Is Africa on the brink of rapid economic growth?

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Over the past three decades, India has experienced a miraculous economic transformation. Less than 40 years ago, nearly half of Indians lived below the poverty line and the state received the highest levels of development assistance in the world. Today, India is considered an emerging superpower. It has the sixth-largest nominal GDP, a booming tech sector (IBM has more employees in India than the US), and real GDP that has doubled over the past decade. Given India’s recent admission to the UN Security Council, its geopolitical importance has also increased enormously.

While the causes of India’s monumental rise may puzzle onlookers, India’s growth mainly occurred following a series of policies in 1991 that liberalized many aspects of the economy. national economy. Renowned Indian economist, Deepak Lal, noted that the 1991 changes marked a point in history when India began to “reverse” on “inward-looking” policies of protectionism and central planning.

While Africa and India are different in many ways, with the introduction of a continent-wide free trade area and ever more liberal economic policies, some commentators ask if Africa could soon experience the same substantial growth as the subcontinent. After all, the benefits of economic freedoms transcend borders and lead to increased prosperity wherever they are attempted.

To see what lessons Africa could learn from India’s reform, it is worth examining the Indian economy before 1991. At the time, large swaths of many state-owned industries and regulatory paralyzing were stifling the private sector. For decades, debilitating policies such as a national law that prohibited a company from producing more than its planned output, essentially impeded efficiency.

An overflowing bureaucracy known as the “Licence Raj” imposed absurd regulations that ensured that starting a business was extremely tedious and complex. At the height of the License Raj in the 1970s, Indian Prime Minister Indira Gandhi proudly joked that it took just 410 working days for a license to be issued, 10 days less than the original target. of 420 days. Moreover, corruption and vested interests made market access virtually impossible. Monopolies were allowed to dominate important industries.

With regard to international trade in India before 1991, another set of constraints was present. India and Africa were similar in that after independence many Indian politicians foolishly aimed for economic self-sufficiency. This protectionism was justified in two ways: first, by the socialist ideology promoted by politicians who believed that state-led development was the path to prosperity. Second, some policymakers mistakenly considered free trade to be synonymous with colonialism; therefore, a post-colonial economy should be based on protectionist and Marxist principles. A similar situation could be observed in much of Africa. After all, Tanzania’s first president, Julius Nyerere, remarked that “in rejecting the capitalist attitude of mind that colonialism brought to Africa, we must also reject the capitalist methods that go with it”. This protectionist ideology has made trade costly, reduced growth and ignored Africa’s long history of free trade and open markets.

So what changed in India in 1991?

In short, following an economic and political crisis, India’s then finance minister, Manmohan Singh, and his adviser, Rakesh Mohan, devised a “new industrial policy”. This momentous change ushered in an era of liberalisation.

The License Raj was largely abolished, with licenses abolished in all but 18 industries. Trade with other nations was encouraged and government monopolies gave way to the privatization of state-owned enterprises. Finally, government supervision of large corporations came to an end. This liberalization has been accompanied by extraordinary growth.

Following India’s lead could reap huge dividends for Africa and fortunately it looks like Africa could now be in for its ’91 moment’.

To combat widespread economic protectionism, the new African Continental Free Trade Area, which was set up last year, aims to remove more than 97% of customs duties on goods traded between African states. 13 years here. Due to reduced barriers to trade, the World Bank has estimated that the AfCFTA could lift more than 30 million people out of extreme poverty and raise wages by 9-10% by 2035. In addition, the World Bank notes that countries with the highest poverty rates will see the “greatest improvements”.

The reasons for these staggering estimates are simple; when people are free to trade with each other, they innovate, increase production and fill market gaps.

For Africa to experience Indian-style growth, it must pursue policies that enhance economic freedom across the continent. Despite the clear advantages of the AfCFTA, its future is unfortunately far from certain. During the COVID-19 pandemic, nations key to the success of the free trade area, such as Nigeria and South Africa, have introduced economically illiberal export control policies. These policies could not be more opposed to the free trade policies necessary for the success of the AfCFTA.

Right now is a pivotal moment for Africa’s future development. If the AfCFTA is implemented well, Africa could easily be the next India – if not, significantly more prosperous. However, if governments fail to enact policies to facilitate trade, the future of the AfCFTA is uncertain. Politicians and influencers must promote the cause of free trade if this moment is to bring the transformational economic impact that so many hope for.

Bowden is an intern with the Africa Trade and Prosperity Initiative.

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