When is £60 Billion in Aid a bad Investment?

By William Babigumira (June 2007)

Last week, the G8 group of leaders, once again, agreed in principle to provide £60 Billion to poor African countries mainly to fight Tuberculosis, HIV and Malaria. The world watched as Bono and Bob Geldoff pilloried World Leaders, decrying their indifference and at worst their inability to meet previously promised targets, largely meant to fight the same diseases.
The basic premise of the G8s promises is the "poverty alleviation principle" not the "poverty eradication principle". Ironically, it will only serve to fuel and aggravate the distortions that Aid has introduced into the complex development equation.

Interestingly, in your article, you quoted Jeffrey Sachs book, "The End of Poverty". Prof. Sachs advocates for an "increase" and not a "decrease" in Aid to Africa. I quote Jeffrey Sachs website, " In 2005, total aid from the 22 richest countries to the world's developing countries was just $106 billion—a shortfall of $119 billion dollars from the 0.7% promise. On average, the world's richest countries provided just 0.33% of their GNP in official development assistance (ODA). The United States provided just 0.22%. " Prof. Sachs would rather have this money pumped into what I really see is a poverty alleviation framework. One meant to "reduce" human misery, and not to "eradicate" it. One meant to ease the production process at subsistence level; giving the peasant appropriate technology to enable him produce. Give a poor peasant a mosquito net, and you will have given him or her, the chance to live a more decent life. This, in my view, is a good effort but a rather misdirected one. Prof. Sachs also doesn't offer clear ways on how to dispense this Aid. It is well known that the current systems and conditionality's are insufficient for meaningful dispensation of Aid.
What is really at the root of Africa's decline? Why does Africa continue to shamefully lag behind the global growth average? Is it a high HIV prevalence rate? Or weak governments incapable of ensuring that income and wealth is evenly distributed among their citizens? Or a weak and uncompetitive private sector? Or Inadequate infrastructure? Or a combination of all the above?
What exactly is it? I sure do not have the answers to that, but I can sure tell you what it isn't. It isn't primarily HIV and TB and Malaria that explain the persistent economic decline. Which is why I pose the question!

Why spend £60 Billion to fight the famous three?

Is TB and HIV and Malaria the biggest known threat to the existence of emerging African economies? If the disease rates were as low as 1% to 2%, would Africa slowly and surely climb out of the quagmire of economic desperation? I see no clear linkage between a healthy population with no work to do and development. The argument that "free enterprise" will take care of things is a lame one at the moment, because even in healthier economies, strong able-bodied people still need various interventions to find work to do and the highest levels of subsidy do exist in these economies to prop up agricultural production (America spends an estimated US$ 1 billion every day in subsidies to farmers. It is estimated that if the EU dropped all agricultural subsidies, then only France and Spain would most likely find it viable to engage in Agriculture as a business).

Unfortunately, when an image of Africa is painted in the view of the western world, the lenses used only deploy tunnel vision; they see disease and desperation. These are symptoms of a rather more complex problem; Africa's Economic marginalization and exclusion from mainstream globalization. Western capitals are citadels of immensely wealthy and valuable global brands. The East (China mainly) has boldly assumed the role of workshop of the world and Africa remains the subservient and dutiful supplier of raw material for their factories.
I was in Rotterdam last week, on a mission funded by the CBI-Netherlands to find markets for some of our products. I had premium roasted Ugandan coffee samples which I presented to another Consultant based in the Netherlands. What emerged from further discussions with her was that the International Coffee trade is really a cartel (Mafia) of only 6 International multinationals. All the coffee traded and imported into the Netherlands is handled by one company. It is an upstream task to introduce branded coffee into these markets. Exclusionist tendencies are only growing stronger. The current WTO rules do not clearly state a position on cartel like behavior. It also does not cater for the free movement of "brands" from the poorer countries to the wealthier ones. If the current round of negotiations succeeds, God willing, a lawsuit by our bigger brothers (Brazil, or India) may introduce some changes, but this is along shot off. After a long week of hard work, we took time of to take a tour of the Rotterdam sea port. It is huge expanse of containers and cargo liners delivering consumer goods to the benelux and other affluent markets of the EU. I engaged the Consultant I was with in idle talk about Rotterdam and comparing it to other ports. He stated that Shanghai has overtaken Rotterdam in size. But this rather ironically does not, in a bit, worry the Dutch. Instead they see opportunities arising from this. The Dutch know that the next big business idea is environmental engineering. Someone will have to clean up China's excesses in environmental pollution, due to her excessive growth rates. The Dutch are very good at this and have a control on that niche market. China's economy will expand to double or tripple it size in the next 5 to 10 years, but alot of value locked up in the "innovation cycle" and "global brands", will remain in the West.

In fact, the current explosion of manufacturing industry in the East only makes any meaningful chances of Africa climbing out of poverty by adding value to her raw materials, grimmer. Why? Because for the last 20 years, prices of manufactures across the board have continued to decline. Furthermore, South East Asia can manufacture a cheap consumer item for less and less cost, as a fraction of the price of that manufactured item. This only compounds an already complex problem. Can African really compete by adding value to some of these raw materials? Can we sustainably produce manufactures which will compete and find their way in the affluent markets of the western world? I am beginning to have my doubts. But that said, I often choose to look at the glass as half full and not half empty. Africa will have to find alternative products to sell to the west, niche products or sectors which the wealthy are willing to pay for and not engage in producing for themselves. This is a debate for another day.

It is true that the divide between rich and poor has grown to its highest in the last 5 years. Globalization is revving to full blast, and indeed signs of anxiety are beginning to creep into the mainstream media. I quote the New York Times, "Prof. Summers's favorite statistic these days is that, since 1979, the share of pretax income going to the top 1 percent of American households has risen by 7 percentage points, to 16 percent. Over the same span, the share of income going to the bottom 80 percent has fallen by 7 percentage points. It's as if every household in that bottom 80 percent is writing a check for $7,000 every year and sending it to the top 1 percent. "
Well what Prof. Summers could tell the world is that every African literally writes a check worth many times more, to every family living in the Western world, mainly through leaked value? My point is that, funding Africa's health and social infrastructure is a welcome initiative in the short term, but we fail to see what the benefits will be in the long term.

What does healthcare really do for the economy? It ensures that the working citizen is in good shape so that he or she can show up for work as consistently as the production cycle demands that he or she show up. Workers in the western industrial complex are more akin to guinea pigs; kept healthy by well functioning health care systems, so that they can put more hours of productive work into the economy, to grow the private businesses they work for and in the end, to create wealth and prosperity for themselves.

So, if a set of poor governments were handed £60 Billion, what would they then wish to pay for? A healthcare system fully facilitated to the last stethoscope, which would only eliminate disease if the rate of treatment of disease by the system is higher than the rate of disease replenishment? I need to hear a better argument from the gurus here. Because, simply stated, whenever a TB or malaria patient is treated, given that nothing is done to change the sanitation and hygienic conditions in which he or she lives in, he gets re-infected only to show up again for re-treatment. Even if he or she were not re-infected, more out there have no adequate access anyway. It does not take rocket science to see what kind of strains this imposes on the system. To compound the situation even further, at a rather high expense, this desperate person is treated, but this person's contribution to GNI is near nil. The rather cold stark reality is that there is no economic rationale for treating this human being; cold and heartless it sounds, but true. HIV presents a different set of challenges but in the overall setting the argument remains the same. Antiretroviral treatment is effective if it keeps a working and productive person alive. This way, he or she doesn't suck the system dry, but rather replenishes it whenever he works, pays his taxes, innovates and consumes etc.

Mans right to a healthy lifestyle is not debatable, but so is his right to live sustainably and to work for that healthy existence. The problem is one more of the absence of work aimed at profitable economic outcomes than it is of the inability to profitably and competitively engage in meaningful economic activity. If work does exist, then it is largely confined to tending infertile fields of less than an acre in size, for agricultural production on a meager subsistence scale, totally detached from the global economic system.

African economies and healthcare systems are broken, not because they cannot absolutely cope with a diseased population or more so, not because they were designed that way; to fail miserably, but because the disease replenishment rate in LDCs is way higher than the system can cope with. This then requires that the doctor-to-patient rate be increased to very high levels, something an already anemic government cannot afford. Solutions to this problem lie largely in hygiene. I often see medical practitioners and experts argue for increased funding for medicines and infrastructure, but I less often hear any of them mention increases in funding sanitation and hygiene initiative. A countrys health budget is sure to fall, if commensurate investments are made in hygiene.

What am I really saying? The G8 should really think hard about developing the trade capacities of the peoples in these governments and to address infrastructure bottlenecks. £60 Billion is better spent building power dams, or investing in large mining concessions, or building strategic value-addition facilities and factories. When the correct policy responses are in place coupled with the correct infrastructure to facilitate free movement of persons and industrial products (across Africa), is in my view, when real development starts to happen. Most governments in sub-Saharan Africa more often than not, have the "correct" responses in place but lack the "appropriate infrastructure" to allow for catalytic economic growth. Vice-versa is also true.
When the Marshal plan was conceived and implemented, it served to bridge glaring gaps between existing factories and production centers and the market. Europeans workers had the skills to run these factories. Africa on the other hand requires a massive investment in skills and retraining. She lacks basic infrastructure and adequate production centers.

So, if I were asked where to put £60 Billion over the next 5 years, I surely would advocate for something other than lavishing TB, HIV and malaria eradication programs. Pouring tons of money into investments like public infrastructure; roads, railways, bridges, ports, storage warehouses and factories, is very similar to investing billions in a good healthcare infrastructure. So, why choose the latter at the expense of the former? For the both of them, the returns come years down the road.