Africa, natural resources, and poverty

A question from Yahoo! Answers:

With so many natural resources why is Africa still a poor nation, shouldn’t it be one of the richest ?

For starters, Africa is not a nation; there are more than 50 nations in Africa.

As to natural resources, they typically don’t make you rich, unless you have vast amounts of them per capita (as in, say, Dubai or Norway). What does make a country rich is a steady development of large-scale labor-intensive export-oriented enterprise. But large-scale labor-intensive export-oriented enterprise needs a decent institutional environment: relatively free international trade, relatively corruption-free government, relatively well-developed court system that can not only pass decisions quickly and fairly, but also enforce them. African countries typically lack all of that… The few that tend to do things right (Botswana is one bright spot) succeed well beyond average.

Another persistent problem in Africa is pathogens. Africa has the highest prevalence of malaria and tuberculosis in the world. Economy and health create a sort of chicken and egg problem; you can’t build a decent economy if your population is too sick, but you can’t improve your population’s health unless you have a decent economy…

You might also check out this paper:

Easterly, W., and R. Levine, “Africa’s Growth Tragedy: Policies and Ethnic Divisions,” Quarterly Journal of Economics, 112, No.4, November 1997, 1203-1250

Easterly and Levine conducted a comparative statistical analysis of economies in Africa and South-East Asia and found that about 70% of differences in their growth rates are attributable to four factors: budget deficit, black market premium for hard currency, real interest rates, and the average number of years of schooling. Needless to say, oppressive governments tend to run budget deficits, play exchange control games, repress the financial sector (so that real interest rates are very low or even negative), and underspend on education…

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