Friday, April 09, 2010

Rethinking Aid in Africa - A Guest Post

Few will deny that there is a clear moral imperative for humanitarian and charity-based aid to step in when a country or continent encounters a crisis, such as the recent earthquake in Haiti. Nevertheless, it's worth reminding ourselves what emergency and charity-based aid has its limits. Aid-supported scholarships have certainly helped send African students to school, and food aid has helped feed millions of people affected by persistent drought. This kind of aid can provide band-aid solutions to alleviate immediate suffering, but by its very nature cannot be the platform for long-term sustainable growth.

Over the past 60 years at least $1 trillion of development-related aid has been transferred from rich countries to Africa. Yet real per-capita income today is lower than it was in the 1970s, and more than 50% of the population -- over 350 million people -- live on less than a dollar a day, a figure that has nearly doubled in two decades.

Development related aid has also created aid dependency in many African governments in Burkina Faso, Rwanda, Somalia, Mali, Chad, Mauritania and Sierra Leone from 1970 to 2002, over 70% of total government spending came from foreign aid, according to figures from the World Bank this dependency makes this governments complacent in initiating any projects that may increase tax revenue since they are guaranteed “free money” every year.

On the surface development aid appears to be benign intervention, however unintended consequences can leave the recipients’ worse off say there is a tailor in small-town Africa who employs ten people and his company manufactures 500 clothes a week. Typically, these 10 employees support upward of 5 relatives each. An aid program generously supplies the affected region with tons of free clothes. This promptly puts the clothing manufacturer out of business, and now his 10 employees can no longer support their 50 dependents. In a couple of years, most of the donated clothes will be torn and useless, but now there is no tailor to go to. They'll have to get more aid. So long as there is a constant supply of free clothes local manufacturers cannot operate profitably.

If aid is not the solution, what is? The answer to this question is trade. Take the case of Botswana as an example, At the time Botswana became fully independent in 1966 it was a desperately poor country. Like most of the other countries in Africa, it had a per capita annual income of $100 by 2008 Botswana has a per capita annual income of $14,906, granted Botswana is blessed with huge diamond deposits but so is Congo, what has made Botswana a success is a policy of not depending on aid, investing in local industries and learning to live within its means.

Africa is a continent blessed with a large variety of natural resources, key among the resources is land. A recent study by the Food and Agriculture Organization of the United Nations (FAO) indicated that less than half of Africa’s agricultural potential is in use. Given the projected rise in global food demand over the next 50 years Africa has the opportunity of using trade to build sustainable economies which depend on trade in agricultural resources, natural resources and other services and not on development aid.

- John Mwangi

John Mwangi is a fellow Section V'er and comes to Darden from the country of Kenya. He graciously sent his Management Communication (MC) paper from last quarter to me so I could share his thoughts with the blogosphere.

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