Transcript African Economies- An Overview Nnadozie, Chapter 1

An Brief Overview of Africa and Its
Economies
Africa is Huge & Diverse Continent
2nd Largest in World, 54 countries,
over 1000 Languages/ethnic groups,
with rich natural resources: See Google Map
Lecture Outline of topics
Overview of African Economies

1. Introduction

2.Diversity of African Economies
3..Classification of African States


A. African Regions (5-categories- East, West, Central, North, and Southern
(table 2.3), the Horn of Africa (part of East Africa)- is A Strategic Region. Why?
Is Gate way to the oil fields of Persian Gulf.

B. Income Based Classification-5 categories (table 2.4)- World Bank
C. Colonial Experience- see table 2.6-All African States were former colonies of
Europe, except Ethiopia)


Former European Colonialists of Africa : France (23), UK (20), Portugal (5),
Spain (2), Italy (3), Germany (1).

IV. Summary/conclusion..
Introduction

Africa is a diverse & huge continent- with 54
countries- more than 3 times in size as the USA.

It is the 2nd largest continent in the world with over
900 million people and growing. Population varies
from 150 million in Nigeria ( the most populated) to a
tiny Comoros of ½ million people.

The Media and some organizations simplify it as
“one Country”.
Economic Diversity of Africa

Basic indicators of development show income diversity ranging
from per capita income of $10,600 in Seychelles and about
$8,000 in Botswana, and $448 in Rwanda in terms of PPP
measure.

GDP is highly correlated with other indicators of human
development such as life expectancy, infant mortality, and
Education. How?

Africa’s economies are poor due to bad or misguided policies,
aid dependence, and high population growth, in spite of potential
in natural resources.
Classification of African States
(geographic/regional)

There are 5 general regional classifications (table 2.3): East,
West, Central, North, South

East Africa (17),
West Africa (17),
Central Africa (9),
North Africa (7),
Southern Africa (6)
Horn of Africa (sub-category of East Africa)-(5)
Horn of Africa has been in the media recently due to Ethiopia &
Somali conflict & Somali Piracy…..






Classification of Africa based on Colonial Experience-
”Scramble of Africa”









France (Francophone )- 23 Countries
England (Anglophone)- 20 Countries
Portugal ( Lusophone)- 5 countries
Spain (Hispanophone)-2 states- E. Guinea, W. Sahara
Italy (3 states-Italy, Somalia, Eritrea)
German ( 2-Namibia, Tanzania),
Belgium (Rwanda, Burundi)
Never Colonized - Ethiopia- for the war years with Fascist Italy from
1935-41.
Ethiopia defeated Italy in 1896 at the “Battle of Adowa”
(little known historical fact)
Economic Classification Based on Income of GNP





1. Low Income $755 or less- 38 states
2. Middle Income (756-9265)-16 states
3. lower-middle inc. (756-2995)-9 states
4. Upper Middle Income ($2996-9265)- 7 states
5. High Income ($9, 266 or more)- None
Africa is income poor but made limited progress in areas such as literacy,
infant mortality, life expectancy

Differences in Colonial rule: primarily British and French rule with few countries by Portugal,
Spain, Italy, and Germany

British rule- “Indirect Rule” Indirect rule through local African chiefs…Culture was kept
intact?

French & Portugese rule- Assimilation of culture- The French wanted to
create a “French African” with French Language & Culture.

Two measures of national income: (Per Capita GDP)

Per Capita income with national currency-World Bank Method- Underestimates income. Uses official
exchange rates.
Purchasing Power Parity (PPP) Method- converts per capita GNP to International Dollars-converted
with PP parities to account for differences in prices of all goods across countries.


Since, the real value of services are high. The standard income method of the World Bank
underestimates income of African Economies. It also excludes a large subsistance economy.
Defining & Measuring Economic Growth & Development
1.

Introduction:
Before 1950s, economic growth was narrowly defined as
increase in per capita income over a period of time.

But, later studies and evidence showed that poverty can rise
in the midst of economic growth, at the very least income
distribution should be considered.

In 1991 economic development thinking shifted.
It was defined as “ a sustainable increase in living
standards that encompass material consumption,
education, health, and environmental protection” (World
Development Report 1991)

2.African Development Goal Defined

The goal of (African) development is” to enhance
the economic, political, civil rights and
opportunities of all people across gender,
ethnicity, religion, and regions in Africa”.

African development problem cannot be fully
understood apart from the political, institutional,
environmental, socio-cultural and historical
dimensions of experience of African states.
Understanding Development in Africa

African development is a multidimensional process involving
an increase in income, improvement in the quality of life,
and transformation of African economies, social structures
and popular attitudes.

Note: 3 key elements of Development: economic Growth,
improvement of the quality of life, and structural socio-economic
transformation.
Historically Economic Development involved diversifying
economies away from Agriculture to manufacturing and services.

2.Improvement in Quality of Life

Quality of life includes fulfillment of basic needs and
improvement in human welfare, i.e. improvement in
access to food, clothing, housing, health, education, safe
environment, richer cultural life, more opportunity, greater
individual freedom.

Better education at all levels- has both quality and
quantity dimensions.

Improved health is made possible by increasing public
expenditure, lowering population/physician, higher immunization,
more access to safe water.
2.Improvement in Quality of Life






Less poverty- reduction in absolute poverty and relative poverty
(inequality)
Absolute poverty line= $1 per person a day (in PPP$)
A cleaner environment- reduction in per capita CO2 emissions,
reduced deforestation, soil erosion, water depletion, and
environmental degradation in general
Greater equality in opportunity in Gender, race, race, equitable
access to resources
Greater individual and community freedom in terms political,
religious, and other personal choices.
More human security from fear of crime and terror, including
violence from the state.
3. Economic & Social Structural Transformation

Structural Transformation: involves modernization of the economy. Historicaly,
this is associated with industrialization, migration and urbanization, and greater
participation of citizens in markets.

It also requires changes in behavior of individuals, institutions, and market
improvements.-Modernization.

Building Institutions are formal rules such as constitutions, laws, regulations,
contracts, and social capital as well as norms and values both formal and
informal- example courts and other service providers…

Human Capital – Improving human capability through education & training and
better health

Social/Cultural Capital- involves local & traditional knowledge and methods of
meeting needs of people collectively..
UN Declaration of Human Rights and Human
Development-Basic Freedoms & Sustenance

Freedom from discrimination and progress toward equality of gender,
race, religion, ethnicity, age, etc.
.




Freedom from want & improvement in standard of living..
Freedom to develop and realize one’s potential
Freedom of speech, expression, participation and association
Freedom from exploitation for decent work

Sustenance –meeting basic needs-food and shelter
Self-esteem- to be a person with identity and dignity, respect, and
honor and recognition.

Freedom from servitude, to be able to choose…

Economic Growth and Development

Economic growth is a rise in per capita income and
GNP over time..

Economic Development= A rise in per capita
income (growth) plus improvement in the quality of
life, that involves poverty reduction, change in
structure of the economy that involves people..

Growth can occur without development.
Is Development without growth likely??

Measuring Development
Development can be measured in various ways:

A. Per capital Income Growth- World Bank/IMF

B.. Quality of life method (PQLI) by OECD

C. Human Development Index (HDI)- UNDP

D. Income Inequality & Poverty measures
Measuring Development cont.

Income/per-capita is narrow and inadequate- but it is important,
because it correlates with other indicators of development
such as education and health, and life expectancy.

Quality of Life can be measured by Physical Quality of Life
Index (PQLI) uses social indicators such as life expectancy,
literacy rate, and school enrollment, calorie intake.

PQLI ranges from 1 to 100- This measure ignores income.
Measuring Development:
The Human Development Index (HDI)

This approach was developed in 2001 by the UNDP- It is a
composite index measuring three dimensions:

1.Life expectancy- longevity average number of years expected
to live..

2.Educational attainment- adult literacy (2/3 weight) and
combined primary secondary and tertiary enrollment ratio (1/3
weight)

3.GNP Per capital in terms of US$ Purchasing power parity..
Measuring Human Development


The HDI Index ranges from 0 to 1(high)
Classification by HDI is as follows:

HDI> 0.800 (high)
HDI 0.5- 0.799 (medium)
HDI below 0.500 (Low)

See Data on Table 3.1

Note: African states show 80% of the low 36 HDI states.i.e. 28 of
the lowest HDI ranked states in the world are in Africa. (see Data
on table 3.1 carefully).


Measuring Income Inequality and Poverty

Absolute Poverty is measured by the global poverty line of population
that live on less than $1 a day per person.

This has two dimensions: Human poverty Index income, which
refers composite index of depreciation involving: age, knowledge
(education) and income (standard of living

Income Poverty: income level to attain a minimum basic needs. This is
about $1 per day.
Africa is the only region of the developing world where absolute
poverty has risen in recent years, it has now reached 50%.


But, absolute poverty can be potentially eliminated?
Measuring Income Inequality

Africa also has one of the highest inequality in the world, along
with Latin America

Income inequality can be measure by the methods of Lorenz
Curve and Gini Index or Ratio.

The Lorenz curve is a curve that relates cumulative
percentage of income recipients and cumulative
percentage of income as shown in figure 3.1.
1.
-Area A measures the amount of inequality- see figure
Measuring Inequality Using Gini ratio or
Index (GI)

Gini Index = A/ (A+B) based on figure 3.1

GI=0 ( refers to perfect equality)
GI= 1 ( perfect inequality)



The closer the GI is to 1 the greater the inequality. Generally Gini
Index greater than 0.5 shows problem of inequality.
For example see table 3.2 for measures of inequality in various
countries. Which countries have the highest inequality?
Examples: high inequality states:
Zimbabwe=0.568, South Africa= 0.59, Sierra Leone =0.629
Relatively low inequality? Egypt= 0.289, Ghana 0.327