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Iddy Mwanyoka     Email : mwanyoka@nifahamishe.com     
WHY CAPITALISM FAILED IN AFRICA?
             
Since the Berlin wall collapsed the idea of free trade, freedom of speech and private owned investments thrived across the global. The ideas behind capitalism sounds awesome to many nations, but one question remained unanswered, why capitalism failed in Africa? Many capitalist orthodox has argued that the reason behind the failure of Capitalism in Africa is either low IQs of African or laziness habit or low self-esteem among Africans. However, I find hard to believe that any those reasons are the main reason of why capitalism has failed in Africa.

I tend to believe that the reason behind why capitalism failed in Africa is not about the ideas behind capitalism, lather it is the African system which doesn’t support the ideas of capitalism. Lack of formal capital markets system detour the principles of capitalism in Africa. In fact, majority of African countries residents and even majority of business owner don’t understand credit market. The consequence of this is capital misallocated. Lucrative investments opportunities are foregone and potential entrepreneur are unable to transfer their ideas into businesses.

While the problem is evident, the solution is not. Solving it requires first identifying the reason that capital market have failed to take a hold. Majority of African poses good wealth, but sadly enough they don’t know that. All this are the consequence of unstructured system. For instance, in Tanzania you can find the good house which is located between of no where. The owner of the house doesn’t have the title of the house or he doesn’t have even the title of the land. The lack of the title prevents the owner to capture the full value of his investments, most importantly the lack of formal title prevent him from using the land and house as a collateral and that prevents the unlocking of the capital from the assets.

Luck of strong rule of law and corruption has hinder entrepreneur growth. Due to corruptions investors think twice when it comes to invest in Africa, or they require unrealistic return on their investments. Likewise on banks, many banks set high interest rate and that reduced the number of entrepreneurs who are seeking for a capital. Also, corruptions have reduced revenue for many Africans governments, and that caused governments to reduced investments in infrastructure. This in results has reduced economical growth in many African nations.
Capitalism required what Adam Smith called “the invisible hand”; this is the ability of less intervention from the government to the private enterprises. Yet in Africa government controls everything, from the production line to the final product in the market.


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