Real Peculiarities of African Economies

It is clear that Africa suffers from chronic failure of economic growth. A set of factors have frequently been raised to account for Africa`s poor economic performance, they include, but not limited to; * External conditions emanating from the legacy of centuries of slave trading and colonial rule as well as manipulation of African politics during the cold war. * Heavy dependence on a small number of primary exports coupled with declines and volatility of terms of trade * Internal politics characterized by authoritarian, corrupt and political instability.

* Adverse economic policies in the shape of protectionism, statism and fiscal misalignments. * Social conditions and demographic challenges that includes and not limited to deep ethnic diversity, indicated by high ethnolinquistics and religious diversity, and high population growth rate Since 1980`s aggregate per Capita GDP in SSA has declined at almost 1% per annum. This is widespread and 32 countries are poorer today than in 1980. It is clear that Afric`s poor economic growth has been chronic rather than episodic. No wonder it is labeled the Dark Continent.

Circumstances in Developed countries in their early stages of economic development are substantially different from those of countries in SSA. Developed countries used a broad range of economic approaches in their development strategies. Countries in SSA more often than not, try to use economic policies prescribed by the developed countries without posing to evaluate the compatibility of this policies with their current circumstances. The above factors form the real peculiarities of African economies which pre-dispose it to slow growth, they can be summarized as: * Lack of openness to International trade.

* Adverse Geographical characteristics * Demographic Challenges * Poor Institutional quality * High Ethnic diversity * Low savings rat Thus, there is need to appreciate the real peculiarities when forming short-term and long-term economic policies and economies in SSA should design and implement development policies via its unique characteristics. Going by trends in Asia (China and India), South America (Brazil) and other developing countries, their economic growth and development is attributable to the fact that they chose appropriate strategies rather than economic policies prescribed by those driving globalization.

Jeffrey Sachs, Paul Collier and Udry, in Peculiarities of Geography: Africa, point out that the World Bank Initiated Structural Adjustment programs (SAPs) biggest irony was the fact that it promoted no structural change at all. Trends in Kenya The performance of the economy during the first decade of independence in 1963 was Impressive. The growth of real GDP averaged 6. 6% per year over the period 1964 –1973, And compared favorably with some of the newly industrialized countries (NICs) of East Asia.

This remarkable performance is attributed to consistency of economic policy, Promotion of smallholder agricultural farming, high domestic demand, and expansion of markets for domestic output within the East African region. The second decade marked the end of easy growth options and the emergence of powerful external shocks which, together with imprudent fiscal and monetary management, ushered in an era of slow and persistent economic decline with average real GDP falling to 5. 2% over the period. In the third decade, the effects of expansionary fiscal policy of the previous decade, which led to the establishment of highly protected but grossly inefficient private industries and state corporations, began to cause serious strain on the economy’s scarce resources.

Budget deficits increased rapidly, exports and imports fell, and the economy performed poorly with average real GDP falling further to 4. 2% over the period. The downward spiral continued in the fourth decade of independence. A combination of poor fiscal and monetary policy regime, external and internal shocks as well as political events resulted in the worst economic performance in the short history of the country.

The average real GDP fell to a low of 2. 2% between 1990 and 2002. The unresolved question to Kenyan policy makers and indeed many observers of the local economy is, what went wrong, and what remedy, if any, is there for Kenya’s economic rejuvenation? Pundits argue that economic policies should be compatible to the peculiarities of the Kenyan Economy. Taking Kenya as my case study, I try to shed some light in the role that the real peculiarities of African economies play in the design and implementation of its short-term economic policies and long-term development initiatives.

ROLE OF THE REAL PECULIARITIES TO DESIGN AND IMPLEMENTATION OF ECONOMIC POLICIES Lack of openness to trade: Various econometric analyses revealed that openness to trade is positively related to growth. It affects growth in two ways: 1. It affects the level of steady state income by enhancing movements of technology and innovation as well as efficient allocation of resources. 2. It enhances the speed of convergence to steady state by allowing for extensive international factor mobility For many years Kenya lacked the openness to trade.

Firms were subjected to regulation and manufacturing firms looking to set up in Kenya had to acquire letters of no objection from existing producers which resulted in predictably low levels of competition. Corruption and poor institutional quality enhanced this factor affecting foreign direct investment with MNCs looking to invest elsewhere. In the second economic update on 2010, it was argued that “the Kenyan Economy is running on one engine” that is driven by domestic demand and export growth is fragile. The extent of Kenya`s economic fragility is reflected in the recent decline of the shilling.

It is clear that Kenya`s trade performance is below its potential. Four structural weaknesses in Kenya`s export performance were identified that have contributed to today`s external vulnerability * Openness to trade has improved only marginally in the last decade compared to countries in East Asia * The gap between potential and actual exports to current market has widened * Export diversification has progressed slowly and export basket remaining concentrated * The state of infrastructure i. e. energy, rail and port of Mombasa undermine export competitiveness.

Therefore, in regards to this peculiarity short-term policies towards opening up the country to trade and its benefits will give the economy a huge boost towards growth. Approaches to attracting Foreign Direct investments and enhancing trade with markets especially in the Far East should be constituted. In the short-term, policies addressing the above challenges to exports need to be put in place so as to increase Kenya`s export competitiveness. Kenya is currently implementing the a number of initiatives to enhance trade and widening markets for the county`s exports.

Equally, long-term policies to enhance trade are being implemented. The current Economic stimulus program, where the country is investing heavily on roads and the Lamu port project are good examples. Recent economic agreements with South Sudan and Ethiopia is a step towards regional economic integration and long-term initiatives which will surely improve trade among countries in the region with guaranteed spill-over benefits. Adverse Geographical Characteristics: Like most of the Sub-Sahara Africa, Kenya is in tropics, 85% of the country`s land is Arid and Semi-Arid with only 15% considered as highland.

The rift valley is considered to be the country`s food basket which the rest of the country depends on. Tropical climate is largely considered to negatively impact on economic growth. In 2011, Kenya`s agricultural production performed average despite the draught that has since affected livestock production in North Eastern and Eastern regions. Estimates show that draught shaved off 0. 2% points from GDP growth mainly as a result of livestock mortality. Low rainfall and high temperatures affected tea production. Kenya is advantaged compared to other countries in the region for it has a coastline and is not regarded as Landlocked.

However, much of the country is located deep into the mainland, thus transport cost negatively impact on economic growth. Moreover, with only the port of Mombasa, congestion at the port and inefficiency drive the costs of economic activities higher. Unfavorable climate in much of the country leads to massive losses i. e. floods in western region and loss of livelihoods in Northern region of the country. Thus, climates bring along environmentally peculiar diseases straining the country`s budget as it strives to provide healthcare to the citizens. This adverse geographical characteristic plays a role in policy making.

Short-term policies towards enhancing food security and provision of basic healthcare need to be in place in response to this peculiarity. The government, through KARI has been in the fore-front trying to provide resilient breeds of crops that can resist the harsh environmental conditions. Through CDF, dispensaries have been built in all areas of the country. Long-term policies will include an alternative to read transport that is costly, railway system would have been the best, connecting all corners of the country so as to reduce transport cost.

Additional port should be in place to enhance efficiency and ultimately reduce cost. The LAMU port project has been applauded and is being awaited with bated breath. Demographic Challenges: Many African countries and by extension Kenya experience many demographic challenges. Life expectancy has historically been low; in Kenya it is estimated to be around 50yrs, with population in high fertility, high infant mortality equilibrium. Population growth in Kenya is high, based on the last census result, the population increased by 33% in ten years, from 30 Million ten years ago to 40 million today.

It is estimated that half of the population in Kenya today are comprised of youths. According to Bloom and Sachs 1998, on one estimate, Africa`s low life expectancy and high population growth account for almost all of Africa`s Slow growth. Half of the population of Kenya lives on below one dollar per day. Thus, it is clear that low life expectancy and high fertility are a consequence and cause of low income. As a result of Aids, adult mortality rate has risen due to the spread of AIDs with substantial economic effect due to its effect to the working population.

These peculiar demographic challenges require short-term policies towards poverty reduction and provision of widespread Healthcare to the population. Policies like Kazi Kwa vijana meant to tackle youth dependency ratios is a step in the right direction. In the long-term, family planning programs and measures towards eradication of poverty are initiatives that go in line with economic development. Low population density in arid and semi-arid areas need to be opened up to the rest of the country through infrastructure development so as their potential can be tapped. Poor Institutional quality:

SSA, and indeed Kenya, suffered undemocratic government for many years. The private sector was expanded while imposing wide ranging controls in private activity, choices that were economically costly. Public employment in Kenya accounted for 50% of total employment by 1996. The government officers encourage inefficiency and corruption where skill is not rewarded, instead social connections and bribes are the tools of trade. This affects service delivery. Economic decline increased pressure for public employment reconciled with limited Tax revenue by reducing wage rate and non wage expenditures.

The integrity of most senior government officials is wanting with most of them engaged in corrupt practices eroding confidence in their respective institutions. The Government of Kenya instituted a number of short-term policies in dealing with this peculiarity. Wealth declaration among senior government officials and employment on contract is among the shor-term measures. In the long-run, complete harmonization of recruitment procedures and use of technology in service delivery will help to curb such vices as corruption and revert confidence in public institutions.

High Ethnic Diversity Easterly and Levine (1997) finds high ethnic diversity as the single cause of Africa slow growth. Effects of ethnic diversity turns out to be contingent upon the political system, diversity has deleterious effect when it occurs in the context of government which are undemocratic. Collier (1999) argues that in dictatorships, high levels of diversity reduces growth rates by 3% points and double the rate when it comes to project failure relative to homogeneity. This has been observed in successive governments in Kenya.

Where Presidents took advantage of the colonial heritage of ethnic division. Paul Collier et al in `why has Africa grown slowly? points out that, “dictatorship tend not to transcend the ethnic group of the dictator, so that the more ethnically fragmented the society, the more narrowly based dictatorship will be, whereas democratic governments in such societies must be ethnically cross-cutting. This reduces generalized growth. ” The worst of this ethnic division has been experienced in Kenya during the 2007 post election violence where hundreds of lives were lost and billions in property destroyed.

This had serious negative impact on the country`s economy. Recent report by the National Cohesion and Integration Commission revealed that some communities in Kenya enjoy the national cake more than others through appointments to the public sector as well as benefits from government projects due to their ethnic connections to the government of the day. This has serious defects on service delivery and creates hatred among various ethnic groups in the nation. Short-term policies towards reconciliation and integration of various communities are in-line with this peculiarity.

The government, after the 2007 post-election violence, realized the need to cleanse the demons of ethnicity and established a commission to look into these issues. Ethnic balance in government appointments is also a policy that will neutralize division in the short-term. The formation of the CDF is also another measure that goes a long way in ensuring equitable sharing of resources across the populace of Kenya. Due to disparity in development among the various regions in the country, balanced regional development is a Key policy to neutralize the adverse effects of ethnic diversity.

Low saving rate: A number of growth Models advocate for positive causal relationship between saving rate and economic growth. Higher saving rate increases the steady-state growth rate of the economy. Its been concluded by various studies that why many SSA economies remain poor is because of their low saving rate which is both a cause and a consequence of a poor economy. Studies conducted in Kenya indicate that 1% Increase in GDP growth rate leads 0. 5% increase in private savings. Overcoming this peculiarity requires policies towards increasing savings.

Short-term policies towards reduction of consumption i. e. Consumption taxes especially on luxury goods can mobilize savings. Studies found out that in the long-run, variables such as GDP growth rate, Import share, export share and population growth affect private saving rate and by extension economic growth. CONCLUSION Africa has surely grown slowly compared to its peers in the Far East for decades now. Until recently It was largely viewed accepted that the main cause of Africa`s slow growth were external and the debate was whether external factors were policy induced or exogenous.

Recently, attention shifted to possible domestic causes of slow growth within African Nations. Despite the peculiarities to their economies, African Nations, with proper economic policies can overcome the challenges they face if they design and implement policies based on their unique characteristics. A case in hand is Libya which is in the Sahara desert but self sufficient in food. Through the world largest man made river, the country succeeded in agriculture through irrigation. In Kenya, the new constitution provides hopes for a country that suffered in the hands of poor leadership both politically and economically.

With county governments coming into place, it’s the hope of Kenyans that the country`s economy will change for the better. REFERENCES: 1. David E. Bloom, Jeffrey D. Sachs, Paul Collier, Christopher Udry from Brookings Papers on Economic Activity, Vol. 1998, No. 2, (1998), pp. 207-295 on “Geography, Demography, and Economic Growth in Africa” 2. Gordon P. Hagbert from the Annals’ of American Academy of political and social science 1961, Vol 335 on “The peculiarities of Geography: Africa” 3. Jeffrey D. Sachs and Andrew M.

Warner from the journal of African economies, December 1997, Volume 6, Number 3, pp. 335-376 the “sources of slow growth in African Economies” 4. Paul Collier and Jan Willem Gunning from the Journal of Economic Perspectives, Vol. 13, No. 3, (summer 1999) on “why Africa has Grown Slowly) 5. Winford H. Masanjala and Chris Papageorgiou from the Department of Economics, Louisania State University working Paper 2006-01 on “initial conditions, European Colonialism and Africa`s growth” 6. World Bank Report, December 2011, edition 5, on “The state of Kenyan Economy”.