The Prospects for Sustained Growth in Africa: Benchmarking the Constraints

IMF Working Papers, March 1, 2007

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A dozen countries had weak institutions in 1960 and yet sustained high rates of growth subsequently; these countries are used to create benchmarks to evaluate potential constraints on sustained growth for sub-Saharan Africa.
What are usually regarded as first-order problems—broad institutions, macroeconomic stability, trade openness, education, and inequality—may not now be binding constraints in Africa.
The extent of ill-health, internal conflict, and societal fractionalization do stand out as problems in contemporary Africa.
A key question is the extent to which Africa can rely on manufactured exports as a mode of "escape from underdevelopment," a strategy successfully deployed by almost all the benchmark countries.
The benchmarking comparison raises two specific concerns for a development strategy based on expanding exports of manufactures:
- Micro-level institutions that affect the costs of exporting.
- The level of the real exchange rate—especially the need to avoid overvaluation.

Reassess conventional priorities: policies focused solely on improving broad institutions, macro stability, trade openness, education, and inequality may not address the most binding constraints today.
Health and conflict mitigation: prioritize interventions to reduce ill-health and internal conflict and to manage societal fractionalization, given their prominence as contemporary problems.
Export-led manufacturing strategy:
- Address micro-level institutional barriers that raise the costs of exporting (regulation, customs, logistics, firm-level frictions).
- Manage real exchange rate policy carefully to avoid overvaluation that would undermine manufactured exports.

Authored by Arvind Subramanian, Jonathan David Ostry, Simon Johnson.