John Seno’s Perspective: Economic Freedom in Africa

Thanks to John for letting me re-blog this article, he blogs here. Bless!

I was recently in Tanzania and it was interesting to observe the similarity in the living standards of the Tanzanian majority and the Kenyan majority. Tanzania practiced socialism for a long time under its founding president the late Julius Nyerere. Kenya on the other hand has always been a moderately free market economy with private property rights and a fair bit of competition. In the 1980's and 1990's both countries opened up their economies through privatization of state corporations, liberalization of markets and deregulation.

Overall we have experienced mixed results that really haven't pulled the masses out of poverty. Often gains made through economic liberalization have been severely hampered by political allocation of resources. When politics becomes the main criteria for allocating resources the incentives under which free markets work are changed substantially to the extent that market equilibrium is no longer possible. Under these conditions markets are characterized by low productivity, corruption, nepotism, trade imbalances, monetary instability and a host of other systemic problems that limit economic growth.

Further worsening the situation is a political culture based on negative ethnicity, idolization (personality cults), favor seeking, weak legislation and ignorance. This feeds a vicious cycle that perpetuates legacy issues inherited from successive regimes.

Afro optimists paint a very rosy picture of Africa's future but they do not appreciate the delicate nature of our loosely integrated nations. The reality is that economic growth today can quickly be erased by an election gone bad tomorrow. We have numerous illustrations across the continent of nations with massive potential that have been dragged into the abyss overnight. African leaders, tired of working under the western microscope of good governance are fashionably looking east to China for development partners. During the cold war era Africa like other developing regions were conveniently provided with development assistance by the west without much emphasis on good governance, so it's fair to say that we are stilling suffering from cold war hangovers. We still want assistance without accountability.

In order for us to overcome these social economic challenges we must replace our myopic view based on our ethnic identities with a new identity based on our humanity. As idealistic and rosy as it sounds, we have to create a socially cohesive, multiracial society that rewards effort, initiative and courage. It is disheartening to note that although we have white Kenyans and Asian Kenyans they are not adequately represented in parliament or government. It is only through social integration that the foundation of trust (upon which economic activity is based) emerges. With a firm foundation of trust all other challenges become less daunting.

Mombasa Port

Beyond social cohesion issues, infrastructure is a critical area that has to be managed well. We say time is money and the characteristic of poor infrastructure is endless delays that slow the whole economy. Poor infrastructure lowers productivity, increases waste, increases production costs, increases transaction costs, prohibits trade, reduces population mobility, slows supply chains and increases the counter-party risk of our landlocked neighbors like Uganda. Africa's development is pegged on inheriting manufacturing jobs from Asia. China is projected to shed 85 million manufacturing jobs in the next decade, for us to inherit these jobs we must invest heavily in world class infrastructure, namely roads, ports, energy, mass public transit systems, rail, pipelines and more. It is worth noting that no region in the world has managed to lift its people out of poverty without some form of industrialization. So while it is nice to talk up knowledge based industries like IT we must appreciate that currently the masses can only be absorbed into labor intensive industries like manufacturing and large scale agriculture. Overtime as automation takes over, improvements in education will enhance the productive capabilities of our population and transform us into knowledge based societies.

Africa has traditionally been a major supplier of raw material and our resource wealth has gone a long way towards blinding us. The only way to truly benefit from our resources is to reduce exports of unprocessed raw material and instead increase exports of finished products. Our focus has to be value addition.

To date politicians and politically connected individuals skim revenues generated from the sale of our resources. This habit wouldn't be so damaging if the diverted revenue was reinvested in our economies but that does not happen. The proceeds are swiftly transferred abroad further depleting the continents wealth. We can stop this counterproductive behavior by paying civil servants and bureaucrats well. We lose more money to corruption than we save from underpaying civil servants. The only way to fight corruption is to reduce its incentives. Civil servants are the administrators of public finance, if they are well compensated more of them will diligently protect the public's interests. The popular notion is that public service is some kind of higher calling that justifies low pay but the truth is humans are very sensitive to value and incentives. If we feel we are bringing more value to the table than we are receiving we will readdress the imbalance through any means n ecessary.

Overall I'd say there are a lot of positives, more positives than negatives. As long as we remain aware of the obstacles we must overcome and implement good strategies & sound policies the future is bright.