Notes on "Africa's Capitalist Revolution" by Ethan Kapstein

Notes on "Africa's Capitalist Revolution" by Ethan Kapstein

BONUS LINK:  My entire (so far) grad school notes collection can be found here. 

         

      Africa’s recent success largely stems from their starting point.  With their borders artificially drawn by the international community and ethnic groups and tribes split by colonial machination (i.e. groups split between French and English colonies), the geographic barriers were (and still are) formidable for the economies of most African countries.  Compounding these issues was a very uneven and ill-conceived governmental and economic handoff at independence in most states.  Finally, centuries of slavery had decimated the continent’s population and this decline had only leveled and started to grow over the past 100 years or so.

            Kapstein’s article shows how all of these issues have directly and indirectly contributed to the region’s recent economic success.  The largest trend that he identifies is an openness to international trade and globalization.  This has enabled them to attract the investment they need for economic growth.  That this trade is not limited to former western colonial masters has also aided this effort.  Investment and infrastructure development by China (as well as India, Russia and others) has boosted and prompted much of the development in the natural resource industry, especially due to their neutrality on human rights issues.  While the United States may possess the higher moral ground on these issues, they are most assuredly missing the larger economic opportunity. 

            Another factor mentioned is that due to only a recent opening and burgeoning connection to the international market, African banks have largely been sheltered and insulated from the recent financial crisis.  This means they possess much less toxic assets and can be viewed as ideal partners in investment and development.  This development has also witnessed the rise of national stock markets across the continent.  Since 1990, the number of states with stock markets has tripled!  Currently these markets are valued at $245 billion—a substantial capitalization in such a short time span. 

            Existing infrastructure issues has also driven Africa’s growing population to the cities.  Unable to find work or unwilling to squeak by on subsistence farming, these youths have flocked to the cities with urbanization growing 30% since the 1990’s and projected to reach 50% by 2040.  This urbanization has been crucial to economic development since it connected greater proportions of the population to a political system that never reached them in the hinterlands.  This has provoked a demand for greater accountability as well as services.  It has also weakened the hold of traditional tribal power structures—stoking modernization and galvanizing development.  African urban entrepreneurship has produced the privatization of many services and activities once provided by and run by the government.  This privatization has further weakened tribal mechanisms, as well as providing a counterweight to cronyism and clientilism.  The political stability prevalent through much of Africa is perhaps one of the greatest contributing factors to Africa’s economic success.  Peaceful transfers of power are great assurances to investors as to the long-term economic viability of an African state.  While democratization still has a considerable length to travel, it should only improve in the current century. 

Finally, technological development and ingenuity plays (and will play) perhaps one of the largest roles for their economic success.  By comparison an incredibly poor continent with much of the population steeped in poverty, however, it still has over 80 million cell phone subscribers.  The internet growth has also quadrupled since 2000.  This has allowed many states to leapfrog past normal development and growth models.  It is also promoting regionalization and globalization through its ability to connect people once forever divided by inadequate infrastructure and non-existent transportation.  One breakthrough has been the use of cell phones by farmers to acquire the best price for their crops and livestock (e.g., a cell phone app called ICOW).  Cellphone has also provided an avenue for people to bank.  Cell phone money transfers are growing exponentially each year with people able to  receive money on their phones via text and then load these amounts onto debit cards. 

            All of this growth must promote a thoughtful response from the United States.  Central to this response must be consistency.  The U.S. can push and promote economic development on one hand and then embrace protectionism on the other hand.  Much of Africa depends on international trade and protectionism can effectively squash any hopes of this for many states.  To that end, policies such as the Multi-Fiber Agreement and the African Growth and Opportunity Act must be administered (and funded!) equitably to encourage continued growth and development.  The U.S. must take advantage and invest in their robust banks and burgeoning middle class.  Through our economic and political policies we must promote regionalization so that land-locked impoverished economies can one day reach the world market.  Notably our investment there must be focused on the local populace.  We must employ local and focus on capacity building.  This focus on trade, investment and job creation are the only things that will be able to break the dependence of many African states on foreign aid.  A great example U.S. companies would be well-served to follow is that of SAB Miller.  They partnered with local companies and substituted barley for locally available sorgurum to create a beer and support an entire farming industry.  The use of this local product reduced import costs and allowed them to build more efficient factories in the country itself. The trickle down effects of this type of investment are felt throughout the country.