Institute of Industrial Technology

In pursuit of its support for technical knowledge and vocational skills to deserving youths from low-income families, Nestlé sponsored the creation of the Institute of Industrial Technology (IIT). The fund will enable IIT to provide professional training for youths and adults in the area of Mechanical / Electrical Electronics and Industrial automation technologies.

IIT is a Technical Training Institution set up by the African Development Foundation, a non-profit organisation which focuses on promoting educational and social welfare projects, one of which is the Lagos Business School (now called the Pan African University).

Fraternity helps South Africa with shoe donations - Campus

Fraternity helps South Africa with shoe donations - Campus

Used-Clothing Donations and Apparel Production in Africa

Used-clothing donations to thrift shops and other organisations in industrialised countries typically end up being sold to consumers in Africa. Since used clothing is initially provided as a donation, it shares characteristics with food aid, which always assists consumers, but at times harms African food producers. Used-clothing imports are found to have a negative impact on apparel production in Africa, explaining roughly 40% of the decline in production and 50% of the decline in employment over the period 1981-2000.

Africa's Poverty Trap

There is a sad law I have noticed in my economics career: the poorer the country, the poorer the economic analysis applied to it. Sub-Saharan Africa, which this month marks the 50th anniversary of its first nation to gain independence, Ghana, bears this out.
There has been progress in many areas over the last 50 years -- life-saving drugs, the Internet, air conditioning, Powerpoint slides, the iPod, the acting of Penelope Cruz -- yet the same poor economics on sale to Ghana in 1957 are still there today. Economists involved in Africa then and now undervalued free markets, instead coming up with one of the worst ideas ever: state direction by the states least able to direct.

African governments are not the only ones that are bad, but they have ranked low for decades on most international comparisons of corruption, state failure, red tape, lawlessness and dictatorship. Nor is recognizing such bad government "racist" -- this would be an insult to the many Africans who risk their lives to protest their own bad governments. Instead, corrupt and mismanaged governments on the continent reflect the unhappy way in which colonizers artificially created most nations, often combining antagonistic ethnicities. Anyway, the results of statist economics by bad states was a near-zero rise in GDP per capita for Ghana, and the same for the average African nation, over the last 50 years.

Why was state intervention considered crucial in 1957? Africa was thought to be in a "poverty trap," since the poor could not save enough to finance investment necessary to growth. Free markets could not get you out of poverty. The response was state-led, aid-financed investment. Alas, these ideas had already failed the laugh test then, as the late economist P.T. Bauer pointed out. The U.S. in 1776 was at the same level as Africa today, yet it escaped the poverty trap. The same was also true for the history of Western Europe, Australia, Japan, New Zealand and Latin America. All of these escapes from poverty happened without a state-led, aid-financed "Big Push."

In the ensuing 50 years, there have been plenty more examples of poor countries which grew rapidly without much aid -- China and India (who each receive around half a percent of income in foreign aid) being the most famous recent examples. Meanwhile, aid amounted to 14% of total income year in and year out in the average African country since independence.
Despite these reality checks, blockbuster reports over the last two years by the U.N. Millennium Project (led by Jeffrey Sachs), Mr. Sachs again in his book "The End of Poverty," the U.N. Development Program (UNDP), the Tony Blair Commission for Africa, and the U.N. Conference on Trade and Development (Unctad) have all reached what the UNDP called "a consensus on development": Today Africa needs another Big Push. Do they really think nobody is paying attention?

Africa's poverty trap is well covered in the media, since it features such economists as Angelina Jolie, Madonna, Bono and Brad Pitt. But even Bill Gates, at an appearance at the World Economic Forum in Davos, Switzerland in January 2007, expressed indifference to Africa's stagnant GDP, since "you can't eat GDP." Mr. Gates apparently missed the economics class that listed the components of GDP, such as food.

The World Bank and the International Monetary Fund have good economists who have criticized state intervention. Under the pressure of anti-market activists, alas, they have soft-pedaled these views lately in favor of African governments producing National Poverty Reduction Strategies to meet U.N.-led Millennium Development Goals by the year 2015. The role of private businesses is to be the subject of bureaucrats' "sustained action." As Kofi Annan explained in a rare U.N. reference to the market, "Success will require sustained action across the entire decade between now and the deadline. . . to grow the small and large businesses able to create the jobs and income needed."

The cowed IMF and the World Bank never mention the words "free market" in thousands of pages devoted to ending poverty. Even the World Bank's 2005 World Development Report "A Better Investment Climate for Everyone" doesn't mention the forbidden words.World Bank economists are so scared of offending anyone on Africa that they recite tautologies. The press release describing the findings of the 2006 World Bank report "Challenges of African Growth" announces: the "single most important reason" for Africa's "lagging position in eradicating poverty," finally "has been identified." It is "Africa's slow and erratic growth." The next World Bank report may reveal that half a dozen beers has been identified as the single most important reason for a six-pack.

Today Unctad (in its 2006 "Big Push" report) still offers to make possible government "infant-industry policies" for "small, fragmented economies" by setting up a regional market, presumably so Burkina Faso and Niger can help absorb the potential output of the Togolese automobile industry. Unctad lacks everything but chutzpah: All aid to Africa, it said, should be moved into a new U.N. Development Fund for Africa, to which Unctad helpfully offered its "in-house experience," by creating a Commission on Aid and Development inside of Unctad. Unctad will thus permit the economics of Africa to at last "escape from ideological biases," so we can finally understand "why economic activity should not be left entirely to market forces."
The free market is no overnight panacea; it is just the gradual engine that ends poverty. African entrepreneurs have shown what they are capable of. They have, for example,launched the world's fastest growing cell phone industry to replace the moribund state landlines. What a tragedy, therefore, that aid agencies have foisted the poorest economics in the world on the poorest people in the world for 50 years. The hopeful sign is that many independent Africans themselves are increasingly learning the economics of how to get rich, rather than of how to stay poor.

Angola's economic prospects

In his earlier post on this blog, Ricardo Gazel forecast a 10% decline in Angola’s GDP. This was based on the country’s 2009 budget, which was elaborated before the deepening of the financial crisis and its spillover to the real economy. He now writes:

Since then, OPEC agreed to two production cuts, amounting to a reduction of 244,000 barrels per day or a 13% production cut for Angola. Given the current composition of GDP, if the oil sector shrinks by 13%, the non-oil sector would need to grow at around 22% in order for total GDP to stay flat in 2009. As the non-oil sector depends strongly on public expenditures, and given the dramatic decline in oil revenues expected for 2009, adjustments of the budget are likely to result in a slowdown of the non-oil sector, resulting in a negative growth rate of GDP as a whole in 2009. In nominal terms, with the oil price around $50 a barrel and non-oil sector growing around 10%, GDP would be around 17% lower in 2009 compared to 2008. At $40 a barrel, the decline in nominal GDP comes to 23%.

Under all these scenarios, the government will experience lower revenues than in 2008. In a pessimistic scenario of oil around $40/bbl and a 13% cut in production for the entire year, total revenues in 2009 could decline by as much as 50% compared to 2008. Although the savings from the past few years give the government some room to maneuver, it is likely that the government may decide to make dramatic adjustments to the budget, with substantial impact on public investment, in order to avoid a drastic deterioration of fiscal and debt indicators. Substantial cuts in the budget could trigger many negative effects. Angola is currently engaged in a reconstruction process (rebuilding and expansion of infrastructures such as roads, railroads, ports, schools, hospitals, among others), economic diversification (with emphasis on the agriculture and light manufacturing sector), increased productivity (lower transaction costs and training of the labor force), and improving the quality of life of the population (especially the poor). Large cuts in growth-enhancing investment projects will hurt the economic diversification process, limiting the positioning of Angola as a potential producer and player in regional and global markets as the global economy improves in the future. Cuts in social expenditures will disproportionately hurt the poor.

There is no doubt that the economic stabilization achieved in the last years should be preserved as much as possible. However, the global crisis will not last forever: As the global economy improves, the countries that are better positioned in terms of competitiveness and productive capacity will reap larger gains.”

Madagascar: From political crisis to economic decline?

Following weeks of political turmoil, President Marc Ravalomanana resigned on March 17, 2009. The leader of the opposition, Andry Rajoelina, ex-Mayor of Antananarivo, became “President of the Transition Authority” with the support of the army. The transition – increasingly being referred to as a coup by the international community – marks the culmination of a pitched power struggle that began in mid-January 2009, has put development on hold, and taken over 150 lives. Political uncertainty is nonetheless likely to remain until a clear consensus on the way forward emerges among the political forces in the country – and its subsequent recognition by the international community.

The impact of this crisis is difficult to predict, more so that Madagascar is also being affected by the global financial turmoil. Preliminary estimates indicate that the GDP growth rate is likely to be negative in 2009 -- down from a pre-crisis projection of 7.5%, through the combination of two forces: (i) the slowdown of private activities in the industrial and service sectors, and (ii) fiscal adjustment of public spending. The details are provided here.

Why aid to Africa must increase

In rich countries, when economic growth declines by three or four percentage points, people lose their jobs and possibly their houses, but they regain them when the economy rebounds. In poor African countries, children get pulled out of school—and miss out on becoming productive adults. In some cases, children die before they have a chance to go to school. If the current growth collapse is typical of the ones Africa has experienced in the past, an additional 700,000 African children may die before their first birthday.

In short, the effects of the global recession on Africa will be permanent. So the idea that aid may be threatened because of the recession in rich countries seems to have the logic backwards. Precisely because the effects in rich countries are temporary, resources should go to places where they may be permanent. Of course, there are political pressures to spend domestically. But do politicians in rich countries really think that a few more votes are worth more than the lives of the infants who will die as a result of the recession?

Furthermore, the relatively modest sum spent on aid to Africa in the past decade was at least partly responsible for the continent’s rapid growth. From 1998-2008, aid to Africa was increasing and economic growth was accelerating (to over 6 percent in 2007); poverty was declining and human development, especially primary school completion rates and the spread of HIV/AIDS, was improving. African countries had strengthened their macroeconomic policies—inflation had dropped to half its level in the mid-1990s—so that aid was more productive. Private capital was flowing in at a faster rate than in any other continent. All of these developments have come to a grinding halt because of the global economic crisis—a crisis that was not remotely the fault of Africans. By increasing aid to Africa, the international community has a chance to reverse this trend and prevent a temporary shock from having permanent consequences.

POVERTY IN AFRICA: FACTS

Starvation is claiming lives. One international relief agency recently discovered a village in a remote region of West Africa where more than 18,000 people were on the verge of starvation. "Malnutrition is so great in this area," a relief worker explained, "that most of the children under five years old had starved to death before we arrived. An entire hillside was covered with fresh graves of the children who had recently died."