Sub-Saharan Africa has been getting poorer for 30 years – Official
admin January 10th, 2010
Excuse the tabloid style headline on this post, but when an eminent academic economist produces evidence that, despite the influx of billions of dollars of aid – some of which, of course, flowed out just as quickly to Swiss bank accounts – sub-Saharan Africa has gone backwards over the period 1970-2000 it merits a ‘shock horror’ type of response.
Not that sub-Saharan Africa is alone amongst poor regions in getting poorer. Or that, here at Advance Aid, we are that surprised, pushing as we are the view that ‘Trade not Aid’ is the answer to getting real development moving in Africa.
The analysis has been carried out by Professor Sir Partha Dasgupta, Frank Ramsey Professor of Economics and Fellow of St John’s College, Cambridge and has been recently published in the Philosophical Transactions of the Royal Society under the title ‘Nature’s role in sustaining economic development’. Interested readers can download a copy of the full paper here. It’s well worth a read.
Professor Dasgupta is primarily addressing the thorny question of Sustainable Development, and as a key part of this analysis, he extended the definition of wealth to include not only manufactured capital, knowledge and human capital (education and health), but also natural capital, that is the ecosystems on which much of the value of the manufactured and human capital is built. The increase or decrease in natural capital is excluded from many of the traditional indices that measure ‘wealth’ – i.e. GDP or the Human Development Index (HDI).
Professor Dasgupta concludes that “a country’s comprehensive wealth per capita can decline even while gross domestic product (GDP) per capita increases and the UN Human Development Index records an improvement…During the period 1970-2000 wealth per capita declined in South Asia and sub-Saharan Africa, even though the HDI showed an improvement everywhere and GDP per capita increased in all places (except sub-Saharan Africa where there was a slight decline)”.
In including nature in any calculation of ‘wealth’, he notes that, “it is hard to explain why twentieth-century economics has been so detached from the environmental sciences…Accounting for nature, if it comes into the calculus at all, is usually an afterthought to the real business of ‘doing economics’ ”. But, as he points out, nature cannot be taken to be a “fixed, indestructible factor of production”. Indeed, nature consists of “degradable resources”, some of which can regenerate if treated properly – and truly sustainably – but others, like the fossil fuels, metals and minerals are subject to a fixed supply that can only be reduced.
Turning from the theoretical to the detail on the ground, he shows that GDP per capita in sub-Saharan Africa has shrunk by 0.1% per annum between 1970 and 2000. Which is bad enough when the same measure shows growth in Bangladesh, India, Nepal, Pakistan and China of between 1.9% (Bangladesh and Nepal) and 7.8% (China).
So even on the pure economic measure sub-Saharan Africa has declined. But when you factor in natural capital as well, its wealth per capita has shrunk by a massive 2.8% a year.
The magic of compound interest means that even a small growth rate can compound up over 30 years into significant number. For example, positive interest of 1% on principal of 100 compounded over 30 years delivers 135 at the end of the period. Whereas negative ‘interest’ of 2.8% reduces the same principal of 100 to 43 over that same period.
These figures suggest that Africa has been very badly served over the past 40 years, with its wealth falling by more than half and not only its manufacturing and human capitals, but also its natural capital going backwards.
It is little consolation to the Africans that Bangladesh, India, Nepal and Pakistan also show negative annual growth rates in wealth per capita. Especially as their negative rates range between 0.4% (India and Nepal) and 1.4% (Pakistan). Only China amongst this group has increased wealth per capita – by 4.5% per annum.
Dasgupta concludes, “Sub-Saharan Africa’s HDI showed an improvement [over the period] – confirming once again that studying movements in HDI enables us to say nothing about sustainable development…So one of the most important problems we economists face today is to find more effective ways to quantify the progress and regress of nations. So long as we rely on GDP and HDI and the many other ad hoc measures of human well-being we will continue to paint a misleading picture of economic performance”.
And his final word is as follows, “Development policies that ignore our reliance on natural capital are seriously harmful – they do not pass the mildest test for equity among contemporaries, nor among people separated by time and uncertain contingencies”.
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[...] been getting poorer for the past 30 years despite the injection of billions of dollars of aid – not all of which has ended up benefiting the poor, and plenty of which has benefited the bank accounts of the powerful. According to the official [...]