African 'Rockeconomics'

Poverty is a relative concept. Some people are poorer than others because even with equal opportunities, differences in productive efforts will lead to income differences. Providing that all have an opportunity to earn an income, and providing that the lowest income earners have a decent standard of living, relative poverty is not a problem.

Global poverty is concerned with absolute poverty, that is, the millions who do not have enough to eat, do not have basic housing and do not have access to health and education for their children.

Because population growth after World War II exceeded economic growth, the number of poor people in developing countries rose to about one and a half billion poor people by 1980, with China and India accounting for almost 80 per cent of those living in poverty. Twenty five years later the number of people living in poverty has halved to some 650 million. Because China and India followed the East Asian pattern of rapid market-oriented growth, only about 200 million poor people are now in Asia. But in Sub-Saharan Africa, the number of people living in poverty has doubled to more than 350 million.

Rapid economic growth has been the driving force of poverty reduction through productive employment opportunities that enable people to earn their livelihood. East Asian developing economies, starting with the Four Tigers (Hong Kong, Taiwan, the Republic of Korea and Singapore) began to accelerate development by opening to the world for competitive market signals for the private sector while expanding education, health services, transport, power and other infrastructure. Prudent macroeconomic management raised savings as incomes rose.

Starting by exploiting their comparative advantage for domestic markets and exports, the Four Tigers rapidly raised productivity and hence living standards. Full employment reduced poverty to low levels that could be alleviated by welfare programs. Political development followed. Malaysia, Thailand and Indonesia took the same market-oriented path, with China and India opening up their economies in the 1980s and 1990s. Unfortunately, few other developing countries have followed this path to successful development.

In Latin America, Chile is an exception to slow growth that continues to widen the per capita income gap with North America, Europe and Australasia. The Middle East, despite its rich natural resources, continues to lag even further behind, with abysmal health and education levels, particularly for women.

In Sub-Saharan Africa, only Botswana and Mauritius have followed market-oriented economic policies. They have achieved some 30 years of economic growth with a marked reduction of poverty. Botswana is the only African country with a realistic assessment of its HIV-AIDS epidemic and a health system that treats the victims. Both countries are investing abroad because they have run into labour shortages at home.

In the rest of Sub-Saharan Africa, including relatively developed South Africa and petroleum-rich Nigeria, more than 50 per cent of the population lives in poverty. Civil and international conflicts over the continent’s rich natural resources, particularly in central African states, have led to the displacement of about 40 million people condemned to dire deprivation in refugee camps.

Rich agricultural potential has been destroyed in countries such as Ethiopia, the Sudan and Zimbabwe, with deserts consequently creeping across the continent. Allegedly “successful” countries waste their resources - including several waves of debt forgiveness and the highest per capita aid flows in the world - on swollen governments and bureaucracies.

Ghana has 88 ministers and deputy ministers: Uganda only 70. African elites are the principal consumers of up-market Mercedes, Bentleys and Masseratis. They own properties in London, New York and Paris where their wives shop for couturier clothes and jewellery and where they socialise with wealthy Westerners at balls, the races and on yachts. These elites contemptuously rely on the West to feed and supply basic health services and education to their starving populations.

The NGO and UN inspired Millennium Development Goals program of "eradicating poverty” and the more recent Make Poverty History campaign are incapable of alleviating, let alone reducing poverty in Africa. Another round of debt forgiveness, this time covering multilateral bank loans, will have no impact because the debts of the highly indebted poor countries have already been forgiven at least once or have been serviced by aid donors (albeit at the expense of countries such as India, China and Bangladesh that conduct their affairs so prudently that they are able to service their debts).

The principal effect of clearing the multilateral banks’ debts will be to enable a new generation of bureaucrats to extend new non-performing loans which the African countries will again be unable to service and which will consequently again have to be forgiven.