A Call to Redefine Aid




No country can work itself out of poverty with aid alone. Indeed, throughout Africa, we have seen first-hand how the international community’s traditional approach to solving the continent’s problems through charity and aid have fallen short. While such support has undoubtedly done much good for millions across the continent by delivering food security, health care, emergency relief and education, the results have not been sustainable.

Such ‘free money’ can actually be counterproductive, by crowding out vital private-sector solutions. Private enterprises cannot compete with highly subsidised capital and the net result is that charity often provides a short-term fix at the expense of a long-term solution.

For example, it has been shown that the greater the level of foreign aid that is spent on healthcare, the less the recipient countries spend themselves. Diseases, such as malaria and polio, were not eradicated in the developed world through charity. Such health victories were achieved because the average working person could afford to go to the doctor and because there were functioning health insurance markets and profitable pharmaceutical industries around to develop and manufacture vaccines.

Countries across the continent need to create the right environment – political, economic and social – to build self-sufficiency and move beyond the aid trap. Charity and development should never be conflated.

How can we increase resilience and reduce reliance across Africa for future generations? Through a development approach that I call “Africapitalism” – an economic philosophy arguing that the African private sector has the power to transform the continent through long-term investments, creating both economic prosperity and social wealth.

Africapitalism is also a call-to-action for Africans to take responsibility for our own development – and for the international community to evolve their thinking about how best to channel their efforts and investments in the region. We must keep the following tenets in mind as we work to create a future where increased social good and economic expansion across the continent go hand-in-hand.

Harnessing the power of the private sector to drive economic development is the most effective way to sustainably create wealth and resources in local economies. Philanthropists, nonprofits and non-governmental organisations alike can and should play a role in this by leveraging their resources to create meaningful and long-lasting change through and with the private sector.

Take water, for example – a vital yet scarce resource. A charity might pay to construct a new well, but if no one has a stake in it, or responsibility for maintaining it, it will just as quickly fall into disrepair and disuse. If that donation were structured as a for-profit, micro-utility, it would create incentives and resources to maintain it – improving its sustainability and long-term impact.

Successful home-grown businesses fly in the face of the common misconception that developing economies are “aid dependent” and cannot possibly have the resources to support commercial enterprises.

African business heavyweights are reinvesting in domestic industries that support the basic needs of African people. They are creating tens of thousands of jobs, impacting individuals, families and entire communities.

Of course, one of the main ingredients of a strong local business is a strong local workforce. Involving local labour and skill, however, ought to be done through localised solutions. This is the kind of solution I would like to see more of – one that takes into account both the current market needs and the community’s interests.

Private investors are willing to take on the risks of building these kinds of businesses, but are often wary of bearing the full financial brunt in emerging regions. Philanthropic dollars can help in many ways, from co-investing with the private sector, to partially subsidising operations until businesses can achieve profitability and sustainability, or subsidising management training to help businesses gain the specific skill sets they need for growth.

If the private sector is to accomplish these goals, we must fundamentally re-examine our priorities and objectives. We must do away with short-term thinking.

We should be investing over time horizons measured in decades, rather than fiscal quarters. We must stop the practice of extracting wealth without reinvesting for growth. We should be strategically building domestic industries and manufacturing to support healthy, vibrant national economies and grow intra-African trade.

We want to get beyond the current aid paradigm, moving forward into the 21st century with bold initiatives which blur the lines between development and private sector engagement. We believe that this approach will ultimately make a greater, more lasting contribution to Africa’s development.

Economic prosperity is the most valuable and lasting legacy we can offer Africa – and Africapitalism should be the objective of all development projects.

 



By Tony Elumelu
Tony Elumelu is chairman of Heirs Holdings, an investment firm with portfolios across Africa.

Published on September 28, 2014 [ Vol 15 ,No 752]


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