Professor George Ayittey of American University presented his new book “Africa Unchained” at the Cato Institute last week, which demonstrates that Africa’s problems primarily result from that continent’s appalling political leadership. This view hasn’t been widely enough vented, and may provide the germ of a solution. I would however add a rider: the West is at least equally responsible for the mess that is Africa, and the West’s help will be needed to reform it.
Ayittey’s thesis is that the problems of Africa are largely the fault of that continent’s governing elites. African economies are divided roughly into three sectors, traditional, informal and modern. Non-elite Africans, the “atingas” lead productive lives in the traditional and informal sectors, while Western resources flow primarily into the “modern” sector, a snake-pit of inefficiency and corruption controlled by the African elites. Consequently Africa enjoys little or no economic growth, and the “atingas” periodically withdraw their labor or output in order to prevent its looting by the governing elites.
Ayittey believes this problem can only be solved by Western aid flows going to the people of Africa directly, rather than being channeled through host governments. He’s right, but the nature of that aid, the flow of resources in general, and the quality of Western people dealing with Africa all need to be addressed.
As anyone who has dealt with the two groups knows, there is a huge difference between the types of Westerner dealing with Asian emerging markets, even those like India and Indonesia which are relatively impoverished, and those dealing with Africa. Most Westerners dealing with Asia do so primarily to make money; they are businessmen, often with MBA degrees, who by operating in Asian economies provide considerable know-how to local entrepreneurs and investors about how a modern economy works. Sectors such as high tech and private equity that attract the best and brightest from the Western business schools are well represented in Asia and hence provide an excellent training ground for the locals. Economic realities are well understood by Westerners operating in Asian economies and are communicated, directly or indirectly, to their local employees and business partners. Foreign corporate, private equity and portfolio investment are all relatively large, so foreign and local entrepreneurs equally have an interest in ensuring that economic policymaking remains competent, and lobby vigorously for it to be so.
In Africa, on the other hand, there is much less foreign investment, and much of it is concentrated in natural resource sectors, where staffing levels are small, local partners are of little importance and technology and know-how transfers are limited. Rather than in the productive industrial and commercial sectors, Westerners with whom Africans come in contact are concentrated in aid agencies or in the myriads of charities and non-governmental organizations which today infest the developing world.
The advice generated by these people is very different from that generated by the productive sector. At best, in the World Bank, the International Monetary Fund, and the aid agencies, it is a bureaucratic form of social democracy, with procedure elevated above profit. At worst, in the NGOs, it is an anti-capitalist miasma of sixties Marxism, extreme environmentalism and hatred of multinational corporations and business in general. No surprise therefore that Africans with whom these people come in contact fail to grasp the benefits of market economics, experiment hopelessly with various forms of socialism, and generally descend into primitive kleptocracy.
In Africa since independence, it has always been thus. The first generation of post-independence leaders were educated, not in the freebooting capitalism that had built the British and French empires in Africa, nor in the education-driven capitalism that was making Japan rich and was to do the same for East Asia, but in the hopeless state directed socialism of the Clement Attlee government in Britain and the Quatrieme Republique in France. Little wonder that the hopeful, well endowed independence of such countries as Ghana and Nigeria turned swiftly to corruption and decay as eager post-independence socialists put in place the policies that had brought Britain rationing, nationalization and the Groundnuts Scheme. In Britain, those policies worked poorly, but were at least generally accompanied by only modest corruption; in Africa they proved fountains of economic catastrophe and fat Swiss bank accounts.
Since the African governing class is hopelessly corrupt, and even if it were not so, would have little ability or even incentive to run economies that brought wealth to the African people, it is necessary to remove its funding, and reduce drastically its ability to control its economic sphere. This must be done in two ways: redirection of aid and de-nationalization of natural resources.
As Ayittey eloquently points out, aid needs to flow to the people of Africa, not its governments. Purchasing power needs to be put in the hands of the Africans themselves, where it will be more efficiently spent than in the hands of their corrupt politicians. Aid parceled out at an individual level will inevitably be subject to low level fraud, but to not the kind of massive bullion heists so typical of African regimes.
Handing out aid at an individual level requires a large, corruption-free distribution mechanism; it also must be done with considerable care, in order not to involve disincentives to productive effort, which might encourage the African poor to rely on aid rather than seeking work. In order to maximize the benefit of the aid, and minimize its disincentive effect, it should be concentrated in three areas: medical supplies (as at present) to provide relatively low cost cures for the major tropical diseases and AIDS, education vouchers and old age subsistence.
African countries are an excellent arena in which to demonstrate the benefit of education vouchers. Rather than subsidizing a state system that is inevitably inefficient and corrupt, the West should simply distribute vouchers to the populace, which can be tendered to whichever local educational institution appeals most to the citizen, and then redeemed for cash through the banking system. There would be no need for quality control of local providers of schools, beyond an occasional inspection by aid workers to root out the most egregious frauds. In this way, Africans would be able to choose the education their children needed, and jobs would be provided by local entrepreneurs setting up schools.
An African old age pension system, as I discussed in this column a few weeks ago, would solve the most serious problem Africa faces, that of exploding population growth. Ayittey sets out in detail the failure of African countries to remain self sufficient in agricultural products, to the extent that the continent now imports around $20 billion of agricultural commodities, more than the entire annual aid flow. While much of this failure is due to poor policy, it must be doubtful whether even good policy would have enabled African agriculture to keep up with the continent’s population growth rate of 2.5 to 3 percent per annum.
In Africa, as in other poor countries, large families and the rapid population growth they bring are largely caused not by ignorance about contraception but by the need for poor families to produce enough children to take care of them in old age. An African old age pension of $2 per day for all those over 70 would cost around $18 billion per annum including administration costs; it would be immediately popular among the Africans themselves, who would see their most pressing long term worry removed, and would in the next decade or two bring African population growth rapidly down to near-Western levels, thus allowing the continent to embark on the path to prosperity. Africa would remain for half a century at least the world’s youngest continent, and would during the latter part of that period benefit from the demographic “sweet spot” where the population bulge is of active working age.
It is unlikely that current aid levels would fund all three of Africa’s needs, of basic medical drugs and equipment, efficient education and old age security, but an additional source of revenue for these needs exists, in Africa’s oil, gold and other mineral exports. Since OPEC’s expropriation of the Western oil companies in 1972-73, the vast majority of Africa’s mineral and oil wealth has been appropriated by governments, with resources often being extracted by extremely inefficient and corrupt government controlled companies. While there is a reasonable moral imperative for the inhabitants of a region to benefit from the oil and mineral resources contained in that region, there is no moral necessity whatever for that benefit to be channeled through local governments, thus funding the worst elements in the country’s society. Instead, the revenues from such resources must flow to the people directly, through a fund similar to Singapore’s Central Provident Fund, for the benefit of the region’s inhabitants but under the control of international managers of unquestioned probity, such as Singaporeans for example.
Inhabitants of African oil producing countries such as Nigeria and Angola have benefited little if at all from the wealth their countries hold; under a trust fund scheme they would be the direct beneficiaries. As with aid money, the most important requirement, apart from lack of local government control is that the money distributed benefit local people and not deter them from employment; this is best done by using a voucher methodology, and concentrating the payments from the fund in education, health care and old age security, as with aid money directly.
Direct funding of the populace through aid programs requires only a moderately cooperative host government; in the final analysis the donors have the alternative of not providing the aid. Diversion of oil and mineral revenues through a trust fund will be enormously unpopular with local governments, because it will deprive them of revenue and, more important, of opportunities for graft. Thus in practice it is probably necessary to leave existing arrangements in place for existing resource flows, and merely ensure through an international code of conduct that new mineral and oil production facilities are operated under a trust fund mechanism. By doing this, local governments will gradually be deprived of their opportunities to corrupt the economy, local social services will gradually be brought up to appropriate international levels and the resource-rich curse of an overvalued exchange rate and the destruction of indigenous business will be avoided. Governments will be much smaller, having both less revenue and fewer functions, and consequently much less corrupt.
By ensuring that Africa’s major sources of foreign exchange flow directly to local people, and not through governments, the most important deterrents to that continent’s economic development can be eliminated. For Africa to move forward, however, it will also be necessary to eliminate the torrent of appalling politically motivated and economically illiterate advice that the continent currently receives.
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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)
This article originally appeared on United Press International.