The authors would like to thank Christoph Lakner for excellent research assistance for this paper and the editorial board for helpful comments.
1In recent years there has been increasing scepticism as to the value of running cross-section regressions for all the countries in the world to ask what explains differences in their growth rates. Too much differs, it is argued, for such macro comparisons to be of interest. In contrast stands an older tradition of seeking to compare countries as alike as possible in some dimensions but very different in others. Two countries which it seems particularly useful to compare are Ghana and Côte d’Ivoire. Located next to each other on the West African coast with certain similar economic structures at the time of independence, they nevertheless have pursued radically different economic policies. What can we learn from comparing the outcome of such policies? While not new (see Foster and Zolberg 1971 and Eshag and Richards 1967), that question is the focus of this paper. We also seek to put the answer to that question into a wider African context as these countries celebrate 50 years of independence. In many ways the different polices pursed by Ghana and Côte d’Ivoire reflect continuing differences of view as to what policies will work to address the “African” problem. The “African” problem is simple: over the past 50 years the gap between Africa and the rest of the developing world has steadily widened (Collier 2007). Why and what can be done to reverse this process is a central issue in development policy.
- 1 McGowan (2003) identifies 11 plots, six failed coups and five successful coups for Ghana over the (...)
2As is well known, there was a famous wager between Kwame Nkrumah and Félix Houphouët-Boigny, the first Prime Minister of Ghana and President of Côte d'Ivoire respectively, as to which country would succeed in the longer term. At the time of his death in 1972 it looked as though Nkrumah was clearly losing. By the time of Houphouët-Boigny’s death in 1993 that was no longer the case. From 1960 to 1980 Côte d’Ivoire enjoyed more or less uninterrupted growth such that by 1980 real gross domestic product (GDP) per person was twice its 1960s level. In contrast, Ghana’s GDP experienced a substantial fall from the 1970s to 1983, at which point the country was bankrupt, its currency worthless, its economy in ruins and its third attempt at democratic government had ended with a fourth military coup in 15 years. However, the period since the mid-1980s has seen a remarkable reversal of fortunes. From 1983 Ghana has experienced sustained recovery, while Côte d’Ivoire has seen large falls in income, its first coup in 1999 and a decline into civil war and ethnic unrest.1 From being among the least successful Ghana has gone to being among the most successful of African countries, changing places with Côte d’Ivoire which has seen its economy transformed from one experiencing rapid growth to stagnation in a country ravaged by a bitter civil war. What can account for this extraordinary reversal of fortunes?
3This essay will be structured around an answer to that question. In the next chapter we present in stylised form the recent economic history of the two countries. We then set out in chapters 3 and 4 how trade and tax policies are key to understanding the nature of the growth processes in both countries. In chapter 5 we consider an issue regrettably central to recent African economic history, i.e. the causes and consequences of coups and civil war. We stress the diversity of political outcomes across the countries. In chapter 6 we focus on what we term a common failure, namely the fact that in both countries over the 50-year period since independence policy has failed to transform either country from one characterised by small-scale, low-productivity enterprises to one able to sustain the incomes to which all Africans aspire. A final chapter concludes.
4While similar in their natural endowments and location, Ghana and Côte d’Ivoire have different political and institutional backgrounds. Some of these differences relate to questions of political culture and some to the economic institutions which provide the framework in which decisions can be made. There has been an extensive discussion of the respective roles of geography, disease, institutions and policies in determining outcomes across countries. For instance, Easterly and Levine (2003) argue that it is institutions, not policies, that matter.
5One of the problems faced by any cross-country analysis is that Africa is the continent where all of these aspects have been thought detrimental to countries’ growth prospects. As the geographical aspects of Ghana and Côte d’Ivoire differ in only relatively small ways, we can begin by eliminating them as the sources of the enormous differences in the patterns of growth which we will document below. That leaves us with institutions and policies. The two institutions on which we will focus are aspects of both political and economic structure. The political regimes in the two countries have followed very different trajectories. Ghana moved from an open multi-party State in the 1950s to a one-party State under Nkrumah and then, after periods of civilian rule interrupted by military dictatorships, in the 1990s emerged with a functioning multi-party democratic structure once again. In the case of Côte d’Ivoire the passage was from a long period of a one-party State built around the leadership of Félix Houphouët-Boigny to a descent into conflict and civil war. The most important dimension of economic structure which distinguishes the two countries is that Ghana has an autonomous central bank and Côte d’Ivoire, being part of the Francophone Communauté financière africaine (CFA) regional monetary union, does not. We will consider how these different dimensions of political and economic structure are linked to the outcomes for the economy once we have outlined the very different patterns of growth.
6Figure 1 shows the evolution of GDP per person for the two countries. For both countries we show two series using different definitions of GDP. The first is a constant price series from the World Bank World Development Indicators, which measures GDP in units comparable over time within each country. While the numbers are expressed in constant price (2000) USD, these are equivalent to using constant price local currency units. The second series uses the Chain indexed series from the Penn World Tables version 6.1, which seeks to measure GDP per capita at constant international prices across countries. It is problematic using the latter to measure changes over time but we report both data series for as long a period as possible in figure 1. The data from the Penn World Tables are intended to ensure that the GDP figures are comparable across countries by the use of what are termed Purchasing Power Parity (PPP) prices. It will be noted that, particularly in the case of Ghana, the two series give a very different profile of the levels of GDP over the period and thus, by implication, of the growth rate. The reason for this is probably the distortions arising from using PPP prices over a period in the 1970s when Ghana's currency was grossly overvalued. If we confine the comparison across the two countries to the 1960s and then the final period for which we have the comparable data, 2000, we see that in PPP terms Côte d’Ivoire is the richer country with an income in 2000 of some USD 2,000 as compared with about USD 1,400 for Ghana. This gap is slightly smaller than the gap in the 1960s. These differences need to be seen in the context of the dramatic changes in the world distribution of incomes which occurred over the period from 1980 to 2000, as shown in figure 2. In 1980 Ghana was below the Sub-Saharan average income level and Côte d’Ivoire substantially above it; by 2000 both were close to the average.
7While over these two decades Sub-Saharan Africa scarcely grew, China’s income increased significantly and South Asia went from being poorer than Africa to being much richer. Clearly these are regional averages which hide a lot of diversity but the broad story is a very familiar one: the failure of African economies to be part of the period of unprecedented growth after 1980 is one that underlies the long-run failure of both Ghana and Côte d’Ivoire to achieve sustained changes in the living standards for their people. While not unrepresentative of Africa, the failure of both countries to participate in global growth is the central fact that needs explanation in their economic history over this period.
Figure 1: GDP per capita
Source: Penn World Tables version 6.1. Available at: http://pwt.econ.upenn.edu/php_site/pwt_index.php.
Figure 2: GDP per capita by region
Source: Penn World Tables version 6.1.
Notes: Sub-Saharan Africa excludes South Africa. Incomes are weighted by population and expressed in 1996 PPP USD.
8So far we have focused on the Penn internationally comparable data. If we focus on the constant price series, which is a better measure of changes in incomes within the countries, we see that for Ghana the period from 1970 to 1983 marked a very large fall in incomes, i.e. from peak to trough real incomes approximately halved. The same was true for Côte d’Ivoire from 1980 to 1995. The crisis in Côte d’Ivoire is often attributed to the global recession that began at that time. However, over this period Ghana’s economy was growing strongly, so this cannot be the whole explanation.
9What can account for these large, indeed dramatic, changes in GDP per person? The standard approach that economists use to answer questions of this form is to employ the Solow growth model. This model has the rather counter-intuitive result that investment does not affect the long-run growth of the economy; it determines the long-run level of income. The long-run growth rate depends on the rate of technical progress, a term which economists give to their ignorance regarding the factors that do determine growth. The model is a single sector model and thus makes no distinction between the agricultural and industrial sectors. As changing the composition of aggregate output in a way that a greater share accrues to the manufacturing sector has been a central objective of government policy in both countries, we need to go beyond the simple Solow framework in order to understand the factors that underlie the overall pattern of growth. However, before we do so we will explore how well the simple Solow framework can explain the patterns in the data.
10In figure 3 we show the log of the levels of GDP in constant price (2000) USD and the log of the domestic savings rates. It is important not to expect the level of GDP and the level of the savings rate to be closely correlated in the short term. The Solow model seeks to predict the long-term relationship between level of income and the savings rate allowing for underlying technical progress. In the case of both countries the gross savings rate has followed a downward trend over the period from 1960; until the mid-1980s the trend in GDP was clearly down in Ghana, and in Côte d’Ivoire it has been down since 1980. So a model which predicts that in the long run lower savings rates will cause lower levels of income is broadly consistent with what we observe. However, there are striking mismatches between the savings rates and growth which require investigation. In Ghana the rapid growth in the period since 1983 is not due to a rise in the savings rate, which has been flat over the period. Equally the rapid growth of Côte d’Ivoire over the period from 1960 to 1980 is not due to a rise in the savings rate.
Figure 3: GDP and savings rates
Source: Penn World Tables version 6.1.
Figure 4: GDP and exports
Source: Penn World Tables version 6.1.
11While GDP and investment appear correlated, albeit rather weakly, how does this advance our understanding of the underlying growth process in these economies? Answering that question requires us to stand back from the Solow framework and ask a more fundamental question. What determines the rate of investment in the economy? Even if we accept the Solow framework, it cannot explain what drives investment and it certainly is uninformative as to the long-run determinants of growth which are all captured by the technical progress term. There is, however, much evidence to suggest that investment rates in these economies are related to trade.
12In figure 4 we show the levels of GDP (in constant prices) with constant price per capita export series derived from the World Development Indicators. In the case of Ghana the correspondence of GDP and exports is striking. For Côte d’Ivoire there appears to have been a large increase in exports in the mid-1990s while incomes fell. The CFA franc was devalued in January 1994 and the consequences of this in the context of the policy choices facing the government at that time are discussed in chapter 5.
13We observe a close correlation between export and income in these economies, far closer than what we observe between savings rates and incomes. This is not only true of the period from 1960. Central to the success of African economies from the beginning of the 20th century has been the growth of exports and trade. The record of transformation of the economies of British West Africa is documented in McPhee (1971). Its origins lie in the adoption by West African farmers of new crops and the reduction in transport costs made possible by investment in railways and roads such that by the 1930s Ghana’s exports had risen from less than USD 50 per capita to over USD 150 at 1995 US prices (Teal 2002). The exports that came to characterise West Africa, and indeed Africa more generally, were primary products which included agricultural crops, i.e. cocoa, coffee, palm oil and cotton, and natural resources of which timber was important for both countries and gold for Ghana. It is frequently argued that it is the nature of African exports which accounts for the nature of their problems. A variable which increases the probability of a country entering a civil war in the Collier, Hoeffler and Rohner (2009) analysis is the proportion of commodity exports in GDP. This is a relatively new view of the problem posed by African export structure. An older view sees the problems related to the deteriorating terms of trade faced by such products and furthermore that they lack the growth potential of manufacturing exports. In the next chapter we will consider this older view; in chapter 5 we will turn to the sources of conflict in these countries.
14So how have the production of export and food crops fared over this period? In the case of cocoa we can carry out a direct comparison across the two countries as both have been important world producers of cocoa over the period since the 1960s. The total export patterns shown in figure 4 are dominated by a relatively narrow range of agricultural and other primary products. In the case of Ghana cocoa is by far the most important of its agricultural exports and gold and timber are other major sources of export revenues. In the case of Côte d’Ivoire the key export commodities have been cocoa, coffee, cotton and timber. Neither country has been able to establish a substantial presence in the export market for manufactures. In the case of Ghana manufactured exports are negligible, less than USD 1 per capita over most of this period.
15Figure 5 compares outputs for export and food crops for both countries. Figures 6 and 7 then give the prices for the major export crops, making a distinction between the world price, the price that the farmers would have received without direct or indirect domestic taxation and the price that they actually received.
Figure 5: Exports and food crops volumes
Figure 6: Cocoa prices
Figure 7: Coffee and cotton prices
Source for figures 5-7: Anderson and Valenzuela (2008). The dataset incorporates the output data and price data which can be found at: http://go.worldbank.org/U32NJLFN10.
16The data in figure 5 show output in per capita terms. While this is not a measure of productivity, it does enable us to see how fast output is growing relative to population. There are striking differences across the two countries. In Ghana even the recovery in cocoa production, after its low point in the mid-1980s, had not returned production to its per capita level of 1960 by 2005; in contrast, food crop output per capita was substantially higher. In the case of Côte d’Ivoire food crop production was constant on a per capita basis and export composition shifted from coffee to cocoa and, more importantly, cotton. The pattern of export growth and decline across export crops shown for Côte d’Ivoire does not mirror the picture of GDP nearly as closely as that for cocoa and Ghana’s growth. There is a reason for this and it is to do with how the crops are taxed.
17The work of Anderson and Valenzuela (2008) has enabled us to compare international prices with the prices received by producers for a very wide range of primary commodities. As is well known, the pattern of agricultural protection across the world has been one in which the poor countries of Africa taxed their primary producers (see Bauer 1954 and Bates 1981), while the rich economies of Europe and the United States provide theirs with large subsidies (OECD 1987). Figures 6 and 7 allow us to document just how large those taxes were and to understand why the collapse in world prices in the 1980s led to a fall in income for Côte d’Ivoire but not for Ghana.
18In the figures the border price is intended to describe the world price for the commodity. Even with no taxes, the price to the producer would be below this as there are transport and other costs. The price that the farmer would receive in the absence of taxes is described in the figures as the undistorted farmgate producer price. The difference between this price and the price received by the farmer measures the extent of the tax on the farmer. It is clear from figure 6 that these taxes were substantial for both countries. However, the method of the taxation differed and this had important implications for how output growth responded to changes in international prices.
19In the case of Ghana taxation operated by means of a marketing board which set the product price in the domestic currency of Ghanaian cedis. As after the 1981 coup the exchange rate became increasingly overvalued, with high domestic inflation but no change in the official exchange rate, the result was a sustained fall in the real producer price to Ghanaian cocoa farmers over a period when the world price was rising rapidly (see figure 6). In contrast, the tax regime in Côte d’Ivoire, which also operated through a marketing board (called Caisse de stabilisation et de soutien des prix des productions agricoles), followed an exchange rate regime where a divorce between official and black market rates was not possible, so that producer prices rose with the world price (see Teal 1986 for an account as to how the Ghanaian monetary regime effected a much higher tax rate of cocoa producers than that in Côte d’Ivoire). However, once world prices fell in the period after 1980 the monetary regime in Côte d’Ivoire, combined with a fixed exchange rate, implied falls in producer prices. Again in contrast, producer prices were able to increase in Ghana, while world prices were falling, as the reforms to the exchange rate regime, effectively devaluing to remove the excess of the black market rate over the official rate, meant a reduced rate of taxation on the farmers.
20The rationale for both the Cocoa Marketing Board in Ghana and the Caisse de stabilisation in Côte d’Ivoire was to stabilise producer prices. In his study of the setting up of marketing boards in British West Africa Bauer (1954) argued that these institutions would act as taxation agents for the government. This they clearly did for a sustained period of time in Ghana. However, the overvaluation of the currency in the 1980s created a different form of taxation in which the profits from rising real world prices were captured by those who owned the scarce import licences. These licences enabled their owners to exploit the difference between the official and the black market exchange rates which exceeded a factor of three at its peak. These licences were controlled by the military regime that ran the country. The violence of the first Rawlings coup, after which several of the leaders were executed, reflected the public outrage at the venality and corruption that had become the hallmark of the military regime. While it is clear that Bauer was correct in perceiving that these institutions would act to tax farmers, it needs to be noted that in the case of Côte d’Ivoire they did act to stabilise prices and the fall in producer prices was much less significant than that in world prices that occurred after 1980. It is this degree of stabilisation that helps explain why, with such rapid falls in world prices, output growth slackened but output did not fall.
21Both Ghana and Côte d’Ivoire have experienced coups and since 2002 Côte d’Ivoire has been mired in civil war. Fosu (2001) argues that political instability has substantial costs and the experience of Côte d’Ivoire after the coup of 1999 appears consistent with that general argument as does the economic history of Ghana over the period from 1966 to 1983. There are, however, crucial differences. Ghana experienced a series of coups following the first which overthrew Nkrumah in 1966. However, these coups did not lead to civil war. In fact the second Rawlings coup in 1981 was a prelude to a period of sustained growth in income. What can explain these different trajectories from coups to growth or to civil war?
22The short answer to that question appears to be that policy choices are the key to understanding these different outcomes. The Ghanaian coup of 1971 led to policies that intensified the taxation of farmers and the size of the rent available to the rulers, who over this period were the military. Thus, the coups that occurred at the end of the 1970s, both led by Rawlings, had a choice of either relaxing that taxation or seeing the economy collapse further. It was the policy choices made by the Rawlings government which led to a gradual exit from the morass into which earlier policies had pushed the economy (Rimmer 1992 provides a detailed account). By pursuing polices that led to growth, with the relaxation of the tax rate on the agricultural sector the key policy that enabled growth, both public and private sector incomes could grow.
23The policy choices available to the government of Côte d’Ivoire in the 1980s were very different. Faced with declining real prices for exports, its problem was that tax revenues were falling and this implied falls in the real incomes available to the public sector. Policy discussion at the time focused on the problems posed by the fixed exchange rate implied by membership of the Francophone West African monetary union and in fact this rate was devalued immediately after Houphouët-Boigny’s death, i.e. in January 1994. We noted above that there was a rise in exports over this period and a response to the devaluation is the most likely explanation for this reversal of the previous decline. However, to effect a rise in producer prices that would have provided a basis for rapid growth required a contraction of the tax base and, by implication, the incomes to the public sector. It was the conflict between incentives to export and the interests of the public sector (i.e. their own pockets) which was the fundamental dilemma facing policy-makers.
24It seems clear from the accounts given of Côte d’Ivoire’s descent into civil war (a recent one is Collier 2009, chapter 7) that the ability and willingness of the political leaders to exploit ethnic hostility was an important factor in the events that led to the conflict. However, an explanation in terms of such ethnic factors seems incomplete. Ethnic hostility and suspicion are characteristic of nearly all African societies. To explain what we observe, we need to understand when, and why, political leaders in some circumstances exploit this and in others either choose not to or cannot.
- 2 “The People's National Party government of Dr Hilla Limann inherited power through the ballot box (...)
25The effects of the coups in Ghana in 1981 and in Côte d’Ivoire in 1999 were very different as the coups were followed by very different policies. In Ghana the 1981 coup can be seen as a continuation of that of 1979 (the period between these two events is described in Hutchful 1997). The coup of 1979 was against an existing military regime, as noted by McGowan (2003), and more in the nature of a mutiny than the kind of coup where the military replace civilian rule as was the case in that of Côte d’Ivoire.2 Does this difference matter? It may. In Ghana the Rawlings regime was opposed to the military and sought legitimacy by distancing itself from policies that were perceived to have failed. The parallel experience in Ghana to the 1999 Côte d’Ivoire coup was that against Nkrumah whose policies also were, at least at the time, perceived to have failed. While what followed was not a descent into civil war, it was a long period of economic failure.
- 3 Collier, Hoeffler and Rohner (2009) argue that the coup in Côte d’Ivoire was made possible by a ch (...)
26The failure of the leadership in Côte d’Ivoire to provide a mechanism by which the economy could grow clearly made conflict likely once political leaders willing, and able, to exploit underlying ethnic tensions came to the fore. There were also differences in the opportunities available to the military regime in Ghana in the 1970s and that in Côte d’Ivoire at the end of the 1990s: one benefited from a commodity world price boom, the other suffered from a price collapse.3 Whatever the underlying rationales or incentives of the military, the outcome for Côte d’Ivoire has been catastrophic.
27As African countries celebrate 50 years of independence fundamental questions remain as to how the expectations of a better future expressed at the time of independence are to be met. In broad terms incomes in both Ghana and Côte d’Ivoire are no higher now than they were in the 1960s and the political failure in Côte d’Ivoire ensures that the position there is likely to deteriorate at least in the short term. In contrast, recent data from Ghana (GSO 2007) show that the poverty rate halved from 1991 to 2006: Ghana has met the most fundamental of the Millennium Development Goals ahead of time. While recognising the achievement, it is clear many Ghanaians are deeply dissatisfied with the scope of the achievements of their post-independence governments. The reason for this is clear. While Ghana has recovered from the disaster that overtook the economy in the period from the 1970s to 1983, the climb back has not resulted in the kind of rapid growth that characterised the East Asian newly industrialised countries of the 1970s or China since 1980. A transformation from an economy based on small-scale and low-productivity agriculture towards one based on higher-productivity enterprises continues to elude policy-makers. While the fate of the peoples of Côte d’Ivoire shows that far worse outcomes are possible, Ghanaians are conscious that far better ones are as well and expect their government to deliver them.
28What needs to be done? There are numerous policy prescriptions and diagnoses of the underlying problems that African governments face. Collier (2007) argues that the problem lies in a series of traps that Africa faces. These are conflict, natural resources and being land-locked with bad neighbours and, overseeing all these, the problems posed by bad governance. We wish to argue that these “traps” are connected through the policy choices made by African governments. Conflict and bad governance are not natural disasters; they are a set of choices made by governments and, in the case of conflict, their opponents. If they are traps, they are traps that African governments have set for themselves. So in seeking the source of the problem we need to understand why governments choose policies that so often lead to conflict and how this is related to being richly endowed with natural resources.
29The common failure across both Ghana and Côte d’Ivoire has been the pursuit of policies which led to sustained falls in income, which preceded several of the coups. The recovery in Ghana has not taken its income to within sight of what Côte d’Ivoire had achieved by 1980: by 2000 its income was merely half what Côte d’Ivoire’s had been in 1980. Was Côte d’Ivoire simply the victim of bad luck, the fall in world prices, or is there a deeper problem? Will Ghana’s recovery be able to exceed what Côte d’Ivoire had achieved by 1980?
30Bates (1981) and other political scientists have pointed out that the State in Africa, which is run by educated elites and located in urban areas, is funded either by taxes on the rural population or, if natural resources take the form of commodities, by their taxation. The problem faced by any government is how to raise the taxes to fund its own existence and, possibly, the supply of public goods. The problems posed by agricultural commodities and natural resources, like gold, timber or oil, are very different. The former require taxes, in the main, on small-holder farmers and these are both poor and uneducated. Unless productivity in agriculture rises, increased taxation is likely to result in falls in output and a switch to non-taxed commodities. This effect can be seen most dramatically in the history of Ghana’s cocoa production.
31However, it is also present in the failure of Côte d’Ivoire to sustain the growth rates of its agricultural export crops after 1980. Falls in the real producer price led to falls in output in Ghana and falls in rates of growth of output in Côte d’Ivoire. This need not be the case. If productivity is rising, then it is possible to sustain output with lower prices. The underlying problem is not simply the level of taxation; it is the failure to ensure rises in agricultural productivity. The problems posed by agricultural productivity may seem a long way from coups and civil wars but, via the problems of funding the public sector, they are actually closely linked.
32The failure to increase agricultural productivity in Africa has been widely discussed. Fulginiti, Perrin and Yu (2004) provide an estimate for total factor productivity (TFP) growth (which is the rate of growth of output per unit of input) over the period 1962-99 for Ghana of 0.34% per annum and for Côte d’Ivoire of 0.57% per annum (see their table 4). More recent work by Eberhardt and Teal (2009) suggests that Ghana may have a substantially lower rate than this at a fall in TFP of nearly 1% per annum (see table 1).
33If table 1 is correct in showing a sustained fall in TFP for Ghana, then the limited nature of the successes since 1983 is apparent. In a context where the savings rate is not rising (see figure 3), rises in TFP become the primary source of growth. If these data are correct, they suggest that the recovery in exports shown since 1983 for Ghana (see figure 4) is not the result of any technical transformation in production but of the use of more labour and land in the context of unchanging technology, a picture which certainly emerges from survey work on Ghana’s cocoa sector (Teal, Zeitlin, and Maamah 2006). In summary, continuing high agricultural taxation has been associated with a failure to advance a technological revolution in agriculture.
Table 1: Median annual total factor productivity growth estimates for agriculture, 1962-2002
- 4 The problems posed by managing natural resources came to the fore in recent decades with the four- (...)
34In many African countries other sources of taxation than that of small-holder agriculture are available. These are natural resources, the most important for Ghana being gold, and for both countries timber exports have played a significant role. Neither country has had oil although substantial discoveries have recently been made which will come on stream for Ghana in the next few years. It is a natural resource like oil which has been seen as a central example of the notion that Africa faces a natural resources “trap”.4 The notion that valuable assets can be a curse might seem, at first, a strange one. However, all the analysis of this issue, whether it focuses on their economic or political consequences, has in common that, if mismanaged, the assets can lead to falls in income not increases. Further, such assets lead to substantial redistribution of incomes within the economies; in the case of commodities like oil they greatly boost government revenues. Nigeria is probably the most conspicuous example in Africa of a country which saw no increase in income from its oil discoveries and whose poor quality of governance ensures it was ranked 121 out of 180 in the Transparency International Index for 2008.
35In answering why these natural resources are a trap we need to ask why governments use their increased revenues in ways that do not increase incomes, particularly of the poor. It should be clear this is a very similar question to that already posed in the context of the taxation of small-holder agriculture: why has heavy taxation not provided that basis for technical transformation in these countries? The common factor across both forms of taxation is that, even with the taxation of natural resources where the threat to the tax base of the taxation is much lower, the revenues do not get used productively.
- 5 The argument is that the factor proportions that characterise Africa’s economies make inevitable a (...)
36On what do the revenues get used? The answer is the growth of the public sector, public services, particularly education, and subsidies to the manufacturing sector. At the core of these activities is the expansion of education and it is this expansion which has proved such a failure in its ability to generate growth (Pritchett 2001). Why is this? On the face of it this is puzzling. If skills are scarce in Africa as is implied by the analysis of Africa’s problem put forward by Adrian Wood in a series of papers (summarised in Wood 2002), then one would expect the returns to education to be high.5 There is now a lot of evidence for Africa and indeed other developing countries that this is not the case (see Teal 2001 for a detailed discussion of the data for Ghana). The answer must at present be speculative as to the source of failure. However, it seems likely the failure to export manufactures which would provide the jobs and the market that both Ghana and Côte d’Ivoire lack is part of the answer.
37We can now see the nature of the policy dilemma which is at the heart of African policy-making. The political incentive of the urban-based elites which run the government is to invest in urban-based activities, such as public services and manufacturing, which require a more educated labour force. Supplying the means to create that more educated labour force has not produced large increases in income for those with the education and higher-paying jobs are increasingly scarce. Can a mechanism more likely to produce social dissent be envisaged than one which promises fewer jobs to those who have struggled hard to do well at school and incomes still a fraction of those available to those in more fortunate countries whose policies have been wiser?
38In many ways the two countries on which this essay has focused, Ghana and Côte d’Ivoire, capture the diversity of experience in Africa since independence. The common picture painted of a continent subject to political instability, mired in poverty and stagnating is far from the truth. For more than two decades Côte d’Ivoire was one of the most successful countries in the developing world. Ghana’s recovery, both economic and political, since the collapse of the early 1980s has been remarkable. However, in the case of Côte d’Ivoire success was not maintained, and in the case of Ghana the economy remains far behind those equally poor at the time of independence but now with high incomes.
39Africans aspire to those incomes but, with the exception of a highly educated few, those aspirations have been systematically frustrated. In this essay we have argued that the policy failure that underlies this frustration has common elements across both countries. These are that heavy taxation of the agricultural sector in both countries has raised revenues which have not been used productively. The use of these revenues to sustain a large public sector and a heavy investment in education without an expansion in jobs for the newly educated is the underlying source of the deep dissatisfaction felt by Africans towards their governments. In the case of Côte d’Ivoire the outcome of these misguided policies has been civil war; extracting the country from that will not be easy. Addressing the underlying problems facing both these countries will be even more difficult.