Posted by: beninmwangi | June 29, 2007

Is the Trade vs Aid Debate Missing Something?

mwenda.jpg

Mwenda’s photo appears courtesy of Soyapi on Flickr

This is going to be more of an editorial post than a post analyzing media. I have tried to reserve my editorials for The Benin Epilogue Part I site; but today just feel compelled to mention air my thoughts on this subject here.  For several days I have been re-considering my ideas and position on trade vs aid.  So much so that my “writing energy” was beginning to feel cramped unless I gave in and wrote this.

But whereas in the past I may have said or implied that trade is more important to for the further development of Africa’s growing economies; now I am coming to the conclusion that without sound economic policy and strong governance neither aid nor trade will be able to fully address the needs of the broader socio-economic groupings within some of Africa’s nations. 

The argument has typically been that aid in Africa only helps a handful of people -due to high probabilties for misuse.  But I think that the benefits of trade may also affect a small section of the economies that we are discussing if the proper policy is not in place.  This doesn’t change the fact that trade does empower those who partake in it, but it does say that barriers to entry for the small “moms and pops” business in a country with sound policy is much different than what one might expect in nations with weak policy and governance.  So in the end, in an area or nation lacking strong checks and balances both aid and trade might still have a difficult time building prosperity across all income levels.

bono.jpg

Bono’s photo appears courtesy of Soyapi on Flickr

Now that being said there are several nations which readily come to my mind when we talk about balanced  policy and governance, plus strong economic trends.  Topping the list in 2007 would be Tunisia.  Tunisia economy comes in at or near the top of the list not just in Africa but even in comparison with some of Europes economies in statistics measuring employment and participation in the economy. After Tunisia would probably come Botswana ,Mauritius, Ghana, and Senegal, .  There are nations like even Kenya-who as Odegle mentions-just four years ago was having a tough time-but has since been working to turn the situation around.  Then there are other countries like South Africa and Nigeria, the largest economy and second largest economies in Sub Saharan Africa, respectively but yet sharing the the unfortunate distinction of having two of the largest income disparities in the world.  This would be due to the legacy of very serious social and policy issues in each country. 

So I guess at the end of the day what it boils down to is that their are some African nations where we could invest in or channel aid into and many would benefit and then there are others nations on the continent where this would not hold true.  This is why I think that there is more than meets the eye on this aid vs aid debate.  This is also what makes the arguments of economists like Prof. George Ayittey so valid.  Unfortunately, it is so much easier for us to only hone in on the “shock value” aspect of arguments from the likes of those like Ayittey, Mwenda, and Shikwate-so we tend to sensatinalize the “aid is bad” component of their arguments and then end up taking that one part of what they say out of context.  Which is to say that  that aid does not necessarily have to be always bad and that trade is not necessarily all good at all times-but that good governance must precede both.  The scenario playing out right now in places like Equitorial Guineua, Nigeria, and Sudan seems to crystalize this notion.  There is a substantial amount of trade taking place in each of these three nations but the policy gaps have in each country have led to huge income gaps between the poor and wealthy of these three countries; in short the good deals only go to the well-connected.

ayittey.jpg

Ayittey’s photo appears courtesy of TED Conference

But again, the idea is that with stronger governance in countries currently lacking the policy infrastructure trade will alas make a difference-not just for the few, but for the many! Likewise if aid is dispersed it will make it to the intended recipients until they are able to agin participate in the formal market economy.  So, if I were a policy advisor to any of the Africa’s stable economic and political countries ( which would be 47 out of Africa’s 53 nations, since I am excluding the 5 nations which have active emergency situations right now) state of economy my advice regarding aid would be to categorize aid into two main categories:

Potentially Beneficial Aid(these types may not have quick benefits, but in they long term they could rastically dchange the scope of the economy for the better)

  • training to enhance the skills of the labor pool (special priority might go to agribusiness, ICT, women in business, and youth development)
  • business and entrepreneurship training
  • research related

Potentially Harmful Forms of Aid

  • aid with trigger clauses allowing for loss of natural resources or forcing the nation to grant contracts to companies of the donor or creditor nation
  • inflows that would cause the country to behave like a debtor to a creditor
  • projects that benefit only a small portion, region, or ethnic group within the nation

My advice on policy changes or updates might look something like this:

Policy Do’s

  1. Emphasize and utilize aggressive tax collections, plugging the collection leaks with  systematic and results based processes
  2. Reduction of intra-continental trade tariffs.
  3. Put together a team or think tank consisting of the nation’s top economists and business persons to assess the countries economic strengths and weaknesses and use the findings to build on strengths and partner up with neighbors to cover weaknesses.
  4. Further development and establishment of luxury industries like luxury tourism, high end organic food or hand finished clothing, and furniture products for export earnings.
  5. Use the tax windfalls from increased collections to spur further development of natural resource processing and finishing industries and infrastructure.
  6. Allow for aid programs but work to minimize state involvement by empowering the more localized, private, and/or community based groups to accept aid and or grants with the condition that they be responsible for the results and obligations.

Policy Don’ts

  1. Zero tolerance for corruption, with heavy emphasis on removing the opportunities for corruption.
  2. Refuse to support departments, initiatives, businesses, or industries that are not able than to bring in more revenue than the expense necessary to carry them-eliminate redundancies, within a term or office. 
  3. Moving away from the top to bottom or no questions approach to a more customer service oriented approach.  Likewise, move away from processes or communications that build upon an “us versus them” strategy and move towards an an approach that sees business, civilian, and government as one team. 
  4. Doing away with secrecy in bidding processes-especially involving state parastatals and establishing system to exclude government officials above a certain level from being able to bid on such properties.
  5. Discourage the taking on of loan commitments that would extend past one administrative term of office.

OK, in reality it is always much more complex than this, but that’s sort of the general idea of it.

shikwati.jpg

Shikwati’s Photo appears courtesy of Afromusing on Flickr

Before ending let me also say this re-evaluation has been inspired by various conversations and readings on this topic and this post itself is inspired by a conversation from Africa Enterprising.  In fact, my hope is that we can continue this discussion and see whether this aid vs trade debate is complete or find out what needs to be added to it to make it even more relevant.  Perhaps we can do this discussion in the form of a blog chain  where other bloggers can respond to this post and then more bloggers can in turn respond to those bloggers and it continues until it can’t be discussed anymore.  Following the blog chain, on July 6, 2007 we will be publishing a blog carnival on Africanloft so you may also feel free to submit your trade and aid posts to this edition. But most importantly that will mean that this discussion will have opened more minds, provoked more thoughts, and even stirred some form of economic action.  But I guess we’ll have to wait and see…

Advertisements

Responses

  1. I’d say this is a more balanced appriach to the debate. The AID trade debate is far too simplistic. Focusing on good governance and the infrastructure to achieve more with the aid and the trade would be the right way to go. Come join us at the NigerianLightouse.org. Argh argh..shameless plugging.

  2. This is impressive Ben.

  3. Impressive analysis Benin, it seems you have been doing a lot of thinking all this while you’ve been silent.

    You have identified what many aid/trade proponents have left out of the conversation – good governance. With good governance, a more conducive environment for trade and commerce emerges and foreign aid becomes more effective. These three act in synergy and their cumulative effect is the emergence of a more prosperous society. This type of society isn’t any different from what the “Cheetahs” at the TED African conference want or the sustenance farmer in Togo or the urban dwellers in Zimbabwe. But how can the issue of governance be addressed beyond mere rhetorics?

  4. As you say: “without sound economic policy and strong governance neither aid nor trade will be able to fully address the needs…”

    You’re correct. However, trade cannot function correctly without good governance. Try run a stock exchange and get anyone to invest without good laws to protect investors. It’s a lot better than aid can achieve where organisations have money to spend and must do so. Aid is more likely to be spent in the absence of good governance. Traders / investors are more likely to sit on their investment.

    After all, the primary difference between the two camps is that investors demand returns whereas donors only hope for them.

  5. Gavin:

    Thats an excellent point. That for some reason donors continue to pour money in to nations lacking good governments, even when there is the possibility of the aid not making it towards the intended targets. And that was just my point, that aid may be forthcoming under such circumstances, but not effective. Whereas under strong governance the aid monies would have a better chance of reaching the people that the donors had in mind.

    Imnakoya:

    Thanks, I think that there is nothing wrong with using words to address these types of issues, after all its not like one can really force an admistration to do anything. Apparently lackluster regimes would seem to at least consider words just as harmful as sticks and stones (which is my analogy for non-verbal action) because they are always looking for new forms of censure.

    But outside of this I think that where there are numbers, there is strength. Take the tiny manual farm laborer, who may be just producing enough crops to meet the needs of the family and maybe get 10% more of that yield as surplus. Well, when they are in a system that values a strong tax base-large numbers of these farmers grouped together as a collective bargainer could use their taxes as an incentive, in much the same way as local government could use tax incentives as rewards.

    Outside of this I also see value in the work of others like Ory Okolloh of Mzalendo and Sokari of Pambazuka. They have adopted a new form citizen watchdog groups-the real-time version. So that where once, during the “old days” of two or three years ago a corrupt politician could dissuade a newspaper from publishing damaging stories about him or her-this new brand of citizen journalist-or blogger has the story out before the politician even became aware that their dirty laundry might be made public.

    Those are my pre-lim thoughts on your thoughtful statement. Thanks for your interest in this topic, too Imnakoya.

    Omodudu:

    Thanks, also nothing wrong with a little shameless self plugging every now and again. Otherwise, I would have never known about your lighthouse org.

  6. I might be missing something here when we talk about governance. What leads to or has led to good governance in most parts of the world has been the growth of alternate power bases with the accompanying increase in financial power. Be it the burghers of the middle ages in Europe or the middle class in military ruled South Korea there was a common factor—an empowered class that derived its wealth from a growing capital base—Until you build that class of individuals or they build themselves you might as well be whistling in the wind. Must the growth of this group be directed top-down by aid and or fiat, not necessarily so,in fact they rarely do get built that way. Once again we have quite a few examples of disenfranchised expatriate populations that were able to achieve this feat,in fairly hostile environments: The Non-resident Indian,Chinese and Jewish Populations are the better known examples. Are there African corollaries? Yes the unrecognized Mourides of Senegal for example, or within Africa the numerous populations that have spawned informal industrial clusters.Have we recognized their promise and looked for means to strengthen their nascent steps ? No we have not. The point here is that we need to strengthen and build on those areas of strength and recognize them for what they are. With a growing stake in even an informal economy the individuals demand and over time obtain the means to implement the governance that we seek.Governance like every thing else has to proceed from bottom up and not the other way round.Stable democracies with good governance evolve from the actualization of capital-based stake holding.

  7. Emeka:

    What a pleasant surprise! You know, everytime I read your words, they are always profound.

    The point that you are making here is what I tried to address in the middle part of my last comment. The posts that you referenced were insightful as well.

    There are three other notable supporting examples of what you are talking about also. The Medici’s in Florence, Italy during the middle ages who through at first small scale banking and coin lending became big bankers, which forever influenced the political landscape of Italy. The merchants in Prussia, who helped sway the tide and ushered in the economic expansion of the land today known as Germany. And of course, Japan-who was mired in Confusionism which totally dominated the political and economic landscape until a merchant class began using it’s influence to greatly alter how things were done in the country. In fact, Japan is one of the countries that for a while perfected the definition that concept that Adam Smith wrote about-mercantilism.

    This is one of the things that I got out of your comment. But after reading your posts, it became evident that the second dimension of your comment is this- that one doesn’t always have to hit the home run or score a goalie on the opening drive. If overtime someone can make the small steps, then in the aggregate they can take a community just as far as someone who made one huge advance in the first phase of development and then slowed down during the next few phases…When we apply this idea to the entrepreneurship arena -we see that many small businesses, built over time so that they have a real imprint on their local landscapes, can together with a unified voice persuade the government to make decisions that would benefit that particular industry or locality. This could very likely lead to a “win-win” situation.

  8. Benin: The use of the word “rhetorics” in my comment is inappropriate, and an ‘insult’ to the caliber to people you mentioned and folks like Emeka who have been very vocal and practical in championing the African cause. So permit me Benin, to eat that word. 🙂

    The Mourides story is exceptional as it’s inspiring. Thanks for directing my attention to it Emeka.

    Good governance can never come from a “top-down” orientation; it is the handiwork of an able and passionate political class with strong grassroots and connection to an apathetic and informed electorate. Activities in the business and entrepreneurial sectors will eventually pave the way for better governance in Africa. However, this process can be hastened if there are more people with the “can-do” mentality of the Cheetah generation among the African political class. But are the Cheetahs willing to venture into the murky waters of politics and public service…in significant numbers? And this is what prompted my earlier comment.

  9. Imnakoya:

    Hmmm. Good point about the cheetah and hippo class, as far as the socio political angle. I liked Emeka’s example too. I think there are a few cheetahs who are willing to do what it takes. As a matter of fact I interviewed one fellow (in the Benin Epilogue) who embodies Prof Ayittey’s description of a cheetah almost to a “T” his name is Phillip Mungai Nganga.

    Outside of this I would say that power respects power, you know? I think that is kind of what Emeka was saying and if you have enough small businesses clustered into one geographic region, whilst you have local government clammoring for more funds to pay for basic necessities, then those businesses could in theory posses reasonable power to persuade the gov’t to do things in their favor. And if the bulk of those businesses are micro enterprises or 1 to 2 person shops, then when the gov’t acts in their favor, they also by default doing something that favors the overall community as well.

    Which sort of leads back to what Adam Smith was talking about when he coined the word mercantilism some 200 plus years back.

  10. […] on AfricanLoft The African aid-trade discussion is being followed by several bloggers, including Benin Mwangi, an AfricanLoft author, it’s also the subject of an upcoming Blog Carnival being hosted by […]

  11. Yeah power respect power…As long as those that have it are conscious of this and have the clout and intelligence to use it to their advantage. There are some cities in Nigeria well known for small business pursuits – Aba, Onitsha and even Lagos…I will be ecstatic when what you propose start happening in these areas.

  12. […] primary theme of this issue is about be the current trade vs aid in Africa debate and the secondary theme will be empowerment through […]

  13. […] Mwangi presents Is the Trade vs Aid Debate Missing Something? posted at beninmwangi.com, saying, “When we look across Africa’s blogosphere this whole […]

  14. […] excerpt from another blogger, Emeka, actually coming by way of a comment that he made on an earlier post: What leads to or has led to good governance in most parts of the world has been the growth of […]

  15. […] view an encyclopedia. So you can imagine my enthusiasm for them drawing attention towards U.S. Policy Toward Africa. In this instance what they have done is created a tool that can be used to summarize […]


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

%d bloggers like this: