Investment, Growth and Risk in Africa

Centre for the Study of African Economies, 10th Anniversary Conference

April 17-18, St. Antony's College, Oxford.

Until recently the research agenda on African economies was dominated by `Structural Adjustment'; it has now moved on. For years most African governments implemented policies which made the continent capital-hostile. As a result, not only did Africa fail to attract foreign investment, its own wealth fled abroad. By the early 1990s more than half of African wealth was held outside the continent. However, several African governments have now adopted policy environments which are compatible with growth and poverty reduction. Their growth rates have increased, but are still far short of their potential. The focus of this conference was to present current academic research on the causes of slow growth and low investment. The conference brought together 180 economists and political scientists from Africa, Europe and America, including representatives from the African Economic Research Consortium and the major institutions concerned with Africa. It was sponsored by ODA and the ESRC.

The conference had two plenary presentations followed by eight workshops run in two parallel sessions. The plenary presentations were by Professor Collier, Director of CSAE, and Professor Kanbur, until recently Chief Economist for Africa at the World Bank. Professor Collier surveyed microeconomic and macroeconomic work explaining African growth, and proposed four prime problems. African trade barriers had been too high; the environment was perceived as too risky for investment; there was insufficient `social capital'; and governments had been unresponsive to the need for efficient public services. Professor Kanbur focused upon the link between growth and distribution. While the consensus had become that growth delivered distributionally satisfactory outcomes, in Africa the political benefits of reform-induced growth might be too slow and too selective to make reform politically sustainable.

The eight workshop sessions focused on themes, half taking a micro-level perspective and half a macro-level perspective. The first theme was on the determinants of investment and this was pursued from both perspectives. Private investment has been much lower in Africa than in other continents and it is important to discover what will be most effective in its recovery. The micro-level session consisted of nine presentations in which detailed survey information on African enterprises was used to investigate investment behaviour. Case studies included Zimbabwe, Ghana, Kenya, Ethiopia, Cote d'Ivoire and Cameroon. In the macro-level session six presentations used aggregate data to explore the same questions. One common finding was the importance of risk as a deterrent to investment.

The second theme was risk, again viewed from both perspectives. Africa is rated as the riskiest region in the world by investment rating agencies and the environment in which most households and firms operate is also much riskier that elsewhere, partly because most African agriculture is semi-arid. It is important to understand what can be done to reduce and manage these risks. The micro-level session consisted of six studies using survey data to analyse peasant behaviour towards risk. Case studies included Ethiopia, Senegal, Mali and Zimbabwe. The macro-level session focused on political and policy risk. Seven presentations covered both theory and aggregate evidence. The third and related theme covered aspects of market institutions in the presence of risk. The micro-level session was on social capital and political institutions. Robert Bates presented quantitative time series on the national political institutions of representation, and Jean-Philippe Platteau showed the determinants of local-level participation in watershed management. Three studies measured the effect of social capital on investment. The macro-level session was on financial markets and uncertainty. Modern financial markets can manage risk very effectively, yet African markets have to date not developed this capacity and have not been attracting portfolio flows.

The final micro-level theme was human capital. Five papers investigated household decisions on investment in education, agricultural knowledge, health care and migration. The final macro-level session was on the aggregate evidence on African growth. Eight papers offered sometimes contrasting interpretations of the econometric evidence.

This was probably the largest academic conference yet to focus exclusively on African economies and their potential for growth. As such it was itself an example of the process of building social capital by helping to forge the networks which speed information exchange.

The Centre's doctoral students contributed both through presentations and through producing rapporteurs' commentaries on each of the workshop sessions. These are now available from the Centre. A selection of papers from the conference will be published in the Journal of African Economies (OUP).