Ever since African nations began to gain independence in the 1960s, Western countries have looked to assist their economic development. While the nature of this assistance has changed over time, many of the approaches to spurring economic growth in Africa continue to neglect some of the most pressing reforms needed to help lift people out of poverty. In particular, how to legitimize businesses and economic opportunities and how to power the region’s economies.
In a new CEI report, Iain Murray and I discuss three key building blocks of economic development that would best empower African nations to succeed: securing strong property rights, reducing the burden of government, and utilizing affordable energy. These are all crucial reforms that embrace the kind of economic freedom that has brought wealth and prosperity all over the world.
Shockingly, across the African continent, the majority of the labor force works in a shadow, “informal” economy. Development experts often blame such informality on lack of education, technology, and infrastructure, but this is only part of the cause. Overwhelmingly, this shadow economy is a natural response to the stifling restrictions governments place upon business. As Huzaifa Shabbir Hussain of the Center for International Private Enterprise (CIPE) argues: “When taxes are too high, business regulations too onerous, and private property rights inaccessible for many, businesses that would otherwise enter the formal economy cannot.”
First, our report recommends that international aid organizations and governments should be urging a more reliable system for securing property rights. African nations could follow in the footsteps of countries like the Republic of Georgia in establishing a land registry systems using blockchain technology. While blockchain titling programs are currently being piloted in southern Ghana, policy makers in other African nations should look for ways to take advantage of such innovative technologies in order to give their people greater security in their property.
Second, we recommend that African countries would benefit greatly from a reduction in taxes and regulations. African entrepreneurs invest in informal channels to reduce the regulatory costs associated with burdensome government requirements. To attract businesses into the formal economy, governments must stop creating perverse incentives that drive businesses away. To spur growth and employment, regulatory mandates and taxes must be dramatically scaled back.
Further, it is well documented that large swaths of the African continent are in dire energy poverty, with over 620 million Africans lacking any access to electricity. African countries need access to affordable, abundant, and reliable energy. But most development agencies wrongly contend energy shortages can be resolved through low-emission renewable energy technologies. The reality is that current technology renders renewable energy both inefficient and expensive, especially for large scale industrialization. Even factoring in alleged, often-cited costs of climate change, renewable energy sources just don’t measure up and certainly do not outweigh the benefits that fossil fuels can deliver.
Our third recommendation is for developed countries to allow African nations the freedom to pursue their own mix of energy. As Bjørn Lomborg, author of The Skeptical Environmentalist, notes, “In wealthy countries, campaigners emphasize that a ton of CO2 could cost some $50. … But for Africa, the economic, social, and environmental benefits of more energy and higher CO2 run to more than $2,000 per ton.” Energy use should be predominately assessed on the basis of sustainability, cost, and availability. It is not the responsibility of an enlightened elite to determine the mix of energy that poor nations require for development.
African nations have made incredible strides over the recent decades that deserve celebration. Across the continent, per capita GDP has risen by over 50 percent since 2000. Developments in modern technologies have further enabled poor people to leapfrog past old problems and grow their economies. Examples of this include the cell phone revolution and the widespread adoption of digital cash in Kenya.
While these incredible improvements are a cause for celebration, it is only a start. If the African continent is to achieve the prosperity it deserves, then African policy makers and non-governmental organizations alike should strive to implement pro-growth policies.
The full text of the new study, Economic Freedom Is Key to African Development: Secure Property Rights, Institutional Reform, and Affordable Energy Can Unlock Prosperity for Africa, is available here.