The current issue (October 24) issue of The Economist posed the puzzling question of why the middle class in Africa is so small after a decade in which economic growth has averaged more than 5% a year, about twice as fast as population growth. Two reasons are opined;
(1) The proceeds of economic growth are shared very unequally. In recent years inequality has increased alongside growth in most parts of Africa, and
(2) Poverty in many parts of Africa is so deep that even though incomes may have doubled for millions of people, they are now merely poor rather than extremely poor.
I wish to put forth a third reason. Most of the economic growth comes from the fabled FDI (Foreign Direct Investment) – not a bad thing (every country is jostling for it). Except that with little or no local value addition to the operations of the transnational corporations, the fruits of FDI accrue, save for the few well paid local managers, to the home country. The rich pickings flow back home in various ways – the inputs supply chain which supplies even paper clips to the output side. Let’s not even touch on the subject of Illicit Capital Flows and local corruption which will be the subject of another post.
The article elicited diverse comments. Let me hear from you dear readers – there should be many reasons why we are getting poorer when the official figures say we are getting richer