Greg Mills:
Little under 11 years ago, shortly after I joined the SA Institute of International Affairs (which I have just left), while in a boardroom meeting we listened to the sounds of sirens in the city centre. The day was 28 March 1994, and the event to which the ambulances and police-cars were hurrying was the Inkatha Freedom Party march to the headquarters of the African National Congress at Shell House and the demonstration at the Library Gardens, an event which led to a street gun-battle and the deaths of 19 Inkatha supporters. At the time, KwaZulu-Natal simmered on the brink of widespread violence, while on the same day South African Defence Force (SADF) troops were deployed in QwaQwa after a march by thousands of public servants on the homeland's parliament deteriorated into violence. Only two weeks earlier, on 12 March, Lucas Mangope's ersatz state of Bophuthatswana had collapsed after an abortive Afrikaner Weerstandsbeweging (AWB) coup and shootings in the streets of Mafikeng. A few days later, Oupa Gqozo's Ciskei regime fell. There was then a mood of impending chaos and gloom.
It seemed impossible to believe that South Africa would get through the 1994
elections unscathed. That was apparently the view of the thousands of journalists
who crowded the country in anticipation. Certainly even the most optimistic pundits
could not have foreseen the progress made over the past decade.
Progress and Achievement
The last ten years has been a period of two distinct halves in South Africa.
The first was what I would describe as the 'Mandela/Tutu period', characterised by reconciliation and nation-building. The Truth and Reconciliation Commission (TRC) report was arguably the domestic highlight of this period, but it is important not to overlook the political and organisational accomplishment of the 1994 election and the contribution to our policy and political fabric made by the establishment of the Government of National Unity (GNU). South Africa moved, in this time, from political and economic isolation to full diplomatic and increasing economic integration.
The 'second half' is the first of the Mbeki presidential terms, epitomised by recognition of the racial legacy of apartheid and the corresponding need to deal with South Africa's structural problems. These include the high and still largely racially-based Gini coefficient (measuring the gap in income within societies), the urban-rural wealth divide, the crisis of education and skills, and the need to deliver on services and infrastructure for a politically-sensitised and expectant population. This period also involved a transition from a minerals-based economy centred around Johannesburg to greater numbers of manufactured and non-traditional exports.
Consistent between these two periods has been the extraordinary good record of economic management. Contrary to some fears of rampant populist spending and nationalisation by the ANC, the fiscal deficit has been brought under control from 12% of GDP to around two percent, and inflation from a shade under 20% to under five percent today. Even though concerns remain about government capacity to roll-out services and spend money effectively and about, too, the slow pace of privatisation, this record is admirable not only in terms of the social demands but also as an example of good governance and sound policy for much of the rest of the continent.
To extend the sporting metaphor, however, the final whistle in this game of two halves has not yet blown.
South Africa still faces two key obstacles to continued political and social stability in South Africa for the foreseeable future: unemployment and HIV-Aids. At the heart of addressing these rests the principal challenge of ensuring higher rates of economic growth.
South Africa's real per capita growth since 1994 is 0.7% per annum. Although this is much improved on the negative rate of earlier periods, this is insufficient in meeting expectations around individual welfare, particularly when realising that this is an average across society, incorporating disparities within social and racial groups. South Africa continues to under-perform when it comes to attracting local and foreign direct investment. The Republic enjoyed a investment/GDP ratio of just 0.7% per annum between 1994-2002, less than half of that of the average for emerging economies and well behind that of East Asia's at more than 3%.
In this regard, South Africa's challenges are not seen as purely domestic. This is certainly President Mbeki's view, who apparently sees the world in structuralist terms: that Africa and South Africa cannot make the necessary development strides without more favourable external conditions including debt relief, more aid, better trade access, and international action to address conflict. As he observed about the World Economic Forum in January 2005: "Davos 2005 communicated the message of hope that, at last, and certainly as this relates to Africa, the world progressive movement and people of goodwill, have understood their obligations to the African masses who continue to suffer as a result of the legacy of global apartheid. … it will take a considerable period of time as well as enormous resources to eradicate this global legacy, in much the same way as it will take time and enormous resources for us to eradicate the legacy of domestic apartheid."
His words are apparently not falling on deaf ears.
An Africa Plan
In October 2001, Prime Minister Tony Blair described Africa as "a scar on the conscience of the world." In February 2004, at the launch of his brainchild Commission for Africa, Blair indicated that little has changed since: "Africa is the only continent to have grown poorer in the last 25 years. Its share of world trade has halved in a generation and it receives less than one percent of direct foreign investment. … Africa", he said, "risks being left even further behind."
Now Blair has kicked off a year of concerted focus on Africa. He chairs the G8 in the first half of the year and the EU in the second, and has vowed to make the problems of the world's poorest continent a primary focus in both fora. To set the stage, his Commission on Africa released its much-anticipated report on 11 March.
All this follows the release of a UN study conducted by the Columbia professor Jeffrey Sachs that advocates a two-decade push of foreign aid to Africa in identifying five structural deficits that form the "poverty trap": the continent's high transport costs and small market size; its low-productivity agriculture; high disease burden; long history of malign external interventions; and very slow diffusion of technology from abroad. What is needed to exit the "trap", Sachs argues, is a "big push" in seven areas: raising rural productivity; tackling the disease burden; making primary education universal and expanding secondary education; financing urban development; mobilising science and technology; gender equality; and regional integration.
In supporting such a radical approach, Martin Wolf, the Financial Times' heavyweight columnist, has written that while increased aid does carry risks (such as the crowding out of exports on which longer-term growth depends, and that aid will encourage corruption, bad policy and waste), "the option", he says, "of doing nothing is worse. Greater aid does carry risks. But its absence brings dreadful certainties. Let us manage the risks, not live with the certainties."
More aid along with improved governance is also the core tenet of Washington's Millennium Challenge Account announced in March 2002. Under the terms of the MCA, the US will increase its core assistance to developing countries by 50% over three years, resulting in a US$5 billion annual increase over current levels by 2006.
Always aware of its African heritage, Jacques Chirac's government has taken a slightly different line in finding sources of new development money. The Chirac plan begins from the basis that the US$50 billion required to double global aid flows is a small sum in comparison to those generated by the global economy. His government's Landau commission recommends that new funds be generated by international taxes or levies on a variety of cross-border activities including to a fraction of international financial transactions such as currency sales, on the flows of foreign capital moving to tax or bank havens, and a more ambitious plan to tax aviation and shipping fuel. Again, this pivots development and prosperity on the flow of more money to Africa.
The Africa Commission's report similarly appeals for more aid, better governance,
fairer trade and less debt. Its solutions arguably reflect UK Chancellor Gordon
Brown's desire to establish an International Finance Facility (IFF) bundling together
promises of future aid from rich countries to launch a bond to increase funds
to fight global poverty.
A New Marshall Plan?
In short, radical solutions to Africa's plight are suddenly in vogue.
But each of these 'solutions' is wide of the mark. They falsely presume that the problem with African development is that there has not been enough aid and debt relief - essentially that the 'Partnership' aspect of NEPAD (The New Partnership for Africa's Development) rests on greater sympathy and assistance from the external community. They propose essentially a contemporary Marshall Plan for African development, a rapid ramping up of aid flows to the world's poorest continent in the belief that, in the words of Brown, "Out of the tragedy of September 11th a new sense of our obligations to each other has been born and a recognition that ... a new deal for prosperity must be forged between the richest developed countries and the poorest developing countries … to help achieve for the developing countries after 2001 what was achieved for Europe after 1945." Indeed, just as the Marshall Plan was to prevent a leftward shift in European political orientation after 1945, today's plan for Africa is apparently designed to ensure a world free from terrorism as least as much as it is motivated by more altruistic intentions.
This approach echoes the 2001 UN plan, drawn up by former Mexican President Ernesto Zedillo, which concluded that development targets in poor countries (including halving global poverty, reducing infant mortality by two-thirds, and making primary education available to all the world's children) could be met by 2015 only by doubling the current level of aid commitments.
The Marshall Plan analogy is misleading. The total amount disbursed toward the recovery of the 16 European countries that had joined the Organisation for European Economic Co-operation (OEEC, forerunner to today's OECD) under the Marshall Plan from April 1948 until June 1951, when remaining aid was folded into the Mutual Defence Assistance Programme, totalled some US$12.5 billion. This is estimated at US$100bn at current prices. Net aid to Africa in 2002 alone was US$22.3 billion.
More importantly, the total aid flows of the Marshall Plan in 1948-52 did not exceed 2.5% of Western Europe's GDP. By comparison, in the mid-1990s, aid represented 9.3% of the gross national product of sub-Saharan Africa, yet only 2.1% for South Asia, and less than 1% for East Asia and Latin America. In extreme cases, ODA reached more than one third of GDP of African countries. Europe's rapid economic recovery illustrated how critical it is to possess the attributes for aid to work - sound policy, good governance, a hard working population, and high skill levels. These elements along with consistency and clarity in the rule of law, land tenure and, in some cases, reorganisation, remain the foundation for successful societies. The importation of capital and technology is not enough to spur the higher productivity that lies behind economic growth, and neither is forced domestic savings in bridging the capital funding gap that faces most developing countries.
Yet perniciously, a new 'African Marshall Plan' is premised on the belief that, in the words of one G8 ambassador, "apart from a few countries built on diamonds, there is little record offering growth prospects for Africa without this aid."
This assessment is simply wrong. Botswana, South Africa and Namibia are successful not because they have diamonds, but because they have diamonds and comparatively efficient systems of governance. The record of plenty of poverty-stricken, conflict-ridden yet resource-rich countries in Africa is testament to the imperative of governance for sustainable growth.
Moreover, the record of aid in Africa is not encouraging. Despite more than US$500 billion in aid transfers (some argue that this is as high as US$1 trillion in real terms) to the continent in the past five-plus decades, Africans are today poorer on average than they were 30 years ago.
At best, aside from political rewards in the donor state, what an escalation of aid to Africa can hope to achieve is a series of indirect politico-economic benefits caused by temporary poverty alleviation and periods of greater social harmony. The key challenge for Africa remains the need to create the conditions in which business - both foreign and local - can flourish, to offer more than just transient alleviation of the worst conditions of African poverty but rather sustainable development.
The problem for Africa remains that it receives less than five percent of the
US$200 billion flowing annually in private-sector investment into developing countries,
and just a fraction of the more than US$1 trillion in the annual global FDI sum.
Additionally, much of the African slice goes into the enclave oil economy with
little benefit to the average African. This is compounded by low domestic savings
rates (under 15 percent) and the high levels of African capital exports, with
around 40 percent of African wealth held offshore, a higher percentage than any
other region.
Not Enough Globalisation?
Indeed, this current era of globalisation has not been kind to Africa, principally because it has not had enough of it - or at least the right sort of globalisation.
During the Cold War years, bilateral external engagement with Africa was driven principally by a combination of superpower strategic self-interest including the need to secure precious commodities and maintain ideological influence, and colonial legacy. Where human rights concerns featured, this motivation was generally limited to concern over transferring white minority to black majority rule - though by the end of the 1980s such concerns increasingly featured in policies towards the most egregious of black African leadership including Mobutu in Zaire, Siad Barre in Somalia, and Samuel Doe's Liberia.
Since that time, Western engagement with much of sub-Saharan Africa has been driven by a series of concerns about the negative effects emanating from the spread of disease, illegal immigrants, crime, terrorism, and failed states, and their link with apparently endemic continental conflict. Africa has been viewed mainly as a problem to be solved, rather than presenting more positive opportunities for engagement.
Put differently, for much of Africa, international relations have been characterised by the external imperative to contain a set of 'bads' rather than the mutual exploration of a set of more positive 'goods' including trade and investment.
How can one change this paradigm of engagement?
The principal challenge is the need for Africans to accept that globalisation offers the most realistic route out of poverty and instability. Africa's problem to date is that it is today less globalised economically than it was at independence.
There are at least four reasons for this.
First, the survival strategy of post-colonial African leadership and governments has by-and-large rested on exclusive, divide-and-rule patronage-based policies rather than garnering national human and physical assets towards long-term development goals.
Second, Africa's share of global trade has declined significantly, from 7% of GDP in 1950 to 2% today. This is partly due to failings and weaknesses in African economies, but is also due to the decline in global commodity prices and the concomitant reliance of Africa on this narrow range of products.
Third, the high cost of doing business in Africa has deterred foreign and local investment. This relates, in turn, to the prevalence of political instability and the absence of infrastructure and technology; while the endemic presence of conflict reflects, conversely, the failure to grow economies successfully. The absence of growth has led to all nature of fissures within societies along ethnic, religious, geographic and linguistic lines.
A fourth reason relates to increasing competition from other regions for
capital, especially the comparatively attractive markets in Asia and notably China.
China has attracted around US$500 billion in FDI over the past decade, as a result
both of the size of the increasingly wealthy market represented by its 1.2+ billion
people and the global competitiveness of its cost of production.
Three Key Challenges
South Africa's president Thabo Mbeki, in welcoming the Africa Commission's report has sounded a word of caution. He said: "[the Commission's report] is 400 pages of very small print … there is a lot of work that is contained here. It must translate not into a lot of paper. It must translate into really firm serious programmes of action to implement these proposals … .
Indeed, there are three key challenges for Africa in moving beyond the many well-intentioned words of the Africa Commission.
First, is the need to develop plans that take cognisance of the Africa position - that do not simply attempt a blanket approach to solving the continent's problems - that, in other words, are as nuanced and discrete as African states are different. Botswana, for example, requires a strategy to move beyond diamonds, rather like Dubai moved beyond oil. Liberia or Somalia on the other hand, require the basics of statehood beyond just lines on a map.
A second challenge is to find the money that has been promised by these various schemes, and money that is spent in a more productive manner than hitherto in Africa.
Related to this last point, third, and finally, the key challenge is whether aid and debt relief can be used as a catalyst for higher rates of sustained economic growth. Can it?
To date, the answer is 'no'. The effectiveness of aid has been low. Moreover, the practical impact of debt is not that it has to be repaid but that it limits the capacity of governments to borrow more. This may, indeed, be a good thing.
But there may be some unexplored possibilities, centred around infrastructure spending, both 'soft' and 'hard', in building up physical, institutional and intellectual capital. A key difference between rich and poor states resides in the quality both of their workforce and their institutions.
The World Bank estimates that investors spent just US$23.5 billion on African
infrastructure projects between 1990 and 2001, or around two percent of the global
total. The reasons for this relate to the presence of risk - political instability,
weak skills bases, weak financial systems, poverty, crime and corruption - along
with the difficulty of maintaining a long-term relationship with government in
an investment that will reap only long-term returns. Hence the bulk of private
infrastructure spending in Africa is in telecommunications where the investment
maturation horizons are closer and revenue models can be established largely independent
of government involvement. This explains why, too, most private infrastructure
investment in Africa has been in South Africa, with its advantages of a relatively
advanced economy, prosperous private sector, and good levels of governance.
A Focus on Infrastructure
Spending in two areas of infrastructure will more directly improve economic growth prospects.
One, 'soft', is governance infrastructure - people, policy and institutions - aimed at creating a regulatory environment appropriate for business, especially small- and medium-sized business, to flourish. This should include a focus on education, which lies at the heart of economic development and has a number of other benefits including lower population growth and better opportunities for women.
Second, spending on 'hard' infrastructure, including roads, bridges, ports, electricity, and water. Better roads, in particular, are a critical poverty alleviation mechanism because the really poor people in any country reside in the remote rural areas, and roads open up markets and government services to them.
Donors are generally reluctant to commit to spending on hard infrastructure
bilaterally, however, as this involves complex oversight and long lead times often
beyond their domestic electoral timeframes. Nonetheless, improved infrastructure
is imperative in reducing the costs of doing business and alleviating poverty.
The obvious solution to this problem is to link aid flows in this sector
to private-sector participation through matching funding and management contracts,
ensuring better governance and project viability and sustainability, thereby giving
real substance to public-private-partnerships.
Conclusion: A Threshold of Opportunity?
Africa stands at an important threshold of opportunity.
The world, rhetorically at least, is poised to engage in solving the continent's perpetual crises than at any previous time in history. The global environmental and security imperatives for doing so are at least as compelling as the moral ones. But flooding the continent with more money through debt relief and increased levels of aid will not, by itself, put Africa on a path toward recovery.
There may be, at most, a few people out there who do not want poor states to be like rich states. But economic hypotheses centring on the policy obligations and alternatives stemming from the effects of 'victimhood' (such as the thesis of 'dependencia' once vogue) have not been very helpful in righting economic and social situations or even understanding their plight, not least because some peripheral economies (viz. Australia, Canada and even the United States) have prospered. Or to put it differently, we appear now to understand that, as John Kay has observed, 'those who live in rich states are not rich because those who live in poor states are poor', not least because the rich states mostly trade with each other. Nonetheless, the imperative to right these poor environments is manifest in the gulf between expectation and achievement, and the myriad problems - environmental, moral and security - that result if this situation lingers. Yet to do so requires an appropriate economic, political and social infrastructure more than just importing capital and technology.
Indeed, sustained growth through higher productivity requires a contract: long-term
commitment by both donors and African governments to build smart, diversified
labour forces, efficient economies, transparent governance and a culture of maintenance.
If the goal of the various new initiatives such as the Africa Commission is to
set the continent aright, there is reason to hope that public-private partnership
- the important 'P' in NEPAD - structured along these lines might actually translate
into something truly meaningful for the peoples of Africa.
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