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President
Mbeki's call:
the
need for a massive aid program for
Africa
By JONATHAN
POWER
November 29th, 2000
LONDON - Surely a massive infusion of aid into Africa
would be to pour money down a rat hole? Isn't this the
mistake that was made in the past - enormous generosity
by the rich countries only to see it wasted on
misconceived projects, bad economic management and, at
its worst, siphoned away into war and corruption, as is
so evident in say Zimbabwe right now? But a call for more
aid is the essence of a remarkable interview given to the
Financial Times on Tuesday by South Africa's president,
Thabo Mbeki.
The rat hole is one way to look at it. But another,
equally plausible, is to say enough African countries
have turned off the low, downward, road and are walking a
more straight and narrow path of fiscal responsibility.
They have good macro economic management and low
inflation rates and have set up management systems that
would use the money much better than in the past.
Besides, after years of struggle, President Bill Clinton
has finally persuaded the Republican-dominated Congress
to do what it swore it would never do: sign on to the
great international debt relief program for Africa. This
is perhaps the moment to give Africa a new start.
But, wait a minute, say more sober voices. Surely that
is enough for now. The debt relief, having been mired
down in the rut of hesitant western governments and, more
latterly, an even more slow moving US Congress, may be
gaining speed too fast. Are the African recipients really
going to be well enough organised to use this relief to
build up education and health programs for the poorest
sectors of society as they promised when negotiating this
deal?
A group of economists, working under the aegis of the
much underrated United Nations Conference on Trade and
Development, recently stuck their necks out, arguing that
"doubling the current amount of aid to give a big push to
African economies today could end their aid dependence
within a decade". This, they say, "would sustain rapid
growth for a sufficiently long period and allow domestic
savings and external private flows to gradually replace
foreign aid".
At the moment, African countries face stagnating or
falling aid from abroad. At the same time private capital
flows have also dried up, despite all the many reforms to
liberalize their economies and make them more attractive
to foreign investors. African countries, like their Asian
counterparts, have experienced great volatility in
investment flows, though without attracting the same
attention of the international community since Africa's
capacity to upset the world financial system is zero.
Yet it is only 20 to 30 years ago that these self same
Asian countries that now have the power to unsettle
markets in London or New York had as little clout as
Africa does today. Their experience of high powered
growth over a generation suggests that if in Africa
national income could be raised by around 6% a year and
sustained for a decade or so then private capital would
be attracted in sufficient amounts to make aid much less
necessary. Often overlooked is that in the early 1970s
some African countries experienced increases in
investment and growth at rates faster than in some of the
East Asian countries. The African effort came to grief
because industrialization was pursued without adequate
attention to the agricultural sector and to industrial
competitiveness. Only two countries, Botswana and
Mauritius, have showed what the rest of Africa might have
achieved with more sensible policies and better
government.
Two important things are known about private
investment. First, it follows behind growth rather than
leads it. And, second, an increase in lending by the
World Bank and the International Monetary Fund is a
catalyst for private capital inflows. This, in a
nutshell, is the argument for more aid.
Of course, it does not necessarily follow that a
greater injection of aid will be translated into rapid
growth capable of both raising living standards and
generating domestic resources for investment. This will
only happen if the aid is used for the kind of imports
necessary to add to productive capacity, and is not used
for financing capital outflows or building up excess
reserves, as happened in the past. Reserves have been
seen necessary as a precautionary buffer against
continuous falls in commodity prices. Indeed it is this
problem of falling prices for Africa's traditional
exports- coffee, cocoa etc.- that has contributed to the
so called "aid fatigue" of the rich countries. Much aid
has simply gone in trying to compensate for the resulting
losses and there has been not much left over for
developing sustained growth. However, the effort over the
last decade to "squeeze Africa into shape" by pushing it
to follow International Monetary Fund-prescribed
"structural adjustment" has not markedly improved
Africa's predicament. By encouraging countries to rely on
market forces the IMF has ignored shortcomings in
markets, institutions and infrastructure. While the state
has withdrawn from economic activity, often enough
private enterprise has not moved in to take its place.
Incentives may have been generated but then there was
little response from would-be entrepreneurs for want of
physical and human infrastructure. It is too often
overlooked, when evaluating the success of the Asian
"Tigers", that the Asian governments pushed hard with
direct intervention to encourage savings and to
accelerate capital accumulation.
This is why what is needed now in Africa is a
judicious combination of a big push in external aid and a
reorientation of domestic policies away from the mistakes
of the past. Both market institutions and state
institutions have to be encouraged. Then Africa will have
a chance of triggering a virtuous circle of rising
national savings, investment and faster growth. This is
what President Mbeki is calling for. It is the right time
to give it a go. Present policies will merely perpetuate
aid dependency, which is the road to nowhere. Note for
editor 1) Copyright JONATHAN POWER 2) dateline London 3)
I can be reached by phone on:+44 7785 351172 or by
e-mail: JonatPower@aol.com
I can be reached by phone +44
7785 351172 and e-mail: JonatPower@aol.com
Copyright © 2000 By
JONATHAN POWER
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