Africa’s resource paradox and market failure

I have blogged a few times on the resource curse that affects some developing countries but it seems that in Africa a lot of resources go unused when they are actually demanded in an economy. There seems to be a lack of planning for supply and demand and build an infrastructure linking the two. The Economist came up with some good examples of this:

  • Ghana – generation vs distribution. The country produces too much electricity as Ghanaian usage per year equates to what someone in the US uses a fortnight. More than 25% of households in Ghana are not connected to the grid and 25% of electricity is lost due to derelict distribution infrastructure and theft. With regard to oil, Ghana spent over $4.7 billion on importing petroleum last year, despite having domestic petroleum refineries which are lying idle – they could produce 30% of its petroleum needs.
  • Uganda – like Ghana supply is greater than demand as capacity if nearly double peak demand. Trucks wait on the side of roads even though traders can’t find vehicles to transport their goods.
  • Ethiopia – largest livestock in Africa and tanneries to turn hides into leather but shoe and glove makers import leather from China. Local tanneries are concerned with how the leather is treated.
  • Nigeria – tomato-processing plant to make tinned paste but closed down due to crop failure caused by a voracious moth

Another issue is the completion of infrastructure projects – according to McKinsey approximately 80% of African infrastructure projects fail in the cost benefit analysis stage whilst fewer that 10% get the stage of acquiring funding. For Africa to further development there has to be some acknowledgement of market failure and a willingness to separate commercial power and political power amongst its government officials.

Source: How market failures are holding Africa back. The Economist 5th May 2022

For more on Market Failure and Development Economics view the key notes (accompanied by fully coloured diagrams/models) on elearneconomics that will assist students to understand concepts and terms for external examinations, assignments or topic tests.

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