Francis Teal (Editor, Journal of African Economies)
During the course of the latter part of the twentieth century Africa went through a cycle of great optimism, at the time of independence from the late 1950s to the mid-1960s, to great pessimism in the 1980s and 1990s – the African Tragedy – to equally great optimism at the turn of this century – an African Renaissance – to where we are today with (some) guarded optimism. Indeed, the Economist in April 2016 ran an article on Business in Africa entitled ‘1.2 billion opportunities’.
A special issue of the Journal of African Economies asks if things really have changed or are they much the same. In one dimension there has certainly been major change. Africa’s GDP per capita has expanded rapidly in the last 20 years. While there is much scepticism of the numbers there is such clear evidence in complementary data sources that there can be little doubt of the increase. The problem on which the papers focus is that while this change is clear, underneath, whether anything fundamentally has changed is much less so. Africa remains a continent in which employment in small-scale low productivity enterprises dominates and in which the employment share in manufacturing remains small. The recent improvement in growth rates has depended overwhelmingly on rising commodity prices for Africa’s exports and abnormally low global interest rates, and the possibility is real that with any decline in commodity prices and/or rising interest rates incomes will fall. The argument advanced by Dani Rodrik in the paper that opens the special issue is that Africa’s very limited industrialisation is a crucial barrier to high sustained growth rates.
Sustained growth would critically depend on reasonably high levels of labour productivity. But just how does labour productivity in Africa compare with elsewhere? In agriculture, where most of the poorest Africans still work, the highest productivity country (the US) has labour productivity more than 80 times that of the country with the lowest labour productivity (Ethiopia) – see Table 2 in the paper by Diao et al. If things have improved they clearly still have some way to go. And, it is these very low productivity levels that prevail across all sectors.
How to get to sustained growth and poverty reduction is a common theme across the papers. Two approaches are adopted. One looks at how growth, inequality, and poverty link. The second looks to changes in the structure of the economy. It turns out that these two apparently very different approaches might well be linked. It would appear that there should be a relatively simple mechanical link between growth and poverty: growth is good for poverty reduction, but then inequality matters – high inequality is bad for poverty reduction. Well, to adapt a well-known phrase, you might very well think that, but you would be, at best, only partially right. As two papers in the special issue show, very different results from this proposed identity can arise in different periods and across different parts of the developing world, not to mention differences due to which econometric technique is used. The evidence points to income growth in Africa being less effective at reducing poverty than it is in other parts of the developing world. Further, the relationship between inequality and poverty appears much weaker in Africa than it is elsewhere.
Why might that be? Well, the papers that focus on structure suggest an answer. How countries grow matters for how both growth and inequality impact on poverty. When growth takes the form of high income from commodities such as oil the income effect on poverty is limited. When it takes the form of improvements in agricultural incomes the impacts of income growth on poverty reduction are large. We need to know not simply that GDP is rising, we need to know whose incomes are rising. The weak link between inequality and poverty reduction may reflect that inequality has changed relatively little or it may reflect that the measure of inequality used does not do a good job of capturing the changes of income of the poorest who feature in the poverty measure. The implication is that Africa is indeed different and in ways we wish to see changed. Finding out what is behind this difference and how to magnify any effect of growth on poverty reduction is the question that the results in these papers pose. The papers themselves provide an up-to-date guide on what is known on these issues and should challenge researchers to find answers to this and many other related questions.
The Journal of African Economies Special Issue (Volume 27, Issue 1, January 2018) is now available online