Foreign aid is no more the pillar on which Africa´s future hinges. For the first time since independence Africa is ready to seriously face the future, not just the past. This turnaround has come suddenly and surprisingly in the past few years. While the rest of the world has struggled with recession and pessimism about the future, Africa has moved ahead. The attitude is optimistic. There is a growing self-confidence, missing in previous years.
Africa remains the poorest a region of the world but people there don’t want to be measured against the indicators of the Millennium Development Goals which emphasize poverty reduction primarily in terms of what governments do. There are new signals from Africa where in the past business was often viewed as merely exploitative. With the rise of a new indigenous middle-class and a political leadership anxious to free itself from the straightjacket imposed by the ODA regime there is a serious interest in encouraging investments not only by foreigners but also local entrepreneurs.
Although the exact contribution of foreign aid to African development is not really possible to assess, after fifty years it has little to show for itself. There is a growing restlessness among African intellectuals and policy-makers that something needs to be done about this sorry state of affairs. The time has come to begin drafting a new development regime for Africa.
It took African political leaders half a century to overcome their post-independence inclination to blame the problems of their own countries on the outside world and external factors beyond their control. It took the same time for the rest of the world to realize that Africa is more than a continent to pity. Neo-colonialism is no longer part of the official rhetoric in Africa. Foreign aid is no more the pillar on which Africa´s future hinges.
For the first time since independence Africa is ready to seriously face the future, not just the past. This turnaround has come suddenly and surprisingly in the past few years. While the rest of the world has struggled with recession and pessimism about the future, Africa has moved ahead. The attitude is optimistic. There is a growing self-confidence, missing in previous years.
There is plenty of evidence to back this up. According to a report by the global consulting company McKinsey, economic stagnation in the last two decades of the 20th century was followed by annual economic growth of almost 5 percent a year between 2000 and 2008. Africa´s total GDP in 2008 was US$ 1.6 trillion – similar to Brazil and Russia. Perhaps even more significant is the increased readiness to invest in the continent. Africa’s regional investment funds attracted US$ 484 million in the first half of 2010; there was an inflow into these funds for no less than 43 consecutive weeks – quite an accomplishment in a severe global financial crisis. The annual World Economic Forum conference in Africa 2010 was held in Tanzania – a country that perhaps more than most signifies the change of attitude among African leaders.
Africa remains the poorest a region of the world but for two reasons people there don’t want to be measured against the indicators of the Millennium Development Goals which emphasize poverty reduction primarily in terms of what governments do.
The first is that Africans are no strangers to poverty reduction but they do it their way through informal rather than formal institutions. An often massive redistribution of resources occurs in African countries without being officially measured. The most serious omission occurs at OECD level where official development assistance (ODA) remains the benchmark against which member countries are judged. However, ODA is increasingly a much smaller part of resource flows to Africa . It may still be dominant in the Nordic countries, but even there other flows are becoming increasingly important. Taking the total flow of private and public resource flows (excluding investments) into consideration, a large number of countries meets the official aid target of 0.7% of GNI as the following table indicates:
Table: Total transfers to developing countries by select OECD countries: ODA, philanthropy and remittances as % of GNI, 2007
This is a much more relevant set of figures than those that refer only to official development assistance. Such figures may have accurately reflected the resource flows in the 1960s and 1970s when foreign aid was the dominant mode but they are clearly out of date (and touch) in 2010. The principal component besides ODA tends to be private remittances – an increasingly significant mode of poverty reduction that builds on an indigenous every day ethic of sharing that is difficult to measure.
The second point against poverty reduction that Africans argue is that following the MDGs is like placing the cart before the horse. You cannot have a sustainable and meaningful poverty reduction unless you first have growth. This especially true in Africa where a driver of change, like a vibrant middle class, is only now beginning to emerge. Not only business people and policy analysts in Africa are critical of what has become in the last decade a conventional truth. African political leaders themselves wish to get out of this hold. President Kagame of Rwanda, President Guebuza of Mozambique, and former president Ben Mkapa of Tanzania are among those who have expressed criticism of the current aid regime. The Executive Director of NEPAD, Ibrahim Mayaka, recently wrote the following:
African leaders must cast aside a tendency to “manage poverty” and instead pursue basic economic growth if they want to improve the lives of their people….If we stick to the paradigm of “how can we manage poverty and reduce it?”, we won´t be able to develop Africa…It has to be radically different (NEPAD Dialogue, issue 264, March 2010).
These are largely new signals from Africa where in the past business was often viewed as merely exploitative. With the rise of a new indigenous middle-class and a political leadership anxious to free itself from the straightjacket imposed by the ODA regime there is a serious interest in encouraging investments not only by foreigners but also local entrepreneurs.
A look to the future
Although the exact contribution of foreign aid to African development is not really possible to assess, after fifty years it has little to show for itself and there is a growing restlessness among African intellectuals and policy-makers that something needs to be done about this sorry state of affairs time has come to begin sketching on what a new development regime for Africa would look like and how it would be brought about. Some of the key components in such a transformation would be:
a) Bringing ODA to an end
This radical measure would be a necessary first step towards the new regime. It would bring to an end the harmful dependency on aid and donors. Such an exit option would compel both donors and recipients to rethink their cartel-like relations which have made them preoccupied with each other at the expense of other actors, notably parliament and civil society.
b) Creating an investment regime
The end of ODA payments would not mean the end of resource transfers from rich to poor countries but it would call for a more productive approach that puts local institutions in a position where they have greater leeway over how these additional external resources are used. The ODA regime has created a grant mentality in African circles that has limited the appreciation of foreign aid and the responsibility for its proper execution.
c) Strengthening the business climate
Development depends ultimately on economic growth and a country´s ability to generate jobs. A shift away from poverty reduction to investment in business and jobs would create more favourable conditions also for the growth of organized labor. By strengthening the formal business sector, jobs would be created that lend themselves to an expansion of the labor movement, always potentially a core member of civil society. It would also help modernize the outlook and attitude of people who are still caught in a dependency mentality hoping that somehow government will come to their help.
d) Improving infrastructure
Infrastructure may be described as Africa´s Achilles Heel. There has never been enough of it and whatever little the continent has had in terms of roads, railways, etc. has been poorly maintained. Donors have been moderately interested in expanding it. In fact, with a few exceptions, like the Americans during the Cold War, the only donors that have consistently supported infrastructural development have been the Asians. They may have done so to give contracts to their own companies and jobs to their own nationals, but their contributions have been lasting and their aid therefore greatly appreciated. The fact that their aid has come without political strings has obviously reinforced the appreciation among Africans, especially those in government.
e) Establishing new public-private partnerships
Many of the projects that would be needed in the future to tap and develop the continent´s resources would benefit from public-private partnership arrangements. They are likely to be capital-intensive; they will be potentially politically controversial; and, they would require technical expertise that is not available locally in African countries. A joint involvement by both private and public capital would be especially suitable in such situations. Such partnerships are not only economically important. They can help generate a better relationship between government and business and institutionalize the type of social capital that is necessary for sustaining a national strategy based on investment and a favourable business climate.
The state in Africa has an important role to play in the continent´s development but it will not do so as long as it is weak and artificially propped up by donor funds. It will only strengthen and become disciplined when it is being forced by circumstances and demands in society to collect domestic revenue in a more efficient and effective manner. Those best placed to exercise such pressure are the emerging middle-class, especially members of the business community who have a vested interested in a predictable and legal-rational environment. With a growing professionalization of this middle-class the scope for a more influential civil society will also grow and thus additional pressure from that direction.
Lions on the Move: The Progress and Potential of African Economies . London: McKinsey Global Institute, June 2010. OECD, Development Co-operation Report, 2009, 2009; Hudson Institute’s remittance calculations from DAC donors to DAC recipients based on data from the World Bank’s Migration and Remittances Team, 2008; GuideStar Data Services, 2008; Charles Sellen, 2008–2009; Stein Brothers, AB, 2008–2009; Council on International Development Annual Report 2008, 2008; New Zealand Red Cross, 2008; Coordinadora Ong Para El Desarrollo Espana, Informe de la Coordinadora de Ong de Para el Desarrollo-España Sobre el Sector de las Ongd, 2008; Vrije Universiteit Amsterdam, Geven in Nederland 2007, 2008; Hudson Institute 2008–2009 and published in Hudson Institute’s Index of Global Philanthropy and Remittances 2009, p. 18.