by Ina Katherine Cook
For the past half century, the African continent has been rife with upheaval in numerous attempts to stabilize nascent institutional structures. Despite these attempts and billions of dollars in international aid, sub-Saharan Africa is still facing a development crisis. Susceptible to disease, treacherous weather, conflict and corruption, southern Africa faces a quandary as to what should come first: stable governments or stable markets?
Africa recently achieved its highest growth rate in 30 years, confirmed at a 5.5 percent increase in real gross domestic product by the Organisation for Economic Co-operation and Development (OECD). Several individual countries have much more positive estimates, such as Angola’s 15 percent growth and Ethiopia’s 7 percent rise. Unfortunately, in countries like Nigeria, where oil revenues have not been utilized efficiently, growth potential is often drastically stunted by corrupt regimes that manage to squander windfall profits. Any encouraging growth must be examined in the context of development in sub-Saharan Africa to understand overall development levels.
The 2006 Millennium Development Goals Report (MDG) offers appropriate context to understand growth rates in sub-Saharan Africa . The Report shows that even thoughAfrica has experienced landmark growth, the number of people living on less than $1 a day has decreased by only 0.6 percentage points from 1990 to 2002. Similarly, the report explains that the proportion of people living with insufficient food is only down 2.0 percentage points, from 33 percent in 1990 to 31 percent in 2003. Another component of the MDG is increased official development assistance to developing countries in order to achieve the eighth goal: forming a global partnership for development. This facet is often the basis for criticism of developed countries, who continually fail to meet their target contributions – set by the United Nations at 0.7 percent of gross national income – resulting in drastically lower than necessary aid contributions to highly indebted poor countries. The report explains that currently only five developed countries are contributing the target amount, thereby making the global partnership still somewhat of a pipe dream.
A crucial question for the success of these development goals revolves around the nature of foreign aid and its effectiveness. There is still an ongoing debate over which mechanisms for aid distribution are most effective. While the logistics of foreign aid are important, perhaps a more relevant debate would cover the merits of foreign aid versus foreign investment, private and public. This debate centers on the banal, but paramount idea of helping others help themselves. At the recent World Economic Forum in Cape Town, South Africa, the general perspective was in favor of development through investment.
Unfortunately, merely wanting development is not enough to inspire it. A number of different governmental and economic factors inhibit foreign development and investment in Africa. Many governments have established high interest rates and excessive red tape for foreign development, leading corporations to instead seek more welcoming environments outside of Africa . Additionally, corruption is standard in most of the continent. Corporate investment often must be negotiated through schemes of patron-client networks in addition to government regimes – thus businesses must find ways to mesh corporate responsibility policies with the mechanisms of corruption in different regions.
Within Africa, social capital is decidedly underdeveloped. Illiteracy, poverty, and disease make investment in the African population unattractive and corporate development much more expensive. Alternatively, the Africans themselves have a resilience that is often under appreciated. Despite market instability and problems such as currency devaluation, Africans still find ways to execute commerce. In an October 26 article, The Economist highlighted one such example, in which residents in some areas of Africa use cellular phone minutes as currency to carry out profit-making transactions. Innovations like this demonstrate the potential of the human population in Africa, and their ability to make use of technology. Wisely, most areas in Africa bypassed conventional telephone landlines and instead spent more time developing cellular technology.
Despite this potential, the pervasive risks of corporate investment seem insurmountable in contrast to the benefits of investing elsewhere. With such high costs, it appears almost pointless to consider potential gains. Some developers, though, do see benefits – and profits. Africa is a continent rich in natural resources that include diamonds, oil, coffee, tobacco and other agricultural commodities. While these assets are attractive to companies wishing to extract resources, corporate development does not engender the region with higher level skills and training, which are necessary to develop human capital in sub-Saharan Africa . These industries present a further dilemma because countries obviously benefit monetarily, but the removal of such resources is often very destructive to the land. Finally, Africa must eventually build an industrial sector in which the continent produces from these resources, rather than just exporting and leaving the state economies dependent.
On the positive side, Africa is only a partially tapped market. If Africans become more economically active, the continent will grow as an outlet for consumption. Promoting development through corporate investment now, will establish economic ties that might prove profitable in the future. Some have sensed this already. Developers from India and China are finding ways to use the risks to their advantage. By focusing on technology and infrastructure development, they are literally profiting from weak governments.
Aside from profit potential, corporate developers have a unique opportunity to draw investors and relieve poverty. When companies use their time and resources to develop human capital and teach skills, they give the poor and opportunity that may in fact allow them to rise out of poverty. This social development can be a huge marketing tool for corporations to attract further investment. Though the obvious fear for investors is that corporate sustainability and solvency are not feasible, this year’s recent Nobel Peace Prize, awarded to Muhammad Yunus and the Grameen Bank of Bangladesh, who successfully instilled social imperatives as a counter to the bottom line for financial institutions servicing the poor, demonstrates that a successful balance does exist between paring bottom lines with social imperatives.
This necessary balance emphasizes weaknesses in both of the common tools for economic development – foreign aid and corporate development. Foreign aid is almosttoo socially driven. While donor countries expect loans to be paid off and economic requirements to be implemented, there is an efficiency problem in how the loans are spent, and it cannot be overcome with a simple prescription for economic stabilization. In this respect, foreign aid needs a stricter bottom line, which must be tailored to individual countries and their economic needs. Concurrently, some corporate development is too profit driven. When corporations simply import their staff and company structures, those businesses are only leasing the land without contributing to the surrounding community. Though it might be more expensive to expend the time and energy training local residents to become effective staff members, this cost will have positive consequences for development in the country. Foreign investment can most effectively promote development by merging the moral obligation to help residents of less developed countries, with the profit obligation to keep businesses sustainable and effective as economic actors.
Email Ina Katherine Cook at ikc5@georgetown.edu
Established in 1995, the Georgetown Public Policy Review is the McCourt School of Public Policy’s nonpartisan, graduate student-run publication. Our mission is to provide an outlet for innovative new thinkers and established policymakers to offer perspectives on the politics and policies that shape our nation and our world.