The World’s Worst Economies

Between 1970 and 2009 per-capita gross domestic product in Madagascar tripled in after-inflation terms – to a whopping $448, according to the United Nations. Over that same time period per-capita GDP in nearby South Africa rose more than sevenfold to $5,700.

A history of military coups, economic mismanagement and steady population growth has left Madagascar in the dust as other emerging-market countries like South Africa, India and Brazil surge ahead. Yet another coup in 2009 forced the U.S. to yank Madagascar from a preferential tariff program, costing the beleaguered island nation thousands of jobs in its textile sector. Immunizations and primary-school completions are dropping, and 77% of the population now lives in poverty.

It’s manmade problems like this that landed Madagascar on the top of the Forbes list of the World’s Worst Economies in 2011. There are worse basket cases (see: Somalia). But among the countries with relatively complete data tracked by the International Monetary Fund, Madagascar, sometimes called the “Eighth Continent” because of its natural diversity, stands out for political mismanagement, corruption, poverty and lack of growth.
Full List: The World’s 10 Worst Economies

To construct our list, we ranked 177 countries according to three-year average statistics for gross domestic product growth and inflation (including the IMF’s 2012 estimates), plus GDP per capita and the current account balance, a measure of whether the country is importing more than it exports.

There have been significant changes to the list since last year. Onetime losers like Ghana and Zimbabwe got their economic acts together and moved off the list while some countries, including Armenia and Jamaica, marched into the lower ranks primarily because of the global financial crisis. Others, like Madagascar and Nicaragua, earned their positions almost entirely due to the ineptitude of their rulers. It should come as no surprise that eight of the 10 worst economies also were in the bottom quartile of countries in Transparency International’s Global Corruption Perceptions Index, with Guinea, Kyrgyzstan and Venezuela scoring close to the bottom.

“Beyond income, (corruption) extends to economic development,” says Transparency International’s Robin Hodess, group director for research and knowledge. “All of the indices that reflect human development suffer. Where government doesn’t work, economies don’t grow.”

Madagascar’s poor economic performance mirrors the turmoil in its politics. After gaining independence from France in 1960, the country went through a brief period of prosperity. But per-capita GDP has trailed most of the rest of the world since the early 1970s as Madagascar’s population has grown faster than the economy.

The current round of troubles began in 2009 when democratically elected President Marc Ravalomanana stepped down under intense pressure from the military and handed power to opposition leader Andry Rajoelina. European supporters cut back on $1 billion in promised aid, and the U.S. was required by law to drop Madagascar from the African Growth and Opportunity Fund import program, devastating the textile industry. Much of the country has descended to a barter economy, according to the U.S. State Dept.

At No. 2 is Armenia, whose economy shrank by 15% in 2009 as an expatriate-financed construction boom fizzled along with the world economy. With a mediocre growth forecast for the next few years, this landlocked former Soviet republic, dependent upon Russia and Iran for virtually all of its energy supplies, is struggling to keep up with the rest of the world. Per-capita GDP of $3,000 is less than a third of neighboring Turkey, and inflation is running at 7%. On top of that, Russia cut back on supplies of diamonds, hurting Armenia’s once-thriving diamond-processing industry.

Coming in third is Guinea, a West African nation that sits on half the world’s accessible bauxite reserves but has trouble attracting productive investment. Poorly maintained roads, a 2008 military coup and “insecurity created by government hostility toward investment” have slowed economic development, according to the U.S. State Department. The 2010 election of Alpha Conde as president appears to have reduced fears somewhat, and Abu Dhabi and BHP Billiton are proceeding with a $5 billion alumina refinery project in northwest Guinea.

No. 4. Ukraine has rich farmland and generous mineral resources and could become a leading European economy — yet per-capita GDP trails far behind even countries like Serbia and Bulgaria. The U.S. State Dept. blames “complex laws and regulations, poor corporate governance, weak enforcement of contract law by courts, and particularly corruption.” Jamaica, coming in fifth, is almost entirely a victim of the global financial crisis that devastated its vital tourism industry. On the positive side: Jamaica’s poverty rate has been cut almost in half to 10% in recent years while literacy has increased to 88%, according to the World Bank.

Perhaps the cancer that struck dictator Hugo Chavez will bring deliverance to No. 6 Venezuela, which manages to keep its people poor despite an embarrassment of natural wealth. The only thing healthy about Venezuela’s economy is its oil-fueled current account surplus. An inflation rate of 32% and subpar GDP growth demonstrate the ineptitude of Hugo’s management. Nicaragua, too, suffers under a president who purports to support “the people” but has led his nation into subpar economic performance that only hurts the poor.

Coming in 10th is Iran, which has 10% of the world’s proved reserves of oil according to the Energy Information Administration. The Islamic Republic’s economy, hobbled by insider control of vital industries, international sanctions and mismanagement, is growing at less than a third the world’s average rate. Per-capita GDP of $5,493 puts Iran far closer to war-torn Iraq than oil-rich peers like Saudi Arabia and Kuwait.

Iran’s government has taken some responsible steps, including removing $60 billion a year in subsidies on energy products, public transport, wheat, and bread. But that’s increased the prices of some products as much as 20 times, and the International Monetary Fund thinks authorities will have a hard time keeping inflation below 14%.