Business Strategies In Africa

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Towards a Growth Strategy for Africa

Marcel Fafchamps, Francis Teal, and John Toye

REP/2001-06

Centre for the Study of African Economies

Department of Economics, University of Oxford

Manor Road Building, Oxford OX1 3UQ, United Kingdom

csae.enquiries@Economics.ox.ac.uk

November 2001

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Executive Summary

Now that China and India have found ways of growing out of poverty, attention has again

turned to Africa. The purpose of this report is to ask which engines of growth can be

activated in sub-Saharan Africa today.

After two decades of stagnation in the continent, discouragement is taking hold. The

focus of policy has shifted further and further away from growth-oriented interventions

towards welfare assistance. Yet, in the long-run, a growth strategy is the most cost-

effective way of dealing with poverty. This is true for two fundamental reasons: first,

growth lifts many of the poor out of poverty; second, it generates the government

revenues necessary for anti-poverty measures. A donor strategy that focuses exclusively

on short-term poverty alleviation is a dead end, condemned to last indefinitely.

Rapid growth, when it happens, is disruptive. Measures are needed to protect vulnerable

groups against disruption. In a growing economy, educating the poor is a good way of

helping them partake to increased aggregate prosperity. In a stagnating economy, the net

effect on poverty reduction is less clear. The rapid increase in education which occurred

in sub-Saharan Africa from 1960 to 1990 was not sufficient to generate growth.

Exporting out of Africa is currently the only promising avenue for growth. It is not

entirely understood why exporting countries grow faster, why technical progress is more

rapid in export oriented countries, and why exporting firms are more efficient. It may be

due to knowledge transfers, to the competitive pressures induced by exporting, or to gains

from using surplus resources not captured by standard trade models. Whatever the

explanation, the link between exports and growth seems indisputable. The further fact

that Africa represents a tiny fraction of world trade and that its exports are in many cases

below their level of three decades ago means that the potential for expansion is

enormous. Experience from various African countries such as Ghana and Uganda

suggests that export recovery can generate substantial gains quickly. In this report, we

focus on four sectors with significant export potential in sub-Saharan Africa:

manufacturing, agriculture, tourism, and mining.

A dramatic rise of exports out of Africa is essential for sustained growth in the continent

as a whole. This may come from manufacturing where long-term rates of growth can be

much higher than in agriculture. Successful industrialization would draw labour to

rapidly expanding cities and relieve the countryside from having to sustain the mass of

the poor.

Not all African countries will become manufacturing export platforms in the foreseeable

future. For many of them, agriculture, tourism, and mining offer the best prospects for

exports and growth. A long-term vision is essential. Africa will not revive its primary

exports without identifying new markets and raising productivity so that growth is

profitable. This can only be achieved via institutions and adequate technology combined

with the incentives to adopt innovations, many of which have long been available.

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For growth to take place, technology transfers and investment in physical and human

capital are necessary. While the engine of growth may be in the private sector, policy

intervention is required to create an environment in which firms can operate. The first

component of any such environment is a sound macroeconomic policy based on fiscal

balance and low inflation. Albeit there remain important areas of dispute regarding what

constitutes an appropriate macro economic policy, these disagreements are primarily

about means rather than ends. They are ignored here since we focus on ends.