Monday, 24 September 2007

G8 making wrong diagnosis for Africa

Moses Byaruhanga
I read in the media that the G8 countries concluded their meeting in Heiligendamm, Germany last Friday by pledging $60 billion to combat HIV/Aids, TB and malaria.

The G8 also renewed their commitment made two years ago to increase other aid to Africa by $50 billion a year by 2010. This was another lost opportunity by the developed countries to address the problems of Africa. Borrowing from Jeffrey Sachs in his book; The End of Poverty in the chapter “clinical economics,” he argues that the problem of the Breton Wood Institutions with Africa is that they make a poor diagnosis and as a result give wrong prescriptions.

The G8 countries continue to make a wrong diagnosis of the problems of Africa, hence prescribe a wrong medicine by increasing aid. The problem of Africa is not aid or the lack of it. If aid was a solution to Africa’s problem, with the amount of aid the developed nations have pumped in Africa (Africa receives an annual aid flow of $13 billion), African countries would be developed by now. When Europe was in an economic recess after the World War, it was not helped by mere aid but by the Marshall Plan which was a comprehensive economic development plan meant to ensure Europe’s economic stability and strategic security in the postwar era.

Before the plan was passed, Congress set up a bipartisan committee led by Christian Herter which made a crucial trip to Europe to study the problem on the round and report back to Congress. George Marshall under whom the plan was named was the United States Secretary for Finance during President Truman’s administration. What the US did through the Congressional committee above was to use Jeffrey Sachs’ clinical economic diagnosis of the economic problems of Europe at the time.

This is what the G8 leaders are lacking in trying to help Africa overcome its economic problems. With aid, unless that aid is targeted to promoting investment and trade, nothing will become of it. Africa will not develop because of aid. Instead Africa needs value addition to its raw materials and end the inequitable relationship with the West by selling raw materials.

Africa should stop selling coffee beans but sell roasted or instant coffee, stop selling lint but finished garments, stop selling tobacco leaves but cigarettes, stop selling cocoa but chocolate, stop selling crude oil but oil products, etc. For a long time the West took a protectionist approach by denying finished goods from Africa entry into their markets. A finished good from Africa would be charged a high tax compared to a raw material. The idea was to discourage finished goods from Africa and the third world at large.

When you add value to raw materials and sell them as finished goods, you gain two advantages. Firstly, a finished good fetches more value than a raw material.
President Museveni in his numerous speeches has always given an example of cotton where a kilo of lint cotton fetches one dollar while if you turn that same lint into a garment, you earn about $10. For every one kilo of lint exported from Africa, we lose nine dollars.

With increased earnings from finished goods, farmers would earn more and would be guaranteed a steady market. When farmers incomes increase, then they can spend more on social services like education, health, sanitation and consumption at large leading to industries selling more because of a high purchasing power.

Secondly, value addition creates employment in the local economy. On the other hand selling raw materials creates jobs in the countries that import our raw materials.
So if the G8 is to do anything to help Africa, it should be, among others, to encourage companies in the West to invest in Africa and in promotion of trade in finished goods between Africa and the West.

This point was well articulated by President Museveni during his address to the African Business Forum organised by the Commonwealth Business Council in London last Tuesday. A lady from Nigeria who was seated next to me at the forum listening to Museveni make his points congratulated Uganda for having Museveni as our leader.

A member of the House of Lords told one of the Ugandan ministers that he agreed with 75 per cent of what President Museveni said, but even with the 25 per cent which he disagreed with, he enjoyed the manner and logic in the way Museveni articulated his points to the audience. That is Museveni for you on African matters.

The writer is special presidential assistant on political affairs


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