Tuesday, April 22, 2008

Sub Saharan Africa growth through asset stripping?

According to some more inclusive measures of economic progress Sub Saharan Africa is becoming poorer. Isn't that an odd thing to say? The IMF reports that Africa achieved high growth rates over the last few years and stock markets continue to shine (see article on JSE).
The point is that all growth efforts (as narrowly measured by GDP) needs to be supported by a productive base, have to be shared with a growing population and comes at a cost to the natural environment.  According to a contribution from Partha Dasgupta to the Encyclopedia of the Earth a society's productive base can be described as follows:

A society’s productive base is the source of its well-being. We should note that the productive base is a diverse collection of durable objects, some tangible and alienable (buildings and machinery, land and animals, trees and shrubs), some tangible but non-alienable (human beings, the oceans), some intangible but alienable (codified pieces of knowledge, such as patentable ideas), some intangible and non-alienable (air, skills, the legal framework, and cultural coordinates), and some that involve both human capital and mutual expectations (institutions, social capital).

But how is a generation to judge whether it is leaving behind an adequate productive base for its successor?

This is the really important question. A change in a society's productive base is measured by a change in its capital stocks and institutions.  It is the simple sum of investment in an economy adjusted for disinvestment. 

Although this sum is conceptually easy to understand, actual measurement is harder as not all values of capital assets are reflected in market prices.  It is controversial to attach values to the loss of natural capital. It is also hard to measure intangible values of well-functioning institutions.  Environmental economists argue that the best way forward is not to ignore these values, but to proceed with cautious and transparent best estimates.  

The results of some large scale studies doing just that - measuring the real progress of nations - are now starting to come to the fore.  Again, according to Dasgupta:
The message is sobering: over the past three decades, sub-Saharan Africa (home to 750 million people today) has become poorer if judged in terms of its productive base per capita; and economic development in the Indian sub-continent (home to over 1.4 billion people today) and in the UK and the US was either unsustainable or just barely sustainable. 
In short, there are a growing body of evidence concluding that Sub Saharan economic growth is largely achieved by a depletion of capital (asset stripping). Higher levels of investment in different forms of capital as well as institutional strengthening is urgently needed. Sub Saharan countries are not homogeneous and different investment strategies and institutional focus would be required for different countries.

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