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STRATEGY AND ECONOMIC ANALYSIS

LESS THAN10% ANNUAL GROWTH-RATE?
THAT'S PEANUTS FOR EMERGING COUNTRIES
DOUBLE-DIGIT GROWTH-RATE IS NOT UTOPIA
(Part 2)
This delivery is an addendum to our paper entitled:
"Strategy for African Countries "

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

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

It is compulsory that they implement such programs, to be in the position to bridge the developing gap, alleviate prevailing poverty and create descent living conditions for all.

Otherwise, for 200 years to come, if they continue experiencing growth rates below 10 percent a year, poverty will increase from the already high level of 50-80% of the populations living with less than US$ 1 (one) a day and the future of the continent would be in jeopardy.

The reasons why African countries need absolutely to target double-digit economic growth-rates had been extensively discussed in the first part of this delivery - titled: We Need Double-digit Growth-Rate

This paper exposes arguments that show that targeting double-digit economic growth-rates is not impossible for African countries. Distinguished economists - Pr. Abramowitz and Edouard Parker - lay out arguments and demonstration that show the challenge is winnable.

This is not utopia
/ Why it is so / What about inflation?

Click Sirius Star rising  to see why double-digit growth is not utopia

FOR PART - 1 | CONTINUATION - PART - 3 | CONTINUATION PART - 4
FREQUENTLY ASKED QUESTIONS

DOUBLE DIGIT ANNUAL GROWTH RATE IS NOT JUST THEORY

Pr. Abramowitz's¹ Catch- up factor, which allows for steep increases of economic growth-rates, for countries starting or restarting their developing (after a devastating war) is not a simple theory.

The famous "catch-up factor" had been effectively recorded.

In a book published in 1994: "La Grande route du XXI siècle " (The 21st Century's Highway to Prosperity), which unfortunately or oddly enough barely created media stir - Edouard Parker², confirmed Abramowitz's studies and listed several countries that experienced annual double-digit economic growth-rates over 30-40 year-period.

Namely: Japan (10% over 27 running years from 1946 to 1973); Italy (+30% from 1945 to 1948); Germany (+11% from 1949 to 1954); France (+12% from 1948 to 1951 and 10% from 1952 to 1957); South-Korea (average of +10% over 30 running years from 1954 to 1989); Taiwan (average of +8% over 47 years from 1952 to 1999); Singapore; Malaysia; Mauritius; Botswana; The Seychelles; Mozambique (after the signing of 1993's cease fire, between Renamo's guerilla and the government, Mozambique's Gross National Product made a jump of 19% in 1994; followed by three years - from 1995 to 1999 - of high growth rates (10% - 11%) till the disastrous floods of year 2000's first quarter that stopped the upward trend.

Above listed achievements are testimony to the fact that double-digit growth-rates of the economy, over a long period of time, is not utopia. Not only for established developed countries - recovering from war's destruction - but also for any emerging country. That fact had been hidden from developing countries by the dominating ethnocentrism.

Now that we Africans are aware of it - thanks to humanists like Edouard Parker² - we should, from now on, act with more boldness; be less timorous in forecasting our economic future and target +10% annual economic growth-rates. We should always "think Big." Without any hint of complex.

Some people may think that we do not have the sinews of the war that is the financing.

That opinion is as erroneous as the one that prevailed till now and leads us to consider stunted one to 6 percent annual economic growth-rates as good performance.

Contrary to the common belief, there is plenty of financing available around the world - independent from institutional bodies such as the World Bank, the IMF - to finance projects as far as they are good profit-making projects. Remains, however, the problem of "Guarantee" to secure needed funding. Lenders are not ready to take risk to financing a project without the certainty of recovering their funds. Collateral or security they usually request from borrowers provides an irrevocable third party guarantee that they could, whatever happens, recover the invested funds.

The issuance of such "guarantee", however, has been a major long-standing roadblock for many entrepreneurs from sub-Saharan African countries; and, frequently, good, high profit-making projects are unable to obtain necessary funding. They end-up in limbo.

That hurdle also is no more a real hindrance. In order to solve collateral or security problem, it is now possible to arrange for "Financial Guarantees" to be issued by reputable guarantor(s) that are international insurance companies, which are rated up to triple "A" by Standard & Poors. Click here for more.

According to experts from Fox-Pitt, Kelton - Investment Bank - these insurance companies have currently amass up to US$ 50 billion in excess capital. A major bear market, combined with several years of poor result, would be required to eliminate this excess capital. Therefore, the problem now is too much capital chasing to little business. (For more on the matter you may search Financial Times' archives for an interesting article by Andrew Bolger, dated Monday September 4, 2000.)

To benefit from that possibility, African countries need to create attractive, clear, unequivocal investing Law framework and free entrepreneurship atmosphere to attract direct foreign investments. African policy-makers should avoid erratic strategy and wrong moves like the seizure of white's farmers assets staged by Robert Mugabe for Land reform in Zimbabwe. Theapproach adopted by South Africa to resolve similar problems is the best.

Now with the global economy and IT revolution, ethnocentrists are the losers. New technology, vital information - for emerging countries - like Pr. Abramovitz's Catching-Up theory and Edouard Parker's findings on the reality and feasibility of double-digit annual growth-rates cannot be skipped or ignored anymore by media.

Would remain in the backyard as poor dwellers of this global village only countries, which rulers do not dare think and execute the "unthinkable": target annual economic double-digit growth-rates.
AFRICAN COUNTRIES CAN EXPERIENCE DOUBLE-DIGIT GROWTH-RATES

In addition to Pr. Abramowitz' theory, Edouard Parker, analyzing the findings here listed, provides more information about the generation of double-digit economic growth rates:

At less than 10 percent annual growth-rate of the economy, for a poor country, the driving force of the growth-rate on the development process is nil. The reason it is so are briefly exposed below.

- In "poor" countries, the population growth-rate is in the range of 2% - 3%. If the growth rate of the economy is below 3 percent , nothing happens. The economy is either at standstill, "frozen in time" or in deep comatose state.

- Owing to the population growth-rate above outlined, noticeable improvement of productivity in any of the economy' sector, for a poor country, would be a growth-rate in the range of 4 percent.

- However, with 4% economic growth-rate, which apparently overlays the growth-rate of the populations, nothing really happens as far as the betterment of the economic situation for the bulk of the population is concerned.

- Only modern farmers, employers, craftsmen and small businessmen benefit from the small productivity's improvement.

- Thus, a small employer or craftsman who buys a better performing equipment would produce larger quantities at lower cost, and so increases his profit margin. However, he would not be in the position to hire more employees.

- When the economic growth-rate reaches 7% annually, that shows an increase in the number of employers, craftsmen and farmers who are buying new equipment or applying irrigation methods. Still, the diffusion of the welfare amongst the entire population is not visible. The situation is quite similar to the previous one (4 percent increase.)The bulk of the populations - around 50%, which represents the average jobless level in African countries, do not benefit from the apparent expansion of the economy.

- The economy is no more in comatose state. There are, here and there, some prosperity spots: a few industrial units, some huge plantations around. But there is no linkage between these "prosperity" spots that do not have the capacity to driving upward the global economy.

- When the developing process is at full gear for a long period, and the consumption demand steady and growing, employers and craftsmen hire a larger workforce and the economic growth rate may reach 10 percent .

- It is from that level of expansion that the development process is really engaged. And if this 10 percent level is sustained over a lengthy period, the number of employers, craftsmen and modern farmers increases; they hire larger workforce and the unemployment level starts to decrease.

From 10 percent economic growth-rate's threshold. progress is perceptible, tangible and palpable. It is the right time for decision-makers to mobilize the country in sustaining and accelerating the developing process, to impeding the system to get jammed.

Thus, thanks to E. Parker analysis of the
findings here listed, one sees that below the threshold of 10% annual growth rate of the economy, for a poor country, there is no hope for salvation.
WHAT ABOUT INFLATION?

Some people may argue that performing double-digit annual economic growth-rates would trigger inflation's run-up.

Yes and no. Let's take two examples:

- In the East-coast territories of Mainland China, the special economic zones established by the economic reforms introduced by Deng Xiaoping, and particularly in the big coastal cities, the economy is experiencing a soaring growth rate amounting to 30% annually. And this is going on since more than 25 years. The economy of those special zones, which are the driving force of the nation, is in a constant state of overheating, and China political authorities are having difficulties to control the inflation rate, which fluctuates between 10 to 17 percent year in year out. Please note that, nevertheless, there is an overlapping margin of 13 to 20 percent left for the growth of the economy.

- In the contrary, Singapore, the city-state of 2,820,000 people, which economic successes are now well known to everyone, has, since more than 45 years, a growth rate in the range of 8 to 10 percent. Singapore is playing now in the second category of countries, as defined by Abramowitz - and Singapore's policy-makers have successfully controlled the inflation rate that fluctuates between zero and 2,5 percent - for a unemployment level in the range of 2 percent.

Singapore example shows it is possible for countries to perform double-digit economic growth-rates, and nevertheless, have a control on the inflation rate.

This lengthy introduction, before the exposition of a scheme capable of generating double-digit annual economic growth-rates, was necessary to clarify some important matters; to destroy economic concepts and theories advocated and taught by Malthusian economists, which are hindrances on the path to the sustainable economic developing of African countries.

Africans, from now on, should get rid of these myths and have a clear vision to carving the roads towards prosperity:

- 1) - Africans should shed off any kind of complex and always target the minimum of 10 percent annual economic growth-rate.

- 2) - They should act with pragmatism. Free entrepreneurship (Liberalism), state controlled economy capitalism (socialism) have no importance anymore. Only counts the efficient strategy to reach the goal.

In the continuation entitled "How To Reach The Target," are exposed suggestions and strategy on how to implement the development scheme capable of generating double-digit annual economic growth-rates over several decades running.

© Dr. B.M. QUENUM
Investment and Business Planner
Click here for Part -1
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(1) Moses Abramowitz, "Thinking About Growth: Catching Up, Forging Ahead, and Falling Behind", Journal of Economic History 46 (1986), 385-406.
(1 bis) Moses Abramowitz; The Catch up factor in Postwar Economic Growth, Economic Inquiry, January 1990.
(2) Edouard Parker;
La grande route de la croissance. Etudes Prospectives Internationales, 10 bis rue de Tahere -92210 St. Cloud (France)
2001 Dr. Bienvenu-Magloire Quenum. All rights reserved
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