It seemed like the time was right for me to pen this post about trade -vs- aid. This is a discussion that has a tremendous amount of relevance in Sub Saharan Africa. But it is also relevant in other parts of the world where developing economies are predominate.
Now of course the concept of nations climbing out of the low income status by trade is not a new one. In fact the concept has been around for nearly four centuries and was made popular by Adam Smith. He posited that national national wealth creation comes by way of nations playing to their natural and practical strengths therby producing the items that other nations demand.
So then “what’s the big deal?” some may ask. In other words if it has already been established so long ago that sustaining an economy through production, as opposed to aid, is desirable then we probably shouldn’t be needing this conversation. But we do need it.
Here is why we can no longer escape this discussion; Western aid to Africa has become so commonplace that many have accepted as “the only way” and thereby have stopped asking questions. Instead, almost the exact opposite has happened-they that champion aid to Africa are seen as sane and even heroic, while they that ask questions are often humiliated with ridicule or ostracized. Why is that? Me personally, I don’t know why, but am hoping that somehow, we can together through this discussion find some answers. Now, I have heard Professor George Ayittey connect this social phenomena with the collective conscious of the West. But again my intent is not necessarily to claim that I have the answer, but rather to pose a thought provoking question. And in doing so, perhaps we can all challenge each others thinking on this and other important topics, which in turn might help us to turn good ideas into even greater action.
Now because you and I have spoken about this before, you might recall that I did not just one day wake up decide to do something in Africa. But, if you had asked me how or where my goals fall in line with Africa, you may have thought that I was on day 1. Until around the time that part 1 of this blog came about, I didn’t know if my participation in the continent’s development would be in trade, aid, or both.
So the conversation that I had with Craig Chirinda last month, really forced me to admit that I had never looked this issue squarely in the eye and taken a stance. And let me also say that if at the end of it all I still have not taken a definite stance, then I am fine just being aware that it is just one of those complicated issues…
So now that we’ve gotten that part of the conversation behind us, why don’t we take a look at some of the the pro’s and con’s of both actions.
Aid in Africa Common Benefits It can save lives It’s a way of showing others, that you care When emergency strikes aid is a auick solution Aid can eliminate or reduce budget deficits Common Drawbacks Aid can be expensive for the donor There is a potential for government misappropriation of aid It may help foster an attitude of dependence Usually first come, first served Limited by donor constraints Trade with Africa Common Benefits An efficient method of channeling resources Empowers inhabitants to help themselves Lessens dependence upon aid Can lead to equitable relationships Common Drawbacks Benefits may take a long time to materialize May require large amounts of capital There is risk, sometimes businesses and investments fail Might not directly benefit someone who is already in trouble Again, those were just the ones that I was able to think of, but you may have more and if so, please remember to let us know.
Also, I guess it would not hurt to provide an example or two of both, and then see if there is anything that would resemble a combination of the two.
Example of Trade in Africa (this is certainly a way to reduce poverty and build more prosperity)
Jennings, the billionaire founder of Renaissance Capital, plans to double his investment in Africa to at least $1 billion this year.
“Africa is going through an enormous renaissance and unlike Russia in the 1990s, it’s not a matter of imagining that it might happen, it is happening,” Jennings said. “With the exception of the Chinese, we will be one of the largest financial investors in the region. We have the ability and capacity to make quite big investments and bring in co-investors.”
source: Moscow Times Here is an example of aid in Africa, actually it is targeted at a specific region-Darfur. (this flow of capital should in theory help to ease the burdens of some for victims of the genocide in Darfur)
Canada is increasing aid to Darfur by $40m, Toronto Star reported May 23, 2006. Currently now Canada is one of the top donors to the Darfur region.
source: Sudan Watch Here is a hybrid of sorts, a combination of both trade and aid in Africa ( or business leading to the greater social good)
Beginning in June 2007, IBM and its partners will convene more than 150 global thought leaders for several face-to-face sessions around the globe over a three month period. Why? To identify new opportunities to advance innovation and economic development for the people of Africa.
You can see the ideas IBM has collected so far or submit your own by May 25, 2007: IBM ThinkPlace Africa source: Business4Good Oh…and this post would not be complete without letting you know what some of those in the Africa blogosphere think about this issue of trade and aid in Africa. So here is something from a few of the people behind some of the sites that I regularly read.
Africa Bloggers and Business People’s Comments Osize of Alt Nigeria says:
Africa needs Trade and Aid.
These instruments ought to be targeted at different the different sectors of the Macro economy. Aid and grants should be used the way that it is used in developed economies where it is used to boost sectors that would otherwise not receive the desired level of funding. Mostly the public sector oriented projects and infrastructural growth. The nature of public goods does not allow for proper policing of the returns on investment. Which leave private investors uninterested. This is more pronounced in Africa due to the informal set-up of the different macro-economies in this region. Aid should go towards, primary education, the Aids epidemic, cottage industries, the environment, and grass-root health care . Infrastructure such as roads and power should be put in place by a mix of aid and private investment. There should be aid up to the point that it makes sense for private investors to come in. That is the planning stage. I am against using aid for public goods such as power supply, because it encourages the sub optimal pricing of the goods and services produced Private equity will do pretty well, like it is doing already in the existing large markets in consumables and private equity. Some grants could be used to shore up PR, and information technology to promote the dissemination of information in the finance sector. With this in place trust me, it takes a short time for savvy investors to swoop in because of the premium that will be available for all takes. I do not get the point in spending money organizing seminars to encourage private investors to invest in Africa. I believe once the structure is in place, things will happen. Capital is like water it always finds it level. Information (lack of) and bad PR however act like dams stopping the flow.
Joshua Wanyama of African Path says:
Long Run Aid (in Africa) Must be Reduced…
And trade promoted.
Until countries (in Africa) can find a way to reduce their dependence upon aid, they will not get very far (towards eradicating poverty).
Hoseah Muturi Njuguna of Suntra Investments says:
Aid makes people content…
But if you teach a man to fish, you don’t have to feed him tomorrow.
Kimani Wanguhu of Kim Media Group says:
Trade is for the long term…
But sometimes with aid it’s “easy come, easy go”. When you break down the analogy of teaching a man to fish versus giving him a fish, you’ll see something. Teaching him to fish is similar to doing trade, but giving him a fish is closer to aid.
So, did we get any closer to figuring out “what is what”when it comes to trade versus aid in Africa? I guess it isn’t really for me to decide, but that’s where you-the reader(s) come in. What do you think-who wins in Africa when we promote trade and who wins when we give aid?
To learn more about this author, visit Benin Mwangi's Website.
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Benin Mwangi
(Visit Benin's Website)
A credit analyst by profession, Benin
Mwangi is one of the world's foremost
experts on the topic of entrepreneurship
in Africa. He is the founder of Benin
Mwangi Enterprises, a consulting firm that
specializes in promoting trade in Africa
as a means to achieve self-empowerment and
community development. His blog, BeninMwangi
.com, serves as one of the most
popular online destinations for those
looking to learn about and discuss
business and entrepreneurship in Africa.
He is also a regular contributor to Global
Voices Online and Kenya Empowerment News.
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