ON 27 January, Justine Greening, the United Kingdom’s International Development Secretary announced at the London Stock Exchange that Britain is to spend a record £1.8bn to boost business climate in developing countries from 2015.
According to the Guardian, Greening observed that “this approach recognises that businesses are crucial to a country’s development…that they bring vital investment, taxes and innovation…and they provide jobs and economic opportunities for communities where they operate.”
The announcement represents a major shift in how he intends to spend its funds, and may also signify an acceptance on their side that indeed trade and not aid represents the best way out of poverty for many developing countries.
Similarly, the Guardian indicates that the shift, which is aimed at boosting economic growth and job creation in poor countries, includes the appointment of the Department for International Development’s (DfID) first director-general whose main responsibility is to boost economic development.
In fact, in a speech at the London Stock Exchange, Justine Greening conceded that although economic development wasn’t a completely new direction for DfID, it was “nowhere near a top priority for the department”.
At present, however, Greening added that the UK is “building the most coherent, focused and ambitious approach to economic development”. This new approach can be illustrated by DfID’s £20m investment in Tanzania at the end of last year to boost tea farming in the southern highlands of Tanzania among other projects.
Traditional aid has been channelled primarily to projects that are concerned with education, health care, water, food, and governance, and not necessarily aimed at improving capacity for business in developing countries as a means of economic development.
So, given that traditional aid to developing countries over the last couple of decades has registered appalling results, what are the implications for the shift in aid policy aimed at boosting business climate in developing countries?
What it means for donors
The clue is in the pudding. When Justine Greening decided to make the announcement of the shift in aid policy at the London Stock Exchange, it can be argued that her intention was to signal to companies registered on the FTSE 100 and many more that there is business to be done in developing countries and there are profits to be made there.
Her announcement was intended to assert the UK government’s commitment to deal with several existing barriers to trade with developing countries, including lack of energy, poor infrastructure and so on, and to offer a profitable business climate to UK companies.
Western investors have increasingly found it challenging to operate in developing countries primarily as a result of governance challenges, but equally so, as a result of poor infrastructure, lack of skilled labour, and regulation bottlenecks.
The shift in policy indicates that western governments have listened to the calls made by investors to ensure that Africa is investable and profitable. The intention in the shift in policy is that, western companies will invest in developing countries, make profits and create more jobs both in Europe and in host countries.
Currently, job creation in many OECD countries is a priority for any government looking to stay in power or gain power.
Secondly, it is reasonable to observe that a shift in policy represents a geopolitical move by the UK, which intends to curtail China’s growing influence in many parts of Africa. The UK is not alone. Several other western countries have raised alarms concerning China’s increased role in Africa.
In fact, in 2009, Dambisa Moyo wrote in her book Dead Aid that assuming factors remain the same; China’s trade with Africa is capable of reaching $100 billion of trade income every year until 2015. According to Moyo, in just ten years, this trend could represent 50 percent of all the aid that has made its way to Africa.
Therefore, in response to China’s model of bringing roads, bridges and dams to Africa, the West is attempting to bring business skills, financial services, and energy and so on. Either way, developing countries will be better off with more than one business partner to choose from.
Firstly, this major shift represents an acknowledgement by donor countries of the logic that is in line with an ancient African proverb: the best time to plant a tree is twenty years ago. The second-best time is now.
The decision to invest in improving the business climate in developing countries maybe a tad late and/or simply driven by altruistic behaviour, but it certainly enhances the ability for private sectors in developing countries to become real drivers of economic development.
There must be accountability on both sides to guarantee that as the private sector improves, it brings along sustainable jobs, access to finance for SMEs, and more importantly, it does not lead to income inequality.
The overall goal for policymakers must be centred on using the private sector as the vehicle for economic development for all and not just the direct participants.
The writer is a UK Parliamentary Intern and holds a Master of Science in Public Service Policy.