The Development of African Economies

by Julian Olsen-Pendergast

To analyze the development of African economies over time, we must address four key points: the long-term effects of colonialism, factors other than colonialism that hindered or are currently hindering African economic development, economic factors that encourage future economic development in African economies, and the current situation and reasons for a promising future.

It is certain that the current underdevelopment of Africa's economies, particularly in sub-Saharan Africa, can be attributed to the consequences of European colonialism. It is doubtful that the underdevelopment and poverty in Africa are caused by a shortage of financial, human, material, or natural resources. Therefore, before delving into non-colonialism-related reasons for historical and current underdevelopment, let's examine the long-term effects of colonialism.

The long-term effects of European colonialism still evidently hinder economic prosperity to this day. Europe carved up Africa by drawing lines on a map, neglecting to consider the geopolitical impact of grouping tribes and other pre-colonial societies, and creating weak governing institutions. This had significant consequences, given the slave trade and the subsequent wars and persecution. One stark example of this is the Rwandan genocide, during which around 1.1 million people were slaughtered by armed militias over a period of 100 days. Such history of geopolitical conflicts, oppression, and wealth extraction by colonial powers has impeded investment, economic growth, and trade among African nations. As a result, Africa remains one of the poorest regions in the world. While the presence of conflict is not exclusive to Africa, colonization and the slave trade have robbed Africa of its natural resources and left it in ruin.

So, if colonialism had never occurred, it is difficult to predict whether Africa would be a booming economy or still be underdeveloped. Economic questions are inherently uncertain. However, we can examine the problems other than colonialism that have hindered or are currently hindering the development of African economies.

The root causes of Africa's lack of economic development before colonialism are a subject of much debate. In my opinion, two main causes can be identified: the lack of development of an advanced agrarian society with a low population density, and Africa's social and economic structure.

In the 1500s, Africa was primarily a subsistence-based agrarian society, which hindered the development of markets and commerce. Unlike other agrarian societies at the time, Africa had a small population due to prevalent tropical diseases, and a significant portion of land remained uncultivated. For instance, the Yakö village of Umor had over 25,000 acres of land for agriculture, but only 2,000 acres were used each year. Shifting low-input agriculture resulted in relatively low yields, as people grew only what was necessary for survival. There was little incentive to produce more for trade, as markets were undeveloped, and there were limited exchange opportunities.

In contrast, advanced agrarian societies in Europe, the Middle East, and parts of Asia had significant advantages over Africa at that time. They possessed productive agriculture, diversified processing and manufacturing capabilities, and the necessary institutional and cultural resources for economic growth, including private land ownership and a landless labor force. Africa lacked crucial institutional and cultural prerequisites for investment and trade based on private property, such as land surveying, standardized weights, and legal systems. Low population density and high transportation costs acted as barriers to specialization and market development. In the long run, African states could not sustain themselves through taxing private property and production or renting out state-owned land, as more advanced agrarian societies on other continents did.

The social and economic structures present in Africa also undermined economic growth. African governments in the 1500s differed greatly from those in advanced agricultural economies. Many African governments struggled to generate revenue through taxation or charges for land use, limiting public spending on education and infrastructure. Legal institutions associated with organizing private property did not develop, further impeding technological and scientific progress. In comparison to European governments and institutions, Africa did not foster the skills and tools necessary for economic growth. Moreover, a hierarchical system emerged from subsistence agriculture, with surplus food being consumed over time, leading to leisure time for some and excessive military development for others. This created an incentive to cultivate more than subsistence levels, as the excess food could be used during times of illness or natural disasters. Slavery also became attractive within this context of idleness and power.

However, it is important to note that not all of Africa remained subsistence-based agrarian societies with social and economic structures that hindered development. Ethiopia, for example, was not affected by tropical diseases due to its altitude, and its larger population and limited land prevented shifting cultivation. Unlike other forms of government in Africa, Ethiopia formed an aristocracy, and government institutions were funded through land taxation. Property rights were established. Nevertheless, despite this economic development in the 1500s, according to the World Bank's Poverty Assessment of Ethiopia in 2016, 30% of the population still lived below the poverty line. This suggests that even if a nation becomes an advanced agrarian society, such a transition alone is not sufficient to ensure development. In general, Africa's status as a non-advanced agrarian society in the 1500s has had a lasting negative impact on its economic growth.

To conclude, even though some causes of underdevelopment stem from the 1500s, it does not mean that Africa's economies couldn't have evolved. On the contrary, it is highly unlikely that they would have remained on the same trajectory. The more crucial question that should be asked is how African economies can effectively utilize the abundant financial, human, material, and natural resources they possess.

What economic factors do African economies possess that are encouraging for future economic development? Simply put, a large and growing working population, technological adaptation, political stability, and financial stability are transforming Africa's economies, reducing their reliance on extractive industries and the production of raw materials.

Historically, Africa's main exports have been raw commodities, making it difficult for African firms to generate economic rent and surplus value. Even after the dissolution of colonial social classes, new wave firms struggle to generate profits. Without profits, they are unable to invest in technological progress, perpetuating the cycle. Consequently, they cannot take advantage of capital accumulation and remain vulnerable to foreign corporations, which often replicate the same exploitative practices as colonialism. For instance, China has heavily invested in Africa for mining rare minerals, leveraging its capital and technology to gain access to these resources and repatriate profits. The lack of domestic investment and low incomes result in lower consumption of domestic goods, leading to reduced economic growth and development.

Moving away from reliance on extractive industries and raw materials production is crucial for African economies to develop, and this shift is currently underway. Long-term capital inflows now show that petroleum and mining account for a minority share, with more investors focusing on telecommunications, retailing, and services. Non-extractive industries have accounted for over half of foreign direct investment in six out of the past seven years.

This investment evolution reflects improvements in governance and stability witnessed in recent years. Democratic institutions have been established and recognized, and extreme poverty has decreased. However, these democratic transitions are still fresh and fragile, with countries progressing at different speeds. Together, these factors place Africa's economic future on the right track, benefiting over 1.2 billion people.