Sunday 21 November 2010

Liberalism in Africa

Africa is a continent plighted by troubles in just about every sphere. In economic terms it has suffered immensely, suffering from long periods of slow (or even negative growth) - but this has not been universal. Currently only six African countries stand above the global average for GDP (PPP) per capita. These are (in order), Equatorial Guinea (21), Seychelles (47), Libya (56), Gabon (62), Botswana (66) and Mauritius (71). South Africa sit just below the world average in 84th place (at least by the CIA figures) and the only other African nation above $10,000 per capita. So what marks these nations out as the most successful? Why would these nations rise above their neighbours Cameroon, Congo, Madagascar, Algeria, Namibia, Zimbabwe, Mozambique and others.

No answer fits too well, but a contributing factor in some is oil, but in others it is more likely their open economic systems. Lets start with the oil nations of Central Africa, Equatorial Guinea and Gabon. They have large amounts of oil, both of their economics rely heavily on oil and other natural resources. Then again, so does neighbouring Congo (with a much lower GDP per capita). What's the difference, well, for just over 20 years Congo was a Marxist-Leninist state, something which seems to have severely damaged development. Equatorial Guinea and Gabon, whilst not the most open economies, have been much more open to foreign investment, with Gabon in particular getting a large amount of private investment from overseas. The governments there allow this to happen. The difference seems to be in the government, or more specifically, how much the government allows the economy to flourish without intervention. In Congo and Cameroon there is a great deal of intervention in the system, in Gabon at least this is much reduced. The 2010 Index of Economic Freedom placed Gabon as 116th in the list whilst Cameroon comes in at 132 and Congo at 169th. It is true that Equatorial Guinea also does poorly here, down at 151st place, this can be put down mostly to the abuse of the large oil trade by the political elite in the nation. Due to the very small population, this is more notable than in larger countries where the effect of oil money is diluted by the large population. This is also why Qatar and other small gulf states have a very high GDP per capita - the hugely profitable oil money averages out as higher when the population is small.

Next up, North Africa. Libya is the successful state here, beating Algeria, Egypt and Tunisia in the rankings. As far as free economies go, Libya is appalling, with a rank of 173 (Algeria is 105th, Egypt 94th and Tunisia 95th). Again, Libya has huge quantities of oil (almost exclusively Libya's only export) and a low population. Algeria's much larger population (almost 30 million more) and lower quantities of oil, Egypt's massive population and lower oil revenues make Libya look much better than it is. GDP per capita does have its faults in measurement. Tunisia has a population almost twice that of Libya and much less of the oil, so again, Libya fits in with Equatorial Guinea - if it was not for the oil, the economy would very likely be amongst the smallest in Africa.

The islands of the coast of Africa come next, Seychelles and Mauritius, well, this looks simple. Mauritius sits 12th on the Index of Economic Freedom (one place behind the UK), this open economy has helped it diversify over the last few decades to develop strong financial, industrial and tourist sectors. The free economy has done this nation well. How the Seychelles have managed to cope down at 156th in the index I might struggle to understand. However the tourist sector is very well developed, with open gates to foreign investment. The sector is so big that 30% of the workforce are employed in jobs in the tourist industry.

This brings us to Southern Africa, despite the huge amounts of natural resources that South Africa has, it's long period of governmental control stagnated the economy. Since 1994 and the end of apartheid, the economy has picked up and is now one of the most open in Africa in 72nd in the Index - this is because of the post-apartheid government's move away from populist policies towards a more open economy, the economy still has a long way to go before it fully recovers from apartheid and the subsequent sanctions put on the nation, HIV/AIDS has also put further strains on the economy, although it does seem to be getting past the worst effects of the retrovirus.

The last country in this list is Botswana. This is a nation with little to nothing going for it, other than diamonds, it has very little in the way of natural resources, and when you compare it to Zimbabwe and Zambia, it does very well, yet everything suggests it should be worse off than these nations. Botswana yet managed an average 9% growth a year from independence in 1966 to 1999, it manages to get a similar standard of living to Mexico and Turkey - this is despite a very large part of the population still subsistence farmers. As a bonus, it is also the least corrupt nation in Africa (possibly due to it's economic policies). How does it gain such success? The economy, Botswana is a case of where if you get the economy right, everything else follows. It is 28th in the world according to the Index of Economic Freedom, it stands as the highest ranking in mainland Africa. Compare that to Namibia (77), Zambia (100), or one of the worst standing economies in the world, Zimbabwe (178) [note, one off the bottom for that disaster economy]. It beats every nation that surrounds it, and it beats them all very well. Just browsing through Botswana's economic policies, it seems to take a leaf straight out of the books of the classical liberals. Open trade, the most open and transparent nation in Africa, it is the most credit worthy nation in Africa, with low debts and budget surpluses in almost all years. This is economic management kept within the realms of possibility. The economy still needs to diversify, but the groundwork is already in place. This is the capacity of liberty, it makes what might be expected to be among the poorest nations in Africa into one of the richest.

The correlation between economic success and economic freedom can be clearly shown in Africa, but there is still a long way for even the most free countries to go (and a lot more regulations and nationalised industries to get rid of), but the basic rule is, the more free the economy, the better it is. Africa needs to embrace the ideals of liberty if it wants to succeed - as does the rest of the world.

N.B. I hope to at some point make a full comparison of GDP per capita/other well-being index and the Index of Economic Freedom, in order to illustrate the beneficial effects of liberalism. I hope the above helps enough for now.

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