FOREIGN AID: CHALLENGES AND OPPORTUNITIES

WOLFOWITZ ON FOREIGN AID: CHALLENGES AND OPPORTUNITIES

I recently attended a lecture by Paul Wolfowitz, president of the World Bank, at the Heritage Foundation in Washington DC.

Since he came into office, Mr. Wolfowitz has stressed on Sub-Saharan Africa and fighting corruption.

In his speech, he acknowledged the incredible energy and ambition that can be seen in ordinary Africans. This, he said makes it possible to change the continent. Although the region of Sub-Saharan Africa faces an enormous challenge, it is not a hopeless case. The reason for this is that, today, in Africa, there are two important transformations taking place. First, Africans themselves are taking the lead in overcoming challenges. The progress in countries such as Liberia, Sierra Leone and Mozambique speak is evidence. Secondly, both donors and recipients worldwide are putting an increasing importance on aid effectiveness and that in turn is demanding institutions and policies that work. Corruption is really not separable from any of the other areas of priority.

The world has seen significant progress in the last 15 years and in the last 25 years; half a billion people have escaped extreme poverty- defined as the number of people living below the poverty line. Most of this progress, however, came from south East Asia and China. However, this progress was not inevitable as it may see today. In the 1960s there was a frequently used expression, ‘oriental fatalism’, which described what people in China thought- Life has been miserable for 400 years and its going to be so for another 4000 years- there is no point in making any efforts to change things. In the 1960s South Korea was considered to be a basket case, with no natural resources, griddled with corruption, and burdened with a Confucian ethic that men don’t work. But things did change and they too can change in Africa. The challenges it faces are HIV/AIDS, and education.

Africa’s greatest and most important resource are its people and the challenge is how to the unleash this energy and potential, in a way that can improve their lives.

15 African countries have been able to maintain growth rates of 4% or better over the last 10 years, and the median of that group is better than 5%. The top performers are Rwanda and Mozambique. However, this trend will not automatically translate into less poverty. Investors have increased private debt and equity flows from $10 billion five years ago to $30 billion. The average annual return on investment in Africa is one of the highest in the world, averaging around 30%.
African government are making it easier for investors to do business and for entrepreneurs to set up business. For example, entrepreneurs in Burkina Faso which used to be one of the most overregulated economies can now open a business in fewer days, using fewer forms and following lesser procedures. One entrepreneur launched a cell phone company in the Democratic Republic of Congo, not a place once thought to be promising. The initial forecast was a market for only 10,000 subscribers; his company reached his first 1 million customers in less than five years.
Importantly, Africa is moving toward greater peace and stability. Just four years ago there were 16 active conflicts destroying countries, families and businesses. Today that number is down to six- still six too many. There is hope and opportunity emerging from the ashes of these conflicts. Just 5 years ago, Sierra Leone and Liberia seems truly hopeless. Sirleaf-Johnson, Africa’s first female president (a former World Bank employee), has promised to electrify the entire capital city in 6 months. Rwanda, after a gruesome genocide had no infrastructure, no capital, but today, it is doing well, because the government invested in its people. In fact it ranks as one of the best reformers.

Throughout the continent countries are adhering to their constitutions, the voices of civil society in parliament have become stronger; people are demanding stronger public governance and more accountability.

However, it must be remembered that corruption is not a disease or a plague of developing countries. Every corrupt transaction has 2 parties, very often the bribe being developed countries, multinationals and foreign banks. Stolen assets end up in the banks of developed countries, which have an obligation and responsibility to help African government recover these assets.

Developed countries have promised to double aid to Africa. But as Tony Blair put it it is ‘a deal for a deal’- in exchange for increased assistance, developing countries must strengthen their institutions and ensure resources are spent wisely. Mutual accountability has been top on the agenda in the development community and as a result, governance is also gaining importance. Research suggests that a country that can improve its governance can almost triple its income per capita in the long term, can reduce infant mortality and illiteracy by two-thirds; that’s what some people call the triple dividend of good governance.

In Dec 2005, Gallup International took a poll asking people around the world whether they thought 2006 would be better that 2005. Africans came out as the most optimistic. 57% of them though things would be better. Now more than ever the opportunity exists for Africans to transform Africa and determine their own future.