AfricaXavier Sala-i-MartinColumbia University

July 2008

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GDP Per Capita (SSA)

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Growth of GDP Per Capita (SSA)

Growth of GDP Per Capita (SSA) Poly. (Growth of GDP Per Capita (SSA))

Poverty ($1/day)

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There has been some success since mid 1990s (even though the MDG people want us to believe that Africa is a disaster because it is far away from MDGs).

Obviously…

Of course:◦ Part of it is commodity boom◦ But non-oil exporters have not had an improvements in TOT

(they import oil!): growth does not come from exports of commodities but domestic demand

Of course:◦ “Africa” does not mean anything as a unit: lots of

heterogeneity: landlocked vs non-landlocked oil vs non-oil democracies vs non-democracies war vs non-war).

I think there are four factors that should be cause for optimism

Caveats

1989 – 3 democracies 2006 – 23 democracies Reasons:

◦ End of cold war◦ End of SA apartheid◦ Both of them brought more freedom.

Some are fragile (Kenya), but still a change.

(1) Democracy

African Democracies

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Note: To qualify as a democracy, a country must score 4 or less on the combined Freedom House score AND 2 or more on the polity score from Polity IV.

Democracies, non-Democracies, and Oil Exporters in Africa

Democracies Year of Democratization Non-democracies Oil-exportersBenin 1991 Burkina Faso AngolaBotswana 1966 Central African Republic CameroonCape Verde 1991 Congo, Dem. Rep. ChadComoros 2004 Djibouti Congo, Rep.Ghana 1996 Eritrea Equatorial GuineaKenya 2002 Ethiopia GabonLesotho 1993 Gabon MauritaniaLiberia 2006 Gambia, The SudanMadagascar 1992 Guinea-Bissau Nigeria*Malawi 1994 GuineaMali 1992 Ivory CoastMauritius 1968 RwandaMozambique 1994 SomaliaNamibia 1990 SwazilandNiger 2000 TogoNigeria* 1999 UgandaSao Tome & Principe 1991 ZimbabweSenegal 2000Seychelles 1993Sierra Leonne 2002South Africa 1994Tanzania 2000Zambia 2002* Both a democracy and oil-exporting

Governance IndicatorsSource: World Bank Institute

Year Democracy Non-Democracy Democracy Non-Democracy1996 -0.49 -0.78 -0.49 -0.782006 -0.37 -1.08 -0.43 -1.04

Democracy Non-Democracy Democracy Non-Democracy1996 -0.46 -0.84 0.38 -0.912006 -0.39 -1.13 0.06 -1.01

Democracy Non-Democracy Democracy Non-Democracy1996 -0.49 -0.77 -0.12 -1.052006 -0.36 -0.92 0.06 -1.19

Rule of Law

Control of Corruption

Regulatory Quality

Government Effectiveness Political Stability

Voice & Accountability

(2) Macro Stability

Inflation in Africa

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HIPC initiative, etc: DEBT is no longer an issue

(3) Debt Crisis Finally Over

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Major Debt Relief Deals since 2000Decision Point Completion Point

Completion Point HIPCsBenin July-00 March-03Burkina Faso July-00 April-02Cameroon October-00 April-06Ethiopia November-01 April-04Ghana February-02 July-04Madagascar December-00 October-04Malawi December-00 August-06Mali September-00 March-03Mauritania February-00 June-02Mozambique April-00 September-01Niger December-00 April-04Rwanda December-00 April-05Sao Tome & Pr December-00 March-07Senegal June-00 April-04Sierra Leone March-02 December-06Tanzania April-00 November-01Uganda February-00 May-00Zambia December-00 April-05

Interim HIPCsBurundi August-05 FloatingCentral African Rep. September-07 FloatingChad May-01 FloatingDem. Rep. of Congo July-03 FloatingRep. of Congo March-06 FloatingThe Gambia December-00 FloatingGuinea December-00 FloatingGuinea-Bissau December-00 Floating

Interim HIPC under the original HIPC InitiativeCote d'Ivoire March-98 --

Non-HIPC debt reliefNigeria 2005 2006

Debt relief frees up resources Debt relief changes the relation with

the donor community: African countries no longer need the IMF and the WB◦ Note: Opens up the role for China

Countries take up their own responsibilities and may make their own policies and reforms with fewer constraints

Implications of Debt

Example: Cell Phone penetration New businesses associated with these

technologies (creativity, innovation, entrepreneurship)

Potential “skipping” of stage of development (no fixed telephony)

New Means of payments (sms-transfers with potential implications for international capital flows: sms-remittances)

(4) Use of New Technologies

In General (for the whole world), China is:◦ A customer◦ A competitor:

Increasingly in “sophisticated manufacturing” (electronics, telecoms, transportation,…): maybe not direct competition to Africa (African manufactures are below in the sophistication ladder)

◦ A Lender (in exchange for future supplies of primary commodities) A future debt crisis?

◦ A Partner (Investment)◦ A Financial Investor (Massive Sovereign funds, and it is not clear

what they will do with them)◦ A Contributor to increase price of commodities

Main increase in world demand of oil come from USA, but for the rest of materials it is China

◦ A Contributor to decrease price of manufacturing (so lower inflation)

◦ A “Global Hunter for Energy”◦ A Substitute for IFIs when it comes to aid

(5) The Emergence of China has important implications for Africa

FDI is still dominated by South Africa and the UK But the fact that China is moving towards Africa

◦ They may be better equipped to do business in economies with fewer resources, with corrupt local officials, with less regard for workers rights than Europeans and Americans. And they do not have former colonial ties (or slavery trade guilt)

This is an important indicator to others◦ The move in the commodities sector, but also in

manufacturing◦ Europeans and US are monitoring and may disembark soon

Anecdotal evidence (investment banks –JP Morgan- and hedge funds are increasingly coming to Columbia GSB looking for experts in African business)

China and FDI

A Model of development (a mirror)◦ It Can Be Done!!!◦How it can be done:

Commitment to education (good) Embrace globalization (good) Maintain role of state in planning/directing/Clusters

(because of China, most countries are setting up “competitiveness councils” where PPP are discussed) Not clear this is a good idea since governments, still,

are not equipped to “pick winners” Entrepreneurial spirit / business as opposed to aid as a

way to develop

(5) Emergence of China

Is this time the real turning point for Africa?

Fundamental Question

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GDP Per Capita

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Growth of Demand for Oil

Country 2000 2006 Difference Account for

World $648,529,494 $1,609,917,764 $961,388,270 100.00%

USA $139,621,555 $345,058,815 $205,437,260 21.37%Japan $77,425,354 $161,691,373 $84,266,019 8.77%China $20,636,867 $89,000,588 $68,363,721 7.11%Germany $43,239,109 $111,330,061 $68,090,952 7.08%South Korea $38,076,555 $86,706,747 $48,630,192 5.06%

Oil and other fuel Imports

Growth of Demand for Minerals

Country 2000 2006 Difference Account for

World $239,312,970 $454,494,686 $215,181,716 100.00%

China $37,914,180 $102,211,411 $64,297,231 29.88%Japan $25,895,877 $41,913,099 $16,017,222 7.44%Germany $16,551,225 $32,468,504 $15,917,279 7.40%South Korea $9,912,163 $19,664,453 $9,752,290 4.53%India $2,913,814 $12,396,296 $9,482,482 4.41%USA $24,104,822 $32,970,721 $8,865,899 4.12%

Imports of Minerals and Other Crude Materials (except Fuels)

Crude Oil and Related Imports: China and Major Importers, 2000-2006

Quantity of Kilograms___________________________________________________________Country 2000 2006__________________________________________________________China 70,265,318

145,174,839USA 464,801,236

861,259,894Japan 211,981,499

208,694,845Germany 105,292,884

109,503,671South Korea 120,651,685

120,152,663_________________________________________________________Source: COMTRADE, 2008.

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