The African continent remains by and large marginalized in the world economy, with over half of the population living on under US$1 a day per person. Its share of worldwide exports has fallen from 6.1 percent in 1960 to 2.4 percent in 2006. The portion of worldwide foreign direct investment inflows to Africa has also declined, from 9.4 percent in 1970 to 2.7 percent in 2006. The continent’s labor force was about 370 million strong in 2006.
The continent has struggled to overcome widespread legacies of slavery, colonialism, ethnic tension, and war. Africa became a symbol of Third World underdevelopment as soon as its nations began gaining political independence. Recently, African countries have also been confronted by the challenges of globalization, raising the question of whether some of them could join the ranks of “emerging countries” and create a regional basis of development.
Some have questioned African adaptability to “modern business.” First, historians argue that the massive slave trade (more than 10 million people transported abroad from the 1600s to the 1830s in sub-Saharan Africa, but till the 1920s northward to Morocco or the Persian Gulf ) deprived Africa of a demographic reserve and, in the long term, of a “normal” evolution of potential elites. Second, numerous northern academics and politicians have considered that the African way of life hindered “modern development.” The statutes of ground property remained vague because of collective or religious ownership of land, thus blocking individual intensive investment like in other areas; the social framework that privileged large family networks gave priority to immediate redistribution of income instead of savings that would favor accumulation of capital; the respective position of women and men may have fostered gender gaps; and ethnic and caste considerations added obstacles to social mobility. African wholesale traders seemed unable to rise from short or middle-term commercial incomes to long-term industrial investments.
Recurrent ethnic tensions and civil war weakened African societies. Geography and demography were involved too, the first because of the influence of climate on development (either drought and deserts, or tropical and subtropical or Mediterranean floods), the second because lack of population or overpopulation conflicted as explanations of economic tensions. Analyses of the evolution of African business continue to stir endless arguments about the causes and duration of African underdevelopment.
Colonial Legacies
Africa’s lagging economies have roots deep in the colonial period. One of the more lasting legacies has been the weakness of educational policies. Islands of training comprised mainly Christian missionary schools (Madagascar, Togo, Dahomey/Benin, Liberia) or Islamic schools (northern Africa), but no real comprehensive strategy of mass education took shape during the period. This led to a relatively low level of primary and professional education for Africans, with exceptions in local universities (such as in Egypt, Tunisia, Algeria, and South Africa) or abroad in Europe.
Another long-term policy shaped the framework for the evolution of Africa’s economy: Europeans conceived of Africa as a potential reserve for commodities and enticed rural people to develop exports for Europe. That was the case in sub-Saharan Africa for groundnuts, oil palm, gum arabic, rubber trees, coffee, cocoa, and (in the Niger loop and in the Sahel) cotton. Native peasants and plantations owned by European companies became committed to such an expansion. The Lever group (Unilever since 1930) exemplified this approach as the owner of plantations and as an important transformer of commodities in its European manufactures.
This type of “modern” business system involved wholesale trading houses complemented by hundreds of smaller companies and by thousands of African suppliers and transporters. Networks of trading posts collected raw commodities in exchange for European goods, such as clothes, household goods, and agricultural equipment. Warehouses, wharves, and chains of shipping lines facilitated sea transport.
An efficient economy took shape from the 1880s till the 1960s, with the leading big businesses from European countries such as France, the United Kingdom (UK), Switzerland, and Belgium. All over Africa native planters invested their time and skills into commercial agriculture rather than developing more intensively their subsistence crops.
Despite vast programs of modernization, African infrastructure still lagged behind. Colonies generally had to self-finance their investments until World War II or had to borrow in Europe, which slowed the completion of projects. Not until the 1940s and 1950s did construction gather momentum, but it did, leaving several countries with railway networks, ports (such as in Lagos, Abidjan, and Casablanca), dams and hydroelectric power plants (in Algeria and Morocco, and on the Niger River). But this infrastructure was intended mainly for the support of trade with Europe, without enough internal networks of transport through northern Africa or the Sahel. Huge gaps still predominated in the infrastructure programs, thus causing large discrepancies between territories.
Inequity prevailed because European business took hold of wealth almost everywhere. Trade was controlled by big companies or many small ones. Lebanese (sub-Saharan Africa), Chinese (Central Africa), and Indian (South Africa) people were active in the middle ranks of retail trading. Mining was controlled by state entities (in Morocco for phosphates) or big businesses. Africa was perceived as a supplier of raw resources, such as coal, gold, and diamonds (Austral Africa); copper (the Belgian Congo, the British Rhodesias); and phosphates (French North Africa).
In some territories, African natives were deprived of developed agriculture because Europeans had confiscated the richest land, for instance in Austral Africa or in Algeria. This contributed to a phenomenon of “pauperization,” with a large reservoir of labor for day to-day hand tasks, either in agriculture or in transportation. This was sometimes forced labor, which was abolished in French colonies only in 1946, with a Labor Code implemented later in the mid-1950s.
The end of slavery (within Africa itself ), “pacification” and military rule on one side, and important healthcare programs on the other side, prompted growth in the African population. Beginning in the 1940s, a rapid growth of towns began, often on the coasts, around harbors, or around economic centers in Central or South Africa. Large numbers of poor people now clustered in shanty towns (called bidonvilles in French colonies). In the 1980s and 1990s this trend would begin to reverse as AIDS began crippling several southern African countries.
Dependence
Even after independence, African states were dominated by industrialized countries that influenced technologies, money for investment, and the prices of commodities and ores exported by Africa. Independent states also had to take into account the imbalance of power in favor of ex-colonial countries. Special agreements determined by geopolitical strategies helped ex-colonial states keep privileged positions throughout Africa.
French companies continued to play a key part in the ex-French empire. For example, the French state oil firm Elf-Aquitaine held sway in Central Africa (Gabon, Cameroon, and the Congo), and the UK also had influence, with Shell in Nigeria. The Belgian group Société générale de Belgique was still a force in the Congo, then Zaire, through its dense array of assets in mining, transportation, industry, trading, shipping, and finance. In South Africa under apartheid, big Western industrial groups extended their control over mining.
Socialism And “Mixed Economies”
Some African states wanted to get control over their economies through the nationalization of big business. A turning point came in July 1956 when Gamal Abdel Nasser of Egypt nationalized the Suez Canal, arguing that the revenues of transit should finance the building of the huge Aswan dam and power plant and the modernization of the economy, itself heavily controlled by the state until the mid-1970s. The “socialist model” prevailed in several key countries that nationalized their main resources. In Algeria, the FLN and President Houari Boumédienne nationalized oil assets at the start of the 1970s under the state-owned Sonatrach oil and gas monopoly. Muammar Qadhafi’s Libya followed the example, and a few states adopted state-led policies (such as Tunisia, Zambia, Madagascar, Benin, Ghana, and Guinea), with more or less public interventionism and property.
Socialist-minded leaders intended to attain economic take-off with a large accumulation of capital, with revenues from agriculture oriented toward heavy industrialization schemes (as in Algeria) or toward middle-sized industries for consuming goods and light equipment (in Egypt and Tunisia). Subsidies and protectionism countered low productivity or a lack of skilled labor and executives.
All over Africa, pockets of state interventionism were constituted to manage the income of commodities. Marketing boards collected agricultural products, sold them abroad (to multinational trade companies), and shared the revenues between peasants and investments in dams with energy and irrigation schemes, in transportation (ports, roads), or in some forms of welfare state. In these cases, a “mixed economy” prevailed because the state allowed action by private investors, either local or international, thus creating pockets of industrialization (textile, metalworking, car assembly), generally under the umbrella of protectionist customs taxes.
Nigeria and the Ivory Coast were beacons of such policies, and emerged as “rich countries” because of their size, population, natural resources, and, for Nigeria, oil. But a few other experiences of socialist state countries ended in turmoil because of a paralysis of entrepreneurship (in Ghana and Guinea) and even of foreign direct investment.
Weak States
Throughout Africa, the results of those various paths were shown to be uncertain in the 1980s. The key issue seems to have been the inability of the state in a majority of countries to fix a guidance framework because of its very weakness. While Western economic administrations were built for decades and through hard political contests (“revolutions,” in Britain, the United States, and France), suddenly meager African elites had to steer large areas without administrative tradition, means, or commonly admitted law.
Some states reached some balance between clan interests and general interests, especially where elites were stronger, in northern Africa or in a few sub-Saharan countries, like the Ivory Coast or Senegal. However, a large majority were subject to the rule of ethnic or political groups that used state treasuries as leverage for corruption. Businesses had to face uncertainty of law completion, commonplace extortion forms (at customs posts or through fiscal rackets), and bribery. In a few “kleptocracies,” such corruption grew tremendously. Mobutu’s Zaire in the 1970s and
1980s was imitated by several oil countries (Nigeria, Gabon, the Congo, and Cameroon, the latter being ranked among the most corrupt countries in the world). All of them benefited from the tolerant support of Western countries because of the Cold War environment and growing business interests.
Military dictatorships (such as in Uganda and Nigeria) provided one explanation, but habits of clan power were also developed in semi-democratic countries (such as Kenya) or socialist ones (Algeria from the 1980s). Meanwhile, the weakness of administrations could also be explained by flawed tax systems and the prevalence of an “informal economy.” Lack of budgetary transparency could explain lagging public investments in transportation, education, or health systems, hindering economic growth.
Emerging Entrepreneurship
Several forces helped Africa begin to overcome some of its previous economic challenges. First, international cooperation drove Africans to become conscious of the issues. United Nations (UN) organizations such as the UN Conference on Trade Development (UNCTAD) and the Food and Agriculture Organization (FAO) insisted on investments in agriculture and in manpower training. The World Bank financed infrastructure and was imitated by the African Bank for Development, which was established in 1963. Hundreds of conferences began to forge a shared outlook in favor of “a new economic order,” taking into account general interests and the need for infrastructure in rural areas. Many nongovernmental organizations became involved as well. Even business law was cleaned up by more transparent and stable states, or, in about 16 French-speaking countries, thanks to the Organization for the Harmonization of Business Law in Africa (OHADA), created in 1993.
Elites were trained either in African universities or abroad, which, despite the “brain drain” toward developed countries, contributed to creating management executives in economic administrations, local enterprises, or foreign affiliates. The long-term growth and the relative distribution of wealth and income fostered emerging middle classes in a majority of countries (but not in those with lasting civil war).
What was at stake was the emergence of entrepreneurship, mixing traditional African values and capitalist values. Despite water shortages, millions of planters were committed to a “modern” agriculture, either for exports or for local use. The cotton revolution in the Sahel belt from Chad to Mali now involves 15–20 million peasants. Cocoa and coffee, paddy rice, cereals, spices, and vegetables for household consumption have also helped raise standards of living and promote trade.
Huge investments by states into dams and irrigation networks sustained such development (in north Africa, with, for example, the Moroccan program of 1967; and in the Niger loop). The withdrawal of European retail firms eased the growth of native shopkeepers, from petty ones to more specialized ones, while the legacy of commercial cultures benefited ethnic groups, which reinforced their grip in several areas (the Bamileke in Central Africa, Fulas in Sierra Leone, and Ibos in Nigeria, for example).
Middle-sized trade, services, and facilities management houses took shape all over African cities, despite competition, and professional schooling and trading helped sustain the move in the long term. Throughout African or foreign service or industrial firms, middle-class layers of accountants, managers, technicians, and even engineers (for example, at Algerian Sonatrach) were constituted in the 1970s.
The key issue lies in industrialization: Was African entrepreneurship and capital able to fuel initiatives? The transfer of foreign firms to African investors has been a reality in several countries where the law required such reshuffling, for instance, in Nigeria in the 1970s. In South Africa, foreign or local companies from the time of apartheid started following a law in the 1990s imposing buyouts of equity by black investors. But the transfer of manufacturing to private African capital remained hard to achieve because of the trend toward less protectionist rules. These rules were imposed by the General Agreement on Tariffs and Trade (GATT) or by the International Monetary Fund (IMF) in the 1980s and 1990s under the name of “structural adjustment programs.” They weakened numerous industries, such as textile production, metalworking, and leather, which, along with gaps in transportation and energy supplies, put the brakes on an industrial emergence. However, tourism and hotel businesses (and real estate linked to them) did emerge in several countries, fostering layers of native midsized enterprises.
Globalization
In parallel with the issues of African entrepreneurship, the other issue of the exploitation of resources has been at stake. Could African countries balance their political independence and the call for foreign investors through avoiding “neo-imperialism”? In fact, a new “scramble for Africa” commenced: Big European and American businesses invested massively to develop timber production in tropical Africa, risking overexploitation. They also invested in oil and Africa reached a 12 percent share of world production in 2005. Other investments were in nonferrous metals (such as manganese in Gabon), uranium, diamonds and gold, and phosphates. The United States became a partner to Africa, especially in phosphates or metals—but, in the 21st century, China and India commenced establishing footholds because of their need for ores and energy.
Industrial firms kept momentum up for car assembly plants, light industries, first transformation of commodities (groundnuts, palm oil, and cacao butter), oil refineries, and cement. They did this even though they could not count on a “global African market” because of the lack of integrated transportation systems and because of protectionist positions. In fact, Africa still suffered from a lack of a competitive edge: an untrained workforce; instability in some areas, in particular in Nigeria and the Democratic Republic of the Congo; lack of energy (despite dams in several countries); lack of transparency in governance; and corruption. Such obstacles spurred imports from abroad at the expense of local production.
One key issue remains the use by the state of its income from oil and commodities. Countries benefiting from the oil allowance (100 percent of gross national product for the Republic of the Congo in 2005, 89 percent for Angola and Libya, 64 percent for Chad and Algeria, 52 percent for Nigeria) seemed to insufficiently master its use in favor of general equipment and development, with some even lacking oil refineries and having gas shortages.
Development
Strong pockets of development have increased purchasing power all over the African coasts. Urbanization has contributed to growth, with real estate developments, public works, the engineering of ports, management of energy and healthcare, and even new technologies of information. But the state of capitalist entrepreneurship is still questionable. What is lacking in a majority of countries is a network of complementary industrial and service activities; they are found only in South Africa and perhaps in Algeria. The transformation of primary commodities is still insufficient.
Middle-sized enterprises are fragile because of exposure to recessions, despite the support of national or international “banks of development.” Predominant micro and small enterprises employ very few if any people and generate little or no income for the owners, even with the recent support of micro-credit institutions and practices beyond traditional “tontine” uses. States remain a key force in development and investment.
Self-help is another avenue to growth. The New Partnership for Africa’s Development (NEPAD) took shape in 2001 to define a strategic framework under the guidance of five advanced countries (Algeria, Egypt, Nigeria, Senegal, and South Africa) within the United Africa Organization. The Southern Africa Development Community arose in 1981 to mobilize capital from rapidly emerging South Africa.
Despite these efforts, if the major UN Millennium Development Goal of reducing poverty by half by the year 2015 is to be achieved in Africa, a major policy shift is required, both at the national and international levels, to help boost growth and development.
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