"The Root Causes of Poverty in Africa: Unraveling the Complex Factors

Africa is considered the most impoverished continent globally, and its economic gap is widening as Asian economic hubs progress. The majority of people living on less than $1 a day are found in Africa, where the income disparity between many African nations and developed countries has reached a factor of 40 to 50. While analyzing an entire continent as a single economic entity may seem impractical, Africa comprises 54 countries, each with distinct economic systems, governance structures, challenges, and prospects. Although comparing the economies of all African countries simultaneously is akin to assuming that the USA and Ecuador share the same economic dynamics, poverty remains a pervasive issue across Africa. While there are exceptions like Seychelles, Mauritius, and Botswana, whose economic stability is often precarious due to questionable tax systems, even the continent's highest GDP per capita would only qualify as lower middle income in Europe or North America. This underscores the pressing question of why Africa grapples with poverty, prompting economists from MIT to investigate underlying common barriers to economic development in Africa that may not be present in other regions worldwide. Identifying and comprehending these barriers could inform economic policies and aid initiatives aimed at addressing the root causes of poverty rather than merely treating the symptoms. Therefore, what fundamental challenges did MIT researchers uncover in their quest to address this issue? How can these challenges be effectively tackled? And is there room for optimism amidst this otherwise discouraging predicament?

Problems in Africa:

Economic success tends to breed further economic success, while economic challenges unfortunately have a similar effect. Today, various countries in Africa are grappling with a familiar set of issues. Political instability, corruption, and capital destruction make it more difficult for industries to thrive on the continent, limiting access to valuable economic opportunities for the population and perpetuating poverty, which in turn fuels more political instability. In addition to these traditional problems, modern challenges have emerged. With the globalization of trade and labor, African industries struggle to compete internationally, and skilled African workers find it easier to seek better prospects in wealthier countries. These well-documented and understood issues are symptomatic of deeper underlying problems. The question remains: why does Africa persist in this vicious cycle, while countries in other continents have either not faced the same challenges or have successfully addressed them?

Starting with geography would be a solid beginning. Similar to a real-time strategy game, the presence of countries on a map significantly influences their early development. Land is considered one of the key factors of production, alongside labor and capital. It can be seen as the foundational factor because throughout history, good land has been able to sustain larger populations. This allowed societies to diversify and specialize beyond basic survival activities like hunting, gathering, or farming. While Africa is vast, the concept of land in an economic context also encompasses other geographical aspects such as soil fertility, access to water sources, and, in the later stages, access to resources and trade routes. Economists often point out the abundance of natural resources in Africa when analyzing the continent's poverty. The wealth of resources like metals, fuels, diamonds, and rare earth elements crucial for the global economy is staggering. The vast riches hidden beneath the continent's surface make the persistent poverty even more tragic. Despite the abundance of resources, the land has historically worked against the inhabitants, leaving them ill-prepared to capitalize on these valuable resources in the present day.

One of the initial factors to consider is the significant isolation experienced by much of the continent. Historically, the Sahara desert has acted as a formidable barrier, essentially functioning as a vast ocean that separated the southern regions from the societal progress occurring along trade routes linking Europe, the Middle East, and Asia. Presently, the nations in northern Africa bordering the Mediterranean are more interconnected with global affairs and tend to be more advanced compared to countries in the central and southern parts of the continent. Economists often view northern Africa and sub-Saharan Africa as distinct entities due to the economic impact of the Sahara desert. The southern region has faced enduring challenges stemming from its historical detachment from global trade, hindering the exchange of ideas and technological advancements that benefitted the north. This isolation also made sub-Saharan Africa susceptible to exploitation by more technologically advanced regions. Additionally, the continent's land is generally not fertile, posing obstacles to the development of agriculture. The transition to productive farming, a crucial milestone in human history, was easier in naturally fertile lands, which were scarce in Africa. Even seemingly fertile areas in the central part of the continent have poor soil quality prone to rapid erosion without meticulous management. The inhospitable environment of sub-Saharan Africa, characterized by tropical diseases, insects, and wildlife, further hindered structured development. The presence of abundant resources led early human groups to remain nomadic rather than invest in agriculture. The continent's diverse landscape has resulted in numerous ethnic groups speaking various languages and adhering to distinct cultural norms. The arbitrary borders drawn during colonial times continue to impede economic progress, limiting access to international trade due to inadequate transport infrastructure. Many countries lack ocean access, and existing trade routes are often underdeveloped or remnants of colonial exploitation. The complex network of borders isolates countries and constrains economic growth. Despite some coastal areas having potential for global trade, geographic barriers hinder the development of major ports. Africa, even before human existence, was not an ideal location for significant economic development.

These challenges also influence the other factors of production. Macroeconomists frequently talk about the way that land, labor and capital interact to influence an economy. In the case of Africa, it had land that was less than ideal for farming, trade and industry, which meant it had a smaller, more splintered population, labor, which meant that they were less concentrated in centers of commerce, which meant that instead of developing and sharing technologies and infrastructure, capital, they focused more on just surviving. But there was also another element, and that was entrepreneurship. Now when economists talk about entrepreneurship as a factor of production, they're not just talking about people who go out and start a business, they're more referring to people or even institutions that can coordinate the other factors of production, land, labor and capital, into actually doing something useful. It should be noted that a lot of economists often just bundle this together with labor, because labor also considers not just how many people are working in an economy, but what their skills are as well. A more skilled workforce should be able to produce more economic output. Given that entrepreneurship is arguably just another skill, explains why these two are often merged together. But the economic case study of Africa may be one of the clearest examples

of why this is important enough to be considered as its own separate element. Now most of this is based on the work of Darren Asimoglu and James A. Robinson from MIT in their publication simply titled Why is Africa Poor? We were lucky enough to speak directly with Professor Asimoglu, who on top of publishing this paper, also wrote the legendary book Why Nations Fail, all while being one of the most prolific academic researchers in the history of economics. Needless to say, it was good to get his insights on such a complex issue. Can you understand Ukraine today without its geography? No. Its entire history, especially recently, is because of the place that it is in. Next to Russia. So that's geography. And you cannot understand Saudi Arabia without its geography, meaning its endowments, oil. If Saudi Arabia didn't have oil, it would be a very different place today. So there are geographic factors that matter. But the question to which is categorical no, is, is geography the main factor that explains the large gaps in income per capita and in prosperity around the world? And the answer to that is no. Institutions are overwhelmingly more important. You know, you are absolutely right. Sub-Saharan Africa is really a jarring case of poverty, failure to develop economically, failure to build industry and prosperity. Again, even though these challenges exist, it's important to address the underlying cause of things like the slow adoption of technology. Acemoglu and Robinson in their research looked back to various groups around the continent and individual motivations for why they did or did not adopt certain technologies, even when they were made available to them. Even really simple technologies like a wheel weren't widely adopted. The cheap transportation that something this simple enables means that it becomes easier and easier for societies to develop outside of small village groups because resources can be traded between different areas, allowing people to specialize. If something like food, tools or building materials need to be transported by head portage where people just put heavy things directly on top of their head, then that's way less efficient than even a basic handcart. At that point, it just becomes easier for societal groups to be self-sufficient because it's so hard to do trade. Now, this wasn't unique to Africa. Indigenous Australians were also largely separated from the early exchange of technologies, and they too remained as mostly self-sufficient groups of hunters and gatherers until Western colonies were established there. If that's all there was to this story, then that would explain why Africa was historically behind the empires of the north, but it wouldn't explain why they remained behind. What Asimoglu and Robinson found interesting was that even after wheels became common knowledge on the continent, the studied groups still preferred to do things by hand, and there was no clear reason why, until they looked at the institutions ruling over these areas. By the time Western technology made it to Africa, regions such as the Congo were loosely run by kings that would rule by decree with little to no oversight. They would raise revenues through arbitrary taxes and take things by force where they saw fit. This pushed groups that wanted to avoid the rule of these unchecked leaders further away from the basic roads that existed in the region, so instead of developing a culture of trade and interdependence, the tyrannical ruling institutions encouraged exactly the opposite. Fractured, self-sufficient groups have carried through to the modern day where, even within the many borders of Africa, there are often dozens of different cultural groups within a country vying for political representation and power. In this kind of environment, it's easy for bad leaders to establish themselves in positions of power by appeasing to their group, and managing the country in such a way that it comes at the expense of everybody else, which means even a few hundred years later, it's risky for people to rely on the economy to provide them what they need. It might be much less efficient, but it's much safer for them to just look after themselves. It also wasn't worth putting too much effort into making even simple stuff like a handcart, when it could just be seized by some absolute monarch at their whim. Now of course, this did not happen in a vacuum, and it's impossible to look at the modern day economic struggles of Africa without exploring conquest and colonialism.

The challenges faced by Africa, including divided populations, harsh environments, and poor economic management, were exacerbated by the Atlantic slave trade and subsequent colonial empires. The economic dynamics of the slave trade were distressingly straightforward, exploiting the underlying vulnerabilities we have been examining. Colonial powers had established plantations in the Americas, but unlike colonies in the East Indies, the indigenous population was dwindling too rapidly to cultivate exotic spices. Consequently, Europeans sought a new labor force and turned to Africa for this purpose. Many African rulers, who were already utilizing slave labor, eagerly engaged in this abhorrent trade in return for European technologies, particularly firearms. Firearms, unlike other technologies, were not merely possessions but also tools for enforcing property rights, enabling powerful groups to further enhance their dominance and profit by capturing their rivals for export. The Europeans utilized this slave labor in their colonies to produce luxury goods for European markets, using the profits to acquire more firearms for trade with Africa in exchange for additional slaves. The decision not to establish colonies within Africa itself stemmed from the formidable resistance posed by African groups, who, after a long history of internal conflicts, proved to be formidable opponents on their home territory, characterized by tropical diseases, dangerous wildlife, and subpar soil quality. The Atlantic crossing was deemed a more feasible option, underscoring the challenges of settling in Africa. However, this exploitative system eventually gave way. The American colonies declared independence, and the rapid advancement of Western military capabilities during the industrial revolution rendered Africa an increasingly appealing target for colonization due to its abundant resources that became highly valuable in the industrial age.

This time period on the continent was truly horrific, Many of the governmental issues that persist on the continent today stem from the legacy of colonialism. Upon their departure from Africa, colonial powers took with them their administrative tools, governance structures, and economic systems. The lack of educational infrastructure in Africa at that time hindered the ability of many communities to revert to their traditional ways of life. This vacuum of power led to violent power struggles throughout the continent, resulting in leaders who lacked the necessary training to govern effectively. While some of these leaders may have had good intentions, the absence of proper governance knowledge often led to mismanagement. Unfortunately, corruption has also been a prevalent issue among many leaders in Africa.

At the time of gaining independence, some parts of Africa had established bureaucratic and court systems that had been set up by Europeans. However, these systems were primarily present in the main population and urban centers and had not deeply impacted society or gained full legitimacy. In reality, Europeans often dismantled existing indigenous institutions in favor of their own structures for the purpose of control, as seen in the British colonization of Nigeria. They also attempted to impose their ruling families in locations like Sierra Leone. When the Europeans departed, the remaining institutional frameworks were inadequate for fostering new economic endeavors but were susceptible to exploitation by authoritarian figures. Rather than serving as a means for economic prosperity, Africa's abundant natural resources have frequently been exploited by dictatorial leaders for personal gain, tarnishing the continent's reputation. The prevalence of political unrest and the unchecked power of authorities have resulted in Africa being perceived as a risky environment for investment, hindering funding for potential projects. While this negative perception is sometimes justified, recent events in Niger have showcased how conflicts can impede significant development initiatives, such as an oil pipeline project. Despite these challenges, there remains a glimmer of hope for improvement in Africa's situation.

There are signs of progress in addressing the longstanding challenges related to the establishment of effective institutions for economic development. Despite being a landlocked country with various natural barriers and facing issues commonly associated with Africa, Botswana has emerged as one of the fastest-growing nations in the last six decades since gaining independence. Unlike many African countries, Botswana managed its diamond resources effectively and invested in building strong institutions, including stable property rights and a functioning democracy. By prioritizing education, public infrastructure, and prudent management of its resources, Botswana has achieved a relatively high income level. While challenges remain and progress may take time, the recent increase in global interest rates may prompt international investors to reconsider Africa as a viable investment destination. Despite ongoing conflicts and uncertainties, history shows that economic transformations can happen, as seen in the development trajectories of regions like Asia and Western nations. Acemoglu and Robinson's research highlights the potential for Africa to follow a similar path of economic success through sustained efforts and breakthroughs in institutional development.