Aid and debt relief won't help Africa

Aid and debt relief won't help Africa, head of pro-business think tank says:
Cash just encourages waste and corruption

June 14, 2005

Joanne Laucius
Ottawa Citizen

Sending billions in aid to Africa is like pouring water "into leaky bowls," says the head of an African pro-market think-tank.

"It is laughable to assume that just writing off poor country debts will stop the inefficiency and corruption," said Franklin Cudjoe, head of Ghana-based Imami, who argues that aid bolsters corrupt governments. Forgiving debts just frees up more money for inefficient pet projects aimed at political popularity, he maintains.

Mr. Cudjoe says he has been accused of being "a stooge for colonial masters." But he's not alone in arguing that aid and debt reduction will not lift Africa out of poverty.

On June 28, he will join more than a dozen economists and academics at a London development summit that takes aim at "rock star economics."

"Think that Live 8 and the Lennon and McCartney of global development will eradicate poverty? No, nor do we," reads the online ad for the conference, sponsored by the London-based International Policy Network, which calls itself a "development charity."

Speakers at the summit will include Andrei Illarionov, Russian President Vladmir Putin's chief economic adviser.

Other speakers will include Martin Wolf, economics commentator at the Financial Times of London, and Leon Louw, the executive director of South Africa's Free Market Foundation, who has been nominated three times for the Nobel Peace Prize.

On Saturday, foreign ministers from G8 countries, including Canada, agreed to write off more than $40 billion of debt owed by the world's poorest nations. However, some G8 members have been hesitant to follow up with a British proposal to boost international development aid by $50 billion a year.

Yesterday, Frank McKenna, Canada's ambassador to the U.S., told a group of Associated Press reporters he admired the British commitment to fighting poverty, but added: "There are some people worried about the capacity of Africa to absorb that sort of levels of aid contemplated."

Many have argued that aid and debt forgiveness cannot provide a simple answer for Africa's complex problems. A few weeks ago, the European financial weekly, The Business, slammed Sir Bob Geldof and the British government for "advocating policies that will perpetuate rather than cure the desperate poverty plaguing Africa."

Mr. Cudjoe argues that assistance policies should promote trade both inside and outside Africa.

He points to one example in the textile industry in his native Ghana, where the government has imposed tariffs and taken legal action against businesses that import cheaper Chinese textiles routed through neighbouring Togo. The textile importers, meanwhile, have argued that they employ more people than the manufacturers the tariffs are supposed to protect.

The Free Market Foundation has argued that bringing down trade barriers is the most important thing wealthy nations can do for Africa.

The G8 nations should allow poor countries access to their markets where they have a comparative advantage, said the South African-based policy research group.

For example, the U.S. subsidizes 25,000 of its cotton farmers, who are paid twice the world market price for cotton. That threatens the livelihoods of about 10 million West Africans, according to the Free Market Foundation.

Last week, the International Policy Network released a report by Swedish economist Fredrik Erixon that argued aid has "crowded out private sector investments, undermined democracy, and enabled despots to continue with oppressive policies, perpetuating poverty.

"It would be more sensible to scale back levels of aid, provide aid only to governments that are already reforming, and make aid available for a strictly limited period of time," said the report. "Other reforms, such as removing trade barriers and eliminating trade-distorting agricultural subsidies, would yield far more benefits than increasing aid."

Meanwhile, in both Britain and the U.S., observers have suggested that the debt forgiveness package for Africa offers leverage for these kinds of reforms.

In Britain, The Times of London noted that the African deal gives British Prime Minister Tony Blair both the moral high ground and a some "excellent weapons."

"In demanding that Europe now reform the bloated Common Agricultural Policy, they can argue that Africa is damaged by European subsidies, which deprive it of the markets it needs," noted the Times.

In the U.S., President George W. Bush yesterday praised the presidents of Botswana, Ghana, Mozambique, Namibia and Niger, who appeared with him.

Mr. Bush said a jump in trade with Africa last year is due to a pact that offers duty-free treatment on some goods and other trade benefits to 37 of the 48 nations in sub-Saharan Africa.

The pact also requires participating countries to show they are making progress toward a market-based economy, the rule of law, free trade, the protection of workers' rights and policies that will reduce poverty.

"That's how you spread wealth," Mr. Bush said. "That's how you encourage hope and opportunity."