What Africa Needs For Growing and Nurturing an Ecosystem for Entrepreneurs

President Barack Obama will be meeting 50 African leaders to discuss “America’s commitment to Africa’s security, its democratic development, and its people.” However, according to a new bulletin from Cato scholars Marian L. Tupy and Dalibor Rohac reminds us that African problems cannot be solved in Western capitals. “Persistent poverty in Africa is caused primarily by flawed domestic policies and institutions,” say Tupy and Rohac. “African governments must ultimately embrace the free market reforms that have made other regions of the world prosper.”

To sustain and accelerate the current growth of African economies, African leaders need to focus on domestic structural and institutional reforms. They also need to make more tangible progress removing existing barriers to trade and investment on the continent. But African leaders should demand that the West help too, by abandoning its agricultural protectionism, including the wasteful programs of explicit and implicit support of domestic agricultural production, which hurts agricultural sectors in developing economies.

What Africa Needs
The most significant bottlenecks to Africa’s economic development are internal to Africa and will have to be addressed by Africans. These include:

Rule of law. Without a functioning court system, local and foreign investors cannot do business effectively, especially on a large scale.

Poor governance, inefficient bureaucracies, and corruption. African governments often lack accountability and instead advance the objectives of the political elites.

Red tape. The World Bank’s Doing Business reports show that improvements in the regulatory environment result in greater private sector investment and higher economic growth.
Infrastructure. While investment in infrastructure is costly and will take many years to complete, privatization of inefficient government monopolies, such as ports and railways, can be done relatively easily.

Regional economic integration. Trade within Africa is significantly smaller as a percentage of African exports than is the case in other parts of the world. Unfortunately, regional free-trade initiatives, such as the African Free Trade Zone, have not yet resulted in a significant reduction of trade barriers within Africa. For most African countries, unilateral trade liberalization can be a feasible and appealing alternative to protracted trade negotiations.

This is not to say that developed nations, such as the United States, cannot help Africa grow. In particular, the elimination of the existing barriers to trade should be at the forefront of the efforts to help. Such barriers include tariffs, particularly on agricultural exports, which make it difficult for African economies to fully exploit their comparative advantage. As Brookings Institution researchers Emmanuel Asmah and Brandon Routman note, the structure of the tariff protection in the United States — but also in the European Union — is a significant part of the problem. The tariffs imposed up to a certain amount of imports may be low, yet the tariffs imposed for imports above the permitted quota might be very steep, in some cases up to 350 percent. Furthermore, agricultural subsidies in rich countries cause surplus production, which is often dumped on the world markets, depressing prices and undermining the livelihood of farmers in poor countries.

However, African problems cannot be solved in Western capitals, and the region need not rely on the West to develop. Persistent poverty in Africa is caused primarily by flawed domestic policies and institutions. As such, it can be overcome only by changes made by Africans themselves. African governments must ultimately embrace the reforms that have made other regions of the world prosper.

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SOURCE: Cato.org