5 Major Reasons Why Africa is Poor: #1. Weak Institutions

 Let me commence with a disclaimer. This article is not targeted at any government, party or ruling class. It is nonpartisan, neither is it condemning nor endorsing any particular party, group or affiliation. This looks at the overall factors and how they play a great role in bringing about the effects we see of widespread poverty in the continent of Africa.


One of the seemingly unjust realities that currently dog our continent is the fact that its citizens are very poor. And when I use the term “very”, I am not exaggerating. It is very true.

In a recent study (carried out by Global Finance Magazine - with data sourced from the IMF), we have the 20 poorest nations in the world. The two graphs tables below show this.

Gross domestic product (GDP) based on purchasing-power-parity (PPP) per capita. Values are expressed in current international dollars, to the nearest whole dollar, reflecting a single year's (2016) currency exchange rates and PPP adjustments.​

​Out of the 20 poorest countries in the world, 19 are located in Africa (95%)

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Click to enlarge

Click to enlarge

To correctly determine which countries, there are two standard methods of measuring the wealth of countries and how rich or poor its inhabitants are. The measure most often used is Gross Domestic Product (GDP), which represents the size of a country’s economy. A refinement of this is per-capita GDP, which is a measure of the average welfare and affluence, or poverty, of residents of a country. However, GDP and per-capita GDP are less useful when comparing economies across national boundaries – which one must do to determine the poorest countries in the world – because GDP is expressed in a country’s local currency.

The measure that most economists prefer is GDP at purchasing power parity. GDP (PPP) compares generalized differences in living standards on the whole between nations because PPP takes into account the relative cost of living and the inflation rates of countries, rather than using just exchange rates, which may distort the real differences in income. The figures above include data and forecasts for the wealth of countries and regions from 2009 to 2013. Source: the IMF (unless otherwise specified).

Another sobering stat is that for every $1 that is spent in aid toward a poor country, $25 is spent servicing debt repayment. Unfortunately poor countries spend 25 times more money paying back debts it cannot afford whilst basic services are limping to non-existent.

To best understand this, picture a household and use that illustration. In the developed world a typical household that is struggling financially would normally be paid a weekly cheque from their welfare system. These amounts paid help toward basic standing expenses such as food (in the form of food stamps), gas, electricity and water. However, these poor people will still own a car, have an iPhone, get the latest clothing and subscribe to cable or satellite TV! The car, phone and clothes are bought using available credit (through credit cards and store accounts) and maxed out. So when money comes in, it mostly goes to debt repayments.

If you have been following my lessons on Prosperity Insights, you will realize that these are liability based expenses. Furthermore, the debt repayment far exceeds the income earned. In short, the expenses are way beyond earning capacity.

Many African countries are similar. They have large service provision and massive expenditure (overheads – huge wage bills, defense, infrastructure development, pending social services etc.) and very small income earnings. And wherever incomes could be earned or are being earned, that income suffers from massive pilferage in the form of corruption at every level from the grassroots through to the highest institutions.

This article will be dealing with the major causative factors that are exacerbating the situation. If African countries could deal with these problems, most of our poverty would be significantly reduced.

1. Weak Institutions

Institutions are by their very existence one of the key pillars of good governance (more later). They play a pivotal role in ensuring continuity and stability in a given society.

Thus they can be described as an established method or way of performing an activity that is widely accepted throughout society. Institutions provide the rules, guidelines, and structure needed to carry out day-to-day economic activities, such as production, consumption, and exchange.

Institutions form the framework of an economic system. This framework establishes the “rules of the game” under which members of society operate. Institutions can be formal such as government laws, or informal, such as cultural practices. By their very nature, institutions create structural rigidity, which is extremely beneficial. However, this rigidity inhibits change and progress, which can be exceedingly harmful. In some cases, institutions are so intertwined with the fabric of society that only outsiders recognize their existence.

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Economic Institutions

Several institutions key to the study of economics can be considered economic institutions. These include market exchanges, the circulation of money, production techniques, private ownership of property, 40-hour work weeks, labor unions, and a host of others too numerous to list. Many other institutions can be thought of as political, social, or cultural.

The primary economic benefit of institutions is the creation of a stable framework under which production, consumption, and exchange activities can occur. Buyers and sellers, for example, voluntarily engage in market exchanges based on the institutional “rules of the game” established by government/laws. They can safely engage in exchange with some degree of certainty that everyone is playing by the same rules.

Formal and Informal

Institutions can be either formal or informal.

Formal: Formal institutions are those officially established in one way or another, often by governments. Laws are an excellent example of formal institutions. For instance, here in Zambia government has officially mandated that vehicles drive on the left side of the road, that kwacha is legal tender, and that the first and second Tuesday in July is celebrated as Heroes and Unity Days. Each of these institutions affects production, consumption, and exchange.

Perhaps the most noted formal institution established by government is government itself. In Zambia, the Zambian Constitution establishes the government republic (third republic) as a formal institution. The myriad of government agencies, from the Ministry of Defense to PACRA (Patents and Company Registration Agency) or Bank of Zambia, are all formal government institutions.

Other examples of formal institutions include business corporations (LAZ, ZICA, ZIM etc.), labor unions (ZNUT, MUZ etc.) and religious organizations (ZEC, ECZ and CCZ). Each provides “official” structure to society and the economy. Although not part of government, many non-government institutions are actually enabled in one way or another by government (through an act of parliament like LAZ). Governments, for example, establish the guidelines for what legally constitutes a corporation or a religion (at least for tax purposes).

Informal: Informal institutions are not officially established, but are practices commonly accepted throughout society. Many societies, for example, have informal institutions regarding courtship and marriage. In one society, it might be common for parents to arrange a marriage when children are young. In another society, the accepted practice might be for the groom-to-be to seek the blessings of the prospective father of the bride.

Informal institutions apply to all types of activity – social, cultural, political, and economic. It is, for example, common practice to pay food servers a gratuity (or tip) at many restaurants (fancy eating places). Those who fail to tip in the accepted manner commit a social blunder. However, tipping is not an accepted practice at other restaurants (take aways), and attempting to tip is also considered a social blunder.

Many formal institutions undoubtedly began life informally. Our earliest ancestors most likely agreed, informally, that murder was a bad idea long before it was legally, and formally, outlawed by religious institutions and ultimately governments. However, even if informal institutions do not carry the weight of law, they create a solid structure to society. For example, triskaidekaphobia (fear of the number 13) is an informal institution that has virtually eliminated the thirteenth floor from all high-rise skyscrapers.

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You can learn more about the precise meaning of institutions and the role they play by reading here and here.

The Challenging Factors

Having looked at the full definition of what institutions relate to in the context of African poverty, let us now see what cancers are eating up this vital pillar from the inside.

Corruption

It goes without any doubt that corruption is by far the most evil vice that is widespread in most African countries. It is the number one cancer destroying institutions from within and from without.  It is no wonder that studies have shown repeatedly that corruption and the wealth of a nation are inextricably linked in that rich countries conversely have the least amount of corruption whilst poor countries have the most.

Unfortunately corruption in African countries is at all levels, from the traffic officer and policeman in the community, the local council market chairperson, the civil servant in key ministries like lands, the revenue and customs officers at the tax office, procurement departments in both the public and private sector, school registrars – basically everywhere!

It is this widespread level of corruption that has inevitably eaten wealth like a cancer from within us. Anyone who points at politicians and leaders is inevitably pointing at themselves. Corruption isn’t just about the recipient, it’s about both the giver and receiver. Both are perpetuating the disease and exacerbating poverty in three critical ways.

Firstly, it causes the resources (especially money) that could be collected to help run these institutions correctly to be diverted into people’s pockets. This renders the institutions incapable and can no longer function effectively. This is very common especially when it comes to fees and penalties.

Secondly it erodes confidence in the said institution. If society perceives partiality and ineffective oversight by the said institutions, then support dwindles which in turn, nullifies their role and leaves anarchy in place (everyone does what they deem fit in their eyes).

Lastly the general public and service recipient suffers most, because the sector is no longer efficiently regulated or monitored. This in turn disenfranchises the populace and inevitably perpetuates poverty and its effects.

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Hemorrhaging of funding (ends in wrong hands)

Instead of money reaching the government for distribution to these critical institutions, it ends up in the hands of few individuals at the detriment of development. This hemorrhaging is evidenced by gross inequalities throughout society. Basic amenities and services for the masses remain very low to non-existent. 

Another sad fact is that all the money that is stolen, especially that which is in millions of dollars, is syphoned consistently and taken to off shore accounts and investments outside the country. This means that even after stealing that money, it does not even get used within that nation but is taken to the already rich countries to be stored in banks, purchase luxurious pent houses and vehicles and sustain excessive lifestyles which include education for their kids, first class education and lavish holidays.

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Lost revenue – weak imbalanced tax collection (small tax base, not broad)

Another major challenge is that because institutions are weak, the tax base is very small – usually targeted at the civil service, private corporate formal sector and organizations. With unemployment standing at between 50% – 95% of the population you find that they have a rather large untapped informal sector that would enlarge the government revenue base immensely. However that sector can never be efficiently taxed because… you guessed right – weak institutions. Most revenue would end up being lost to even more widespread corruption.

The Consequences

Subsequent failure to fund critical sectors of which these four are absolutely vital.

Transport

This sector is the lifeblood of commerce and industry. Without a good transport sector, moving of goods and services becomes very expensive. This in turn hampers development and growth in the economy. In fact, if transport and roads are not well developed, many areas would remain cut off and inaccessible, preventing development and growth and thus subsequently perpetuating poverty.

In Zambia, key institutions that govern this sector include but are not limited to mainly RDA (Road Development Agency) and RTSA (Road Transport and Safety Agency). Also in the construction industry NCC (National Council for Construction) plays a critical role in ensuring that right standards are maintained. The assurance of the maintenance of these institutions is directly proportional to their independence from the executive. This is true of rich countries.

In most African countries these sectors have much work to do in terms of developing and reaching truly independent status.

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Police

These are the first step in enforcing and upholding the rule of law. This institution is very critical to ensuring no anarchy prevails. A well-funded police service safeguards peace and harmony and guarantees justice for all. Where people choose to break the law, there is recourse to justice in a transparent and professional manner.

Unfortunately in most poor countries in Africa, the police services are very corrupt. This therefore means that those with money get favors and never suffer consequences for breaking the law. In countries where corruption is widespread, criminals walk scot free without any fear. This then sees injustice prevail, the poor unjustly suffering and gross unfair incarceration of the innocent, simply because they do not have the means nor the resources to pay arresting officers in order to “lose” files, or pay lawyers for proper legal representation where cases go to court.

The saddest part of this all is that when institutions like the police and judiciary are weak or riddled with corruption, innocent people get sentenced to long prison terms (besides the absolute disregard of habeas corpus – I know people that have been in detention for years simply because no one on the outside could just take their files to court and expedite the case) and in extreme cases have even been executed whilst guilty criminal murderers walk free.

This will always be the case until the day that this vital institution is properly funded. That can only happen when corruption and syphoning of money ceases at all levels.

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Education

There are two critical sources of wealth in any nation, the first source lies and is harnessed from the ground – its natural resources such as minerals, water and agricultural produce, all products coming from the ground (Prov 13:23). The second source is ideas that can be harnessed from the minds of its citizens. These ideas can only be harnessed if the minds of the citizens are empowered and sharpened by correct education.

Unfortunately in most poor countries, education simply does not get to the masses. Most citizens have to walk miles to attend a school, most times having an unusually large number of pupils to one teacher (between 60 – 120 pupils per teacher). This is further worsened by lack of educational tools and text books. Lastly prohibitive costs mean that the poorest of the poor never even access education – which is very unfortunate because this is their one guaranteed key out of poverty. That key is cruelly prohibited because this vital institution is not adequately funded.

In very poor countries the money simply never gets to this sector – period. For those poorly governed, education gets minimal funding. This means for most citizens their true potential shall never be harnessed, their ideas never developed, their potential never reached, their genius never utilized, their ingenuity never exploited, their skill never tapped, their talent never seen and worst of all, they never get a chance to be wealthy.

It is a fact that all rich countries have invested greatly in all their educational institutions, from nursery, primary, secondary to tertiary and specialist colleges/universities. This is further enhanced by a very advanced Research and Development funding pool (R&D).

In short, they fund ideas and work to develop them over years. It is through this strategy that quality of life and entrepreneurship blossoms as ideas are always being exploited. Furthermore, wealth increases when innovation (social, political, environmental and technological) is encouraged, fostered and rewarded.

Unfortunately for many poor African countries, the aforementioned does not happen and so the very few who manage to get the education end up heading for greener pastures abroad (the same rich countries) to work and even develop their ideas through R&D thus robbing the poor countries of the very scarce human resource to start with – further prolonging poverty.

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Health

Perhaps here is where the greatest tragedy lies. As the saying goes “a healthy nation is a wealthy nation”. If the citizenry cannot access basic medical care for easily treatable and preventable diseases, then we see more people die early and never get to fully realize their potential. With an average life expectancy of between 35 to 50 years, it means most of the population dies without truly reaching their full potential.

According to a presentation made by Peter A Singer on TED, there is a formula or recipe for keeping a country poor and herein I mention three of them that all relate to health and have dire consequences for the populace – which unfortunately is the case in most African countries.

1. High death rates for women and children

It goes without reason that if a large number of women and children keep dying at birth, the nation is robbed of future human resource. It is a fact that women play a central and pivotal role in many African countries and are the engine of commerce at the grassroots. Not only do they have to work long hours on domestic chores, they also have to fend for the welfare of their families. Bear in mind that most of them are widows or single parents with many children.

If these have their lives cut short, this has a net effect in how much wealth can be created and retained. The situation is also worsened by the fact that they die from preventable diseases and conditions. If health care was at basic optimum levels, many of these unfortunate souls would be alive today.

Another major challenge lies in the number of health care providers versus the population. The ratio is simply mindboggling. Like the teachers, the health care givers (doctors, nurses and auxiliary staff) are very few in comparison to the population.

2. Impede the cognitive development of children that survive

Firstly, there is a challenge with food and nutrition which then means the children that are born and live are stunted and underdeveloped. Many suffer from nutrition deficiency diseases such as marasmus, kwashiorkor and the like, coupled with irregular meals, lack of basic sanitary conditions and under five health care centers (too far or nonexistent).

When you compound this at national scale, the result is staggering. Children who somehow survive this do not get the education needed to get their young minds to begin developing (through learning via the education system) and thus end up illiterate. Illiteracy poses major challenges for the citizenry and impedes personal development and growth.

3. Leave mental illness untreated and stigmatized

This is perhaps another area that leaves much to be desired. As it stands, mental illness has been stigmatized, underfunded and ignored. Unfortunately this robs the nation of even more human resource. There are many forms of mental illness that can be treated and those that suffer from many forms can be treated and reintegrated into society to become major contributors.

Many forms of autism, bi-polar disorder, cerebral palsy, motor neuron degenerative disease (like what Professor Steven Hawking – the famous theoretical physicist – suffers from). If he were in a poor African country with his condition, he would have been discarded and left to his fate, thus robbing the world of one of the greatest minds of the 20th Century and his discourse on Black Holes and Time.

Stephen William Hawking CH, CBE, FRS, FRSA is an English theoretical physicist, cosmologist, author and Director of Research at the Centre for Theoretical Cosmology within the University of Cambridge. His scientific works include a collaboration with Roger Penrose on gravitational singularity theorems in the framework of general relativity, and the theoretical prediction that black holes emit radiation, often called Hawking radiation. Hawking was the first to set forth a theory of cosmology explained by a union of the general theory of relativity and quantum mechanics. He is a vigorous supporter of the many-worlds interpretation of quantum mechanics.

He is an Honorary Fellow of the Royal Society of Arts, a lifetime member of the Pontifical Academy of Sciences, and a recipient of the Presidential Medal of Freedom, the highest civilian award in the United States. Hawking was the Lucasian Professor of Mathematics at the University of Cambridge between 1979 and 2009 and has achieved commercial success with works of popular science in which he discusses his own theories and cosmology in general; his book A Brief History of Time appeared on the British Sunday Times best-seller list for a record-breaking 237 weeks.

Hawking suffers from a rare early-onset, slow-progressing form of amyotrophic lateral sclerosis (ALS), also known as motor neuron disease or Lou Gehrig's disease, that has gradually paralyzed him over the decades. He now communicates using a single cheek muscle attached to a speech-generating device. Hawking married twice and has three children.

The untapped potential within this area is massive, and if more money is directed toward this area of health care, the human resource we could tap into is unimaginable. Unfortunately these are marginalized and mistreated, isolated and ignored, to the great detriment of African countries and adds to the poverty levels.

The inability to adequately fund these sectors has dire consequences on the wealth creation capabilities of a nation. In spite of the repeated calls for these sectors to be funded, these calls fall on deaf ears. Why? The answer will be found in culture, religion and poor governance.

Read the next article in the series on Culture here.

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