Despite the billions of dollars in ‘aid’ delivered in previous decades, persisting challenges in many African nations calls for a more holistic approach to development assistance that aligns with the priorities of local governments.

When I was in high school in the late 1960s, I remember taking part in a church sponsored camp focused on helping the newly independent and soon to become independent countries of sub-Saharan Africa. The theme of the conference was “trade – not aid”. The background was natural disasters (drought, famine and disease) and man-made disasters (Cold War rivalry with both the West and the then USSR propping up unsavoury regimes, anti-colonial and post-colonial conflicts).

Four decades later, the Cold War is over, but many of Africa’s problems persist and in some cases it could be argued, are worse than before. This is notwithstanding the billions – possibly more than a trillion dollars of “aid” that has been poured into Africa over recent decades.

In her book Dead Aid (see box on page 42), Dambisa Moyo argues that aid itself is the problem – feeding corrupt regimes, replacing the products of current and nascent local industry and stifling local entrepreneurship.

Balancing trade, investment and aid

While there are no easy answers it is clear that in order to assist African nations overcome the many problems facing them, what is required is a balance of trade, investment and aid – which also needs to be scalable and appropriate to the countries concerned.

In recent years there has been significant progress in adopting this more holistic approach, particularly with respect to multilateral agencies, national governments and NGOs working in a more complementary manner. Another major advance has been deeper co-operation between all of these with the private sector of the developed and developing world.

Failure of the Doha round and the continued protection of agriculture in the EU, USA and elsewhere also create significant impediments to African countries generating food self-sufficiency and export wealth.

When ‘food aid’ consists of surplus production from wealthy countries, it exacerbates these impediments. Indeed, development NGOs such as CARE USA abandoned monetised food aid programs some years ago, recognising the distortions they can create in non-crisis situations.

Although they are of course interlinked with programs which have a long-term economic focus, the nature and delivery of aid at times of crisis and health focused programs should be looked at separately.

Given the magnitude of problems facing many of the countries of sub-Saharan Africa, it is easy to overlook the very real progress that is being made both broadly and specifically. During the past decade economic growth in sub-Saharan Africa has averaged 5.7 per cent compared with an average of only 2.4 per cent over the previous two decades. McKinsey estimates that there are currently as many middle class households in Africa as there are in India.

Inwards Investment to Africa in 2009 was close to AU$60 billion compared with AU$10 billion in 2000. With Africa’s great intrinsic wealth representing 12 per cent of the world’s petroleum and 30 per cent of the world’s known mineral resources, much of this investment has gone into the resources sector.

The social capital created by education programs combined with aid to that sector in the better-governed countries should not be underestimated. Unfortunately, too often poor governance and other factors lead to a brain drain of qualified people.

There is also a tendency to underestimate the progress that has been made in underpinning economic development through programs such as provision of microfinance. These enable and encourage self-reliance and entrepreneurship in enterprises appropriate to local conditions. Some NGOs have been active in assisting the establishment of institutions providing these facilities and have been working with existing African banks to extend their banking products beyond standard retail banking.

Investment potential across multiple sectors

Potential for further investment is not limited to mineral resources. Africa has 60 per cent of the world’s uncultivated arable land and already, investors from the Middle East have established agribusiness enterprises in Sudan and other east African nations as part of long-term food security objectives. Such projects need careful scrutiny to ensure that local communities also gain a net benefit from them.

There is also investment potential in the manufacturing and services sector. During a visit to Kenya I heard discussion about Western companies moving some low-tech manufacturing and service ‘back office’ operations out of China because of rising costs and considering ‘leapfrogging’ India and moving directly to East Africa.

Ms Moyo argues strongly in favour of Chinese investment in Africa, which has grown dramatically over the past decade. She says that it should be welcomed almost unconditionally, or at least, conditions should be those solely determined by African Governments and not necessarily aligned with international ‘norms’. There is no question that the infrastructure created by Chinese interests – much of which is aimed at supporting resource extraction for Chinese use – can be beneficial to the country concerned.

Good governance is the key to maximising local benefit

Worldwide, but particularly in Africa, the pattern has been that the wealth created from resource projects when accompanied by good governance, will benefit the country at large.

However, much of the Chinese investment is ‘turnkey’ as all materials, labour and even food is brought from China and local communities are left with an asset but no benefit from the construction process. Additionally, sometimes in the case of capital equipment, there is no training for locals in how to use it. Some countries do insist on the latter and undertake a rigorous approach to net national benefit, but others do not.

Unfortunately, when good governance is missing and some standards of corporate and social responsibility are not observed, the wealth generated from these projects can do more harm than good. This occurs when corrupt practices divert most of the wealth to a small elite and cause environmental and social havoc in local communities and sometimes the country at large. Governments, international organisations and private sector investors do have a collective responsibility to foster good practice.

The World Association of Investment Promotion Agencies (WAPIA) undertakes a number of activities aimed at assisting developing countries formulate programs to attract productive inwards investment. More work needs to be done to ensure that scarce funds spent on this by developing countries is aimed at securing sustainable investment in a particular sector with demonstrated business potential as opposed to ‘broad brush’ travelogue type promotions. Equally standards for corporate and social responsibility, particularly in the mining sector, need
to be established and enforced.

The potential for further investment growth is enormous. The challenge will be to ensure that it is channelled to maximise local benefit.

So what about trade? Given the recent collapse of the Doha round and the damage to African interests caused by EU and US farm subsidies, it would seem that that apart from resource wealth, there is little that most African countries can ‘trade’. But to many, a key obstacle to African growth is the lack of trade between African countries themselves. Many local industries are dependent on distant markets and investments from those markets – often part of the colonial legacy. This means that economies of scale arising from comparative advantage and similarities of consumer needs and preferences cannot be maximised.

The need for a coordinated and holistic approach

While these issues are being addressed somewhat by multilateral organisations as well as national governments, there needs to be much greater focus on creating infrastructure and encouraging economic linkages between proximate countries.

The International Trade Centre (ITC) – a joint United Nations and World Trade Organization agency – undertakes a range of activities aimed at assisting developing countries develop capacity in international trade. The Aid for Trade program is aimed largely at addressing the issues described above.

The ITC also promotes co-operation between public and private sectors and assists national trade promotion organisations in tradecraft and the use of advanced technologies in disseminating information.

Similarly, the World Intellectual Property Organisation (WIPO) undertakes technical assistance programs to enable developing countries to develop capacity to protect intellectual property.

Many volumes have been written about the effectiveness of aid programs whether undertaken by multilateral agencies, foreign government agencies or NGOs, but it is obvious that a holistic approach to co-ordinating all of this support with the priorities of national governments is desirable.

In November 2011, the Australian Government launched a Transparency Charter for the Australian Aid Program aimed, inter alia, at improving the effectiveness and efficiency of the Australian aid program. Many other countries and agencies have similar charters but it could be argued, of varying effectiveness. The Government also responded to the recommendations of the independent review of aid effectiveness of which a key element was the integration of aid with investment and trade outcomes.

In parallel processes, the Australian Government dramatically increased its aid budget to Africa but focused particularly on an area where Australia has particular expertise – the management of mineral resources. Programs will range from building capacity in appropriate regulation, including corporate and social responsibility to technical matters and in corporate structures such as public-private partnerships. These programs are complemented by 400 Australia-Africa award scholarships that will increase to 1,000 in 2013. Again, focus will be on priority areas such as medicine and public health, natural resource management, agribusiness and food security.

While the challenges of overcoming the complex issues confronting African nations are formidable, the approach suggested and now being implemented to some degree, offers more hope than might have been the case only a few years ago.