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The G8 Business Debate: ‘Aid will go only so far in helping Africa; trade must do the rest’

THE TIMES (UK): The G8 Business Debate: ‘Aid will go only so far in helping Africa; trade must do the rest’

Developing countries need fair access to world markets to break free of the red tape, corruption and historical shackles that keep them mired in poverty: “Marks & Spencer is making considerable progress in southern Africa in partnership with the Shell Foundation…”

Wednesday 6 July 2005

By Paul Myners

COUNTRIES, like individuals, tend to get richer by making money rather than receiving handouts. But countries need a start. They need the basics.

Jeffrey Sachs, the development economist, has a useful image: the poor have to get on to the ladder of development; but the ladder hovers overhead and they are stuck underneath it. They need a boost to the first rung.

The West has plundered Africa since 1500, first with the slave trade and then through exploitative colonial rule. Twenty-first century Africa is the latest and perhaps last project of 18th-century Enlightenment thinking: justice must be done. The great movement represented by Smith in economics, Kant in philosophy, Condorcet in education and Jefferson in politics has passed down to us. It is time to put our values to the test. Business should be at the heart of this moment.

Internally, countries are made poor by lack of human capital, business investment, infrastructure, natural resources, public institutions and knowledge. Aid can and has delivered on some of these, but generally in only a limited way. To be effective and efficient, aid needs to be more local, less circumscribed and better monitored than historically has been the case.

Aid will go only so far; trade must do the rest. Yet trade can prosper only when conditions both inside and outside Africa are conducive to African business. In Africa, governments are the main economic actors; and even where liberalisation is taking place, regulators and regulation are new and corruptible. Competitors are few in fundamental sectors such as banking and communications. These are unbalanced economies and nascent markets.

What can business do for Africans, or more specifically, for sub-Saharan Africans? They make up 87 per cent of the world’s 1.6 billion moderately poor (on US$1-2 per day). Nearly half of Africa lives in extreme poverty (on less than $1 per day, the cost of this newspaper), and both that proportion and the absolute numbers are rising. By contrast, elsewhere in the world extreme poverty is falling rapidly, as in East and South Asia, or is low and static, as in Latin America and Eastern Europe.

Why is this? Behind these figures, particularly in Asia, are market reforms, including the beginnings of liberalisation in China in 1978 and Vietnam’s doi moi reforms in 1986. The Chinese model of joint ventures, particularly in the carmaking industry in the eastern provinces, has been a catalyst for growth. Experience in Asia has also shown that mutual and co-operative structures have a role to play alongside pure private enterprise. Market reform is one important way forward for Africa.

Advancement is required on all fronts, and above all in those means by which wealth is created, sustained and passed on from one generation to the next. Using every means at our disposal — social, economic, military, technological, commercial and humanitarian — we must create the conditions both inside and outside Africa that allow African business to thrive.

What are the risks and opportunities for the private and joint venture sector in sub- Saharan Africa?

At a local level, logistics, skills shortages and natural disasters must be overcome. The World Bank’s annual Doing Business report puts sub-Saharan Africa as, on balance, the most difficult place in the world to do business.

There are two reasons: first, regulation and red tape — with little sign of reform — make the region seem hostile to the agile, secure pursuit of business; and secondly, 40 per cent of the economy is informal, the highest in the world. Both of these conditions militate against good governance, enable bribery and corruption and feed the greed of indigenous elites.

However, there is already action in these areas. This week Business Action for Africa, formed by multinational companies, launches a report aimed at improving the business environment of the region; other initiatives, for example the Climate Facility for Africa and the New Partnership for Africa’s Development, point the way to greater transparency and improved governance. They highlight the way forward towards a new economic infrastructure for Africa.

Externally, Africa needs fair access to markets. This is why we must focus on the balance between aid and trade. As we commit to help Africa, we must re-examine our own behaviour. The money we give Africa is beginning to be seen in the context of the money we give to ourselves, for example, in agriculture. The proposed $25 billion (£14 billion) in extra aid is less than half the $55 billion we spend on the Common Agricultural Policy, a form of protectionism that has the effect of keeping food expensive for European Union consumers, shutting out other world producers and artificially setting EU land prices for the benefit of the rentier class.

Tariffs and subsidies are forcing business in developing countries to operate inefficiently in sub-scale local markets, preventing them from accessing global markets and supply chains. These developed world policies are mandating continuing poverty in Africa. They must be seen for what they are.

Internally and externally, rapid change is possible. The case of Uganda, which has been reforming its business environment over the past ten years, shows that private investment can be attracted. Ghana is another example: its poverty reduction strategy has helped to foster thriving business and rising tax revenues, even though the country remains high in the corruption indices.

At a local level, investors and managers need to be creative, persistent and, above all, culturally attuned. Marks & Spencer is making considerable progress in southern Africa in partnership with the Shell Foundation to facilitate a new, locally owned supply chain based upon technology transfer to promote development in the Agulhas Plain, alleviating poverty by creating sustainable employment while protecting a fragile ecosystem. It can be done, it is good business and it feels good to do it.

Business has a central role to play in the lives of Africans. Internal reforms to improve the business environment and external reforms to improve markets for African countries will, in time, reduce poverty and enable Africans to earn rather than receive. In his book The End of Poverty, Jeffrey Sachs writes of the economic possibilities of our time: to end extreme poverty by 2025, and to ensure that before 2025 the world’s poor countries make progress up the ladder of economic development. Business, operating locally, honestly and creating both a market and supply for skills, is central to that enterprise.

Paul Myners is chairman of Marks and Spencer plc

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