World Bank And IMF Get African Development Wrong, Again
It’s springtime in Washington D.C., which, for the uninitiated, means not only cherry blossoms and Nationals’ baseball, but the spectacle of the World Bank’s and International Monetary Fund’s annual spring meetings. Thousands of bureaucrats and advocacy groups discuss how the world’s economies are faring. Africa was of special concern and focus this time.
Although the poorest African countries have made significant economic progress over recent decades, it’s not due to great advice from the World Bank and IMF, which do a big disservice to African countries with advice and “help” that miss the mark. The fact remains, the region is not only the least developed in the world, but is also home to the largest shadow economy and lowest level of electricity use.
Government is the problem. But the IMF wrongly insists that the informal, shadow economy in sub-Saharan Africa, which accounts for some 50% to 80% of GDP, is the result of inadequate government intervention. So while the Fund wants more spending on infrastructure, skills training, and technology, all problems are created by governments in the first place.
Just look at regulation. African businesses face some of the most burdensome regulatory requirements in the world. On average, an African entrepreneur will spend 54% of his or her annual income in order to start a business. And if companies are even fortunate enough to get off the ground, they face tax rates that consume 47% of a company’s profits on average.
It is no wonder then that African entrepreneurs invest in informal channels. It is a rational reaction to predatory taxation and onerous regulations. Instead of recognizing this, however, the World Bank insists that increasing taxation is critical to development, promoting that bad idea with a social media hashtag #Tax4Dev. Fostering a hostile business environment is going to do little to solve the issue of informality and diminished growth. In short, higher taxes won’t help businesses create jobs and flourish.
Lack of secure property rights is another problem. Bureaucracy, regulation and corruption all plague government land registration systems in Africa. But over at the World Bank meeting, property rights were secondary to other policies — namely, more government spending.
Why not look, instead, to other nations that have similar problems (such as the Republic of Georgia) that have begun to establish land registry systems using reliable, digital blockchain technology? Outsourcing the process to blockchain is expected to reduce the costs of registering property significantly (to as little as $0.5 to $0.10), save many hours of paperwork, and hinder widespread property fraud that undermines the rule of law. Yet the IMF and World Bank have seemingly all but missed this.
Finally, access to affordable, reliable energy remains a major problem. Over half of all African businesses report that lack of access to power restricts their operations. That, in turn, diminishes the region’s growth by 2% to 4% per year. That means lower incomes and, too often, premature death. Over 600,000 Africans die each year due to indoor air pollution as a result of inadequate access to fuel.
Yet international institutions continue to regulate away perhaps the most precious resource for breaking out of poverty — fossil fuel energy. The Bank’s #Invest4Climate event focused on ensuring the world meets the Paris Climate Agreement’s goal of limiting warming to 2 degrees Celsius by 2050.
But as Stephen Eule of the U.S. Chamber of Commerce has recognized, even if industrialized countries were to reduce their current emissions by an incredible 80%, developing countries would have to cut theirs by a whopping 48% in order to meet the target. It remains a mystery as to how developing nations can achieve this while simultaneously eradicating energy poverty.
International institutions may believe they have found the Midas touch in renewable energy, but even in developed nations, renewables remain hugely dependent upon government support, without providing anywhere near the amount of energy required for African industrialization.
Conversely, the impact of pursuing fossil fuels is tremendous. As Bjorn 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.”
This is backed up by an International Energy Agency report, which found that sub-Saharan Africa could become almost $7 trillion richer by 2040 through aggressively pursuing fossil fuels — all while their share of global emissions would increase to a meager 4%.
All the evidence should be cause to stop pushing expensive, inefficient renewables onto developing countries. African nations should have the freedom and respect to assess energy use on the basis of sustainability, cost and availability, not what pleases elite bureaucrats. African nations deserve the freedom to succeed.
Originally posted to Investor’s Business Daily.