Important note: Information in this article was accurate in 2007. The state of the art may have changed since the publication date.
Wall Street Journal - June 13, 2007
The rockers are so obsessed with dollar figures that they missed the real story out of last week's G-8 summit in Germany. The richest nations recognized that the poorest continent can best help itself by unleashing investment and opening up to the private sector. The final aid numbers from Heiligendamm aren't as headline-grabbing as from the G-8 Gleneagles summit in 2005, but the strategy is far better suited to helping Africa out of poverty.
The G-8 last week pledged $60 billion for universal access to HIV/AIDS prevention and treatment and $500 million toward education. The group promised no new development aid beyond the $50 billion-a-year increase, by 2010, and $60 billion in debt relief agreed upon at Gleneagles. Bono & Co. faulted certain G-8 nations for not following up on the Gleneagles timetable, claiming the world isn't keeping its promise to help Africa.
We'd say the G-8 at last is doing something smart in Africa. The new aid is conditional on improved governance, i.e. less corruption, more respect for human rights, freer trade and openness to capital. The G-8's vision is spelled out in a communiqu on "Growth and Responsibility in Africa," focused on spurring investment and business.
Take, for example, the Making Finance Work for Africa program, initiated by the World Bank and endorsed by the G-8. Under this initiative, G-8 countries will help national governments and regional organizations such as the African Union and the New Partnership for African Development to fund small loans, provide training for central bankers, reduce transaction costs for workers abroad who send remittances to families at home, and guarantee home-mortgage loans. None of this is big-ticket development assistance, but that's the point. Financial services help people help themselves to start businesses, buy homes and develop their economies.
Liberia, one of Africa's poorest nations, shows how good policy can make a difference. Since her inauguration last year, President Ellen Johnson-Sirleaf has pushed against corruption and for transparency. As a result, donors can better see where their dollars are going and why. In recognition, the U.N. Security Council recently lifted an embargo on timber, confident that Liberia can monitor its resource revenues. Equally promising are efforts in Mozambique, Ghana and Mali, which are opening up their economies. Placing conditions on aid has given these governments incentives to reform.
Private capital is taking notice. Foreign direct investment in Africa was $32 billion in 2005 (the most recent year available), double the 2004 figure. While Africa still represents less than 2% of world trade, the continent is growing at a 6% clip. Just raising Africa's share of global trade a few percentage points would bring in billions more than any government-funded development aid program ever could. It would also free African governments from dependence on aid.
The G-8 also usefully pledged $4 billion for the World Trade Organization's Aid-for-Trade initiative, which offers assistance to countries that open their economies to trade. The aid is used to improve productivity or retrain workers in industries hurt by foreign competition.
The G-8's new investment-friendly agenda is a welcome change from the usual list of promised handouts that the self-proclaimed Africa activists consider the measure of the outside world's commitment. Now, if only it would follow up by successfully finishing the Doha round of trade talks.
Coming into the G-8 summit, Presidents Yoweri Museveni of Uganda and Umaru Yar'Adua of Nigeria called for the leading industrialized countries to push for more trade and investment for Africa. Fortunately the G-8 leaders chose to listen to them and not the rock stars.
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