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Effectiveness of Policies Promoting Growth and Development in Sub-Saharan Africa


Economic growth is measured by GDP growth and by the productive potential of an economy, whereas economic development is seen through improvement in living standards. Sub-Saharan Africa (SSA) consists of a band of developing countries, including Ethiopia, Zambia, and Nigeria. Developing countries tend to have lower GDP per capita due to dependency on the primary sector, lower levels of employment and capital and high mortality rates, resulting in overall low growth and development.

One market-oriented supply-side policy to promote growth and development is privatisation, where a business is transferred from state ownership to private ownership and control. Nationalised industries have no incentive for efficiency as they don't have a profit motive and often are corrupt, therefore privatisation increases the productive and allocative efficiency. It achieves this as private firms are competing against each other to bring costs down and maximise their respective profits. In sub - Saharan Africa utilities can be privatised, which were previously owned by the government. Privatisation would increase growth by generating higher levels of GDP due to private firms' profit motive, as well as improving government finances and reducing levels of debt. It would promote development by creating more efficient access , driving down prices and improving the quality of utilities such as water, improving standard of living. In 2006, Ghana's water industry was privatised leading to increased revenue and efficiency and improved customer service, as well as a drastic improvement in water quality.

Although one of the benefits of privatisation is the fact that it can end the corruption within a state-owned firm, it is associated with corruption itself. Politicians sell the company below market price to friends or family or receive bribes to accept bids, leading to the misallocation of public resources. This is seen in Kenya, where officials manage privatised firms to ensure the few elites benefit the most. Nationalised assets could be privatised and owned by foreign entities, which inhibits growth in the developing country itself. Privatisation of utilities could lead to monopolies, which means that a lack of competitiveness would reduce efficiency and drive up prices. In Guinea, water prices went up seven times post-privatisation between 1989 and 1997, although admittedly water quality did improve.

Protectionism is an interventionist policy to promote growth and development in LICs in Sub-Saharan Africa. It is often used in conjunction with a policy called import substitution, where LICs develop domestic firms that can produce consumer goods that were previously imported, reducing the current account deficit. Since these infant industries are likely to struggle to compete with global competitors, protectionism allows domestic industries to grow by protecting them from the competition of foreign goods. They use a system of quotas and tariffs to enable new firms to compete while they acquire expertise and expand output to gain economies of scale. Since consumption and spending are within the LIC as opposed to importing, this increases AD and economic growth. This is often followed by the outward-looking policy of export promotion where LICs have exhausted their potential gains from import substitution, and focus on exporting products. This leads to export-led economic growth, as the country is exporting more than they import and moving to a current account surplus. Total SSA exports to China, Brazil and India were larger than those to the EU in 2011, driven by export promotion.

However, it is important to consider that protectionism is a short-run policy, and should be gradually withdrawn to expose companies to competition. However barriers aren't always removed due to public unrest, and therefore it is unlikely that the domestic industry will ever become fully efficient. It is also a difficult choice to select which industry to prioritise in import substitution, and which will reap the most benefits to the LIC. Moreover, if countries just choose to produce what they used to import, they lose out on the benefits of specialisation and comparative advantage, causing inefficiency and possible retaliation from other countries. SSA tends to export primary commodities – manufactured goods and agricultural products represent only 5% of total exports to Brazil, India and China, 10% to the US and 30% to the EU. Since manufactured goods have more value than primary goods, the development of infant industries in the secondary sector should promote further economic growth through these higher-value exports.

The development of human capital is another interventionist policy aiming to promote growth and development. Zambia’s Human Capital Index is 0.4, which means that children born today will only be 40 per cent as productive as they would be if they had full educational and health attainment. Human capital could be developed through increased funding and access to education or by providing vocational training such as apprenticeships. On an individual level, this would essentially provide workers with the skills to help them improve efficiency and productivity. On an aggregate level, it would remove the limits to businesses expanding and innovation due to skills shortages. An increase in productivity and innovation is likely to shift the production possibility frontier outwards, increasing long term productive potential as well as economic growth. Moreover, since Sub Saharan Africa is dependent on primary products, higher skills would allow the country to develop from the primary sector to a manufacturing sector, overcoming primary product dependency. Higher-quality education improves the quality and standard of life, which leads to improvements in economic development.

However, there are some concerns regarding the effectiveness of developing human capital. China and South Korea are often used as examples of developing nations that have successfully developed human capital to promote growth and development, however, SSA and HPAEs have incredibly different economic and political structures. Therefore the success of development policies isn't as easily transferrable between these economies, due to many other factors affecting its effectiveness. Brain drain is an important factor to consider, as educated labour may decide to move elsewhere in the West due to better opportunities and spend their incomes there, limiting the benefits SSA can reap from educating their citizens. However, SSA is a net recipient of remittance inflows, which were 2.5% of SSA's GDP in 2012 and improve the current account and add to a nation's gross national income.

Weighing up the advantages and disadvantages of the different policies, they are most effective at either promoting growth or development, rarely both. Privatisation's criticisms of monopolies can be mitigated through regulation and competition promotion, however, corruption is difficult to monitor, let alone eliminate. It is however proven to be successful at improving development by improving the quality of commodities, regardless of how limited its economic growth promotion is. Protectionism, import substitution and export promotion are applications of unbalanced growth theory and can be criticised for distorting market behaviour by going against the theory of comparative advantage. However, they are significantly effective at increasing economic growth through export-led growth. It can be used in conjunction with the development of human capital, as shifting to a more export-led manufacturing economy from primary product dependency in SSA requires both protectionisms for an infant industry's initial growth as well as highly skilled labour. Development of human capital can be considered the most effective out of the three as it promotes growth as well as development through better quality education. However, the policies are most effective when used in conjunction with each other, leading to long term growth and development in Sub-Saharan Africa.

 

Written by Sanjana Iyer



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