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Businessafrica.net Newsletter
ISSN 1563-4108
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| STRATEGY AND ECONOMIC ANALYSIS | |||
LESS THAN
10% ANNUAL GROWTH-RATE?
THAT'S
PEANUTS FOR EMERGING COUNTRIES
HOW TO REACH DOUBLE-DIGIT
GROWTH-RATE
(Part
3)
This
delivery is the continuation of our paper entitled:
"Strategy
for African Countries"
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After two decades (1980-2000) of heavy financial inputs into sub-Saharan African
countries' economic system, Structural Adjustment Programs (SAP) - sponsored
by the IMF and the World Bank - failed
to initiate the take off of African economies. |
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For Part1 Click here | For Part2 Click here | For Part3 Click here
Frequently Asked Questions
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Before
the description of a developing scheme capable of generating double-digit annual economic
growth rates, one has to review some prevailing economic dogma or myths, to see
their relevance or irrelevance in achieving the target in African countries.
In Part - 1 were discussed
some of these myths. Particularly, the problem of the state's involvement
in the developing process was analyzed. The screening revealed that the successful
strategy carried out by Taiwan to boost the economy was not based on unbridled
free entrepreneurship (liberalism). That finding is in total contradiction to
the policy enforced by the IMF and the World Bank in African countries submitted
to Structural Adjustment Programs.
Therefore, African policy-makers are entitled to consider
the dogma that rules out the involvement of the state in the developing process
as a true dogma, which lacks credentials as the unique way to develop emerging
countries. Said dogma is the first myth African policy-makers have the sovereign
right to discard when planning for the developing of their countries.
Based on Taiwan experience, one is entitled to recommend to African governments
and national developing agencies to play a powerful driving part in the developing
process. What should be avoided is the establishment of a state-controlled
economy. African governments should work hand in hand with private sector. The
latter being in charge of management of all projects and realizations. That way,
any mismanagement would be immediately penalized by the market.
Let
us now consider another economic myth:
The Narrowness of African Nations' Consumers Markets or the alleged Weak Purchasing
Power of the populations
In most African countries 60% to 80% of
the population live in rural areas. They represent the poorest percentage of the
populations that lives on 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.
Therefore, remains 20% consumer base. Ninety per cent of that consumer base
is composed of civil servants who earn monthly wages and salaries within US$ 100
- 500 bracket - if they got paid as in some African countries, the state owes
20 months of salaries in arrears to civil servants. These people cannot be spendthrifts.
The remaining 10% of the above defined consumers- base is composed of businessmen
and businesswomen, high rank civil servants. These are the "privileged"
people who can afford rubbing one dollar against one.
Based on these
findings, some economists drew the conclusion that African countries' consumers-base is too narrow to establish profit making industrial plants in individual
African country, and consequently boost the developing. Therefore, they advocated
for regional groupings to increase the consumers' base.
Above outlined
analysis needs some screening. It is true regional groupings are a vital necessity
for Africa's economic future. These groupings help members states harmonize economic
development and assist them to develop regional trade and other exchanges. Does
that mean, however, that all investment's decisions should be taken at regional
level?
Establishing regional groupings in Africa, that way, one is
sure to have some countries - the most populous - 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 entire system. To have a strong "Unit," all portions should
have build-in strength. Otherwise, the whole system may collapse for lack of cohesion.
That is one of the reason the European Union edited strict economic convergence
rules to be adhered to by candidates to the Union.
Sure, the populations'
purchasing power in any single African country is weak. However, is it correct
to consider the problem of consumers market's narrowness in African countries
as the consequence of the weakness of the purchasing power of the populations?
The author of this delivery is of the opinion the analysis and the
conclusion reached - the recommendation to set up regional groupings - are flawed
at the onset. One is entitled to speak of the weakness of the purchasing
power of the populations. However, that is not the only possible assumption. Indeed,
one could also speak of the lack of purchasing power of the populations.
Due to the facts exposed in the first delivery of this series titled:
"We Need Double-digit Annual Growth-rate" that showed the insufficient
performance of the economy in African countries, one is entitled to speak of lack
of purchasing power of the populations instead of weakness of said purchasing
power. Populations in any single African country lack purchasing power because
the economy is performing so badly that first, there is no jobs' creation to cope
with demand, and, second, the minority of the populations who has jobs is paid
low salaries and wages.
If African countries just wait for the purchasing
power to emanate from the void; to pop up as godsend gift, they would be waiting
for ages, turning in circles looking at the economy sinking deeper and deeper
into pernicious anemia. The purchasing power should be
created, buildup, and, consequently, a strong consumers-base would then emerge.
Through the execution in each single African country of adequate developing
schemes that blend together agriculture, industries and services, billion would pour into the
rural world; industries generating also related added value in billion. The same
for services - storage, transport, insurance. Click here review a Case-study
A relatively prosperous national
economy would then emerge in each African country. Farmers - who represent 60%
to 80 % of the populations - emerging also as the driving force of the economy.
They will start buying seeds, fertilizers, equipment. They will build better houses,
dress with more refinement and indulge in entertainment. Consequently, the problem
of the lack of purchasing power would progressively disapear together with the
narrowness of national consumers' markets.
One sees that, for a country
starting its developing process and executing the adequate developing strategy
- that is a scheme capable of triggering the economy's take off - the purchasing
power of the populations creates the consumers market and not the contrary.
With arguments above exposed, one is entitled to definitely shed off following
false economic myths and concepts below briefly summarized:
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1 - The non intervention of the state in planning the economic development
in African country as advocated by international financial institutions. |
Let us move a step further and review how the economic development scheme -here briefly exposed -
could be set up.
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Brainstorming
Brainstorming occurs when a group of people get together and input as much
as they can in relation to the meeting's objectives. The exercise is not strategic
planning as such. It concentrates solely on ideas' generation. Every participant
is encouraged to input as much ideas as possible. Thinking big is not forbidden
and objections are welcome. A time limit is put on the gathering.
Consensus
Democracy
Consensus Democracy as opposed to Technocracy or
Bureaucrats' Democracy. In technocracy, decisions are taken by civil servants,
politicians and experts working in seclusion in their offices and "delivered,"
without consultation and feedback, to people concerned by the decisions. In the
contrary, in the framework of a consensual democracy, an agenda is agreed upon
between all parties concerned followed by debates to reaching final resolutions
and decisions.
Brainstorming and consensual democracy go together
and are the best decision making processes for problem of national interest. Both
processes are certainly the most suitable to rally the populations and particularly
for the subject under consideration: the development process to be executed to
trigger the economy's take off in African countries.
Representatives from all
sectors of the economy should be invited to the brainstorming session: farmers,
trade unionists, chambers of commerce members, industries and agriculture delegates,
national development agencies, local financial institutions and banks, government's
representatives. That is a large assembly. A good preparation of the brainstorming
meeting is then essential to reach effective decisions and resolutions in a short
span of time. Hence the imperative to set a time limit to the debates and discussions.
The process above briefly outlined is the one adopted by
South Africa to tackle the crucial problem of land reform.. People concerned
by the reform, Emerging South African Black Farmers, are involved in the
decision-making's process. Therefore, they would not be inclined to follow suit
Zimbabwe's scenario of invading white owned farms. The consequence of that consensual
debate is very important for the future of the country. Doubtless, South Africa's
economy will evolve and grow
without the disruption of existing white owned farms operations.
Once the exercise of brainstorming and consensual democracy finished, the establishment
of a national body in charge of the execution of the strategic scheme would be
necessary.
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Starting
from the independence days, sub-Saharan African countries' governments launched
development scheme to bridging the developing gap. Ministries of planning and
economy used to list developing projects backed by brief financial and economic
analysis. Then, Round Tables were summoned to which institutional investors
were invited together with private investors. That way of operating had
not, since the 1960's, yielded good results. Most of the projects seeking financing
end up in limbo.
It would be more efficient
- taking into account the experience of Asian Tigers that successfully planned
their take off:
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- To consider business opportunities one by one. |
To
accomplish this, a national body would be necessary to carry out the execution.
Let us name it: the National Advisory Council For Investment
Planning - NACIP. NACIP statutory members would be:
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1 - The representatives of private sector - Chambers of Commerce, Agriculture
and Industries. and services. |
NACIP
would have statutory meetings to evaluate business opportunities, to follow-up
projects' execution, to advise for redirection of planned investments, to suggest
modification to the national economic development scheme in relation with technology
evolution, new business opportunities, national, regional and international political
events.
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After
reviewing:
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1 - The economic myths and
dogma that are hindrances to boosting up each single African country's
economy. |
One can now consider the one all-important question:
How to achieve double-digit annual economic growth-rate? Which economic development
scheme to implement to trigger the take off of any African country?
There is no doubt the basis for any success story is a detailed and accurate definition
of the aims, the systematic appraisal of existing conditions and of means available
to reach the target; scouting for additional support if necessary, setting a rigorous
implementation' schedule, building up various strategies and the will to keep
on persevering.
As a close observer of the development process of African
countries, one is struck by the fact that, most of the time, projects included
in their developing scheme are not linked together. They are carried out without
any inter-coordination. Each project is established as a single and independent
entity and project managers snub each other.
That
paradox is one of the reasons for the failure African countries experienced with
their development policies.
To be able to perform high
economic growth-rates and trigger the economy's take off, African countries need
to set up programs with inherent synergetic capacity to create enterprises from
a fusion of agriculture, industries and services as
here exposed
As the majority (60% to 80%) of African country's
citizens live in rural areas, strengthening economic activities in these areas,
will, undeniably, boost the global economy. One way of achieving this vision
is to create economic activities in rural areas that act as "economic
catalyst" in said area. That is to say to set up cash crop operations
capable of generating forecasted and planned revenues and substantial cash flow,
year after year.
Currently, in most sub-Saharan African countries cash
crops operations are based on classic agriculture cash crops - coffee,
cocoa, tea, cotton and palm oil. Etc. The products are sold, most of the times,
as bulk raw materials, at uncertain and erratic international prices. Therefore,
these "classic" agriculture cash crops cannot
be relied on to trigger double-digit growth rates and provide substantial revenues
to African countries' national budget.
The selling prices of classic
cash crops could be improved through industrial processing to increase
their market exchange value. One should bear in mind, however, that a whole set of
factors have an impact on the selling prices of these classic
cash crops. Namely: crop reports, international and national economic news, political
unrest and civil war. Even in normal times, African decision-makers (private entrepreneurs
or governments) have absolutely no say in the setting up of the purchasing prices
of classic cash crops.
Local consumers' market being marginal - in
the range of one percent of the global world market - the selling prices of classic cash
crops are regulated by independent international decision centers in London, Paris,
Amsterdam, Chicago and Tokyo. Countries like Ghana,
Ivory Coast, Kenya,
Burundi experienced, during
the 1990's, the negative impact on their national budgets of uncertain or volatile
commodities prices.
Thus, the setup of a cash
crop operation for a rural community is not sufficient to have a launching
pad for a sustained growth of the economy. Said cash crop operation would boost
the economy only if it has an intrinsic catalyst's role to generating substantial
cash year after year.
The following conditions would be
necessary to establish economic activities in rural areas that could act as driving
force to the global economy:
- 1- To choose economic operations, which products (bulk and industrially processed) have a ready consumers' base - on local, national and regional marketplaces. In other words, to reverse the trend of selling up to 99 percent of productions on the international marketplace, in order to control international speculators' role in depreciating selling prices. |
For more on how to select which economic catalyst operation to promote in a regional
territory you may read "Economic
Building Power For An African Community".
Developing
various agriculture productions, establishing crops processing units and valorizing
wastes is the surest way of having an integrated development scheme in which
agriculture, industries and services are closely linked.
For instance, if cereals
- corn, rice and sorghum are the main productions, processing operations should
be established to produce flour, semolina, parboiled rice, breakfast meals based
on these cereals and sorghum beer Etc. Straws generated from the harvesting should
be used as fuel for power generation or sold to corrugated tar saturated
cardboard's producers. Straw could also be added to wastes generated by the
following catalyst operation
and used as animal feed for cattle ranching. Fresh meat could be processed into
salted, dried or smoked meat. In brief, one should make sure all products,
by-products and wastes are used to the limit and processed into marketable products.
Table
below summarizes the potential of many crops suitable for industrial processing
that could be established as regional economic catalysts:
The
network of "regional economic catalyst operations", all over the national
territory, will then become an integrated
development scheme linking agriculture, industries and services
| Market
figures and related pricing of the business opportunities that illustrate the
development scheme are
out of date.
However, even with
outdated figures, statistics and pricing estimates, the scheme is still useful.
It is packed with hard to find business development information and technicalities.
It can be used as a draft by African economists
and agro-economists to devise appropriate schemes and draft other related investment
and trade documentation for their countries. The scheme can be copied and
distributed by all means of media as far as credit is given to the Author. |
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However, a thorough updating will be necessary to make the scheme applicable with
great chance of success. Graphical
table below shows the dynamic interrelation between activities
of the primary sector (agriculture), secondary sector (industry) and tertiary
sector (services) in a total fusion
Now
would that scheme generate double-digit annual economic growth-rate when put into
action in any African country?
The delivery related to following
link and titled: "Case
Study on How To Reach Double-digit Annual Growth Rate" discusses
the matter.
Your
feedback / objection / contribution is welcome through this Discussion
When
on the discussion page , click on HELP link on the top of the page
To make
efficient use of the discussion board
© Dr. BM QUENUM
Investment and Business Planner
©2001
Dr. Bienvenu-Magloire Quenum. All rights reserved
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