Aid, loans, commodity exports and prospects of Africa’s prosperity (6)

Nestory Fedeliko (FEDE) produced this cartoon for the LSE Africa Summit 2015

PERSPECTIVE, DIRECTION AND FOCUS, these three major areas of consideration require African nations’ undivided attention if the continent is to make any remarkable progress in the future. Till now, African perspectives in areas of existential importance are at best tied to the colonial past. These are influenced greatly by the infusion of foreign culture, taste and lifestyle. Most consumer goods currently in use in most African countries are still imported. Many products that can be made in Africa are imported. In many cases, the raw materials originate from Africa while the finished products are imported back into Africa. Italy is the home of many of the world’s best leather products, but Africa is the source of much of the hides and skins used for the leather products. The perspective in Africa still remains one of treating raw animal skins as export commodities, sold at giveaway prices while exotic leather products are sold at exorbitant prices.

African countries are yet to define their strategic direction in the world economy. Emphasis on industrial development seems to have failed. The era of cheap labour came and passed and Africa missed the golden opportunities of utilising cheap labour to jumpstart its industrial engine. The pervasive and perverse influence of the Bretton Woods institutions – the International Monetary Fund (IMF) and the World Bank – on many African countries has aided or rather provided a fillip to de-industrialisation. Manufacturing sector of the economy in Africa has become nearly comatose for a number of reasons, chief among which is competitiveness. The cost of generating electricity to power the industries – small, medium and large scale – is enormous and constitutes one of the great hurdles for the manufacturing enterprises. Public sector loans are on the increase, while the cost of servicing such loans is becoming prohibitive as the debt-to-GDP ratios in many countries are already exceeding 100 percent. 

In essence, many countries have gone bankrupt and are desperately in need of a bailout. If they are commercial entities, they need massive injection of funds to continue to survive, or they simply have to wind up their operations and go into liquidation. They are thus shackled and are unable to make any giant strides toward industrial development, massive job creation and growth of vibrant consumer economy arising from increase in production and rise in personal incomes. Today, most African countries still struggle with trying to grow small scale industries, mostly in the informal economy as major creators of jobs and revenues. Strategic focus on global competitiveness is grossly lacking. By now, African countries ought to have been divided into strategic zones based on specialisation. As most countries try to do so many different things at the same time and none of them has been done well enough to earn any of them distinction, the continent remains less relevant to other parts of the world.

Unlike in the tiny UAE where – in the last 30 years – some cities have become known as aviation hubs, maritime hubs, tourism hubs, investment hubs, services hubs, knowledge hubs and hospitality hubs, the vast African continent has declined in relevance in all of these. The question can be asked: what is Africa strategically known for in the world economy today? That will bring us back to one obvious answer, and that is: commodities for export. Comparatively, the manufacturing sector is giving way to the services sector as major revenue earners for advanced economies while extractive industries – mining and agriculture – yield relatively lower revenues to countries that depend heavily on them. This is a major challenge for Africa today. Meanwhile, these extractive industries are the causes and sources of hostilities, internecine wars and chronic crises within many African countries. The Kivu provinces of Eastern DR Congo have been through years of wars that are related to bitter struggles over mineral resources. The incessant volatility in the Central African Republic is also for similar reasons. Lingering cold war between Ethiopia and Egypt as well as Ethiopia and Sudan over the dam on River Nile is another type of crisis over natural resources. 

The ubiquitous presence of aid agencies in Africa now is an indictment on the continent.  It validates the mindset of aid donor countries or philanthropies that have concluded that African countries are incapable of solving their own problems by themselves. One of the countries that spend enormously on aid to Africa is the United States of America. Beyond sheer altruism, the US – it must be noted – is giving out aid in the promotion of its own self-interest. For emphasis, foreign aid is not a charity and is often part of a political strategy. Although the US foreign aid is government money, resources and technical assistance voluntarily given to organisations or countries that have shared interests, it is fundamentally and historically a political issue, with some claims to morality, beginning under President Harry Truman, following World War II, to avoid a humanitarian disaster in devastated regions of Europe. This started in 1948 in what was then known in the US as the European Recovery Programme, or the Marshall Plan, providing billions of dollars to countries in Western Europe. More than just a recovery programme, the US used foreign aid to gain the support of Western Europe and gain ground against the Soviet Union then and thereafter.

That there is no free lunch in the US is a truism aptly applicable to its aid support to other countries. In addition to using it to gain political clout and support internationally, the US uses its aid to boost trade relations with other developing countries while increasing American jobs. To treat the acceptance of African products in the American market as an opportunity speaks volume. The African Growth and Opportunity Act (AGOA), a piece of legislation hammered out by the US Congress in May 2000, was meant to assist the economies of sub-Saharan Africa and to improve economic relations between the US and the region. Under AGOA, eligible sub-Saharan African countries are provided with duty-free access to the US market for over 1,800 products. This programme ought to have ended much earlier as it was perceived as a failure and needed to reinvent itself. But, in 2015, Congress passed legislation modernising and extending the programme to 2025. Out of the 55 African countries, 32 are considered eligible for AGOA benefits in 2024. Before it expires in 2025, it is necessary to ask what it has achieved in 24 years and why African governments are seeking an extension of AGOA beyond 2025.

Despite the much hype, AGOA has remained gravely underutilised and has not lived up to its promises. The US government particularly has failed to sensitise the US business community or rally behind this policy as it did not understand that African businesses lack the infrastructure needed to capture value chains. The same applied to African leaders who merely approached the programme with a lackadaisical attitude, probably expecting it to fly on autopilot, thus failing to educate the world about Africa’s export potential and failed to organise the local market to drive the investment opportunities that could have tapped into AGOA.

It is surprising that there was such a coincidence of gaps on both sides of the divide in AGOA despite the long term dealing of the US with Africa. If the knowledge and experience gained from decades of humanitarian assistance to African countries by the United States Agency for International Development (USAID) did not equip the US to know and understand the weak points of African countries’ bilateral trade relations and how to fix them, what else could have done it? Either the agencies of the US government involved in humanitarian aid do not have a repertoire of experience, or they do not share experiences with other relevant agencies or – worst still – the US government is simply paying lip service to the transition of Africa from aid dependency to vibrant trade. On the African side, the lack of readiness to meet minimum acceptable standards for traded commodities is both an embarrassment and a mark of incompetence – which stems more from complacency and official irresponsibility.

If indeed the US has a true plan to help free Africa from poverty, reduce or eliminate foreign aid dependency and receive greater returns on its international trade, the US therefore has to consider a change in its strategy and emphasis on aid and should give more attention to trade facilitation and capacity building. The US spends $40 billion in overseas development assistance, and total aid from rich countries is now around $168 billion per year, according to the CATO Institute. The US has a dismal record of foreign aid. Part of what it should discontinue is the implementation of programmes that simultaneously provide loans to the private sector in developing countries and oppose schemes that guarantee private sector investments abroad and its discomfiture over increase in China’s foreign aid. Observers have pointed out that despite that increase in foreign aid, the development outcomes are not inspiring enough. In essence, there is no correlation between aid and growth as the aid that goes into a poor policy environment does not work and contributes to debt. It has also been observed that aid conditional on market reforms has failed and countries that have adopted market‐​oriented policies have done so because of factors unrelated to aid.

It does appear like an increase in aid indicates a gap between the scholarly consensus on the limits of development assistance and the political push that has made more spending happen. According to the CATO Institute, the failure of conventional government‐​to‐​government aid schemes had been widely recognised by the 1990s and brought the entire foreign assistance process under scrutiny. It cited a statement credited to Clinton administration task force, that “despite decades of foreign assistance, most of Africa and parts of Latin America, Asia, and the Middle East are economically worse off today than they were 20 years ago.” It added that, as early as 1989, a bipartisan task force of the House Foreign Affairs Committee concluded that U.S. aid programmes “no longer either advance U.S. interests abroad or promote economic development.” These have telling implications for African countries that need to urgently turn their expectations away from perennial foreign aid in support of their economies, particularly on the ground of questions of sustainability and future reliability. It is therefore clear that Africa’s future remains rather bleak with foreign aid, no matter how well-intentioned they appear to be. It is therefore time for African countries to chart their own development and foreign trade promotion paths by themselves and put a permanent end to the delusion about foreign aid. The earlier this is done, the better for Africa.

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