Democracy Lab

Sorry, but Africa's Rise Is Real

Africa growth skeptics have got it wrong. The continent's rise is very real.

The counterattack, when it came, failed to live up to our expectations.

As the authors of a book that challenges so much of what passes for conventional wisdom about Africa in financial, academic, and NGO circles, we thought long and hard about the vulnerabilities of our argument.

In The Fastest Billion: The Story Behind Africa's Economic Revolution, we and our co-authors endeavor to show that sub-Saharan Africa -- or at least a great many of its 48 countries -- will make impressive advances in living standards, economic performance, health, education, and governance over the next thirty years.

Like a growing number of economists, development specialists, health, and agricultural scientists, we have watched as the gap between popular depictions and reality on the ground in sub-Saharan Africa has widened. We set out, with detailed sectoral, geopolitical and econometric analysis, to lay out what we feel is a more accurate picture of sub-Saharan Africa today -- and the dramatic changes we expect to see in the coming decades.

For years, whenever economic or financial news from Africa managed to wangle its way through the tales of genocide, famine, and catastrophe spun by western correspondents, the response of pessimists has been to write off all growth on the continent as a crude commodity play.

In a piece that makes this point aggressively, JNU doctoral candidate Rick Rowden returns to this narrative, one which, we believe, reflects an outdated mentality and rests on several misconceptions about sub-Saharan Africa and economic development generally. Indeed, to write off, as Rowden does, a decade and a half of GDP growth at rates of 7 percent or more -- performance a dozen sub-Saharan African countries have achieved -- is as outdated as the Cold War mentality that views China's massive investment as a threat or dismisses the startling improvements in health, education, per capita income, and retail activity as just some kind of anomaly.

Rowden, we believe, makes three critical miscalculations in discounting sub-Saharan Africa's prospects as "a myth," as the headline put it.

First, he makes the common mistake of comparing Africa today with East Asia today. It's like comparing Germany in 1840 with Victorian England at its height and saying Germany will never amount to anything. In our analysis, we choose instead to compare Africa today with East Asia in the 1970s, when South Korea, to name just one subsequent "tiger," was still a poor, largely agricultural cub. Our confidence in forecasting robust future growth -- growth that lifts not only GDP but also the well-being and prosperity of these societies generally -- is based on the similarly of policy shifts, growth patterns and improvements in health, welfare and governance measurements that echo the events that preceded East Asia's takeoff.

Second, Rowden ignores the experience of India, which has pulled millions out of poverty and vaulted up international league tables without engaging in a massive push for industrialization. In contrast to the East Asian model, India has boomed for 30 years without industrialization. The pace of India's GDP growth is exactly the same pace as Developing Asia for the last 20 years -- but with a 10-year lag. Manufacturing accounted for 11 percent of India employment in 1995 and 11 percent in 2011. It is services that are driving Indian growth. We argue that India is 20 years ahead of sub-Saharan Africa on this, and that growth in the region can accelerate for the next generation without industrialization leading the charge.

Rowden states that, absent such an emphasis on manufacturing and other value-added activities, a sub-Saharan country will be saddled with "still largely a primary agricultural economy with little movement towards the increased manufacturing or labor-intensive job creation that are needed for Africa to "rise."

In fact, if there is a myth in Rowden's piece, this is it. Justin Yifu Lin, the Taiwan-born chief economist of the World Bank, recently emphasized in his own book, The Quest for Prosperity, that every economic miracle -- including that of his Taiwanese homeland -- starts with the primary sectors doing well first.

Even Britain, the cradle of the Industrial Revolution, had to achieve an 18th-century agricultural revolution first. Russia's development in the late 19th and early 20th centuries followed a similar pattern.

Indeed, the mistake of too many African countries in the 1960s was in believing western and Soviet economic propaganda that promised post-independence leaders they could leap-frog straight to industrialization. This flew in the face of both western and Soviet history as even Stalin only industrialized on the back of what had been a very successful agricultural, mining, and resource sector.

The consequence was that African governments built up debt during the last commodity boom of the 1970s to pay for industrialization that was premature given infrastructure constraints (human and physical capital was lacking). Mining and resources in general today are helping Africa pay for the infrastructure improvements (from human to physical capital) that will enable the continent to expand industry.

Three key things have changed that suggest sub-Saharan Africa will start to industrialize at a faster pace.

  • First, labor costs are rising in China, thanks to its shrinking young labor force (the number of 15-24 year olds will fall 20-30 percent this decade). Per capita GDP was similar to sub-Saharan Africa in 2000, but is now three to five times higher.
  • Second, education levels in sub-Saharan Africa are now (2005 data) on par with Turkey and Mexico in 1975, suggesting that sub-Saharan Africa in the coming decades can emulate the industrialization of Turkey and Mexico in the 1980s and 1990s. This began with textiles and light manufacturing, and got heavier and more value-added as time progressed.
  • Third, African governments are prioritizing business-friendly policies. The World Bank Ease of Doing Business reforms show steady progress among sub-Saharan African countries, as they do in Transparency International's Corruption Perceptions Index.

This is not to say that Rowden is all wrong. The focus on industrialization may not be necessary for the next 20 years. But it would be useful. Justin Lin's book emphasizes that governments should adopt industrial policies. We richly agree, and we have counseled officials in Africa whenever we have an opportunity to do just that.

In Kenya, which will soon be the largest of Africa's economies, officials have such a plan. Called, Vision 2030, it spells out an industrial policy that will take effect after a major infrastructure investment and construction program is completed.

Kenya is not unique -- many governments now have 10-20 year development plans -- and we agree that nothing in them guarantees they will be effectively implemented, or implemented at all. We'd like to see more targeted policies, which aim to capture the textile and light manufacturing business which China is losing as its wages rise. We argue that education and demographics both suggest Africa is well placed to capture this over the next 10-20 years.

But the fact is, sub-Saharan Africa's leaders are conscious of the precedents and acutely aware they are walking two to three decades behind in the same footsteps as emerging market powers like Malaysia, Indonesia, India, South Korea and Brazil.

Discounting the chances of an entire continent under such circumstances strikes us as foolish, at best. We, after all, are an investment bank, and we approach this topic not only in the hope that a continent so ill-served by recent history will finally break through, but as an opportunity to share in its growing prosperity. If we're right, and we believe the case we make is very convincing, then we have indentified an important inflection point in global economic history as sub-Saharan Africa finally begins to shake off the problems that led the Economist, only a decade ago, to label it "The Hopeless Continent." That august magazine's recent proclamation that Africa was rising should not, as Rowden suggests, be seen as a misguided and shallow provocation aimed at selling magazines. Indeed, it is a corrective -- one long overdue, in our minds -- and one only the hidebound can now abide.

And when push comes to shove, who among you would not be willing to risk a few dollars to own a bit of Hyundai or Kia at 1978 prices? That's precisely where sub-Saharan Africa is today.

Photo by CARL DE SOUZA/AFP/Getty Images

Rebuttal

Poor Choice

The International Finance Corporation responds to Cheryl Strauss Einhorn's investigation into the World Bank's investment arm.

We are deeply disappointed by your article, "Can You Fight Poverty With a Five-Star Hotel?," which raises an important question about the International Finance Corporation's (IFC) impact fighting poverty in developing countries. It failed to be fair and it failed to fully examine our impact.

What is our record?

Every dollar of profit we make is reinvested to support private sector development, increasingly in the poorest countries. Since 2007, our profits have totaled more than $10 billion. Of that amount, we've contributed about $2 billion to the International Development Association (IDA), making us a major contributor to the World Bank's fund for the poorest in recent years.

The rest has been reinvested in developing countries-creating jobs, modernizing infrastructure, expanding access to finance for small entrepreneurs, and building the conditions for sustained prosperity. This is what our member countries want us to do, and we believe it is the right thing to do.

Since IFC began in 1956, we have invested more than $125 billion in developing countries, improving the lives of millions. In Ghana, for example, IFC's support for KHI Ghana helped create 1,500 construction jobs and more than 300 permanent jobs at the Movenpick Hotel-providing much-needed employment and opportunities for small businesses while also supporting environmental and social best practice. In Egypt, our investment in Orascom Construction Industries is expected to provide more than 2,500 jobs and help boost agricultural production. Those are just two small examples of our impact. In the last few years, roughly half of our projects have been in countries with a per capita income of less than $1,175.

The World Bank Group's recent World Development Report focused on the importance of creating jobs. One of its conclusions was that 90 percent of all jobs in the developing world are created by the private sector. That is the central part of our mission to fight poverty: encouraging private companies to invest in developing countries, which creates jobs in areas that are starved for private investment. In 2011 alone, our investments provided 2.5 million jobs in developing countries.

Our investments are not nearly enough-not at a time when 1 billion people go hungry every day and 600 million jobs need to be created within this decade. That's why we encourage other investors-small, medium, and large-to join us. By working with them, we demonstrate the benefits of investing in challenging markets, and help ensure that our values of sustainable development are incorporated into their work.

In addition to failing to examine this record, the writer, Cheryl Strauss Einhorn, also made several factual errors. One is the IFC was established to "muster cheap loans" for private businesses. We don't provide "cheap" loans, and never have. IFC's loans are at market rates.

A second is that she says the IFC "likes to work with huge corporations" and "tycoons." Yet she provides no support for that broad claim about our preferences. In fact, she later says 20 percent of IFC's investment projects were for amounts less than $5 million-the type that tycoons typically avoid.

And critically, a third is an incorrect summation of a 2011 report by the World Bank's Independent Evaluation Group on the IFC's performance. She concludes that the report finds that IFC's work "at times may even sacrifice the poor." The report, however, makes no such finding. Its conclusions are far more nuanced, and we invite readers to judge for themselves.

Finally, Ms. Einhorn hindered her own ability to accurately report the story by identifying herself not as a reporter on assignment but as a college professor conducting "research." This is a clear violation of ProPublica's own ethics code. ProPublica's editor's note acknowledges Ms. Einhorn was "incomplete" in identifying herself.

Can we and others who work with the private sector improve and make a larger impact on poverty? Yes. But articles like this one don't help make a case for that. Ms. Einhorn's reporting was flawed because she failed to examine IFC's record and then to make an independent evaluation of all relevant facts.  We also expect a degree of fairness from such highly respected media. Its absence in this case is a disservice to readers who trust you to uphold the high standards of fair and impartial journalism.

Bruce Moats is the director of corporate relations at the International Finance Corporation. 

ProPublica responds:

Much of this letter supports the theme of the story, which is that the government-funded IFC is hugely profitable and is operated much like a profit-minded bank, and that it helps the poor only secondarily rather than as its central focus. The few assertions of error we think are wrong. Mr. Moats says the IFC doesn't make "cheap" loans, only loans at market rates. That is semantics. The IFC has long been proud of saying it makes loans to borrowers who can't get private financing. What is a market rate for a loan that isn't made? Mr. Moats says we offer no evidence for the statement that the IFC likes to work with huge corporations and tycoons; we named more than a dozen and could easily have named two or three times that many. Mr. Moats doesn't like our conclusion that the 2011 report by the World Bank's own Independent Evaluation Group portrayed the IFC as a profit-oriented, deal-driven organization that often fails to reach the poor, and at times may even sacrifice the poor, in a drive to earn a healthy return on its investments. Mr. Moats says the report is more "nuanced" than that and invites readers to judge for themselves. We join in that invitation.

Brent Stirton/Getty Images