This paper reviews African growth from the microeconomic perspective, focusing on the incentives and constraints facing key agents in the economy. To reduce the scale of the task we consider only the two most important types of agent: rural households and manufacturing firms. For most African economies rural households and manufacturing firms are the two agents whose behavior is most important for the understanding of the growth process. As of 1950 a large majority of Africans lived in rural households and depended upon them not only as social units but also as enterprises which generated the bulk of their income. The slow growth performance of these enterprises was therefore an important part of the explanation for the lack of broad-based poverty reduction over the past half-century. During the period 1950-2000 much of the developing world industrialized and this raised the demand for labour and reduced poverty. Africa largely missed out on this process. Our focus on African rural households and manufacturing firms is intended to increase our understanding of these two weaknesses in the growth process. Obviously, this focus on farms and firms can provide only a partial explanation, since it will omit the general equilibrium and macro-economic context provided by other papers in the study.
African economies have, of course, other types of agent of considerable importance: banks, mines, commercial farms, traders, urban households and the government in its various roles, involving regulation, redistribution, production and provision of public services. In some countries one or other of these agents will be more important than rural households or manufacturing firms. Individual country authors will need to make a judgment as to which types of agent are central to their story.
Before we consider the growth process, it is useful to view the production problem from a static perspective. How is the African environment distinctive, and how has this shaped the production strategies which rural households and manufacturing firms have adopted? This we do in Section 2. In Section 3 we turn to dynamics. What are the sources of growth at the micro-economic level and what constraints have these agents faced? Section 4 concludes.