Businessafrica.net Newsletter ISSN 1563-4108
Dr. QUENUM & ASSOCIATES
INVESTMENT AND BUSINESS PLANNERS
Tel: +1 440 941 5187
Click here for contact & support console
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.

© Copyright Dr. B.M. QUENUM July 15, 2002 - All rights reserved
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 /

FREQUENTLY ASKED QUESTIONS

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?

- Could the basic concept of Nepad - the development of common and regional infrastructure projects - be sufficient to triggering the sustained economic development process needed by each African country?

- Could Nepad engineer the ultimate economic take off of any African country?

- Could Nepad create sufficient riches for African countries' economies to allowing for the fair distribution of wealth amongst the populations on a sustained and permanent basis?

- 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--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 Fund - 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.

CONCLUSIONS

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:

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.

2 - The nonintervention of the state in planning the economic activities and global development as
advocated by the International Financial Organizations such as the IMF and the World Bank.

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
Contact Dr. Bienvenu-Magloire Quenum

Your feedback / objection / contribution is welcome through this Discussion
When on the discussion page, click on HELP link on the top of the page
Click here for a "Strategy for an African country".
Click here for a "Regional development scheme" with an "Income Building Power" operation..
Click here to view why Zimbabwe' Scenario Won't Happen In South Africa.
Click here for "Less Than 10% Annual Economic Growth-Rate? That's Peanuts for an Emerging Country"
2002 Dr. Bienvenu-Magloire Quenum. All rights reserved
TOP

This article is Copyright 1997 - 2017 Dr. Quenum & Associates. It may be reproduced for noncommercial purposes as long as attribution is given. This ezine is registered at Yahoo's Newsletters Directory as http://africabiz.org For Terms & Conditions: Click here. For Media Kit / Card Rate: Click here. Subscribe to Africabiz RSS Feed and HTML Email edition