Aid Is Good, Business Is Better

Africa is a country tantalizing in potential and seemingly perpetually in despair. So it was ironic that over breakfast today in Dubai, a global beacon of capitalism, I read an interesting commentary by Ellen Johnson-Sirleaf, the president of Liberia and Nicky Oppenheimer, the chairman of DeBeers in the weekend edition of the International Herald Tribune, the global edition of the New York Times.

They point out that “Africa is more democratic today than at any point since the start of decolonialization” and that “the amount of aid flowing to the continent, exceeding $30 billion, has never been greater.” And the global commodities boom has fueled economic growth rates, averaging 6.6% across sub-Saharan Africa. In fact, private capital flows to sub-Saharan Africa in 2007, mostly from investors in China, the Middle East and other parts of Asia, were estimated at $50 billion, far outdistancing direct aid and just getting started. So, they ask, why is Africa still lagging behind the rest of the world on most indicators of development?

Their claim is that, bucking the conventional wisdom that Africa doesn’t use aid properly, the real reason is the cost of doing business in Africa is too high. The authors cite a report from the International Finance Corporation that points out that 24 of the 30 countries with the most costly business environment are in sub-Saharan Africa, costs seldom borne by consumers but shouldered by African businesses and producers. They argue that the experiences of successful small and medium-sized economies elsewhere over the past 30 years have some important lessons for Africa, citing Costa Rica as an example, which has increased its per capita economy 250% over the past two decades, in going from an agricultural to a high-tech and services base:

• Competitiveness requires governments that can establish a framework for investment and step aside to let businesses thrive. Few countries in Africa have managed to establish and sustain a domestic political consensus around private sector growth and the often-painful reforms necessary to stimulate it.

• Countries must be willing to make a change in mind-set from the idea that foreign programs and plans will lift countries out of poverty to a belief in their own vision for their future. African governments need to sell the necessary reforms—to sell capitalism—at home. Foreign aid should only temporarily support countries while they implement difficult reforms and get on their feet.

• International debate on development must be reshaped. The heart of development is the relationship between governments, their citizens, and their own private sector—knocking down the main obstacles that entrepreneurs have in running a business like access to capital, electricity, transportation, telecommunications, taxes, labor, and corruption. Yet international debate on development is by and large still focused on the interaction of donors, nongovernmental organizations, and recipient governments. I like the part where they suggest complementing the United Nation’s Millennium Development Goals with a set of “development goals for competitiveness”.
  

Admittedly, when I read these kinds of articles, the skeptic in me asks “what’s in it for the authors?” and there are plenty of critics that would argue that Liberia and DeBeers shouldn’t be the poster children for reform in Africa. But, with poverty levels dropping rapidly in market reform countries like India and China, it’s hard to dispute Johnson-Sirleaf and Oppenheimer’s final point:

Effective use of aid can support African reforms, but it must not be the organizing principle for African development. The key to success will be the extent to which African governments to provide the private sector the right incentives to add value to the economy, so both business and government can concentrate on what each does best.