Africa: will a rising tide of cheap capital lift all boats?
Africa came up at last night’s Port and Stilton party. It has been two months since our last blood donation party at Children’s Hospital and a few of us were planning a return. One woman who expressed interest is married to a South African Jewish emigre. I reminded her that she would be disqualified because they now ask “Have you ever had sex with an African or a person of African descent?” Her husband observed “Well, at some level we are all of African descent.”
Another guest had been working in public health in Tanzania for nearly three years. Tanzania has about a 10 percent HIV infection rate, which is enough that they are setting up special clinics to give drugs to those who test positive. Despite mortality due to AIDS and emigration of the talented and educated to Europe (people leave Tanzania at about the same rate that they arrive in the U.S.) the country’s population is still growing at a vigorous 1.83 percent according to the CIA Factbook and its 36 million people will soon have plenty more company. What are the economic growth prospects for these new Tanzanians, we asked? Tourism is doing nicely on Zanzibar, which was once owned by the Sultan of Oman and has interesting architecture from its 19th century position as the world’s most active slave-trading port. The Italians are investing massively in building beach resorts. Otherwise, she noted, things were tough and she thought it was immoral for the U.S. to continue to operate its space program when the $billions could be sent to save lives in countries such as Tanzania.
It would seem like a great time to be a poor country. Commodity prices are high. Asian countries such as China, Taiwan, Thailand, and Singapore have demonstrated a foolproof method for economic development (stable government, learning English, getting educated, working hard). And capital is cheaper than it ever has been. The after-inflation return on a low-risk investment such as a U.S. T-bill is about two percent. If capital is cheap and there is a surplus of labor Africa should be booming (and maybe it actually is; the CIA Factbook shows that the economic growth rate in Tanzania is larger than the population growth rate and much larger than the U.S. economic growth rate).
In the 1990s an investor could get a fabulous return by rounding up some nerds, buying ping pong tables, and renting an office in Santa Clara. Now that same investor is desperate to find any outlet for capital that will earn more than a few percent above inflation. Could it be that over the next generation this wellspring of cheap capital will bring labor-rich Africa out of poverty even if the foreign aid industry withdrew from the continent?
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