February 6, 2006	Monday	Muharram 7, 1427

THE last few decades witnessed a dramatic divergence in development of Sub-Saharan Africa (SSA) and East Asia (EA). Reasons for the dismal economic progress in SSA and robust development of EA may help to ascertain if a developing country like Pakistan can learn any lessons from the two regions.

It is proposed to present an analysis of political, economic and social variables for SSA and EA to highlight their respective performances.

Development challenges entail conditions of economic growth and social progress, which cannot be tackled in piecemeal as each affects the others. They need to be dealt simultaneously with a universal strategy, a defined timetable and measurable targets.

It was the coordinated effect of sound policies dealing with most aspects of development through tailored interventions of the state apparatus, and an unusually rapid accumulation of physical and human capital, which led to the East Asian miracle.

The economies of EA not only grew but were able to accomplish income distribution and socio-structural transformation. The following discussion will focus on the distributionary policies framed by the highly interventionist EA states, which were a major stimulus to equitable development.

Low levels of political institutions, poor financial systems, large underground economies, unviable exchange rate premiums, large government deficits and high inflation rates are strongly correlated with economic growth thus explaining about two-fifth of the growth differential of the two regions.

SSA states started off on a wrong footing with dictatorial regimes which shaped a negative political framework failing to create an enabling environment for peace and harmony of existence that could lead to growth and macro-economic stability.

East Asia on the other hand, particularly the successful tiger economies of EA, viz. South Korea, Singapore, Taiwan and Hong Kong promoted high rates of saving and investment, as well as the development of indigenous capital and market institutions.

Structural and agricultural transformation led to decline in rural poverty. High quality civil service worked with the businesses and government interventions were targeted to increase exports through availability of credit for maintaining a stable macro economy.

Sub-Saharan Africa entered the 20th century as a colonized and a poor region with real per person GDP of $826 in 1965. The countries in SSA were led to independence by nationalist leaders in the 1960s who were hailed as heroes and were thus able to engineer a one-party rule and at times a single man-rule early in the post-independence period.

Colonial rule left predicaments such as ethnic fractionalization and tribalism which the leaders used for establishing regimes promising stability and economic development in return for a monopoly on political power.

This laid the foundations of undemocratic systems of governance and by 1988 only five countries in SSA had a multi-party system namely Botswana, Gambia, Mauritius, Senegal and Zambia while the remaining 42 nations were either military oligarchies or one party regimes.

The presence of political regimes and relatively stronger democratic institutions in the five SSA countries over the last four decades helps to explain their relatively better performance in terms of higher real per capita GDP, despite the fact that these countries did not have independent judicial systems and neutral armed forces.

The EA countries except Thailand, also evolved after the end of European colonial era. The states in these countries were able to attain autonomous functioning independent of the interest groups, yet being embedded in the society by maintaining dense ties with private sector.

These states were characterized by strong political and bureaucratic institutions. The institutional quality was high at 7.79 compared to 4.72 in SSA on a scale of (1-10), 10 representing the highest level of institutional quality. The political economy of SSA has been adversely affected by the presence of ethnic fractionalization which continues to be a dominant feature with an ethnic fractionalization index of 0.62, compared with 0.2 in EA on a scale of (0-1) which continues to enjoy fruits of a highly homogenous society.

Various studies have established that ethnic diversity alone accounts for about 28 per cent of the growth differential between SSA and EA which increases the likelihood of adopting weak policies and under-provision of growth enhancing public goods viz infrastructure, in health and educational institutions.

Political economy: The political economy of EA was complimented by sound agricultural development. EA is one of the most densely populated areas while SSA is thinly populated, leading to differences in farming techniques and agricultural development.

EA has elaborate irrigation systems and uses high yield crops. The production sector in SSA was dominated by peasant agriculture using traditional methods at the time of independence, but the governments were keen to industrialize the countries.

The elite groups attempted to extract resources from agriculture and channelize them into manufacturing and industry, resulting in slow growth in agricultural productivity at a meagre rate of 0.3 per cent per annum from 1965 to 1988.

Taxation and price depression cut into the profits of farmers and thus the income in the agricultural sector grew at a slow rate of 1.9 per cent during this period.

The model for industrialization followed by the African leaders was that of state-led growth to modernize the economy through import substitution. Domestic industry of these countries grew rapidly as it enjoyed high rates of protectionism. This gave rise to weak and inefficient public sector businesses, which did not survive the shocks of the 1970s. They started running budget deficits, necessitating donor help.

The donor programme of structural adjustment facility (SAF) focused on stabilization and not development. Under SAF, the quality of public service and infrastructure deteriorated since it was dictated by fiscal restructuring.

SAF curtailed spending on human resource development worsening human capital and pushing people into poverty aggravated by high fertility rates leading to population explosion. SSA countries accumulated large financial debts and 32 out of 38 are in the highly indebted poor countries as classified by the multilateral organizations.

East Asia on the other hand, was able to transform themselves to industrialized status by creating the right ambiance for export promotion and equitable development. Productivity increases and population control was achieved by public sector investment in human capital particularly at the primary and secondary levels. All these measures resulted in a fast track equitable development in the recent years.

EA governments established and maintained macroeconomic stability by creating a viable environment with a low inflation rate regime of 7.5 per cent compared to 20 per cent in SSA during 1961-91. Credit availability was ensured in EA whereas in SSA rural credit markets were weak. Governments intervened in allocating targeted and subsidized credit to selected industries in EA. They developed institutional mechanisms to monitor performance and intervene where necessary, yet having the ability to pull back where the cost of intervention was too high, thus signifying the capacity and willingness to change policies.

Investment: Private domestic investment which was a result of high rate of savings, was a major vehicle of growth in EA. The governments of EA ensured a positive real rate of return and at the same time used state control to achieve savings rate of 35 per cent, where-as as in SSA, the savings rate stayed around 18 per cent.

High savings rate translated into high investment rate of 30 per cent in EA whereas in SSA it remained low between 7-14 per cent per annum from 1961 to 2000. The low rate of average investment in SSA can be explained by a high rate of capital flight / private wealth ratio of 39 per cent in 1990.

The relative price of investment was also higher in SSA compared to EA, acting as a barrier to investment and growth. Capital goods were more expensive in Africa than the international average. Countries in EA achieved a low price of investment by maintaining low prices of capital goods, subsidizing interest rates for corporate investment and limiting risk of investment.

The World Bank Report (1993) has attributed two thirds of the growth in EA region to high rates of investment and universal primary and secondary education, and to growth in productivity, which, in-turn resulted from the right allocation and technological catch up.

The governments in EA gave preference to sectors which showed promise. Export orientation increased the international openness of the EA economies at 0.97, and helped them get technology and know-how from abroad. The SSA economies on the other hand remained closed at 0.08.

These policies led to a rapid growth of GDP through the four decades in EA of over seven per cent where as the SSA saw a slow one per cent and in two decades a negative growth of -2 per cent in GDP in the other two.

The literature available on EA has not given due importance to the role of the state to implement economic policies. The synergestic relationship between the state and people led to successful implementation and achievement of the desired results.

Empirical evidence demonstrates that the intent that all segments of the society should have a share of future wealth by mechanisms like land reforms programmes in Korea, Taiwan and China, the rice and fertilizer policies to raise rural income in Indonesia, wealth sharing programmes in Malaysia, massive public housing programmes in Hong Kong and Singapore, played a significant role in getting everyone on board.

Challenge: SSA faces a multi-faceted development challenge as it enters the 21st century. To develop, the SSA countries require sound policies, institutional climate for investment and a lower cost of doing business. This will promote job creation, as the perceived risks of doing business in Africa will go down.

Political participation needs to be enhanced, as it will lead to more accountable governments. Investment in agriculture and human resource are a key element for sustaining growth and development in SSA. Last but not the least, design and ownership of any reform agenda by the state and people and a willingness and ability of the governments to implement such an agenda hold the key to the future of this region.

Learning from the divergent experience of development of SSA and EA, we, in Pakistan need to foster a research agenda that focuses on the cohesiveness of society, the quality of delivery by the public institutions and their relationship to sustained growth.

Pakistan needs to work a lot more on how to equitably and fairly manage the costs and benefits accruing from the transformation of society, and to foster a greater sense of cooperation and inclusion in an environment where there is division and disaffection among the nation.

(The writer is a scholar at University of New South Wales)