Dr. Wolassa Kumo
Introduction

Fixed capital has long been considered as an engine of growth both as a factor of production and as an embodiment of technological progress. Countries that had made sustained accumulation of fixed capital were able to achieve higher and sustained economic growth and development while those who had not lagged behind. For instance, economic development in Sub-Saharan Africa has been severely constrained by inadequate saving and investment, among other things. The average annual gross domestic saving rate by 41 sub Saharan African countries during the period 1980-2010 was as little as 14.3% of GDP while the average fixed investment was 20% of GDP for the same period. Therefore, sub-Saharan Africa’s burgeoning debt was not primarily meant to finance investment as the saving- investment gap was only about 6% of GDP during the past three decades.

Sub Saharan Africa’s dismal average economic growth of about 3.8% during the past three decades was therefore a direct consequence of low saving and low investment. The Sub Saharan Africa average saving and investment rates pale in comparison to the saving and investment rates of the newly industrialized and emerging Asian economies, such as China, whose saving and investment rates of over 40% of GDP ensured real economic growth rates of over 10% during the same period, i.e. 1980-2010.

Average annual growth in Africa reached above 5% during the past decade following the commodity price boom since the early 2000s but was dampened by the global economic and financial crises during 2008-2009. Growth rebounded in 2010 and is projected to reach 5.5% in 2011 making sub Saharan Africa the second fastest growing region in the world following Asia.

However, heavy dependence on growth driven by improved commodity terms of trade subjects the sub continent to vagaries of global demand uncertainty. Unless improved commodity terms of trade translates into higher saving and investment, the sustainability of the current improved growth performance will be at stake. Equally important is the continuation of economic and political reforms that are required to enhance the participation of the private sector in economic development, and also improve productivity and investment efficiency.

This brief paper presents an overview of investment efficiency, savings and economic growth in 41 sub Saharan African countries for the past three decades using data from the IMF, World Economic Outlook Data Base, April 2011. Six countries have been excluded from the analysis for lack of consistent time series data. These are Djibouti, Liberia, Mauritania, Sao Tome and Principe, Sudan and Zimbabwe.

Investment Efficiency in Sub Saharan Africa

There are two broad concepts of efficiency: allocative efficiency and technical or production efficiency usually measured by total factor productivity. Some empirical analysts use these broad concepts of efficiency to assess inefficiency in aggregate investment in terms of excess investment demand that captures the deviations of actual investment from the desired investment. These approaches usually use nonparametric methods, such as Data Envelopment Analysis (DEA), as well as, parametric methods including multiple linear or non- linear regression models.

In this brief article, we use a simple approach based on marginal productivity of capital, known commonly as the Incremental Capital Output Ratio (ICOR) to measure investment efficiency in 41 sub Saharan African countries for the period 1980-2010. ICOR is the ratio of investments in some previous period or periods and growth in output in subsequent period or periods measured at constant prices.

Growth in output is not attributed only to investment in fixed capital. It could be due to growth in productivity (partial or total factor productivity), increased use of labour input or improvement in the level of education of the labour force (growth in human capital), and/or improvements in productive capacity utilization. However, changes in fixed investment still explain a significant portion of growth in output particularly in developing countries with limited fixed capital stock and therefore the efficiency with which this input is utilized provides a useful clue about the correlation between the later and economic growth.

The higher the ICOR, the lower is the implied investment efficiency. That is fixed investment is more efficient if fewer dollars are required to generate a unit growth in output. The average ICOR for sub Saharan Africa for the period 1980-2010 was 5.23 and was comparable with the ICOR for of about 5 during the 1980-2003 period. This implies that fixed investment in sub Saharan Africa is pretty efficient and the level of investment efficiency in the sub region is comparable with that of China during the early two decades of its rapid industrialization. This is not only because the sub region is capital scarce but also because there have been marked improvements in business climate and political environment during the past two decades. Therefore, no wonder that foreign direct investment surged in Africa from less than US$15 billion in early 2000s to over US$80 billion in 2007 before the inflow was hit by the global financial and economic crises of 2008-2009.

While average investment efficiency in sub Saharan Africa is high, performance varies from country to country. The 41 countries in sub Saharan Africa can be classified into three groups based on their ICOR performance for the period 1980-2010: (a) those with ICOR value of 1-5, (b) those with 6-9, and (c)) those with ICOR values of above 10.

The majority of the 41 counties (i.e. 25 countries) in the sub region recorded higher investment efficiency during the past three decades. These countries include both the least developed countries with very low fixed capital stock base, as well as, some middle income economies with higher level of capital stock. These best performing countries with ICOR value of 1-5 are: Botswana, Cameroon, Central African Republic, Comoros, DRC, Republic of Congo, Equatorial Guinea, Ethiopia, Gabon, The Gambia, Ghana, Guinea, Guinean Bissau, Kenya, Malawi, Mali, Mozambique, Namibia, Niger, Nigeria, Rwanda, Seychelles, Togo, Uganda, and Zambia. Most of these countries are not only face extreme capital scarcity but have also shown some progress in opening up their economies during the past 3 decades.

The countries with medium investment efficiency level of ICOR 6-9 include: Benin, Burundi, Cape Verde, Eritrea, Mauritius, Sierra Leone, and Swaziland. Mauritius is among the Upper Middle income countries and top reformers in the sub region. Lower investment efficiency may imply an over investment in the economy where marginal investment needed to generate a unit output was greater during the past three decades than during the earlier years of its economic expansion.

Investment efficiency was the lowest in the following countries during the past three decades: Angola, Chad, Cote d’Ivoire, South Africa and Tanzania. All of these four countries have experienced some form of economic and political upheavals during the past three decades. Preliminary data analyses showed that South Africa’s ICOR was comparable with that of China for the post-Apartheid period, but the number was very high for the pre 1994 period, i.e. 1980-1994 pulling the country’s overall performance significantly down. Investment efficiency was very low during the Apartheid rule in South Africa, due to global isolation and heavy state control over the economy. Thus if we exclude the pre 1994 period South Africa’s investment efficiency will fall within the first group of best performers. Poor performance by Angola, Cote d’Ivoire and Tanzania reflects the continued impacts of civil war and socialist mode of production in the case of the later which contributed to wasteful investment.

Investment required to achieve a minimum growth threshold of 7 percent

While Africa’s growth performance is the second best in the world at present, the continent still lags behind other regions in terms of socioeconomic development. Over 380 million people in Africa today live below poverty line, while youth unemployment is as high as 70% in some countries. Most economies are still heavily dependent on rain fed subsistence agriculture with extremely limited investment on irrigation. Weak economic structure reinforces poverty and poses a major risk to the sustainability of the current growth fuelled by commodity price boom.

African countries will not be able to address this fundamental economic challenge with current growth rates of 5% or less. They should achieve a minimum of 7% annual growth rate individually or collectively for the coming two decades to make a dent on poverty and unemployment. With an average ICOR of 5.23, the sub Saharan Africa region therefore requires a minimum fixed investment of 35% of GDP over the coming two decades collectively or by each country. Given the current actual average regional fixed investment rate of 20% of GDP, the desired investment rate of 35% over the coming two decades seems insurmountable, but not unrealistic. China’s economic growth during the past three decades was fuelled by fixed investment of over 40% of GDP. China’s massive investment was financed by extraordinarily high household and public savings which at times reached 50% of GDP. The major challenge for Africa, in this respect, is a culture of low savings, which we expound in the following section.

Saving-investment gap in Sub Saharan Africa

When domestic household and public savings fall short of the fixed investment needs of a country, this leads to a saving-investment gap. This gap is exacerbated when export earnings of a country fall short of import demand leading to a second, foreign exchange gap. Most developing countries in Sub Saharan Africa are often characterized by both gaps. Except five countries, i.e. Botswana, DRC, Gabon, The Gambia, Namibia, and South Africa, the rest of 41 sub Saharan African countries had an average saving -investment gap ranging from 1% to nearly 30% of GDP during the past three decades.

The saving-investment gap, however, significantly varies across the countries in the sub region. Countries that faced relatively lower saving-investment gaps ranging between 1-5% in the sub region during the period under review include Angola, Cameroon, Central African Republic, Comoros, Republic of Congo, Cote d’Ivoire, Eritrea, Ghana, Kenya, Mali, Nigeria, Swaziland and Uganda. The lower gap by some countries reflects increased savings from oil revenues, while lower gap by others simply mean lower level of investment.

Countries in the sub region with the average saving investment-gap of 6-10% during the stated period include Benin, Burkina Faso, Burundi, Central African republic, Ethiopia, Guinea, Guinea Bissau, Madagascar, Malawi, Mauritius. Niger, Rwanda, Senegal, Sierra Leone, Tanzania and Zambia, while those with average saving-investment gap of above 11% include Cape Verde, Chad, Equatorial Guinea, Lesotho, Mozambique, Seychelles and Togo.

The poor performance of the sub region in terms of the saving-investment gap reflects two major challenges: First, most countries are characterized by low saving and low investment and hence are at the risk of being trapped in vicious circle of poverty if the they do not raise their saving and investment rates immediately; and second if they raise their investment levels without a concomitant increase in domestic savings they may be trapped in vicious cycle of debt which could undermine the value of their investments, provided money borrowed is invested in economic development. Since the recent economic crisis proved that most of the aid pledged by non-African donors is unlikely to be delivered, the only sustainable solution to Africa’s development challenge is aggressive domestic resource mobilization for development. This could be supplemented by foreign direct investments, if the countries in the sub region speed up the current economic and political reforms.

Concluding remarks

Africa is rising. After 5 decades of civil strife and economic stagnation, the first decade of the 21st century shone a new light on the continent. Africa is no more a hopeless dark continent. Like its diamonds in the West, South and at the center, the continent is shining.

It is also shining as a second fastest growing continent in the world. However, there is no time for complacence as Africa is still the least developed continent in the world plagued with high level of poverty, unemployment, political instability and corruption. To sustainably address these fundamental socio economic challenges the region should at least grow by 7% per annum for the coming two decades. However, this is unlikely to be achieved with the current investment rate of 20% and the saving rate of 14% of GDP.

While the return to investment in Africa is high, it is such low levels of investment and saving that are holding the continent back. Given higher returns to investment, Africa’s economic transformation will depend on radical shift in the saving culture of its people, further economic and political reforms, and accelerated fixed investment.

MMFA: Fox Business host Eric Bolling took to Fox News’ Fox & Friends to discuss the “scary” potential economic consequences of Standard & Poor’s (S&P) “downgrade” of the U.S. credit rating. Yet during negotiations over avoiding a default crisis, Bolling repeatedly cheered for the U.S. to default, which experts agreed not only would have led to a downgrade, but also would have had disastrous economic consequences. [ READ ] [ FOX NEWS GETS ITS DOWNGRADE ]

Fox Predictably Rushes To Defend Tea Party From Criticism Following S&P “Downgrade”: Following Standard & Poor’s (S&P) decision to “downgrade” the U.S. credit rating, Fox News scrambled to defend the tea party’s influence on the default crisis debate. Fox’s defense is consistent with its long history of promoting the tea party. [ READ MORE ]

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Luntz Bashes Obama, Hypes Potential Ryan, Christie Presidential Candidacies

“Bony-Ass” Ann Coulter: Democrats “Don’t Care If This Country Becomes Zimbabwe, As Long As They Keep Getting Elected”

Steyn: Cost Of Wars Are “Irrelevant Compared To” Stimulus

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   [ By: Charles Onyango-Obbo ]
The other week we had that seemingly bizarre story from Zimbabwe. Police Sergeant Alois Mabhuno was jailed for 10 days for using a toilet reserved for President Robert Mugabe. His ordeal didn’t end there, as he was also demoted and banished to a remote rural police post.

The story sparked off an avalanche of jokes, but the one that best struck at the meaning of Mabhuno’s misfortune was by a fellow Tweep on the mini-blogging site Twitter.

He wrote of the irony that Mugabe could forgive Zimbabwe Central Bank Governor Gideon Gono for allegedly having an affair with First Lady Grace Mugabe, but couldn’t find it in him to forgive a poor cop who used his toilet.

For the record, Gono and Grace Mugabe flatly denied the allegations that were first reported by South African and British newspapers, then went viral on the Internet like a fire on accelerators.

It’s the gist of Tweep’s remarks, rather than whether Gono and Mrs Mugabe had an improper relationship, which interests us. For it correctly makes the point that in most political societies, particularly developing ones, the trappings and symbols of power often matter more than the unseen but real exercise of power.

Thus to the masses, a president’s signature to authorise the execution of 10 prisoners on death row, which is power over life, is not as impressive as having exclusive use of the First Toilet.

   Bob Mugabe ‘Prancing’
The First Toilet is a conspicuous item of privilege, and in a country where millions of people have none and cannot begin to fathom how a man can have an expensive one all to himself, it sets you apart more than some rumour about a governor having an affair with the First Lady. After all, infidelity is common, and even a poor villager will have some experience or knowledge of it.

The Commander-in-Chief’s washroom, on the other hand, belongs up there with other talismans like presidential whisks (Kenya founding Father Jomo Kenyatta’s comes to mind); the presidential staff (the most famous in East Africa being that of Kenya’s former president Daniel arap Moi’s); the Conqueror’s Leopard Cap (Mobutu Sese Seko’s); the VVIP White Handkerchief (former Zambian president Kenneth Kaunda’s); the First Bowler Hat (as with Malawi’s Kamuzu Banda); the list is long.

These props and talismans are much discussed and many ordinary folks will swear that they have magical powers that send conspirators in disarray, wad off assassin’s bullets, and can detect traitors in State House.The power structure in most of our countries is built around this exclusive use and access.

Thus when a president is going to the airport, the road is closed to all other users until he has passed. The president will have his own plate and coffee mug.

His own chef (and here everyone, from the Queen of England to crowd-hugging presidents like America’s Barack Obama, will go on foreign trips with their own cooks). And his own jet, needless to say. Power of course derives from many sources; the vote, the army, control of taxpayers’ money, patronage, to name a few.

But public awe, the perception of how Big a Big Man is, and the fear factor that all men of power need to intimidate competitors, that comes from things like exclusive First Toilets.

 Author: Tongkeh Joseph Fowale
Zimbabwe’s land crisis is a problem deeply rooted in the history of British colonial administration in Africa. It began with Cecil Rhodes and his BSAC.

The story of Zimbabwe today is a story of conflict over land between whites and blacks. It is a conflict that has dragged a once-prosperous country down to a level where it now constitutes a danger to its own self. It is also a story deeply rooted in the colonial history of Africa.

It has, however, been manipulated by politicians at the national and international levels such that the truth about the origins of Zimbabwe’s crisis has been buried in the ashes of international politics.

The Origins of Zimbabwe’s Land Crisis

The origins of the land crisis in Zimbabwe are firmly rooted in the period of British colonialism in Africa. Zimbabwe fell within the orbit of (Southern) Africa where in Walter Rodney’s words “the absolute limit of exploitation was found.” This tragedy began with the establishment of the British South Africa Company (BSAC) by John Cecile Rhodes in 1890.

Rhodes, the forerunner of British colonial rule in Southern Africa, obtained the Charter for the BSAC in October 1889 from Lord Salisbury; the then British Prime Minister whom Robin Harlett says “drew comfort from glis assumptions about the future.” To obtain this Charter, Rhodes had earlier duped the Ndebele King — Lobengula into signing two treaties in 1880 and 1888 which deprived the monarch of both his land and authority.

The BSAC and the Land in Rhodesia

According to the Charter granted to Rhodes, his administration was to last for 25 years, but BSAC administration only ended in 1923. Rhodes gave his name — Rhodesia to his new booty and proceeded to enact legislation that favored white ownership of land. This legislation was backed by force. The first instance in the use of force occurred in 1894 when the BSAC under L.S Jameson began allocating 6000 acre farms to white troopers.

In 1894, the BSAC promulgated the Matabeleland-Order-in Council by which the BSA assumed ownership of land by right of conquest. With the consent of British imperial authorities, the BSAC proceeded to destroy all African institutions that obstructed the “profit” motive of the BSAC. Africans where therefore prevented from growing food crops and used instead in white-owned mines and farms. “These Africans,” notes Atieno-Odhiambo, “lived in hovels where they could be controlled and made to feel very desperate.”

End of BSAC administration and the acceleration of Land excision

BSAC administration ended in 1923 and Southern Rhodesia became a self-governing territory. The 1923 Constitution that ended BSAC administration did not take African aspirations into consideration. It instead gave “effective powers to settlers” as Robin Harlett observes. This made further alienation of land easier. In 1925, the Morris Carter Commission recommended racial division of land in Rhodesia.

The outcome of the Carter Commission’s recommendation was the Land Apportionment Act of 1930. This law removed Africans from the most fertile lands to barren ones. Africans were also removed from settlements along railways and major roads to prevent them from enjoying any commercial advantages.

The Land Husbandry Act of 1957 and the monumental Land Tenure Act of 1969 revealed the climax of colonial land deprivation in Southern Rhodesia. In Claire Palley’s words, the Land Tenure Act “was the open acknowledgement of the principle of racial paramountcy in the respective racial areas.”

Zimbabwe’s land crisis was enmeshed in the political developments in Africa throughout the period of colonialism. Between 1890 and 1969, Zimbabwe itself underwent many political transformations. From the BSAC through British colonial rule to Ian Smiths UDI, all successive regimes placed emphasis on land seizure from blacks. It was against this background that African nationalism was born in Southern Rhodesia.

   Racist Cecil Rhodes, prime minister of Cape Colony, was also a gold and diamond mogul.

Sources:

•    Atieno-Odhiambo, E.S. “The Origins of the Zimbabwe Problem, 1888-1923 in S.E Wilmer. Zimbabwe Now, 1973.

•    Chiambatti, A.M. “Africans and the Struggle for their rights in Rhodesia” in S.E Wilmer. Zimbabwe Now, 1973.

•    Harlett, Robin. Africa since 1875, 1999.

•    Palley, Claire. “Analysis of the 1971 British Proposals for a Settlement with Rhodesia” in S.E Wilmer. Zimbabwe Now, 1973.

•    Rodney, Walter. How Europe underdeveloped Africa, 1990

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Ghana: Obama Visits a Hopeful Nation on a Troubled Continent

   By: Prof. Richard Joseph
There is perhaps no region in the world in which there is a greater gap between the high expectations of an Obama presidency and knowledge of his administration’s intended policies than in sub-Saharan Africa. That gap should narrow when President Obama makes a fleeting visit to Ghana on July 10 and 11.

Unlike Kenya and Nigeria ? the countries he might have been expected to visit first in his presidency, but whose reputations are clouded by corruption, electoral misconduct, insecurity and other woes ? Ghana is now regarded as a “beacon of democracy” after two decades of political progress and renewed economic growth.

The country has witnessed five successive elections since its return to multiparty democracy in 1992. In 2006 the United States rewarded Ghana for its progress with a $547 million Millennium Challenge Account grant for capacity building — an initiative of the administration of President George W. Bush.

   Workers push a cart past a billboard depicting Ghanaian President John Atta Mills and President Obama
   at an intersection in Ghana’s capital, Accra, on Tuesday.

The December 2008 national elections were hotly contested and ended in a confusion of lawsuits, the boycott of a run-off vote in one constituency and accusations of fraud and other irregularities. But when the defeated presidential candidate, Nana Akufo-Addo of the governing New Patriotic Party, conceded to John Atta Mills of the National Democratic Congress after losing by a sliver (0.46 percent) of the popular vote, Ghana was spared the trauma of the post-election upheavals we have seen in recent years in Kenya, Nigeria and Zimbabwe.

On the economic front, revenues will soon begin flowing from the export of petroleum, a result of the discovery of oil off Ghana’s west coast several years ago.

Nevertheless, the country faces substantial challenges. In last December’s election, the virulence of party campaigns, deepening ethnic-bloc voting and the mobilization of vigilantes showed that Ghana has not yet crossed the frontier to intimidation-free electoral politics.

In government, a bloated executive dominates and marginalizes parliament and the judiciary, and financial self-dealing among governing elites is again rampant. The prospect of oil revenue highlights the urgent need for improved and transparent systems of economic management.

Forty percent of Ghanaians still live in poverty and thousands leave annually to seek a better life elsewhere. Pervasive unemployment among youths, as throughout Africa, is one of the tragic consequences of high fertility rates and low economic productivity.

Yet Ghana could lead a new wave of accelerated and sustainable development in agriculture, industry and services.

In August 2006, while visiting Nairobi as a U.S. Senator, Barack Obama highlighted the failure of Kenya, and other countries in Africa, “to create a government that is transparent and accountable, one that serves its people and is free from corruption.”

On his first visit to Africa during his presidency ? to Cairo last month ? President Obama challenged government leaders to “place the interests of your people and the legitimate workings of the political process above your party.” His summons applies acutely to Ghana.

There are buds of an Obama doctrine, seen in both the Nairobi and Cairo addresses, which can sprout in Africa. It emphasizes tolerance, transparency, the rule of law, government that rests on consent rather than coercion and “doesn’t steal from the people.” It urges political leaders to respect democratic rights and institutions while they are “in power” as they did “out of power.” In his recent July 3 interview with AllAfrica, he reiterated his understanding of “the direct correlation between governance and prosperity” and the need to stop making “excuses about corruption or poor governance on Africa.”

During his campaign for the presidency, Obama promised to double foreign aid once elected into office. But much more important for Africa is the need to spur enterprise-led growth and support the new generation of entrepreneurs and professionals who are fed up with aid-fuelled and corruption-plagued politics.

There are important initiatives of his predecessors that the Obama administration can build upon. President Bill Clinton’s most important contribution to Africa was the Africa Growth and Opportunity Act (AGOA) that lowered barriers to African export products to the United States. While the Bush administration extended the scope of AGOA, a real breakthrough for Africa on trade issues crumbled with the collapse of the Doha Round of talks on a comprehensive deal on trade.

The establishment of the Millennium Challenge Account was one of the notable achievements of the Bush administration and one which President Obama can expand and extend to sub-national entities. Such an action is relevant to countries such as Nigeria with dynamic governments emerging at the state level.

The scope for the U.S. government and American companies to pursue agricultural, infrastructural, and other investment opportunities in Africa is vast. Sub-Saharan Africa now provides almost 20 percent of U.S. oil imports while its gas imports have jumped nearly ten-fold since 2000.

On Saturday, President Obama and his entourage will visit the Cape Coast Castle from which many Africans were dispatched to chattel slavery in the Americas. He will then address the Ghanaian Parliament and a great multitude in the capital city of Accra. To the thousands who will gather to hear him, 750 million sub-Saharan Africans will follow his remarks closely, thanks to independent media and telecommunication services that now flourish in the continent.

His anticipated message of hope, audacity, responsibility and “pragmatic progressivism” will reverberate long after he leaves. It will be a sublime and potentially transformative moment for Africa and those who have who have long argued for the United States to stand up boldly for democracy and developmental governance in the continent.

Ghana Prepares For Obama Visit

References:

1. Mood in Ghana: ‘We are a lucky country’ — Quietly, modestly ? but also heroically ? Ghana’s going about the business of rebranding a continent. New face of America, meet the new face of Africa.

2. BONO: Ghana is well governed. After a close election, power changed hands peacefully. Civil society is becoming stronger. The country’s economy was growing at a good clip even before oil was found off the coast a few years ago. Though it has been a little battered by the global economic meltdown, Ghana appears to be weathering the storm. I don’t normally give investment tips ? sound the alarm at Times headquarters ? but here is one: buy Ghanaian. On his visit to Ghana, President Obama has the chance to lead nations in building on the successes of recent efforts within Africa and to learn from the failures. [ READ MORE ]

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