President Obama’s recent trip to three countries in Africa brought up much discussion on the issue of “aid versus trade” as the method for Africa to develop. He took over 100 US investors on his trip with the expectation that they would find new opportunities for US corporations in Africa.
My conclusion on this aid versus trade question is “Neither.” I will explain below.
The biggest argument against aid is that in the last 50 years it has contributed almost nothing to the development of Africa. Kenya, for example, is worse off now than it was in 1966 when I first arrived and this is ten years after digging out from the bottom in 2002 when President Moi was ousted.
A few years ago, the grants to Kenya to supply drugs to HIV+ individuals was stopped due to the usual Kenyan problem that too much of the aid had been embezzled and didn’t reach the intended recipients. The government quickly proposed that a tax on cell phone airtime and airline tickets would cover the costs of the missing grants. This caused an immediate uproar – “Why should Kenyans pay for something that was being give free to them by the international community?” I, on the other hand, would ask, “Why should the international community support a program that Kenyans can and should do themselves?”
In my book, A Peace of Africa, chapter 13 analyzes how the aid organizations garner the lion share of the aid funds that are allocate to them. Just last Monday, Gladys and I were invited to lunch at the “green zone” in Eldoret where all the US graduate students are required to live together at great expense so that they are segregated from the Kenyan people with whom they are supposed to work.
I could give many more examples, but the point is clear – aid is not likely to develop Africa. This, by the way, is a common conclusion here in Africa.
Therefore some – including Obama and the hundred businesspeople with him — are promoting the concept that trade will rescue the continent. It may make things worse. I have already indicated that the role of China (and many other nations) is to sell their “junk” to Africa while at the same time gathering as much of the resource base as they can to keep their own economy humming.
I just read an article that stated that university endowments are looking to invest in Africa because it is the last “economic frontier” and the returns at 8% or more are much higher than the rest of the world. In other words, they can invest a sum in Africa and expect to have it all back in about ten years and the rest of eternity is “gravy.” I would call this “exploitation.”
I have also read the book, Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens, by Nicholas Shaxson. International businesses do not want to make a profit in, say Kenya, where the profit will be taxed. Rather, by inflating the costs of goods and deflating their income, the corporations can hide their profits – untaxed by anyone – in one of the many of the world’s tax havens (which include the state of Delaware and the one square mile financial center called the “City of London”). Shaxson gives figures that indicate that, while aid to the developing world in 2008 was $100 billion, the amount lost through illicit transfer to tax havens was $1.2 trillion. Then the western world needs to look at the plank in its own eye – only 3% was due to corrupt money leaving the developing world, about 1/3 was due to criminal activity, but almost 2/3 was due to “cross-border commercial transactions” (page 29). Perhaps aid has been ineffective because it has been no more than a finger in the dike of the funds pulled out of Africa. Again I could go on and on.
What then is the answer? It is what President Nyerere proclaimed shortly after independence in Tanzania – kujitolea which literally means to “work for oneself,” or “self-reliance.” In 1969 I ate some of the best navel oranges in my life at a cooperative in Kenya call Ka-the-ka-kai. Today Gladys and I buy navel oranges from either Egypt of South Africa, depending upon the season. This is a trivial example, but in 2008, right after the post-election violence, the most profitable company, Safaricom, decided to sell one quarter of its stock, mostly to Kenyans. It was oversubscribed five times and 5 billion dollars or so sat idle in the banks, waiting for the resolution of the stock sale. What if all these funds were invested in productive activities in Kenya – and as the interest of the global business community indicates – there are a lot of ripe pickings?
Africa has been carved up into 55 mini-states, either in size or population. Yet China and India have more people each than all of Africa. Inner-African trade, which in East and Central Africa is growing substantially every year, needs to expand as quickly as possible and all the barriers that occur at every national boundary for the movement of people and of goods needs to be abolished. There is an exceedingly slow movement in this direction. In East Africa, it is due to the fear of the other countries that most of the benefits of inter-country trade will benefit Kenya.
I once missed a flight in Addis Abba, Ethiopia, and Ethiopian Airlines put me up for the night at a small hotel owned by an Ethiopian who had live in Boston for decades and then had returned with his savings and built this small hotel. We had a delightful time talking about the Boston Red Sox. One encouraging sign is that the 10% of the Kenyan adult population that lives and works overseas sends substantial funds back to Kenya, which in the past was used for family welfare, and is partly being channeled into productive investment in Kenya itself. Some people, like the Ethiopian mentioned above, return with expertise and funds.
In summary, I would say Africans need to be wary of strangers bearing either gifts or investments. If Africans wait for foreigners – either with aid or trade – they may wait forever as their destiny is outside their hands.