Making aid work for Africa

THERE is no single answer to Africa’s developmental challenges, no silver bullet and no quick fixes.The necessary components of success – good governance, careful leadership committed to popular welfare, conditions to ensure economic growth – do not demand rocket science either.

This recognises the growing difference among Africa’s 50-plus states, some of which have had impressive growth rates over the past 30 years, others of which have gone backwards. The Gleneagles Group of Eight summit has agreed to double African aid to US$50 billion by 2010.Presuming that this promise does not go the way of similar targets, this means that annual spending on individual Africans would increase from US$30 a head today to a little less than US$50, taking into account projected population increases.And this does not reckon for the fact that about half of aid is tied to the donor providing it, through debt-relief, technical assistance, emergency assistance, consultancies and interest charges.Sweeping debt-relief proposals change this picture, but not much, potentially reducing the debt stock up to US$55bn from levels of about US$320bn.There are other problems with aid expenditure and debt relief, including: a lack of absorptive capacity even of current flows; the corruption that aid fuels; the impression it creates of Africa as uniformly a basket case worthy of handouts rather than productive investment; that aid crowds out private investment; that it reduces the scope for developing appropriate African financial institutions for financing development on a sustainable basis; that the agenda remains determined from outside; and that aid places African states on short-term, emotionally driven aid cycles.To an extent these problems are mollified by a target state’s improved commitment to good governance, but African aid needs to act not just as a temporary salve, but as an investment for the future, in the best manner of capital, effecting compounding returns.The debate around aid has to shift, fundamentally, to find ways in which such transfers can be used as a catalyst for higher rates of growth in the short term, even though some African states will still require aid as a form of charity for humanitarian relief.The first challenge is for Africa to devise a new formula for using aid in a way that encourages private sector investment and thus the commercial sustainability of projects.A fresh focus on private-public partnerships in infrastructure could assist.This requires, however, first the identification of those sectors in which the return of capital is greatest.Second, the attraction of private funds on a matching basis for infrastructure projects.Third, the identification and establishment of a suitable management structure for these funds on a commercial basis.From a business perspective, this would apply a commercial logic to project roll-out; from a partner-governmental perspective it would offer the necessary expertise and efficient use of funding resulting in a positive donor-government-business delivery cycle.This type of management structure prioritises those states that have a demonstrable capacity to deliver this management.It would greatly assist Africa’s cause to demonstrate the vast economic and commercial potential by showing a list of public-private partnership type of projects that had been prioritised and modelled from a business perspective.For African good governance exemplars, aid would thus be used to assiduously lead investment in the development of human capital, and social and physical infrastructure rather than be used for short-term consumption.It is also important, however, to change public perceptions in the societies in which the aid originates about what this new money is for.Africa also needs to change the language of aid in seizing the agenda in a positive manner.Africa without aid should rhetorically encompass the following components: 1.Quadruple aid by attracting matching private sector investment to the increases promised through G-8.2.Promoting countries as beneficiaries with good governance and reformist records.3.Investing in Africa not for humanitarian reasons, but for more positive reasons of strategic business positioning.4.Steering the logic and altering the language from handouts to hand-ups.5.Stressing the need to differentiate Africa, in terms of governance and business conditions between states.All of this emphasises the need to change the language of aid from charity to investment, and the nature of the relationship from dependency to partnership, and the logic of such partnership from donor-government to donor-business-government.* The author, Dr Greg Mills, directs the Brenthurst Foundation, Johannesburg, dedicated to improving African economic performance.The Gleneagles Group of Eight summit has agreed to double African aid to US$50 billion by 2010.Presuming that this promise does not go the way of similar targets, this means that annual spending on individual Africans would increase from US$30 a head today to a little less than US$50, taking into account projected population increases.And this does not reckon for the fact that about half of aid is tied to the donor providing it, through debt-relief, technical assistance, emergency assistance, consultancies and interest charges.Sweeping debt-relief proposals change this picture, but not much, potentially reducing the debt stock up to US$55bn from levels of about US$320bn.There are other problems with aid expenditure and debt relief, including: a lack of absorptive capacity even of current flows; the corruption that aid fuels; the impression it creates of Africa as uniformly a basket case worthy of handouts rather than productive investment; that aid crowds out private investment; that it reduces the scope for developing appropriate African financial institutions for financing development on a sustainable basis; that the agenda remains determined from outside; and that aid places African states on short-term, emotionally driven aid cycles.To an extent these problems are mollified by a target state’s improved commitment to good governance, but African aid needs to act not just as a temporary salve, but as an investment for the future, in the best manner of capital, effecting compounding returns.The debate around aid has to shift, fundamentally, to find ways in which such transfers can be used as a catalyst for higher rates of growth in the short term, even though some African states will still require aid as a form of charity for humanitarian relief.The first challenge is for Africa to devise a new formula for using aid in a way that encourages private sector investment and thus the commercial sustainability of projects.A fresh focus on private-public partnerships in infrastructure could assist.This requires, however, first the identification of those sectors in which the return of capital is greatest.Second, the attraction of private funds on a matching basis for infrastructure projects.Third, the identification and establishment of a suitable management structure for these funds on a commercial basis.From a business perspective, this would apply a commercial logic to project roll-out; from a partner-governmental perspective it would offer the necessary expertise and efficient use of funding resulting in a positive donor-government-business delivery cycle.This type of management structure prioritises those states that have a demonstrable capacity to deliver this management.It would greatly assist Africa’s cause to demonstrate the vast economic and commercial potential by showing a list of public-private partnership type of projects that had been prioritised and modelled from a business perspective.For African good governance exemplars, aid would thus be used to assiduously lead investment in the development of human capital, and social and physical infrastructure rather than be used for short-term consumption.It is also important, however, to change public perceptions in the societies in which the aid originates about what this new money is for.Africa also needs to change the language of aid in seizing the agenda in a positive manner.Africa without aid should rhetorically encompass the following components: 1.Quadruple aid by attracting matching private sector investment to the increases promised through G-8.2.Promoting countries as beneficiaries with good governance and reformist records.3.Investing in Africa not for humanitarian reasons, but for more positive reasons of strategic business positioning.4.Steering the logic and altering the language from handouts to hand-ups.5.Stressing the need to differentiate Africa, in terms of governance and business conditions between states.All of this emphasises the need to change the language of aid from charity to investment, and the nature of the relationship from dependency to partnership, and the logic of such partnership from donor-government to donor-business-government.* The author, Dr Greg Mills, directs the Brenthurst Foundation, Johannesburg, dedicated to improving African economic performance.