Africa rising despite “bad” aid

Over the last five years, the World Bank has reported that Africa has on average grown by about 6.5%. This is higher than any other continent on earth. And, this is not only about the impact of oil and mineral-rich economies.
Presidents of East African states at the East African Investment Conference in Kigali.
Presidents of East African states at the East African Investment Conference in Kigali.

Over the last five years, the World Bank has reported that Africa has on average grown by about 6.5%. This is higher than any other continent on earth. And, this is not only about the impact of oil and mineral-rich economies.

Eighteen African countries without such natural wealth prospects have reportedly grown at an average of 5% over the years.

As the continent settles from the endless wars and dictatorial governments become fewer and fewer and more governments focus more on economic development, things are now taking a positive turn. 

For instance, there has been record growth in the telecommunication sector over the last 5 years; mobile telephony has grown from 10 million to over 180 million users according to a report on ICTs in Africa. And almost the same number of jobs has been created.

However, extreme poverty, disease and hunger persist in most parts of the continent and almost all countries have continued to look at donor countries (developed countries) for solutions.

Foreign aid continues to flow into Africa but mostly in form of humanitarian assistance; less for “real” economic development.  Africa is rising because investments too have increased, especially Foreign Direct Investment (FDI).

As the continent becomes more stable, multinationals are finding it less risky to invest in Africa. Many African economies have rushed out for FDIs and are reaping high from them especially in terms of huge capital inflows and tax revenues.

However, some have lost in the process because the worth of incentives such as tax holidays, tax rebates and allowances on offer to attract FDIs at times do not necessarily match their (FDIs) worth. 

One of the main reasons why despite the growth poverty has worsened in most parts of Africa, is that with over 65% of its populace living below the poverty line, such investments have had less impact to the majority poor. FDIs are good but if not well managed can ruin the economy.

Foreign investors will never put their money into an economy that has stringent restrictions on repatriation of profits.  As a result, most countries have offered “No restriction to repatriation of profits” in their investment incentives packages.

A true investor plans his profits in the long run, not just months after commencement.  Africa gets very few quality investors who truly partner with government to enhance socio-economic development.

In Africa, over 80% of its population lives in rural areas and is poor. Governments look forward to investors that can invest in the countryside so that the rural poor can also benefit. But, most foreign investors in Africa are concentrated in major towns or suburbs where they can tap quick returns on investment. 

Worse still, the majority of the profit is repatriated rather than reinvested in African economies. It is quite ridiculous when most telecommunication companies fail to plough back part of their profits in network rollouts so as to increase penetration and realise more subscribers and of course make more profits, and in the end call it ‘partnering with the government in socio-economic development”. 

They do less to make their tariffs or products affordable to the majority poor.

Most governments have put more emphasis on attracting FDIs other than promoting domestic investments.

This is unsustainable. Mrs. Ngozi Okonjo-Iweala, the World Bank Country Manager in Ghana rightly thinks: “It is equally important that governments provide a conducive environment for our own people (Africans)”, she noted during a BBC live talkshow, and continued that most jobs in Africa are created by Small and Medium Enterprises (SMEs).

This is indeed critical for countries that aim at creating middle-income class to develop SMEs.

In extending aid to Africa, developed countries do so with a purpose. Such aid creates strong influence when (their) multinationals are winning tenders in Africa.

Most donors in Africa take away, indirectly, what they give. For instance, if a donor country gives aid to construct a road, it is very likely that the construction company that eventually wins the tender is from that same country.

The expatriates will also come from that country. And during the project execution, these expatriates live a lavish life using the same donor money. Some live even better lives in Africa than in Europe!

Africa’s human resource base is quite insufficient but colonialists are to blame. They introduced education systems in Africa that breed more of job seekers than job creators.

The donors are also to blame because for long, they have dictated where their money MUST go and thus gave Africa little room to use the money to develop their own capacities. 

The few professionals in Africa have continued to leave the continent for greener pastures in Europe, Asia and the US.
However, as the continent focuses more on development than “politics”, leaders are now setting their priorities right.

Among the key priorities is infrastructure development. Africa thinks that if most donor money is used to put in place the right infrastructure, sustainable economic development will be obvious.

Empowering the private sector to act as an engine for economic development is the way to go. With the right infrastructure in place such as roads, railways, airports, energy etc…, the private sector shall be enabled.

A considerable portion of aid should also go to building Africans’ capacities through effective trainings, not the common type of trainings that create no impact at all.

Africa was hopeful that the Doha talks would enhance fairer trade in the foreign markets. The talks were not concluded because, among other reasons, “fairer” trade proved hard to attain.

European countries were urged to increase their contribution to EDF (European Development Fund) but are hesitant because most of them feel their money is not put to proper use in most developing countries.

Besides, they are now more careful of every penny they give out. They have a more serious domestic mess (financial crisis/credit crunch) to sort out.

In the Doha framework, Africa thinks if Europe pumps in more money in the fund, then it can ably develop her infrastructure for sustainable development. Africa feels the field in the foreign markets is not leveled.

Most economies have subsidised production of their commodities. African economies have not. This has not stopped Africans from pandering to those same markets.
With bilateral trade agreements like EBA (Everything But Arms), surplus subsidised European commodities have found their way to African markets.

As a result, Africans have become uncompetitive in their own markets. 

On a positive note, however, through trade blocs, Africa has created its own markets. For instance, the East Africa Community (EAC) comprised of five member states harbours over 120 million people. COMESA, with over 20 member states comprising over 300 million people, and so on.

The demand in these markets is so huge that it will take member states ages to satisfy. In these blocs, there are no trade restrictions or conditionalities like it is in foreign markets. 

Moreover, efforts are underway in African trade blocs to harmonise tariffs, trade policies, rules and strategies. Africa would find it more prudent if it chose inward looking than outward looking policies for its development.  

Ends

 

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