The Daily Nation
June 2, 2009
The recent debate about aid sparked by Dambisa Moyo’s book, Dead Aid, has polarised the development community.
I have long argued that it is investment and good governance, not aid, which will solve Africa’s problems, although effective aid has an important role to play in the quest for sustainable economic growth and poverty reduction.
Ms Moyo suggests that government bonds can take the place of development assistance. This is unrealistic.
First, debt markets are not open to the African countries that most need capital. Second, the cost of government bonds is materially higher than that of World Bank or other institutional aid.
Why should African governments pursue a detrimental line of financing to satisfy an ideologically-led approach to development?
Furthermore, even before the economic downturn, most financial institutions were not interested in investing in sub-Saharan Africa in a sustained manner, despite the fact that for the past 10 years, the rate of growth has exceeded that of Europe. It is implausible that they will be interested now.
I ran a successful mobile phone business in Africa that was profitable and run according to the highest standards of corporate governance, but we failed to raise any tangible finance from the same banks that were investing endless funds into the US sub-prime market.
Shortly before Celtel was sold, to raise less than $200 million in debt, we had to pledge telecoms operations in 14 countries across the continent, generating $1 billion in annual revenue.
Those same banks lent $2.5 billion of the $3.4 billion to a Kuwaiti firm to buy the same asset. For now, financial markets do not understand Africa. This must change.
We need a holistic approach to development in Africa that is centred on good governance. This must encompass African governments, civil society, the private sector and donors.
During the Cold War, money was poured into African states with no accountability or transparency according to the mantra: “He may be a bastard, but he’s our bastard.” That weakened institutions, entrenched corruption and consolidated personal rule. Though things have improved, governance failures exacerbate the problems.
However, Africans do not hold a monopoly on governance failures. It is the failure of financial institutions in developed countries to govern themselves that led to a global crisis that surpasses anything in recent history — one that their governments have responded to with aid in the form of bail-outs.
We must acknowledge that bad governance is as endemic in rich countries as in the developing world. This is borne out in the controversy in the UK over politicians’ expenses.
That is why we must improve the accountability and transparency of donors, the private sector and African governments in a governance campaign. This requires a greater focus on outcomes and data collection.
It is encouraging that President Barack Obama’s visit to Ghana has the stated aim of underlining the importance of civil society and governance on the continent.
The critical argument should not be about aid or no aid — no one can question the necessity of pure humanitarian aid as long as it satisfies basic good governance criteria. The argument should be about where to focus aid to achieve the best returns for donor taxpayers and aid recipients.
I propose two areas to focus aid: the hardware of Africa, infrastructure and regional integration; and human software in the form of education and health.
The reality is that most African countries are sub-scale and fundamentally unable to compete in a global market. If economies the size of the UK, Germany and France find regional integration necessary, then 53 un-integrated African states have a competitive disadvantage.
This fragmentation is evident in Africa’s transportation infrastructure, geared towards trade outside rather than within the continent. Africa needs to integrate its economies and open their borders to each other.
Development aid can help these efforts and speed up intra-African trade. This capital investment cannot succeed without investment in education and health.
Finally, while debate on development aid is of great importance, more of this energy should be spent on climate justice. Africans have emitted the least carbon per capita, but will have to face the greatest consequences of its emission.
A worthier use of the time of these great African and other economists is to devise a solution that allows the continent to meet the adaptation and mitigation costs of climate change.
Mr Ibrahim is founder and chair of the Mo Ibrahim Foundation. The article was first published in the Financial Times.
Categories: Foreign Aid