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The Economics of Development

 11 min read / 

As the last generation with the potential to stop climate change and the first one with the opportunity to eradicate poverty from the world, millennials need a deeper understanding of the challenges involved in our interconnected and globalized economy. Daily actions in Western countries often have unintended and drastic consequences elsewhere, leading to rising poverty in other parts of the world and aggravating an already desperate situation.

A Wrong Development?

The article opens with a reflection on whether the term “development” should be used in the economic discourse at all. The term was coined in the 50s and 60s after WWII, referring to those post-colonial countries that do not enjoy a strong economy compared to the west. Also, the terms “First world”, referring to western countries, “Second world”, indicating BRICS countries in a strong position to exploit commercial opportunities, and “Third world”, grouping all the remaining territories, were invented within the same framework of classification based on economic power.

However, early international policies have brought little improvements to poverty and development in disadvantaged countries. Neoclassical economists in the 50s and 60s significantly overlooked the criticalities present in these countries and assumed that they would simply “develop” by themselves, as happened with western countries in the centuries before.

The reasoning is based on three misleading and dangerous assumptions. First, the Smithsonian belief that economic development will improve the living conditions of a whole population has proven to be flawed. In neoclassical economics, wealth is re-distributed via the externalities of industrialization and improves the well-being of a geographic region as a whole. This can happen if, for example, an industry is flourishing in a certain area, attracts talent, raises wages, and creates an ecosystem of supplementary services and auxiliary shops around its core nucleus. Nevertheless, re-distribution of wealth cannot be triggered without strong economic policies and a pro-poor legislative environment.

Second, international policies have encouraged and imposed a strong protectionism on developing countries, especially concerning the agricultural sector. The logic of protectionism is meant to preserve the domestic economy from low-cost products coming from faraway markets, yet has heavy implications for the economic development of disadvantaged communities. One should note how, in history, there is no single country which has managed to start a vital industrial sector without supportive agricultural inputs and surpluses. From the perspective of the poor farmer, there are no incentives to move away from a subsistence agriculture unless viable returns on the invested can be obtained.

Third, poverty is not to be resolved solely through economic development, but instead through a series of contextual and path-dependent societal issues, such as public health, education, access to nutrition, infrastructure and politics. The intertwining of poverty determinants requires a closer level of analysis and a thorough knowledge of the local context to promote interventions relevant, meaningful and effective for the poor. Therefore, historical and cultural differences among Asia, Africa and Latin America should be taken into account in international policies and specific interventions should be tailored for each country.

Historical Determinants of Poverty

How did we get where we are today? What may not be clear from western history books is that this is a post-colonial era, where the colonial period is not so far in the past and still has deep implications on the livelihood of billions outside of Europe and North America. Not many decades ago, the French and British empires were ruling over 30% of the emerged lands, imposing taxes and constraints on the local populations. The world used to be a “Europe-centric” construction, with satellite countries across the globe. In spite of some advantages of colonization, such as urban development and import of technologies, the colonized territories were mostly treated as subordinates to the homeland and arbitraged for their low-cost resources and manpower. Macro differences emerge not only between Asia and Africa, but also between treatments and independence treaties in the British and French Empires.

Before colonization, Asia used to be ruled in centralized systems, with Maharajas in Hindustan and Malaysia, Emperors in China and Japan, and local kings in Cambodia, Burma and smaller countries. First as slave-traders in the 16th century and, later, through the expeditions of British captains in the 1800s, the Europeans have always found tribal systems based on barter and rivalry. Asian countries were somewhat organized and had local leaders with whom Europeans could establish alliances or declare wars, whereas African territories had no centralized government or policy systems but relied on village-based communities and tribes. Consequently, the colonization of African territories was made possible by “divide-et-impera” strategies, pitching rival tribes against each other, forging treaties with the largest tribes and most powerful leaders, and enforcing British rulers over the dominated lands.

Infrastructure and Climate

Furthermore, due to the inhospitable climate and pre-existing lack of infrastructure, the French and British could do little to extend their control in Africa beyond the largest cities and main trade routes. The wide areas covered in tropical forest and the multiple nuclei of villages spread across dirt-roads in the remote parts of the countries made hard to either initiate agricultural development, collect taxes or promote trade in the conquered lands. Asian countries instead benefited from previous social structures, land-management systems and roads facilitating the establishment of plantations, employment and commerce across cities. Although Asian policies in colonial times had always been pro-European, imposing rock-bottom trade fares and fostering the exploitation of local peoples, in the long run, agricultural and commercial systems facilitated the post-independence “Green Revolution” in South East Asia, during which the countries managed to increase their exports and generate incoming cash flow via industrial agriculture and centralized policies, posing the base for a further hi-tech industrialization.

Finally, divergences in management practices and post-independence concessions of the French and British Empires have their respective advantages and disadvantages on the former dominated colonies. The French Empire was ruled directly by the French elite, preventing local populations to gain administration skills and preserving a climate of general protests and political instability up to the current day. French colonies were originally poorer than British ones, afflicted by an arid climate, and multiple tribes always fight each other due to harsh living conditions. On the other hand, British colonies were ruled by British governors and local rulers alike: when possible, the UK preferred to leave the king or dominant tribe in power and help him manage the country. The British system had some obvious advantages in terms of skills and education of the local elite, however, it also considerably contributed to social inequality and tribalism, hindering development for the vast majority of the population.

A positive note of today’s French ex-colonies are their free-trade agreements with the motherland, the presence of a strong common currency inherited from France and preferential migration treaties. Unlike British ex-dominions, French-speaking African countries are arguably well-positioned to take advantage of international trade and economic opportunities. Open trade agreements potentially grant colonies a safe route to export their products, obtaining fair prices and income for the local poor.

The Vicious Cycle of Poverty

Today, African countries still suffer from many of the colonial problems and scarce progress has been made to overcome their challenges in eradicating poverty and developing equally. The lack of real political agendas, social inequality, unsustainable supply chains, and daily life hazards are a vicious cycle preventing active citizenship and fair policies.

European Empires did little to tackle the problem of tribalism and continuous fighting among different ethnic groups. As a result, tribe leaders are still strong socio-political agents in sub-Saharan Africa, undermining the national unity and promoting unfair pro-tribe policies. Few exceptions can be mentioned to the rule of African leaders coming to power after sanguineous and violent rebellions. Indeed, one could question whether the western model of “Democracy” fits the continent at all. Under the assumption of perfectly rational voters, democracy should work because most citizen would choose their own leader according to what they deem best for the country. However, when strong social differences and closed communities (e.g. tribes) exist within a country, every voter will want to maximize his or her own interest. In most African countries, the majority of the population does not vote based on political ideas or

In most African countries, the majority of the population does not vote based on political ideas or agendas, but instead follows the candidate from their own tribe. There are almost no cases in which the major political parties do not reflect a pre-existing tribal subdivision of the country, with President Kenyatta’s post-electoral protests and turmoil being the most recent case. When a president enters into power, he or she will invarably favour fellow tribe members with little attention to the needs of the vast population, raising general opposition and malcontent.

Minorities

The lack of a political agenda favouring minority and disadvantaged groups impedes the poor from reaping the benefits of a steadily growing economy. In fact, In spite of upswinging economies, the African poor are getting poorer and social inequalities are growing visibly. The historical-political systems of the region favour a small privileged elite who has become sufficiently equipped to face the global financial systems and a post-capitalist economy, at the expense of their disadvantaged con-nationals. Education and services are available only to the lucky and relatively rich urban population, who can aspire to attend a University and eventually find an office job in the booming cities.

However, illiterate and rural inhabitants face the constraints of never-increasing wages, disinformation on market prices and ingenuity towards formal commercial and financial systems. Cases of touristic café chains paying their waiters less than $1 a day, peasants forced to sell their land at unrealistic prices and individuals evicted from their houses due to gentrification and rising costs of rent are heard daily in the local newspapers. In short, the few people with sufficient capital to invest in land or other commercial activities are taking advantage of an increasing number of unskilled persons longing for the satisfaction of their primary needs.

A closer focus on the poor’s perspective and reflection on the evolution of capitalism in the last century can explain why locals are not taking action against an unfair and debilitating system. Westerners tend to oversimplify the intricacies of capitalism and the economic mechanisms at play in modern realities, yet those are of not simple nor immediate understanding for the rural masses. The ideas of investment, setting up a business, risking capital and realizing a profit are completely extraneous to rural communities in Sub-Saharan Africa. Moreover, following a long tradition of subsistence economy and limited production, the common peasant may not consider the future consequence of his daily actions.

Economic life is the immediate consumption of one’s salary, satisfying hunger if sufficient funds are available to purchase food. The drastic change from barter to a complex economic system brought by the Europeans is not comprehensible without a formal education and deep immersion in urban contexts, excluding rural communities from the benefits of economic development. The concepts of saving, optimism towards the future and mitigating risk do not come into mind naturally if one has not grown up familiar with them. In the same vicious circle, poverty and lack of expectations lead poor farmers to undervalue their life, spend their belongings in short-term needs and overlook future possibilities. The metrics measuring poverty should be expanded to statistics of poverty-related troubles, including not only malnutrition and health conditions but also prostitution, the incidence of sexually-transmissible diseases (STDs), crime rate and micro-corruption, among others.

The West’s Responsibility

Does the West have a say in what happens in Developing countries? Aren’t we doing good actions with humanitarian aid and NGOs? Or are we, perhaps, closing both eyes on the bigger picture?

As long as tribal and dictatorial regimes are supported in their operations favouring a privileged elite over the masses, poverty can do nothing but increase. The lack of infrastructure, the physical and psychological exclusion of the underprivileged and the impossibility of exiting their vicious cycle are imminent problems that the globalized world as a whole should face.

This responsibility is reflected not only at the macro level, with international trade policies and innovative research focused on empowering small-hold farmers, but also at the micro level, when multinationals and consumers alike deliberately ignore the complications across a global supply chain. Has someone ever wondered where do the $1 chocolate bars and kilos of bananas from the supermarket originate from? This is the right time to ask.

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Africa

Standing Defiant: African Countries Respond to Trump’s Comments

 5 min read / 

Africa Trump

Trump’s recent bout of racism has given African states the opportunity to exert considerable agency on the world stage and also take the moral high ground of dignity and respect. Though Trump’s comments are of a vulgar and vile nature, they represent nothing new: African countries are severely misunderstood and misrepresented in mindsets and media, in particular by those of some western publics.

This is to everyone’s detriment, as African countries are strategic partners in trade and security and will only grow more vital to the state of global, economic and political affairs – it is estimated that the majority of the world’s population growth will take place on the African continent.

The African Union’s Response

Trump’s comments are an opportunity for the African Union, or AU, and for individual African states to exert agency and also strengthen their moral standing. Trump’s outright racism and the ensuing African diplomatic response and the strong voices on social media represent a key moment in recognising Africa’s all too often under-appreciated importance to global affairs. The African Union condemned Trump’s comments in the strongest of terms, and issued a statement declaring that:

“The African Union Mission wishes to express its infuriation, disappointment and outrage over the unfortunate comment made by Mr. Donald Trump, President of the United States of America, which remarks dishonor the celebrated American creed and respect for diversity and human dignity.” The comments were further characterized by African envoys as “outrageous, racist, and xenophobic.”

Botswana has been a major voice in this response, describing the comments as “irresponsible, reprehensible, and racist.” Among the larger African states, Nigeria has not issued an official response, though South Africa is issuing a diplomatic protest over the comments, stressing that “relations between South Africa and the United States, and between the rest of Africa and the United States, must be based on mutual respect and understanding.” US diplomats were summoned in Ghana, Botswana, and Senegal – more African countries are expected to follow suit.

American Views on Africa

The racism and ethnocentrism inherent in labelling “distant” countries (such as Haiti and nations in Africa) pejoratively is nothing new. Though most Americans would not express their worldviews in such crass and vulgar terms, there is widespread ignorance about African countries, with little recognition that African countries represent strategic trade and security partners, not to mention their vast cultural wealth. This problem lies in all facets of American society, from predominantly negative and homogenising news coverage about the African continent to the Eurocentric focus of the education system.

These comments were made in a larger context of domestic demographic change within the US, in which white people will enter minority status by 2044, in addition to the global power shifts of the wider world. Not only are Trump’s comments steeped in racism and ignorance, but they represent the uncertainty and deep discomfort many white Americans feel in the midst of the changing domestic demographics and a world order in which the US is no longer the lone superpower.

Africa is the Future

The African continent is the future, as African population growth will account for the majority of the world’s global population with half of the world being African by 2100. African countries are already strategic partners in trade and security, and will only become stronger players in global political and economic affairs.

Though it is certainly a desired goal for public opinion – the worldviews of western publics in particular – to recognise and appreciate the importance of African countries in their right and their integral significance to international relations, in some respects it doesn’t matter what Americans might think about a massive continent of 54 countries. As John and Jean Comaroff have written in ‘Theory from the South‘, “Lagos is not catching up to us. Rather, we are the ones catching up to Lagos.” African countries are not waiting on Western publics’ enlightenment.

Due to the rise of emerging powers changing the global landscape of power relations, African countries have more opportunity than ever to exert agency in selecting their partners and leveraging relations for national gain. Though the US is a key economic partner for much of the continent, African countries have many other options and it is well known that the approach of China and other emerging powers are, in many respects, regarded more positively than traditional western approaches. Relations between the US and African countries have been marked by longstanding goodwill, but Trump’s comments may complicate relations, ranging from security cooperation to trade ties.

Most important is African ownership of African development, in which the harmonisation of external partners aligns with domestically articulated goals and aims in respect to the continent’s nations. African countries, and all of the diversity within them, must be appreciated in their own right and understood on their own terms.

Conclusion

African countries have their own visions and national development plans and are charting a course marked by innovation and holistic strategies aimed at meeting both human and environmental needs. It is time African countries are recognised and respected for the leaders they are on the world stage and that western publics realise that society’s global future is very much an African one.

Trump’s comments are of course vulgar and crude, but should make people think very seriously about society’s own failings in how people portray – and learn about – Africa, an incredibly diverse continent of 54 countries, from our media to our classrooms. Africa is the future, and – following Trump’s comments – African countries have taken the opportunity to exert agency on the world stage and take the moral high ground.

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Africa

Gem Reports Finding Fifth-Biggest Diamond in History

 2 min read / 

biggest diamond

One of the biggest diamonds in history has been dug up in the Kingdom of Lesotho, Southern Africa.

The diamond has been valued at 910 carats and described as of “exceptional quality”. At roughly the size of two golf balls, it is the fifth biggest diamond ever found.

The stone was found at the Lestseng Diamond Mine in north-east Lesotho, operated by Gem Diamonds Ltd.  The mine is renowned for the size and quality of its stones, which have the highest average selling price in the world. It was at the Letseng mine that the 603-carat Lesotho Promise diamond was found in 2006 and sold for a reported $12.4bn in Belgium.

“This exceptional top-quality diamond is the largest to be mined to date and highlights the unsurpassed quality of the Letseng mine,” CEO Clifford Elphick said in a statement. “This is a landmark recovery for all of Gem Diamonds’ stakeholders, including our employees, shareholders and the Government of Lesotho, our partner in the Letseng mine.”

It has been categorised as a D colour Type IIa diamond, meaning it has very few or no nitrogen atoms making it a very rare, and very expensive, find. The price of a diamond is determined by the size and quality of the stones cut from it but it is estimated the stone could be worth at least $40m.

Last week, Gem reported it had found a 117-carat and 110-carat stone. In July, the company reported discoveries of two stones that exceeded 100 carats. 

At the news, Gem shares bumped up 18%, trading at 93 pence by 9:06 am.

(Photo: Gem Diamonds)

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Africa

Blockchain and Cryptocurrencies: The Keys to Reforming Inefficiencies in Nigeria?

 5 min read / 

Blockchain Nigeria

Nigeria, though still a developing country, is very much a resource-rich one – and that means a lot of potential for prosperity for the nation as a whole. Through the extraction and exportation of its vast oil reserves, Nigeria could raise huge sums of money to grow and develop infrastructure to reduce poverty and improve citizens’ quality of life. However, undermining all these possibilities are inefficiencies and corruption in the public sector; problems which have persisted for the last forty years. But could modern technologies such as Blockchain and cryptocurrency provide a solution?

Corruption and Inefficiency

Corruption and inefficiency are worryingly common in African countries at varying levels of development, and Nigeria is one of the worst affected. Its main industry, oil, has been particularly crippled by inefficiency problems; non-enforcement of contract terms in 1993 led to losses of $60bn, while between 2009 and 2011 a further $11bn was lost through theft. Nigerian ports are also impacted upon by inefficiencies and corruption and consequently suffer losses of nearly $3bn annually, as well as having the generation of 10,000 jobs each year stifled. Poor infrastructure, inconsistent policy and an unclear administrative system have been listed causes of the issues.

Yet, the problems are not limited only to commerce and businesses. The public sector in Nigeria is riddled with corruption, and this extends to the citizens that government officials are meant to serve. A report by anti-corruption organisation Transparency International ranked Nigeria lowly 136th in its annual Corruption Perception Index; it has also been found that on average a Nigerian will pay a bribe once every two months according to Nigeria’s 2016 National Corruption Report, with the police and prosecutors being the most frequent recipients. Clearly, Nigeria is consistently sabotaging its own potential through administrative problems and personal greed. However, a combination of Blockchain technology and cryptocurrency could help end this cycle.

As explained in the previous article on Blockchain, the concept can be described as a decentralised peer-to-peer digital ledger in which financial records, compiled into a block, are added to a digital chain in a permanent and unchangeable way. By being decentralised, there are both security and speed improvements; security is increased by the removal of any ‘master copy’ of the ledger, while the absence of a middle-man drastically decreases the time a transaction takes to be completed. The other technology mentioned – cryptocurrencies – are digital currencies that harness the Blockchain technology in an online marketplace. But what does this have to do with preventing corruption and inefficiency? Well, in fact, there are uses of these two concepts that are very relevant here.

Smart Contracts

Firstly, smart contracts could be used to provide citizens with access to their legal entitlements. Blockgeeks state how smart contracts help ‘exchange money, property, shares, or anything of value in a transparent, conflict-free way while avoiding the services of a middleman’. In the more remote areas of Nigeria, this could prove revolutionary. It could give farmers legal rights for their land, in doing so providing them with a valuable and tradeable asset; an NGO called Bitland is already providing this service in Ghana with great success – there’s no reason why Nigeria could not engage in the same process, improving current inefficiencies in the legal sector as well as reducing inequalities.

Additionally, if citizens were to have access to their own legal profile in which their rights, assets and licences are all easily available, it could go far in reducing the prevalence of the everyday bribery that appears to go on so often. If an individual needed to obtain a new copy of a driving license, for example, they could do so using Blockchain, without the need to go through a public sector that is almost above the law and can charge illegally.

Democracy

Furthermore, Blockchain technology could be used to ensure true democracy occurs. A lot of African countries remain in quasi-dictatorial states, in which a dictator operates essentially under the illusion of untampered democratic process. A Blockchain can provide a transparent, unchangeable ledger of digital votes that would ensure corruption could not occur, and therefore democracy would be protected.

While Nigeria does operate democratically, it is evident that corruption is present throughout the state infrastructure, and therefore the country would benefit from having a system that could ensure democracy exists without exploitation. This open-ledger technology, in combination with cryptocurrency, can prevent corruption outside of voting too. By providing a traceable record of every single financial transaction and through the absence of a middle-man, it could create tangible progress in the prevention of foreign aid being misappropriated, something that has been seen to occur in Nigeria.

Conclusion

However, for all the potential improvements that Blockchain and cryptocurrencies can provide, major obstacles still remain. There will be significant data privacy and governance considerations surrounding the transparency of these ledgers; ledgers that will be containing what is currently regarded as confidential and private information. As well as this, there has to be a willingness of the existing government to use the new technology – it obviously cannot be forced upon them.

Given that the government largely is the target of the reform that Blockchain and cryptocurrencies would enable, it appears unlikely that such technology will be welcomed with open arms. Instead, it seems that there somehow needs to be an overhaul of the attitudes within the Nigerian public sector, so that it is more willing to find solutions to the crippling problems that have persisted for so long. 

Keep reading |  5 min read

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