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BUSINESS IN AFRICA™
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BUSINESSAFRICA.NET NEWSLETTER
ISSN 1563-4108
INVESTMENT AND BUSINESS PLANNERS Fax: +1 347 534 9329 Email: Click here to get email address | ||
| WE
TAKE CARE OF BUSINESS IN AFRICA™ | |||
| STRATEGY AND ECONOMIC ANALYSIS | |||
MISLEADING ECONOMIC CONCEPTS
TO BE DISCARDED IN AFRICA
SOME
PREVAILING ECONOMIC CONCEPTS ARE HINDRANCES
TO EFFICIENT DECISION MAKING
PROCESS
IN SUB-SAHARAN AFRICAN COUNTRIES
This delivery is the continuation to preliminaries here
available.
| |
| Narrowness
Of The Consumer-base / Weak
Purchasing Power / What
Creates The Consumer-base? / Are Regional Groupings The Answer? / Level Of State Involvement / We Have To Shed Off These Economic Dogma / |
| NARROWNESS OF AFRICAN NATIONS' CONSUMERS MARKETS |
In
most African countries 60 to 80% of the population live in rural areas.
They represent the poorest percentage of the entire population; with meager annual
income in the range of maximum US $ 200 per year. That is the sad fact. They do
not spend much. They cannot afford it.
Remains 20% consumer base. 90
% of that consumer base comprises civil servants; with monthly wages and salaries
within US $ 100-500 bracket; if they got it (in some African countries, the state
/ government owes 20 months of salaries / wages in arrears to civil servants).
They cannot be spendthrifts.
We now have the remaining 10% of the
above defined consumer base; composed of businessmen and businesswomen, high
rank civil servants. These are the "privileged" people who can afford
rubbing one dollar against one.
-
Taking into account these findings, some economists reached the conclusion that
the consumer- base is too narrow in each of the individual African countries.
Therefore they advocated for the setup of Regional groupings in order to widening
the consumer-base.
That analysis and resulting conclusion need some
screening.
It is true the establishment of regional groupings is a vital
necessity for Africa. These regional bodies help participant states harmonize
their economic development. They develop trade and other exchanges amongst members
states. Does that mean, however, that all investment decisions should be decided
upon and implemented at regional level?
Establishing regional groupings
in Africa, that way, one is sure to have some countries - the most populous ones
- drawing the whole carpet and letting many others bare of vital infrastructures
and industrial concerns.
-
It is a well known fact in mathematics that weak portions of a unit frail the
whole system. To have a strong "Unit", built from several other "portions",
each portion should have build-in strength; otherwise the whole Unit or system
may collapse for lack of cohesion.
If several
countries with no sufficient consumer-base are bound together, this doesn't mean
that the resulting grouping will be automatically a more viable one; endowed with
a large pool of consumers with higher purchasing power.
The theory of Sets in mathematics says it all: One cannot expect to obtain a "full"
Set when the component's parts are void.
That is one of the reason
why the European Union edited strict economic convergence rules to be adhered
to by candidates to the Union..
-
Therefore, establishing Regional Groupings of African nations - at their current
state of economic development, characterized by a very low level of economic activity
- will not lead to larger consumer-base with sufficient purchasing power.
These groupings may help in harmonizing the global economy of members' states.
They have not succeeded till now and will not succeed in the near future absorbing
the huge unemployment (30 to 60% of the "working force") persisting
in African countries.
| THE PROBLEM OF THE LACK OF PURCHASING POWER IN AFRICA |
Sure, the purchasing power of the population in any of the sub-Saharan African
countries is very low. Here,
a quick explanation is given about it. However, one is entitled to question
the conclusion drew by some economists. They deducted the low-purchasing
power to be the result of the lack of a sufficient consumer-base.
They
did not delved further into the matter to understand why the consumer base is
non-existent. Does the consumer-base create the purchasing power? Or does the
purchasing power create the consumer market? These are fundamental questions,
which need some consideration.
-
The consumer-base in Nigeria
for instance - Africa's most populous country - is larger than the consumer-base
of Benin, which has 20 times
less population than Nigeria.
However, the purchasing power of
a Nigerian is not higher than the purchasing power of a Benenese. One does
not need to make complicated calculations to reach that conclusion. The comparison
of per capita GDP - in the range of US $ 330 for each country speaks for itself.
-
Another example is South Africa.
In said country there is a pool of 5,000,000 citizens with high purchasing
power in a sea of 38,000,000 people with very low purchasing power. As a result,
South Africa, in spite of having a large consumer-base of people with high purchasing
power, finally has a very low global purchasing power for the entire population.
- Taking
in account above remarks, one can say that, in African countries, a large consumer-base
does not automatically yields higher purchasing power for the population. So what?
We think one needs to further consider the matter and ask this fundamental
question: Why the purchasing power is very low in all African countries?
Should we speak of "low" purchasing power or simply of "lack"
of purchasing power? Owing to the importance of the matter for policy making decisions,
asking the question that way is not splitting hairs.
The reply is yes.
In African countries there is a lack of purchasing power,
because the level of economic activity is very low.
In another delivery, here
available, the low level of economic activity in each of the African countries
is extensively considered to reach the following conclusion: African
countries' economies are in a standstill state - some are even "frozen in
time" - because the economic activity is badly organized.
- If we
Africans just wait for the purchasing power to emanate from the void; to pop up
as God-sent gift, we would be waiting for ages, turning in circles; the economy
sinking deeper and deeper in pernicious anemia. In the contrary, we have to adopt
the right economic strategy to creating riches; increasing the global revenue
and the purchasing power of the population.
|
IN AN EMERGING COUNTRY THE PURCHASING POWER CREATES THE MARKET AND NOT THE CONTRARY |
To
break the vicious circle of poverty persisting in each African country and pave
the way towards general prosperity, to be enjoyed by every class of society in
the nation, we should have a suitable development strategy. Otherwise, all our
efforts will end up without any noticeable result, not to speak of a failure.
As 60 to 80 % of the population in each African country is dedicated
to rural development activities, a suitable strategy should be implemented to
tackle rural development problems and propose sound solutions to make the country
folks' life easy and their activities profit earning.
Such strategy is
exposed here; and a case study available
here, which integrates in a
fusion activities of agriculture, industry and services to generating what we
called SYNERGETIC IMPACT FACTOR here
available.
-
The implementation of such a developing strategy as briefly outlined above will
create a huge consumer market in each African country. Farmers - who represent
60 to 80% of the total of the population - will start buying fertilizers, equipment
of all kinds. They will build better houses and dress better; indulge in trips
and leisure. The remaining category of consumers from secondary and tertiary economic
activities - industries and services - will do the same. The problem of the lack
of purchasing power will not exist anymore. In the contrary a powerful and relatively
wealthy consumer base will emerge, capable of rubbing one dollar against the other.
- One
is therefore entitled to conclude that for an emerging country, which implements
the adequate developing strategy capable of generating a SYNERGETIC
IMPACT FACTOR, it is the purchasing power of the population that creates
the market. The purchasing power itself resulting from a level of economic activity
capable of creating riches for all. A consumer market cannot exist by itself;
even if there is an apparent consumer-base.
In
short, the purchasing power of the population (arising from a high level of economic
activity) of an emerging country creates the Market. And not the contrary.
| ARE REGIONAL GROUPINGS THE ANSWER TO THE DEVELOPING GAP? |
The
basic concept of The New Partnership For Africa's Development - NEPAD -
is REGIONAL DEVELOPMENT in addition to other conceptual policies
below outlined:
| 1-
Peace, Security, Democracy and Political Governance Initiative. 2- Economic and Corporate Governance Initiative. 3- Bridging the Infrastructure Gap. 4- Human Resource Development Initiative 5- Capital Flows Initiative. 6- Market Access Initiative. 7- Environment Initiative |
One
can see that these policies are global and not yet linked to specific well identified
development projects. Click
here to further review these initiatives.
Several years will pass
by (in the range of one decade to be conservative) before feasibility studies
and business plans linked to common and regional specific economic projects are
drafted and agreed upon by the different African states; and approved by institutional
financing bodies such as the IMF, the World Bank and billateral aid donnors.
-
Are regional groupings the adequate answer to boosting up the global economic
activities in members states? Owing to the urgency to finding solutions to
bridging the developing gap afflicting Africa, is it normal and wise to focus
too much attention and energy on NEPAD and therefore on Regional Development?
Even if financing means to implementing Nepad are eventually quickly disbursed
by aid donnors, one is entitled to raising following questions:
|
- Could Nepad's initiatives be the driving force to solving the urgent and
acute economic development problematic African countries are currently confronted
with? |
-
In the long term, Nepad may become a driving force to developing African countries.
However it won't be the decisive one.
Because the implementation
of global common infrastructure projects cannot properly address the low level
of economic activities prevailing now in all African countries; and the subsequent
high level of unemployment (30 to 60% of the so-called "working force")
as here extensively
exposed.
Implementation of regional projects will not boost up the economic
activity level in each concerned African country. To increase the economic
activity level in each African country, national government will have to implement
integrated development schemes capable of generating double-digit annual economic
growth rate on a sustained basis for three to four decades running. Click
here for more.
Otherwise, Nepad or not Nepad, the prevailing poverty
in African countries will worsen as the growth-rate of the populations (3 to 4%)
and inflation level (5% - a very optimistic viewpoint) eat out any annual economic
growth-rate below 10%. Click here
for more.
It will take us up to several decades, far beyond the second
century of the new millennium, to alleviate prevailing poverty and create descent
living conditions for all in African countries, if we do not target double-digit
annual economic growth-rate; and manage to sustain it over three running decades.
The matter is given due consideration here.
- Could
Nepad's initiatives trigger double-digit annual economic growth-rate in each African
country? In a short span of time to counterbalancing the growth-rate of the populations?
We doubt it as existing regional organizations throughout Africa
failed till now to do so with their respective members states after more than
one decade of activities.
Nepad cannot generate double-digit annual economic
growth-rate in each African country in the short term. Because, firstly, Nepad's
implementation will be taking at least a decade to be fully operational; and,
secondly, the different above
listed initiatives are global and not projects oriented from the start. These
different initiatives will take two to three decades to producing tangible results.
In the meantime, the increase of populations will diminish the already
meager per capita GNP and African countries will be engulfed in aggravated poverty
leading to subsequent political destabilization, civil unrest and civil wars.
-
Therefore, in addition to the efforts now made to promoting Nepad and Regional
Development, national African governments will gain more, in accelerating their
development process, if they manage also to devising and promoting projects oriented
and integrated development schemes.
That is to
say if they take, right now, necessary steps to establishing, on their respective
national territory, integrated operations, which link together agriculture, industrial
transformation of crops and expansion of related services.
These
projects oriented integrated development schemes are more attractive to direct
foreign investors and to the international commercial banking system. Click
here for a case study.
Such integrated development schemes - having
the inherent capacity (Synergetic
Impact Factor) of boosting up the economic development and creating riches,
are capable, in a very short span of time of 10 years, to tremendously multiplying
the per capita Gross National Product. Click
here for a specific study that shows alternative scenarios of per capita
GDP evolution.
|
THE STATE'S INVOLVEMENT IN THE DEVELOPING PROCESS OF AFRICAN COUNTRIES |
Now
let's consider the problem of state involvement in the developing process and
take Taiwan development process and strategy as example.
Doubtless,
Taiwan followed the capitalism's way to achieve the remarkable development of
its economy. Nevertheless, the State of Taiwan played a powerful driving part
in implementing the development policy, through a very sophisticated planned strategy;
without any kind of compelling pressure vis-à-vis national and international investors.
Till mid 1970's, the Taiwanese public sector contributed for more than
50% 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.
.
-
Thus, if it is obvious Taiwan's economic successes are based on free economy doctrine
one can remark that the strategy implemented by Taiwan' successive governments
to boost the economy is not based on unbridled liberalism, which international
financing institutions are enforcing on African States submitted to Structural
Adjustment Program. Click
here for more.
-
Another striking example is the way Malaysia, under the leadership of Dr. Mahathir
pulled through spins the 1997's Asian financial.
Dr. Mahathir adopted
an independent economic thinking and a national strategy to solve the crisis.
He stood firm against propositions and pressure from the International Monetary
Funds - IMF - and the World Bank, which advocated for the prevalence of the Market's
Law. That is to say to let funds "flee" the country without any restriction
and control.
On the contrary, Dr. Mahathir instituted a time-limited
foreign exchange control. He also put into practice some other "non politically
correct" decisions. He was right to the end as he succeeded in resolving
the crisis for Malaysia far in advance to other Asian countries - like South-Korea
and Indonesia - which bent to the Market Law' suggestions put forward by the IMF
and the World Bank.
On July 6, 2002, in a speech delivered to business
leaders in Bangkok, during an official visit to Thailand, Dr. Mahathir Calls
For Asian Economies to Strengthen Resilience (Extracts from an Article
By Ron Corben In VOA NEWS). He declared:
"..Independent thinking
helped Malaysia recover from the 1997 Asian economic crisis...We should explore
new and additional methods and mechanisms of doing business, rather than staying
with our conventional way, in order to strengthen our resilience, and to reduce
the problems that surfaced following the 1997 financial crisis," .and continue:
"The 1997 crisis has taught us not to be dependent on standard measures
that are prescribed by international institutions. They are often not workable
and bring even more hardship to the people. They reduce the options for us to
manage our economy and social problems,"
We African should learn
from Asian tigers. They developed their national countries first, for decades,
before now considering Regional Groupings. And most important, they did not beg
for economic points of growth from the powers of the day. They won these points
of growth through independent thinking, local-made developing strategy and hard
work.
-
Taiwan and Malaysia's accomplishments, clearly demonstrate how the state's invlomvement
in the development process is crucial for emerging countries.
| |
In
this delivery, some prevailing economic concepts, currently accepted as "economically
correct", are examined to consider their relevance to African countries'
existing economic situations. They are:
|
|
A quick analysis shows that above outlined economic concepts are misleading ones.
They are hindrances to proper efficient decision making process in Africa. NEPAD's
Regional Development strategy is based on the first listed one.
We Africans should stop taking these dogma as Holly Writ. They will, for sure,
make us wander for long time on the road of the economic development without reaching
the final destination of sustained economic growth.
We have to get
rid of them to avoid waste of time and painful wake-up in increased poverty.
We should always make counter propositions to the recommendations put forward
by the International Financial Institutions. We have to do our utmost best
to always protect our national interests and follow the example set by the Asian
tigers.
-
Right now, there is another misleading concept building up, which is developed
by the International Financial Institutions: They are advocating for the necessity
to focus financial aid on Education and Health in order to fight poverty in
African countries. Due consideration to that misleading concept is given here.
We Africans should keep in mind that even in the Kingdom of free entrepreneurship
- the United States Of America - the state does intervene to protect national
interests.
The current Steel Tariff / 30% US-imposed duty on imports (Click
here for more) since beginning March 2002, by the Bush's Administration to
foreign made steel and the Farm Bill, (Click
here for more) adopted in 2002, which budgeted US $ 79 billion /10 year-subvention
cash to US farmers are pertinent arguments against the state's nonintervention
credo.
-
What is important for an emerging country, to implementing a successful economy,
is to have a well-defined development strategy to which the majority of its citizens
adhere to. A strategy that is also credible and attractive to foreign investors.
Said strategy should be methodically implemented; submitted to a
constant follow-up policy; necessary changes being regularly made taking into
account opportunities when they do occur. Click
here for more.
©
Dr. B.M. Quenum
Editor of AFRICABIZ
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Click here for a "Strategy
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Building Power" operation..
Click
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10% Annual Economic Growth-Rate? That's Peanuts for an Emerging Country"
©2002
Dr. Bienvenu-Magloire Quenum. All rights reserved
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1
- The alleged non existent consumer-base or weak purchasing power of the population
in each individual African country that are viewed as hindrances to establishing
profit making economic activities in said countries.