of social and academic Guinea, Guinea-Bissau, Lesotho, Liberia,
progress in general. To varying degrees, they have also Madagascar, Mali, Mauritania, Niger, Republic
begun to introduce legislation that helps, rather of Congo, Rwanda, Sao Tome and Principe,
than hinders, the growth and affordability of, and Sierra Leone, Somalia, Sudan, Swaziland, Togo,
access to ICT. They represent some or all of the most Western Sahara.
advanced African countries in social and economic
In addition to all of the challenges described for
terms. Also evident in the case of some,
the first two categories, the countries in this group
notably Egypt, is the effect of strong leadership on the
face some of the greatest challenges, not only in relation
part of government to advance and promote the use
to the introduction of ICT, but more importantly in
of ICT, as a tool of government, and for socio-economic
relation to meeting basic human needs and restoring
development. But it is important to remember that,
stable political environments, although it is important
even within these countries, there remains a digital
to note that the latter is not true in all of them. The
divide, usually based on geographical (e.g. rural/urban),
available information suggests that most have basic
socio-economic or cultural factors, or gender.
levels of telecommunication and some more than that,
This is not meant to demean the efforts of these
but access is limited to rural areas and costs are high.
countries, or to underestimate what they have
In addition, lack of infrastructure in rural areas, the
already achieved. Some, particularly South Africa,
effects of civil unrest, and a lack of awareness of
have already enacted legislation designed to facilitate
the impact that ICT could have on development and
the growth of e-commerce, and all have high rates of
society, are important factors. Yet in many of these
fixed and mobile teledensity. For most, deregulation
countries, less advanced forms of ICT could, and have
and liberalisation of the telecommunications sector,
had an impact on a variety of issues and challenges. For
as well as the establishment of an independent and
example, rural radio has served to empower farmers,
effective regulator, remain a challenge.
notably women, and has also been used to “deliver” the
Internet, where there is no telecommunications
infrastructure.
Category 2: Countries with a medium-level of
progress towards e-readiness:
Cameroon, Côte d’Ivoire, Ethiopia, Gabon,
Applying the framework to an issue within the context of the
Ghana, Kenya, Libya, Malawi, Morocco, country groupings
Mozambique, Namibia, Nigeria, Senegal,
Seychelles, Tanzania, Uganda, Zambia, This section uses the analysis framework to look at
Zimbabwe. a single issue faced by all of the African countries
in a structured way. It considers the range of external
The countries in this group confront many of the challenges and offers recommendations for next steps
challenges faced by the previous group. In addition, appropriate to each of three country groupings.
they have a less developed infrastructure and a weaker Used in this way, the framework and country grouping
commitment to achieving e-readiness. Tanzania has represent a mechanism for studying the issues, and
embarked on an inclusive process, designed to achieve e- for helping governments and policy-makers identify
readiness, and the methodology used is an example the most realistic and appropriate policy, or set of
which others are advised to follow. These countries, policies, for their particular needs. While this example
not surprisingly, are also less developed in socio- is intended to demonstrate how the framework
economic terms. Investment in ICT is expensive, can be used to deal with a range of issues across
and these countries have other more pressing the three levels of e-readiness, it is based on an issue
challenges. They have begun to introduce ICT, that many countries struggle to address at different
primarily in the field of telecommunications, but they levels.
should not overlook the impact that the effective
use of ICT could have for development, and for
solving other challenges, notably healthcare,
63

resource management and education. Because of


a lack of capacity and institutionalization, they differ
from the first category in terms of their ability
to deliver a higher level of progress.

1.6 z Building Capacity to Narrow the Digital Divide in Africa from Within
Example of issue analysis

Basic ICT infrastructure and access


(a) Widely agreed policy recommendation achieved than individual access, given the cost
Increased globalisation and the international of installation, maintenance and training.10
information economy require ready access to ICT Community access points providing desktop
and global networks for information transfer and computing should be supported by appropriate
trade. African countries should build ICT training programmes and relevant materials.
infrastructure in order to compete in the global Greater emphasis should be placed on mobile
economy and communicate with the rest of the ICT devices that are increasingly more advanced
world. The medium must be reliable, easy to use, and ubiquitous in terms of bandwidth, reach
and affordable. and utility. Research should also be conducted
into the potential of mobile devices to leapfrog
earlier technologies. Projects to develop and
(b) Key proponents of this recommendation deliver content via wireless applications should
The International business community, computer run concurrently.
hardware and software providers, development
agencies, NEPAD, and many African leaders have
already acknowledged the importance of access In the medium level countries, governments
to ICT, and its role in economic and social and policy-makers must develop strategic plans
development. for the rollout of technologies, across countries
and within cities. They should consider the
creation of high-technology access points
(c) Issues affecting application in developing in cities and rural areas, rather than the blanket
countries provision of services—unlikely to be achieved—
Given the impact of poverty and infrastructure and, wherever possible, they should use
limitations in rural settings, high computer existing facilities, such as libraries and
penetration levels are often not feasible. Further, community centres, to house the access points.
the process of introducing new technology and its Before embarking on this course of action,
cost, in the context of social, cultural and they should assess which existing centres have a
technical aspects, must be taken into account. In high level of utilisation, in order to increase
this regard, the developing world has shown a the chances of success. The random and
great affinity for mobile ICT devices. In countries unplanned provision of telecentres and other
with a low level of e-readiness, it is likely that facilities is unlikely to lead to the creation
other issues will take priority over the provision of sustainable resources. This is all the more
of access to ICT, except in its most basic form, important, when the resources involved
and in areas where there is already, albeit limited, are scarce and expensive
infrastructure. Middle level countries will be faced
with decisions over relative priorities, such as the
rollout of services to rural areas, versus the In countries with a high level of e-readiness would
provision of faster connections to urban users. do well to explain to voters and taxpayers alike
Countries with the highest level of e-readiness are why access to ICT is important for socio-economic
likely to be facing the challenges posed by development, and why liberalisation and
liberalisation of the telecommunications sector deregulation of telecommunications is a key
and deregulation of services, especially where the part of the process. Increasing awareness of
state monopoly provider is protecting what it sees the issues, and of the benefits that will accrue to
as its domain, and telecommunications sector all in time, will lead to increased support for
employees are concerned about the impact of government initiatives, and an understanding
liberalisation on and acceptance of policy directions which,
their jobs. at first, may seem likely to create disharmony.
Liberalisation has already created tension
in a number of countries, and it is evident
(d) Recommended way forward: that these problems could have been mitigated
Countries with low level e-readiness, in rural areas, had they been dealt with in a more inclusive way.
and within disadvantaged communities in the Increasing awareness is also likely to increase
64

medium and higher level country categories, demand for, and interest in, ICT access, which,
community-based access to computer resources in turn, will help to make the related initiatives
and other forms of ICT are more likely to be more viable.

1.6 z Building Capacity to Narrow the Digital Divide in Africa from Within
Looking deeper at ICT policy issues that apply to particular 5
Bridges.org compiles information on the e-readiness assessments, conducted
in developing countries by tracking the major international assessment
country groupings
initiatives, and inviting national and other programmes to submit
information about their assessment activities. See bridges org 2002.
The above country groupings can also be used to 6
For more information on the UNDP Human Development Index, see
examine issues in the context of the different levels of http://www.undp.org/hdr2002/.
e-readiness. For example, some of the issues that face 7
Nor has political ideology or the level of democracy in Africa’s countries
been taken into account. These issues are being addressed by NEPAD in
countries with a higher level of e-readiness, such as
other fora, and it is not for the authors of this report to make judgements
e-commerce, authentication and the provision of on these areas, regardless of their impact on e-readiness.
cryptography services, are not high-priority issues for 8
The information in this table is presented to explain some of the anomalies in
the groupings that may seem counter-intuitive. For example, Mozambique
those with a low level of e-readiness. And the reverse is
has undertaken legal and regulatory reform, and has integrated the idea
also true: issues such as basic ICT access and the of ICT, as a basic component of the national socio-economic development
provision of service to rural communities are not so strategy. However, despite these positive developments on a policy level,
Mozambique is still plagued by low levels of infrastructure development
problematic for countries with a higher level of
and low HDI value, largely as a result of the civil war.
e-readiness, although universal service and the provision 9
Not all of the countries in Africa are members of NEPAD, but for
of basic telephony to rural communities are yet to be completeness, we have included all of them in this report, including those
that have no UNDP Human Development Index.
fully achieved, even in countries such as Egypt and 10
There are initiatives to increase the number of government-supported
South Africa. telecentres, and to increase their financial sustainability. But increasing the
number of telecentres has technical infrastructure implications.
The solutions to Africa’s problems must come from
within the continent, and Africa is ready to rise to the
challenge. The vision of a few of Africa’s leaders that led References
to the formation of NEPAD recognised that the road Bridges.org 2002. E-readiness Assessments: Survey of Who is Doing What and
Where. updated 24 March.
ahead was long and challenging. But by removing
http://www.bridges.org/ereadiness/where.html/.
obstacles to development, building indigenous capacity,
United Nations Conference on Trade and Development (UNCTAD).
and fostering partnerships between government, the 2002. E-Commerce and Development Report.
private sector and civil society—both within Africa and http://www.unctad.org/en/docs//ecdr2002_en.pdf.
with the developed world—they have cut to the root of
the problem. And many of Africa’s leaders recognise the
part that ICT has to play. Indeed, it is seen as the
cornerstone on which many of the solutions to the
problems facing Africa will be built. But ICT has to be
more available to people in terms of physical access,
affordability, appropriate technology and locally
relevant content. Achieving e-readiness across Africa
will require bold and ambitious steps. Legal and
regulatory frameworks will have to be overhauled,
sometimes in the face of opposition. Innovative uses of
technology will have to be found, in order to deliver ICT
where it is needed most. Content that is relevant to local
needs must be produced and distributed. Governments
and policy-makers will need help and advice to make
tough decisions. Understanding the problems, and
having a range of recommendations and solutions that
are in a local context, will help Africa’s current and
future leaders and administrators achieve their aims.
NEPAD has the mandate, as well as the ability, to bring
about change on a hitherto unseen scale in Africa, and its
chances of success are enhanced by the commitment that
its leaders have shown.

Notes
1
NEPAD is a holistic, comprehensive and integrated strategic framework for
the socio-economic development of Africa. Its primary objective is to
eradicate poverty in Africa, and place African countries on a path of
sustainable growth and development. See http://www.nepad.org
65

2
For an overview of the NICI initiatives in Africa, see
http://www.uneca.org/aisi/nici.htm and
http://www.uneca.org/aisi/nici/NICI%20in%20Africa.htm.
3
For more information on WOFAN, see
http://www.electroniccommunity.org/wofan/contact_wofan.htm.
4
E-Commerce and Development Report. 2002.

1.6 z Building Capacity to Narrow the Digital Divide in Africa from Within
Annex 1: The use of rural radio has developed considerably over
the last twenty years. Radio content has expanded from
Model ICT policy issue paper
its earlier function of covering mostly issues of
agricultural extension, and now encompasses all
The use of radio as an appropriate technology to support aspects of development, reflecting the social,
rural development in lesser-developed African states educational, and cultural needs of the communities that
it serves. It has grown from an instructive medium to
Background and context an interactive medium with dialogue, debate, and the
exchange of ideas. These developments have been
In order to have a positive impact on the lives of the enhanced by the creation of regional radio stations to
majority of Africans, the New Partnership for Africa’s address specific socio-economic and linguistic needs.
Development (NEPAD) must take into account both the Listening and radio clubs have also been started, to
international context and continent-wide changes taking create dialogue with audiences, encouraging them to
place, and the stark realities of the situation on the take concrete action, and to provide input and feedback
ground, within which actions and programmes are to be on the rural programming produced. On a national
implemented. level, rural correspondents have been appointed to
Africa is faced with an interconnecting web of collect local information for incorporation into national
challenges, from the need to integrate into an broadcasts. Yet, despite the broad reach and recent
increasingly complex global economy, to the developments in rural radio broadcasting, challenges
strengthening of democracy and pluralism, while still remain to ensure the optimal use of radio
simultaneously addressing the need to ensure food communications for development, particularly in the
security, to manage and protect natural resources, less developed countries of Africa.
improve standards of living, health and education, and
to value and preserve their cultural heritage. Over the
last three decades, Africa has experienced a major Key challenges
decline in per capita food production, and in the next
In most African countries, the general framework of the
two decades, the continent is projected to be the only
media is being redefined. Deregulation, the ending of
region in the world where malnutrition is expected to
state monopolies, the emergence of new broadcasting
increase by 50% from 1997-2020. Poverty, the lack of an
actors, and the development of enhanced broadcasting
adequate income, and the inability to purchase or
technologies are allowing for an approach to service and
produce enough food, affects approximately 90% of the
content which foster the development of rural radio
rural African population. Further, most African societies
broadcasting that empowers communities and gives
are characterised by a wide range of ethnic and linguistic
them a voice in matters that directly affect their
groups spread over extensive geographic areas, with
livelihoods. However, there are some pitfalls to these
limited available infrastructure and low levels of literacy
developments.
and education.
The increase in the number of broadcasters has resulted
Communication, information, knowledge and
in stations being driven by commercial, political, and
technology are essential in overcoming the constraints to
sectarian motives, to the detriment of public service
rural development and to face these challenges. Rural
broadcasting, currently the only guarantee of equitable
communities must be empowered to use appropriate
access to information and the media for rural
tools, and to access and convey useful information and
populations. Rural radio stations are dependent on
knowledge. They should be able to exchange
national policy and regulations for broadcasting licences.
experiences, knowledge and techniques, and be actors in
Deregulation of some broadcasting policies in Africa has
the debate on development issues.
resulted in the granting of licences to many more rural
Rural radio was introduced in Africa in the early 1960s, radio stations, yet licences, whether commercial or non-
and remains the most cost-efficient and effective means profit, are still difficult to obtain in some countries.
of communicating and empowering rural communities, Public service broadcasting provided for the inclusion of
and of crossing the barriers of distance, illiteracy and local content quotas as a condition of licensing, similar to
diversity. It has been estimated that by the end of the license obligations placed on incumbent
1990s there were approximately 12 newspapers, 52 telecommunication service providers, under what is
televisions, and 198 radios for every 1,000 Africans, known as universal service obligations. However, radio
highlighting the importance of radio in any strategy that stations are still constrained by the lack of investment,
involves rural development. The use of a radio as an low quality programming, and a lack of trained staff.
appropriate technology with locally produced and Initiatives to set up rural radio stations are not properly
66

relevant content has proven to be a winning combination coordinated nationally and regionally, and this may
for empowering and supporting the socio-economic result in their being developed primarily in urban and
development of rural communities, and particularly for peri-urban areas where the potential for advertising
helping to address the dire challenges of food security. revenue is greater.

1.6 z Building Capacity to Narrow the Digital Divide in Africa from Within
Physical infrastructure issues remain a key challenge to be producers and technicians in most Francophone
addressed throughout each NEPAD member state, countries, and offers a two-year, nationally
whether in terms of basic telecommunications recognised training course, as well as short training
infrastructure, advanced fibre optic cabling, or even the courses. Its functions also include research,
basic rollout of electricity. However, even when such documentation and dissemination of information in
infrastructures are in place, difficulties arise when they rural radio. Community radio stations, such as Bush
are poorly maintained, or are too costly to be used by Radio in Cape Town, South Africa, provide in-house
local citizens. Radio, despite its widespread nature, is not training for community radio station interns and
exempt from these challenges. The setting up of rural aspiring broadcasters from around Africa and the
radio stations requires an initial capital investment for world, including the developed world. There is
hardware and software infrastructure. Production currently no institution similar to CIERRO in
equipment is often outdated, and always overused. And Anglophone or Lusophone countries.
since most equipment is acquired from different donors,
or through different aid mechanisms, it is often of diverse 2. Consolidate extensive research and numerous
origin, and may comprise end-of-series products. This case studies on the use of rural radio for
makes for serious problems for maintenance and the development. Extensive research has already been
acquisition of spare parts. conducted, initiatives launched, and international
Challenges also arise in the language medium of the workshops hosted, resulting in a wealth of
information exchanges, as well as in the broadcasting information on how rural radio can be used for
content. Most information for broadcast is available in the development. These resources should be tabled in an
languages of the developed world. Actions are needed to inventory, giving organisations access to a
address the needs of other languages and cultures, as part comprehensive list of resources and available tools.
of the effort to make ICT more accessible to all people. Partnerships should include the World Association of
This will involve significant investment and support for Community Radio Broadcasters (AMARC) and the
local content production, both broadcasting and text, and Media Institute of Southern Africa (MISA).
the participation of the local community in determining
its programming needs and priorities. Programmes are 3. Further enhance and support connections
usually distributed on one radio network only, and do not between agricultural research and rural radio.
reach the entire country. Coordination and network Agricultural research plays a vital role in improving
formation between radio stations at a local, regional, and rural living standards and bringing affordable food
national level will help ensure that optimum use is made to all, yet the full potential of such research is not
of all the existing facilities to meet the needs of the being realised, principally because communication
audience, to provide the best territorial and linguistic between scientists, extension staff, and farmers in the
coverage, and ensure the participation of marginalised developing world is weak. The benefits from linking
groups, including women and youth. These efforts will research with rural radio include:
empower women and children who are the most likely z sharing of research findings across great distances,
victims of rural poverty and food insecurity. Increasingly, and in languages and terminologies familiar to
emphasis is being placed on research and development audiences in rural areas;
processes that empower women farmers, such as access to z radio transmission of valuable information to
resources, and consideration of their indigenous farmers, including what research is available and
knowledge. Radio has provided the means for reaching where;
women farmers, their organisations and rural schools. A
z relay of information concerning what farmers
notable example has been the success of the Women
think
Farmers’ Advancement Network (WOFAN) in Nigeria.
about various technologies;
This has resulted in tangible improvements in the lives of
some of the most disadvantaged women and children in z preparation for and dealing with natural disasters;
Kano State. z Dissemination of weather and market information.

Recommendations 4. Continue to reform and coordinate regional and


national communications policy and regulation.
The following recommendations outline some areas Opening up the airwaves should be encouraged,
where actions can be taken. and efforts made to harmonise the various existing
1. Form and support training institutions that legal statutes that determine the legal form and status
specialise in rural broadcasting. CIERRO (Centre of the new stations. Efforts are already underway
International d’études en Radios Rurales de
67

to examine the existing legal and regulatory


Ouagadougou)1 is the only such regional training frameworks, and the findings should be
centre in rural radio. It was established in 1978 by the disseminated to other countries as best practice
URTNA (Union des Radiodiffusions et Télévisions examples. Incentives should be legislated requiring
Nationales d’Afrique2). CIERRO has trained private sector broadcasters to provide services to

1.6 z Building Capacity to Narrow the Digital Divide in Africa from Within
rural communities. administer matters relating to national legislation
5. Rural development projects must consider the and the allocation of broadcasting frequencies, and
wider systemic economic, social, and coordinate training and research programmes with
communication needs of rural communities. relevant training bodies.
Rural development strategies should shift from
technology-driven projects, and function on multiple Conclusions
levels, addressing numerous interlinked challenges,
Rural radio remains the only form of information and
in order to effect change. Caution should be
communications technology within the reach of the
exercised, so that unnecessarily technological—often
majority of rural Africans. It is well adapted to the local
expensive—solutions are not implemented, when the
economic, social and cultural conditions of rural
use of simpler radio technology might be able, more
communities, and provides both access to information,
effectively, to address some of these challenges.
and an avenue for expression and communication. It is
Solutions must be technologically appropriate, take
imperative that African policy makers, business and
into account the reality they seek to address, and be
development organisations grasp the importance of
compatible with the grassroots level.
radio, take the necessary steps to support confidence in
this medium, and ensure its survival in Africa,
6. Coordinate deployment, use and maintenance of
particularly at a time when it is often thought more
infrastructure. This is necessary to ensure that
fashionable to direct scarce resources at other, less
Africa does not become the technological graveyard
appropriate technological solutions. To ensure its
of the developed world. An assessment of existing
continued survival and development, radio must adapt
infrastructure should be undertaken, with
to a rapidly changing environment, the infrastructure
international technical and financial partners, to
and equipment challenges that plague its use must be
ensure that technically and economically appropriate
solved, legal and regulatory frameworks governing it
infrastructure is being deployed to meet the needs of
must be modified to enhance its capacity to meet the
the rural communities. There should be a process of
needs of listeners in local languages, and networks
standardisation, and a related development of
formed to provide adequate staff training.
industrial capacity to develop and maintain the
infrastructure.

7. Support and strengthen national regulatory


bodies. Such coordinating bodies will define the
specifications for the different rural radio stations, Annex 1 Notes
ensure components of public service broadcasting, 1
International Centre for Rural Radio Studies of Ouagadougou.
68

1.6 z Building Capacity to Narrow the Digital Divide in Africa from Within
Annex 2: Overview of the current economic situation, and cost of
telecommunications in each African country

Real GDP Inflation Population Unemployment Internet Local Telephone Costs (2000)
GDP per capita rate below Rate Access in USD
growth % US$ % poverty line % costs/pm Fixed Line Mobile Cellular
Country (2001) (2001) (2001) % (2001) (2001) (US$)2 (per minute) (per 3 minutes)
Algeria 3.8 $5,600.00 3.0 23.0 (1999) 34.00 $73.08 $0.02 $0.13
Angola 5.4 $1,330.00 110.0 n/a 1
/2 the population $75.00 3 $0.08 $0.24 4
Benin 5.4 $1,040.00 3.0 37.0 n/a $2.40/hr 5 $0.09 $1.01
Botswana6 4.7 $7,800.00 6.6 47.0 (2000) 40.00 $25.82 7 $0.60 $1.30 8
Burkina Faso 4.7 $1,040.00 3.5 45.0 n/a $63.11 9 $0.08 $0.63
Burundi 1.4 $600.00 14.0 70.0 n/a $150 $0.03 n/a
Cameroon 4.9 $1,700.00 2.0 (2000) 48.0 (2000) 30.00 $4,000 $0.06 n/a 10
Cape Verde11 3.0 $1,500.00 3.0 30.0 (2000) 21.00 (2000) n/a $0.04 $0.85
Central African Rep. 1.8 $1,300.00 3.6 n/a 8.00 $6.90/hr 12 $0.49 $0.58 13
Chad 8.0 $1,030.00 3.0 (2000) 80.0 n/a $20.00 14 $0.14 n/a
Comoros 1.0 $710.00 3.5 60.0 20.00 (1996) $573.69 $0.14 n/a 15
Congo Republic 4.2 $900.00 3.0 n/a n/a n/a $0.63 n/a
Côte d’Ivoire -1.0 $1,550.00 2.5 (2000) n/a 13.00 (1998) $4,015.82 16 $0.05 $0.63 17
Djibouti 0 $1,400.00 2.0 50.0 50.00 (2000) $295.72 $0.20 $0.59 18
DRC -4.0 $590.00 358.0 n/a n/a $100.00 $0.36 19
$0.59/min 20
Egypt 2.5 $3,700.00 2.8 22.9 (1996) 12.00 $0. 25/hr 21 $0.01 $0.78
Equatorial Guinea 6.0 $2,100.00 6.0 n/a 30.00 n/a $0.05 n/a
Eritrea 7.0 $740.00 15.0 n/a n/a $25 to $28 22 $0.02 n/a
Ethiopia 7.3 $700.00 6.8 64.0 (1996) n/a $19 and 23 $34 $0.02 $0.26
Gabon 2.5 $5,500.00 1.5 n/a 21.00 (1997) $516.31 $0.15 n/a
Gambia 5.7 $1,770.00 4.0 n/a n/a $19.60 (2000) 24 $0.27 $0.23
Ghana 3.0 $1,980.00 25.0 31.4 (1992) 20.00 (1997) $45.00 (2000) 25 $0.04 $0.90
Guinea 3.3 $1,970.00 6.0 (2000) 40.0 (1994) n/a $20.95 26 $0.09 $0.26 27
Guinea Bissau 7.2 $900.00 5.0 50.0 (1991) n/a $45.00 (10hrs) 28 $0.15 (1999) 29 n/a
Kenya 1.0 $1,000.00 3.3 50.0 (2000) 40.00 $2,500 - $3,500 $0.05 $0.59
Lesotho 2.6 $2,450.00 6.9 49.2 (1999) 45.00 (2000) $114.94 /yr 30 $0.02 $0.62/min 31
Liberia 5.0 $1,100.00 8.0 80.0 (2000) 70.0 n/a n/a n/a
Libya 3.0 $7,600.00 13.6 n/a 30.00 (2000) $45.00 (10hrs)32 $0.03/3 min (1999)33 n/a
Madagascar 5.0 $870.00 7.0 70.0 (1994) n/a Vary: $305.9734 $0.09 $0.78
Malawi 1.7 $660.00 28.635 54.0 (1991) n/a $5.2936 $0.03 $0.35/min 37
Mali 4.8 (2000) $850.00 (2000) 0.8 (2000) n/a n/a NA $0.07 $1.26
Mauritania 4.0 $1,800.00 4.4 50.0 21.00 (1999) $30.00 $0 08 n/a
Mauritius 5.2 $10,800.00 5.4 38 10.0 8.60 $3.43 39 $0.03/3min 40 $0.15
Morocco 5.0 $3,700.00 1.0 19.0 (1999) 23.00 (1999) $44.19/hr 41 $0.08 $0.56
Mozambique 9.2 $900.00 10.0 70.0 21.00 (1997) $25.00 $0.07 $0.46
Namibia 4.0 $4,500.00 8.8 n/a 40.00 (1997) $478.40 42 $0.11/min 43 $0.70/min 44
Niger 3.1 $820.00 4.2 63.0 (1993) n/a $860.53 $0.11 $0.23
Nigeria 3.5 $840.00 14.9 45.0 (2000) 28.00 (1992) n/a n/a n/a
Rwanda 5.0 $1,000.00 5.0 70.0 (2000) n/a $174 to $300 45 $0.02 n/a
Sao Tome and Principe 4.0 $1,200.00 7.0 n/a n/a n/a $0.06 n/a
Senegal 5.7 $1,580.00 3.3 54.0 48.00 n/a 46 $0.11 $0.56
Seychelles 1.5 $7,600.00 6.1 n/a n/a $46.54 47 $0.14 $0.50
Sierra Leone 3.0 $500.00 15.0 (2000) 68.0 (1989) n/a n/a 48 $0.03 n/a
Somalia 3.0 $550.00 Over 100% n/a n/a $1.00/min 49 $0. 40/min 50 n/a
South Africa 2.6 $9,400.00 5.8 50.0 (2000) 37.00 $10 - $20 51 $0.07 52 $0.30/min 53
Sudan 5.5 $1,360.00 10.0 n/a 18.70 $100 54 $0.02 $0.14
Swaziland 2.5 $4,200.00 7.5 n/a 34.00 (2000) $14.00 $0.05 $0.80
Tanzania 5.0 $610.00 5.0 51.1 (1991) n/a Vary with ISPs 55 $0.08 n/a
Togo 2.2 $1,500.00 2.3 32.0 (1989) n/a $16.09 56 $0.10 $0.75
Tunisia 57 4.8 $6,600.00 2.7 6.0 (2000) 15.60 (2000) $15.62 58 $0.03 $0.18/min 59
Uganda 5.1 $1,200.00 3.5 35.0 (2001) n/a $200.00 60
$0.14 $0.36
69

Western Sahara n/a n/a n/a n/a n/a n/a n/a n/a
Zambia 3.9 $870.00 21.5 86.6 (2000) 50.00 (2000) $25.00 61 $0.06 $0.68
Zimbabwe -6.5 $2.450.00 100.0 60.0 (1999) 60.00 $40.00 $0.05 $0.50

Source: Unless stated otherwise, indicators sourced from the CIA World Factbook, 2002 Source: ITU World Telecommunications Dev.Report’02
(for telephone costs)1, and APC/AISI database
(for Internet costs), unless otherwise stated.

1.6 z Building Capacity to Narrow the Digital Divide in Africa from Within
17
Data estimates for 1999. See
Annex 2 Notes
http://www.uneca.org/aisi/nici/Cote%20d’Ivoire/coteinfra.htm.
1
International Telecommunication Union (ITU). World Telecommunication 18
Estimates for 1999. Connection charge US$281/month; monthly subscription:
Development Report: Reinventing Telecoms, World Telecommunication Indicators, US$50.60; PSTN three minute local call US$0.59.
March 2002, ISBN 92-61-09831-2; Place des Nations, CH-1211 Geneva, http://www.uneca.org/aisi/nici/Djibouti/djbinfra.htm.
Switzerland. 19
Dialup Full Internet – InterConnect: US$100/month for 10 hours, US$10/
2
Local currencies converted into US$ as of 20 November 2002 rates, hour for additional hours. Local calls via Telecell cost US$0.36/minute cell
http://www.oanda.com/convert/classic.
to cell and US$0.59/minute cell to OCPT. Local calls via Comcell cost
3
EBONet: Dialup PPP: Setup US$99, including installation, manual and
US$0.30 cell to cell, and US$0.55 cell to OCPT.
training. Unlimited use: US$75 /month (US$64 if annual payment) 19.2kbps
http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=CD.
analogue Leased Line: Setup: US$450, US$600/month. Netangola: Personal 20
Local call via Telecel per minute – Cell to Cell: US$0.39, Cell to OCPT:
account - Setup US$50, Annual subscription US$420. Corporate: Setup
US$0.59; Local call via Comcell per minute - Cell to Cell: US$0.30, Cell to
US$240, Annual Sub US$1890. Email only: US$240,
OCPT: US$0.55 in 1999.
http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=AO,
http://www.uneca.org/aisi/nici/DRCongo/drcinfra.htm.
as updated in September 2002. 21
Have a non-cost dial-up, and a US$0.25 per hour charge. Hrvoje Hrnjski,
4
Source: ITU 2002 ibid. Also AISI/NICI indicates the following: Connection:
Africa ICT Policy Monitor, Egypt boasts free Internet access, 09 September 2002,
US$112.9; Monthly subscription: US$37.6; Local call per 3 minutes: US$0.30
(Peak) for year 2000. http://www.uneca.org/aisi/nici/angola/anginfra.htm. http://www.apc.org/english/rights/africa/?-2-Egypt; Lulcas Ledwaba,
5
OPT Internet charges: Dial-up access to Internet - Startup cost: US$10 or 4,950 ITWeb, Egypt takes on the digital divide, 31 October 2002.
CFA Francs (payable once) - Usage cost: 51 CFA Francs per minute; Email http://www.itweb.co.za/sections/quickprint/print.asp?storyID=128393;
account - Account creation: 20,064 CFA Francs - Monthly subscription: and Mats Palmgren, Egyptians Flock to New Net Plan, Wired News, 25 June
10,032 CFA Francs; Analogue Leased Line (4 wire, 28Kbps or lower) - 2002. http://www.wired.com/news/business/0,1367,52993,00.html; see also
Account creation: 150,018 CFA Francs - Monthly subscription cost: 400,026
22
Setup: US$55. Subscription US$28/month for an account with a one megabyte
CFA Francs; and Digital 64Kbps Leased Line + Class C address - Router volume limit. Tfanus: US$25/month.
rental: 60,010 CFA Francs/ month - Setup: 1,000,032 CFA Francs, http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=ER.
subscription: 2,800,050 CFA Francs/month.
23
Individual: Setup: US$56. Subscription US$34 /month for 15 free
http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=BJ. hours/month, US$19/month for 8 free hours a month. US$4/hour for
6
See the Central Statistics Office of Botswana at http://www.cso.gov.bw/cso/. additional hours. 1MB free storage. International NGOs, Embassies and
7
Info Botswana, Dialup: Unlimited Use - BWP 150 per month, payable quarterly Business Sectors: Setup: US$113. Subscription US$75/month for 40 free
or BWP 100 per month, payable annually. Email only: BWP 80 per month, hours a month. US$4/hour for additional hours. 2MB free storage. Public
payable quarterly or BWP 53 monthly payable annually; GIA Botswana/ Education, Health and Agricultural Sectors: Setup: US$38, Subscription –
Abacus Computing: Dialup: Setup - BWP 140, Unlimited use - BWP 80/month US$25/month for 40 free hours a month. US$2/hour for additional hours.
/BWP 470/year. Web space hosting: - up to 2MB for individuals free, 2MB free storage. All non-profit organisations: Setup: US$56. Subscription
http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=BW. US$38 /month for 40 free hours a month. US$2/hour for additional hours.
8
Public phones are charged at BWP P0.50 per 1st meter period – 2MB free storage. Additional email boxes - US$5 /month. Additional Hard
See BTC charges in http://www.btc.bw/tar_psb_pp.htm, and disk space US$2/month/MB.
http://www.uneca.org/aisi/nici/botswana/botsinfra.htm. http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=ET.
9
ONATEL Internet Charges: Dial-up access - Startup: 6500 CFA Francs - 24
See http://www.gamtel.gm/
Connect time 1000 CFA Francs/hour; Analogue Leased Line (4 wire, 33,6K 25
See Network Computer Systems (NCS). http://www.ghana.com
bps - Account creation: estimate on request - subscription: 550,000 CFA 26
40,000.00 GNF (= US$20.95 as of 20 November 2002,
Francs/month; Digital 64Kbps Leased Line with Class C address - Account http://www.oanda.com/convert/classic). Source: ETI-BULL.
creation: estimate on request - subscription: 850,000 CFA Francs/month; http://www.eti-bull.net, and Mirinet: http://www.mirinet.net.gn/
Email Account - Account creation: 8500 CFA Francs - subscription: 5200 27
As of 1999, connection was US$70; monthly subscription: US$14.60; 3-minute
CFA Francs/month; All prices subject to 15% tax. local call (Peak: US$0.31, Off-peak: US$0.21) for mobile cellular calls.
http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=BF. http://www.uneca.org/aisi/nici/Guinea/guineainfra.htm.
10
No data on cellular costs, but landline cost are elaborated as follows: 28
See Guinea Telecom (GT). http://sol.gtelecom.gw and
IntelCam - Leased line: US$4000/month (2M CFA Francs) for a 64Kbps link; http://www.uneca.org/aisi/nici/Guinea-Bissau/bisinter.htm.
Dialup: Setup - 20 000 CFA Francs. 2 hours/month - 6,000 CFA 29
See http://www.uneca.org/aisi/nici/Guinea-Bissau/bisinfra.htm.
Francs/month. 10 hours/month - 20,000 CFA Francs/month. 20 30
Email, Software and extra services: email, web browser and server space for a
hours/month - 35,000 CFA Francs/month. Additional hours: 2000 CFA personal web page, cost: R 1100 (R1,100 = US$114.94 as of 20 Nov.2002,
Francs/hour. Ditof – Dialup: 2000 CFA Francs/hour. Uninet - Dialup: 2 http://www.oanda.com/convert/classic) for Internet Subscription for a year
hours/month - 2000 CFA Francs/hour. Analogue leased line: 400,000 CFA with LEO, http://www.lesoff.co.za/services/default.htm.
Francs/month, (email only: 200,000 CFA Francs/month). Website hosting: 1- 31
Connection charge is US$16.40, and monthly subscription is US$16.40,
5MB 35,000 CFA Francs, 50MB 200,000 CFA Francs/month, server co-
http://www.uneca.org/aisi/nici/lesotho/lesinfra.htm.
location 600,000 CFA Francs/month. Centre Syfed: Free for public 32
Costs were US$45/month, including 10 free hours / month, and a US$4/hour
institutions, others: Monthly fee: - Minitel: 4,000 CFA Francs/month, Minitel
for additional hours in 1999.
or PC: 6,000 CFA Francs; Local calls cost 40 CFA Francs / 6 minutes -
http://www2.sn.apc.org/africa/countdet.cfm?countries__ISO_Code=LY.
US$1.55/hour. About 30% cheaper after hours US$1.1/hour. 33
In 1999, PSTN connection charge (residential) was: US$124; Connection
http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=CM.
charge: US$533; Monthly subscription (residential): US$46 and US$46.10 for
11
Also see Instituto Nacional de Estatistica Cabo Verde, at
businesses, http://www.uneca.org/aisi/nici/Libya/libyinfra.htm.
http://www.ine.cv/http://wwwindex.html. 34
Com#Pro Tariffs. 19.2Kbps leased line: Setup: 2500 FRF, Subscription 2000
12
Dialup Internet costs 15,000 CFA Francs to set up and 10,000 CFA
Francs/month plus 60 CFA Francs/minute (US$6.9/hour). FRF/month (2000.00 French franc (FRF) = 304.9 euro (EUR) 304.9 Euro =
http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=CF. 305.967 US Dollar as of 20 Nov 2002,
13
Estimates for year 2000. See http://www.uneca.org/aisi/nici/car/carinfra.htm. http://www.oanda.com/convert/classic), 28.8Kbps leased line: Setup: 4 000
14
CNAR provides email only facility: US$20/month. Local calls cost 100 CFA FRF, Subscription 2500 FRF. DTS. - Monthly fees for dial-up internet access:
Francs/minute (US$10.50/hour). 36FRF. Up to 10 email boxes, plus 1Mb disk space for web hosting per email
http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=TD. box (36FRF/month per extra 1 Mb.) - Internet connections are taxed at
15
Dialup Internet access costs 5,000 FCM/month, unlimited time. Local calls 0.5FRF/min. Simicro. Dialup subscription (includes unlimited email
cost 25 FCM 3 minutes. The Comorian Franc is fixed at 75 per French franc. addresses, 1MB disk space, software and support from 7- 22hr: Setup: 20
http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=KM. 000MGF, 5 hours/month - 84 000 MGF /month, 10 hour/month -160 000
16
Centre Syfed: free to non-profit organizations Netafric - Email only: 10 email MGF/month, 20 hour/month - 310 000 MGF/month, 30 hours/month -
addresses for 20,000 CFA Francs setup fee, 40,000 CFA Francs/month, 3,000 450,000 MGF/month. Additional time - 300 MGF/minute. Additional MB
/hour, 50 email addresses 150,000 CFA Francs/month, 2,000/hour. Full web space - 20,000 MGF/month; and for Sinergic. Dialup account: Setup:
Internet + 1 email - 3000 CFA Francs/hour 8-18h, 1500 CFA Francs/hour 18- 20,000 MGF, 1.5hours/month - 57,000 MGF/month, 3 hours/month – 84,000
70

8h, or 25,000 CFA Francs/month for up to 15 hours, 2000 CFA Francs/hour MGF/month, 5hours/month – 126,000 MGF/month, 40 hours/month -
for supplemental hours, or unlimited connection for 35,000 CFA 864,000 MGF/month. Additional time - 570 MGF/minute.
Francs/month (45,000 CFA Francs/month includes web page). Web hosting http://www2.sn.apc.org/africa/countdet.cfm?countries_ISO_Code=MG.
@ 120,000 CFA Francs/Year for 200Kb, 204,000 CFA Francs/year for up to 35
Inflation rate was 16.1 in July 2002 and 16.5 in August 2002. See Malawi
10MB. Statistics in http://www.nso.malawi.net/,
http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=CI. http://www.un.org/Pubs/CyberSchoolBus/infonation/e_infonation.htm.

1.6 z Building Capacity to Narrow the Digital Divide in Africa from Within
36
MalawiNet: Email only: Setup: 2000 MWK, Subscription 420 MWK/month, For individuals: 750 SCR setup fee, 250 SCR/month (250.00SCR = $ 46.54 as
Free Time - 2hours/month, additional time 2.4 MWK/minute Dialup of 20 Nov 2002. http://www.oanda.com/convert/classic) for one address
Internet: Setup: 4160 MWK, Subscription 2500 MWK/month, Free Time - 20 and 20 hours of connection time.
hours/month, additional time 1.6MWK/minute. Additional email addresses http://www2.sn.apc.org/africa/countdet.CFM?countries__ISO_Code=SC.
- Setup 1500 MWK, 1000 MWK/month post office charge and 420 48
See Internet in Sierra Leone.
MWK/month per user id. 9.6Kbps analogue lased line. Own router Setup: http://www.firstmonday.dk/issues/issue2_2/kargbo/#dep4.
US$1,200, Subscription: US$700/month. Router included - Setup: US$1500, 49
While this may appear inexpensive compared to many other African
Subscription US$950/month. Drop in service - 1000Mk/month. Web countries, income is very low in Somalia and affordability is still a
hosting. 5MB storage: Setup: US$135, Subscription US$135/month, up to problem. The high cost of subscribing to the Internet is seen as the reason
25MB storage: Setup: US$400, Subscription US$300/month. Web design. why very few people have opened an account. The initial installation fee is
US$65/hour US$120, equivalent to the monthly income of some Somali families. It costs
http://www2.sn.apc.org/africa/countdet.cfm?countries_ISO_Code=MW. US$30/month to rent a line, and $1/minute (2002) to connect to the
37
“Celtel and TNM were provided with licenses, which were followed by Internet. http://news.bbc.co.uk/1/hi/world/africa/459319.stm. See also
overwhelming reception of mobile phone technology among many Abdigani Jama, Secretary General of the STA, January 2002, SW News.
Malawians, especially the briefcase-carrying business community…while http://www.somaliawatch.org/archivedec01/020111101.htm.
people were initially enthused with the modern gadgets, consumers have 50
Competition is reducing international call charges in Somalia. The current
lately been complaining of the ever-rising tariff rates. It now costs an average price war was started by Netexchange and TeleAtlantic in December 2002,
of US$0.35 per minute for a subscriber…”. Hobbs Gama, All Africa.com, 21 when they reduced their prices to US$0.40 and $0.35/minute respectively.
October 2002, http://allafrica.com/stories/200210210658.html. http://allafrica.com/stories/200203250235.html.
38
Annual inflation rate stood at 4.2% in 2000, and 5.4% in 2001 in Mauritius. See 51
See http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=ZA.
the Central Statistics Office (CSO) of Mauritius at 52
Telkom costs: ZAR0.70c per minute for domestic calls (with the radius of
http://ncb.intnet.mu/cso.htm. 50km), during office hours, and lower after peak hours.
39
The cost of access is 100 MUR a month (100 MUR = US$3.43 on 20 Nov 2002, http://www.telkom.co.za/pricing/content/nationalcall.jsp.
http://www.oanda.com/convert/classic), and 100 MUR for each email 53
Cellular charges between three operators almost similar: peak voice calls:
address and then 300Rs for 10 hours. The cost of web hosting is 2,000 MUR ZAR2, 85/min ($0.30 as of 20 Nov 2002,
per mega-octet. 19.2Kbps leased lines are 5000Rs setup and 11,500Rs/month http://www.oanda.com/convert/classic); off-peak voice calls: ZAR1,
in Port Louis, 64Kbps over X.25 is available for 35,000Rs / month. Cost of a 55/min; SMS peak: ZAR0, 75 cents; and SMS off-peak: ZAR0, 30 cents
local call is 1 MUR for 3 minutes, (1FRF=3.55 MUR), but for Internet calls http://www.vodacom.co.za/prepaid/packages.asp; also see CellC
this fee is bundled into the above internet access charge and is not billed for charges: ZAR2, 60 during peak hours, etc
separately.
http://www.cellc.co.za/chatpacks.asp?sPage=chatpackscharges, and MTN
http://www2.sn.apc.org/africa/countdet.cfm?countries_ISO_Code=mu.
at http://www.mtn.co.za/personal/payg/.
40
See also the Mauritius telecom rates at 54
Sudatel Dialup Internet: Embassies, NGOs and businesses pay US$500 to
http://ncb.intnet.mu/media/contelcm.htm#intnet.
subscribe and US$100 in monthly service fees. Government ministries and
41
ACDIM: Monthly - 450 MAD (= US$44.19 as of 20 Nov 2002,
universities pay US$345 and US$145 respectively to sign up, then US$45
http://www.oanda.com/convert/classic), Off Peak account: 250 MAD
per month. Individual subscribers pay US$200 to subscribe with monthly
(12h30, 14h00, 20h30, 7h00 every day, Email only: 150 MAD , Installation:
service charges of US$40,
250 on site, 150 MAD on premises, no setup fee if user installs. Azure: Usage:
http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=SD.
1 MAD every 2 minutes or 650MAD unlimited. Leased lines: 2500 MAD 55
SITA: 9.6Kbps international leased line - US$4500/month. 64Kbps -
setup + 7000 MAD/month. Diagone MarocNet: 240 MAD /month,
US$14,000/month. COSTECH: US$20/month and US$0.1 per Kb of
unlimited usage. Elan: Private acct: 300 MAD a month, corporate account
international traffic. Datel 19.2Kbps wireless link: US$US$350/month for
500 MAD /month (both unlimited access) Group Open SA: 500 MAD
each end (US$700/month total). Muhimbili: Email - US$20/month.
/month for individuals, 699 MAD /month for company account. 300 MAD
Installation - US$50. UDSM: Users on campus - US$10/month. External
/month for access only between 7h00 and 16h00. L&L: 300 MAD /month, if
users - US$150/month. CyberTwiga: Email only - US$50/month.
paid annually. Email 100/month. + 0.80 MAD/ 3 minutes peak hours, 40
Unlimited Web/Email - US$75/month. Setup is free if self-installed.
MAD/ 3 minutes off peak. MaghrebNet: 350 MAD/monthly. Leased line:
US$200 for an on-site installation,
2000 MAD setup fee, 4000 MAD/month MTDS: Educational acct: 280 MAD
http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=TZ.
/15 hours, 350 MAD/20 hours, individual acct: 400 MAD/ 30 hours, 500
MAD/ 30 hours. Corporate ACCT: 720 MAD/40 hours, 900 MAD/ 60
56
An unlimited dialup account subscription costs about 10,000 CFA Francs
hours. 20% discount for payment 1 yearr in advance. Additional hours 35 per month (= US$16.09 as of 20 Nov 2002,
MAD. Wafenagoce: 300 MAD/monthly, for 8 free hours a month for http://www.oanda.com/convert/classic). Free access is provided to
businesses, or 5 free hours a month for individuals. Additional hours 25 members of the UNDP’s SDNP programme. Dialup access to the Internet
MAD/hour. through Togotel costs 60 CFA Francs/ 4 minutes. Cafe dialup Internet
http://www2.sn.apc.org/africa/countdet.cfm?countries_ISO_Code=MA.. costs 50,000 CFA Francs/Month.
42
See http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=NA.. http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=TG.
43
It is NAD$ 35c per minute for a local call. National calls under 100km went
57
Also see Tunisia Institut National de la Statistique at
up with 17.6% from 51c to 60c (excl. VAT) per minute. Calls under 200km http://www.ins.nat.tn/_private/idc/page01141.idc.
went down with -1% from NAD$1 to 99c per minute and calls above 200km
58
The cost of Internet access is 21 TND/month for unlimited access (= $15.62
went down with -5.4% from NAD$1.11 to NAD$1.05 (June 2001), source: as of 20 November 2002, http://www.oanda.com/convert/classic), plus 40
Telecom Namibia. http://www.telecom.na/toocheap.html. Dinars for software and installation. (1 TND = US$0.80 as of 20 November
44
Connection fee is US$36.00, monthly subscription US$14.40, local call at peak 2002). Calls to the Internet are a fixed price throughout the country,
hours is US$0.70 and US$0.28 at off-peak in year 2000. regardless of the distance dialled -0.15 FRF/minute
http://www.uneca.org/aisi/nici/namibia/naminfra.htm. http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=TN.
45
RwandaTel (http://www.rwanda1.com) tries to charge US$4,500 per ISP and
59
Connection fee was US$105/month, subscription was US$13.17, and an
to mandate that ISPs should charge US$50.00/user per month. Based on a additional US$0.18 per minute in 1998.
population of 50 subscribers, the ISPs proposed to charge the user a http://www.uneca.org/aisi/nici/Tunisia/tunisinfra.htm.
monthly fee between US$174 (proposed by one of the ISPs) and US$300
60
BushNet: Radio equipment US$6,500 installation and training, US$1,000
(proposed by the other); In relation to the monthly charge per ISP, the running costs: No extra charge if customer is polled only once a day,
USAID Leland Initiative asked Rwandatel to charge only US$2,500 per ISP. US$200/month if a customer chooses to be polled more than once a day,
A compromise between the three parties (which excluded consumers) US$0.3/ Kb of data (typical customer usage is currently at about US$120
should lead to a mid-point price. per month). Infocom offers email for US$30 per month, unlimited full
http://www.UNECA.org/AISI/NICI/rwanda/rwaninter.htm. Internet access for US$50. Most of the other ISPs are now providing
46
Setup: 25 000 CFA Francs (without sales tax - VA), Monthly: 10 000 CFA wireless Internet connections for as little as US$200/month. Together, the
Francs VA, 4 hours Training at Telecom-Plus: 30 000 CFA Francs VA per four active ISPs had some 4100 accounts at the start of 2000, serving an
71

person Metissacana Cybercafe: 2,000 CFA Francs/hour or 8,000/month estimated 25,000.00 users.
unlimited access. http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=UG.
http://www2.sn.apc.org/africa/countdet.CFM?countries__ISO_Code=SN. 61
Zamnet: US$25/month for full Internet access. Local calls cost US$2.5/hour
47
Atlas’ access charges are: For commercial companies: 3,000 SCR setup fee, peak, US$1.5/hour off-peak.
1000 SCR a month for 4 email addresses and 20 hours of connection time. http://www2.sn.apc.org/africa/countdet.CFM?countries_ISO_Code=ZM.

1.6 z Building Capacity to Narrow the Digital Divide in Africa from Within
Chapter 1.7
How the Congo Decomposed
in the 1990s

Philippe Beaugrand1, International Monetary Fund

In The Economic Consequences of the Peace (1919, p. 149), This paper reviews the story of how the Congo
John Maynard Keynes wrote: “Lenin was certainly “decomposed” in the 1990s and highlights some
right. There is no subtler, no surer means of overturning features of its inflationary policies. It concludes by
the existing basis of society than to debauch the stressing that hyperinflation and rapid currency
currency.” Both Lenin and Keynes correctly foresaw depreciation are not so much the result of misguided
that high inflation and currency depreciation would policies, as the consequence of a failed political
ruin a country and destroy its political and social fabric. system. Economic development requires above all
As a matter of historical record, however, the causality a stable political and social environment, based on the
has run both ways. The “debauched currency” rule of law.
has often been the effect rather than the cause of
an “overturned society.”

High inflation and hyperinflation


Overview
Following the classic study published by Phillip Cagan
The story of the Democratic Republic of the Congo— in 1956, a period of hyperinflation is commonly
then known as Zaïre2—in the 1990s offers a remarkable defined as beginning in the month when the
example of hyperinflation pathology. Like the monthly rate of increase in prices exceeds 50 percent,
decomposition of Weimar Germany in 1922–23, or and ending in the month before the increase
post-war Hungary in 1945–46, the Congo was faced in prices drops and stays below that level for at
with overextended financial commitments and a least a year. Based on this criterion, the Congo
crumbling political system, and the country sought an underwent two short episodes of hyperinflation:
easy way out through the money-printing machine. from October 1991 to September 1992, and from
The expedient slightly relieved financial constraints November 1993 to September 1994, with short-lived
for a short period, but the macroeconomic situation bouts in August 1998 and December 1999.
quickly worsened, ultimately contributing In a broad sense, the country was continuously in
to the end of the Mobutu regime. A unique feature the vicinity of hyperinflation throughout the 1990s
73

of the Congo’s experience in the 1990s was the (Figure 1). Apart from a brief lull in 1997–98,
extraordinary length of the inflationary period, the Congo’s annual rate of inflation remained
with inflation remaining very high for more than generally in excess of 500 percent from 1991 to 2000,
a decade. with a monthly average of 22 percent.

1.7 ❚ How the Congo Decomposed in the 1990s


Figure 1: Monthly inflation rate

250

225

200

175

150
Percent

125

100

75

50

25

-25
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Source: Data provided by the Congolese authorities; and IMF staff estimates.

Historically, most episodes of hyperinflation last i.e. the period begins when the monthly increase
from a few months to no more than a couple of years. in prices exceeds 25 percent, and ends in the month
Hyperinflation tends to bring itself rapidly to an end, before the increase in prices drops and stays below
because it generates the seeds of the collapse of the that level for at least one year.
financial system. As the value of money tumbles, The Congo stands out, together with Nicaragua and
it loses its raison d’être and financial intermediation Brazil, as having experienced the highest rates and
is no longer possible. Over the last fifty years, the longest period of very high inflation in recent
the longest episode of hyperinflation was recorded times. In the 12-month period through September 1994,
in Nicaragua, from June 1986 to March 1991 (Fischer consumer prices in the Congo rose by more than 90,000
and others, 2002, Table 2, p. 840). Even though percent— an increase by a factor of 900. Meanwhile,
it does not strictly qualify as such in Cagan’s terms, the Congo’s currency—the new zaïre, adopted in the
hyperinflation in the Congo was at least as staggering wake of a monetary exchange conducted in late 1993—
in many respects. In particular, its period of very depreciated as fast as prices increased: 1,000 currency
high inflation lasted longer and exhibited record high units in September 1993 were worth 1 unit only a year
annual and quarterly increases in consumer prices. later! The Congo also had a record high inflation of
3,300 percent during the three-month period ending
Table 1 below shows the main characteristics of recent in January 1994.3 Its period of very high inflation lasted
episodes of very high inflation. The countries longer than in any other high inflation period
selected were those that experienced a 12-month recorded in history: more than ten years, with a lull
rate of inflation of at least 1,000 percent over the last in 1997–98. However, the cumulative inflation in
few decades and the period identified was based on the Congo (64 billion percent) was less than half the
a threshold of 25 percent monthly inflation; rate recorded in Nicaragua (150 billion percent).
74

1.7 ❚ How the Congo Decomposed in the 1990s


Table 1: Episodes of very high inflation in the late twentieth century
(percentage changes)

Highest Inflation Average


Countries Annual1 Monthly Periods2 Duration Cumulative Monthly
(months) Inflation Inflation
Democratic Republic of the Congo 91,253 250 Oct 90 – Jan 97 76 63,727,999,422 30.6
Aug 98 – Jun 01 35 9,872 14.1
Nicaragua 63,776 261 May 85 – Mar 91 71 149,701,249,470 34.7
Armenia 27,020 438 Jan 93 – Dec 94 24 204,638 37.4
Bolivia 23,447 183 Aug 83 – Jan 86 30 643,293 34.0
Argentina 20,266 197 Aug 75 – Apr 76 9 379 19.0
Sep 84 – Jun 85 10 746 23.8
Jul 88 – Feb 91 32 218,552 27.2
Croatia 19,449 64 Jun 89 – Jan 90 8 1,433 40.7
Nov 91 – Oct 93 24 213,198 37.6
Peru 12,378 397 Jul 88 – Aug 90 26 1,153,642 43.3
Angola 12,035 303 Jan 93 – Jan 97 49 23,154,061 28.7
Ukraine 10,155 91 Jun 92 – Dec 94 31 176,036 27.3
Brazil 6,821 82 Sep 88 – Jun 94 70 1,450,671,496 26.6
Kazakhstan 3,115 55 Jan 93 – Jul 94 19 15,073 30.3
Belarus 2,796 158 Jan 92 – Feb 95 38 1,329,637 28.4
Georgia 2,668 211 Feb 94 – Sep 94 8 2,767 52.1
Bulgaria 2,019 242 Dec 96 – Feb 97 3 553 86.9
Azerbaijan 1,900 118 Apr 91 – Jan 95 46 1,532,656 23.3
Poland 1,173 77 Aug 89 – Jan 90 6 644 39.7
Russia 1,067 38 Feb 92 – Aug 93 19 3,591 20.9

1
12-month running annual rate.
2
Using a threshold of 25 percent monthly inflation. Excludes brief episodes of high inflation, especially for transition economies for which insufficient data are
available prior to 1991.
Source: Data compiled from IMF, International Financial Statistics.

Seigniorage and economic month period. Twelve-month running inflation surged


from 40–50 percent to 500 percent in early 1991.4
dislocation
The government’s attempt to extract seigniorage was
The surge in the Congo’s inflation from late 1990 onward partly successful at first, but the financial situation
reflected an attempt by the authorities to spend more quickly worsened because of rising inflation and thriving
than they were able, given the state’s capacity to raise dollarization.5 As a first approximation, seigniorage can
revenue. This endeavor quickly turned into a Faustian be estimated by measuring the increase in broad money
bargain and ultimately led to the demise of the regime. and converting the local currency value into U.S.
dollars.6 On this basis, monthly seigniorage gains
As in many other countries in Africa and elsewhere, the
amounted to US$10–20 million in the first half of 1990
pressure toward democratization in the Congo built up
rose to US$45 million in the third quarter, and to US$77
in 1990. Faced with growing discontent and widespread
million in the fourth quarter. At the same time, however,
demands for political change and improved living
monthly inflation surged from 5–6 percent in the first
standards, President Mobutu initiated a transition
three quarters to 35 percent in the last quarter of 1990,
process that was supposed to lead to multiparty
while the value of the stock of broad money (at the
elections. His government awarded large wage increases
parallel market exchange rate) fell from US$500 million
to civil servants, which nearly trebled the government’s
to US$380 million by year’s end. Thus, in order to
wage bill. At the same time, years of poor maintenance
continue extracting seigniorage on a similar scale, the
resulted in a cave-in at a copper mine operated by the
Zaïrian authorities had to keep on raising the rate of
parastatal company Gécamines and revenue from export
money growth, thereby pushing up inflation and
royalties fell. The government was able to settle the
entering a vicious spiral, threatening the complete
promised wage increases only by resorting to money
75

collapse of the financial system.


printing on a large scale. In the six months through
March 1991, broad money—i.e. banknotes and banks In addition to the decline in mining revenue mentioned
deposits denominated in domestic currency—grew by above, the surge in inflation also had a negative effect on
225 percent, up from 60 percent during the previous six- other government revenues. Specifically, inflation

1.7 ❚ How the Congo Decomposed in the 1990s


lowered the real value of tax and customs revenues, in which the zaïre was replaced by the new zaïre at a
given the normal lag of 4–6 weeks between assessments parity of Z 3 million = NZ 1 and an initial exchange rate
and actual collections.7 Coupled with a severe of NZ 3 per US dollar. Despite difficulties in forcing
contraction in economic activity brought about by the acceptance of the new zaïre, the government succeeded in
growing instability, this resulted in a drastic fall of unloading massive amounts of the new currency. The
government revenue, from the equivalent of US$75 stock of currency doubled in October 1993, again in
million per month in the first half of 1990, to US$55 November, and then trebled in December, yielding a
million in the second half of that year, and to less than cumulative growth of 1,100 percent in
US$40 million in the early months of 1991—a near- only three months. Inflation naturally soared to
halving in less than one year. unprecedented levels, reaching 248 percent in the
month of November 1993 alone, 240 percent in
From the economic, social, or political points of view, the
December, and 190 percent in January 1994, or a
Congo’s situation continued to deteriorate from 1991–94.
three-monthly rate in excess of 3,300 percent! At the
Average monthly inflation rose from 11.5 percent in 1990
same time, government revenue collapsed to US$10
to a range of 30–40 percent in 1991–93, and to 47 percent
million per month in the last quarter of 1993, and less
in 1994. The Central Bank experienced serious difficulties
than US$5 million in January and February 1994.9
in continuing to expand the money supply at the fast
pace required by the government, because of the rising
cost of printing currency, and the public’s resistance to
the introduction of higher-denomination banknotes. As a
result, there were recurrent shortages of cash, which The curious case
prevented the government from meeting its financial of the missing currency
commitments. From 1992 onward, the issuance of
Even considering the debauch of currency issue during
higher-denomination banknotes provoked boycotts,
the last quarter of 1993, the level of inflation was
often accompanied by riots, looting, and mutinies, in
extraordinarily high in that period. The extension of
which government workers and soldiers demanded back
dollarization and the rise in the opportunity cost of
pay and wage increases. Meanwhile, the political setting
holding money, due to inflation itself, translated into a
veered toward anarchy: during most of 1993, the Congo
faster velocity of money, and therefore into a higher rate
had two Prime Ministers and two Parliaments, but no
of inflation for any given rate of money growth.10 Yet,
working government!8
a brief look at the time series (Figure 2) suggests that
In an attempt to address its predicament, the Central special factors may have been at play in late 1993 and
Bank organized a currency exchange in October 1993, in 1994.

Figure 2: Broad money growth and inflation

1,000

900 Consumer prices (peak of


3,300 percent in January
800
1994)

700
Percentage change

600

500

400

300

200
Broad money
100

0
76

Mar Jun Sep Dec Mar Jun Sep Dec


1993 1993 1993 1993 1994 1994 1994 1994

Source: Data provided by the Congolese authorities; and IMF staff estimates.

1.7 ❚ How the Congo Decomposed in the 1990s


Indeed, there were indications in 1994 that part of the depletion of its foreign asset position and the near
currency issued was not accounted for in the balance disappearance of domestic money market operations, the
sheet of the Central Bank. The parallel issuance of Central Bank had virtually no income of its own. For the
currency was facilitated by a shift to a less reputable whole of 1995, the increase in the currency stock
supplier of banknotes—ostensibly as a means to lower represented the equivalent of US$180 million. Therefore,
printing costs— who reportedly agreed to make nearly half of the currency issued by the Central Bank was
supernumerary deliveries. This also coincided with an used to acquire foreign exchange in order to pay for the
extraordinary situation at the Central Bank, which for issuance of new currency!
many months responded only to President Mobutu but
refused to heed orders from the Prime Minister.11
It is nearly impossible to ascertain the amount of parallel
currency issued in 1993–94, but indirect estimates Halt and resumption of inflation
suggest that it may have been as high as 10–20 percent of
the currency stock, representing a market value of about Although inflation continued in the second half of 1995
US$1–2 million per month. While not very large in and 1996, it broadly stabilized at a monthly average of
absolute terms, it is likely that this amount contributed less than 20 percent. The Congo made little progress
significantly to further eroding confidence in the Congo’s toward political normalization, and the regime
monetary system. weakened rapidly, as President Mobutu was terminally
ill and often hospitalized abroad for cancer treatment. In
late 1996, a rebellion erupted in the eastern part of the
country, actively supported by Rwanda and Uganda.
The government was unable to mount a counteroffensive
Short-lived stabilization
and quickly lost control of many provinces. Facing
From late 1994, Prime Minister Kengo succeeded to some hardly any military resistance, the rebels completed their
extend in reining in inflation and restoring financial conquest in May 1997, and their leader, Laurent Désiré
stability. By early 1995, inflation had nearly halted and Kabila, proclaimed himself President upon his
government revenue began to recover. Positive economic triumphant entrance into Kinshasa.
growth was recorded for the first time in seven years, Inflation halted instantly and even turned into deflation
and the government was able to settle its wage bill on for about six months, as the demand for domestic
time, albeit at a much depreciated rate. By the mid-1990s, currency picked up (from May to October 1997,
average monthly wages in the public sector had fallen to consumer prices fell by a cumulative 36 percent and the
about US$10–15 per employee, as compared with US$60 appreciation of the new zaïre against the U.S. dollar was
in 1990. of a similar magnitude). The new authorities prepared a
In spite of the noteworthy progress, the Congo’s comprehensive economic recovery program, including a
financial situation remained precarious. Part of the monetary reform in which the new zaïre would be
recovery in government revenue was taking the form of replaced by the Congo franc. In the run-up to the
a buildup of bank deposits, which could not be spent currency exchange, which took place successfully in
because of a shortage of currency. Commercial banks August 1998 at a parity of NZ 100,000 = CF 1, the Central
held large illiquid excess reserves with the Central Bank, Bank used available stocks of money-printing paper to
and this gave rise to a steep discount—up to 50 expand the supply of new zaïres. Although this involved
percent—of checks over cash. In order to restore some risks and led to somewhat higher inflation (a
normalcy, the government had to sterilize part of its monthly average of 1.2 percent during the first half of
revenue by freezing its deposits with the Central Bank, 1998), it was needed to eliminate the overhang of illiquid
which would have gradually absorbed the overhang of bank reserves and thus establish parity between
illiquid bank reserves. In mid-1995, however, the currency and bank deposits.12
pressure to settle wage arrears and resume urgent public The Central Bank’s success was short-lived, however. In
works became too strong and the government started August 1998, civil war resumed between rebels (backed
using up its accumulated balances with commercial by Uganda and Rwanda) and the government (this time
banks. By the end of the year, inflation had returned to backed by a coalition including Angola, Namibia, and
monthly rates in excess of 30 percent. Zimbabwe). Monthly inflation surged to 78.5 percent. In
Throughout 1995 and 1996, the Central Bank continued the following months, the Congolese economy returned
to face popular resistance to the issuance of large- to the same condition it had been in during the Zaïre
denomination currency. While this limited the scope for period. While inflation did not rise durably to the rates
monetary expansion, it also contributed to fueling experienced in 1991–94, it nevertheless remained near
77

inflation by shrinking net seigniorage gains. In 1995, the hyperinflation levels for about three years (with a
cost of issuing currency (including transportation monthly average of 14 percent, or 1,300 percent
charges) was perhaps as high as US$80 million (for a annually). The economic situation worsened further, as
recorded total of 832 million new banknotes). Given the the country was de facto partitioned between the

1.7 ❚ How the Congo Decomposed in the 1990s


warring factions. The authorities introduced many however, the entire country was adrift, and the wheels of
economic controls, and funds were diverted to finance society virtually ground to a halt. Rather than try to fix
the war effort. dysfunctional institutions, people learned to cope with
the situation and managed to get by as best as they
Attempts at brokering peace yielded an agreement in
could, with little or no regard for the consequences of
Lusaka (Zambia) in July 1999, but the military situation
their actions.14
on the ground turned into a stalemate and no progress
was recorded in reuniting the country. The persistent Thus, hyperinflation in the Congo did not result from an
war conditions and the strict controls imposed by the infernal machine switched on inadvertently, but rather
government accentuated the economic disintegration from the injection of a hard drug, administered
during 1999–2000. Following the murder of President deliberately in order to mask unbearable political and
Laurent Désiré Kabila in January 2001, and the social conditions. The irony is that the treatment had the
appointment of his son Joseph to succeed him, the new effect of an instant overdose and made conditions worse,
government made significant progress in restoring stable jeopardizing prospects for a resolution of the Congolese
conditions. However, the situation remained fragile and political quagmire. The rebel takeover of May 1997
the political scene unsettled. brought new hope, and the quick financial stabilization
that followed demonstrated convincingly that there was
little inherent inertia in the hyperinflation process—as
had already been observed in early 1995. However,
Concluding remarks— hyperinflation returned in 1998, as civil war resumed
and political conditions remained unsettled.
the importance of the rule of law
Developments in the late 1990s showed how little the
The Congo’s predicament in the 1990s was in many Congo had changed in 40 years. Even a drastic shift in
respects unique, and owed much to the specific political regime and the adoption of radically new
circumstances of the time—including the fall of the policies could not arrest its unrelenting decline. On the
Berlin wall in November 1989 and President Mitterand’s contrary, the country descended further into confusion
speech at La Baule in June 1990, in which he called for and lawlessness, as it fell prey to its neighbors
accelerated democratization in Africa. It has had few (Braeckman, 1999). Laying the foundation for a broad-
parallels in recent times, even though similarities may be based resumption of economic activity and improvement
found with several other African countries.13 Thus, for in living standards would have required fundamental
developing countries the main lesson from Congo’s changes in the organization of society, including in
experience would seem to be that any process of particular the establishment of the rule of law. Despite
decomposition can go on longer and run deeper than some progress in this direction since 2001, it is too early
any rational observer would expect. to tell whether the new regime heralds a genuine new
Notwithstanding its unusual features, the Congo’s beginning for the Congo.
experience in the 1990s was neither accidental nor
exceptional. From the early 1960s onward, the country
belonged to that group of basket cases that are now Notes
known as “failed states,” characterized by an unstable 1
The views expressed in this paper are those of the author and do not
political framework, the absence of the rule of law, and necessarily reflect those of the International Monetary Fund. This article
draws in part on earlier studies (Beaugrand, 1997 and 2003).
pervasive corruption (see Wrong, 2000). While similar 2
The Democratic Republic of the Congo became independent from Belgium in
conditions in several other countries may not have 1960. It was renamed “Zaïre” in 1971, but reverted to its former name in
yielded outcomes as stark as those in the Congo, they May 1997. Throughout this paper, the country will be referred to as “the
Congo.”
also resulted in economic regression and widespread 3
Croatia was the second highest, with 2,070 percent in the quarter ending
destitution. Arguably, the nonexistence of a commonly September 1992; the highest three-monthly inflation rate recorded in
agreed social order is a major factor underlying the poor Nicaragua was 820 percent in January 1989.
4
Despite the Congo’s increasing economic dislocation in the 1990s, the Central
performance of many African countries—as, conversely,
Bank continued to maintain a large array of statistics, which the IMF staff
solid institutions have been the key foundation for generally deemed broadly reliable. However, it was widely suspected that
economic growth elsewhere (see, for example, IMF, the authorities kept financial accounts—including government budgets
and, at times, monetary data—deliberately incomplete.
2003). 5
“Dollarization” is a generic term for currency substitution through the use of
foreign currency—primarily U.S. dollar banknotes in this case, but also
The onset of very high inflation in Congo in 1990 was
CFA francs (in the provinces bordering on the Republic of Congo,
due to the authorities’ loss of control over the social and Brazzaville, and the Central African Republic), as well as Zambian kwacha
political situation. Senior officials in the Ministry of and South African rand (in the Congolese province of Katanga). Rough
estimates suggest that the rate of dollarization (i.e., the share of foreign
Finance and the Central Bank were well aware of the
currency in total currency holdings) rose from about 55 percent in 1990 to
risks associated with unbridled currency issue. Even
78

70 percent in 1991, and to 90 percent in 1994 (Beaugrand, 2003).


after inflation reached record levels and the financial 6
Conversions are made at the parallel market exchange rates for currency and
bank deposits. While bank deposits should normally be excluded from the
system ceased to function in any meaningful sense of the
computation of seigniorage, they are taken into account here, because the
word, there remained a large array of highly competent government often made large payments through bank transfers, even
staff in the government and Central Bank. By then, though the Central Bank was unable to provide enough cash to satisfy the

1.7 ❚ How the Congo Decomposed in the 1990s


demand for withdrawals. This resulted in the emergence of a premium on Olivera, J. 1967. “Money, Prices, and Fiscal Lags: A Note on the
cash over deposits, and explains the use of two different exchange rates Dynamics of Inflation.” Banca Nationale del Lavoro Quarterly Review 20.
for estimating the amount of seigniorage. September. 258–67.
7
The impact of inflation on real tax revenue associated with the lag between Tanzi, V. 1977. “Inflation, Lags in Collection, and the Real Value of tax
assessments and collections was identified by Olivera (1967) and Tanzi (1977). Revenue.” Staff Papers 24. International Monetary Fund. March.
8
On several occasions, President Mobutu bowed to political pressure and 154–67.
appointed the leader of the opposition, Etienne Tshisekedi, as Prime
Minister, only to dismiss him within a few weeks. In January 1993, the Wrong, M. 2000. In the Footsteps of Mr. Kurtz: Living on the Brink of Disaster
President issued an ordinance removing Prime Minister Tshisekedi from in Mobutu’s Congo. London: Fourth Estate.
office; however, he refused to step down. In an episode reminiscent of the
conflict between President Kasavubu and Prime Minister Lumumba in
1960, President Mobutu charged Prime Minister Tshisekedi with high
treason, while the transition parliament stated its intention to impeach the
President.
9
Actual revenue was probably higher than recorded, because Gécamines
often made off-budget payments, especially to President Mobutu himself.
However, the resources at Gécamines’ disposal also fell considerably, as
its monthly copper output dropped from 35 thousand tons in 1990 to 5.5
thousand tons in 1993, and barely more than 2 thousand tons in 1994. The
President’s unbridled plundering of Gécamines’ accounts—documented
as early as 1981 in U.S. Congressional hearings—resulted in the demise of
the golden goose that had sustained the regime for so many years.
10
In the standard quantitative equation, M V = P y, and assuming real output
(y) to be constant in the short run, the rate of increase in prices (∆p) is
equal to the rate of increase in money (∆m) plus the rate of increase in
velocity (∆v). In a high inflation environment, the increase in money
growth tends to raise velocity (i.e., lower the demand for money), leading
to a larger-than-proportional increase in prices.
11
Prime Minister Tshisekedi was unable to establish control over Central Bank
operations. Following his appointment in June 1994, Prime Minister
Kengo suspended the governor of the Central Bank, and named his
deputy as acting governor. However, the governor refused to step down
until President Mobutu signed the revocation decree, in November. Prime
Minister Kengo named a new governor in January 1995, six months after
his decision to suspend the former governor.
12
The issuance of “new” new zaïres gave rise to a singular situation, whereby
banknotes of the same denomination but of different color schemes co-
circulated at different exchange rates. Prior to the currency reform,
exchange rates also differed among provinces, even for the same types of
banknotes, because the new authorities had maintained tight restrictions
on the movement of commodities and currencies across the country.
13
Ghana in the 1970s, Uganda in the 1980s, Kenya through most of the 1990s,
and Zimbabwe since 1999 are examples that come to mind. In some
respects, Cameroon’s experience in the 1990s was most similar to Zaïre’s,
in terms of weakened political situation and economic dislocation. Even
though its quasi currency board system (as part of the CFA franc zone)
prevented the emergence of hyperinflation, domestic arrears built up on a
large scale instead.
14
In the late 1990s, a businessman was quoted as saying “One good thing the
Congolese have learned through their suffering is to live without a
functioning government. They can keep on going like this forever.”
Gourevitch (2000), p.66.

References
Beaugrand, P. 1997. “Zaïre’s Hyperinflation, 1990–96.” IMF Working
Paper 97/50. Washington: International Monetary Fund. April.
———. 2003. “Overshooting and Dollarization in the Democratic
Republic of the Congo.” IMF Working Paper 03/105. Washington:
International Monetary Fund, May. Also available at www.imf.org
Braeckman, C. 1999. “La République Démocratique du Congo dépecée
par ses voisins.” Paris: Le Monde Diplomatique. October.
Cagan, P. 1956. “The Monetary Dynamics of Hyperinflation.” Studies in
the Quantity Theory of Money, ed. Milton Friedman. Chicago: University
of Chicago Press.
Fischer, S., R. Sahay, and C.A. Végh. 2002. “Modern Hyper- and High
Inflations.” Journal of Economic Literature 40. September. 837–80.
Gourevitch, P. 2000. “Forsaken: Congo Seems Less a Nation Than a
Battlefield for Countless African Armies.” New Yorker, LXXVI:28. 25
September.
79

International Monetary Fund. 2003. World Economic Outlook, April 2003—


Growth and Institutions. Washington, D.C. Also available at
www.imf.org
Keynes, J.M. 1919. The Economic Consequences of the Peace. The Collected
Writings of John Maynard Keynes, Vol. II. London: Macmillan/St
Martin’s Press. 1971.

1.7 ❚ How the Congo Decomposed in the 1990s


Chapter 1.8
What Does the Growth Competitiveness
Index Say About Development in Africa?

Augusto Lopez-Claros, Global Competitiveness Programme,


World Economic Forum

Introduction but more broadly, as a condition that involves


the deprivation of basic opportunities that would
In the prologue to his book “The Elusive Quest for allow the poor to actively participate in the
Growth”, William Easterly refers to the quest by economy and the life of the nation. Thus,
economists “to discover the means by which poor development is “a process of expanding the
countries in the tropics could become rich like rich real freedoms that people enjoy.”3 The absence of
countries in Europe and North America.” He argues economic opportunity, misplaced spending
that those involved in this quest care about growth priorities of governments—leading them to neglect
because “it makes the lives of poor people better; it the role of public services—indifference to
frees the poor from hunger and disease.”1 It also political and civil rights, and what Sen calls the
allows them, one might add, to partly shift the focus “over-activity of repressive states” all represent,
of their lives from an undue concern with the struggle in one form or other, obstacles to freedom,
for material existence, to other pursuits very much at and thus barriers to successful development.
the centre of what we call “development.”
Thus, being able to shed some light on the question
Easterly’s work is effective in conveying a sense of why some countries are able to grow for
of the overarching importance of this quest. Higher prolonged periods of time—pulling vast segments
growth reduces infant mortality; it is actually possible of the population out of poverty along the way—
to estimate how many children’s lives could have while others remain stagnant, or worse, actually
been saved in Africa over a given period if growth, see an erosion of living standards, has to be
on average, had been a little higher—the numbers, in the main challenge facing development experts,
the hundreds of thousands, eloquently underscore whether in the academic community, aid agencies,
why growth matters. The empirical evidence or growing number of civil society organisations
linking growth to poverty is likewise overwhelming: engaged in development work. Figures 1 and 2
fast economic growth goes hand in hand with fast illustrate some contrasting country growth experiences
poverty reduction.2 But growth matters for many during the last 35-year period: Ghana and Korea
other reasons as well. Amartya Sen tells us that had broadly similar per capita income levels in 1970;
poverty robs people of the freedom to satisfy hunger, by 2003, Korea’s GDP per capita was some 30 times
81

to achieve adequate levels of nutrition, to acquire larger than that of Ghana. Hungary’s GDP per
medicine for treatable illnesses, to enjoy clean water, capita this year is projected to be about 28 times
and to be adequately clothed. He argues that poverty higher than that of oil-rich Nigeria, whereas it
is characterised not merely by low levels of income, was only 5 times higher in 1970.

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?
Figure 1: GDP per capita, current US$

12,000 GHANA

KOREA

TURKEY
10,000

8,000
Current US Dollars

6,000

4,000

2,000
South Korea:Ghana
Ratio in 1970= 1:1
Ratio in 2004= 30:1
0
70

73

76

79

82

85

88

91

94

97

00

03
19

19

19

19

19

19

19

19

19

19

20

20
Source: IMF World Economic Outlook

Figure 2: GDP per capita, current US$

10,000 COLOMBIA

HUNGARY
9,000
NIGERIA
8,000

7,000
Current US Dollars

6,000

5,000

4,000

3,000

2,000
Hungary:Nigeria
1,000 Ratio in 1970 = 5:1
Ratio in 2004 = 28:1
0
70

73

76

79

82

85

88

91

94

97

00

03
19

19

19

19

19

19

19

19

19

19

20

20

Source: IMF World Economic Outlook

The Growth Competitiveness Index representatives from the private sector and the corporate
world, on the one hand, and a broad spectrum of senior
For the last two decades the World Economic Forum has government policy makers, on the other, it has created
been trying to gain some insights into this important opportunities for an exchange of ideas and experiences
82

question. There are at least two reasons why the Forum on best practices, which may have acted as an important
may be in a good position to make a contribution to the catalyst in identifying these key factors. Some of the
debate about the key building blocks for successful topics that have been at the centre of the agenda in many
development: first, by bringing together key of the summits and other interactions organized by the

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?
World Economic Forum in past years have included the different countries, depending on the stage of
role of corruption in delaying the development process, development. Innovation will be key in Finland, but the
the central importance of women’s education for adoption of foreign technologies and technology
boosting per capita incomes, the interplay between transfer may be relatively more important in Ecuador, a
political and civil rights, the willingness of the public to distinction that led them to separate countries into two
freely engage in economic activity, the role of a free sets, so called “core innovators” and “non-core
press, and safety net arrangements put in place by innovators”. A third concept was the idea that those
governments to enhance opportunities for participation factors that portray a given nation’s competitiveness
in the economic life of the nation. will vary in importance across these two sets of
countries. Thus, macroeconomic stability is likely to be
Second, the Forum has developed a vehicle, the a relatively more important factor in Nigeria than in
Executive Opinion Survey (EOS), which delivers, Sweden. The methodology underlying the construction
annually, a wealth of information about the of this index is described in Appendix 1, at the end of
impediments to growth in more than 100 countries, this chapter; the GCI rankings for the 25 countries in
which account, in aggregate, for the overwhelming Africa are shown in Appendix 2.
share of global GNP.4 This survey of business
executives in all these countries aims to assess the In the sections that follow, we will examine some of the
importance of a broad range of factors that contribute key components of this index and comment on both the
to a healthy business environment, supportive of performance of African countries and the factors that
economic activity. A fair and simple tax and regulatory may lie behind the relatively low rankings achieved by
environment, labour market legislation that provides the majority of them. Where necessary, we may refer to
incentive for employment and job search, a stable other information delivered by the EOS, particularly if
macroeconomic environment, the absence of corruption it provides additional insight into the nature of
and other irregular practices in the economy at large, problems in Africa. Given the importance of an
the quality of the country’s infrastructure and enabling environment for private sector activity, we
education—these are only a few of the areas covered by will dwell on some of the institutional requirements for
the EOS. Over the years the EOS has continued to an improved growth performance in Africa, with
deliver a treasure trove of country-specific information particular reference to foreign investment, a central
about the varying strengths, weaknesses and challenges driver of growth in the developing world.
faced by the business community, as it proceeds to
create jobs and contribute to productive activity.
Indeed, the Country Profiles prepared by the Forum, on
the basis of the information delivered by the EOS,
contain valuable information for policymakers, aid
The macroeconomic environment
agencies and others, engaged in processes aimed at However important factors such as the role of
improving not only economic performance but the governance, education, investment in infrastructure and
quality of people’s lives. public health are for enhancing national
competitiveness, the fact remains that many of the
The “growth competitiveness index” (GCI), initially
countries in Africa have not yet reached the stage
designed by McArthur and Sachs, brings together a
where short-term macroeconomic stabilisation concerns
number of complementary concepts.5 In formulating the
can take a secondary role to longer-term institutional
range of factors, the index identifies three “pillars” in
reform. A stable financial environment is vital for the
the evolution of growth in a country: the quality of the
successful implementation of broad-based reforms, and
macroeconomic environment, the state of the country’s
for the establishment of a macroeconomic environment
public institutions and, given the growing importance
that will support private sector activity. The adoption
of technology, the level of its technological readiness.
of growth and efficiency as primary objectives of
The index uses a combination of hard data, such as
economic policy necessitates that domestic policies be
inflation rates, budget deficits, the level of internet
directed toward achieving an appropriate growth of
access in schools, and survey data, taking the
aggregate demand, that keeps inflation under control
“temperature” in areas such as judicial independence,
while avoiding high unemployment.
the prevalence of institutionalized corruption, and the
extent of inefficient government intervention in the Countries should thus pursue prudent fiscal policies
economy. These various pieces are brought together that allow adequate levels of private sector credit, while
under several “sub-indexes”, each capturing a different limiting the growth of total credit to levels consistent
aspect of the growth process, such as the state of with non-inflationary growth in the money supply and
contracts and law, and the stability of the a viable external position. These policies, by
83

macroeconomic environment. These are aggregated to contributing to low inflation and a more stable
give an overall competitiveness “score”. McArthur and domestic environment also contribute to business
Sachs also introduced the notion that while technology confidence and investment, both domestic and foreign.
matters a great deal, it matters in different ways for While the above observations have gained broad

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?
acceptance in the developing world and have led to Furthermore, as the data in Figure 3 show, budget
significant improvements in the policy environment, deficits in Africa remain among the highest in the
some African countries are still lagging behind in world; in fact, nine of the 12 largest deficits among the
establishing a solid foundation of macro-stability, 102 countries covered in the EOS are in Africa.
characterised by low inflation and cautious public (Argentina and Turkey also belong to this set, two
finances. countries in the midst of severe financial crises in 2002,
the reference period for purposes of this analysis.7)
Although inflation rates have been coming down
worldwide—indeed, international inflation in 2003 There are several issues worth highlighting here. First,
was at its lowest level in the post WW II period— several countries in Africa remain unduly dependent
countries like Nigeria, Malawi, Ghana, Mozambique, on aid flows to finance persistently high public sector
Zambia, Angola and Zimbabwe, continue to have deficits. This, at first, has tended to be seen as more
double-digit rates of inflation.6 Not surprisingly, these benign than seeking to finance budgetary shortfalls
same countries have exhibited other macroeconomic through some other more costly means (e.g., bank
imbalances as well, including major inefficiency and loans or the issuance of government paper or
rigidity in the financial sector. While not explicitly payments arrears); however, in practiceit has resulted
included in the definition of the GCI, African in unusually high levels of aid dependence, and may
countries, as a group, score particularly low on those have created perverse incentives against sound fiscal
survey questions which assess the level of adjustment. An interesting indication of this was
sophistication of financial markets, the soundness of recently seen in the context of official debt relief
the banking sector, and the ease with which the initiatives sponsored by the multilateral organizations
private sector has access to bank lending, all of which which have not had the effects—for fiscal
reflect, to some extent, an unsettled financial sustainability—that were initially envisaged.
environment.
Second, there is, in the African context, the issue of the
efficiency of government expenditure. Clearly fiscal
policy should give priority to public sector
expenditures that contribute directly to growth, such
Figure 3: Government fiscal surplus/deficit as outlays for human capital and spending on
(in % of GDP) essential infrastructure, as opposed, for instance, to
the maintenance of large military establishments (in
countries not facing immediate security threats).
Country (Rank)
Regrettably, there is still considerable room for
Cameroon (4)
improvement here: according to the World Bank,
Algeria (6)
military expenditures in Sub-Saharan Africa in 2001
South Africa (32)
amounted to 2% of GDP, higher than in Latin America
Morocco (35)
and in the EU, and only marginally lower than total
Kenya (51)
spending in public health. It is disturbing to note that
Nigeria (53)
there are 13 countries in Africa for which military
Angola (62)
expenditures exceed 3% of GDP, the level in the
Egypt (73)
United States.8
Tanzania (74)
Ghana (75) More generally, in an attempt to capture the concept
Madagascar (83) of “government waste”, the World Economic Forum
Zimbabwe (95) has constructed an index using the responses to three
Uganda (98) questions in the EOS which assess the extent of
Ethiopia (101) distortive government intervention in the economy,
Mozambique (102) the diversion of public funds for non-public ends, and
a measure of trust in the financial integrity of national
Korea (2) political figures.9 This measure of government waste is
Colombia (56) included in the GCI, as a component of the
Turkey (99) macroeconomic environment index. African countries
-20 -15 -10 -5 0 5 10
such as Kenya, Madagascar, Mozambique, Nigeria,
Percent of GDP Angola and Zimbabwe are among the world’s worst
performers, as can be gleaned from Figure 4. South
Sources: OECD African Economic Outlook 2002/03; IMF Country Reports Africa, the best performer in Africa, is ranked 37.
84

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?
Figure 4: Government waste competitiveness. Until relatively recently, however, the
investment policies of many African countries have not
been sufficiently geared to promoting direct investment
Country (Rank)
from abroad. Domestic investment has also been
South Africa (37)
discouraged through a variety of policies, including the
Tanzania (43)
administrative allocation of foreign exchange, high
Morocco (44)
marginal tax rates on company profits, inadequate
Egypt (45)
expenditures for maintenance and investment in socially
Ghana (46)
productive infrastructure, and the preservation of
Uganda (60)
inefficient public enterprises.
Senegal (62)
Ethiopia (66) The above economic policies have led to severe
Algeria (67) structural rigidities, excessive involvement of the state in
Cameroon (74) the economy, a plethora of unproductive investments
Kenya (77) and, as a consequence, widespread misallocation of
Madagascar (81) scarce resources. In turn, these problems have been
Mozambique (82) reflected in the balance of payments problems that have
Zambia (84) caused many African countries to face serious external
Nigeria (91) financing problems in recent years. The Forums EOS
Angola (92) clearly reveals the need for policy makers in Africa to
Zimbabwe (100) implement reforms aimed at encouraging greater
flexibility of the economy to respond to future economic
Korea (30) uncertainties, in particular, through trade policies aimed
Colombia (73) at the reduction or elimination of discrimination against
Turkey (75) tradables, and the development of private enterprises
1.0 2.0 3.0 4.0 5.0 6.0 7.0
that are competitive by international standards.
Score
Greater integration with the world economy also serves
Source: Executive Opinion Survey 2003 as an important channel for absorbing technological
advances from abroad, as is evident from the experience
of many outward-oriented Asian economies that have
Third, fiscal policies—indeed, all policies—should be developed strong export sectors based on new
seen as stable and consistent, rather than subject to manufacturing industries.
frequent and unpredictable swings, to offer the
assurance of macroeconomic stability and a sound
Figure 5: Hidden trade barriers
investment climate. The EOS does not have a question
that directly addresses the issue of “policy instability.”
It does, however, have many questions that address Country (Rank)
aspects of the quality of public institutions, from which South Africa (32)

we may see the extent to which the lack of stability and Angola (70)

consistency in the macroeconomic policy framework is a Ghana (72)


problem in Africa. We will return to this issue later. Morocco (74)
Egypt (76)
Although not a “macroeconomic stability” issue per se,
Algeria (78)
the question of a country’s integration with the global
Tanzania (79)
economy has acquired growing importance over the past
Kenya (80)
decade, particularly in the context of discussion about
Ethiopia (84)
the interactions between the process of globalisation and
Uganda (86)
economic development. While not explicitly
Mozambique (92)
incorporated in the GCI, the EOS provides a number of
Madagascar (94)
insights, which may be useful to review briefly here. In
Zimbabwe (97)
an increasingly interdependent world economy, a more
Cameroon (99)
outward-looking orientation has become an essential
Nigeria (100)
element of successful economic reform. In addition to
the well-known gains from international trade, relative
Korea (43)
openness and strong links with the world economy
Turkey (58)
85

impose on domestic producers the valuable discipline of


Colombia (59)
international competition, and provide opportunities for
new exports. An open orientation can also attract much 1.0 2.0 3.0 4.0 5.0 6.0 7.0
Score
needed capital and expertise, thus enhancing the
prospects for growth through increased efficiency and Source: Executive Opinion Survey 2003

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?
As seen in Figure 5, the EOS allows a ranking of governs, and on what principles, they cannot be
countries according to the extent to which hidden import expected to fully support the government's
barriers—other than published tariffs and, where they development strategies and policies. Without such
exist, quotas—are an obstacle to business activity. This is public support, even well-designed plans are unlikely
a very serious problem in Africa, with 18 of the 25 to succeed.
countries covered in the GCI occupying a rank of 70 or
The importance of the above cannot be over-
worse, among the total of 102. A similar result is
emphasised. A real life example will be useful. Sen
obtained in the case of a question which gauges the total
states that “no famine has ever taken place in the
cost of importing foreign equipment, where 19 of the 25
history of the world in a functioning democracy, be it
countries sampled end up with a ranking of 70 or
economically rich or relatively poor.”11 But, Sen tells
worse.10
us, they have occurred in ancient kingdoms and in
contemporary authoritarian societies, in modern
technocratic dictatorships, and in “colonial economies
run by imperialists.” Democracy and the greater
Public institutions political freedoms that it brings—including public
discussion in an environment of freedom of
While acknowledging the importance of
expression—help foster a climate in which early
macroeconomic stability for the creation of an
preventive actions can be taken to avoid the
environment conducive to sustainable growth,
emergence of those circumstances which make famine
successful economic development strategies have
possible. More generally, Sen convincingly argues
much to do with the role of government in general
that those countries in which governments operate in
and, more to the point, the exercise of political
an environment of political legitimacy tend to be
authority in a society for the management of its
much better at allowing the formation of vital
resources. Governance is the term that is increasingly
understandings and beliefs among the population
being used in the development community to
that directly impinge upon aspects of the
underscore the fundamental role of the quality of
development process; for instance, the idea that
government in this process. It matters a great deal
education, employment and ownership rights of
whether governments are accountable to their
women exert powerful influences on their ability to
respective populations. Investors seem to care
control their environment and improve their
enormously whether judges and courts are reasonably
condition.
independent, or whether they are up for sale. Do
businesses have to pay bribes to clear goods through Closely linked to the issue of accountability is the
customs or to settle their taxes? Do governments show importance of the rule of law, the concept that the
favouritism in their decisions, or are they fairly even- rules which govern a society—and hence those that
handed in their relations with the private sector? Are regulate economic activity—are applicable to all. There
public resources being allocated for public health and is increasing recognition that without a reasonably
education—particularly of women—or rather to fair, efficient, and predictable judicial system and legal
wasteful projects and what the IMF calls, framework, accountability will have no legal
euphemistically, “unproductive expenditures”? underpinnings and the goals of good governance will
be undermined. As regards the economy in particular,
The concepts of competitiveness developed by the
it has long been recognised that the absence of an
Forum explicitly incorporate concerns for public sector
adequate legal framework and judicial system
accountability, efficiency, transparency and, more
increases business costs, discourages investment, and
generally, the ways in which the government interacts
introduces an element of uncertainty into economic
with economic agents in the domestic economy,
activity that is detrimental to development. In his
particularly the business sector. The justification for
discussion of some of the key building blocks of
these concerns varies. Sometimes they reflect
successful development, Sen refers to the need for
reasonably well-established findings in empirical
openness and insists that societies operate better when
research; at other times, they build on concepts
individual economic agents can deal with one another
developed by international organizations engaged in
under “guarantees of disclosure and honesty.” These,
economic development, and whose insights into the
in turn, are essential for curtailing corrupt practices
importance of these factors are based less on
and various forms of abuse of the rules and
theoretical constructs and more often reflect years of
institutions underlying a market economy.
valuable empirical observation. For instance,
regarding accountability, the idea is that the periodic From the above discussion, it is clear that these
legitimisation of governments through some form of various elements of good governance—accountability,
86

popular choice is important because it makes them transparency, the primacy of the rule of law—are not
more responsive to the needs of society, a notion mutually independent. Interactions are inevitable and
closely linked to that of participatory development. conflicts may arise in the short run. For example,
Unless people feel that they have a say in who participatory processes implemented in an

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?
environment of political pluralism and openness may Figure 6: Irregular payments
add an element of unpredictability to the decision- in tax collection
making process. It may take much longer to forge the
necessary consensus around a particular strategy. But
this does not detract from their intrinsic value, and the Country (Rank)

overriding importance of pursuing them as essential South Africa (41)

ingredients of good governance. The alternative, a top- Zimbabwe (56)

down approach that sees developing countries as Egypt (66)

passive recipients of aid programmes formulated in Ghana (69)

the capitals of the donor countries, has obviously Zambia (72)

failed. These observations have far-reaching Mozambique (78)

implications for Africa, where fuller cooperation is Angola (79)

vital among the key actors: government, donor Tanzania (80)

agencies, and the private sector, in order to foster the Senegal (82)

development of these key building blocks, and Morocco (85)

contribute meaningfully to unleashing processes Ethiopia (86)

aimed at improving prosperity and enhancing Algeria (87)

people’s capacity to manage change. Uganda (93)


Kenya (93)
The World Economic Forum’s central focus on public Cameroon (95)
institutions and governance derives from its view that Madagascar (96)
an approach to development that incorporates the Nigeria (98)
elements discussed above is far more likely to bear
fruit than one which concerns itself principally with Colombia (45)
macroeconomic policy. In an environment of political Korea (47)
accountability, people have much more powerful Turkey (58)
incentives to become active participants in the
1.0 2.0 3.0 4.0 5.0 6.0 7.0
economy. When they have a sense of entitlement to Score
economic transactions, various groups in society can
become engines of economic growth. Private incomes Source: Executive Opinion Survey 2003

rise, generating tax revenue that enables the state to


finance critical spending, especially in vital areas with
a high rate of social return. Higher expenditures on Figure 7: Diversion of public funds
education and health have been shown to be strongly
correlated with reductions in infant mortality and
Country (Rank)
birth rates. To the extent that improved education
Egypt (39)
reaches women, it brings about changes in women’s
South Africa (47)
fertility behaviour. Quite aside from the obvious
Tanzania (49)
benefits for women themselves, this has implications
Ghana (50)
for the environment, the pressures on which are often
Ethiopia (52)
linked to rapid population growth.
Algeria (53)
The EOS provides a wealth of information about the Morocco (54)
role played by many of the above factors in creating a Senegal (75)
sound, growth-producing business environment. Angola (83)
Figures 6-11 below present the results to six particular Zambia (81)
questions that look at different aspects of the quality Mozambique (84)
of public institutions in Africa. One set of questions Madagascar (87)
examines conditions of transparency and honesty in Uganda (90)
the management of public resources: specifically, the Kenya (93)
extent to which businesses have to make irregular Zimbabwe (94)
payments to settle their taxes, diversion of public Cameroon (95)
funds, and the extent of distortions introduced in the Nigeria (97)
economy as a result of government intervention.
Korea (32)
Turkey (70)
87

Colombia (80)

1.0 2.0 3.0 4.0 5.0 6.0 7.0


Score

Source: Executive Opinion Survey 2003

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?
Figure 8: Extent of distortive Figure 10: Efficiency of legal
government intervention framework

Country (Rank) Country (Rank)


Ghana (20) South Africa (20)
South Africa (24) Tanzania (43)
Morocco (36) Ghana (45)
Tanzania (51) Morocco (54)
Uganda (52) Zambia (56)
Mozambique (53) Uganda (57)
Cameroon (56) Senegal (61)
Egypt (61) Egypt (62)
Senegal (66) Algeria (68)
Kenya (67) Nigeria (72)
Zambia (69) Cameroon (73)
Madagascar (77) Madagascar (77)
Nigeria (90) Kenya (82)
Algeria (93) Mozambique (84)
Ethiopia (99) Ethiopia (87)
Angola (100) Zimbabwe (88)
Zimbabwe (101) Angola (96)

Colombia (38) Korea (41)


Korea (40) Colombia (59)
Turkey (94) Turkey (74)

1.0 2.0 3.0 4.0 5.0 6.0 7.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0
Score Score

Source: Executive Opinion Survey 2003 Source: Executive Opinion Survey 2003

Figure 9: Judicial independence Figure 11: Freedom of the press

Country (Rank) Country (Rank)


South Africa (15) South Africa (28)
Tanzania (38) Ghana (43)
Ghana (50) Senegal (46)
Zambia (56) Algeria (56)
Uganda (58) Nigeria (64)
Egypt (59) Madagascar (68)
Nigeria (61) Zambia (77)
Senegal (69) Kenya (79)
Morocco (71) Tanzania (80)
Cameroon (72) Mozambique (81)
Algeria (76) Egypt (90)
Kenya (84) Morocco (91)
Mozambique (85) Cameroon (92)
Madagascar (86) Uganda (93)
Ethiopia (87) Ethiopia (94)
Angola (91) Angola (100)
Zimbabwe (97) Zimbabwe (102)

Korea (49) Colombia (49)


Turkey (57) Korea (58)
88

Colombia (70) Turkey (70)

1.0 2.0 3.0 4.0 5.0 6.0 7.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0
Score Score

Source: Executive Opinion Survey 2003 Source: Executive Opinion Survey 2003

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?
Two other questions deal more directly with the quality less right, and once the macro economy is more or less
of the judicial climate, in particular, whether businesses stable, additional improvements along these lines will
may count on a fair degree of judicial honesty and probably have little or no effect on economic growth.
independence when dealing with the courts. This contrasts with technological progress since there do
The second question deals more directly with the not seem to be good arguments that would suggest that
efficiency of the legal framework. there are diminishing returns to ideas.”14

Finally, a question assessing the extent to which the


Appendix 1 at the end of this chapter provides detailed
press is free to report on development in the country
information on the way the GCI incorporates various
without fear of retribution may be taken as a proxy for
public sector accountability. aspects of technology into a measurement of
competitiveness. In particular, it identifies the relative
The results for Africa (above Figures 6-11) show that weights attached to innovation, technology transfer and
there is room for improvement in each of these areas. the use of information and communications technology,
African countries typically score low and often constitute
as well as the relative breakdown between survey and
the majority of those ranking below 70-80. These results
hard data used in the construction of the overall
are largely consistent with other findings in the work of
organizations such as the World Bank, which have been technology index. The figures below present a brief
documenting over a long period the incidence of overview of the performance of a few of the indicators
governance factors in the development process. See, for used and the associated scores and rankings for 17
instance, the excellent work done by Daniel Kaufmann of African countries. The numbers speak for themselves.
the World Bank Institute. In his latest piece he makes Whether one looks at cellular mobile telephone
two observations of particular relevance to the above subscribers per 100 inhabitants, internet penetration rates
discussion. First, that there is evidence of an emerging in the schools, firm level technology absorption, or
“governance gap,” meaning that “improvements in tertiary enrolment rates—a good proxy for a country’s
governance are not keeping pace with the progress future capacity for innovation—the African countries
attained in some areas, including economic policy”. He
overwhelmingly occupy the lowest rankings among the
goes on to say that shortcomings in governance have
102 countries covered by the GCI (Figures 12-15,
become a “central binding constraint to growth and
development today in many settings”. In other words, respectively).
improvements in the overall macro economic
environment (lower inflation, a greater recognition of the
importance of budget constraints, a greater willingness
to deregulate, privatize, open up the economy) have not Figure 12: Cellular telephone subscribers
been matched by equivalent improvements in the basic per 100 inhabitants
elements of good governance. Second, he presents
empirical evidence showing that “a country that
significantly improves key governance dimensions, such Country (Rank)
as the rule of law, corruption, the regulatory regime, and
South Africa (46)
voice and democratic accountability can expect, in the
Morocco (53)
long run, a dramatic increase in its per capita income
Egypt (74)
and other social dimensions.” Indeed, “an improvement
in governance by only one standard deviation can result, Senegal (75)

in the long run, in up to a fourfold increase in per capita Kenya (82)


income.”12 Cameroon (83)
Zimbabwe (84)
Ghana (86)
Mozambique (88)
Uganda (89)
The role of technological change Nigeria (90)
Zambia (91)
A full discussion of the role of technology in explaining
Algeria (92)
economic growth is outside the scope of this paper. We
Tanzania (93)
find the discussion by William Easterly to be extremely
Madagascar (95)
insightful.13 Blanke, Paua and Sala-i-Martin’s
Angola (96)
characterization is likewise useful: “Technological
Ethiopia (102)
progress is, therefore, at the heart of economic growth.
And the reason for thinking that, in the long run, no
Korea (25)
growth is possible without technological improvements
Turkey (42)
is that the other potential determinants of growth must
89

Colombia (69)
run into diminishing returns. For example, institutions
and the macroeconomic environment can have 0 10 20 30 40 50 60 70

important consequences for growth in countries with


terrible environments. But once institutions are more or Source: International Telecommunication Union, July 2003

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?
Figure 13: Internet access in schools Figure 15: Gross tertiary enrollment

Country (Rank) Country (Rank)


Egypt (42) Egypt (37)
South Africa (50) South Africa (65)
Morocco (73) Algeria (67)
Uganda (75) Morocco (73)
Zimbabwe (81) Cameroon (83)
Senegal (82) Nigeria (85)
Tanzania (84) Zimbabwe (86)
Ghana (85) Senegal (87)
Kenya (86) Ghana (89)
Zambia (88) Kenya (90)
Nigeria (90) Uganda (91)
Algeria (94) Zambia (92)
Cameroon (95) Madagascar (93)
Mozambique (97) Ethiopia (97)
Madagascar (98) Tanzania (100)
Ethiopia (99) Angola (101)
Angola (101) Mozambique (102)

Korea (4) Korea (2)


Turkey (55) Colombia (55)
Colombia (65) Turkey (66)

1.0 2.0 3.0 4.0 5.0 6.0 7.0 0 10 20 30 40 50 60 70 80


Score Percent

Source: Executive Opinion Survey 2003 Source: UNESCO Institute for Statistics; World Bank World Development
Indicators 2003

Figure 14: Firm-level technology absorption

To be sure, using Korea as a benchmark for comparison


Country (Rank)
would appear to be unfair. By 2003 there were more
Senegal (12)
broadband users in Korea than in all of Latin America,
South Africa (39)
and the rates of internet use, personal computer use and
Morocco (43)
internet penetration in schools had actually overtaken
Nigeria (49)
those of Canada! However, as noted earlier, the
Tanzania (50)
comparison is useful given the broadly similar levels of
Madagascar (56)
per capita income between Korea and some of the
Ghana (57)
African countries in the late 1960s.
Uganda (60)
Mozambique (64) The above results highlight the extent to which
Egypt (71) macroeconomic stability and improvements in the
Algeria (76) institutional environment are likely to remain the focus
Kenya (77) of policymakers in Africa in coming years. This, of
Zimbabwe (80) course, is not to say that attention should not be given to
Cameroon (84) encouraging the development of the technology
Angola (85) infrastructure, so essential in today’s globalized
Zambia (88) economy. Indeed, policymakers in Africa should pay
Ethiopia (98) attention to these issues, for instance, in the context of
discussions about spending priorities in the budget, and
Korea (10) in the design of aid programmes as part of the
Turkey (54)
negotiation of packages of external assistance with
90

Colombia (59)
members of the donor community. Few things matter
more for the future of the African economies than
1.0 2.0 3.0 4.0 5.0 6.0 7.0
Score empowering the populations—particularly women and
the young—to be active, literate, well-informed members
Source: Executive Opinion Survey 2003
of society, able to benefit from the use of new

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?
technologies, to interact with the rest of the world, and Because FDI is often concentrated in import-substituting
to gradually help push the country to the next stage of or export industries, it may also affect the host country's
development, as has happened in countries like Korea, trade performance. Foreign investors are perceived to
Chile, Singapore and Estonia. have a number of advantages over their domestic
counterparts, which can contribute to better export
performance. Technical know-how, easier recourse to
Further insights from the EOS: financial resources, and long-term experience in gaining
building a favourable environment access to markets abroad, among others, help to explain
for the private sector the generally higher propensity of foreign affiliates to
produce for export markets than their competitors in the
During the period 1989 to 1994, Africa accounted, on local economy.
average, for about 2% of total foreign direct investment
(FDI) inflows. By 2000, this share had fallen to 0.7% (Table
1). Moreover, roughly half of this relatively small share
was accounted for by two countries: Nigeria and Egypt.
Market size and cost factors
Table 1: Regional recipients The size of the domestic market and the foreign
investor's perception of its growth potential are two of
of FDI inflows
the key determinants of FDI. A large and rapidly
expanding market will attract investors because it
Region % in 1989-1994 % in 2000
provides opportunities for on-site production on a level
Africa 2.0 0.7
involving economies of scale. Furthermore, because of
Asia 23.3 13.1
their technological, organisational, and marketing
Europe 40.1 50.8
expertise, foreign investors typically find themselves
Latin America 8.7 6.8
well positioned to take full advantage of the
North America 24.1 27.1
opportunities implied by a growing market, both as
Other 1.8 1.5
regards the host country and its proximity to other
Source: World Development Report.
promising markets. While there is strong evidence that
Given the importance of FDI for growth (see below) and both factors have played an important role in the recent
the central role played by the quality of the business sharp expansion of FDI to countries such as China or the
environment in the Forum’s assessment of transition economies in Central and Eastern Europe, the
competitiveness, it will be useful to examine briefly the evidence for Africa is much less positive. Individual
factors that help explain the relatively lacklustre African markets are relatively small and, unlike
performance of FDI in Africa and the impact that its transition economies in Europe, do not offer the same
significant increase might mean for the countries in the incentives to potential investors associated with their
region. Borensztein et al. (1998)15 have tested the effect of joining a much larger market already operating as an
FDI on economic growth, using data on capital flows integrated economic space. Moreover, they also do not
from industrial countries to a large set of developing offer the prospect of future political and social stability
countries. Their results suggest that FDI is not only the normally associated with investments in an expanding
most important channel for technology transfer, but also common market, such as the EU, which create the
that it contributes relatively more to growth than conditions for longer-term planning, so essential for
domestic investment. investment decisions.
This view is consistent with the notion, central to recent In addition to size, a number of cost factors have an
growth theory, that a key determinant of growth in important bearing on the attractiveness of a given country
developing countries is the catching-up process implicit, as a foreign investment location. It is well known that
among other things, in the adoption of new technologies, labour costs, in particular, account for a large share of the
and the acquisition of more modern management total costs of the typical foreign manufacturing affiliate.
techniques, involving not only higher levels of capital The cost of material inputs and the cost of capital are also
formation in the host country, but higher levels of thought to be of importance in the foreign investment
efficiency in the use of resources. FDI carried out by decision process. Nevertheless, little work has been done
multinationals is seen as the primary channel for access to estimate the relative importance of these cost factors
to these new technologies, although in African countries, among the many others that determine the location of
the level of the human capital stock may act as a overseas production, particularly in developing
constraint on the absorptive capacity of the recipient economies for which data is scarce. While, in general, the
91

country. The importance of FDI for Africa cannot be cost of capital is central to the investment decision
overestimated, particularly given the growing body of process, it is often argued that differences in the cost of
evidence that suggests that the direction of causation is capital faced by multinationals across countries will be
predominantly from FDI to growth—see, for instance the sharply reduced by the ability of the parent company to
work done at the IMF by Havrylyshyn and others.16 obtain funds in more competitive markets. As such,

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?
differences in the local cost of capital in developing banking, public utilities, defence industries—deemed to
countries may not play a central role in explaining FDI have "strategic" importance, or on grounds of national
inflows. The price of raw and other materials, however, is security. In those sectors where FDI is permitted, there
likely to be more important. Relatively low labour costs may be restrictions on the extent of foreign ownership.
and a skilled labour force are frequently cited by foreign Investors may be allowed to hold only minority equity
investors to transition economies as one of the factors that participation in enterprises, or required to release
have made some of these countries attractive investment ownership gradually through the sale of shares to
locations. While Africa can certainly offer potential residents.
foreign investors low labour costs, it has major drawbacks
in terms of skills and, more generally, the quality of the The regulatory framework in many African countries has
educational system, as may be gleaned from the data moved in the direction of slowly eliminating restrictions,
presented in Figure 16. Literacy rates and school as well as lifting previous restrictions on remittances of
enrolment rates in many African countries remain among investment dividends and majority participation. African
the lowest in the world. countries have also made some progress in decentralising
and streamlining authorisation procedures. Since
investment decisions involve issues of long-range
The regulatory framework planning, investors prefer a set of well identified, simple,
One of the most important factors affecting FDI—over stable rules to a situation which they perceive to be
which host countries have the greatest control—concerns opaque or subject to unpredictable changes. The
the set of rules and regulations governing investment importance of this factor seems to be increasingly
activity. Because foreign participation in domestic recognized in Africa, as reflected in the relative rankings
economic activity can sometimes give rise to special of African countries in a number of key questions in the
concerns—eg. the extent of foreign control of local EOS dealing with the regulatory environment for
industry, or the perception that the foreign investor has economic activity, including for FDI. Figure 17 shows that
advantages over his local counterparts on account of restrictions on foreign ownership are not perceived to be a
superior technology, easier access to capital markets and particularly serious problem in many African countries.
managerial resources—most developing countries have Zambia, Nigeria, South Africa, Morocco, Uganda, Ghana
combined a degree of regulation of FDI with incentives have ranks in the high 20s and low 30s.
designed to attract it. A number of countries have Similar results obtain for survey data on FDI and
imposed restrictions on FDI in certain sectors—eg. technology transfer (Figure 18).

Figure 16: Quality of the educational system Figure 17: Foreign ownership restrictions

Country (Rank) Country (Rank)


Ghana (57) Nigeria (21)
Zimbabwe (59) Zambia (28)
Kenya (60) South Africa (30)
Uganda (63) Morocco (31)
Egypt (67) Uganda (32)
South Africa (68) Ghana (34)
Morocco (71) Senegal (44)
Cameroon (73) Kenya (48)
Tanzania (76) Cameroon (49)
Nigeria (79) Tanzania (52)
Zambia (82) Angola (60)
Senegal (84) Mozambique (62)
Ethiopia (85) Egypt (70)
Algeria (86) Madagascar (74)
Madagascar (89) Algeria (96)
Mozambique (91) Zimbabwe (101)
Angola (102) Ethiopia (102)

Korea (47) Turkey 66)


Colombia (61) Korea (68)
92

Turkey (75) Colombia (79)

1.0 2.0 3.0 4.0 5.0 6.0 7.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0
Score Score

Source: Executive Opinion Survey 2003 Source: Executive Opinion Survey 2003

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?
Figure 18: FDI and technology transfer Figure 19: Extent of bureaucratic red tape

Country (Rank) Country (Rank)


Nigeria (20) Senegal (47)
Kenya (21) South Africa (61)
Uganda (23) Morocco (66)
South Africa (26) Ghana (70)
Tanzania (29) Mozambique (74)
Mozambique (30) Kenya (75)
Morocco (41) Zimbabwe (80)
Ghana (42) Madagascar (83)
Egypt (57) Tanzania (89)
Zambia (71) Cameroon (93)
Zimbabwe (73) Zambia (94)
Angola (74) Egypt (95)
Cameroon (90) Ethiopia (96)
Senegal (92) Nigeria (98)
Madagascar (94) Uganda (99)
Ethiopia (98) Angola (100)
Algeria (102) Algeria (101)

Colombia (55) Colombia (35)


Korea (58) Korea (37)
Turkey (80) Turkey (69)

1.0 2.0 3.0 4.0 5.0 6.0 7.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0
Score Score

Source: Executive Opinion Survey 2003 Source: Executive Opinion Survey 2003

Data on the extent of bureaucratic red tape show less Figure 20: Business costs of crime and
encouraging results (Figure 19), suggesting that the
violence
reforms carried out in Africa in recent years to facilitate
the growth of investment are incomplete, and that the
quality of the regulatory framework remains an Country (Rank)
important constraint on its expansion. Morocco (33)
Egypt (44)
Ethiopia (45)
Algeria (47)
Political stability and other factors Ghana (57)
Zambia (66)
Setting aside issues that arise in connection with empirical
Tanzania (68)
testing, there is broad consensus that political stability has
Madagascar (72)
an important bearing on investment decisions. FDI is partly
Zimbabwe (74)
generated by the expectation of higher profits, and these in
Senegal (76)
turn will depend on a number of factors, including the
Uganda (77)
country's overall investment climate. Unpredictable swings
Nigeria (81)
in policies as a result of political events will introduce
Angola (88)
additional risk factors in the investment decision process.
Cameroon (90)
Regrettably, Africa has suffered from many armed conflicts
Mozambique (94)
over recent decades and, without doubt, this has greatly
South Africa (96)
contributed to reductions in FDI. The level of education of
Kenya (97)
the population, the flexibility of the labour market, the
degree of urbanization and the quality of infrastructure—
Turkey (18)
an important consideration in the case of African
Korea (30)
economies where the development of the transport and
93

Colombia (80)
telecommunications network has lagged behind the rest of
the world—the vicinity to other markets, the cost to 1.0 2.0 3.0 4.0 5.0 6.0 7.0
Score
business of crime and violence, are all further factors
affecting the investment climate (Figure 20). Source: Executive Opinion Survey 2003

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?
Figure 21: Business impact of malaria Figure 22: Business impact of HIV/AIDS

Country (Rank) Country (Rank)


Algeria (59) Egypt (52)
Egypt (70) Algeria (62)
Morocco (75) Morocco (72)
South Africa (83) Madagascar (78)
Nigeria (86) Senegal (79)
Zimbabwe (87) Nigeria (82)
Madagascar (88) Angola (85)
Kenya (89) Ghana (86)
Ghana (90) Mozambique (89)
Ethiopia (92) Uganda (90)
Senegal (93) Kenya (91)
Uganda (94) Ethiopia (94)
Mozambique (95) Tanzania (96)
Zambia (96) Cameroon (97)
Tanzania (97) Zambia (99)
Cameroon (99) South Africa (100)
Angola (100) Zimbabwe (102)

Korea (37) Turkey (32)


Turkey (41) Korea (34)
Colombia (63) Colombia (55)

1.0 2.0 3.0 4.0 5.0 6.0 7.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0
Score Score

Source: Executive Opinion Survey 2003 Source: Executive Opinion Survey 2003

In Africa, moreover, the impact of malaria and expenditure reduction necessary to service investment
HIV/AIDS are revealed by the EOS to be extremely financed by equity will, as a rule, be smaller than that
important additional factors, adding significant financed by debt. Furthermore, direct investment
uncertainty to the business environment, and possibly payments will, in general, have a maturity structure
discouraging all forms of investment (Figures 21 and 22). that bears a closer relation to the life of the investment
project at hand than commercial bank credits. These
would appear to be particularly important
considerations for African countries, given the high
Debt versus private investment levels of external indebtedness and the persistence of
current account imbalances—close to a 5% of GDP
The composition of capital inflows into countries deficit in Sub-Saharan Africa according to the latest
undergoing a process of external adjustment has World Economic Outlook, with considerable variation
become an increasingly important issue. The recourse across countries. According to the IMF, debt service
in the 1980s and 1990s by a number of countries to payments in Africa in 2003 accounted for over 150% of
more bank credit, at the expense of foreign private exports of goods and services.
investment, may have made them more susceptible to
external disturbances. The view has emerged that
foreign investment payments move more closely with a
country's ability to service them than do interest
Conclusion
payments on debt, which persist even if the original
loans financed unprofitable activities—a frequent The Growth Competitiveness Index, along with the
occurrence in a number of crisis economies in recent Executive Opinion Survey that feeds it, are useful
years. A fall in the terms of trade or a sudden reduction tools for the analysis of development in Africa, with
in the volume of exports leaves interest payments due particular reference to those factors that play a central
on the stock of external debt unchanged. The foreign role in explaining the growth process: the quality of
exchange needed will then have to be generated
94

the macroeconomic environment, the state of a


through expenditure reductions and changes in relative country’s public institutions, and the level of
prices. However, such external disturbances are likely technological readiness and sophistication. The index
to reduce profits due on equity investment, as the and the survey deliver numerous insights about the
country undergoes a period of adjustment. Thus, the relative importance of the variables that determine the

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?
quality of the business environment in a given country 14
Blanke, J. et al. 2004. p.5.
15
Borensztein, E. et al, 1998.
and which, consequently, have a bearing on a 16
See Havrylyshyn, O. et al. 1999.
country’s ability to sustain high growth rates over the
long term.
African countries do not, on the whole, score well on References
the GCI. Their rankings are low across virtually all the Blanke, J., F. Paua, and X. Sala-i-Martin. 2004. “The Growth
Competitiveness Index: Analyzing Key Underpinnings of Sustained
various sub-components of the index, underscoring Economic Growth.” The Global Competitiveness Report 2003-2004. World
the region’s serious economic and institutional Economic Forum. Oxford University Press. 3-28.
problems. However, and perhaps more importantly, Borensztein, E., J. DeGregorio, and J-W Lee. 1998. “How Does FDI Affect
these low rankings identify those areas in which Economic Growth?” Journal of International Economics 45. 115-135.
policy reforms are vitally needed, if the continent is to Easterly, W. 2001. “The Elusive Quest for Growth: Economists’
Adventures and Misadventures in the Tropics.” Cambridge, MA. MIT
fulfil its potential. Through its competitiveness work— Press.
including improvements to the methodologies used to Havrylyshyn, O. et al. “Growth Experience in Transition Economies,
gain a better understanding of the determinants of 1990-98.” Occasional Paper 184. International Monetary Fund. 1999.
competitiveness—the World Economic Forum will International Monetary Fund. World Economic Outlook.
continue to remain engaged in the region, and to lend Kaufmann, D. 2004. “Governance Redux: The Empirical Challenge.” The
its support to the search for creative solutions to the Global Competitiveness Report 2003-2004. World Economic Forum.
Oxford University Press. 137-164.
many challenges that must be addressed in coming
McArthur, J.W. and J.D. Sachs. 2002. “The Growth Competitiveness
years to improve the quality of life for the people of Index: Measuring Technological Advancement and the Stages of
Africa. Development.” The Global Competitiveness Report 2001-2002. World
Economic Forum. Oxford University Press.
Sen, A. 1999. Development as Freedom. Oxford University Press.
World Bank. World Development Report.
World Economic Forum. 2004. The Global Competitiveness Report 2003-
Notes 2004. Oxford University Press.
1
Easterly, W., 2001. p.xi.
2
The question of what constitutes “economic success” (and how to measure it)
is central to the debate about current approaches to development and
policy formulation. Some have argued, for instance, that any income
accounting system which treats the depletion of natural resources as
current income, and thus as a positive contribution to the growth of GNP,
is obviously one which provides perverse incentives. However, in this
paper we deliberately stay away from examining the question of whether
GNP is a good measure of human welfare.
3
Sen, A. 1999. p.5.
4
The 102 countries covered by the Executive Opinion Survey account for
more than 95% of world GNP.
5
McArthur, J.W. et al. 2002.
6
In what is surely an eloquent indicator of recent world-wide progress in
taming high inflation, a total of 83 countries among the 102 included in
the EOS had annual inflation rates of less than 10 percent in 2002. Only
four countries (Argentina, Turkey, Angola and Zimbabwe) had annual
rates of inflation in excess of 25 percent.
7
In this and the figures that follow throughout the chapter we present the
scores and ranks for 17 countries in Africa out of the 25 covered by the
Forum’s competitiveness work. The criterion for choosing these 17 is
population, these being the most populous. (Full data on the majority of
questions for all 102 countries is available in CD-ROM format through the
World Economic Forum.) The figures also present, for comparison
purposes, the rankings for Colombia, Korea and Turkey. All of these
countries had per capita incomes in the late 1960s that were not
significantly different from those in some of the more developed African
countries. But these countries, at various times during the last several
decades, have also shared many common features with Africa, including
civil strife, political instability, haphazard macroeconomic management
and other structural rigidities.
8
The countries are Algeria, Angola, Botswana, Burundi, Eritrea, Ethiopia,
Guinea-Bissau, Lesotho, Morocco, Rwanda, Sierra Leone, Sudan and
Zimbabwe. For further details see World Development Indicators 2003,
The World Bank, 2003, Washington DC.
9
For further details in the construction of this index see The Global
Competitiveness Report 2003-2004.
10
The question is stated as follows: “When your firm needs to import foreign
equipment, the combined effect of import tariffs, license fees, bank fees,
and the time required for administrative red tape raises the cost by
95

approximately (1 = less than 10%, 2 = 11-20%, 3 = 21-30%, ……9 = greater


than 80%).
11
See Sen, op.cit. p.16.
12
Kaufmann, D. 2004.
13
See, in particular, Sen, op.cit. Chapter 3, titled “Solow’s Surprise: Investment
Is Not the Key to Growth”, pp. 47-70.

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?
Appendix 1: Composition of the Growth Competitiveness Index
The Growth Competitiveness Index is composed of three Technology index components
component indexes: the technology index, the public
institutions index, and the macroeconomic environment The technology index is calculated for the core and
index. These indexes are calculated on the basis of both non-core innovators as follows:
“hard data” and “Survey data.”
The repsonses to the Executive Opinion Survey are what technology index for
core innovators = (1/2 innovation subindex)
we refer to as Survey data, with responses ranging from 1
+ (1/2 information and communication technology index
to 7 (see the chapter at the end of the Report for further
information on the Executive Opinion Survey); the hard
data were collected from various sources, described in
technology index for
the Technical Notes and Sources at the end of the Report.
non-core innovators = (1/8 innovation subindex)
All of the data used in the calculation of the Growth
+(3/8 technology transfer subindex)
Competitiveness Index can be found in the data tables
+(1/2 information and communication technology subindex)
section of the Report.
The standard formula for converting each hard data
variable to the 1-to-7 scale is:
Innovation subindex

(country value – sample minimum) innovation subindex = (1/4 Survey data)


6x +1
(sample maximum – sample minimum) +(3/4 hard data)

The sample minimum and sample maximum are the


Innovation Survey questions
lowest and highest values of the overall sample,
3.01 What is your country’s position in technology relative to world leaders’?
respectively. In some instances, adjustments were made
3.02 Companies in your country are not interested/aggressive in absorbing new
to account for extreme outliers in the data. technology?

As explained in the chapter, the sample of countries is 3.06 How much do companies in your country spend on R&D relative to other countries?

divided into two groups: the core innovators and the 3.08 What is the extent of business collaboration in R&D with local universities?

non-core innovators. Core innovators are countries with


more than 15 US utility patents registered per million Innovation hard data
population in 2002; non-core innovators are all other 3.17 US utility patents granted per million population in 2002
countries. 3.18 Gross tertiary enrollment rate in 2000 or most recent available year

For the core innovators, we place extra emphasis on the


role of innovation and technology. The weightings for
the core innovators are as follows:
Technology transfer subindex
Growth Competitiveness
Index for core innovators = (1/2 technology index) technology transfer
+(1/4 public institutions index) subindex = unweighted average of two technology transfer
+(1/4 macroeconomic environment index) Survey questions

3.03 Is foreign direct investment in your country an important source


For the non-core innovators, we calculate the Growth of new technology?
Competitiveness Index values as a simple average of the 3.04 Is foreign technology licensing in your country a common means of acquiring
three component indexes: new technology?

Growth Competitiveness
Index for non-core
innovators = (1/3 technology index)
+(1/3 public institutions index)
+(1/3 macroeconomic environment index)
96

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?
Appendix 1: Composition of the Growth Competitiveness Index (cont’d.)

Information and communication technology Macroeconomic environment


(ICT) subindex
index components
information and
communication
technology subindex = (1/3 information and communication technology macroeconomic
Survey data) environment index = 1/2 macroeconomic stability subindex
+(2/3 information and communication technology +1/4 country credit rating in March 2003
hard data)
+1/4 government waste in 2003

Information and communication technology Survey questions


3.12 How extensive is Internet access in schools? Macroeconomic stability subindex
3.13 Is there sufficient competition among ISPs in your country to ensure high quality,
infrequent interruptions and low prices?
macroeconomic
3.14 Is ICT an overall priority for the government? stability subindex = (5/7 macroeconomic stability hard data)
3.15 Are government programs successful in promoting the use of ICT? +(2/7 macroeconomic stability Survey data)
3.16 Are laws relating to ICT (electronic commerce, digital signatures, consumer
protection) well developed and enforced?

Macroeconomic stability Survey questions


2.01 Is your country’s economy likely to be in a recession next year?
Information and communication technology hard data
2.09 Has obtaining credit for your company become easier or more difficult over
3.19 Cellular mobile subscribers per 100 inhabitants, 2002 the past year?
3.20 Internet users per 10,000 inhabitants, 2002
3.21 Internet hosts per 10,000 inhabitants, 2002
3.22 Main telephone lines per 100 inhabitants, 2002 Macroeconomic stability hard data
3.23 Personal computers per 100 inhabitants, 2002 2.18 Government surplus/deficit in 2002
2.19 National savings rate in 2002
2.20 Inflation in 2002
2.21 Real exchange rate relative to the United States in 2002
2.22 Lending – borrowing interest rate spread in 2002

Public institutions index


components
2.17 Institutionnal Investor country credit
rating, March 2003
public institutions index = (1/2 contracts and law subindex)
+(1/2 corruption subindex) Government waste composite, 2003
2.03 Do government subsidies to business in your country keep uncompetitive industries
alive artificially or do they improve the productivity of industries?
Contracts and law subindex
7.08 In your country, how common is the diversion of public funds to companies,
6.01 Is the judiciary in your country independant from political influences of members individuals or groups due to corruption?
of government, citizens or firms?
7.10 How high is the public trust in the financial honesty of politicians?
6.03 Are financial assets and wealth clearly delineated and well protected by law?
6.08 Is your government neutral among bidders when deciding among public contracts?
6.17 Does organized crime impose significant costs on business?

Corruption subindex
7.01 How commonly are bribes paid in connection with import and export permits?
7.02 How commonly are bribes paid when getting connected with public utilities?
7.03 How commonly are bribes paid in connection with annual tax payments?
97

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?
Appendix 2: Growth Competitiveness Index and Subindex Rankings
Growth Competitiveness Index (GCI) Public institutions index
Rank Rank Score Rank Rank Score
1 Botswana 36 4.56 1 Botswana 26 5.45
2 Tunisia 38 4.49 2 Tunisia 32 5.19
3 South Africa 42 4.37 3 Malawi 38 4.79
4 Mauritius 46 4.12 4 Gambia 39 4.73
5 Namibia 52 3.99 5 South Africa 43 4.69
6 Gambia 55 3.93 6 Mauritius 44 4.61
7 Egypt 58 3.84 7 Namibia 48 4.50
8 Morocco 61 3.77 8 Egypt 57 4.18
9 Tanzania 69 3.49 9 Tanzania 59 4.15
10 Ghana 71 3.46 10 Ghana 65 3.97
11 Algeria 74 3.39 11 Algeria 66 3.92
12 Malawi 76 3.36 12 Morocco 68 3.86
13 Senegal 79 3.34 13 Zambia 69 3.86
14 Uganda 80 3.25 14 Ethiopia 73 3.69
15 Kenya 83 3.21 15 Senegal 75 3.64
16 Nigeria 87 3.10 16 Mozambique 82 3.33
17 Zambia 88 3.10 17 Mali 83 3.33
18 Cameroon 91 2.98 18 Uganda 84 3.30
19 Ethiopia 92 2.92 19 Zimbabwe 90 3.21
20 Mozambique 93 2.91 20 Angola 91 3.16
21 Madagascar 96 2.85 21 Kenya 92 3.16
22 Zimbabwe 97 2.84 22 Cameroon 95 3.04
23 Mali 99 2.79 23 Madagascar 96 3.04
24 Angola 100 2.60 24 Nigeria 98 2.99
25 Chad 101 2.31 25 Chad 101 2.36

Macroeconomic environment index Technology index


Rank Rank Score Rank Rank Score
1 Botswana 30 4.44 1 South Africa 40 4.35
2 Tunisia 32 4.38 2 Mauritius 49 4.10
3 South Africa 40 4.08 3 Tunisia 57 3.90
4 Morocco 43 3.95 4 Botswana 59 3.78
5 Gambia 46 3.85 5 Namibia 62 3.72
6 Algeria 51 3.78 6 Egypt 68 3.64
7 Namibia 53 3.75 7 Morocco 71 3.50
8 Egypt 56 3.70 8 Kenya 74 3.36
9 Mauritius 57 3.66 9 Zimbabwe 75 3.34
10 Senegal 67 3.33 10 Uganda 77 3.25
11 Ghana 68 3.29 11 Gambia 80 3.22
12 Uganda 71 3.20 12 Tanzania 81 3.22
13 Nigeria 74 3.16 13 Nigeria 82 3.16
14 Tanzania 76 3.12 14 Ghana 86 3.10
15 Kenya 77 3.10 15 Senegal 89 3.04
16 Cameroon 78 3.10 16 Zambia 90 2.96
17 Madagascar 79 3.04 17 Mozambique 92 2.84
18 Ethiopia 84 2.89 18 Cameroon 93 2.80
19 Mali 91 2.67 19 Malawi 94 2.79
20 Mozambique 95 2.57 20 Algeria 96 2.48
21 Chad 96 2.50 21 Madagascar 97 2.47
98

22 Zambia 97 2.49 22 Angola 98 2.43


23 Malawi 98 2.49 23 Mali 99 2.36
24 Angola 101 2.22 24 Ethiopia 100 2.17
25 Zimbabwe 102 1.98 25 Chad 102 2.06
Source: World Economic Forum

1.8 ❚ What Does the Growth Competitiveness Index Say About Development in Africa?
Part 2
Country Profiles
How Country Profiles Work

This section includes four-page country profiles for twenty-five African countries. Each profile summarizes important data for a
country. It displays major economic, financial, social, and trade data from both published sources and the World Economic
Forum’s Executive Opinion Survey (EOS). Country profiles are laid out as follows:
❚ the first page presents basic indicators for the country in order to give a general overview of its present economic and social development;
❚ the second page includes charts presenting key growth, investment and trade data;
❚ the third and fourth pages present selected data for each economy from the World Economic Forum’s Growth
Competitiveness Index and the EOS.

Algeria FDI Inward and


Outward Stock and Flow,
1999-2002
US$ (millions)

6000

5000

4000

3000
1 2000
Key Indicators Human Development Indicators
Total population in millions, 2002 31.40 Gross international reserves in months of imports, 2001 16.0 1000
Average annual population growth rate (%), 1992-2002 1.80 Official development assistance and official aid (in millions US dollars), 2001 182.0
Total external debt in millions US dollars, 2001 22,503 0
Total GDP in billions US dollars, 2002 54.15 FDI inward FDI outward FDI inflows FDI outflows
Total external debt (as percent of GDP), 2001 0.53
GDP per capita (PPP) in US dollars, 2002 5,536.19 stock stock
Total debt service (as percent of GNI), 2001 8.26
Real growth in GDP per capita (%), 2002 1.58
Total debt service (as percent of exports of goods and services), 2001 19.50
1999 2002
Growth of output (average annual percent growth) 1990-2001 1.64
Gross primary enrollment (percent of relevant age group), 2001 112.0
Agriculture 4.07 Source: UNCTAD Handbook of Statistics, year
Gross secondary enrollment (percent of relevant age group), 2001 70.8
Industry 1.65
Gross tertiary enrollment, 2000 or most recent 15.0
Manufacturing -0.75
Adult literacy rate age 15 and above (%) , 2001 67.8
Services 1.59
Share of population living in the income below 1 dollar a day (%), 2001 <2
Inflation (annual percent change), 2002 1.40 Population without sustainable access to an improved water source (%), 2000 89.00
Government surplus/deficit (as percent of GDP), 2002 2.20
Structure of Exports 1%
Life expectancy at birth, 2002 69.40
Gross capital formation (as percent of GDP), 2001 25.66
HIV prevalence age 15-49 (%), 2001 0.10 of Goods, 2001
Interest rate spread, 2002 3.20 1%
Reported malaria per 100,000, 2001 1.40
Real exchange rate*, 2003 137.57 Estimated TB cases per 100,000, 2001 50.40
Exports of goods and services (as percent of GDP), 2001 37.18 Fuels
Imports of goods and services (as percent of GDP), 2001
Current account balance (as percent of GDP), 2001
21.40
n/a
Infrastructure and Technology Diffusion 2 Manufactured goods
Indicators
Average external tariff rate in percent, 1998 17.30
Paved roads, (percent of total roads), 1999 68.90 Others
Electric power transmission and distribution losses (percent of output), 2000 14.53
Main telephone lines per 100 inhabitants, 2002 6.10
Cellular mobile telephone subscribers per 100 inhabitants, 2002 1.28
Personal computers per 100 inhabitants, 2002 0.71 98%
Internet users per 10,000 inhabitants, 2002 159.78
Source: UNCTAD Handbook of Statistics, year

GDP Growth, 1970-2003

Percent
12

10

3 4

0
70

71

72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

02

03
19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

20

20

20

20
-2

-4

-6
2

3
*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States. -8

Sources: World Development Indicators 2003 (World Bank, 2003); World Economic Outlook Database, April 2003 (International Monetary Fund); Global Atlas (World Health Organization); Human Development Report 2002
(UNFP); Index of Economic Freedom 2003 (The Heritage Foundation, 2003) Source: World Economic Outlook Database, April 2003

2.1 ❚ Country Profiles 2.2 ❚ Country Profiles

Page 1 Page 2
Key Indicators of Country Performance, Human 1 FDI Inward and Outward Stock and Flow,
Development, Infrastructure and Technology 1999-2002
Diffusion The chart at the top of the page provides a comparison
These three sections present recent data providing estimates of of the inward and outward stocks and flows of foreign
1 the size and structure of the economy, and the stability of direct investment for the two years, 1999 and 2002.
the macroeconomic environment; The data source is the UNCTAD Handbook of Statistics,
online, March 2004.
2 the state of social development, including literacy rates
and life expectancy; 2 Structure of Exports of Goods, 2001
3 the extent to which infrastructure and technology is deve-
The chart in the middle of the page provides information
loped within the country in question.
on the export structure of each country, with each good
The primary data sources used are exported shown as a percentage of total exports.
World Development Indicators 2003, World Bank; Since this data is not available for a number of countries,
Economist Intelligence Unit; this chart does not appear in some country profiles.
World Economic Outlook Database, IMF, April 2003; The data source is the UNCTAD Handbook of Statistics,
International Financial Statistics, IMF, March 2004; online, March 2004.
State of the World Population 2002, UNFPA;
Global Atlas, World Health Organization, March 2004; 3 GDP Growth, 1970-2003
The World Health Report 2003, World Health The chart at the bottom of the page presents annual
101

Organization; real GDP growth rates since 1970. These data were obtained
Human Development Report 2003, UNDP; from the World Economic Outlook Database, IMF, April 2003.
Institute for Statistics UNESCO;
Index of Economic Freedom 2003, The Heritage
Foundation and The Wall Street Journal;
International Telecommunication Union, March 2004;
African Economic Outlook 2002/03, OECD.

2 ❚ Country Profiles
Competitiveness Rankings National Competitiveness Balance Sheet

Rank out of 25 African countries Rank out of 102 countries Notable competitive Advantages Notable competitive Disadvantages
Growth Competitiveness Index Rank 11 74 Rank out of Rank out of Rank out of Rank out of
Growth Competitiveness index 25 African countries 102 countries Growth Competitiveness index 25 African countries 102 countries
Macroeconomic Environment Index Rank 6 51 Macroeconomic Environment Macroeconomic Environment
Macroeconomic Stability Subindex Rank 1 5 2.18 Government surplus/deficit, 2002 2 6 2.03 Extent of distortive government subsidies 23 95
Government Waste Subindex Rank 8 67 2.19 National savings rate, 2002 3 6 2.09 Access to credit 13 74
2.20 Inflation, 2002 3 17 2.17 Country credit rating, 2003 8 68
Country Credit Rating Rank Rank 14 68
2.22 Interest rate spread, 2002 1 19 7.08 Diversion of public funds 10 53
2.01 Recession expectations 12 29 7.10 Public trust of politicians 10 53
1 Public Institutions Index Rank
Contracts and Law Subindex Rank
11
13
66
59 2.21 Real exchange rate, 2002 11 42

Corruption Subindex Rank 9 72


Public Institutions Public Institutions
Technology Index Rank 20 96 6.08 Favoritism in decisions of government officials 4 25 7.03 Irregular payments in tax collection 18 87
6.17 Organized crime 10 48 7.02 Irregular payments in public utilities 12 80
Innovation Subindex Rank 6 74
7.01 Irregular payments in exports and imports 6 50 6.01 Judicial independence 18 76
ICT Subindex Rank 16 91
6.03 Property rights 14 70
Technology Transfer Subindex Rank* (out of 77 non-core innovators) 25 76
Source: GCR
Technology
3.16 Laws relating to ICT 24 100
3.13 Quality of competition in the ISP sector 22 96
GCI Algeria 3.12 Internet access in schools 18 94
Relative performance: 3.19 Cellular telephones, 2002 18 92
102 country average
GCI scores and GDP 6 3.15 Government success in ICT promotion 23 91
3.21 Internet hosts, 2002 16 90

4 3.08 University/industry research collaboration 20 89


3.01 Technological sophistication 18 89
GDP per capita (normalized on a Technology index 3.06 Company spending on research and development 18 87
2
2 scale from 1 to 7) 3.23
3.14
Personal computers, 2002
Government prioritization of ICT
12
19
83
80
0
3.20 Internet users, 2002 9 80
3.03 FDI and technology transfer 25 77
3.02 Firm-level technology absorption 16 76
3.22 Telephone lines, 2002 7 73
3.17 Utility patents, 2002 8 72
3.04 Prevalence of foreign technology licensing 20 67
Macroeconomic environment index Public institutions index
3.18 Tertiary enrollment 4 67
Source: World Economic Forum and World Economic Outlook Database, April 2003
Other indicators Other indicators
8.09 Wage equality of women in the workplace 11 21 6.09 Extent of bureaucratic red tape 25 101
3.10 Availability of scientists and engineers 2 23 10.02 Value chain presence 24 101
The Most Problematic Factors for Doing Business 6.18 Informal sector 3 39 10.01 Nature of competitive advantage 24 100
6.13 Reliability of police services 5 40 8.01 Intensity of local competition 23 98
4.08 Impact of HIV/AIDS on FDI 3 46 5.06 Telephone infrastructure quality 17 90
Access to financing
6.14 Business costs of crime and violence 9 47 5.04 Air transport infrastructure quality 20 88
Inefficient government bureaucracy
2.06 Soundness of banks 22 87
Policy instability
10.12 Extent of staff training 21 87
Restrictive labor regulations
2.07 Ease of access to loans 17 85
Inadequate supply of infrastructure
5.07 Postal efficiency 15 82
Tax regulations

3 Inadequately educated workforce


5.03
5.01
Port infrastructure quality
Overall infrastructure quality
11
11
72
69
Corruption
6.15 Government effectiveness in reducing poverty 17 68
Tax rates
4.02 Quality of public schools 9 68
Government instability/coups
8.08 Private-sector employment of women 12 66
Inflation
5.05 Quality of electricity supply 8 66
Poor work ethic in national labour force 10.15 Reliance on professional management 14 64
Foreign currency regulations 4.06 Business impact of tuberculosis 3 64
Crime and theft 4.07 Business impact of HIV/AIDS 4 62
4

5
0% 30%
4.05 Business impact of malaria 2 59
% of responses
5.02 Railroad infrastructure development 9 58
6.05 Freedom of the press 7 56
Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5.
The bars in the figure show the responses weighted according to their rankings. *Source: Global Competitiveness Report 2003-2004, World Economic Forum.
Source: World Economic Forum, Executive Opinion Survey 2003

2.3 ❚ Country Profiles 2.4 ❚ Country Profiles

Page 3 Page 4
1 Competitiveness Rankings National Competitiveness Balance Sheet
The table at the top of the page presents the overall This page forms a country competitiveness balance sheet,
Growth Competitiveness Index (GCI) Rankings for (1) the providing detailed information on the relative
25 African countries covered in this Report, strengths and weaknesses of each economy.
and (2) the entire group of 102 countries covered in The balance sheet is broken into two main sections:
The Global Competitiveness Report 2003-2004. one including all of the variables included in the
Details on the calculation of the GCI can be found calculation of the Growth Competitiveness Index and
in Chapter 8, Appendix 1 of this Report. one including a list of other noteworthy indicators
about the economic environment of each country.
The rankings for each variable are given for the 25
2 Relative Performance: GCI Scores and GDP
African countries included in this Report,
The chart in the middle of the page compares as well as for the entire group of 102 countries
❚ the country’s overall GCI score; included in The Global Competitiveness
Report 2003-2004.
❚ each GCI subindex score (technology, public institutions
and the macroeconomic environment); The rule for deciding whether variables are advantages
❚ GDP per capita in 2003 or disadvantages is based on the methodology used
for the 102-country sample employed in The Global
to the average values of the 102 countries included in Competitiveness Report. For top-ranked countries
The Global Competitiveness Report 2003-2004. in the GCI, variables ranked between 1 and 10 are
Note that all scores are on a scale from 1 to 7, with 1 considered an advantage. For those countries ranked
representing the least competitive and 7 the most from 11 to 51 overall in the GCI, variables ranked better
competitive end of a spectrum. The GDP data than the country’s own rank are considered to be
were obtained from the World Economic Outlook advantages. For those countries with an overall GCI rank
Database, IMF, April 2003. lower than 51, any variables ranked equal to or better
than 51 are considered as advantages.
3 The Most Problematic Factors for Doing
Business
The chart at the bottom of the page summarizes those
factors seen by CEOs and top executives as the most
problematic for doing business in their country.
102

The information is drawn from a question in the Executive


Opinion Survey in which respondents were presented
with 14 different factors and asked to rank those they
considered the most problematic on a scale from 1 to 5.
The responses were tabulated and weighted
according to the rank assigned by the respondents.

2 ❚ Country Profiles
List of Countries

Algeria ........................................................................................104
Angola ........................................................................................108
Botswana....................................................................................112
Cameroon ...................................................................................116
Chad ...........................................................................................120
Egypt ..........................................................................................124
Ethiopia ......................................................................................128
Gambia.......................................................................................132
Ghana.........................................................................................136
Kenya..........................................................................................140
Madagascar................................................................................144
Malawi .......................................................................................148
Mali ............................................................................................152
Mauritius ....................................................................................156
Morocco......................................................................................160
Mozambique...............................................................................164
Namibia ......................................................................................168
Nigeria........................................................................................172
Senegal.......................................................................................176
South Africa................................................................................180
Tanzania .....................................................................................184
Tunisia ........................................................................................188
Uganda.......................................................................................192
Zambia........................................................................................196
Zimbabwe...................................................................................200 103

2 ❚ Country Profiles
Algeria
Key Indicators Human Development Indicators
Total population in millions, 2002 31.40 Gross primary enrollment (percent of relevant age group), 2001 112.0
Average annual population growth rate (%), 1992-2002 1.8 Gross secondary enrollment (percent of relevant age group), 2001 70.8
Gross tertiary enrollment (percent of relevant age group),
Total GDP in billions US dollars, 2002 54.15 2000 or most recent year available 15.0
GDP per capita (PPP) in US dollars, 2002 5,536 Adult literacy rate age 15 and above (%) , 2001 67.8
Real growth in GDP per capita (%), 2002 1.6 Percent of population living on income below 1 dollar a day, 2001 <2

Growth of output (average annual percent growth) 1990-2001 1.6 Population with sustainable access to an improved water source (%), 2000 89

Agriculture 4.1 Life expectancy at birth, 2002 69.4

Industry 1.6 HIV prevalence age 15-49 (%), 2001 0.1

Manufacturing -0.7 Reported malaria per 100,000, 2001 1.4

Services 1.6 Estimated TB cases per 100,000, 2002 50.4

Inflation (annual percent change), 2002 1.4


Infrastructure and
Government surplus/deficit (as percent of GDP), 2002 2.2 Technology Diffusion Indicators
Gross fixed capital formation (as percent of GDP), 2002 24.7
Paved roads (percent of total roads), 1999 69
Interest rate spread, 2003 2.8
Electric power transmission and distribution losses (percent of output), 2000 16
Real exchange rate*, 2003 137.6 Main telephone lines per 100 inhabitants, 2002 6.1
Exports of goods and services (as percent of GDP), 2002 35.6 Cellular mobile telephone subscribers per 100 inhabitants, 2002 1.3
Imports of goods and services (as percent of GDP), 2002 25.6 Personal computers per 100 inhabitants, 2002 0.8
Current account balance (as percent of GDP), 2001 n/a Internet users per 10,000 inhabitants, 2002 159.8
Average external tariff rate in percent, 1998 17.3
Gross international reserves in months of imports, 2001 16.0
Official development assistance and official aid (in millions US dollars), 2001 182.0
Total external debt in millions US dollars, 2001 22'503
Total external debt (as percent of GDP), 2001 41.2
Total debt service (as percent of GNI), 2001 8.3
Total debt service (as percent of exports of goods and services), 2001 19.5
104

*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States.

Sources: World Development Indicators 2003 (World Bank, 2003); World Economic Outlook Database, April 2003 (International Monetary Fund); Global Atlas (World Health Organization); Human Development Report 2002
(UNFP); Index of Economic Freedom 2003 (The Heritage Foundation, 2003)

2 ❚ Country Profiles
US$ (millions)
FDI Inward and
6,000
Outward Stock and Flow,
1999-2002 5,000

4,000

3,000

2,000

1,000

0
FDI inward FDI outward FDI inflows FDI outflows
stock stock

1999 2002

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Structure of Exports 1%
of Goods, 2001
1%

Fuels

Manufactured goods

Others

98%

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

GDP Growth, 1970-2003

Percent
12

10

0
70

71

72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

5
96

97

98

99

00

01

02

03
9
19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

20

20

20

20

-2

-4
105

-6

-8

Source: World Economic Outlook Database, IMF, April 2003

2 ❚ Country Profiles
Competitiveness Rankings

Rank out of 25 African countries Rank out of 102 countries


Growth Competitiveness Index Rank 11 74

Macroeconomic Environment Index Rank 6 51


Macroeconomic Stability Subindex Rank 1 5
Government Waste Subindex Rank 14 67
Country Credit Rating Rank Rank 8 68

Public Institutions Index Rank 11 66


Contracts and Law Subindex Rank 13 59
Corruption Subindex Rank 9 72

Technology Index Rank 20 96


Innovation Subindex Rank 6 74
ICT Subindex Rank 16 91
Technology Transfer Subindex Rank* (out of 77 non-core innovators) 25 76
* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

Growth Competitiveness Index Algeria


Relative performance:
102 country average
Growth Competitiveness 6
Index scores and GDP
4

GDP per capita (normalized on a Technology index


2
scale from 1 to 7)

Macroeconomic environment index Public institutions index

Sources: World Economic Forum and World Economic Outlook Database, April 2003

The Most Problematic Factors for Doing Business

Access to financing
Inefficient government bureaucracy
Policy instability
Restrictive labor regulations

Inadequate supply of infrastructure


Tax regulations
Inadequately educated workforce

Corruption
Tax rates
Government instability/coups
Inflation

Poor work ethic in national labour force


Foreign currency regulations
106

Crime and theft

0 5 10 15 20 25 30
% of responses

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5.
The bars in the figure show the responses weighted according to their rankings.
Source: World Economic Forum, Executive Opinion Survey 2003

2 ❚ Country Profiles
National Competitiveness Balance Sheet

Notable Competitive Advantages Notable Competitive Disadvantages


Rank out of Rank out of Rank out of Rank out of
Growth Competitiveness Index 25 African countries 102 countries* Growth Competitiveness Index 25 African countries 102 countries*
Macroeconomic Environment Macroeconomic Environment
2.18 Government surplus/deficit, 2002 2 6 2.03 Extent of distortive government subsidies 23 95
2.19 National savings rate, 2002 3 6 2.09 Access to credit 13 74
2.20 Inflation, 2002 3 17 2.17 Country credit rating, 2003 8 68
2.22 Interest rate spread, 2002 1 19 7.08 Diversion of public funds 10 53
2.01 Recession expectations 12 29 7.10 Public trust of politicians 10 53
2.21 Real exchange rate, 2002 11 42

Public Institutions Public Institutions


6.08 Favoritism in decisions of government officials 4 25 7.03 Irregular payments in tax collection 18 87
6.17 Organized crime 10 48 7.02 Irregular payments in public utilities 12 80
7.01 Irregular payments in exports and imports 6 50 6.01 Judicial independence 18 76
6.03 Property rights 14 70

Technology
3.16 Laws relating to ICT 24 100
3.13 Quality of competition in the ISP sector 22 96
3.12 Internet access in schools 18 94
3.19 Cellular telephones, 2002 18 92
3.15 Government success in ICT promotion 23 91
3.21 Internet hosts, 2002 16 90
3.08 University/industry research collaboration 20 89
3.01 Technological sophistication 18 89
3.06 Company spending on research and development 18 87
3.23 Personal computers, 2002 12 83
3.14 Government prioritization of ICT 19 80
3.20 Internet users, 2002 9 80
3.03 FDI and technology transfer 25 77
3.02 Firm-level technology absorption 16 76
3.22 Telephone lines, 2002 7 73
3.17 Utility patents, 2002 8 72
3.04 Prevalence of foreign technology licensing 20 67
3.18 Tertiary enrollment 4 67

Other Indicators Other Indicators


8.09 Wage equality of women in the workplace 11 21 6.09 Extent of bureaucratic red tape 25 101
3.10 Availability of scientists and engineers 2 23 10.02 Value chain presence 24 101
6.18 Informal sector 3 39 10.01 Nature of competitive advantage 24 100
6.13 Reliability of police services 5 40 8.01 Intensity of local competition 23 98
4.08 Impact of HIV/AIDS on FDI 3 46 5.06 Telephone infrastructure quality 17 90
6.14 Business costs of crime and violence 9 47 5.04 Air transport infrastructure quality 20 88
2.06 Soundness of banks 22 87
10.12 Extent of staff training 21 87
2.07 Ease of access to loans 17 85
5.07 Postal efficiency 15 82
5.03 Port infrastructure quality 11 72
5.01 Overall infrastructure quality 11 69
6.15 Government effectiveness in reducing poverty 17 68
4.02 Quality of public schools 9 68
8.08 Private-sector employment of women 12 66
5.05 Quality of electricity supply 8 66
10.15 Reliance on professional management 14 64
4.06 Business impact of tuberculosis 3 64
107

4.07 Business impact of HIV/AIDS 4 62


4.05 Business impact of malaria 2 59
5.02 Railroad infrastructure development 9 58
6.05 Freedom of the press 7 56
*Source: Global Competitiveness Report 2003-2004, World Economic Forum.

2 ❚ Country Profiles
Angola
Key Indicators Human Development Indicators
Population in millions, 2002 13.90 Gross primary enrollment (percent of relevant age group), 2001 74.0
Average annual population growth rate (%), 1992-2002 2.9 Gross secondary enrollment (percent of relevant age group), 2001 17.6
Gross tertiary enrollment (percent of relevant age group),
Total GDP in billions US dollars, 2002 11.63 2000 or most recent year available 0.7
GDP per capita (PPP) in US dollars, 2002 2,053 Adult literacy rate age 15 and above (%) , 2001 42
Real growth in GDP per capita (%), 2002 n/a Percent of population living on income below 1 dollar a day, 2001 n/a

Growth of output (average annual percent growth) 1990-2001 1.5 Population with sustainable access to an improved water source (%), 2000 38

Agriculture 1.2 Life expectancy at birth (years), 2002 39.9

Industry 3.3 HIV prevalence age 15-49 (%), 2001 5.5

Manufacturing -0.5 Reported malaria per 100,000, 2001 6,594

Services -1.6 Estimated TB cases per 100,000, 2002 201

Inflation (annual percent change), 2002 108.9


Infrastructure and
Government surplus/deficit (as percent of GDP), 2002 -4.5 Technology Diffusion Indicators
Gross fixed capital formation (as percent of GDP), 2001 34.0
Paved roads (percent of total roads), 1999 10
Interest rate spread, 2003 70.1
Electric power transmission and distribution losses (percent of output), 2000 15
Real exchange rate, 2003* 77.9 Main telephone lines per 100 inhabitants, 2002 0.6
Exports of goods and services (as percent of GDP), 2001 74.0 Cellular mobile telephone subscribers per 100 inhabitants, 2002 0.9
Imports of goods and services (as percent of GDP), 2001 62.3 Personal computers per 100 inhabitants, 2002 0.2
Current account balance (as percent of GDP), 2001 -3.7 Internet users per 10,000 inhabitants, 2002 29.4
Average external tariff rate in percent n/a
Gross international reserves in months of imports, 2001 1.2
Official development assistance and official aid (in millions US dollars), 2001 268.4
Total external debt in millions US dollars, 2001 9,600
Total external debt (as percent of GDP), 2001 101.4
Total debt service (as percent of GNI), 2001 23.7
Total debt service (as percent of exports of goods and services), 2001 26.5
108

*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States.

Sources: World Development Indicators 2003, World Bank; Economist Intelligence Unit; World Economic Outlook Database, IMF, April 2003; International Financial Statistics, IMF, March 2004; State of the
World Population 2002, UNFPA; Global Atlas, World Health Organization, March 2004; The World Health Report 2003, World Health Organization; Human Development Report 2003, UNDP; Institute for
Statistics UNESCO; Index of Economic Freedom 2003, The Heritage Foundation and The Wall Street Journal; International Telecommunication Union, March 2004; African Economic Outlook 2002/03, OECD.

2 ❚ Country Profiles
US$ (Millions)
FDI Inward and
14,000
Outward Stock and Flow,
1999-2002 12,000

10,000

8,000

6,000

4,000

2,000

0
FDI inward FDI outward FDI inflows FDI outflows
stock stock

1999 2002

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Real GDP Growth, 1970-2003

Percent
20

15

10

0
70

71

72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

96

97

98

99

00

01

02

03
9
19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

20

20

20

20
-5

-10

-15

-20

-25

-30

Source: World Economic Outlook Database, IMF, April 2003

109

2 ❚ Country Profiles
Competitiveness Rankings

Rank out of 25 African countries Rank out of 102 countries *


Growth Competitiveness Index Rank 24 100

Macroeconomic Environment Index Rank 24 101


Macroeconomic Stability Subindex Rank 24 100
Government Waste Subindex Rank 24 92
Country Credit Rating Rank Rank 19 95

Public Institutions Index Rank 20 91


Contracts and Law Subindex Rank 23 90
Corruption Subindex Rank 18 91

Technology Index Rank 22 98


Innovation Subindex Rank 25 102
ICT Subindex Rank 23 100
Technology Transfer Subindex Rank (out of 77 non-core innovators) 20 66

* Source: Global Competitiveness Report 2003-2004, World Economic Forum.

Growth Competitiveness Index Angola


Relative performance:
Growth Competitiveness 102 country average
6
Index scores and GDP
4

GDP per capita (normalized on a Technology index


2
scale from 1 to 7)

Macroeconomic environment index Public institutions index

Sources: World Economic Forum and World Economic Outlook Database, April 2003

The Most Problematic Factors for Doing Business

Access to financing

Inflation

Corruption

Inadequate supply of infrastructure

Inadequately educated workforce

Inefficient government bureaucracy

Policy instability

Foreign currency regulations

Poor work ethic in national labour force

Tax rates

Tax regulations

Government instability/coups

Crime and theft


110

Restrictive labor regulations

0 5 10 15 20 25 30
% of responses

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show
the responses weighted according to their rankings.
Source: World Economic Forum, Executive Opinion Survey 2003

2 ❚ Country Profiles
National Competitiveness Balance Sheet
Notable Competitive Advantages Notable Competitive Disadvantages
Rank out of Rank out of Rank out of Rank out of
Growth Competitiveness Index 25 African countries 102 countries* Growth Competitiveness Index 25 African countries 102 countries*
Macroeconomic Environment Macroeconomic Environment
2.01 Recession expectations 1 8 2.22 Interest rate spread, 2002 25 101
2.20 Inflation, 2002 24 101
2.21 Real exchange rate, 2002 24 99
2.03 Extent of distortive government subsidies 24 98
2.17 Country credit rating, 2003 19 95
7.10 Public trust of politicians 23 88
2.19 National savings rate, 2002 16 84
2.09 Access to credit 17 84
7.08 Diversion of public funds 16 83
2.18 Government surplus/deficit, 2002 11 62

Public Institutions
6.03 Property rights 23 95
6.01 Judicial independence 23 91
7.01 Irregular payments in exports and imports 20 90
7.02 Irregular payments in public utilities 17 90
6.08 Favoritism in decisions of government officials 22 89
7.03 Irregular payments in tax collection 13 79
6.17 Organized crime 15 63

Technology
3.06 Company spending on research and development 25 102
3.08 University/industry research collaboration 25 102
3.12 Internet access in schools 24 101
3.21 Internet hosts, 2002 25 100
3.18 Tertiary enrollment 23 100
3.01 Technological sophistication 23 99
3.14 Government prioritization of ICT 24 97
3.16 Laws relating to ICT 23 97
3.19 Cellular telephones, 2002 21 96
3.13 Quality of competition in the ISP sector 21 95
3.23 Personal computers, 2002 21 95
3.20 Internet users, 2002 17 93
3.22 Telephone lines, 2002 17 93
3.15 Government success in ICT promotion 22 90
3.02 Firm-level technology absorption 20 85
3.17 Utility patents, 2002 8 72
3.04 Prevalence of foreign technology licensing 21 71
3.03 FDI and technology transfer 17 54

Other Indicators
3.10 Availability of scientists and engineers 25 102
8.01 Intensity of local competition 25 102
10.01 Nature of competitive advantage 25 102
10.02 Value chain presence 25 102
8.09 Wage equality of women in the workplace 25 101
6.09 Extent of bureaucratic red tape 24 100
5.01 Overall infrastructure quality 24 100
5.05 Quality of electricity supply 24 100
6.05 Freedom of the press 24 100
4.05 Business impact of malaria 23 100
8.08 Private-sector employment of women 25 99
6.18 Informal sector 25 99
5.04 Air transport infrastructure quality 24 97
10.15 Reliance on professional management 24 97
5.06 Telephone infrastructure quality 22 96
4.06 Business impact of tuberculosis 19 96
4.02 Quality of public schools 24 95
10.12 Extent of staff training 22 93
5.02 Railroad infrastructure development 23 92
5.03 Port infrastructure quality 19 92
5.07 Postal efficiency 20 91
2.06 Soundness of banks 24 89
2.07 Ease of access to loans 18 89
111

6.14 Business costs of crime and violence 21 88


6.15 Government effectiveness in reducing poverty 22 86
4.07 Business impact of HIV/AIDS 10 85
4.07 Business impact of HIV/AIDS 10 85
4.08 Impact of HIV/AIDS on FDI 10 80
4.08 Impact of HIV/AIDS on FDI 10 80
* Source: Global Competitiveness Report 2003-2004, World Economic Forum. 6.13 Reliability of police services 15 66

2 ❚ Country Profiles
Botswana
Key Indicators Human Development Indicators
Population in millions, 2002 1.60 Gross primary enrollment (percent of relevant age group), 2001 108.0
Average annual population growth rate (%), 1992-2002 2.1 Gross secondary enrollment (percent of relevant age group), 2001 79.1
Gross tertiary enrollment (percent of relevant age group),
Total GDP in billions US dollars, 2002 5.04 2000 or most recent year available 4.7
GDP per capita (PPP) in US dollars, 2002 8,244 Adult literacy rate age 15 and above (%) , 2001 78.1
Real growth in GDP per capita (%), 2002 2.1 Percent of population living on income below 1 dollar a day, 2001 24

Growth of output (average annual percent growth) 1990-2001 5.4 Population with sustainable access to an improved water source (%), 2000 95

Agriculture -0.5 Life expectancy at birth (years), 2002 40.4

Industry 4.4 HIV prevalence age 15-49 (%), 2001 38.8

Manufacturing 4.2 Reported malaria per 100,000, 2001 2,836

Services 8.2 Estimated TB cases per 100,000, 2002 664

Inflation (annual percent change), 2002 5.5


Infrastructure and
Government surplus/deficit (as percent of GDP), 2002 -4.0 Technology Diffusion Indicators
Gross fixed capital formation (as percent of GDP), 2002 24.2
Paved roads (percent of total roads), 1999 55
Interest rate spread, 2003 5.7
Electric power transmission and distribution losses (percent of output), 2000 n/a
Real exchange rate, 2003* 156.5 Main telephone lines per 100 inhabitants, 2002 8.7
Exports of goods and services (as percent of GDP), 2001 50.9 Cellular mobile telephone subscribers per 100 inhabitants, 2002 24.1
Imports of goods and services (as percent of GDP), 2001 34.7 Personal computers per 100 inhabitants, 2002 4.1
Current account balance (as percent of GDP), 2001 8.4 Internet users per 10,000 inhabitants, 2002 297.5
Average external tariff rate in percent, 1999 8.5
Gross international reserves in months of imports, 2001 25.3
Official development assistance and official aid (in millions US dollars), 2001 29.1
Total external debt in millions US dollars, 2001 370
Total external debt (as percent of GDP), 2001 7.1
Total debt service (as percent of GNI), 2001 1.1
Total debt service (as percent of exports of goods and services), 2001 1.7
112

*2002 period average real exchange rate relative to the United States (1995 = 100). Values greater (less) than 100 indicate depreciation (appreciation) relative to the United States.

Sources: World Development Indicators 2003, World Bank; Economist Intelligence Unit; World Economic Outlook Database, IMF, April 2003; International Financial Statistics, IMF, March 2004; State of the
World Population 2002, UNFPA; Global Atlas, World Health Organization, March 2004; The World Health Report 2003, World Health Organization; Human Development Report 2003, UNDP; Institute for
Statistics UNESCO; Index of Economic Freedom 2003, The Heritage Foundation and The Wall Street Journal; International Telecommunication Union, March 2004; African Economic Outlook 2002/03, OECD.

2 ❚ Country Profiles
US$ (Millions)

2,500
FDI Inward and
Outward Stock and Flow, 2,000
1999-2002
1,500

1,000

500

0
FDI inward FDI outward FDI inflows FDI outflows
stock stock

1999 2002

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Structure of Exports 3% 1%
of Goods, 2001 5%

Manufactured goods
Ores and metals
All food items
Others

91%

Source: UNCTAD Handbook of Statistics online (accessed March 2004)

Real GDP Growth, 1970-2003

Percent
35

30

25

20

15

10
113

0
70

71

72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89