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Sub-Saharan Africa: A Model of Free Market Growth?

When we think of Africa, we typically conjure images of poverty, starvation, civil war, and most recently, disease. Back in 2000, The Economist went so far as to call it “The Hopeless Continent.” But there is also good news about Africa—increasingly freer markets are fueling a huge increase in well-being.

The United States economy may only grow 1.4 percent this year, according to the IMF, but Sub-Saharan Africa is set to balloon 6.5 percent (excluding South Africa). This region has expanded by leaps and bounds, growing 7.2 percent between 2004 and 2008, and by an average of 5.8 percent per year between 2009 and 2013. Some countries are projected to grow by 8 percent in the next three years—among them Mozambique, Ghana, and Angola.

Real incomes have doubled since 2000, and since that time, the average life expectancy has already grown four years, with no sign of stopping. Africa’s economy is set to explode from $2 trillion today to $29 trillion by 2050—more than Europe and America combined.

Some may think foreign aid is driving this expansive growth, but researcher Dambisa Moyo has found that it actually hurts African economies. This happens because foreign aid can confuse local markets—leading companies to invest in products that nobody wants to buy—or render entire countries dependent on an outside benefactor for their basic needs. Furthermore, donations from foreign countries often end up in the hands of a dictator or a government, enriching corrupt officials and never reaching the people they were intended to help.

Others may suggest that governments are funneling money into the market, to boost production and trade. This is also false. Nigeria, which just overtook South Africa as the continent’s largest economy (ranking 24th in the world, ahead of Argentina and Austria and on par with Poland and Belgium), has relatively low state spending and debt. Taxes amount to 14 percent of GDP in Nigeria, and public debt is only 10.5 percent.

[pq]Africa is joining the developed world in the same way that world originally developed.[/pq]

Rather, African growth is coming from the bottom up. In Rwanda, the government ended its long-standing monopoly on coffee, removing crippling taxes and legal restrictions—a move that let farmers freely trade with buyers from any part of the world. Farmers focused on improving quality, and prices soared. An estimated 50,000 households saw their incomes from coffee production double. For the first time, parents could send their children to school, pay medical bills, buy clothing, fix their homes, or invest in their own businesses.

When governments free up their economies, people get richer. Many of Africa’s governments are corrupt and ineffective, but markets can still thrive if the government lacks the power to restrain them.

In a paper on “What is Driving the African Growth Miracle,” Tufts University researcher Margaret McMillan argues that half of Africa’s recent growth comes from a labor shift—workers are leaving the farms to work in high-productivity factories and offices. In 19 countries, 10 percent of the population working in agriculture left to work in services (8 percent) and manufacturing (2 percent) between 2000 and 2010.

These industries have room to grow because Africa as a whole has relatively low state spending and debt, according to a Telegraph article entitled “Africa’s Rapid Growth is Down to Industry and Free Markets.” Throughout Sub-Saharan Africa, public debt averages about 40 percent of GDP, compared to upwards of 200 percent in most developed countries.

Indeed, Sub-Saharan Africa finished as the second most-improved region in the “Index of Economic Freedom,” a study released by The Wall Street Journal and The Heritage Foundation which compares the countries of the world based on the ease of doing business. While Africa still has a long way to go, editors of the study wrote that “reforms in these countries have supported economic expansion and a gradual reduction in poverty.”

“The positive economic results achieved through advancing economic freedom have created valuable momentum for additional institutional reforms that are needed to ensure long-term economic development,” the editors added.

Even the countries that are ranked “repressed” or “mostly unfree” are still experiencing remarkable growth because inefficient governments lack the strength to enforce their restrictive policies. This allows markets to grow in the face of would-be repression.

Africa is joining the developed world in the same way that world originally developed. The free market explosion of industry in the United States and Britain about 150 years ago, and the recent outbursts in Asia that propelled countries like South Korea forward are coming to the once “hopeless” continent.

Then, as now, looser government restriction, pioneering entrepreneurs, and rapid industrialization are bringing millions out of poverty. Africa still has many problems, but so long as its markets continue down this freer path, Africa is on the road to true flourishing.