Private sector assistance and the resolution of internal issues may be the keys to African growth.
By: Corinne Ton That
Today, Africa represents one of the most economically and politically underdeveloped regions of the world. The continent’s sluggish development pace can be attributed to its dark legacy of post-colonial conflicts.
In the past, the independence of many African countries brought about weak and failed states with dysfunctional economies compounded by bad governance, poor political leadership, and governmental corruption.
Approximately 40 percent of its population today is considered extremely poor, with individuals living on less than US$1 a day. The number of people living in extreme poverty has almost doubled from 1981 to 313 million in 2001.
It can also be safely concluded that countries that experience low economic growth and high levels of inequality are more likely to witness violent conflicts. One doesn’t have to look further than the besieged nation of Somalia to understand the pressing need for development on the continent; development being the key to overcoming violence while ensuring peace and security throughout Africa.
But in what ways will Africa develop? More specifically, in what ways can it successfully develop given the myriad of strategies out there?
Considering that the social businesses and private companies are able to benefit the livelihoods of countless individuals, the international community should now make it a priority to build upon these pioneering efforts.
One of the most popular and traditional methods of addressing development in Africa has been official development assistance (ODA), which consists of financial loans from international donors. ODA has undoubtedly bailed African countries in times of crises and has assumed importance within the UN MDG Programme as well as during the G8 Gleneagles Summit in 2005.
However, according to certain academics, such as John Kirton, head of the University of Toronto’s G8 research group, aid and debt relief do not necessarily foster development.
Instead, ODA may pose the problem of rendering countries dependent on international financial loans. For states, such as Mozambique and Uganda, ODA comprises of up to 40 to 50 percent of the national budget.
When corruption and bad governance – two issues that plague many African states – are taken into consideration, the benefits of ODA seem even slimmer. Weighed down by institutional weaknesses, limited technical staff, accountability and transportation issues, many African countries encounter several difficulties using ODA in a beneficial way.
So why is there an emphasis on ODA, given its mixed track record? According to Zaria Shaw, researcher for the G8 research group, it’s a question of geography. “We are less placed in Africa…we don’t actually have people on the ground to do the types of projects, like the microfinance project in Bangladesh. We’re much more involved physically in Asia and it’s not so far from us”.
The Grameen Bank, or ‘village bank’ in the Bengali language, to which Shaw is referring, is a microfinance organization and social business that essentially lends money to the poor, with an easy way for the poor to repay their loans. The Grameen Bank currently provides 81,371 villages with financial services all over Bangladesh.
For more than 33 years, the Grameen Bank has shown how credit-worthy borrowers the poor are, which makes it obvious that it has become important to include them financially.
Such daring and creative social businesses as the Grameen Bank prove that businesses can be used to solve problems rather than simply act as profit-maximizing entities.
Innovative financing methods would undeniably benefit Africa’s development. However, Shaw points to the post-colonial backlash that has made it harder for developed nations to work on a level playing field with African countries as opposed to Asian countries, for example, where the post-colonial pressure was felt to a lesser extent.
Yet, Shaw believes that the shape of the development model has changed, with ODA taking a backseat to innovative financing strategies. Development strategies have changed “not so much because of a catalyst, but because we’ve tried everything and certain things don’t work”, explains Shaw.
So where do we go from here? According to Shaw, the private sector will become increasingly involved in aspects of Africa’s development. Similar to the Grameen Bank, pioneering companies around the world are beginning to include the poor as full economic partners.
In Africa, one of the largest soft-drink bottlers, Coca-Cola SABCO, is working carefully to bring its products to markets all over the continent. In many countries of East Africa, the company has adopted a distribution model that involves working with independently owned, small-scale distribution companies, which employ bicycles and push-carts to transport its products to areas that are not accessible by truck.
The advantages of this system are evident in the creation of more than 12,000 jobs in East Africa, taking in $500 million in annual revenue. Considering that the social businesses and private companies are able to benefit the livelihoods of countless individuals, the international community should now make it a priority to build upon these pioneering efforts.
African countries must…build on rudimentary infrastructure in order to be competitive trading partners.
Another way to achieve greater development in Africa is through trade. According to Shaw, “trade has always been our vehicle of choice for peace and prosperity”. Yet Africa currently faces certain roadblocks and barriers to EU and American markets. As it currently stands, African nations are incapable of competing in world markets, or of moving their products effectively in order to take advantage of these markets.
While opening up markets will surely bring about advantages to African countries, free trade must be backed by appropriate governance polices, and issues of corruption must be addressed.
Change must therefore come within African countries as well. As Shaw so ardently put it, African countries must “first and foremost root out the endemic corruption”. They must also build on rudimentary infrastructure in order to be competitive trading partners. “It can simply be a matter of logistics – they can’t get their products to market”.
After all, some of the major areas of concern for Africa are the very basics every country must address in order to successfully develop. These include inadequate infrastructure, poor and corrupt governance systems, weak health services, and unemployment, to name a few.
By addressing the fundamentals of state development, with the simultaneous help of the private sector, the continent of Africa may have the chance to tackle more root problems than it would be able to were it to depend strictly on official development assistance and short-term loans.
Business News with BITE.
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