Asia’s Development Miracle and Africa’s Development Tragedy of the Late 20th Century: Key Lessons

EYASU SOLOMON
1. Introduction

At the time of decolonisation in the 1950s and 1960s, the level of economic development in most of Asia was comparable with that of Africa. For instance, four decades ago, the per capita income of South Korea was comparable with that of the Sudan in Africa. However, since the 1960s, South Korea has achieved an incredible record of growth to become one of the 26 richest countries in the world and was able to join the trillion dollar club of world economies in 2004 while the Sudan is still one of the 33 Least Developed Countries (LDCs) in sub Saharan Africa (SSA).

The Asian miracle and the failure of SSA in the late 20th century puzzles many development thinkers primarily because unlike the Asian countries, the African countries had relatively large endowments of natural resources and hence were expected to achieve higher economic growth in the post independence period.

Although most African countries which gained independence in the 1960s showed rapid economic growth, their growth could not sustain beyond the first oil shock in 1973. By the early 1980s, African countries already began to show sings of economic stagnation and their external deficits had become so severe that donors and other financers were no longer willing to continue to provide support. Thereafter and following the 1980 Washington Consensus, most African countries were forced to adopt the neoliberal Structural Adjustment Programmes prescribed by the World Bank and IMF. However, the outcomes of these programmes were often controversial and sometimes counterproductive.

Meanwhile the divergence in economic performance between Africa and Asia continued. Average annual GDP growth rates for SSA were 1.7% over 1980-90 and 2.1% over 1990-97 while that for East Asia was 7.8% and 9.9% respectively (World Bank, 1999) (in Masware, 2006). While much of the SSA growth was in agriculture, most East Asian growth was in industry. In SSA, real GDP growth has seen a general decline from about 3% in the late 1970s to about 1% in the following decade recovering only slightly in the 1990s ( Lawrence and Thirtle, 2001). On the other hand, for the rapidly growing Asian economies also known as the high performing Asian economies (HPAEs) per capita income growth has been positive since the 1960s. Thus East Asia became an undisputed development success while SSA became a development tragedy of the late 20th century.

The rest of the paper is organised as follows: section 2 provides a comparative development perspectives for the two regions. Section 3 presents Africa’s opportunities and challenges in the 21st century while section 4 concludes.

2. Africa and Asia’s Economic Performance Compared

As stated earlier, after a relatively higher growth during the first decade of independence, the economies of SSA stagnated while countries in East Asia which were at similar level of development with SSA in early 1960s showed rapid and sustainable economic growth. Over the period 1965-89, real per capita annual growth of SSA averaged less than 0.5% compared to 5% for the high performing Asian economies which included Hong Kong, Indonesia, Malaysia, South Korea, Singapore, Taiwan and Thailand (Maswana, 2006). As a result in 1997, SSA GDP per capita was US$560 as compared to per capita income of US$4,230 for Latin America, $750 for China and $24,710 for the industrial world (Maswana, 2006).

In its 1993, The East Asia Miracle Report the World Bank (in Maswana, 2006) offered number explanations for rapid growth in this sub region. Among these high savings and investment rates, a relatively high degree of equality, high growth rates of human and physical capital, high productivity growth, (including agriculture), and high growth rates of manufactured exports were considered to be key drivers.

Development theory and practice indicates that economic development generally consists of nations undergoing a series of structural transformations from tradition bound, less productive and less profitable activities to modern technology bound, more profitable and value-added activities. According to Clark and Roy (1997) (in Maswana, 2006), this transformation include the change from less sophisticated to more sophisticated agricultural techniques, from an agricultural to a manufacturing, to perhaps service economy, from light to heavy to high tech industries in post agriculture economies.

While structural tranformation was sustianed and rapid in Asia whose manufacturing export jumped from 22% of merchandise exports in 1963 to 87% in 2000, SSA experienced only a slight change from 7% to 20% in the same period (Maswana, 2006). The main reason for such failure in SSA worng governement developeemnt strategy that neglected the agrciutlture sector. Since the 1960s, the level of the public resources allocated to agriculture in SSA has been consistently low relative to the sectros’s size and contirbution to the GDP. Accoridsng to the World Bank (2000) (in Maswana, 2006), in most African countries, the sector recieves less than 10% of the public investment spending while the sector accounts for about 30-80% of the the GDP.

Another reason for the divergence in growth performances between East Asia and SSA was disparities in savings and investment rates. Saving rates nearly doubled in some countries in East Asia, where they averaged 30% of disposable income between 1984 and 1993 , while SSA’s already modest savings rates fell to 10 to 15% (World Bank , 1999) (in Maswana, 2006). During the period 1980-2004, the savings rates in Africa was 16% of GDP, but it was erratic and remained lower than investment rates of 19% for the same period while savings and investment rates in Asia averaged 30% in the same period and the saving rates in Asia have surpassed investment rates in Asia since the 1990s (Maswana, 2006).

In addition, Asia received an increasing capital flows while capital flows to Africa were limited. In 2007, Asia received over 62% of the FDI destined to the developing countries and the region is regarded as the most preferred destination for foreign investment in developing countries while Africa received only about 10% of the FDI flows to the developing countries.

Moreover, Africa’s trade and industrialisation strategy lacked the dynamism observed in Asia and elsewhere. During the first decades of independence both SSA and East Asia followed Import Substitution Industrialisation strategy that was meant to create domestic industrial base that would be able to compete with the rest of the world at a later stage. However, while Import Substitution Industrialisation strategy in Asia created a foundation for a transition to export-led industrialisation which later served as an engine of growth in the region, in Africa the import substitution strategy led to currency overvaluation, development of parallel currency markets and shortage of foreign exchange required to purchase intermediate inputs used to produce both tradable and non tradable goods and hence transition to the export led industrialisation strategy never materialised.

However, there is no general agreement regarding the causes of rapid development in East Asia. As stated earlier, the causes of rapid development in East Asia are considered to be high rates of saving and investment, appropriate politics, policies, and bureaucracy, investment in human and physical capital, and technology, and promotion of agriculture, export orientation, entrepreneurship, the cultural dimension, and the state with active intervention.

Although there seems to be no general agreement regarding the causes of the East Asian economic miracle of the late 20th century, there is a general consensus on the importance of the following factors: high rates of savings and investment, investment in education, capital accumulation, sound macroeconomic management, relatively open trade policy, dynamic agricultural sector, maintenance of relatively equitable income distribution, and political credibility.

However, still there is no single East Asian development model that can be replicated in Africa. Instead, there are different experiences, policies and outcomes. Booth (2001) (in Lawrence and Thirtle, 2001) argues that there are at least three models of east Asian development: These are (a) a manufactured export led, state interventionist model based on the experience of Japan, Taiwan, and South Korea, (b) the freeport commerce and service dominated model of Hong Kong and Singapore, and (c) the natural resource model of Indonesia, Malaysia and Thailand.

The SSA’s success could depend on more noneconomic lessons from Asia, such as the existence of national identity and political commitment to growth with equity. In contrast to the developmentalist and distributive role of the state, especially in Korea and Taiwan, where relatively authoritarian states identified their maintenance of power with a successful economy, the SSA authoritarian states have become kleptocracies (Lawrence and Thirtle, 2001).

Lawrence and Thirtle (2001) highlight further three essential policy options: First, policies to support agriculture are important, but should be based on price incentives and market opportunities. Second, industrial policy may be ill advised because of the difficulty of identifying target manufacturing industries. Finally, trade liberalization based on the removal of domestic distortions would be the best option for SSA.

3. Africa’s Development Opportunities and Challenges in the 21st Century

After a period of falling per capita incomes that started in the 1970s, African economies began finally to turn around from about 1995, with initially modest increase in per capita incomes (Bigsten and Durevall, 2008). Since 2001 the African economic turn around has become real and sustainable with average growth rates of over 6% per annum partly due to the resources price boom but also due to improved economic policies.

The progress has been largely due to improved policy performance, particularly the adoption of less-distorted macroeconomic frameworks, increased reliance on private sector as a driving force for economic growth, and the improvement in governance in many countries. Although the political news is largely mixed, the emergence of more participatory government regimes has improved confidence and modestly increased investment in more sub regions of the continent (UNECA, 1999).

However, SSA is still one of the least developed sub region with massive poverty and underdevelopment. Thus while there are opportunities for SSA to claim the 21st century there are numerous challenges.

Studies have shown that to reduce poverty in Africa by half during 1999?2015, balanced policies to enhance economic growth and reduce inequality and an average annual rate of growth of at least 7 per cent are minimum requirements. Policies and programmes that promote broad-based, labor-absorbing patterns of growth are critical to ensuring that the poor participate and benefit from income growth. Poverty has a root in the interlinked population, environment, and development dimensions and must be tackled accordingly (UNECA, 1999).

Another change is Africa’s ability to join the information revolution. Africa is the most subdivided continent?with 165 borders demarcating the region into 52 countries, 22 of which have a population of 5 million or less, and 11 of which have a population of under 1 million. The limitations of size are very real from demand and supply points of view, and this makes regional cooperation a sine qua non for competitive entry by any individual African country into world markets. There is also a need to broaden the concept of regionalism and accordingly rethink Africa’s regional integration strategy (UNECA, 1999).

Industrialization is the key to increasing Africa’s participation in world commerce and finance, is crucial to the structural transformation of Africa’s economy, and provides the platform for enhancing Africa’s competitiveness in an increasingly globalized economy. Yet the level of Africa’s industrialization remains low, as illustrated by three key facts: first, there are only a handful of countries where manufacturing as a share of GDP exceeds 25 per cent?the benchmark for considering a country as having achieved the threshold of industrial take-off; second, the export composition of African countries continues to be dominated by primary rather than by processed or semifinished products; third, the ratio of public expenditure and private investment in scientific research and development remains minuscule as a percentage of GDP in all African countries (UNECA, 1999).

The continent has to devise polices to attract FDIs, has to rapidly expand human and physical infrastructure and fully participate in the global information revolution.

Africa has to build its capacities to accelerate growth to 8 per cent per annum and sustain it at that level well into the second and third decades of the 21st century. Only addressing these issues will prevent countries which are recovering at present from slipping back into stagnation. Thus, in spite of the recent good news, the challenges ahead for Africa to deepen economic and social progress and to sustain it over the next two decades are formidable.

Africa is a region with a very high economic risk. This means that both domestic and intentional investors demand a very high risk premium on their investment in the continent. Therefore the quality and stability of the economic environment within which economic agents operate depends on the institutional structure and the quality of government. Although the recent process of democratisation and some improvements in the process of governance are encouraging, the low quality of governance is still the most severe development problem in Africa (Bigsten and Durevall, 2008). Africa has to address the governance challenge as a matter of urgency to sustain and improve the current growth opportunities.

4. Concluding remarks

Although SSA and East Asia were at comparable level of economic development during the decades of decolonisation, East Asia quickly outperformed Africa in economic advancement. There is now a general consensus on the importance of the following factors in ensuring rapid development in East Asia : high rates of savings and investment, investment in education, capital accumulation, sound macroeconomic management, relatively open trade policy, dynamic agricultural sector, maintenance of relatively equitable income distribution, and political credibility.

Due to these factors East Asia achieved rapid transformation from non sophisticated, low-valued added economic activities to highly sophisticated high-tech led and highly profitable modern economies. On the other hand, Africa remained the poorest and the most marginalised continent in the world.

However, after more than two decades of decline, the African economies saw a turnaround beginning in mid 1990s. The turn around has accelerated since 2001 with sustained annual average growth in excess of 6%. However, to meaningfully reduce the rampant poverty in the continent in the foreseeable future, the continent needs to accelerate its growth to over 8% per annum.

There is no single East Asia development model that can be replicated in Africa. To achieve and sustain higher growth levels, Africa needs to devise balanced economic polices that put the private sector at the centre of economic growth and job creation, rapidly expand human and physical infrastructure and fully participate in the global information revolution, industrialise rapidly, devise polices to attract FDIs, and address the current severe problems of governance.

References

• Bigsten , A. and Durevall, D. 2008. The african economy and its role in the world economy. Current African Issues 40. The Nordic Africa Institute.

• Maswana, JC, (2006). Economic Development Patterns and Outcomes in Africa and Asia. Congo Economic Review. Working Paper WP04/06-2006.

• Lawrence, P. and Thirtle, C. (eds) (2001) Africa and Asia in Comparative Economic Perspective. New York: Palgrave.

• UNECA, 1999. The ECA and Africa: Accelerating a Continent’s Development Chapter1. United Nations, ECA. http://www.uneca.org/publications/books/eca_and_africa/chapter1.pdf.