Private Enterprise-Led Economic Development in Sub-Saharan Africa

The Human Side of Growth

John Kuada

• Publisher: Palgrave Macmillan
• Year: 2015
• ISBN:
  9781137534453
• Topic: Business
• Subtopic: International Business
• Index: Business

Private Enterprise-Led Development in Sub-Saharan Africa provides a novel theoretical and conceptual model to guide research into Africa's economic development. It endorses the view that private enterprise-led growth will help reduce poverty since it strengthens individuals' capacity to care for themselves and their families.

Part I

The Context and Trends of Economic Development in Sub-Saharan Africa

1

Introduction

As a continent, Africa is home for one-seventh of the world’s population (in 2014) while holding nearly a quarter of its land. It occupies about 30.3 million square kilometres of land surface and is therefore larger than the area formed by combining the United States, Western Europe, China and India. But a large proportion of the people, especially those living in Sub-Saharan Africa (SSA), are mired in abject poverty, most of them barely eking out subsistence despite enormous natural resources of substantial commercial value. As a result, SSA is commonly described in the development economics literature as a continent of missed growth opportunities (Akyüz and Gore, 2001). When the subcontinent is compared with Asia, the discrepancies are even more staggering, bearing in mind that several Asian nations such as South Korea and Malaysia were at similar levels of economic growth as African countries barely five decades ago.¹

In all fairness, it is important to point out from the onset that SSA has not been totally neglected by the richer countries of the world. Trillions of dollars of development assistance have been poured into it (on projects spearheaded by individuals and institutions with the best intentions), but the results have been woefully disappointing. This is not to say that none of the assistance that has been provided has ever done any good. There are examples where aid has done some good. But the overriding conclusion is that Africa has remained relatively poorer than the rest of the world despite these generous aid contributions. Thus, the verdicts of both academic and journalistic analysts have been consistently negative. As Najam and Kariuki (2010:1) inform, the prevalent narratives about SSA have followed the pattern of “bursts of peaking global interest (optimism), followed by periods of global neglect (pessimism); recognition of continental potential, followed by litanies of despair and dismay; expressions of great expectations, followed by prognoses of hopelessness”. There are justifications for the persistent pessimism registered by contributors to the debate. The available evidence shows that only six SSA countries have more than tripled their per capita incomes between 1960 and 2005, nine have per capita incomes equal to or less than where they started in 1960 and the rest have seen some net improvement, but not enough to make any real dent in their poverty levels (Punam et al., 2011). Those countries that showed promises of fast growth in the 1970s (e.g. Côte d’Ivoire) have faced stagnation or even decline during a greater part of the past five decades. Furthermore, until the beginning of the 21st century, investment in most African countries yielded less than half the return measured in growth terms when compared with other developing regions (Akyüz and Gore, 2001).

The non-growth syndrome that has characterized most countries on the subcontinent has hitherto been discussed largely in terms of purely economistic and institutional considerations, including policy mistakes and implementation difficulties that have resulted in structural weaknesses and inefficiencies. But the explanatory power of neoclassical economics and the policy guidance that it produces have been seriously challenged by a number of leading economists and analysts who have loudly called for a search into alternative explanations and directions.²

This book responds to this search. It seeks to do so by examining the “economistic” logic that has underlined contemporary economic growth initiatives on the continent. Leaning on recent studies in economic sociology, I argue that the “economistic” logic does not explicitly factor the enormous reservoir of socially embedded resources available in civil societies into enterprise and economic development policies, nor does it encourage their development where they are weak or lacking.

This line of thinking directs the searchlight for Africa’s poverty problems and solutions inwards. I argue that it is generally easy to blame the outside world for all of Africa’s predicaments. However, this easy route does not change the stark realities of poverty. It is therefore purposeful for Africans to reflect soberly on internal circumstances that hamper growth and development in their countries and the subcontinent as a whole. Thus, I share the view expressed by a growing number of African scholars that Africans must demonstrate an inner motivation to endure the human challenges that a change process entails for sustained growth and poverty reduction to occur (Edoho, 2001; Nwankow and Richards, 2001). This focus on endogenous growth drivers underlies my choice of human capability development as a core concept in the overarching theoretical framework that I present later in this book.

Leaning on scholars such as Karp and Helgø (2009), I argue that the citizens of every country construct their future together by building on their history, identity and growth agenda through an unceasing process of interaction and dialogue. I acknowledge that the atrocities of the colonial era combine with the negative consequences of global capitalism, trade restrictions and global politics to constrain the developmental opportunities available to the least developed countries of the world, including SSA countries. But I do not endorse the emotionally seductive arguments of external victimization as a complete explanation for the non-growth syndrome in Africa.

In emphasizing the human and sociocultural factors of economic development in the present study, I do not intend to suggest that culture alone (or its related concepts) provides the single universal organizing principle to explain Africa’s limited economic growth and poverty. My argument is that the importance of the human factor has been downplayed or outright ignored in contemporary discourses, and it is important to position it at the centre stage so that all key actors on Africa’s economic scene can revisit this perspective and do so with the seriousness that it requires.

Building on these observations, I initiate this search for alternative perspectives on SSA’s failed economic progress and poverty-alleviation efforts by reviewing the contemporary thinking on Africa’s economic growth and development. I then present and discuss the theoretical viewpoints that inform the discourse. The last section of this chapter provides an overview of the structure of the book.

Contemporary perspectives on Africa’s economic growth and development

A quick review of the development economics literature suggests that scholars (within and outside Africa) have been in continuous search of good explanations for Africa’s growth failures as well as suitable guidelines for policy and strategic actions. Many acknowledge that the fact that a greater part of the African continent has hitherto been unable to build sustainable economies and remain dependent on charity deserves serious academic attention (Maathai, 1995; Kuada, 2010). This awareness has placed Africa’s economies at the centre of academic investigations during the past five decades. One estimate informs that over 300 English-language journals and e-journals have been specifically devoted to the topic in the Western world alone (Phillips, 2003). Scholars in disciplines such as economics, sociology, anthropology, political science and trade have all made significant contributions to an understanding of the phenomenon during the last half a century.

Some scholars argue in support of a re-examination of the existing economic models (Hoeffler, 2000, 2002; Jerven, 2011). Others have questioned the statistical accuracy of Africa’s poverty descriptions. They argue that the hitherto accepted accounting principle for GDP measurement all over the world is the 1993 UN System of National Accounts. But only 35 countries in Africa were using this accounting system by the end of 2012; the other African nations continue to use earlier systems, some dating back to the 1960s. The result is that most countries underestimate the monetary worth of their economies. This was the case of Ghana until 2012 when the country decided to change its national accounting system to the 1993 UN System. The decision resulted in upgrading Ghana’s GDP by 62%, pushing the per capita GDP over $1,000 and elevating it to a middle-income country.³ In a similar manner, Nigeria rebased its GDP in April 2014 and raised the value of its economy to $509.9 billion and became Africa’s largest economy and the 26th largest in the world. Barakatt and Sereke-Brhan (2010:21) also argue that “there are 16 nations in Africa that have GDP per capita greater than that of China. In addition, remittances by immigrants in the U.S. amount to around $40 million per year, equal to Indian remittances. The tourist inflow to Africa is close to 25 million people every year, almost five times the annual number of tourists visiting India.” To them, this is evidence of an undervaluation of the economies of most African countries. Thus, the emerging conclusion is that SSA is not as poor as most previous GDP figures suggest.

Notwithstanding the accounting errors, the economistic logic cannot be entirely dismissed. This logic holds that economic growth is driven by investments, savings and consumption, with people’s willingness to save for future consumption growing with their incomes. This implies that the poorer the people are, the less they can afford to plan for the future and save. Thus, savings are normally low in poor countries, where most incomes have to be spent to meet current (often urgent) needs. Low savings hinder domestic investment in both physical and human capital. Without new investment, an economy’s productivity cannot be increased and incomes cannot be raised. This scenario is commonly labelled as “the vicious circle of poverty” in the development economics literature. According to the dominant versions of neoclassical economics, a solution to the problem lies in the ability of governments to formulate and implement policies that break the vicious circle. Seen from this perspective, the persistence of poverty in Africa can be attributed to failed government policies and failed leadership.

Building on this perspective, some scholars argue that those African countries that have benefited from the leadership of liberal economists and introduced macroeconomic policy interventions, aimed at raising investment and productivity within the private sector, have achieved distinctive economic growth (Fosu, 2012). Some of the popular liberal economic policy interventions during the last three decades have included the deregulation of the banking sectors of the economies, removing trade barriers, privatizing natural resources and government industries, devaluing currencies, strictly adhering to balanced budgets, changing national laws to make the economic environment more conducive to foreign investment and building up export economies.

Undoubtedly, these policy initiatives have produced noteworthy economic outcomes, and there have been some positive signs of turnarounds in some African countries in recent years. As Gatune and Najam (2011:102) remark with a distinct sense of joy, “poverty in Africa is falling, and falling fast; food productivity is rising; inequality is falling; women are assuming positions of leadership; democracy and elections are becoming the norm; regional markets are developing; anti-corruption measures are gaining prominence; Africa is becoming an important destination for foreign direct investment, especially from China; African intelligentsia is finding a more prominent voice in defining Africa’s options; and continent-wide cultural expression is strengthening a positive continental identity”.

Reports on the business environment of the 20 largest Sub-Saharan African countries by Spring and Rolfe (2011) as well as Spring, Rolfe and Odera (2013) have produced evidence that reinforces this positive trend. They showed that most of the countries have experienced significant positive changes in their integration into the global economy, and there have been significant increases in Foreign Direct Investment (FDI) flows in some of the countries. Examples include the following: Nigeria’s FDI inflows of US$ 5.8 billion in 2009 (as against US$ 2.1 billion in 2004); South Africa’s US$ 5.6 billion in 2009 (as against US$ 0.799 billion in 2004); and Angola’s US$ 2.2 billion in 2009 (as against US$ 1.45 billion in 2004). Furthermore, 12% of all FDI targeted at developing countries in 2011 went to Africa, with the largest share going to oil-producing economies such as Chad, Angola, Equatorial Guinea, Ghana and Nigeria. The Economist, which labelled Africa as “the hopeless continent” in 2000, wrote in its December 2011 edition that “labour productivity is now growing by, on average, 2.7% a year. Trade between Africa and the rest of the world has increased by 200% since 2000. Inflation dropped from 22% in the 1990s to 8% in the past decade. Foreign debts declined by a quarter, budget deficits by two-thirds. In eight of the past ten years, according to the World Bank, sub-Saharan growth has been faster than East Asia’s (though that does not include Japan).”⁴

These facts are quite compelling and heart-warming for all observers of Africa’s development plight. The more gratifying is that The Economist is not alone in its analysis. Research units of leading consultancy groups such as McKinsey have made similar observations. Analysts of the World Bank, the Standard Bank and the African Development Bank have also added their voices in support.

There is no doubt that these developments represent a positive break from the general pessimism that has engulfed Africa for decades. Thus, the 21st century has been dubbed by some futurists as Africa’s century – a century during which Africa’s economic, intellectual, political and leadership resources will be optimally utilized to generate welfare for the citizens and provide the continent with a positive identity within the world of nations. The McKinsey Global Institute Report in 2010 therefore concluded that global business can no longer afford to ignore the business potential provided by these trends (McKinsey, 2010). These changes also undergird Nwankwo’s (2012) observation that Africa is now standing at the threshold of an exciting growth era.

But some commentators remind African leaders and policy makers that it is too soon to start rejoicing – there have been false dawns before in Africa’s economic history when promised miracles turned into mirages. The question that sceptics ask is whether Africa will sustain this growth momentum. Said differently, the continent’s transition to modern economic growth will thus require a break in the boom-and-bust pattern which has characterized its economic performance during much of the 20th century (Broadberry and Gardner, 2013).

There is therefore a continued search for explanations for the non-growth predicament and new approaches to growth and development on the subcontinent. Approximately 210 million people still live on less than $1 a day, and the number living on less than $2 a day is expected to rise from 400 million to some 600 million by 2015.

Furthermore, the positive changes noted above do not provide the neoclassical perspectives unqualified theoretical legitimacy for explaining the limited growth in SSA. As noted earlier, some scholars have called for a re-examination of the explanatory contents of these models, arguing that they are extremely simplistic, mechanistic and deterministic (Hoeffler, 2000). In the views of some scholars, “inclusive growth” that provides wider access to sustainable socio-economic opportunities for a broader number of people, countries or regions, while protecting the vulnerable, is what SSA needs (Greenwood and Holt, 2008). This critique is further predicated on the understanding that recent high-growth experiences in some African countries have been largely less job creating and less inclusive than one would have wanted, and thereby having limited developmental impact (ILO, 2010; Hailu and Tsukada, 2011).

Some preliminary conceptual clarifications

I have already indicated that the present study shares the above sentiments and seeks to explore an alternative explanation for SSA’s slow economic progress. It also aims to provide some guidelines for improving enterprise development and thereby accelerating the pace of economic progress on the subcontinent. In doing so, it suggests that key concepts in the social sciences that emphasize the human side of enterprise management and socio-economic growth must be given greater prominence in the debate. These concepts are introduced briefly in this section of the chapter in order to provide a conceptual language for the discussions that follow.

It is important to bear in mind that I write about SSA in general terms in this book, mindful of the fact that the subcontinent is home to over 700 distinct societies with nearly 1000 languages. Najam and Kariuki (2010:2) remind us that “there are many Africas and many realities within Africa. To say anything about the entire continent is to condemn one-self to saying only that which can be easily generalized.” In the same vein, Barakatt and Sereke-Brhan (2010:15) argue that “while it is easy and tempting to generalize about ‘one Africa’, the continent’s individual countries and regions face different challenges and respond in different ways, depending on cultural traditions and the strength of local governance”. Bearing these observations in mind, I aim to undertake the academic endeavour outlined here with reverence for the diversity within the subcontinent but with the hope that the commonalities in historical and developmental experiences are large enough to warrant some degree of generalization. I also hope that the discussions will enrich our understanding of what factors can propel development in the individual countries and across them.

Economic growth and development

I have suggested above that the theories and models which development economists have drawn on to explain the nature and causes of economic progress and how economic growth is linked to poverty alleviation have been rooted in two contrasting paradigms. One is the neoclassical economic paradigm that gives support to the notion that economic systems can be likened to machines that transform inputs into outputs. The key drivers of economic progress are, therefore, symbolically described as “engines of growth”. I find it expositionally appropriate to label this perspective as hard economics. The ultimate presumption underlying this paradigm is that all human beings are rational, self-interested actors in the economic game. They seek to maximize their values in the actions that they undertake, are boundedly rational and exhibit negative opportunism (see Alacevich, 2007). This perspective has been criticized by several social scientists and economists during the past three decades. They argue that the assumptions underlining neoclassical economics are deficient because they under-represent the importance of interpersonal and...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• List of Figures and Tables
• Acknowledgements
• Part I: The Context and Trends of Economic Development in Sub-Saharan Africa
• Part II: Culture, Civil Society and Economic Growth
• Part III: Leadership, Governance and Management
• Part IV: Entrepreneurial Orientation, Innovation and Economic Growth
• Part V: Global Orientation and Integration
• Notes
• Bibliography
• Index