Why Has East Asia Grown Much Faster Than Africa Essay Example

Why Has East Asia Grown Much Faster Than Africa? Essay Many nations in Africa observed an impressive growth rate in the early 1990. These were relatively greater than those obtained in the Asian Countries. However, between the 1960s and 1990s, Africa has witnessed a continuous decline in growth and this has raised concerns about what Africa could learn from the miracle of the East-Asian countries. This decline is general for most if not all African countries but emphasis is place on sub-Saharan Africa than on North Africa because the latter is grouped under a different regional economy in the same class with the Middle East. A notable example of comparisms between the growth pace in sub-Saharan Africa and East Asia is that between Nigeria and Indonesia. Prior to the 1970, Nigeria was growing faster than Indonesia but this trend changed markedly in the last quarter of the Twentieth century despite the similar experience of oil boom in a predominately agricultural economy (Collier and Gunning, 1999). We further note that the deterioration in Africa was witnessed both in political and economic terms. This raises further concerns when viewed from the perspective of global economy given that globalization of the world economy is perhaps the most important trend that affects the current environment for economic development. It offers great opportunities for poor countries to accelerate their economic development. But, it also poses new and substantial challenges for economic management. (Aryeetey E. et al 2005) Within this context, there has been a tendency to contrast Africa’s growth tragedy over the last three decades with the economic miracle of East Asia. We will write a custom essay sample on Why Has East Asia Grown Much Faster Than Africa? specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Why Has East Asia Grown Much Faster Than Africa? specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Why Has East Asia Grown Much Faster Than Africa? specifically for you FOR ONLY $16.38 $13.9/page Hire Writer There are certainly likely to be lessons from the East Asian experiences that policy-makers in sub-Saharan Africa could adapt to their own situations. Lessons can be learnt both from the era of rapid growth in East Asia as well as from the ongoing economic crisis. AN OVERVIEW The Southeast Asian nations Indonesia, Malaysia and Thailand would seem to offer the most relevant lessons for Sub-Saharan Africa. Southeast Asia and Africa had similar levels of income in the 1960s and 1970s. This can be seen in the graph below, which highlights the changes in GDP per capita in Southeast Asia and Africa since 1970. The two regions also had relatively similar social and political conditions at that time. The graph powerfully illustrates the sustained growth in Southeast Asia for twenty-five years as well as the marked decline in Africa’s fortunes since the early 1980s. Source: Calculated from World Development Indicators (World Bank, 1997). Over the years there has been a debate of whether the slow growth rate in Africa is due to internal or external factors. Be that as it may, a better judgement of the issues is one that recognises influence of both domestic and exogenous factors in determining Africa’s growth rate. Most crucial is the issue of low level of investment in Africa. This goes in line with the simple Harrod-Dommer growth model which posits that with a constant capital-output ratio, an economy needs to save and invest in order to grow. We therefore look at the endogenous and exogenous factors that has inhibited Africa’s growth rate relative to that of East Asia. DOMESTIC FACTORS Slow growth rate in Africa has been originally associated with some geographic and demographic characteristics. Firstly, most countries in Africa are landlocked and have little access to the sea, besides this the tropical climate experienced in Africa provides a breading ground for mosquitoes which has led to high occurrence of the Malaria infection. This disease has killed millions of Africans. An estimated 300-500 million cases each year cause 1. 5 to 2. 7 million deaths (ARCHI, www ). Furthermore, Africa is known for its high fertility rate. Although it also experienced high infant mortality rates, the improvement in health provisions has led to a dramatic increase in population size. Over the past 40 years Africa has not witnessed the demographic transition experienced in East Asian and Latin American countries, and this is a major contributing factor to Africa slow growth rate (Bloom and Sachs, 1998). This can be looked at from two angles in that high fertility rate can be seen as consequence of low levels of income or as a result of it. Invariable, high fertility rate is associated with poor health standards which affects productivity. China once suffered from this same issue and has over the years implemented demographic policies towards reducing fertility rate. We note that the situation could worsen if the HIV/AID pandemic is not controlled effectively and this would lead to high mortality rate among the adult population and thus, a decline in productive labour supply. World bank figures (1999) show that 20-25% of adults are infected with HIV (Collier and Gunning, 1999) Agriculture constitutes a major source of growth in many developing countries. Africa’s slow growth rate can also be related to poor soil quality as much of Africa is semi arid with unstable rainfalls. The rainfall amount has been on the decrease since the 1960s and this affects the investment plans of rural households who depend on agriculture for employment. A further problem is that Africa has poor population density and this implies high transportation costs in the movement of capital and output. Furthermore, Africa is multicultural which occasionally gives rise to marginalisation, conflicts and wars. Cultural diversification exists in Asia as well but the magnitude is more in Africa. An illustration when comparisms are made between Nigeria and China reveals that China has about 12 ethnic groups while Nigeria has about 250 (World Fact Book). The adverse effects of these cannot be overemphasised as the destruction of property and the loss of lives further deteriorates growth. Domestic Policy The dominance of the public sector over the private sector has been a major contributing factor to the slow growth rate in Africa. Most of Africa, after the pre-colonial era experienced autocratic leadership far from democratic ones. This led to an expansion of the public sector. In Ghana and Kenya for instance, public sector provides about 75% and 50% of wage employment. The large number of public sector employees was reconciled with limited tax revenue by reducing wage rates and no-wage expenditures. The ratio of wage to non-wage expenditure in African public sector is double that in East Asia, and this has lowered the quality of public services (Collier and Gunning, 1999). Inadequacies of the public sector led to shortfall in the provision of basic amenities such as electricity. Private industries are forced to provide own electricity with generators. In Nigeria, own generators accounted for three-quarters of the capital equipment of small manufacturers (Lee and Anas, 1991 in Collier and Gunning, 1999). Conversely, pubic sector intervention in the East Asian intervention which was purely market oriented aimed at proper allocation and productivity growth. Allocation to human capital was high in East Asia when compared with that of Africa. In Uganda, only 30% of the non-wage allocation to primary school education finally got to it due to mismanagement of funds (Ablo and Reinikka, 1998 in Collier and Gunning, 1999) In analysing the rapid growth of the East Asian countries , it is evidently clear that their successes lies on their export-push strategies characterized by a viable combination of fundamentals and policy interventions. Notably, in Indonesia, Malaysia, and Thailand emphasis was placed on creating free trade environment for exporters, providing finance and support services for small and medium-size exporters, and focusing infrastructure on areas that encourage exports. These were done while ensuring macroeconomic stability. Manufactured exports have provided most of this growth. From 1965 to 1990, Japan for instance emerged as the worlds biggest exporter of manufactured goods, increasing its share of the world market from nearly 8 to almost 12 percent(World Bank 1993). However in Africa, government marketing monopolies were focused on ensuring food supply to urban areas and this discouraged farmers from specializing in non-food export crops, since they could not rely on being able to buy food locally. Woods and Mayer (1998) noted that Africa failed to industrialize mainly ecause of its high natural resource endowment which gives it comparative advantage in that area. The over-dependence in Natural resources has landed Africa in a low-productivity gap. This is because firms are oriented in small domestic markets, they are not able to exploit economies of scale, nor are they exposed to significant competition. Moreover with many countries concentrati ng on a limited range of export crops [tea, coffee, cotton, cocoa] in Africa, returns to supply expansion have been dampened by adverse world market price trends for these crops. Thus price distortions was not a major issue in East Asia due to their export diversification with manufactured goods contribution most to growth EXTERNAL FACTORS The fact that Africa is better located than Asia for most developed economy markets raises further questions on Africa’s low export potentials in the examined period. However, a greater population of Africans reside further from the coast or navigable rivers than in other regions. This increase transport costs for exports. In terms of financial flows, Africa has attracted much more aid per capita than any other region. Till date, the debate on whether aid has been detrimental or beneficial for the growth process is still on. A follow up of the early critics who claim that aid reduces the incentive for good governance led to the World Bank and IMF implementation of good policy as a condition for the receipt of aid since the 1980s. Collier and Gunning (1999) argue that where policies are good, aid tends to raise growth rate and vice versa. The latter case results due to diminishing returns rapidly set in and hinders aid’s contribution to growth. Until recently, many African policy environments were not good enough for aid to raise growth substantially. This suggests that aid receipt may not have necessarily contributed significantly to Africa’s slow growth rate. Rather, Africa might have failed to use efficiently, the opportunity for enhance growth which aid offers (Burnside C, and Dollar, D (1999). External Policy On external policy issues, African governments adopted exchange rate and trade policies which were anti-export and accumulated large foreign debts. Exchange rates were commonly highly overvalued, reflecting the interest of he political elite in cheap imports. Nigeria for instance, was said to be a dumping ground for cheap and used items from Europe. While this might have been an attempt by the government to provide for the masses, its adverse effect on growth was obviously neglected. Moreover, tariffs and export taxes were higher in Africa than in other regions of the world, partly because of the lack of ot her sources of tax revenue to finance the expansion of the public sector (Collier and Gunning 1999). This continued to happen in the midst of current account deficit. On the other hand, East Asian nations like Japan imposed general import restrictions to redress balance of payments deficits. Hong Kong, Malaysia, Singapore, Thailand, Taiwan, China, had no cause to impose such restrictions, since their current account balances never faced serious long-term deficits. . Conclusion Without high domestic savings, broad-based human capital, good macro-economic management, and limited price distortions, there would be no basis for growth and no means by which the gains of rapid productivity change could have been realized (World Bank, 1993). The significance of ascertaining why East Asia grew faster than Africa lies on determining the lessons that could be leant from the Miracle of the East Asian Nations. This relates particularly to developing countries which are still aspiring to grow and develop out of poverty. We note that most of these nations are in Africa. We have noted some of the reasons why Africa grew slowly in the last few decades but we must bear in mind that the recent growth trends of some African nations such as Botswana, South-Africa etc has made it difficult to analyse growth using Africa as a category. While Africa’s problems might be partly domestic and partly external, it is believed that domestic policies largely unrelated to trade may now be the main obstacles to growth in much of Africa. Estimates suggest that the shortfall in African investment is due to low private investment; thus the need for more privatisation in Africa. However, the role of the public sector towards growth and development should not be neglected especially in providing incentives and conducive polices that enhance productivity.