Africa and Thriving Industry
Theresa Anoje writes:
Up until the past decade, many African governments did not, and often could not, put attention on their country’s industrial sector. This is the result of the “Washington Consensus” (Warning! PDF), a set of policies that many African countries were forced to adopt as the conditions for loans from the International Monetary Fund and the World Bank during the Third World Debt Crisis of the early 1980’s. Developed in the eve of the fall of the communism, the Washington Consensus embodied the belief that capitalism and free markets were the solution to the economic stability issues that many developing nations faced. These policies, which included privatization of state-owned enterprises and deregulation of trade and financial markets, were intended to allow private industry to flourish by limiting government involvement in the economy. What it actually brought about were disastrous results for many African nations’ GPDs as well as for citizens’ per capita income.
Source: World Bank (PDF!)
Between the 1980’s and early 2000’s, Sub-Saharan per capita income declined by 9%. This was in sharp contrast to the previous two decades in which the interventionist policies of the post-colonial era, that the Washington Consensus had sought to “fix”, grew per capita income by 37%. While several factors such as political instability due to military coups and civil war may explain much of Africa’s economic decline following the Third World Debt Crisis, the Washington orthodoxy could also be to blame. Many argue that the removal of public involvement in the economy created a vacuum that private enterprise in Africa was not ready and able to fill. Even countries with well-established private sectors failed to grow in light of intense export competition from developed nations, diminished government subsidies and trade tariffs, and waning investment in infrastructure.
Only recently has much of Africa began to recover from the effects of the Washington Consensus, and is now experiencing GDP growth at twice the rate of the previous two decades. While the majority of Africa’s rapid economic growth of the past decade can be accounted for by growth in its private banking, retail, and telecommunications sectors, a large part of its growth is occurring in tandem with China’s rapid growth. Increased Chinese demand for primary commodities such as raw materials, food, and fuel have led to both a surge in the prices of many of Africa’s main resources, as well as increased direct investment in Africa by China’s public and private sectors.
Source: McKinsey Quarterly
The mutualistic relationship between African countries and China, which some refer to as the “Beijing Consensus” (PDF!), is now changing the way in which African governments affect industrial policy. In exchange for helping China to meet its high resource needs, China provides “aid” to (i.e. advances its own interests in) Africa in the form of less restrictive non-concessional loans and direct investment in infrastructure, mining, and power facilities across the continent. China’s ascendance as a leading trade partner and aid donor is now allowing many African countries the freedom to abandon the Washington Consensus orthodoxy of limited government involvement in industry. However, many questions remain in the debate between the Washington and Beijing orthodoxies.
Supporters of the increased involvement in industry point to the East Asian “miracle economies” of Japan and South Korea throughout the latter half of the 20th century. These countries saw economic growth in light of protectionist trade policies, such as high tariffs and subsidies, which allowed their fledgling industries to compete and flourish. On the other hand, some claim that these countries’ as well as China’s economic policies resulted in rapid growth only in areas in which it adheres to Washington orthodoxy (PDF!), in particular its liberal trade and investment policies. Some remain ambivalent; while deregulation leads to glaring issues for developing nations, interventionist policies are not a quick fix for stalled growth and effects may only lead to sustained growth in the long run. Others believe that the in the end, a combination of the two or “heterodoxy” will result in the ideal environment for industry.
The basis of my research will focus on the economic path that African governments should take moving forward. What will fare better for African industry: following the Washington Consensus of deregulation, the Beijing Consensus of intervention, or a certain mix of both? What country-specific factors would affect the mixture of industrial policies that it adopts? And what lessons can be learned from the likes of China, East Asia, and other developed and developing nations regarding the appropriate path to take? Thriving industry is the key to African economic growth; the question is whether government action or inaction will help Africa achieve it.
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