An Unlikely Advocate for Free Markets in Africa?
» May 26th, 2006 9:15 am by Aleksandr ShkolnikovIt seems that these days everyone is ready to voice their opinion on what’s going on with poverty reduction efforts in Africa, with viewpoints fluctuating between the extremes of doubling or tripling or any other “ing” aid and abandoning aid altogether in favor of purely market solutions to poverty. As Bono wraps up his recent tour of Africa, another heavyweight weighs in with its opinion. ABC’s 20/20 explores the myth of aid and whether it really is the solution to poverty the continent has been looking for.
Naturally, we like to give our views and opinions on various issues, we like it even more when people listen to what we have to say. In the midst of quarrels over aid effectiveness, however, we forget that, perhaps, the people who are the subject of the conversation should be given a voice at the table. And the best we can do, sometimes, is just listen. So, in the spirit of listening to what the citizens of countries in questions have to say, here are some excerpts from the 20/20 story.
A farmer in Kenya on food aid:
“You find most of it is getting lost on the way,” farmer Joseph Nthome said. Lost, but then found … for sale in street markets.
CIPE grantee James Shikwati, director of the Inter Region Economic Network and a consultant to ABC News on this story, on the root sources of the problem:
“Kenya does not need aid to get out of poverty…What’s holding down Africans is actually the bad governments, the bad policies that make it difficult for Africans to make use of their own property,” Shikwati said. “What the aid money is doing to Africa is to subsidize the bad policies that are making Africans poor
Carpenter Richard Kadivane on government’s powers to hold businesses in fear:
“If you gave aid money,” Arunga asked. “How does that solve the problem of the government razing down people’s businesses?”
I’ve brought up the problems of opening and registering a business as a barrier to people’s ability to lift themselves out of poverty on several occasions in this blog, referencing the World Bank’s Doing Business reports. The issue comes up in the ABC report as well.
In 1999, I went to Hong Kong and in one day, with one form, I got legal permission to open a shop.
The next day “Stossel Enterprises” was open for business, selling ABC trinkets. By contrast, to open a legal business in Kenya you might have to get licenses from 20 ministries and you may have to bribe people. It can take years, and the government can still shut you down.
Even Bono brings up the point that aid often does not reach its intended recipients:
Oddly enough, it is the activists here on the continent of Africa who are doubly hard on this point. We have to listen to them. They are saying, do not invest in our countries while we have crooked leadership. They’re saying it and I think we have to listen to them. That is hard. That is depressing.
Although Bono continues to call for more aid, in his blog I saw flashes of recognition that enterprise development, trade, governance, and corruption issues must also be addressed. Will Bono become a part-time advocate for free markets in Africa? Or am I being too optimistic?
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May 30, 2006 at 10:51 am
How do you define “foreign aid”. When Bono and Jeff Sachs talk about doubling foreign aid to Africa do they mean giving that $50billion to corrupt leaders?
The few quotes on the anecdotal evidences of corruption hardly represent a continent of billions of persons and even Africans that find that changes the economic environment and making to government more responsible receive foreign aid…IREN is a recipient of US foreign aid.
The following book gives a more balanced few on the problem and acknowledges the many (possible) constraints in overcoming poverty in Africa. http://www.fondad.org/publications/africaworld/contents.htm
For example, one essay points out that the conditionalities tied to foreign aid from international institutions make it difficult for the aid to be used in its most effective way. Other essays discuss international finance and trade regime that also causes problems.
I do not deny that the improving the economic environment (which includes more than reducing the paperwork and changing a few laws) and holding governments accountable will help Africa. However, this is not the ONLY thing that must be done and I do not agree that ALL foreign aid is a failure.
Finally, I feel this debate is worthless. It clearly is an ideological battle that does not even support its argument with well balanced and thorough research. Noboby denies that giving foreign aid to corrupt leaders does not bring positive results. Foreign aid can be given more strategically and one might look into other reasons why aid does not help…Jeff Sachs points out in his book that of foreign aid that the US has given to Africa, less than $1 reaches each African, because of paying salaries of Western aid workers and consultants, including per diems, etc.
The outcome of such an argument, will reduce any kind of foreign spending or programs to aid in the fight against poverty worldwide putting the blame on hard working individuals in these poorer countries, while the West denies the effects of their actions and policies… and their ability to help (whether it there is a responsability or not).
June 1, 2006 at 4:34 pm
I guess Africa still hasn’t found what it’s looking for…
Bono has been calling for more work on enterprise development, trade, governance, and corruption for quite awhile now. (DATA does stand for Debt Aids TRADE Africa.) But like Sariah said, and I am inclined to agree, this is not the only thing to be done. Like all things in life, there must be a balance between aid and economic reform. Unfortunately, it seems that the West’s “solutions” to Africa’s problems are ego-driven, where each side must be right and the other wrong, so we continue to see the continent falling further and further into the pit of despair, where the streets still have no name and the governments work in mysterious ways.
It seems to me that more “aid” money should go to enterprise development, that the Africa department at CIPE should be far larger than it is, and that those who oppose aid should be pushing for more funding for anti-corruption and advocacy efforts. My question is this: how do you abandon aid altogether in favor of purely market solutions to poverty? Where does the money come from to change the laws and to rid the countries of corruption? Shouldn’t the real debate here be how much funding should be shifted from purely food/medicine aid to governments to the private sector?
This whole issue makes me feel numb. (Was that one to many?)
June 1, 2006 at 5:17 pm
Obviously, the world does not operate in the extremes, and the reality is that there needs to be a mix of aid strategies to address the pressing needs of the people and market-development strategies to resolve short-medium-long term economic growth issues.
There is a lot written on the issues of aid- vs. investment-led growth; and one can easily conclude that Africa is in a very much aid-led [dependent?] rather than investment-led environment.
One point needs to be clarified in discussions on market development. Generally, such strategies are view through a prism of conditionalities accompanying bail-out IMF and World Bank loans. While these conditionalities are generally focused on market friendly policies, they are NOT focusing on ECONOMIC FREEDOMS which underline any success story of solid long-term growth. Simply put, getting your fiscal system under control is important, yet investors (both domestic and foreign) and business people (from small entrepreneurs on a local market to large national corporations) are interested in things like property rights protection, fairness of the legal system, etc. These are the issues people are talking about – see the quote above about a government leveling businesses and holding entrepreneurs in constant fear.
Do Bono, Sachs, and other advocates of aid mean for it to end up in the hands of corrupt politicians? I am sure they don’t – and their intention is to help the people. But, intentions do not always align with the outcomes of actions, and the real question is what do you do when they don’t? As I note above, there certainly needs to be some aid. But positioning aid as the solution to the continent’s problems and calling for doubling of financial government-level assistance is a no win strategy.
Shifting money from aid to private sector development? That’s noble and a worthy cause – but try something even more extreme! How about getting private sector investment to finance the development of market institutions? That way, you replace government assistance with investment, which is much more likely to respond to incentives! Remember, money flows where it is safe and where it is put to work.
So how do countries in Africa go about attracting investment? That’s the question we really should be thinking about.
Personally, as I think about these issues of aid-dependency and lack of investment, I always ask myself – why won’t foreign business people put their money in a country A? Why would business people in a country A prefer to take their money out and put it in a country B?