The biggest contrast in terms of development has been between Africa and the economy of East Asia. The economies of China and India have grown rapidly, while Latin America has also experienced moderate growth, lifting millions above subsistence living. By contrast, much of Africa has stagnated and even regressed in terms of foreign trade, investment, per capita income, and other economic growth measures. Poverty has had widespread effects, including low life expectancy, violence, and instability, which in turn have perpetuated the continent's growth problems. Over the decades, there have been many unsuccessful attempts to improve the economies of individual African countries. However, recent data suggest some parts of the continent are experiencing faster growth. The World Bank reports the economy of Sub-Saharan African countries grew at rates that match global rates.The economies of the fastest growing African nations experienced growth significantly above the global average rates. The top nations in 2007 include Mauritania with growth at 19.8%, Angola at 17.6%, Sudan at 9.6%, Mozambique at 7.9% and Malawi at 7.8%.
While no African nation has joined the ranks of the developed nations in the Organization for Economic Co-operation and Development (OECD) yet, the entire continent is not utterly impoverished and there is considerable variation in its wealth. Arab North Africa has long been closely linked to the economies of Europe and the Middle East. South Africa is by far the continent's wealthiest state, both in GDP per capita and in total GDP, and its neighbors have shared in this wealth. South Africa is a likely future member of the OECD. The small but oil-rich states of Gabon and Equatorial Guinea round out the list of the ten wealthiest states in Africa.
The temperate northern and southern ends of the continent are wealthier than tropical sub-Saharan Africa. Within the tropics, East Africa, with its long pre-colonial history of trade and development, has tended to be wealthier and more stable than elsewhere. Islands such as the Seychelles, Réunion, Mauritius, and Cape Verde have remained wealthier than the continental nations, although the unstable Comoros remain poor.
The poorest states are those engaged in or just emerging from civil wars. These include the Democratic Republic of the Congo, Sierra Leone, Burundi, and Somalia. In recent times the poorest region has been the Horn of Africa, although it had historically been one of the wealthiest regions of sub-Saharan Africa. Ethiopia in particular had a long and successful history. The current poverty of the region, and the associated famines and wars, have been a problem for decades.
There is considerable internal variation within countries. Urban areas, especially capital cities, are generally wealthier than rural zones. Inequality is pronounced in most African countries; an upper class has a much higher income than the majority of the population.
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Before the Roman Empire, ancient Egypt was one of the world's most prosperous and advanced civilizations. The port of Alexandria, founded by Alexander the Great in 334 BC, was a hub for Mediterranean trade for centuries. Well into the 19th century, Egypt remained one of the most developed regions outside Europe.
South of the Sahara conditions were different. Internal trade within the continent, hindered by thick forests and massive deserts, was always difficult. Prosperity in sub-Saharan Africa was rare, excepting Nubia, Ethiopia, Mali and Ghana, which had trade routes north to the Mediterranean world and Middle East.
Sub-Saharan Africans have historically built structures from stone mainly in the Nile Valley in cities like Meroe, Napata, Axum by former Nubian and Ethiopian kingdoms. Most other Sub Saharan African pre-colonial civilizations built mainly out of mud brick, leaving few lasting ruins except Great Zimbabwe. Finding no architectural monuments in most parts of the region, some European explorers and historians long concluded that pre-colonial sub-Saharan Africa was devoid of civilization (see Sub-Saharan Africa critic of the term).
New technologies and increasing scales of production made trading easier. For most of the first millennium AD, the Axumite Kingdom had a prosperous trade empire on the eastern horn, where the modern states of Ethiopia and Eritrea lie. Axum had a powerful navy and traded as far as the Byzantine Empire, India, and possibly China. The introduction of the camel by North African Arab conquerors in the 10th century opened trade across the Sahara for the first time. The profits from the gold and salt trades created powerful empires in the western Sahel including the Kingdom of Ghana and the Mali and Kanem-Bornu Empires, where travellers reported vast wealth. Arabs helped build a maritime trade along Africa's east coast, which prospered as Swahili traders exported ivory and slaves across the Indian Ocean.
Further south empires were less common, with the notable exception of Great Zimbabwe. In the Great Lakes region, states such as Rwanda, Burundi, and Buganda became strongly centralized, due to its high population and agricultural surplus.
In the 15th century, Portuguese traders circumvented the Saharan trade route and began to trade directly with Guinea. Other European traders followed, rapidly boosting prosperity in Western Africa. States flourished, including the Kingdom of Benin, Dahomey, and the Ashanti Confederacy. Loose federations of city states such as those of the Yoruba and Hausa were common. However, this wealth was principally based on the slave trade, which collapsed following the abolition of slavery and later European colonization.
Although Europeans were ostensibly committed to developing their colonies, colonial rulers employed a laissez-faire strategy during the first decades. It was hoped that European companies would prosper if given a secure operating environment. This only occurred in a few areas with rich resources; the colonial economies hardly grew from the 1890s through the 1920s. The colonies had to pay their own way, receiving little or no development money from Europe. Only in the 1930s, with the rise of Keynesian economics, did the colonial administrations seriously encourage development. However, new projects could not transpire until after the Great Depression and the Second World War.
African economies boomed during the 1950s as growth and international trade multiplied beyond their pre-war levels. The insatiable demand for raw materials in the rebuilding economies of Asia and Europe and the strong growth in North America inflated the price of raw materials. By the end of the colonial era in the 1960s, there was great hope for African self-sufficience and prosperity. However, sporadic growth continued as the newly independent nations borrowed heavily from abroad.
The world economic decline of the 1970s, rising oil prices, corruption, and political instability hit Africa hard. In subsequent decades Africa has steadily become poorer compared to the rest of the world; South America experienced solid growth, and East Asia spectacular growth, during that same period. According to the World Economic Forum, ten percent of the world's poor were African in 1970; by 2000, that figure had risen to 50 percent. Between 1974 and 2000 the average income declined by $200. Beginning in 1976, the Lomé Convention and Cotonou Agreement between the European Union and ACP countries, including Sub-Saharan Africa, have structured economic relations between the two regions.
The situation whereby African nations export crops to the West while millions on the continent starve has been blamed on Western States including Japan, the European Union and the United States. These countries protect their own agricultural sectors with high import tariffs and offer subsidies to their farmers, which many contend leads the overproduction of such commodities as grain, cotton and milk. The result of this is that the global price of such products is continually reduced until Africans are unable to compete, except for cash crops that do not grow easily in a northern climate.
Because of these market forces, in Africa excess capacity is devoted to growing crops for export. Thus, when civil unrest or a bad harvest occurs, there is often very little food saved and many starve. Ironically, excess foodstuffs grown in developed nations are regularly destroyed, as it is not economically viable to transport it across the oceans to a market poor in capital. Although cash crops can expand a nation's wealth, there is often a risk that focusing on them rather than staples will lead to food shortages and hunger.
While mining and drilling produce most of Africa's revenues each year, these industries only employ about two million people, a tiny fraction of the continent's population. Profits normally go either to large corporations or to the governments. Both have been known to squander this money on luxuries for the elite or on mega-projects that return little value.
In some cases, these resources have turned out to be a curse. Although Congo is rich in minerals, the country remains one of the poorest countries in the world. This is historically due to ownership fights over these minerals, tracing back to the early 1900s. After Congo's independence from Belgium, the colonial government hesitated to leave behind these resources. Congo solicited UN help against Belgium, but that turned out to be a bad idea. In an attempt to get out of the quagmire, Congo sought Soviet assistance. This led the country into deeper trouble, as the country separated into two and a long proxy war between the West and East began.
The multinational corporations that control most of the world's major industries and their financiers require political stability before erecting an expensive factory and risk losing that investment through nationalization. An educated populace, good infrastructure and a stable source of electricity are essential to investments. These factors are rare in Africa. Other developing regions of the world such as India and China have been more attractive to companies looking to build a new factory or invest in a local enterprise.
Many African states used to limit foreign investment to ensure local majority ownership. Close governmental control over industry further discouraged international investment. Attempts to foster local industry have been hampered by insufficient technology, training, and investment money. The paucity of local markets and the difficulty of transporting goods from major African centres to world markets contribute to the lack of manufacturing outside of South Africa and Egypt.
Encouraging foreign investment in Africa has been difficult. Even Africans are reluctant to invest locally; about forty percent of sub-Saharan African savings are invested in other markets. The IMF and World Bank only lend money after imposing stringent and controversial conditions such as austerity policies.
There are two African currency unions; the West African Banque Centrale des États de l'Afrique de l'Ouest (BCEAO) and the Central African Banque des États de l'Afrique Centrale (BEAC). Both use the CFA franc as their legal tender.
Countries in Africa are cut off from the sea more than those on other continents. Africa has more landlocked nations than any other continent, which support a high population density compared to the steppes or plains of North America and Asia. The ridge running from Zimbabwe to Ethiopia has superb volcanic soils and the higher altitude produces a more temperate climate. These enable more interior settlement, but the lack of access to the sea makes international trade harder.
The majority of the world's population and wealth is found in the temperate zone. Historically the vast expanse of Eurasia, almost entirely in the temperate zone (except for the vast tracts that are dry and hot such as the Arabian Peninsula; cold tundra such as in North Asia, and tropical such as subcontinental India, Bangladesh, Thailand, Laos, Bhutan, Burma, Cambodia, Vietnam, Malaysia, and Singapore) was linked by land routes, allowing technologies and ideas to spread from one area over time, aiding innovation. The agricultural techniques and medicines designed to work in the northern climes may fail in the tropics. This theory could partly explain why temperate South Africa is by far the wealthiest part of Africa, and why other tropical areas in South America and Indonesia share Africa's poverty. Exceptions exist, Singapore and Brunei among them, however these are isolated spots of wealth. There are no tropical countries in the OECD, apart from Mexico and Australia which have significant tropical sections, and only a handful have a GDP per capita above the world average, again apart from Mexico, Australia, Singapore, Brunei, Malaysia and Thailand. Globally there is a correlation between wealth and climate although it does not fully explain all instances of poverty in Africa. Variations of this theory of geographic determinism date back to Montesquieu, though these theories have been simplistic and unscientific until they have recently been revived and refined by academics such as William Masters and Jeffrey Sachs and popular writers such as Jared Diamond.
Africa is well-endowed with natural resources, including gold, diamonds, and oil reserves, but due to several factors including poor governance and global trade policies which place tariffs on finished goods from Africa, few African countries have materially benefited from their mineral wealth. Africa is as well suited to agriculture as any other continent; the volcanic soils of the Great Lakes region are—by some measures—the best in the world.
Closely linked to geography is the problem of disease in Africa. The tropics are more hospitable to disease than the colder climates. The most significant illness has long been malaria. A new problem of vast magnitude is the rise of HIV/AIDS in Sub-Saharan Africa. AIDS, whose spread correlates with poverty, has nevertheless hit hardest in some of the wealthiest African countries, including Botswana, Swaziland, and South Africa. AIDS has decimated or will decimate the working-age population of many states.
The health-care costs, including those of importing anti-retroviral AIDS drugs from the West, is a new burden on many African states, leading to the challenging of drug prices and the manufacture of cheap generic alternatives. Tropical diseases can be just as expensive to cure, assuming a cure exists. Since the tropical regions are poorer, pharmaceutical companies are reluctant to invest in curing the diseases of the region. Disease not only reduces the work force and creates a burden on health care, but also harms agriculture and transportation, as most forms of livestock cannot survive the diseases of the region. Historically, sub-Saharan Africans could not use pack animals for trade or work horses for labor, limiting the continent's development.
Africa is in the midst of major AIDS epidemic. The cost of vaccines and medical supplies compounds the economic cost of the labor force becoming medical dependents. As parents die or become unable to work, their children must find care elsewhere, adding to the burden of already struggling families and states.
The economic impact of the colonization of Africa has been debated. Africa acquired its greatest relative wealth in the 1960s, just prior to decolonization. African countries have yet to return to those levels of wealth. Some see this as evidence that colonialism helped local economies by creating a cyclical economic link with the ruling colonial power, and with independence this link was broken.
To achieve wealth during the colonial period, imperial overseers geared the economies of Africa towards exporting raw materials. Egypt produced cotton, Ruanda-Urundi was almost completely dedicated to growing coffee, and Upper Volta specialized in palm oil. Basing an entire nation's wealth on one commodity in this way would have debilitating effects later. These monocultures left national economies extremely vulnerable to price swings, making economic planning difficult. Some writers, such as Walter Rodney in his influential book How Europe Underdeveloped Africa, argue that these colonial policies are directly responsible for many of Africa's modern problems. Other post-colonial scholars, most notably Frantz Fanon, have argued that the true effects of colonialism are psychological and that domination by a foreign power creates a lasting sense of inferiority and subjugation that creates a barrier to growth and innovation.
Once independent, African states saw an exodus of European administrators and consequently lacked individuals with the training or education to operate the government they had inherited. For instance, the massive area of French Equatorial Africa was divided into four independent nations, but was home to only five locals who were university graduates.
One method of gauging the effects of colonialism on the economies of Africa is to compare the results of different colonial policies implemented by the European powers. Regions where the economy was plundered, such as the Raubwirtschaft policies of Leopold II in the Congo Free State, have not prospered. The long reluctance of Portugal to surrender its colonies, leading to long wars of independence, had an obvious negative effect on Mozambique and Angola. The countries formerly under French control have fared much better, and those under British dominion were the most successful. This inequality may be due to other factors than economic policy. Britain, at the time of the Scramble for Africa, was the world's greatest power and could thus cherry-pick the wealthiest parts of the continent. The French, with their mighty navy, could also occupy prosperous areas, while the Belgians were forced to take the economically disadvantaged interior.
Africa as a whole has not prospered compared with other colonised regions in Asia and the Americas. At the end of the Second World War the Americas were economically the strongest of the colonised regions; in the span of one generation, former colonies in Asia have become economic powerhouses.
However, those states that preserved pre-colonial boundaries have been no more successful. Few countries in Africa have more troubled recent histories than Rwanda and Burundi, although their borders are almost identical to those of the prosperous kingdoms from which they are descended. The ancient and only briefly occupied state of Ethiopia is one of the poorest on the continent, and ethnically unified Somalia has failed so completely that it no longer exists in any real sense. Elsewhere, the Americas were also divided up by Europeans along arbitrary borders and yet those continents remain economically far more successful than Africa.
Africa is a much divided continent with many small countries. Successful economic growth requires regional cooperation, which political tensions make difficult. To be effective, foreign aid must be multilateral, making it harder to base aid upon the performance of local governments.
The African peoples speak over 2,000 languages. In 2005, six of the world's ten most linguistically diverse countries were African. The nearly 40 million people of Tanzania alone speak 127 distinct languages. The primary language of government, political debate, academic discourse, and administration is often the language of the former colonial powers—English, French, or Portuguese. Only an elite minority speak these European languages fluently enough to participate in these institutions without intermediaries, further disenfranchising the majority population.
Dependency theory asserts that the wealth and prosperity of the superpowers and their allies in Europe, North America and East Asia is dependent upon the poverty of the rest of the world, including Africa. Economists who subscribe to this theory believe that poorer regions must break their trading ties with the developed world in order to prosper.
Less radical theories suggest that economic protectionism in developed countries hampers Africa's growth. When developing countries have harvested agricultural produce at low cost, they generally do not export as much as would be expected. Abundant farm subsidies and high import tariffs in the developed world, most notably those set by Japan, the European Union's Common Agricultural Policy, and the United States Department of Agriculture, are thought to be the cause. Although these subsidies and tariffs have been gradually reduced, they remain high. This theory, however, overlooks the heavy hand of the State in several African nations that can even prevent their own exports from becoming competitive. Research in Public Choice economics such as that of Jane Shaw suggest that protectionism operates in tandem with heavy State intervention combining to depress economic development. Farmers subject to import and export restrictions cater to localized markets, exposing them to higher market volatility and fewer opportunities. When subject to uncertain market conditions farmers press for governmental intervention to suppress competition in there markets, resulting in competition being driven out of the market. As competition is driven out of the market farmers innovate less and grow less food further undermining economic performance.
Although Africa and Asia had similar levels of income in the 1960s, Asia has since outpaced Africa. One school of economists argues that Asia's superior economic development lies in local investment. Corruption in Africa consists primarily of extracting economic rent and moving the resulting financial capital overseas instead of investing at home; the stereotype of African dictators with Swiss bank accounts is often accurate. Asian dictators such as Suharto often take a cut on everything, necessitating bribery, but enable development through infrastructure investment and the social stability created by law and order. University of Massachusetts researchers estimate that from 1970 to 1996, capital flight from 30 sub-Saharan countries totalled $187bn, exceeding those nations' external debts. This disparity in development is consistent with the model theorized by economist Mancur Olson. Because governments were politically unstable and new governments often confiscated their predecessors' assets, officials would stash their wealth abroad, out of reach of any future expropriation.
Corruption encouraged social inequality, because the wealthy elite not only avoided investing at home, but also imported most of its consumption. Desirable luxury goods were generally not locally available. This hindered the development of national markets. Historically, economic development is closely linked to the creation of a middle class with enough income to save and invest but limited influence on governance. In countries without such a middle class, development is all but impossible, except the illusory and destructive development based on extracting resources like oil.
Much conflict was enabled by the Cold War. The countries of the Western and Eastern blocs leveraged foreign aid money to coax countries into their camp. Aid was tied to the purchase of military weapons, and donor countries ignored misappropriation of the funds. Corruption became endemic, hampering economic development. Proxy conflicts erupted in Africa when each bloc would fund and assisted rebel or sectarian groups under the control of the opposing bloc.
Violence in Africa has increased following the Cold War, despite the slashing of foreign aid spending in developed countries. Civil wars have raged throughout the African Great Lakes region, Somalia, Sudan, Mozambique, Liberia, Sierra Leone, Ivory Coast, and Guinea-Bissau. International wars include the First and Second Congo Wars between the Democratic Republic of the Congo and its neighbours, and conflict between Ethiopia and its former province Eritrea.
Africa's economic malaise is self-perpetuating, as it engenders more of the disease, warfare, misgovernment, and corruption that created it in the first place. Other effects of poverty have similar consequences. The most direct consequence of low GDP is Africa's low standard of living and quality of life. Except for a wealthy elite and the more prosperous peoples of South Africa and the Maghreb, Africans have very few consumer goods. Quality of life does not correlate exactly with a nation's wealth. Angola, for instance, reaps large sums annually from its diamond mines, but after years of civil war, conditions there remain poor. Radios, televisions, and automobiles are rare luxuries. Most Africans are on the far side of the Digital Divide and are cut off from communications technology and the Internet. Quality of life and human development are also low. African nations dominate the lower reaches of the UN Human Development Index. Infant mortality is high, while life expectancy, literacy, and education are all low. The UN also lowers the ranking of African states because the continent sees greater inequality than any other region. The best educated often choose to leave the continent for the West or the Persian Gulf to seek a better life.
Catastrophes cause deadly periods of great shortages. The most damaging are the famines that have regularly hit the continent, especially the Horn of Africa. These have been caused by disruptions due to warfare, years of drought, and plagues of locusts.
An average African faced annual inflation of over 60% from 1990 until 2002 in those few countries that account for inflation. At the high end, Angola and the Democratic Republic of the Congo both saw triple-digit inflation throughout the period. Most African states saw inflation of around 10% per year.
There are no reliable numbers for unemployment in most African nations, but it is an important problem. Major cities like Lagos, Kinshasa, and Nairobi notably have large slums of the unemployed and underemployed.
Environmental degradation occurs on many fronts. Farmers on the verge of starvation are unlikely to be concerned about the fate of the rainforest in their pursuit of new land, and starving people do not often consider the rarity of an animal before eating it (see bushmeat). Along the length of the Sahel, deforestation and overgrazing has caused increased desertification as the Sahara spreads south. Profits from the sale in the West of rare animals, ivory from elephants, and timber encourage illegal poaching. Local governments have little money to devote to protecting the environment.
Often the approach of governments in Africa was to borrow heavily from abroad and use this aid to grow the economy to a level that the loans could be paid off. Sporadic growth during the years after independence continued. The countries focused on exports to pay for these development efforts. The 1973 energy crisis hit sub-Saharan Africa as hard as anywhere in the world. While some nations were net exporters, most were heavily reliant on imported fuels. Economies quickly began to falter and events such as famines hit Africa in the 1980s. The collapse of the Soviet Union, which had supported socialist and collectivist projects throughout the continent, undermined the legitimacy of such an approach, while it also meant that there were no longer any sources of international aid to help pursue this approach. However, there are a few successful socialist endeavors in Africa which have lead to growth or increasing wealth in a small handful of African countries such as Libya and Angola.
Thus in the 1980s, socialist ideas were discarded throughout almost the entire continent as "capitalism" became seen as the route to salvation in what became known as the Washington Consensus. By 1990, forty of the nations of Sub-Saharan Africa had agreed to follow rigorous IMF restructuring plans. IMF recommendations saw the continent's currencies drop by an average of 50%, the selling off of government-owned industries, and the slashing of government spending. After twenty years, however, these methods have seen as little success as the socialist approaches of the previous era. Average growth increased from 2.3% per annum to 2.8%. Only a handful of African states reached new levels of wealth, and many others became poorer over the course of the 1990s. Today there is a great deal of controversy on why this failed. One school of thought is that the reforms failed because they were only economic in nature and without democracy and the rule of law development cannot occur.
Yet another school of thought attributes some of Africa's problems to insufficient liberalization. It has been pointed out that while the developed world has insisted that Africa open its markets and eliminate public subsidies, this has been one-sided as the developed world has not opened its markets to agricultural goods from Africa nor has it eliminated agricultural subsidies. At the GATT free trade talks, the African leaders repeatedly request that the developed nations abolish the subsidies they provide their farmers and open their markets to African agricultural goods. It has been argued that the abolition of the subsidy would have three beneficial effects for the developing world and Africa:
First, debt relief punishes nations which have managed borrowing well and do not need debt relief.
Second, unconditional debt relief will not necessarily cause nations to spend more in social programs and services, on the one hand, or to solve their financial problems without stifling the economy with the need for more taxes, on the other hand.
Finally, debt relief may make it more difficult for nations to receive credit in the future.
It has been suggested that any debt relief policy be conditional upon a commensurate reduction in aid. The Heavily Indebted Poor Countries initiative was launched in 1996; if implemented, it would greatly affect Africa's economy.