ECON 4337 Comparative Economic Systems

1
ECON 4337 Comparative Economic Systems

• Lecture 12
• May 5, 2009

2
Africas Economy
3
Africas Economy

• 53 countries, over 1000 languages
• World Bank's lowest income category less than
  765 Gross National Income (GNI) per person per
  year
• Most of Sub-Saharan Africa is in the lowest
  income category
• North Africa and South Africa are better off
• Ethiopia and Burundi are the worst off with 90
• Poverty has had widespread effects, including low
  life expectancy, violence and instability

4
Africas Economy

• Trade
• Africa is rich in natural resources such as
  minerals, timber and oil, but trade with the rest
  of the world is often difficult
• Factors include poor infrastructure, government
  instability, corruption etc.
• Dumping by developed countries

5
Africas Economy

• Raw materials
• Minerals, timber and oil
• Nigeria and Libya rich in oil
• Southern countries rich in gold, diamonds and
  copper
• Curse of raw materials

6
Africas Economy

• Historical perspective
• European colonization
• 1890s through the 1920s no growth
• Boom during the 1950s due to increasing demand
  for raw materials
• 1960s end of the colonial era
• Steadily increasing poverty and debt

7
Africas Economy
8
Africas Economy

• Possible (debated) determinants of poverty
• Warfare/Political instability
• Diseases (malaria, AIDS)
• Geographical conditions
• Colonization
• Cultural and linguistic diversity
• Catastrophes drought, famines, locust
  infestations etc.
• Macroeconomic mismanagement and poor
  governance ? No strong empirical evidence
• Heavy foreign borrowing

9
Africas Economy

• Current situation
• Lowest HDI ? low standard of living and quality
  of life
• Environmental degradation (deforestation,
  desertification, extinction of animals etc.)
• Brain drain
• Underdeveloped domestic capital markets

10
Africas Economy

• Economic Policy
• African socialism after independence
• Heavy foreign borrowing for development
• Liberalism after 1980s
• IMF policies adopted
• Debate on agricultural subsidies
• Inflow of foreign aid (controversy especially on
  food aid)
• HIPC (Heavily Indebted Poor Countries) initiative
  for debt relief

11
Africas Economy

• Poverty Trap
• Being too poor to grow
• Millennium Development Goals as a remedy
  suggestion
• What is needed is a big push in public
  investments to produce a large step increase in
  Africas underlying productivity, both rural and
  urban. Foreign donors will be critical to
  achieving this substantial step increase.
  (Woo, Sachs and McCord)
• Provide public goods and develop infrastructure

12
Africas Economy

• Poverty Trap
• Being too poor to grow
• Millennium Development Goals as a remedy
  suggestion
• Adequacy?
• Sustainability?
• National independence?

13
Africas Economy

• Poverty Trap
• Complex web of many interactive factors
• Very high transport costs and small markets
• Low-productivity agriculture
• Very high disease burden
• A legacy of adverse geopolitics
• Very slow diffusion of technology from abroad

14
Ghanaian Economy

• Improving Growth
• Sustained reforms placing Ghana on the brick of
  becoming an emerging market

15
Ghanaian Economy
16
Ghanaian Economy

• Improved macroeconomic policies
• Anti-inflationary monetary policy
• Consolidated fiscal policy
• Real GDP growth estimated to have reached 6 in
  2007
• Deepening democracy

17
Ghanaian Economy
GDP by Sector in 2006 (percentage)
18
Ghanaian Economy

• Mainly agricultural
• Relatively advanced industry textiles, steel,
  tires, oil refining, flour milling, beverages,
  tobacco, consumer goods and car, truck, bus
  assembly
• Main exports gold, cocoa, timber, tuna, bauxite,
  aluminum, manganese ore, diamonds
• Since 1983 IMF programs
• Privatizations
• Removal of exchange rate control
• Removal of import tariffs
• Macro stabilization policies

19
Ghanaian Economy
Stock of Total External Debt ( of GDP)