Monday, November 3, 2008

African Cheetahs ≠ Asian Tigers

Here is a short article from the IPC about why one should not rejoice the impressive growth rates in sub-Saharan Africa (SSA) as the growth rate (4.4% between 2000 and 2007 for the whole SSA and five countries had 7% growth rate) and  is based largely on commodity exports, not on the contribution of manufacturing sectors. The author concludes with a nice sentences: Cheetahs (high- and medium-growth economies in SSA) run fast, but no for long. Learning the lessons of history may lead them to the Tiger’s (Asian Tigers) trail.

The manufacturing value added (MVA) matters for stable growth and development, which has not been seen in Africa because MVA is pretty low; the Asian Tigers had four times higher MVA than the share of high-and medium-growth economies of SSA. Manufacturing’s share of total merchandise exports is just 1.7% in high-growth economies and 9.7% in medium-growth economies in SSA, as opposed to 83% in the Asian Tigers. The Cheetahs of SSA are Botswana, Cape Verde, Mauritius, Angola, Chad, Equatorial Guinea, Sierra Leone, and Sudan.

The author argues that though high-growth performances are encouraging, there is little sign of expansion in manufacturing activities among the “Cheetahs” in SSA. This means that countries that are relying on commodity exports (especially oil and diamonds) will have to face a low income elasticity of demand, leading to unexpected impact on growth performance due to price volatility of commodity exports; in other words, the growth rate is not reliable unless it is underpinned by increasing MVA.

Why manufacturing? It is well established that the sector is superior in productivity increases, economies of scale and spurring all-round linkages. The sector also demands and absorbs a mix of high- and low-skilled labour. This is what distinguishes the Tigers from the Cheetahs. The former reaped the benefits of industrial policy. For instance, the Tigers managed allocations of credit and coordinated its flow to the manufacturing sector. They relied more on the provision of credit-based than on equity-based financing. Manufacturers in South Korea were subsidised by as much as 75 per cent when obtaining credit.

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