Posted by: beninmwangi | June 4, 2007

Trade Versus Aid in Africa, Who Wins?

It seemed like the time was right for me to pen this post about trade -vs- aid. This is a discussion that has a tremendous amount of relevance in Sub Saharan Africa. But it is also relevant in other parts of the world where developing economies are predominate.

Now of course the concept of nations climbing out of the low income status by trade is not a new one. In fact the concept has been around for nearly four centuries and was made popular by Adam Smith. He posited that national national wealth creation comes by way of nations playing to their natural and practical strengths therby producing the items that other nations demand.

So then “what’s the big deal?” some may ask. In other words if it has already been established so long ago that sustaining an economy through production, as opposed to aid, is desirable then we probably shouldn’t be needing this conversation. But we do need it.

Here is why we can no longer escape this discussion; Western aid to Africa has become so commonplace that many have accepted as “the only way” and thereby have stopped asking questions. Instead, almost the exact opposite has happened-they that champion aid to Africa are seen as sane and even heroic, while they that ask questions are often humiliated with ridicule or ostracized. Why is that? Me personally, I don’t know why, but am hoping that somehow, we can together through this discussion find some answers. Now, I have heard Professor George Ayittey connect this social phenomena with the collective conscious of the West. But again my intent is not necessarily to claim that I have the answer, but rather to pose a thought provoking question. And in doing so, perhaps we can all challenge each others thinking on this and other important topics, which in turn might help us to turn good ideas into even greater action.

Now because you and I have spoken about this before, you might recall that I did not just one day wake up decide to do something in Africa. But, if you had asked me how or where my goals fall in line with Africa, you may have thought that I was on day 1. Until around the time that part 1 of this blog came about, I didn’t know if my participation in the continent’s development would be in trade, aid, or both.

So the conversation that I had with Craig Chirinda last month, really forced me to admit that I had never looked this issue squarely in the eye and taken a stance.  And let me also say that if at the end of it all I still have not taken a definite stance, then I am fine just being aware that it is just one of those complicated issues…

So now that we’ve gotten that part of the conversation behind us, why don’t we take a look at some of the the pro’s and con’s of both actions.

Aid in Africa

  • Common Benefits
    • It can save lives
    • It’s a way of showing others, that you care
    • When emergency strikes aid is a auick solution
    • Aid can eliminate or reduce budget deficits
  • Common Drawbacks
    • Aid can be expensive for the donor
    • There is a potential for government misappropriation of aid
    • It may help foster an attitude of dependence
    • Usually first come, first served
    • Limited by donor constraints

Trade with Africa

  • Common Benefits
    • An efficient method of channeling resources
    • Empowers inhabitants to help themselves
    • Lessens dependence upon aid
    • Can lead to equitable relationships
  • Common Drawbacks
    • Benefits may take a long time to materialize
    • May require large amounts of capital
    • There is risk, sometimes businesses and investments fail
    • Might not directly benefit someone who is already in trouble

Again, those were just the ones that I was able to think of, but you may have more and if so, please remember to let us know.

Also, I guess it would not hurt to provide an example or two of both, and then see if there is anything that would resemble a combination of the two.

Example of Trade in Africa (this is certainly a way to reduce poverty and build more prosperity)

Jennings, the billionaire founder of Renaissance Capital, plans to double his investment in Africa to at least $1 billion this year.

“Africa is going through an enormous renaissance and unlike Russia in the 1990s, it’s not a matter of imagining that it might happen, it is happening,” Jennings said. “With the exception of the Chinese, we will be one of the largest financial investors in the region. We have the ability and capacity to make quite big investments and bring in co-investors.”

source: Moscow Times

Here is an example of aid in Africa, actually it is targeted at a specific region-Darfur.  (this flow of capital should in theory help to ease the burdens of some for victims of the genocide in Darfur)

Canada is increasing aid to Darfur by $40m, Toronto Star reported May 23, 2006.  Currently now Canada is one of the top donors to the Darfur region.

source: Sudan Watch

Here is a hybrid of sorts, a combination of both trade and aid in Africa ( or business leading to the greater social good)

Beginning in June 2007, IBM and its partners will convene more than 150 global thought leaders for several face-to-face sessions around the globe over a three month period. Why? To identify new opportunities to advance innovation and economic development for the people of Africa.

You can see the ideas IBM has collected so far or submit your own by May 25, 2007: IBM ThinkPlace Africa

 source: Business4Good

Oh…and this post would not be complete without letting you know what some of those in the Africa blogosphere think about this issue of trade and aid in Africa.  So here is something from a few of the people behind some of the sites that I regularly read.

Africa Bloggers and Business People’s Comments

Osize of Alt Nigeria says:

Africa needs Trade and Aid.

These instruments ought to be targeted at different the different sectors of the Macro economy. Aid and grants should be used the way that it is used in developed economies where it is used to boost sectors that would otherwise not receive the desired level of funding. Mostly the public sector oriented projects and infrastructural growth. The nature of public goods does not allow for proper policing of the returns on investment. Which leave private investors uninterested. This is more pronounced in Africa due to the informal set-up of the different macro-economies in this region. Aid should go towards, primary education, the Aids epidemic, cottage industries, the environment, and grass-root health care . Infrastructure such as roads and power should be put in place by a mix of aid and private investment. There should be aid up to the point that it makes sense for private investors to come in. That is the planning stage. I am against using aid for public goods such as power supply, because it encourages the sub optimal pricing of the goods and services produced

Private equity will do pretty well, like it is doing already in the existing large markets in consumables and private equity. Some grants could be used to shore up PR, and information technology to promote the dissemination of information in the finance sector. With this in place trust me, it takes a short time for savvy investors to swoop in because of the premium that will be available for all takes. I do not get the point in spending money organizing seminars to encourage private investors to invest in Africa. I believe once the structure is in place, things will happen. Capital is like water it always finds it level. Information (lack of) and bad PR however act like dams stopping the flow.

Joshua Wanyama of African Path says:

Long Run Aid (in Africa) Must be Reduced…

And trade promoted.

Until countries (in Africa) can find a way to reduce their dependence upon aid, they will not get very far (towards eradicating poverty).

Hoseah Muturi Njuguna of Suntra Investments says:

Aid makes people content

But if you teach a man to fish, you don’t have to feed him tomorrow.

Kimani Wanguhu of Kim Media Group says:

Trade is for the long term

But sometimes with aid it’s “easy come, easy go”.  When you break down the analogy of teaching a man to fish versus giving him a fish, you’ll see something.  Teaching him to fish is similar to doing trade, but giving him a fish is closer to aid.

So, did we get any closer to figuring out “what is what”when it comes to trade versus aid in Africa?  I guess it isn’t really for me to decide, but that’s where you-the reader(s) come in.  What do you think-who wins in Africa when we promote trade and who wins when we give aid?

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Responses

  1. Trade wins & is better Simply put – Aid is short term, and unpredictable, while Trade delivers long term benefits and is largely sustainable unless there are significant macro-economic changes.

  2. Bankelele:

    Hi, thanks for taking the time out to let us know your thoughts here. So it seems like the answer may be based upon the relative macro economic conditions of which ever economy we are talking about ?

    I like that answer, although there are a few absolutes in life, like you have said, this topic has so many variables and for that reason may require a different approach depending upon the circumstances,

    Otherwise, you are at TED 2007, right? If so I hope that you enjoy it and am sure that you will bring some vital insights to your readers.

    Thanks again.

  3. I am very interested in the topic you discussed and also the comment of one of you commentators saying “Teach a man to fish and you feed him for a lifetime…” Have a look at our company’s blog at http://dust1.wordpress.com to see my agreement of transformation (also) through entrepreneurial development. We (like yourself) have an intense hope and trust in the transformation of Africa into a continent of significance. It’s nice to be an African!

  4. Man, you have no idea how big this discussion is going to get. Bono vs Mwenda just happened at TEDGlobal about 20 minutes ago… I’d say that Ethan Zuckerman has the best write up on it.

  5. Decades of Western aid have done little to ease suffering in Africa indeed the situation is worse than ever. It is time for the west to rethink its aid strategy or abandon it all together. In the dawn of the 21st century the west is trying harder than ever to “save Africa”. Money is, according to the west, the solution to all of Africa’s problems. The big push forward to end poverty in Africa is to be financed by an increase in traditional foreign aid. The G8 in 2005 for example agreed to double aid and to forgive the African aid debt incurred in previous years. This new doubled aid is to fund previous, unsuccessful, initiatives. Celebrities when not adopting children are busy calling for more aid money. Angelina Jolie toured the continent on behalf of MTV advocating for more aid to Africa. World leaders gather at the UN to further discuss ending poverty in Africa, apparently oblivious to yet another voluminous U.N. report highlighting the failure of the grand plans (the “Millennium Development Goals”) to make any progress. They repeated a familiar refrain: If aid efforts aren’t producing the desired results, then redouble those efforts- DOUBLE THE AID MONEY.

    The west, Africa countries and the global community should realize and appreciate the fact that development everywhere is homegrown. Perfect case examples are China and India who have tailor made their own unique development outfits that can better address their own economic and other development issues. Industrialization and trade, research and development has brought unparalleled levels of prosperity to this countries. So that while Angelina Jolie, Bono, G8 states, UN and the likes pump billions of dollars into aid pockets in Africa, China and India are busy increasing their own incomes with very, very limited aid.

    I am a firm believer that what African countries need is AFRICAN SOLUTIONS FOR AFRICA’S PROBLEMS. African countries need to get their houses in order.

    The donors from the west are just visitors they come and go at their own pleasure.

    Already today there are increasing numbers of Africans INCLUDING MYSELF who call for an end to this sort of support. Aid simply benefits a paternalistic economy, supports corruption, weakens trade and places Africans into the degrading position of having to accept charity.

    To conclude my rantings :))) Africa in seeking to increase trade it better not fall blindly in love with the wrong trade partners. Indeed China and Africa make strange bed fellows. The new scramble for African resources by China though welcomed by a majority of the African governments, China should condemn where it is bribed and not condone genocide. African leaders should play their cards well by talking to each other and negotiating as a block and thereby driving a harder bargain.

  6. Nico:

    Thank you for the visit. You guys, in S. Africa, are really setting a terrific pace for the rest of your neighbors to follow. I really like your blog and will probably be continuing the discussion with you on one of my related blogs. Thanks again.

    Hash:

    You have livened up this discussion a great bit. Thanks, oh how I would love to be in Arusha with you guys!!!

    But I know that this part of the blogosphere is so able…to keep the world up to date on the happenings at TED 2007.

    On Bono, one day I’ve got to try and understand his arguments for aid. I do agree with the fact that countries shouldnt have to pay for debt that was incurred by prior dictators, for the sole benefit of the upper reaches of such regimes. But i am not sured how Bono qualifies his aid recipients…Will get back to your site
    and Ethan Zuckerman’s to try and read more about this. Thanks, Man, I love your heart. Keep up the excellent work!

    Liz:

    Hi there. You came back!

    Thanks a bunch, we will have to catch up on some Swahili soon.

    You have in one response answered why so many of the continent’s intellectuals are against aid. For fear that it will end up in the wrong hands. And perhaps, just as detrimental that it will lead to complacency and dependence on the part of the recipients. Your argument is strong.

    But, Question, what about confirmed natural disasters and other enmergency level crises events? That’s the part that I have not figured out yet. Because if all aid is cut off then the victims will be left to totally fend for themselves. Even in America when Hurricane Katrina hit the victims had to use some aid.

    Now long term trade could help in a country like Ethiopia for instance, if it were able toi maintain enough trade in let’s say coffee to create a budget surplus. But whilst they are working to attain this feat, what tools do they have to fight this type of issue.

    I guess in Kenya, many local communities have an answer called the Harambe, whereby the whole family and community pools together resources through donations, raffles, and other small sales to benefit one person, family, or etc. in need. That is certainly one plausible solution, what are your thoughts?

  7. Benin, and fellow bloggers!
    Your comments on aid to Africa are very interesting and informative read. Needless to say, there’s much debate on the effectiveness of aid in Africa. The way I see it, there is nothing like aid to Africa. The world has become one, and so when one end of the world is more developed than the other one and seeks to try and create balance, that is not aid. The ones who have more are obligated to share with the ones who have less. Part of the reason is that inequitable development yields to social problems that we can not afford to have in this age, yet we do have them. Immigration, terrorism and such like ills are mostly driven by this. There is a new stride, especially by the USA and Britain, to increase funding to Islamic groups, definitely an attempt to placate them in wake of perceived Muslim anger towards the west. So in a way, the donors are driven to give aid by guilt. There is also an economic sense to them giving off some cash out.
    Kenyan donors have developed something they call “Kenya Joint Assistant Scheme”, in short KJAS. It is being spearheaded by world bank, and 17 donors, namely donor countries are signatory to it. It is an agreement with the government on the priority areas to be funded and the means to ensure the funding is out to use. the joint venture makes sure there is unity of purpose and intent by the donors, and there is no duplication if funding, which in most cases leads to fraud.
    As for trade, Africa has never been a trader. It is a producer. The traders always have the mathematics int heir favour. And so the idea is to cement Africa as a block that can negotiate as a trader. Investments being flown to Africa di not necessarily translate to development. Grumet Reserves, owned by American Billionaire Paul Jones is investing millions of dollars in Serengeti, a venture that is supposedly meant to immensely benefit the Tanzanians and Kenyans. Recent survey has found out the environmental impact of the project will bring massive losses far out-passing the gains. That has been the case with foreign investments in Africa. The investors have their own interests. Look at what is happening in Nigeria with oil, and Sudan too.
    And so if aid can be harnessed to empower Africans to become investors, then the better for Africa. And so I say, let aid live as long as it is relevant, and let the Africans come together as a trading block so as to have a bargaining power in the world of trade.
    Thanks guys!

  8. Philip:

    Thanks for the visit. It’s been a while since we’ve spoken, yes? Well, I’m glad that you stopped in. Now with the type of work that you do, I know that you have seen some positive aspects of aid..And I agree that all of the problems faced by a country may not be rapidly addressed through trade.

    Which is why I do favor some aspects of aid-the training apect. There is a Kenyan based outfit called Technoserve, they have become very popular latelyhe because of the way that they have transformed communities. They train small scale enterprises on how to maximize return on capital, labor, and investment.

    Check out their site

    http://www.technoserve.org/

    This to me represents the best of both worlds.

    What do you think?

  9. […] Trade Versus Aid in Africa, Who Wins? […]

  10. […] reading: New York Times: What Does Africa Need Most: Technology or Aid? Ben Mwangi: Trade Versus Aid in Africa, Who Wins? Global Voices: Africa: Blogging TED Global Thanks Omodudu Sphere: Related Content Post a comment […]

  11. […] develop an Africa-related strategy which both addresses the customer’s demands AND provides opportunities for Africans. Whether yours is a foreign or Africa-based company, today you MUST have a strategy which […]

  12. Mwangi,
    Trade is not something that you can be given like aid, therefore your question does not hold.

    Trade is the exchange of goods and services for money. Trade will only happen if we have something to sell. If we build industries like China, hard currency will find its way into our coffers. Just look at tourism. The investments made have attracted a lot of tourist into Kenya.

    BUT. Kenya has poor infrastructure (communication, transport and bad government regulations. Let us fix our country like SA then we can begin talking about trade. Until then, aid will do as fine.

  13. SS:

    Please don’t take it wrong, but I think I’ve have tried to earnestly address each of your comments and feelings. But sometimes it seems like it is difficult to do so since I don’t understand exactly where you are coming from and also since it seems that your positioning is so firm.

    It seems to me like there is a deeper issue behind your statements though, which are always well thought out by the way, but the deeper sense though seems like you don’t trust either the leadership in Kenya or the business climate there. So I am curious on why you have taken that position and also, on how long it has been since you have been back-since the reports that I have been getting from recent returnees has been so overwhelmingly positive.

    Also, you have said aid is fine for Kenya but have not addressed the aspect of it that receives the most protests-which is getting the aid to do what it is supposed to do and making it go to who it is supposed to reach. Also, what are contracts, are they not given or granted based upon performance as are programs like AGOA? Additionally, Kenya has a strength, relative to East Africa in IT outsource and small manufacture do you think that these are industries where Kenya can seek trade from other parts of the world? Finally, on this topic there is a related issue which I think you might find interesting “Trade FOR Aid” it may be replacing the Trade vs Aid buzz phrase and basically is aid targeted at making trade more practical-any thoughts Sir?

    But, whatever the case I will be there in December and I will see firsthand what changes have been made since I’ve been there 4 yrs ago.

  14. Mwangi,
    I’ve been to Kenya every year since I moved abroad. I don’t know where you got the notion that I’m stubborn.

    My point was that we can’t ask for trade, though we could beg for aid. When it comes to trade we have to JUST DO IT. Its that simple. We become competitive and flourish, or we do nothing. Seems like we are doing more of the latter then blaming the west for sending us aid.

    Aid/charity has its place but I would like to see the GoK do more to create an environment that fosters business. Take the case of free secondary education. Instead that money can be channeled into building infrastructure that will spur economic growth, provide paying jobs and people can afford to pay for quality education. Instead we waste that money in providing mediocre education for people who will end up unemployed when they graduate.

    In summary, the government doesn’t need aid but it holds the answer to trade.

  15. SS:

    Hi, thanks for being evr vigilent my friend. It is good that you came back and I’m happy about that. You know I would never criticize you for your stance. If it seemed like thats what I did, I am sorry for that. I just wanted to understand the reason for your positions-thats all.

    Diversity is the most beautiful thing on the planet, we don’t have to all agree on any given topic just to have a good conversation, furthermore, I feel that you make a valid point-about “just doing it”.

    The other day, I had a conversation with a good friend of mine-he blogs at altnigeria.com . The flow of our conversation was nearly identical to the one that you and I are having. Basically, this fellow is from Nigeria wheras I am not. Thus, he has more intimate knowledge of Nigeria than me and sometimes he is critical about the GoN position on certain things. So our conclusion was that someone has to do it-these grievances have to be voiced, especially by someone who is closer to the situation.

    Likewise, some will for various reasons choose to focus mainly on the positive. So I think neither position is good or bad, because at the end of the day with various perspectives of the same story what yopu and I do is to help paint more balanced and colorful collage.

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  17. […] but more likely to learn towards random things thats going on at the moment. Whether its debates on Trade Vs Aid, Nigerian Comedy, Technology in Africa, Fashion Newsetc etc . In other words, anything and […]

  18. […] No es cuestión de mandar a la mierda las ayudas, ni las campañas de Bono y Geldolf, ni a las estrellas que hacen de “embajadores UNICEF”. Pues no deja de ser cierto que muchas zonas del continente africano se están muriendo, literalmente, de hambre y de enfermedades. Otras no tienen acceso a algunos de los recursos más básicos, como el agua. Es obvio que esa gente necesita ayuda, y mucha, y rápida. Lo que están tratando de decirnos no es que dejemos de enviar ayudas, sino que no pensemos que poniendo tiritas salvaremos África. Que la ayuda, sólo la ayuda, no basta. […]

  19. there is no solution to development but development itself, and the sooner we start the better,
    it’s time we think for ourselves and stop expecting solutions from others
    aids are ok if they boost the process and if there are some benefits (read gains) for donors: investments are better than alms!
    donations are like pocket money for kids…maybe donors prefer to give some crumbles instead
    of sharing the pie! do you think that asia’s winning economies are the result of donations by some good guys in washington,new york, london and paris? and going back in time , europe had developped thank to donations? people had ideas, made them work, built knowledge,had visions and ingenuity, they were eager to make money, to climb to higher status, they had ambitions and had found a way to fulfill them: do you think that somebody else is willing to do this for us? Maybe it’s good to have have some pocket money, but can you fancy having your own bank account and credit card?

  20. This is topic or debate is very interesting. It is my sentiment that Africa needs an equal or ideal balance between trade and aid to prosper. Those opposed to Aid should remember that even Europe needed Economic, Humanitarian and Military aid, The Marshall Plan, to overcome the aftermath of the Second Word War.
    On the otherhand, there are countries in the world whose states have favorable conditions and terms of trade in the international system but still has poor people or rather have wanting development patterns.

    My point being, as long as the socio-political setting and economic policies in most African countries remain as they are, no amount of trade and aid will rescue Africa. Constitutions and development policies in many African countries if not all are tailored to maintain the status quo. That is, these policies are made to keep the incumbent in power at the expense of democracy and its tennets. The executive is usually strong and has no body to check it. It ‘checks’ itself. This type of dispensation of governance begets ethnocentrism, greed, corrupton, rewarding of croonies, rewarding of fellow tribesmen by the leadership, lack of transparency and executive leadership marked with paranoia. The results of the named vices are there to be seen by all in and outside the African continent; they include civil wars, large scale poverty, diseases, illiteracy, ignorance and underdevelopment.

    Friends, as long as we have this kind of leadership in place, this new generation and style of dictatorship, nothing else is going to liberate Africa. In the current setting, the revenue generated from trade, money recieved as aid will be used to line the pockets of those ‘entrusted’ with the responsibility of taking charge of our resources. Let us take positive steps to ensure that the revenue generated from our resources through trade and Aid money is channeled in the right places. Let us first change the faulty policy-making framework then engage the west and China as aspiring trade partners not as beggars.


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