The Tortoise and the Hare: How African economies withstand the financial crisis
- Simon Allison
- 15 May 2012 07:00 (South Africa)
You know the story and its underlying message: slow and steady wins the race. You probably don’t know the story of African economic under-development and Western economic growth, which is not quite as exciting. But the message, as outlined in a new IMF report, is similar – and it’s good news for the sluggish but increasingly stable African economies. By SIMON ALLISON.
The fable of the hare and tortoise is not a perfect metaphor to explain the differences between Western economic development and Africa’s under-development. Nowhere in the stories I read did the hare plunder all the tortoise’s pretty gold and diamonds as it rushed past the tortoise, or impose imbalanced trade restrictions. And Africa – being the tortoise, of course – has yet to overtake the West’s hare.
But as metaphors go, it’s close enough. The prosperous West is in the grip of the worst financial crisis since the Great Depression, its economies slowing down and its businesses struggling. Africa, meanwhile, keeps plodding along, posting steady growth rates that were once unexceptional, but are now the envy of those developed economies. This is the bit where the tortoise starts to catch up.
The International Monetary Fund’s latest regional economic outlook for sub-Saharan Africa, released on Monday, served to confirm these suspicions. 2011 was a good year, with the region’s output growing by 5% – not quite as good as in the years before the economic crisis, but still better than the world average. And 2012 will be even better, with growth of around 5.4% predicted. This is slightly less that what the IMF had originally predicted, but still an improvement on 2011.
Even the IMF agrees that the tortoise is doing well. “Although subject to downside risks, the overall picture in sub-Saharan Africa is markedly more buoyant than the outlook for some other regions in the world, notably the advanced economies of Europe and North Africa,” noted the report.
Better still, this buoyancy is no flash in the pan. “The region’s recent sustained growth – specifically, among low-income economies – represents a sharp break with the past, when the region lagged far behind other parts of the developing world.”
There are two main positives to be drawn from this observation. The first is that – for once in a continent where economic development has been characterised by false starts and setbacks – African economies are sustaining their good progress. A number of factors play into this: increased capital spending, better institutional capacity, the higher price of the commodities which so many African economies rely on, and greater access to credit within countries.
This last is somewhat ironic, given that the financial collapse in Europe and North America was precipitated in large part by an unhealthy addiction to credit.
The second positive is that Africa is insulated from the global financial crisis. Not completely, but in large part, and that’s enough to keep our economies going while the likes of Greece and Spain struggle to pay their bills. African economies are protected precisely because they were so far behind the rest of the world. In the good times, this meant they missed out on the advantages of being tied to a fast-growing economy. In the bad times, it means they are not dragged down with it.
South Africa is perfectly illustrative of this phenomenon. It has the greatest exposure to Western economies, particularly Europe, and this has helped make its economy the biggest in Africa. But now South Africa is suffering, with predicted growth rates of less than 3% (as compared to arch-rival Nigeria’s 7%). In fact, South Africa’s performance is predicted to be so poor that it is the main reason Africa’s overall growth rate was cut from 5.9% to 5.4% in the IMF report. Unlike the rest of Africa, South Africa is being severely – and negatively – affected by the global economic crisis.
Is there a lesson in there somewhere? Should Africa be trying to cut its ties with the outside world, and go it alone? Professor Danny Bradlow of the University of Pretoria and the American University, an expert in international law and African economic development, doesn’t think so.
“You can make that argument in theory,” he told Daily Maverick. “The problem is, if you try to cut your ties to all the major export markets, then how do you grow? There is a cost to belonging to the global economy, but there are also great benefits, especially in terms of social development.”
One example he highlighted was health, where the populations of most African countries rely on imports of disease-preventing, life-saving medications to combat everything from malaria to HIV/Aids. Going it alone means losing these lifelines.
Also, in today’s inter-connected world, avoiding globalisation completely is impossible: an isolated, completely self-sufficient Africa with no ties to external economies is simply not feasible. But there are still things that African economies can do to protect themselves, and the financial crisis and consequent global realignment of power is actually forcing countries into these measures.
Bradlow explains that African countries have no choice but to diversify and find new markets for their goods, often because their usual trading partners are in trouble. This diversification will protect those economies from major shocks because they will no longer be as vulnerable to events in just one other economy.
African economies still have a very long way to go before they catch up to their Western counterparts in size and wealth. But as the West struggles through recessions and depressions, Africa has found itself reassuringly unaffected by the financial crisis, able to maintain steady growth rates. If the continent really is more resilient now, as the IMF thinks, and is able to maintain this growth over the long term, then there’s no reason why African economies won’t become serious challengers to their European, American and Asian counterparts.
That hare better watch out: the tortoise is coming. Slowly, but surely. DM
- Africa sustains growth despite global uncertainty from the IMF.
- IMF cuts Sub-Saharan Africa 2012 growth forecasts on Reuters.
Photo: Smoke rises from the Okobaba sawmill at the shore of the Lagos lagoon April 21, 2012. REUTERS/Akintunde Akinleye.
- Simon Allison