Hamish McRae: The awakening of Asia shows that debt relief and aid are only half the answer in Africa

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What should the world try to do to help Africa? This weekend marks the start of the annual meetings of the International Monetary Fund and the World Bank in Washington. Ahead of them, the UK Department for International Development has called on the World Bank to rethink its approach to the conditions it attaches to its loans.

Hilary Benn, the Development Secretary, says: "There needs to be a much greater emphasis on increasing countries' independence on policy-making. There has been too much emphasis in the past on 'one size fits all' answers to economic reform issues like privatisation and trade liberalisation."

Now I don't think the World Bank will regard the views of one of the countries that sits on its board as any more important than those of the others. It adopted the British idea of the value of privatisation because the professionals on its staff reckoned such a policy was more likely to deliver efficient governance than the nationalised industries had been able to sustain - not because it was a British idea.

But the intervention is interesting as it reflects a wider frustration with the lack of effectiveness of some World Bank programmes and, more generally, the ineffectiveness of much foreign aid. This frustration has been well articulated by the pop star Bono, most recently in his speech at the Labour conference. He was thoughtful and sensible in his three main points: reform of Europe's Common Agricultural Policy, debt relief and greater help for Africa.

There is not much point in raising the CAP issue here. Reform is gradually starting to take place, but given the French position, radical change is at least a decade away, maybe longer. But on debt relief (and the role of the World Bank) and Africa there are things that can usefully be said.

There is a new book just out on the World Bank and its president, James Wolfensohn, by the British journalist Sebastian Mallaby. It is called The World's Banker and it is as much about the man as the institution. The thrust of the book's argument is that Mr Wolfensohn, hugely charming, hugely ambitious, has sought to broaden the bank's appeal and activities. But the revolutionary changes he forced on it meant a weakening of its discipline on making sure money was not wasted, while the involvement of non-governmental organisations, though fashionable, proved quite destructive to the interests of the poorest people the bank sought to help. Western-based activists with a particular political or environmental agenda often have different priorities to those of people on much lower incomes in the developing world.

On debt relief, however, Mr Wolfensohn has been on the side of the angels. There really is no point in pretending that countries which cannot possibly pay their debts are solvent and should be lent even more. Debt relief plus grants is the only honest way forward. The criticism seems to be that he expended too much energy on politically driven projects, rather than sticking to the detailed grind of persuading the complex web of debtors to find ways of lifting the burden.

That leads to the big issue on debt: why have official aid programmes, including those of the World Bank, had such disappointing results? It would be nice if the core of the problem was that the bank was too rigid in its lending, as Mr Benn suggests. But it is surely more complex than that. Besides, the bank is not nearly as important as it used to be, in relative terms, as a source of development capital. The UN Conference on Trade and Development has just published its annual report on international investment, and one of its most striking features is the relative decline in official flows. In 1990, these accounted for over half of the total of $100bn (around £55bn); now they are about 10 per cent of the $200bn of such flows - outstripped by private sector foreign direct investment.

The advantage of such investment is that the money is associated both with a transfer of technology and with access to developed-country markets. Companies invest in foreign plant and equipment. That brings in the know-how. They do so because they want to make products or develop services that they can sell through their own networks.

One has only to look at the economic progress of China and India over the past 15 years to see the results of such direct investment. Somewhat over half China's exports involve a foreign investor, with either a local plant or through some form of joint venture. The private sector, not the public one, is by far the most important driver of economic development today.

Except in Africa. Indeed, one of the most profoundly disappointing aspects of global economic development is its general failure to take hold in Africa.

The problem is deep-rooted. The graph alongside is drawn from a wonderful study of the past 1,000 years of economic development done by Angus Maddison. As you can see, 1,000 years ago the world had essentially the same level of per capita GDP. Then Western Europe, North America and Japan shot ahead, with, most recently, Asia starting to catch up.

The only region that has failed to make much headway is Africa, the little stump on the right-hand side of the bars. The awful truth is that some parts of sub-Saharan Africa are as poor today as they were at the time of William the Conqueror.

That surely is a separate problem from the more general ones of economic development in the rest of the world. Bono is helpful in focusing attention on it in a way that more general criticism of the World Bank is not. He wants more medical aid in particular and it is hard not to agree with that.

The Mallaby book is helpful too, for it looks at the problems of bad governance and of failed states, of which Africa has more than its fair share, and asks what might be done about those issues.

My own instinct is that the future of Africa will be fundamentally determined by Africans and not by the rest of the world. The achievements of the South African government have been quite considerable, given where it started from. And there are other pockets of progress.

But surely the big question arising from the experience of the past 15 years is what can Africa learn from the success of the two Asian giants? I would rather see British ministers focusing on that, than bringing out another "initiative" on policy at the World Bank.

At £3.6m, the Blairs may have got a bargain

My first thought when I read that the Prime Minister and his wife have paid £3.6m for a house just north of Hyde Park was that if ever there was a sign the market has peaked, this should it.

Given their ability to sell in Islington in 1997 just as that market was starting to soar, and buy flats in Bristol just as the price was topping out, paying what, even by London standards, is serious money for a Georgian terrace bodes ill.

But then it struck me that London is different. It is not just that it offers an international market in homes as well as in jobs, whereas the rest of the country is a national market. It is also that the housing market is going to be much more segmented generally in the future than it has been in the past.

Some people operate in a market of their own, of course. If a house has been owned by a celebrity, that adds 10 per cent to its value. A former Prime Minister ranks high in the celebrity stakes so, when Mr Blair eventually decides to move out of Connaught Square, he will be able to command a premium.

But the bigger point is the segmentation of the wider market. There have always been "good" areas and "bad" ones. There have always been areas that go up and those that go down. But a half-century of generally rising prices has meant that even bad buys become good ones. Inflation has saved people who bought the wrong house at the wrong time; they merely did not make as much as they might have hoped.

Things are going to be different now. General inflation has more or less disappeared. Real wages will grow more slowly. Taxes on home ownership seem likely to be raised. All this points to stability in house prices. On the other hand, there will be particular locations where there is huge and continuing demand - the areas where job creation races ahead or where transport links improve.

Central London, for all its faults, seems likely to retain its allure. It has long been top of the European business centres, and has just shot up the international rankings for quality of life - for reasons that I have not fully grasped. The job market at the top end remains strong. So maybe the Blairs have made rather a shrewd move after all.