Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa (17 page)

Second, in nearly all African countries surveyed, more people view China’s influence positively than make the same assessment of US influence. Majorities in most African countries believe that China ‘exerts at least a fair amount of influence on their countries’. In Ivory Coast, Mali and Senegal significantly more notice China’s influence than America’s (79, 83 and 72 per cent for China, versus 65, 66 and 54 per cent for the US, respectively).

Third, across Africa, China’s influence is seen as growing faster than America’s, and China is almost universally viewed as ‘having a more beneficial impact on African countries than does the United States’. For example, although the vast majority of Ethiopians see both China and America having an effect on the way things are going in their country, China’s influence is viewed as much more positive than America’s. By a 61 to 33 per cent margin Ethiopians see China’s influence as benefiting the country; whereas America’s influence is viewed as more harmful than helpful, with a 54 to 34 per cent margin, respectively. The margins are even more pronounced in Tanzania, where 78 to 13 per cent believe Chinese influence to be a good thing, while 36 per cent view America’s influence as a good thing versus 52 per cent a bad.

Even where countries view both Chinese and American influence as beneficial, China’s involvement in Africa is viewed in a much more positive light than that of the US. For example, 86 per cent in Senegal say China’s role in their country helps make things better, compared to America’s 56 per cent. A similar pattern is noted in Kenya, where 91 per cent believe China’s influence on their economy is good, versus America’s 74 per cent.

A final point worth highlighting is that, across much of Africa, China’s influence is already as noticeable as America’s, and is increasing at a much more perceptible pace than America’s. In Senegal, 79 per cent see China’s influence as growing, as opposed to America’s 51 per cent. Survey results are similar in Ethiopia, Ivory Coast and Mali.
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Indeed, not only are the benefits of China’s African presence acknowledged, but they are also being spread more widely. Traditionally China was narrowly focused on resource interests, benefiting only a few. However, as discussed earlier, in recent years China broadened its investment horizons (now encompassing other sectors) and people are benefiting from the trickle-down effect of its resource investments – employment, housing and better standards of living. For many Africans the benefits are all too real – there are now roads where there were no roads, and jobs where there were no jobs. Instead of staring at the destructive desert of
aid they can, at last, see the fruits of China’s involvement, the latter clearly a factor in Africa’s posting a 5 per cent growth rate in recent years.

This is not to say that Chinese FDI does not have challenges. Some are worried that Chinese companies are underbidding local firms and not hiring Africans. There are also concerns at lax safety standards around hazardous jobs – mainly in the mining and mining-related industries. This may well be the case, but this is where African governments should step in and regulate – African governments (accountable to their own people), mind you, not everyone else.

For example, in order to increase the participation of indigenous Africans in many of the industrial and mining opportunities, some African governments are legislating for a required minimum level of participation by the local population. In much the same way that South Africa introduced its Black Economic Empowerment regulations, and the US has its affirmative-action policies, Zambia recently announced the Citizens Economic Empowerment Commission, which covers similar ground.
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Bartering infrastructure for energy reserves is well understood by the Chinese and Africans alike. It’s a trade-off, and there are no illusions as to who does what, to whom and why. There are those who see China as merely using Africa for its own political and economic ends. To continue to grow at its extraordinarily rapid rate China needs fuel, and Africa has it. But for Africa it’s about survival. In the immediate term, Africa is getting what it needs – quality capital that actually funds investment, jobs for its people and that elusive growth. These are the things that aid promised, but has consistently failed to deliver.

Of all the developing countries, China stands as the largest foreign investor in Africa. But it is not the only one: India, Russia, Japan, Turkey and the broader Middle East are not far behind.

In April 2008, in New Dehli, India launched its own Africa manifesto – the India–Africa Forum – promising, like China, credit lines and duty-free access to Africa.
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Specifically, India would double its credit lines to Africa from US$2.15 billion in 2003/2004 to US$5.4 billion in 2008/2009. Not to be left out, Russian companies have also joined the gold rush. Recently, the Russian gas giant Gazprom offered to invest up to US$2.5 billion to develop Nigeria’s natural-gas reserves, and in May 2008 Japan hosted the Fourth Tokyo International Conference on African Development, where forty-five African leaders and ministers were wooed, with much the same elixir – trade, aid, debt relief and infrastructure.
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Also in May 2008, Turkey signed mutual trade agreements with thirty-five African countries (including Burkina Faso, Cameroon, Ethiopia, Ghana, Kenya, Liberia, Nigeria, Senegal, South Africa and Tanzania), offering to trade under tax incentives and with government support.
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More generally, the World Bank’s President, Robert Zoellick, has urged Sovereign Wealth Funds (whose assets are estimated to be at least US$3 trillion) to invest 1 per cent of their proceeds in equity investment in Africa. Many of them have already done so. The pattern is clear.

From whatever perspective, it’s a win-win proposition.

For Africa’s investors they have money to put to work (China’s reserves topped US$1 trillion in 2007), and they have economic growth they need to sustain. For Africa, besides the physical infrastructure, the growth and the jobs, there is the promise of poverty reduction, the prospect of a burgeoning middle class, scope for increased know-how and technology transfer, and ultimately more FDI.

For Dongo, the FDI opportunity knocks.

Despite the opportunity, current forecasts of FDI to Africa remain disappointingly low. According to the
Economist
(EIU), global FDI inflows are projected to grow at an annual average rate of
8 per cent between 2006 and 2010, whereas for Africa the share will remain at around a depressing 1.4 per cent.
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Without sizeable and sustained investment, African workers remain unable to earn competitive wages as there is insufficient capital to invest in machinery, buildings and hardware that could make them more productive. This directly hampers Africa’s prospects for growth.

The experience of countries as far-flung as Singapore, Mauritius, China and Costa Rica suggests that where there is a positive environment, FDI will flow and contribute to sustained growth. But who would want to invest their money in aid-ridden states where it is easy for others to take property away, either at gunpoint or through corruption?

Just as throwing aid money at poor countries does not work, simply boosting investment is not the key to economic growth either. Only when capital is allocated to its most productive uses will an economy benefit, and this can only happen when governments are given incentives to respect and support those industries that can contribute to a country’s longer-term potential. The ceremony to cut the red ribbon to launch the newest road, bridge or port is easy. The hard part is ensuring the longevity of infrastructure, which can only be achieved if the economy is growing (tolls on toll roads only make sense if people can pay them, and they can only do so if the economy is on the move).

Because not all African countries are equal – some have fewer natural resources than others, or fewer investment opportunities – the amounts for FDI will vary from border to border. For these countries, less favoured by nature, there is yet another route to finance development that they should pursue.

In December 2005, at the Second Conference of Chinese and African Entrepreneurs, China’s Premier, Wen Jibao, pledged that China’s trade with Africa would rise to US$100 billion a year within five years. Forget the capital markets, forget FDI, forget the US$40 billion a year aid programme, and forget trade with any other country in the world – this is just trade with China. Assuming that nothing else changed, that could be US$100 billion in 2010, US$100 billion in 2011, and the year after that, and the year after that, and the year after that.

By 2015, just five years later, that would be US$500 billion of trade income – 50 per cent of the trillion dollars of aid that has made its way to Africa in the past sixty years. The difference is, of course, one is laced with bromide, the other steroids.

Economic theory tells us that trade contributes to growth in at least two ways: by exactly increasing the amount of actual goods and services that a country sells abroad, and by driving up productivity of the workforce – our mosquito net maker from
Chapter 3
, selling 500 nets a week, could perhaps sell 1,000 were he able to export some of them abroad. To do so, his productivity would have to increase, which is good for growth.

The economic benefits of trade are, for the most part, a generally accepted truth (see Dollar; Sachs and Warner; Edwards). However, not all countries that have embraced trade have seen a concomitant rise in their growth. Indeed, countries can be classified into three broad categories: winning globalizers, who have increased trade and seen increased growth; non-globalizers, who eschew trade and have, unsurprisingly, seen little accompanying growth; and, paradoxically, the losing globalizers, who have increased trade but seen no associated growth. Tragically, many African countries fall into this third group. Why?

It all comes down to politics. In an uncertain world, Western countries (notably France and the US) are fearful of relying on other nations for their food in the event of a global war. Moreover, elected Western politicians have remained keen to protect their agricultural markets, and win the backing of the powerful farming lobby. The net result is a protective world of trade restrictions and barriers thrown up around the West, to keep African (and other developing regions’) produce out. But developed markets are crucial, in terms of both purchasing power and size, for African trade, which depends on such countries for much of its export revenue.

The members of the Organization of Economic Cooperation and Development (OECD) – a club of rich nations – spend almost US$300 billion on agricultural subsidies (based on 2005 estimates). This is almost three times the total aid from OECD countries to all developing nations (of course, some aid advocates suggest compensating Africa for this imbalance with more aid). Estimates suggest that Africa loses around US$500 billion each year because of restrictive trade embargoes – largely in the form of subsidies by Western governments to Western farmers.

In the United States alone, the total annual amount of farm subsidies stands at around US$15 billion, and that number is rising. As a share of farmers’ income, subsidies rose from around 14 per cent in the middle of the 1990s to around 17 per cent today. The 2002 US Farm Security and Rural Investment Act gave US farmers nearly US$200 billion in subsidies for the subsequent ten years – US$70 billion more than previous programmes, and represented as much as an 80 per cent increase in certain subsidies.

The Europeans are just as protective. The Common Agricultural Policy (CAP) eats into around half the European Union’s budget of €127 billion (direct farm subsidies alone are worth nearly €40 billion), and EU subsidies are approximately 35 per cent of farmers’ total income. What this means is that each European Union cow gets US$2.50 a day in subsidies,
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more than what a billion people, many of them Africans, each have to live on every day.

For the West, it would appear that everything is sacred: steel, cotton, sugar, rice, wheat, corn, soybeans, honey, wool, dairy
produce, peanuts, chickpeas, lentils and even mohair. These subsidies have a dual impact. Western farmers get to sell their produce to a captive consumer at home above world market prices, and they can also afford to dump their excess production at lower prices abroad, thus undercutting the struggling African farmer, upon whose meagre livelihood the export income crucially depends. With the millions of tons of subsidized exports flooding the market so cheaply, African farmers cannot possibly compete.

Look at what has happened to two of Africa’s chief exports: cotton and sugar, both of which have to contend with their Western counterpart producers.

In 2003, US cotton subsidies to its farmers were around US$4 billion. Oxfam has observed: ‘America’s cotton farmers receive more in subsidies than the entire GDP of Burkina Faso, three times more in subsidies than the entire US aid budget for Africa’s 500 million people.’

Yet, the livelihoods of at least 10 million people in West and Central Africa alone depend on revenues from cotton, including some 6 million rural households in Nigeria, Benin, Togo, Mali and Zimbabwe.

In May 2003, trade ministers from Benin, Burkina Faso, Chad and Mali filed an official complaint against the US and the EU for violating WTO rules on cotton trade, claiming that their countries together lost some US$1 billion a year as a result of cotton subsidies.

In Mali, more than 3 million people – a third of its population – depend on cotton not just to live but to survive; in Benin and Burkina Faso, cotton forms almost half of the merchandise exports. Yet thanks to subsidies, Mali loses nearly 2 per cent of GDP and 8 per cent of export earnings; Benin loses almost 2 per cent of its GDP and 9 per cent of export earnings; and Burkina Faso loses 1 per cent of GDP and 12 per cent of export earnings. Moreover, a 40 per cent reduction in the world price (that is, equivalent to the price decline that took place from December 2000 to May 2002) could imply a 7 per cent reduction in rural income in a typical cotton-producing country in West Africa like Benin.