What’s the growth elasticity of development across Africa today?

“Tomorrow’s Africa is going to be an economic force,” says a report from Goldman Sachs. KPMG trumpets the Africa story as “the rise of the phoenix.” Many factors have made this possible. After decades of stagnation, in recent years most African countries began to reform their economies. Wars, coups, political instability and disease have declined since the late 1990s. And rising commodity prices have lured investment in African resources. Mobile technology is leapfrogging ahead (Africa has become one of the fastest-growing markets for Canadian firm Research in Motion’s BlackBerry) and a new consumer class has been born. Multinational retailers are leaping in, and even Wal-Mart recently acquired a chain with nearly 300 stores in 14 African countries. The prosperity of China has been a particular spark, with about 2,000 Chinese companies investing $32-billion in Africa by the end of 2010.

But what is the truth behind the hype?

On a continent with a long history of foreign domination and colonial exploitation, this wave of external investment has the potential to repeat some of the errors of the past. There is still a power imbalance between huge multinational investors and weak governments, with officials tempted by quick payoffs and sometimes willing to sell out the people who live on the land. Mining and oil companies can generate big sums of money for governments while employing less than 1 per cent of the African work force.

From the first installment of a six part series by Globe and Mail‘s Geoffrey York on Africa’s growth boom (link). It promises to be great.

“Growth elasticity of poverty” refers to percentage reduction in poverty per percent growth in average income (link). The concept can be extended to consider how access to infrastructure and services, access to legal protection, and other general features of development accompany a rise income. Analyses of growth such as that which Sierra Leone is experiencing (profiled in York’s article) ought to keep stock of such relationships.

Over the past year I’ve traveled quite rapidly through middle income and lower income countries in Asia, Latin America, and Africa, as well as middle and lower income areas in each of these countries. Naturally this has led to mental comparisons. One feature that sharply distinguishes the two contexts is the extent to which a local entrepreneur has some non-laughable chance of realizing and growing a market for an idea, even to the point of industrial level production. In reading York’s piece it is hard to see how the types of large scale extractive investments that Sierra Leone is hosting will promote local or national level entrepreneurship. So does development need to come from somewhere else, perhaps leveraging income from these investments, but not fundamentally drawing its momentum from it? If so, then in addition to tracking growth elasticity of development indicators, one would want to consider the proportion of income gains attributable to direct sale of extractive commodities versus through other transactions.


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