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STRATEGY AND ECONOMIC ANALYSIS

LESS THAN10% ANNUAL GROWTH-RATE?
THAT'S PEANUTS FOR EMERGING COUNTRIES
WE NEED DOUBLE-DIGIT GROWTH-RATE

(Part 1)
This delivery is the continuation of the paper titled:
"Strategy for African Countries "

© Copyright Dr. B.M. QUENUM December 2001 - All rights reserved
SYNOPSIS

Yearly economic growth-rate less than 10 percent- for any sub-Saharan African country - is not enough to trigger a dynamic developing.

To alleviate poverty and create descent living conditions for all, it is an absolute necessity for African countries to carry out development strategies capable of generating double-digit economic growth-rates for several decades running.

Click the rising-sun on the right side to reach the fundamentals of Pr. Moses Abramowitz's theory about double-digit growth-rate.

Structural Adjustment Program Failed / Current Economic Situation In African Countries / Insufficient Level Of Economic Activity / Disorganization And Organization / Non-Development Is A Permanent Phenomenon / Strategy Makes The Difference / Catching-Up, Forging Ahead And Falling Behind / The Catch-up Factor

Pr. Moses Abramowitz's double-digit growth theory

Part 2 | Part - 3 | Part - 4 | Frequently Asked Questions

STRUCTURAL ADJUSTMENT PROGRAMS FAILED

Since mid 1980's, most African countries are submitted to Structural Adjustment Programs (SAP), sponsored by the International Monetary Fund (IMF) and the World Bank. Burkina and Ghana stand as examples, which were recognized and praised, by the IMF and the World Bank, as SAP' success stories. Both countries sustained - over a period of 5 to 10 years - annual economic growth-rate in the range of 5 to 6 percent.

Ghana received US$ 9 (nine) billion financing input between 1988 and 1998. And yet, President Jerry Rawlings stepped down from power on January 7, 2001
- after 19 years of exclusive power - without any tangible economic success as far as Ghana's economy and the prosperity of Ghanaians are concerned.

In spite of an average of 5.5% (over five years) annual growth-rate, Burkina-Faso is listed 172nd (out of 174 nations) on UNDP - United Nations Development Program's poverty-scale (Source: UNDP 2000's report on "Human Development"). In that country, 45% of the population live with less than US$ 93 (ninety three) per year.

Ghana and Burkina are not exceptions. The gloomy economic situation is similar in several African countries. Indeed, no African country had been able, to date, in spite of annual growth-rates in the range of 1 to 10 percent - under SAP or otherwise - turning around the economy, taking off and reducing poverty.

The percentage of the populations under Poverty Level defined by UNDP increased in most African countries. That fact is testimonial that Structural Adjustment Programs (SAP) failed in assisting African countries bridging the developing gap.

SAP' sponsors - the IMF and the World Bank - now perfectly aware of the failure are busy trying to elaborate another assistance policy. They now implicitly recognized the annual growth rates of 5% to 10% are not sufficient to drive upward African countries' economy and reduce poverty. They are obliged to admit that the sole implementation of SAP cannot assist African countries improve their economy and take off.

It is true Structural Adjustment Programs were necessary in the 1980's to restructuring Africa's devastated economies. They help floating up shaky financial systems and bankrupted states. SAP helped African governments to achieve macroeconomics equilibrium on the monetary market and in financial resources, and to practice good governance.

Nevertheless, at the beginning of the new millennium, one remarks these macroeconomics good results are no more sufficient to promote the economic development in African countries. Another approach is necessary to moving Africa forward, reduce poverty, take off and join the circle of developed nations.

One reads, here and there, that the IMF and the World Bank's new assistance policy will put emphasis on Education and Health. At first glance that sounds a good policy. However, one could remark that Education and Health - in developing countries - are not economic sectors that directly produce wealth. In the contrary, they spend revenues generated by other economic sectors such as agriculture, industries and other services. Therefore, focusing financial assistance direct on Education and Health would not trigger any development process. That would only inject survival financial means into African countries' economic system. Finally, the result would be the same as with SAP: No poverty reduction would be achieved and the economic situation of African countries would further deteriorate.

What is rather needed to better the economic performance of African countries is a long range strategic planning, which tightly integrates agriculture development, industrial transformation of crops and related services - storage, insurance and transport. Each component activity of the strategy interacting in fusion with each other to generate double-digit annual economic growth-rates. That is a strategic planning, which triggers off a sustained growth of the economy to creating descent living conditions and prosperity fall all: food in abundance, descent housing, electricity, running pure water, health assistance, education, global security, freedom of movement and jobs.

From now on, Africans should have this as motto: "Economic Growth Together With Adjustment." Africa's institutional partners: the World Bank, the IMF, UNDP, and bilateral development partners will certainly agree. They too will be given credit for Africa's economic successes if such integrated developing strategies our carried out in African countries.
THE CURRENT ECONOMIC SITUATION IN AFRICAN COUNTRIES

Let us consider the current economic situation in African countries.

- What are the characteristics?

- 1- In most of African countries the economy is either sluggish or in deep comatose state. There is no linkage, whatsoever, between the various economic sectors: primary (agriculture); secondary (industries) and tertiary (services.) To the contrary, in African countries, most of the times, there is a structural distortion that is very damaging to the African community in terms of creation of riches. That is the emphasis put on import of goods and commodities. African businessmen are more inclined to importing all sorts of products and commodities - the profit margin is more important and no management hassles - instead of manufacturing goods.

- 2- The endemic and high percentage of unemployment, which leads (1) to the tragic aberration of highly trained people ending jobless on the marketplace; and, (2), to the rural exodus, which is swelling up the populations of small, medium and big African cities.

The sad reality prevailing in any of the 48 sub-Saharan African countries is this: 20% to 60 % of the population is jobless; and 90% of people with jobs earn monthly salaries in the range of US$ 30 to 200. Click here to review one of the consequence of the low level of salaries and wages.

- What are the consequences of all above mentioned facts?

- 1- The lack of sufficient financial means. African states cannot levy enough financial means through income taxes and duties. The bulk of states' revenues evolves from customs taxes that quickly dry out when import-export business slows down.

- 2- The chronic lack of funds. African States are not in the position to undertake fundamental investments necessary to sustaining the growth of the economy. They cannot execute a dynamic investment policy aimed at establishing vital infrastructure: construction of roads, schools, universities campuses, hospitals, water piping and research centers.

Most African countries are obliged to rely - sometimes at 100% - on external financing to undertake fundamental infrastructure investments. The disbursement period and utilization's conditions of external financing (provided by international financial assistance institutions) are often full of hurdles that slack down projects' execution. Consequently, the developing process is hindered or performed too slowly. Things move faster only when a country relies on its own financial means. Ivory Coast stands as example, in French speaking West Africa, establishing - between 1960 and 1985 - a good network of roads, only because it has an investment's budget (BISIE,) dedicated to infrastructure, which derived from proper national financial resources originating from cocoa and Coffee's exports.

In brief, the economy is at standstill in most African countries in spite of annual growth-rates in the 5 - 10 percent bracket.
THE INSUFFICIENT LEVEL OF ECONOMIC ACTIVITY

Let us review the apparent causes of the insufficient level of economic activity

- 1- Inadequacy of African countries' schooling and training system. Over decades, before and after the independence, African countries' education system provided a majority of trained clerks for public service. There was not either a policy to develop technical schooling to train specialists for the industry sector; or to promote entrepreneurship through managerial academia. Until the mid 1980's, most of established black entrepreneurs (mainly in the trade sector) were either autodidacts or "uneducated" people.

- 2- Archaic agriculture system. A small percentage of black farmers, trained to using modern agricultural techniques and methods, are established to develop rural areas in African countries. African governments have not setup a global and coherent rural development scheme to modernizing agriculture, improving existing crops, diversifying the cultural productions, increasing crops' yield and animals' production.

- 3- Scanty industrialization. Rare industrial units are established, which anyway are either badly managed, operating under capacity for lack of raw materials; or closed for bad maintenance due to lack of spare-parts.

In brief, African countries' economies are in a standstill state - some are even "frozen in time" - because economic activities are badly organized.
DISORGANIZATION AND ORGANIZATION

All above-mentioned causes, however, are secondary ones. There is only one veritable cause for the insufficient level of economic activity in African countries: Disorganization

Let us quickly consider the problematic of "Organization" and "Disorganization" with regards dealing with adverse conditions.

Alighieri Dante, the famous Medieval (1265-1321) Italian poet, author, writer and politician, in "The Inferno" / "The Divine Comedy" (Click here for more) wrote: " We are not born to act and live as fools, but to follow the ways to virtue and knowledge."

We shall paraphrase Dante and say: " We Africans are not born to live as dependent and needy, but to follow the ways to prosperity and happiness."

How could we Africans achieve that when everything, in our current economic surroundings, is gloomy?

Some Africans have a deep-seated conviction that the poverty Africa's nations are experiencing right now is just a paradox, an illusion. Yes, an illusion. They are deeply convinced that: "If no one is capable of always fulfilling all his desires, he who dedicates himself to accomplishing all he can do will be able to exercise a powerful drive on his destiny." As wrote French author psychologist and motivational writer, Paul C. Jagot, in Les lois du succès - (Success' Laws) - Editions Dangles, Collection "Savoir pour réussir" - 18, Rue Lavoisier, 45800 St. Jean de Braye - France.

Let us take the case of Japan as example to illustrate above assertion.

Within a times' span of half a century, Japan raised itself from an underdeveloped state to be ranked as the second industrial power in the world. Japan, nowadays, stands for 14% of the planet's Gross National Product (GNP). Japan distinguished itself, throughout its history, with its capability to take advantage from adverse circumstances; to turn to its profit bad and trying occurrences and events. Instead of being swamped by defeatism, Japan decision-makers always do their utmost best to tackle and conquer the adversity. That is the reason why the Japanese were able, since last World War II, to deal with two petrol crisis, the competitive devaluation of US Dollar versus the Yen. Instead of fighting lost wars or bewailing one's lot, Japan decision-makers restructured their production system and reinforced their position on the world's marketplace¹.

The Japanese organized themselves. They are superb tacticians. They zigzag very well.

When in 1853, Commodore Perry's US marine fleet busted through the straits of Kamoneseki and forced the Japanese rulers to open their closed market to international trade, Japanese were appalled to see the enormous technological gap existing between their country and the gai-jin (the foreigners). The Shogun's counselor, Masayoshi Hotta, wrote then, in 1887: Our policy should be:

  • To take advantage from this opportunity.

  • To enter and conclude alliances.

  • To send our ships around the world, to trade.

  • To imitate the foreigners for anything they can manufacture, produce, make and do.

  • To narrow the gap and catch-up with the backward state of our country.

  • To reinforce and improve our national power and our fleet, to be in the position to gradually exercise our influence on the foreigners.

  • And, finally, to have the whole world at complete peace and our hegemony accepted.

  • Source: Clyde Prestowitz; Trading Places : How we allowed Japan to take the lead, Basic Books, 1988, P. 21

    This above well-defined, concise and precise strategy was executed to the point - except for the last desire. (To read arguments put forward by a specialist in Japan's affairs who believes that the last desire will be difficult to fulfill, you may read Bill Emmot's book: "The Sun Also Sets" / "Why Japan Will Not Be Number One"²)

    The scheme is still the governing-strategy of Japan.


    In the same register could be listed: Taiwan, South Korea, Singapore, Hong Kong - well known as the four dragons of Asia - and also Mauritius, Malaysia. Etc.
    NON-DEVELOPMENT IS A UNIVERSAL AND PERMANENT PHENOMENON

    Dear reader,

    The so-called "underdevelopment" normally should be qualified as "non-development"
    because non-development is a universal and permanent phenomenon. Countries, which have stepped up further into more development, are obliged to keep up the pace. At the slightest slackness, they are bounced back to "non-development." It is not necessary to elaborate on that. It would take us too much place and time.

    Everyone is aware of this: since the beginning of humanity, ignorance, diseases of all kinds, slavery, subjugation and submission of women, dependence of a group of people to another group, malnutrition, wars and famines are common practices and occurrences that perpetuate underdevelopment. The world had never been at peace. Hundred of wars are fought right now all over the world - some raging since the end of second world war II, in 1945.

    So, it is not "underdevelopment," which should be considered as a scandal; but the development process itself which is a miracle and a very recent one. (All this is brilliantly discussed and analyzed by French politician, writer and historian Alain Peyrefitte in his book: "Du Miracle En Economie / Leçons Au Collège De France" - May 1995 - Editions Odile Jacobs, 15 Rue Soufflot, 75005 Paris - France)

    The rising up of Japan and other countries above-mentioned are vivid proofs that a nation can, within a generation, narrows its backward state and jumps over centuries. These achievements should be for us Africans deep cause for reflection and concern. Even if mentioned experiences cannot be 100 percent imitated as such; each country being unique; sociologically, politically and historically.

    Nevertheless, African countries can draw much from these experiences and organize themselves towards prosperity through the implementation of well-planned and defined long-range strategies.

    Japan borrowed its political, economic and social organization from European countries. The legislative body is English-coined. Common Law and Penal Code are based on French model. State's police is structured like the French Gendarmerie; and most of all - after a long period of strong state's controlled and planned economy - the business world in general, trade and banks are now structured like Anglo-American models.

    Let us Africans do the same. The problem of the choice of models is completely obsolete; state controlled economy or free entrepreneurship (socialism or capitalism) are, from now on, questions devoid of any kind of relevance. What counts is the pragmatism of actions to bridging the developing gap.

    Speaking of the choice of models, let us take the case of Taiwan. To destroy a myth.

    Doubtless, Taiwan followed the free entrepreneurship strategy to achieve the remarkable development of its economy. Nevertheless, the State of Taiwan played a powerful driving part in executing the developing policy. The state of Taiwan intervened through a very sophisticated planned strategy without any kind of compelling pressure vis--vis national and international investors. Till mid 1970's, the Taiwanese public sector contributed for more than 50 percent to the capitalization market. Nowadays, the government of Taiwan is still in control of one third of the banks and one fourth of the industrial units.

    Therefore, one remarks Taiwan's developing strategy is not based on full and unbridled liberalism, which international aid institutions are enforcing on African States submitted to Structural Adjustment Program.

    What is important for a country is to have a well-defined development strategy to which the majority of the citizens adhere to. A strategy that is also credible and attractive to foreign investors. Said strategy should be methodically executed; submitted to a constant follow-up policy; necessary changes being regularly made taking into account opportunities as soon as they occur.

    We Africans should have this constantly in mind: No country in the world is intrinsically poor. There are countries endowed with abundant natural resources - that are assets to establishing them within the circle of prosperous nations - but remained, nevertheless, in permanent poverty. And there are countries that lack everything - as far as natural resources are concerned - which, however, became prosperous. There is no need to give examples.

    Poverty or prosperity is not a question of big or small territorial area, of big or small population size. Availability of abundant natural resources also is not fundamental. So what makes the difference?
    THE ORGANIZATION
    OR THE WAY THE DEVELOPING STRATEGY IS CARRIED OUT
    MAKES THE DIFFERENCE

    In any poor country of the world there are entrepreneurs, farmers and traders who are vivid examples that poverty is not a fatality. These people organized themselves to becoming prosperous in spite of adverse conditions. Organization or a "winning" strategy makes the difference between poverty and prosperity. This is true either for an individual, a community and for a nation.

    To break the vicious circle of poverty and pave the way towards general prosperity to be enjoyed by every class of society, in any African nation, suitable developing strategies should be devised and implemented. Otherwise, all development efforts would end up without noticeable results, not to speak of failure. That is obvious with regards the disastrous economic situation prevailing in African countries at the beginning of the new millennium - no jobs' creation to cope with demands and rampant poverty.

    Indeed, all sub-Saharan African governments carried out, since the independence, economic development schemes. Mauritius, Botswana and the Seychelles stood out as the only absolute success stories. The other countries - with the exception of South Africa a particular case-study - four decades after gaining independence, are still struggling to survive. They have sluggish and shaky economies, high level of unemployment (20 to 60 percent of the population is jobless,) and are experiencing global instability.

    So what is amiss? Why all these well elaborated development schemes - including Structural Adjustment Programs - failed triggering a sustained economic growth capable of reducing poverty?

    That is the question. These schemes failed because they generated annual economic growth-rates only in the one to 10 percent bracket; in spite of huge influx of money. Ghana standing as example. One percent to 10 percent annual economic growth rate is not sufficient for emerging countries' take off. The reason why? The apparent growth-rate of one to 10 percent is eaten-out by the annual population growth-rate - in the range of 2 to 3 percent for African countries - and inflation rate in the range of 5 to 7 percent (one being optimist!)

    It is then obvious that anything less than 10 percent annual economic growth-rate is just for survival.
    It will take us (if ever) up to several decades, far beyond the second century of the new millennium, to alleviate prevailing poverty in Africa, bridging the developing gap and creating descent living conditions for all, if we do not target annual double-digit economic growth-rates and manage to sustaining the pace for two to three decades running. There is no alternative.

    THINKING ABOUT GROWTH:
    CATCHING-UP, FORGING AHEAD, AND FALLING BEHIND
    ³

    African countries, doubtless, need to implement economic development schemes capable of engineering strong growth-rates in the double-digit range and take all necessary steps, gather all resources and means to sustain it over a long period of 30-40 years.

    We can hear, loud and clear, objections from skeptics who think all that is utopia; impossible to achieve. We assure the skeptics that it is not only possible. It is an absolute necessity. The sine-qua-non condition for the take off. Here is the reason why: In the so-called "poor countries" - where everything needs to be started, double-digit annual growth-rates, over long period of 30-40 years, is nothing extraordinary. It is only catch up.

    That is what one of the most eminent economist of the century - Moses Abramowitz³ - demonstrated. He, who devoted his whole life to the study of economic growth-rates.

    Moses Abramowitz³ considers three kinds of countries:

    1- Countries that just started their developing process - one can list most African countries in that category; and those just coming out of a devastating war - many African countries will be soon in this category.

    2- Countries that are experiencing successful developing since quite two decades and are gearing up the process.

    3- Countries in the leading position since quite a century. The most ancient industrialized countries, which are now together in the G-7 / G-8 group.

    According to Pr. Abramowitz, the economic growth-rates of the different categories above listed evolves this way:

    - First category annual growth-rate soars vertically as soon as the country really enters the developing process, to reach a high level in the range of 30% annually, over a short period of 3-5 years; 20% to 30% over a 20-year-period and around 10 percent over 15 years.

    - Second category countries sustain easily economic growth-rates in the range of 8 to 12 percent annually over 15-year-period.

    - 3rd category, having reached their cruise speed, these countries experience economic growth-rates around one to 4 percent annually. From 1956 to 1976, when these leading countries sustained economic growth-rates up to 7 percent, the period was called the "glorious thirties." That was the now-lost era of full employment. (Which the United States regained - since 10 years - thanks to the leadership conquered in IT and the new economy.)

    In few words, once the real developing process is on track, the backward country or the one emerging from a devastating war, benefits from a starting bonus in comparison to its precursors. And contrary to the common belief, this starting bonus has nothing to do with the country's socio-cultural particularities. A distinguished French economist, Jean-Jacques Rosa (Click here for more), who analyzed Moses Abramowitz's³ studies, found out that these socio-cultural parameters stand only for less than one fourth of the phenomenon.
    THE CATCH UP FACTOR³

    To comprehend and explain the "CATCH UP FACTOR" analyzed by Abramowitz³, the following have to be taken into account:

    -1- The initial low level of equipment existing in the country.

    -2- The lack of training of the workforce

    Both deficiencies representing huge potentiality for improvement, and, henceforth, to increasing the productivity of the economy, once adequate measures are taken and the developing process launched. Also to be considered is the extra workforce available rural areas and, particularly, the progressive increase of the purchasing power of the population in general.

    This fundamental point of the increase of the purchasing power is given further consideration in part 3 of this delivery titled: HOW TO REACH THE TARGET Click here for more.

    © Dr. B.M. QUENUM
    Investment and Business Planner
    Click here for Part -2
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    (1) Dominique Nora; L'Etreinte du Samouraï. Le defi japonais, Calman Levy, 1991
    (2) Bill Emmott;
    The Sun Also Sets. Why Japan Will Not Be Number One, Simon & Schuster, 1989
    (3)Moses Abramowitz, "Thinking About Growth: Catching Up, Forging Ahead, and Falling Behind", Journal of Economic History 46 (1986), 385-406.
    (3 bis) Moses Abramowitz; The Catch up factor in Postwar Economic Growth, Economic Inquiry, January 1990

    2001 Dr. Bienvenu-Magloire Quenum. All rights reserved
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