African Economic Development: Summary of the Past and Suggestions for the Future

Inclusive Economy25 Feb 2014Andrea Pierce

With the outbreak of a new set of crises rippling throughout the African continent, it is necessary to recognize the cyclical pattern that the region continues to be plagued by in terms of economic growth, development and stability. Critical to our understanding is a central question. What role does leadership play in the economic success and social stability of the African continent? 

In his article entitled, ‘The African Development Conundrum’ George Ayittey assesses a brief historiography of the African continent, beginning with the end of European colonialism and ending with the current state of the African continent. Central to his assessment, Ayittey poses a question. Is the Africa development problem a result of European colonialism or a result of poor management of resources over the past half century? The answer is both. Because of European colonialism, the African states chose not to incorporate capitalism but rather a centralized economic programme that concentrated power with a centralized government. By contrast, many blame the leadership of African states for mismanaging resources and aid. They have empowered themselves over their citizens while simultaneously crippling the economic development of the state and increasing poverty. Furthermore, the absolute inability of independent African states to get along is another key issue. Today, the following conflicts are happening under our watchful eyes the South Sudanese clash over oil, the Central African Republic clash between Muslims and Christians and Egyptian protests over the military coup that deposed President Mohammed Morsi. Meanwhile the international community continues to follow the aftereffects of the Arab Spring that resulted in the ‘democratic’ elections in Egypt and Tunisia.

So what does all of this mean for economic stimulation in the African region? Though not a prefect system, capitalism does foster economic growth and development with an emphasis on entrepreneurship, thus supporting and fostering innovation of products and services. The need for a strong, centralized government is also essential to the success of capitalism. As a result of a strong, stable government, the free enterprise of capitalism is able to flourish. One of the key principles of the successful implementation of capitalism is the availability of investment resources and financing options for small to medium-sized enterprises (SMEs). Recently in South Africa, for instance, the government started providing financial assistance to SMEs as a means to acknowledge the substantial unemployment crisis. The reasoning for the government support of SMEs is two-fold – to stimulate the economy and to create jobs. Since over 70% of the SMEs in South Africa fail due to the lack of financial resources, namely investment options, the South African government is seeking to create financial options for SMEs in hopes that this will curb the loss. Furthermore, a critical element affecting the stability of the South African economy is the unemployment rate of 22%. By pumping more resources into the market, the South African government hopes this will stimulate the economy, curb unemployment and result in more successful business ventures. Though the South African government is doing its part to stimulate the economic growth, the government cannot do it alone. South Africa also needs investors with liquid resources to help stimulate the anticipated growth with the new government-sponsored support of SMEs.

What will it take for investors to commit resources to the African continent? Although government-backed resources will supply and stimulate growth, the ‘heavy-hitters’ need to be involved so that money can be pumped throughout the region to systemically stimulate growth. Therefore, I will suggest a few goals for the African continent:

  1. Seek Peace: Investors do not like rocky relationships. African states and people must learn to get along and share the wealth, or investors will never be interested in Africa for the long-term.
  2. Entrepreneurship: Start supporting the entrepreneur. The entrepreneur is essential to drive innovation, development and change.
  3. Use the power of the government for good: Invest in your country, in the people and work for the betterment of the region.

One of the major areas of interest for the African continent over the next decade is investment. How do you attract investors and how do you keep investors? You attract them through enticement and stability and you keep them with results and stability. A stable African region will promote the economy of every state. Investment is essential for the entrepreneur. Just as exemplified with the South African support of SMEs, the financial resources of capital and investment options will allow entrepreneurship to flourish, thereby driving the economy forward. Thus, one of the major areas of focus is the utilization of entrepreneurship as a medium for poverty reduction. It will decrease unemployment, stimulate the economy and increase stability.