Africa and Economics

This article appeared in Forbes on May 28, 2001.

The whole world is worried about Africa, and with good reason. Late last year the International Monetary Fund andthe World Bank approved a $34 billion debt relief package for 22 of what they classify as "heavily indebted poorcountries"; 18 of them are in Africa. Secretary of State Colin Powell has said Africa will be a priority for him. Theleading industrialized nations, the G-7, are putting together a multibillion-dollar fund to fight AIDS and other infectiousdiseases that are endemic in Africa.

Sub-Saharan Africa is beset with so many problems that the mind boggles. The average income per capita (excludingSouth Africa) is $315, lower than it was in 1960, inflation-adjusted. Africa's total income, for a population more thantwice that of the U.S., is not much more than Belgium's. The median gross domestic product per African country is $2billion. That's equal to the output of a town of 60,000 in a rich country.

Africa's share of world trade has fallen to less than 2%. Instead of being trade dependent, Africa has become aiddependent, with net transfers from foreign assistance averaging 9% of gross domestic product. The capacity of theregion's governments to deliver basic services-public safety, clean water, health and schooling-has deteriorateddramatically. It was true a generation ago, and it is just as true today: Many governments in Africa are corrupt andincompetent.

The economic growth required to keep the number of poor from rising is 5% annually. Attaining that growth target willbe enormously hard because of a demographic weakness that is harming productivity, earnings and savings. It'smirrored in the soaring dependency ratio, which is the population of children and elderly divided by the population ofactive workers. That's because, all over Africa, workers in their prime productive years are struck down by AIDS andother illnesses.

There is no debate about how horrible these problems are. There is much debate about their root causes. I would liketo nominate one cause that is overlooked by the great majority of people who consider themselves humanitarians: alack of property rights.

If Africans can't be assured of owning land or goods, they can't have functioning economies. With brigands able tograb anything in sight, there's no incentive to produce material goods or to build a future.

All too often in Africa, people can't even be assured of owning their own bodies. Child slavery is common, particularlyin West Africa, where youngsters are routinely shipped off to the Middle East to work as unpaid laborers. Many moreare sold into bondage at home. Although accurate figures are hard to come by, the International Labor Organizationestimates that 80 million African children between the ages of 5 and 14 work as slaves.

The bloody legacy of Africa's ongoing wars stems from conflicts over resources. Consider that 20% of Africans aredirectly affected by civil wars that have resulted in 3.3 million refugees and countless deaths.

Humanitarians usually assume that African wars are motivated by political, ethnic or religious differences. But theDevelopment Research Group at the World Bank has a very different take. It studied 47 civil wars occurring between1960 and 1999. Countries with natural resources and ill-protected property rights are most subject to looting by rebelgroups. One brutal example is the war being waged over control of diamond mines in Sierra Leone.

Less dramatic, but every bit as devastating to an economy, is capital flight. No other place on the globe loses such alarge portion of its indigenous capital as Africa. If your property is not safe, you take the money and run. So Africanspark 40% of their wealth outside the region. That leaves too little capital available for investment at home. The sadresult is that, absent some enormous reforms, Africa is doomed to continue its downward spiral.

Without sound property rights, the billions of dollars being ginned up to save Africa promises to be money down thedrain. Good feelings and foreign aid will not work. The only cure is to install the basic concept of ownership in Africaneconomies.