New Internationalist

Should foreign investment replace aid for Africa?

Issue 445

As Africa’s economies boom, the virtue of overseas aid is back in the spotlight. Donu Kogbara and Dereje Alemayehu go head to head.

ARGUMENT

Every month we invite two experts to debate, and then invite you to join the conversation online. The best comments will be printed in the next magazine.

Every month we invite two experts to debate, and then invite you to join the conversation online. The best comments will be printed in the next magazine.

Donu

I’ve had quite a lot of contact with foreign aid agencies over the years. I have also visited Ethiopia and other African countries that are major aid recipients. And since I moved to Nigeria a decade ago, I’ve been an occasional consultant to donors who come bearing gifts from distant lands.

All of the above experiences – apologies, by the way, for ungratefully biting hands that feed me from time to time – have convinced me that donors are inadvertently encouraging developing countries to be dependent.

African nations are riddled with corruption, and incompetence. They are, therefore, the architects of most of their misfortunes. They must grow up, clean up their acts, get off their backsides and learn how to become more self-reliant, dynamic and dignified.

We Africans must think big, believe in ourselves, demand high standards, take full responsibility for our own destinies and aggressively embrace the ‘trade not aid’ mantra. Its followers should put more pressure on leaders to deliver progress and transparency; wealth creation should be a priority, indigenous entrepreneurs should be empowered and foreign investment pursued.

Being spoon-fed handouts by well-meaning white liberals, who have a penchant for not telling us tough home truths, is the last thing we need!

Dereje

I share your contempt and outrage with regard to our rulers. But, reading your words, I asked myself, ‘what’s this got to do with aid?’ Aid shouldn’t be made responsible for what it is not meant to do. Aid cannot buy democracy; aid is not the primary support that props up corrupt regimes.

If your primary motive to attain political power is self-enrichment, you will be a thief, with or without aid. Getting rid of tyrants and thieves is a job for African citizens.

The solution to aid abuse is the fight for accountability and transparency to make it serve its purpose, not to cut off aid. And when aid is perverted by donor countries to promote business interests or to buy the loyalty of corrupt regimes for geopolitical ends, this is not aid: it is economic and political corruption.

Aid should have only one purpose – the eradication of poverty. That is why I support aid and am engaged in fighting its misuse.

Can we realistically rely on foreign investors to deliver development? The amount they steal through aggressive tax evasion is at least fourfold what comes in as aid. I can’t see how ending aid would make them change their behaviour. I have nothing against Foreign Direct Investment (FDI), but let us make a distinction between scavengers and investors. And in Africa, we have more of the former.

Donu

I’m convinced that foreign donors are de-motivating Africans with kindness. They infantilize us with their soothing ‘there, there’ approach and make us feel that it’s fine to whip out begging bowls

You seem to have misunderstood me. I am as concerned as you are about the fact that aid can be abused by corrupt regimes. But I didn’t have the aid abuse problem in mind when I expressed the view that foreign donors are unintentionally making developing nations weak.

This viewpoint is based on my suspicion of welfare dependency and belief that most economically challenged individuals and countries will, as a general rule, perform more impressively if they are urged to stand on their own feet.

I’m convinced that foreign donors are de-motivating Africans with kindness. They infantilize us with their soothing ‘there, there’ approach and make us feel that it’s fine to whip out begging bowls. And yet we are capable of solving our poverty problems without leaning on Western philanthropists.

Even though Nigeria has a substantial oil/gas industry, it is awash with aid agencies. And I’ve long felt that the foreign do-gooders who staff these organizations would do more good if they could forget about attempting to nanny us and miraculously transform themselves into ethical foreign investors!

As for the scavengers about whom you quite rightly complain: they wouldn’t get away with ripping off Africans if they didn’t have unpatriotic local partners.

Dereje

Thomas Mukoya / Reuters
A Somali man carries food from the World Food Programme distribution centre at a refugee camp near the Kenya-Somalia border, August 2011. Thomas Mukoya / Reuters

You seem to suggest that a causal link exists between aid and poor political leadership. But I believe aid dependency syndrome only comes about if you have a self-seeking leadership.

For me, development is not only about money. It’s a political process propelled by nationalism. By this I mean a national project that makes ending poverty a priority; an outrage at the preponderance of abject poverty in your country; and a decision to tackle it with the utmost urgency it deserves.

A leadership committed to this kind of nationalism, instead of using political power for self-enrichment, would necessarily use aid as a complementary resource to national efforts.

By blaming aid for poor leadership you seem to suggest removing this ‘life support’ will end bad governance; and that if foreign investors replace aid, they will make our economies more dynamic. I strongly doubt this.

The driving motive for foreign investment is short-term profit maximization to pay fat dividends to ever-greedy shareholders. Putting profits first will not serve long-term equitable and sustainable development. It will promote ‘shareholder value’ by making the rich richer, but it will not end poverty.

Donu

I am not, it has to be said, totally heartless! And I certainly don’t object to generous amounts of emergency aid being provided by the international community whenever countries or regions – Somalia being the most current example – are crippled by natural disasters or famines.

However, foreign investment will always, in my eyes, be superior to foreign aid within the context of non-emergency scenarios.

Last April, the Court of Auditors criticized the European Union for various errors of judgment, including the fact that it had given $14 million worth of aid funds to a Malian employment advisory centre that had only assisted six people successfully in three years.

I am pretty sure that the local population would have gained more concrete benefits if foreign entrepreneurs had invested the same sum in setting up a business venture in Mali.

Properly managed foreign investment stimulates economies and empowers individuals. Omoku, a town in Nigeria’s Niger Delta region, was once a semi-comatose backwater but is now a thriving hive of commercial activity, thanks to the presence of AGIP, an Italian oil company.

Foreign aid could never have provided Omoku with this miraculous transformation. What Africa needs is as many Omokus as possible.

Dereje

Can we rely on foreign investors to deliver development? The amount they steal through aggressive tax evasion is fourfold what comes in as aid. I can’t see how ending aid would make them change their behaviour

Attracting FDI with generous tax holidays and freedom to repatriate profits is already a top priority in all African countries. But the dynamism you allude to is not there. Foreign companies tend to extract wealth in enclaves without helping the development of host countries’ productive capabilities.

The Tanzanian leader Julius Nyerere once said: ‘Colonialists made us produce what we don’t consume and consume what we don’t produce.’ Colonial policy was all about ‘nipping productive capacity in the bud’ and multinational-dominated globalization is carrying on in the same vein. That is why diamonds cause death and poverty in Lubumbashi but riches and glory in Antwerp.

FDI has not disturbed the ‘peaceful coexistence’ between lucrative foreign business and perennial stagnation; has not lifted African commodity producers out of subsistence-income levels. Its advances towards promoting value chain activities, creating decent jobs, transferring knowledge and technology or reinvesting in research and development are negligible. You cannot expect miracles in this department.

Besides, profits go to companies’ countries of origin, and rampant tax evasion drains resources from Africa’s social infrastructure provision.

Aid is not useful only when directed at providing help during emergencies. It also builds resilience for the next emergency; and helps plug the vital infrastructure gap that FDI will never address.

Donu Kogbara is a Nigerian print and broadcast journalist. She has a weekly column in the Vanguard newspaper, and acts as a Director on the Greater Port Harcourt City Development Authority Board. She is part of the African Arguments debates forum.

Dereje Alemayehu is a development worker of Ethiopian origin, Christian Aid’s Country Manager for East Africa and Chair of the Tax Justice Network Africa. The views expressed in this debate are entirely his own.

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