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Thoughts about African Development

Posted By Guy Pfeffermann, Wednesday, April 01, 2009
Updated: Monday, January 28, 2013

Guy PfeffermannWhy are Sub-Saharan economies lagging behind?

The economic growth of SSA countries has accelerated these past ten years, thanks largely to improved macroeconomic policies and favorable terms of trade, but living standards of the vast majority of the population are still lagging far behind that in other regions. Taking a longer view view, SSA’s massive exodus to city slums is largely a result of failure, in most countries, to modernize smallholder agriculture. Such modernization provided a foundation necessary to long-term development everywhere except in the case of "city-states”. The reasons for lagging smallholder progress in SSA are rooted in geography (climate, inaccessible "interior”) and history (no written language except in Ethiopia, which made it difficult to transmit knowledge across generations and between African societies; no history of "real states”, slavery, colonial rule, and then very bad governance.

To make things even more difficult, SSA’s population growth rate is the highest in the world. Unlike in other regions – particularly East Asia, where the ratio of working-age population to dependents has risen sharply to around two to one – SSA’s dependency ratio has remained close to one for the past half-century and more. This means that the proportion of young people is one of the world’s highest, and this makes the challenge of catching up with the education gap formidable.

Last, but not least, SSA’s economies are tiny on the world scale, and in the absence of far greater intra-African economic integration, small market size precludes economies of scale in many activities. The whole of SSA’s GDP is about the size of Belgium’s ; South Africa’s is equivalent to the San Francisco area’s Nigeria’s is smaller than Baltimore’s ; and the average economic size of each of the remaining 45 countries is smaller than Honduras’s.

International development cooperation has achieved mixed results over the last half-century. The literature is roughly evenly-divided between studies which show that "aid worked” and those that do not. One thing about which there is consensus is that despite rhetorical support for institutional and human-resources development ("capacity-building”), in reality aid organizations have tended to eschew such long-term efforts in favor of programs yielding more easily quantified and shorter-term results.

Nor can scarcity of economic resources be blamed entirely for lagging development (notably the failure to modernize smallholder agriculture and to provide adequate education and health services). Two large pools of under-used resources exist throughout SSA. First, corruption remains pervasive. According to Transparency International, not only do SSA countries show undesirable levels of "perceived corruption”, but perceived levels of corruption have not diminished significantly since the "corruption perception index” was first published in 1998 . Resources that might be redirected from corruption to development include not only annual illegal flows but also the capital accumulated – for example in Swiss banks – over the decades by corrupt public officials. Second, and this is the subject of Section 2, weak management translates into wasted resources; better management can "revive” such resources, increasing their development impact.


Knowledge and Development

The stories of low-income economies that have "caught up” with those of Western Europe and the US during the last half-century revolve largely around transfers of relevant knowledge, nurturing "receptors” for the knowledge so transferred, and creating organizations that translate knowledge into improvements "on-the-ground”. A great deal of the knowledge required in order to raise living standards in SSA already exists, and hence social returns to transfer and adaptation to local conditions are much higher than to new research. The trick is to "know what to look for” in the world’s immense store of knowledge. Universities could act as knowledge receptors, but all too-often African universities teach "knowledge” that is fairly irrelevant to local conditions.

In a reasonably competitive environment, private firms, including subsidiaries of foreign companies, act as knowledge receptors. Successful developing countries are open to foreign ideas; they nurture "receptors” capable of absorbing those strands of knowledge that can take root in their local environment. Throughout the world, private enterprises act as knowledge receptors. Where competitive conditions prevail, leading enterprises will constantly seek out information that has practical uses locally. To remain competitive, other firms, in turn, will emulate their behavior. In this process, executives and employees upgrade their human capital, their productivity, and their incomes. The role of private firms in absorbing knowledge and putting it to use is especially important in the processes of technology generation and diffusion is fundamental to development.

Indeed, a focus on effective knowledge receptors brings to light one of the most hopeful development in recent decades: the gradual replacement of an aid-seeking African middle class by a much broader and more dynamic market-driven middle-class. This middle class consists largely of private sector leaders and managers, as well as a new breed of start-up entrepreneurs whose sights are trained on the global economy. Two factors have facilitated this rise enormously. First, local middle-classes are closely linked to diaspora relatives living abroad, and this makes it easy for them to adapt relevant global know-how to local circumstances. Second, of course, is the mobile phone revolution, which occurred quite independently of national development plans, and which has in effect taken whole swathes of SSA’s population out of isolation, reduced transaction costs and so opened up space for new and expanded economic activities. This growing middle-class embodies what Marx reviled as "bourgeois cosmopolitanism”, which is exactly what SSA needs. Breaking away from cultures rooted in state-dominated colonial legacies, the "new bourgeoisie” value critical thinking, teamwork, and pragmatic "problem-solving” approaches.

Network organizations have played a highly useful role in capturing and disseminating relevant knowledge (both between Africa and the rest of the world and within Africa). The African Economic Research Consortium (AERC) for example is a highly successful network institution established 20 years ago, whose mission is to strengthen local capacity for conducting independent, rigorous inquiry into problems pertinent to the management of economies in SSA. The success of this program is also demonstrated by the increased adoption of the networking concept in other disciplines as a cost-effective approach to attaining a critical mass of professional activity in the region and applying peer review for professional excellence. A spin-off of sub-networks, often in collaboration with professionals outside the region, has further widened research opportunities and firmed up interest in African research. AERC’s web site lists 1,160 alumni, who, together, have contributed significantly to the region’s macroeconomic improvements noted earlier .


The Global Business School Network

The 2005 Report of the Commission for Africa, which was chaired by Tony Blair and made recommendations to the G8 meeting in Gleneagles (Scotland), mentions the word management 129 times, most often in the context of the need to strengthen management. The report lays great emphasis on capacity-building, notably in order to revitalize higher education and "revive” health services in Africa, yet nowhere does the report mention management schools, let alone does it recommend strengthening local business schools.

Two economists, Nicholas Bloom and John Van Reenen have developed an innovative double-blind interview methodology to measure management practices, providing large-scale survey evidence on the quality of management practices from manufacturing firms around the world. This research (http://www.cepr.org/pubs/new-dps/dplist.asp?dpno=5581) finds a strong cross-firm correlation between the quality of management practices and measures of firm performance like profitability, productivity, growth and survival. More recently, preliminary evidence from a randomized-controlled trial of broad-based management improvement programs in Indian textiles and garments manufacturing firms by suggests that external assistance can help firms dramatically improve their management practices (http://www.stanford.edu/~nbloom/NSF_India.pdf) In turn, the distribution of a country’s firms (and non-profit organizations, as well as government agencies) is a major determinant of that country’s overall competitiveness and standard of living. The following Table illustrates hypothetical distributions. Bloom and Van Reenen have calculated actual values.

Quality of Management: Hypothetical Distribution Patterns


Very Poor

Poor

Good

Outstanding

Hong Kong

0

10

30

60

USA

10

30

30

30

France

20

30

30

20

Developing Country

30

40

20

10

 

Within a year this program should provide direct causal evidence on the impact of management practices on firm performance a developing country. Higher education imparting practical business knowledge is essential to successful entrepreneurship, one of the few proven paths out of poverty. Based on 3,500 observations in 14 SSA countries, Vijaya Ramachandran, et al. find that "University education appears to be correlated with a larger size at start-up and a higher rate of growth for black-owned businesses”.

The link between improved management and better outcomes is not confined to business. So, for example opinions were elicited from 82 developing country representatives of the public and private health sectors, interviewed at the 2008 World Health Assembly by the Duke Global Health Institute as part of a landscaping project for the Rockefeller Foundation. The majority of respondents felt that health systems financing, policy, and management experts are "extremely needed” in developing countries, and that the local job markets for such HS professionals was strong. Additional research from Merson et al. includes in-depth interviews with 339 informants from six LMI countries: Kenya, Mexico, South Africa, Uganda, Vietnam, and Zambia. Interviewees worked for the government (40%), non-governmental organizations (18%), academia (17%), private for-profit health sector (16%), private not-for profit health sector (6%), and elsewhere. Informants agreed with those at the WHA, with the majority characterizing an "extreme need” for HS expertise in their countries’ public and private health sectors. The HS competencies felt to be in highest demand included: health financing (resource allocation, cost-effectiveness analysis, and resource development); health policy (analyzing policy issues, developing national health policy guidelines, and monitoring the implementation of health laws and regulations); and health management (strategic planning, leadership/governance, and human resources management). Although health care in developing countries is a multibillion-dollar endeavor, "the people charged with leading and managing this work have little formal preparation to succeed. Until this truth is recognized, the billions of dollars being pledged by donors – plus the huge investments that countries make in health – will not achieve the hoped-for results”.

Similarly, weak management skills are undermining potential outcomes for philanthropic organizations and nongovernmental organizations engaged in global health , in agri-business and other areas critical to achieving social and economic progress in SSA.

Besides general neglect of long-term capacity building noted earlier, there are several reasons for neglect by governments and aid providers of capacity-building for management education. The United Nations’ Millennium Development Goals, which govern much of development cooperation, do not include higher education. Second, business schools are being perceived by many as catering to the elites and not the poor, when these schools "teach how to fish”, enhance national competitiveness – which is especially critical during the current economic downturn – and, as noted, help generate employment. Third, except in South Africa, SSA’s business schools are young – most did not exist 15 years ago – and many are private. They are therefore unlikely to be recognized players in the design of national aid strategies.

This is the gap which the Global Business School Network is well-equipped to help narrow.

 

Guy Pfeffermann is the CEO and founder of the Global Business School Network.

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