December 24th 2011

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Articles from this issue:

EDITORIAL: A reflection on Christmas

CANBERRA OBSERVED: Why Abbott will win the next election

MARRIAGE: Mature leadership needed in emotional marriage debate

ECONOMIC AFFAIRS: Behind the trade-induced global financial crisis

RESOURCES: Building a better future without a carbon tax

AFRICA: How free enterprise is transforming Africa

INTERNATIONAL AFFAIRS: Presidential elections confirm Taiwan's vibrant democracy

EUTHANASIA I: The ever-worsening problem of elder abuse

EUTHANASIA II: Netherlands: "Grim reaper on wheels" mobile death squads

OPINION: The moral causes of Europe's predicament

BOOK REVIEW Gallipoli, the Somme, then German captivity

BOOK REVIEW A Christian-themed Viking epic

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How free enterprise is transforming Africa

by Jeffry Babb

News Weekly, December 24, 2011

After more than 50 years of the West trying to kick-start economic growth in Africa by showering the Dark Continent with aid, Africa is finally growing — not because of aid, but because of private enterprise. Of course, growth is not uniform, and some economies which should be doing well aren’t doing well at all.

Lord Peter T. Bauer (1915-2002), a Hungarian-born conservative British economist, set out the pathway for development in Africa when he said that economic development depended on “aptitudes and attitudes”, not aid. Bauer was writing in the 1970s, when Africa’s backwardness was put down to “Western imperialism” rather than poor government, which was the true cause.

Take South Africa, for example. South Africa is far from being the economic basket case that Zimbabwe is. Zimbabwe was once one of the most prosperous countries in Africa, exporting maize throughout southern Africa.

The highly productive commercial farms, mainly owned and run by white farmers, were expropriated by so-called “war veterans” (they were no such thing, just a bunch of youthful thugs, too young to have fought in the independence struggle). Productivity plummeted.

So far, in neighbouring South Africa, nothing has gone disastrously wrong, but nothing has quite gone right.

Take mining, for example. According to the Financial Times of London (November 4, 2011), during the 2001-2008 commodities boom, the world’s top 20 mining countries achieved an average mining growth rate of 5 per cent a year, while South Africa’s sector shrank by 1 per cent a year.

Partly this is due to a lack of foreign investment, not helped by calls by Julius Malema, leader of the African National Congress’s Youth League, for nationalisation of the mines and expropriation of white-owned farm lands. (He has since been disciplined for his statements).

Asian investors have included those from Taiwan who invested heavily in South Africa during the apartheid era when Taiwan was one of South Africa’s few diplomatic allies. However, nowadays, minimum wage rates are far too high to tempt overseas financiers to invest in labour-intensive industries, meaning South Africa has one of the world’s highest unemployment rates at around 30 per cent.

The South Africans, however, are far from stupid. President Jacob Zuma has proved adept at manoeuvring among the ANC factions. The betting is he will outsmart Julius Malema, who at 30 is rapidly becoming less youthful. Moves are afoot to make wages correspond more to economic reality. And South Africa’s financial infrastructure makes it Africa’s banking hub. South Africa is also a major source of capital for the rest of Africa.

Take an example close to home. SABMiller — the SAB stands for South African Brewing — is now one of the world’s top brewers and it has just taken over Australia’s major brewing company, Foster’s. According to the Investor’s Chronicle, which has been advising British investors for two centuries, Africa has been the world’s most productive investment destination for the last decade. The risks can be high, but so are the returns. Along with South Africa, the United Kingdom — unsurprisingly — has been another major source of investment capital.

And, unknown to many, China has also been a major investor. The Chinese are liked because they are unconcerned with ethical considerations, unlike Western companies, which often have to adhere to codes of conduct imposed by their home governments.

The Chinese can also exercise their political power quite brutally. Many average Africans don’t like the Chinese because they import their own workers, who are paid considerably more than local African workers. What’s more, the Chinese workers often stay on after the project is finished, meaning there are now hundreds of thousands of Chinese, most of them budding entrepreneurs, at large in Africa.

Why is Africa doing well? Fewer wars, better government and more education. Nigeria, the African continent’s second largest economy after South Africa, probably has a reputation for producing fraudsters, but its main economic centre, Lagos, is a great wealth-creating engine. Nor is it any secret that to get business done in Nigeria a bit of palm oil doesn’t go astray.

Kenya is now a major commercial, finance and telecommunications centre, fast gaining ground on South Africa because of its reputation for being “business-friendly”. South Africa has an unappetising mixture of ANC socialism, supported by its allies in the trade union movement, and restrictive laws and regulations left over from the apartheid era. Other smaller countries are doing well. Ethiopia, which has had a reputation for only producing famine, is now prospering, as is Angola.

Most African countries are coming off a low base and in many an annual income of $500 is enough to qualify someone as a member of the middle class. Of course, not all African states are prospering, Somalia being a notable example. But the African Union, the organisation of African states, is leading the push to sort it out.

Finally, we can say that 50 years of aid have done virtually nothing for Africa. If anything, it has been counter-productive. What Africa needs is trade, not aid.

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