ECON-AD 213J | Class 6 Reflection: Preparing for South Africa

“How has South Africa bucked the resource curse?” Robson’s question in class today sparked a good discussion about how some African economies fared better than others in terms of managing its natural resources. The continent is replete with all kinds of natural resources, from gold to cocoa to ivory, that especially due to the recent rise in commodity prices, we would expect African economies to boom. The effect in reality, however, could not be further from this expectation. In Nigeria, for example, despite its rich oil reserves, the country has been embroiled in internal conflict and in abusive deals with foreign investors like Shell for many years now. The question then became, how can we reduce unemployment aside from lowering minimum wages or relying on the informal sector? Unfortunately, it seems that the macroeconomic models we have to answer this question is limited as well; as Prof. Buckley said, we are still in equivalent era where our prescription to failing economies is “to bleed the patient more”.

We turned to contemporary theories of development to help elucidate some answers. One answer is that African countries used to be seen as a high-risk but high-return investment opportunity. However, given the recent economic stagnation due to persistent conflict and poor political guarantees, African countries have become places of even higher risk but lower returns. This is consistent with standard models of the real interest rate: if the risk adjustment is too high for a low return, then it would not make sense to invest. As a result, capital has fled and economic free fall continues.

There is one day left before our trip to South Africa and I cannot wait. Tina, Carol, and other staffers in the Office of Global Education dropped by after class today to share with us the itinerary. It’s packed with lectures, site visits, and dinners that I cannot wait to experience. I’m really thankful for this opportunity.