In Africa, most countries invest huge amounts of money in the military though it is not productive. This makes the net effect of the Military Expenditure (milex) on economic growth in African countries remain a big issue for discussion.
The relationship between milex and economic growth in developing countries is that the milex promotes development but this only in the sense that it increases human capital. If we consider the increase of econometric sophistication and particularly in the context of economy, expenditure of the military has no value.
Military activity does not grow food, it does not produce clothing, it does not build housing and it does not keep people amused. Nor does it create the kind of machinery, equipment and facilities that can be used to produce such goods and services. Military activity may have other kinds of value, but it has no economic value because it does not directly contribute to material wellbeing.
In a context, the military will involve in a kind of economic activity, though private and illegal; that is during a war the military loot. Such activity gives them some cash and material as the result of their risky activity of killing people when they are on the front. As an illustration, the US military often invade countries that are rich in oil. This allow them to loot that oil; this is a kind of economic activity but they do it in a hidden way. Milex does not provide a stream of returns in the future, as does government expenditure in education, health and infrastructure but the military are also governed by the same government. As such, it reduces government saving and thereby reduces the resources available for government investment. This in fact retards economic growth.
This negative effect is generally so large as to completely overwhelm any positive effects. On reading the above, a question comes to mind: does high military expenditure encourage private investment, both domestic and foreign? Or retards it. Presumably, if investors perceive a strong military military as producing a stabilizing or growth enhancing influence on the economy, thus making high returns more likely, high milex will encourage investment.
Alternatively, they may view the military as a destabilizing influence and likely to engage in coups, in which case they will invest elsewhere. As a generalisation, the level of milex appears to have no significant effect on private investment in African countries because other determinants are much more important.
A second way in which military expenditure may negatively affect economic growth is via government expenditure tradeoffs. Whilst studies have often been inconclusive, it is obvious that milex has opportunities costs and may constrain more productive government expenditures.
A third way in which milex may hinder economic growth is via dept. In the 1970s and 1980s, military imports by developing countries were the equivalent of a quarter of new foreign debt incurred. Economic growth is generally accepted as making development and the opposite side of the coin, poverty reduction easier to achieve but it is clearly not sufficient condition for development.
Economic growth is a means to an end, the end being development or poverty reduction. There are two key views concerning the most effective way of reducing poverty. The current prevailing attitude is to encourage economic growth by minimising government involvement in the economy and maximising the role of the private sector. While the initial beneficiaries will be business people, benefits are expected to permeate throughout society and thus reduce absolute poverty. The opposite view, with links to the basic needs approach of the 1970s, is based on the belief that even rapid growth may make little or no difference to the lives of the poor.
This approach favours the direct provision of basic goods and services to low income people. Government expenditure choices, on basic consumption goods and services or on expenditures like education with long term investment effects, are therefore crucial. Military expenditure works against both approaches to poverty reduction. As I have mentioned, it has a negative impact on economic growth via reduced savings and it leaves fewer financial resources for a government to directly meet the needs of the poor. Insofar as it hinders government from tackling poverty it may increase the potentiality for internal insecurity.
If, for instance war breaks out, the effect on countries’ economies can be huge. The war of 1980-88 is estimated to have cost Iran some 622US billion dollars and Iraq some 352 US billion dollars which were equivalent of nine and ten years worth of GDP respectively. The Sri Lanka civil war was estimated to have cost half a percentage point of economic growth per annum between 1983 and 1992 as researchers have noted.
Finally, the military uses resources, both human and physical, which would have positive social rates of return in other uses. These include skilled labor and land. As an illustration, in late 1999, for example, the South African National Defence Force controlled almost 500 000 ha of state land, or about 0.4 percent of the country’s land area.