Why has Africa Grown So Slowly? Xavier Sala-i-Martin Columbia University

Distortions and the Cost of Investment Investment is low in Africa Investment is low in Africa Investment is Expensive Investment is Expensive Risk may be overstated Risk may be overstated

Survey of Business Leaders

Human Capital(1): Education School Enrollments are low School Enrollments are low Investment in Education does not lead to more enrollment: incentives Investment in Education does not lead to more enrollment: incentives Keep in mind that the solution of education incentives may NOT be in the education sector but in other sectors (Labor Market?) Keep in mind that the solution of education incentives may NOT be in the education sector but in other sectors (Labor Market?) Education of GIRLS has added benefits in terms of Health and Fertility Education of GIRLS has added benefits in terms of Health and Fertility

Survey of Business Leaders

Human Capital (II): Health Life expectancy has increased in African over the last 40 years but: Life expectancy has increased in African over the last 40 years but: –AIDS –Malaria We now face a public health crisis, a pandemic of biblical proportions We now face a public health crisis, a pandemic of biblical proportions

Survey of Business Leaders

Geography, Tropics and Institutions Most Sub-Saharan Africa has adverse Geography: Most Sub-Saharan Africa has adverse Geography: Landlocked Landlocked Tropical Tropical –Direct impact on productivity (soil, specific agricultural productivity,…) (Sachs and Warner 1995) –Direct impact on health and, thus, productivity (Sachs and Warner 1995) –Indirect impact on institutions (Acemoglu et al. 2000) INSTITUTIONS AND NATURAL RESOURCES (Nigeria, Sala-I- Martin and Subramanian 2003) INSTITUTIONS AND NATURAL RESOURCES (Nigeria, Sala-I- Martin and Subramanian 2003)

Survey of Business Leaders

Survey of Business Leaders. Corruption and the Natural Resource Curse

Survey of Business Leaders: Red Tape, Bureaucracy, Waste

Survey of Business Leaders

SBL: Market Efficiency Good Markets Efficiency (fair competition, no monopolies) Good Markets Efficiency (fair competition, no monopolies) Labor Market Labor Market –Laws –Meritocracy –Female Discrimination –Distortions from NPOs and IFIs Financial Markets Efficiency Financial Markets Efficiency –Banking System –Stock Markets –Capital Risk

Survey of Business Leaders

Openness (Globalization?) Africa is essentially CLOSED (1% of world trade) Africa is essentially CLOSED (1% of world trade) And whatever Trade depends too much on a single natural resource (oil, diamonds,…) And whatever Trade depends too much on a single natural resource (oil, diamonds,…)

Is Globalization to Blame? What is it? Free Movement of What is it? Free Movement of –Capital –Labor –Goods –Technology –Information Have any of these arrived in Africa? Have any of these arrived in Africa?

Excessive Public Spending and “bad government”

Ethnic Fractionalization and Conflict Countries at war between : Countries at war between : Algeria, Angola, Burundi, Chad, Cote d’Ivoire, Democratic Republic of Congo, Djibouti, Eritrea, Ethiopia, Guinea-Bissau, Liberia, Libya, Mauritania, Morocco, Mozambique, Namibia, Niger, Nigeria, Rwanda, Sierra Leone, Somalia, South Africa, Sudan, Togo, Uganda or Zimbabwe.

Survey of Business Leaders

USING BACE COEFFICIENTS

What to do? African Countries African Countries –Peace –Institutions/Markets –Openness –Promote a Market Environment and a Business Favbric Rich Countries/Institutions: Rich Countries/Institutions: –Change AID Programs: Focus on Health R&D Focus on Health R&D RADICAL CHANGE: ask, penalize if do wrong, local answers… RADICAL CHANGE: ask, penalize if do wrong, local answers… Shift from HUGE AID (Sachs, Blair, Bono, …) to LEARNING Shift from HUGE AID (Sachs, Blair, Bono, …) to LEARNING Understand the distortions you are causing Understand the distortions you are causing Bring BUSINESS!!! Bring BUSINESS!!! –Open Markets (especially EU, USA and Japan ‘s agricultural protectionism) NGOs: NGOs: –Learning –Focus on what works (ie, progresa-type programs) –Health (doctors without borders) –Bring BUSINESS!!!