This assignment is a take-home essay assignment of 2 questions, 2 pages each

The African Economic Miracle: Myth or Reality

Herman J. Cohen

ABSTRACT The majority of African nations have been enjoying a boom in

earnings from the export of both agricultural and mineral commodities since

the turn of the twenty-first century. This revenue stream, along with

macro-economic reforms encouraged by the World Bank and International

Monetary Fund, have resulted in the growth of a middle class to about

150 million persons, about 15 percent of sub-Saharan Africa. With dispos-

able income, this middle class is attracting investors, especially in retail, con-

sumer goods, and banking. The financial community is understandably

enthusiastic about the potential for high yields on short-term investments.

Nevertheless, major deficits exist in governance, agriculture, intraregional

trade, and the business climate that are inhibiting true sustainable develop-

ment. With growing urbanization and a growing class of still unemployable

youth, African governments need to introduce reforms expeditiously if they

are to fulfill the continent’s great potential and avoid the disasters of crime,

terrorism, and drugs—all of which are already creeping in.

KEYWORDS African commodities; African middle class; agricultural moderni-

zation; business environment; corruption; governance; regional integration;

sustainable development; urbanization

Since the latter half of 2011, the international financial press has pointed inves-

tors increasingly toward Africa as an interesting investment destination. The

main message has been that investment opportunities are growing in Africa

and that yields there are significantly higher than in the industrialized world.1

Some of the larger enterprises and financial institutions have been putting

their money where their rhetoric is. For example, the giant American food

and retail company, Walmart, now has 15 outlets in seven African countries;

it had none as of 2009. A South African counterpart to Walmart, the Shoprite

grocery chain, has established outlets in 10 African countries.

Among the American financial institutions that have recently set up shop

in Africa are Goldman-Sachs and the Carlyle Group. Citibank has had

branches in five African countries for more than 30 years. British and French

banks that have had an African presence since colonial times are expanding

their presence as well as their lending. The giant American mining company,

Freeport-MacMoran of Arizona, has a major investment in copper production

in the Democratic Republic of the Congo (DRC). The major American oil

A 38-year veteran of the State Depart- ment Foreign Service, Ambassador Herman J. Cohen has devoted his pro- fessional career to African and European affairs. He worked in Africa for twelve years in five countries, including three years in Senegal as the American Ambassador. His Washington assign- ments included four years as Principal Deputy Assistant Secretary for Intelli- gence and Research, two years in the National Security Council as President Reagan’s Senior Director for Africa, and four years as Assistant Secretary of State for Africa under President George Bush (1989–1993). Mr. Cohen was Senior Adviser to the Global Coalition for Africa from 1994 to 1998 and is currently president of the Africa-oriented consult- ing firm Cohen and Woods International. He travels to Africa regularly on behalf of American business firms. He comments regularly on current African issues for the BBC, Voice of America, and Radio France International.

American Foreign Policy Interests, 35:212–216, 2013 Copyright # 2013 NCAFP ISSN: 1080-3920 print=1533-2128 online DOI: 10.1080/10803920.2013.817906

212

companies, of course, have been producing oil in

West Africa for more than 40 years, and more are

seeking exploration concessions every year.

Those of us who have been working in sub-Saharan

Africa since the end of colonialism during the 1960s

have been disappointed by the absence of sustainable

economic development among the independent

nations. In the 1950s, a number of African countries,

including Nigeria, Ghana, Kenya, Guinea, and Côte

d’Ivoire, had higher per capita GNPs than South

Korea, Malaysia, Singapore, Thailand, and Indonesia.

For example, in 1960, Nigeria was a powerhouse in

the production and export of tropical agriculture.

Nigeria produced 43 percent of the world’s groundnut

oil, 27 percent of the world’s palm oil, and accounted

for 18 percent of the world’s cocoa trade. This

high world market share declined to near zero

by 1980 as the government stopped supporting

agriculture in favor of ‘‘easy money’’ from crude oil.2

During the next half century, the countries of the

Far East listed above surged ahead to become the

prosperous ‘‘Asian Tigers,’’ while the majority of

African countries stagnated or even suffered negative

growth. In view of the new interest in Africa within

the financial community, we need to determine if a

number of good-performing African countries have,

at long last, again stepped onto the path that will

lead them toward becoming ‘‘African Lions.’’

The good economic news coming out of Africa as

of early 2013 is not insignificant.

Of a population of approximately one billion

persons living in sub-Saharan countries, as many as

700 million now have cell phones. Such ownership

and use have had an enormous impact on African

economies. Farmers can find out what the latest

prices are and make marketing decisions accord-

ingly. Cell phone banking is spreading, especially

in countries like Kenya, Uganda, and Tanzania.

Friends and relatives can network in search of econ-

omic opportunities. The cell phone industry has gen-

erated lots of jobs as well as wealth for shareholders.

Africans living in the diaspora, including the

United States, Western Europe, and the Gulf, remit

approximately $50 billion annually to their families

living in Africa—more than all international

development aid combined. These funds contribute

to the growth of a ‘‘consuming class.’’

As a whole, Africa has weathered the international

economic crisis of 2008–2012 quite well because of

the persistence of high international commodity

prices. Sub-Saharan Africa is a major worldwide sup-

plier of both agricultural and mineral commodities.

African tropical agricultural commodities in high

demand include cocoa, coffee, pineapples, rubber,

groundnut oil, and cashew and palm oil. Mineral

exports include crude oil, diamonds, uranium,

copper, iron ore, bauxite, manganese, tin, and

columbium-tantalum. This last mineral compound,

commonly called ‘‘coltan,’’ is in heavy demand for

use in cell phones and computers.

Prices for African commodities have been main-

tained at high levels because of the continuing demand

from China and India. The only commodity that Africa

produces that is not imported by China is bauxite.

Accordingly, the prices of bauxite and its finished

product, aluminum, have been faltering as Western

industrialized countries have had manufacturing drop.

As of the end of 2012, somewhere between 150

and 200 million Africans enjoy ‘‘disposable income.’’

In African terms, this means earnings of a minimum

of $20 a day. These are the people who put money

in banks and who invest in cell phones and other

consumer goods, thereby generating activity that rip-

ples through the economy. These are the people, as

well, who can afford to put more than one child

through school, especially girls. Girls with more

education go on to have healthier and fewer

children. They can also afford better health care.

Also noteworthy are the low external debt levels

of most African countries. This is attributable to the

extraordinary efforts since 1995 of the international

community, including the international development

banks, to forgive, lower, and reschedule Africa’s

sovereign debt. With low debt-servicing burdens,

African countries have more disposable income to

use in laying down the foundations of development.

In addition to reducing debt, the majority of African

countries have implemented macroeconomic reform

programs that have reduced inflation and have led

to the privatization or closing of money-losing govern-

ment enterprises. Between 1999 and 2012, poverty

rates in Africa declined from 58 percent to 43 percent.

While still too high, the trend is in the right direction.3

As of early 2013, 400 million Africans are living in

cities; this number is expected to grow to 800 million

by 2030. Urban settings tend to provide better edu-

cation, better services, better markets, and more

economic opportunities.4

Volume 35, Number 4, 2013 213

The net result of sustained high commodity prices

and the growth of an African ‘‘middle class’’ has been

average annual growth rates of between 5 percent

and 7 percent for the majority of African countries

since 2000. Such growth rates constitute the basis

for optimism that as many as 5-to-10 of Africa’s 50

nations are likely to merit the title ‘‘lions’’ within

the next decade.5

Unfortunately, behind the promising growth rates

and the growing consumer class, the majority of fun-

damental economic trends in Africa provide fewer

grounds for optimism. One basic rule that we must

remember throughout our analysis is that while sig-

nificant Gross Domestic Product (GDP) growth is

an absolute prerequisite for sustainable economic

development, even high rates of GDP growth do

not guarantee economic development.

The African countries that produce and export sig-

nificant amounts of crude oil provide the best exam-

ples of GDP growth without development. For

example, the Federal Republic of Nigeria and the

Republic of Angola produce 2.9 and 2.1 million bar-

rels of oil per day, respectively. Whenever the world

price of oil increases by US$10 per barrel, their GDPs

increase by 0.25 of 1 percent. These GDP increases,

however, have virtually no impact on development.

Indeed, in Nigeria since 2005, poverty rates have

been increasing as oil earnings have escalated.

Another good example of GDP growth without

development is found in the Democratic Republic

of the Congo. As of the end of 2012, that country

was exporting 500,000 tons of refined copper ingots

per year at the highest world price in history:

US$5.00 per pound. At the same time, very little evi-

dence of development is apparent in that vast coun-

try whose size equals that of the United States east of

the Mississippi River. On the contrary, poverty has

become more extensive and more deeply

entrenched in the DRC over the past 10 years.

What are the fundamental negative factors that are

impeding the translation of strong African GDP

growth into sustainable development?

In the export sector, the vast bulk of African sales

to the rest of the world consist of raw materials, both

agricultural and mineral. With the exception of the

Republic of South Africa, we see very few examples

of value added. Such examples include the manufac-

ture of chocolate from cocoa beans in Côte d’Ivoire

and Ghana. South Africa sells significant amounts

of canned fruits and vegetables, as well as assembled

automobiles. The Republic of Botswana, one of the

few African success stories, has a modern meat pack-

ing industry that exports finished meat to Western

Europe as well as to other African countries. In

general, however, African producers export their

commodities with very little value added. Africa’s dis-

mal share of the global manufacturing trade fell from

1.2 percent in the year 2000 to 1.1 percent in 2008.6

African agriculture is severely underdeveloped in

terms of internal food security. Consequently, a very

large percentage of export earnings is used to import

food, thereby depriving African economies of capital

to use for infrastructure, education, and health—the

basic building blocks of development. The UN Food

and Agriculture Organization provides the following

negative news about Africa’s agriculture.

. Cereal yields have grown little and are still around

1.2 tons per hectare in the region, compared with

an average of some 3 tons per ha in the develop-

ing world as a whole.

. Fertilizer consumption was only 13 kg per ha in

sub-Saharan Africa in 2009, compared with 73 kg

in the Middle East and North Africa and an aver-

age of 190 kg in East Asia and the Pacific.

. Only 4 percent of arable land in sub-Saharan

Africa is irrigated, compared with about 20 per-

cent globally and 38 percent in Asia.

. Agricultural research and development spending

in African countries between 1981 and 2000 grew

at only 0.6 percent per year on average and actu-

ally fell during the 1990s.

. Some 40 percent of the population lives in land-

locked countries, as against only 7.5 percent in

other developing nations. As a result, transport

costs in sub-Saharan Africa can be as high as

77 percent of the value of exports.7

The potential for African agricultural production is

very high provided appropriate investments are

made in irrigation, farm machinery, extension work,

land tenure reforms, food storage, and farm-to-mar-

ket roads. Currently, investment in agriculture is very

low. To make matters worse, Zimbabwe, one of

Africa’s most important food producers and expor-

ters until 2000, has since destroyed most of its own

agricultural industry through political extremism

and general instability.

214 American Foreign Policy Interests

African countries engage in very little trade with

one another. Only about 10 percent of the external

trade of African nations is intraregional despite the

many regional free trade organizations and unions

in Africa that are supposed to facilitate the movement

of goods and services between and among inde-

pendent nations. Two of them, the Economic and

Monetary Union of West African States (UEMOA)

and the Central African Economic and Monetary

Union (CEMAC), enjoy a common language (French)

and a common currency, the CFA franc. This cur-

rency is linked to the euro and is guaranteed to be

convertible by the French Central Bank.

Despite the ostensible common markets created

by these and other unions, very little trade takes

place among the member nations because, at least

in part, of major nontariff barriers, conflicting regu-

latory systems, and general bureaucratic difficulties

at the borders that inhibit trade. The barriers to intrar-

egional trade are also barriers to the use of African

low-cost labor to produce goods for African consu-

mers. The efficient use of African labor should be

able to compete for African consumers by offering

better goods at a better price than those produced

by cheap labor in China and other East Asian

countries. Unfortunately, the opposite is the case.8

African governments still have a significant way to

go in their efforts to create internal enabling environ-

ments for private sector investors.

Both African and foreign investors are reluctant to

invest in manufacturing in Africa because of the high

risks associated with bad governance. The problem

of barriers to cross-border trading mentioned above

also makes it impossible for potential manufacturers

to achieve economies of scale. In too many

African countries, internal populations are too small

to constitute viable consumer markets. Only true

regional economic integration can create the large

markets necessary to attract investors interested in

manufacturing.

Where African investors have taken risks to begin

manufacturing, especially in textiles and apparel,

they are losing out to cheap goods made in China

and other Asian countries. Because China provides

significant infrastructure development to African

countries under a quasi-barter system that assures

China access to commodities, African governments

are reluctant to impose protective tariffs on Chinese

imports in order to nurture their infant industries.

African governments are benefiting from Chinese

development cooperation, but they need to better

manage the Chinese private sector presence to pro-

tect the interests of their own citizens. Some African

governments, Ethiopia and Tanzania among them,

are beginning to limit the number of Chinese

employees and small business owners who are

allowed to work in their countries. Unlike American

and European companies that invest in Africa,

Chinese companies make no effort to train and

promote Africans into managerial positions.

China is approaching the end of its market share

monopoly over goods produced by cheap labor.

Other Asian countries are moving in with even

lower-cost labor. By opening intraregional borders

and by creating regional markets, Africa’s low-cost

labor (and therefore low-cost goods) can displace

the cheap imports coming from China. Africa needs

to move rapidly into labor-intensive-manufactured

goods.9

From time to time, the United States Corporate

Council on Africa asks its 190 American business

members what they worry about most with respect

to investing in African countries. The issue that con-

sistently receives the highest number of votes is the

rule of law. Because so many African court systems

are subject to political pressure and corruption,

enforcing contracts, the lifeblood of private invest-

ment activity, is very difficult. This problem, of

course, affects African investors as much as it does

foreign investors.

The issue of the absence of the rule of law in many

African countries can be subsumed into the overall

issue of ‘‘good governance.’’ Several generations of

educated Africans have moved once-authoritarian

regimes gradually toward the long process of demo-

cratization. Multiparty systems have replaced

single-party monopolies. Political prisoners have vir-

tually disappeared. The media are generally free of

government interference, and government-owned

newspapers and radio–television outlets no longer

have monopolies. Private newspapers and television

stations are abundant throughout Africa.

Unfortunately, the expansion of democratic prac-

tices in Africa has not necessarily resulted in good

governance. Even democratically elected regimes

engage in opaque transactions with multinational

corporations that seek opportunities in extractive

industries. Budgetary operations still lack

Volume 35, Number 4, 2013 215

transparency in most African countries. Revenue

from oil and mining operations does not always

enter the budgetary process. Corruption is very per-

vasive in some of the richer countries—deeply inhi-

biting poverty reduction and other development

imperatives. Despite its vast revenue from pro-

duction-sharing in crude oil, Nigeria, for example,

still generates less than 10,000 megawatts of electric

power for its population of 150 million. Develop-

ment is impossible without sufficient power and

other infrastructure necessities. In this respect,

Nigeria, with all of its oil wealth, is only just begin-

ning the process of catching up.

Just as GDP growth does not automatically result

in sustainable development, gigantic revenue

streams from the export of extractive commodities

do not automatically contribute to good governance.

On the contrary, the quality of governance appears

to decrease as official revenues from commodity

exports increase in many African nations. Some of

the larger African countries with high levels of lucra-

tive commodity exports, such as Nigeria, the Demo-

cratic Republic of the Congo, and Angola, suffer from

significant and deplorable deficits in governance that

inhibit sustainable development.10

Does all of the negative news above mean that the

rise of ‘‘African lions’’ remains a distant hope? In early

2013, is the African development cup half full or half

empty?

A small number of African governments have

embarked on the road to sustainable development

through the application of sound economic manage-

ment and strategic investments. In this category, I

would include Ghana, Kenya, Tanzania, Botswana,

South Africa, and Gabon. Unfortunately, the largest

countries, including those with the greatest natural

resource bases, are mired in the old corruption,

bad governance, and lack of vision. These include

the Democratic Republic of the Congo, Nigeria,

Sudan, and Angola.

Time is not on Africa’s side. With the working-age

populations rising rapidly in a context of growing

urbanization, sustainable development is needed to

provide employment for millions of young people.

If the right decisions are not made within the next

five years, crime, terrorism, and social disintegration

are inevitable. We are already seeing these phenom-

ena in both northern and southern Nigeria, in the

eastern Congo, and in Sudan.11

With the right policies, especially agricultural

modernization and regional integration, there is no

reason why sub-Saharan Africa cannot become a

powerhouse of low-cost manufacturing able to

compete with Southeast Asia.

The administration of President Obama under-

stands Africa’s challenges and is implementing appro-

priate policies. Obama is continuing the excellent

policies of the Bush administration in support of the

fight against HIV=AIDS and in support of those

African governments that are implementing good poli-

cies through the Millennium Challenge Corporation.

In addition, Obama’s ‘‘Feed the Future’’ program

recognizes the very high priority that needs to be

assigned to the modernization of African agriculture.12

The international community is doing its share.

Now is the time for African governments, especially

those with large resource bases, to abandon old

habits and practices and to become serious about

economic and governance reforms. For the moment,

high earnings from commodity exports are hiding

the fact that the economic glass is still half empty.

Notes

1. Alex Perry, ‘‘Africa Rising,’’ Time, December 3, 2012. Similar articles appeared in The Economist, the Wall Street Journal, and the Financial Times between November 2011 and March 2013.

2. ‘‘Market Watch: Nigeria Plans Diversification into Agriculture,’’ Wall Street Journal, May 12, 2013.

3. Wolfgang Fengler, ‘‘The African Renaissance Is Real’’ The Economist, March 12, 2013.

4. Ibid. 5. Pascal Fletcher, ‘‘Africa’s Emerging Middle Class Drives

Growth and Democracy,’’ Chicago Tribune, May 10, 2013. 6. ‘‘Economic Development in Africa—Special Issue,’’

UNIDO-UNCTAD report 2011, July 11, 2011. 7. UN Food and Agriculture Organization, ‘‘High Level Expert

Forum,’’ Rome, October 12 and 13, 2009; ‘‘The Special Challenge for Sub-Saharan Africa,’’ www.fao.org.

8. ‘‘Boosting Intra-Africa Trade,’’ May 10, 2013, www. Ghanaweb.com.

9. Jonathan Anderson, ‘‘The Inexorable End of the Africa Story—Decade 2000–2010,’’ The Globalist, February 25, 2013, www.globalist.com.

10. Africa Progress Panel, ‘‘Equity in Extractives: Stewarding Africa’s Natural Resources for All,’’ www.africaprogresspanel.org. For- mer UN Secretary-General Kofi Annan is the chairman. Panel members are former heads of state and other senior officials.

11. Herman J. Cohen, ‘‘Al Qaeda in Africa: The Creeping Menace to Sub-Sahara’s 500 Million Muslims,’’ American Foreign Policy Interests 35, no. 2 (March–April 2013): 63–69.

12. The White House, ‘‘U.S. Strategy toward Sub-Saharan Africa,’’ June 13, 2012, President’s Decision Directive.

216 American Foreign Policy Interests

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