Economists Says Resources Are Not Everything
Two economists, Dr. John Llewellyn and his partner at London-based Llewellyn Consulting, Russell Jones, delivered a white-paper in Johannesburg on Monday: “The Changing Face of Africa”, and their message while “optimistic” was that natural resources are important but they are “not the complete story” to economic growth.
In a study commissioned by Puma Energy, a mid- and down-stream oil and gas sector operator, the economists reasoned that a rich resource endowment, while affording potential, does not guarantee strong economic growth, asking Africa to create strong institutions.
Institutions, they said, provide the framework for “a functioning competitive economy” and are crucial for economic development.
“Some resource-rich countries have grown strongly: Equatorial Guinea and Angola, for example, both averaged double-digit growth between 2000 and 2012, while Nigeria averaged over 8%.
“At the same time, however, a number of resource-rich countries have grown much less rapidly — and below Africa’s average of 5.1%. The Democratic Republic of Congo, Cameroon, and Botswana, for example, all averaged only around 4%; and the Ivory Coast grew slower still, at less than 1%. In most of these countries the major resource contributing to growth has been oil. Others include diamonds, copper and other minerals,” the paper said.
“Interestingly and importantly, rapid growth has been achieved by a number of countries that do not have significant natural resources.
Resource-poor Rwanda and Ethiopia, for example, grew strongly, at an average 8% per year between 2000 and 2012. Cape Verde also recorded strong growth, averaging around 6%. And some other resource-poor countries, such as Mauritius, Malawi, and Kenya recorded average growth rates not far below the African average,” it added.
If Africa wants evidence of the importance of institutions to economic development,it should look at Asia, which has pumped a lot of money into education, technology and infrastructure, said Russell Jones, who was once Chief Economist for Asia at Lehman Brothers.
“Governments in that part of the world [Asia] have consistently ploughed a huge amount of money into those particular facilities and it has paid dividends,” he said.
The consultants agreed with Douglas North, the father of institutional economics, that: “Institutions affect economic performance by determining, together with technology employed, the transaction and transformation (production) costs that make up the total costs of production. Because there is an intimate connection between the institutions and technology employed, the efficiency of a market is directly shaped by the institutional framework.”
In spite of its significant challenges of transformation, including infrastructure, the economists said Africa is no longer the “lost continent”, saying they are optimistic about Africa’s growth, which “may prove sustainable”.
They alluded to Africa being the second-fastest growing economic region with strong FDI flows, and a growing consumer class, which is creating massive opportunities for further development — adding that “companies that join in early stand to become the giants of the future”.
By Basiru ADAM
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