27 June 2011

Is 4.9% a Year Growth Rate a Rapid Growth for Africa?

Africa boasts an abundance of riches: 10 percent of the world’s reserves of oil, 40 percent of its gold, and 80 to 90 percent of the chromium and the platinum metal group. Those are just the known reserves; no doubt more lies undiscovered. _MQ
Global Map of Nations by per cent Living Under $1.25 per day

McKinsey Quarterly has published a fascinating look at recent economic growth in the continent of Africa (h/t Brian Wang). According to the report, real GDP growth over the continent averaged 4.9% per year between the years 2000 and 2008. This was twice Africa's growth rate over the decades of the 1980s and 1990s. The report goes on to discuss the many issues leading to such growth, and other factors that will be involved in future African growth. From McKinsey:
Africa’s collective GDP, at $1.6 trillion in 2008, is now roughly equal to Brazil’s or Russia’s, and the continent is among the world’s most rapidly growing economic regions. This acceleration is a sign of hard-earned progress and promise.

While Africa’s increased economic momentum is widely recognized, its sources and likely staying power are less understood. Soaring prices for oil, minerals, and other commodities have helped lift GDP since 2000. Forthcoming research from the McKinsey Global Institute (MGI) shows that resources accounted for only about a third of the newfound growth.1 The rest resulted from internal structural changes that have spurred the broader domestic economy. Wars, natural disasters, or poor government policies could halt or even reverse these gains in any individual country. But in the long term, internal and external trends indicate that Africa’s economic prospects are strong.

...Natural resources, and the related government spending they financed, generated just 32 percent of Africa’s GDP growth from 2000 through 2008.2 The remaining two-thirds came from other sectors, including wholesale and retail, transportation, telecommunications, and manufacturing (Exhibit 1). Economic growth accelerated across the continent, in 27 of its 30 largest economies. Indeed, countries with and without significant resource exports had similar GDP growth rates.

...To start, several African countries halted their deadly hostilities, creating the political stability necessary to restart economic growth. Next, Africa’s economies grew healthier as governments reduced the average inflation rate from 22 percent in the 1990s to 8 percent after 2000. They trimmed their foreign debt by one-quarter and shrunk their budget deficits by two-thirds.

Finally, African governments increasingly adopted policies to energize markets. They privatized state-owned enterprises, increased the openness of trade, lowered corporate taxes, strengthened regulatory and legal systems, and provided critical physical and social infrastructure. Nigeria privatized more than 116 enterprises between 1999 and 2006, for example, and Morocco and Egypt struck free-trade agreements with major export partners.

...The continent’s four most advanced economies—Egypt, Morocco, South Africa, and Tunisia—are already broadly diversified. Manufacturing and services together total 83 percent of their combined GDP. Domestic services, such as construction, banking, telecom, and retailing, have accounted for more than 70 percent of their growth since 2000. They are among the continent’s richest economies and have the least volatile GDP growth. With all the necessary ingredients for further expansion, they stand to benefit greatly from increasing ties to the global economy.

Domestic consumption is the largest contributor to growth in these countries. Their cities added more than ten million people in the last decade, real consumer spending has grown by 3 to 5 percent annually since 2000, and 90 percent of all house-holds have some discretionary income. As a result, consumer-facing sectors such as retailing, banking, and telecom have grown rapidly. Urbanization has also prompted a construction boom that created 20 to 40 percent of all jobs over the past decade.

...If recent trends continue, Africa will play an increasingly important role in the global economy. By 2040, it will be home to one in five of the planet’s young people, and the size of its labor force will top China’s. Africa has almost 60 percent of the world’s uncultivated arable land and a large share of the natural resources. Its consumer-facing sectors are growing two to three times faster than those in the OECD7 countries. And the rate of return on foreign investment is higher in Africa than in any other developing region. Global executives and investors cannot afford to ignore this. A strategy for Africa must be part of their long-term planning. _MQ
The report excerpted and linked above is quite optimistic toward the economic prospects for Africa over the next 3 decades, based upon this "4.9% a year growth rate." But Al Fin economic and social forecasters do not take quite the sanguine view as those of the McKinsey Institute.

As seen in the map at the top of this entry, Africa is quite diverse in terms of economic conditions. It is an act of false parsimony to consider the entire continent of Africa as one unit, economically. Instead, one should look at SubSaharan Africa separate from North Africa, economically and socially. Further, one should subdivide SubSaharan Africa into tropical and temperate regions, when considering investments and partnerships. McKinsey failed to stratify African nations other than by "economic diversification" and "exports per capita." Useful, but not sufficient. It is difficult to draw useful conclusions when data is so badly conflated.

The time period selected by the report for extrapolating Africa's future may not be representative of what to expect from a realistic future Africa. The ongoing instability in Egypt and Libya, for example, suggest that the chronic instability of most of tribal Africa may be spreading into nations where tribal and religious instability had been temporarily suppressed by strong political regimes of long duration.

Urbanisation may bolster GDP growth numbers temporarily, for example, due to the more quantified economic nature of more modern city living vs. quasi-ancient rural life styles. Yet there are limits to how large stable cities can grow under certain demographic conditions. Many of Africa's cities are already pressing those limits. Frequent instances and high rates of crime, disease, poverty, malnutrition, and crumbling infrastructure suggest that many of these cities may already be near the breaking point.

Modern high tech infrastructures -- such as those which allow more advanced nations to enjoy the fruits of modern trade and sci-tech development -- are dependent upon an infrastructure of human capital which is capable of maintaining and improving the underlying technological infrastructure. In the absence of capable maintenance, repair, and construction, societal infrastructure tends to collapse at the most inopportune times.

Here is the blunt truth, which Political Correctness tries to obscure: Modern affluent lifestyles require a high tech infrastructure which can only be maintained by populations with average IQs close to 90 or above. This is an inexorable result of the normal statistical distribution of occupational abilities centering around the mean (for both IQ and EF, both of which are highly heritable). The only way for a society to exceed the "IQ limit" is if the nation hosts a "market dominant minority" -- or smart fraction -- of higher IQ persons capable of maintaining markets and infrastructures -- market dominant minorities such as the Chinese in Malaysia or Indonesia, or the shrinking populations of high-IQ groups still in South Africa.

North Africa's populations have a different evolutionary history than the populations of SubSaharan Africa. For some countries of North Africa, the average population IQs are near 85. But for most SubSaharan African nations, average population IQs are well below 80 -- generally averaging in the 70s. The reasons for such low average IQs involve multiple factors, but the blunt facts of low average IQ (and EF) are clear and stand in the way of large scale indigenous economic development across many chronically underdeveloped parts of the world.
Global IQ Map by Nation

For Africa to grow sustainably, it will need to attract leadership and energy from the outside -- and keep it there rather than driving it out, as was done in Zimbabwe, Kenya, Uganda, etc. An expansion of what it means to be "African" is mandatory -- but it can only be made to last in an Africa of greatly expanded opportunity and radically reduced corruption and populist demagoguery.

Al Fin futurists suspect that perpetually ambitious and corrupt African tribal leaders and strongmen will only accept the changes that are needed under the sanction of a "superior being." In abstract terms, think quasi-theocracy. In real terms, that would mean either an outside (perhaps "extraterrestrial") group of vastly superior technological capacity, a genuine artificial intelligence of superior wisdom and cognition, or a sufficiently convincing imitation of one or the other.

Adapted from an earlier article at Al Fin, the Next Level

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