Meghnad Desai: Why Africa does not need a new Marshall Plan

Africa does need help, but it does not need a massive amount of money thrown at it
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The Independent Online

When Bob Geldof decided earlier last year to relaunch his song for the Ethiopian Famine of 1984 for Christmas 2004, he could not have imagined that on Boxing Day 2004 a tsunami would strike Asia. What is he now to do? Organise another big concert and raise more money? Would he then have to repeat that exercise 20 years on when another earthquake/tsunami/ famine strikes? Is there no end to this treadmill of giving and giving?

When Bob Geldof decided earlier last year to relaunch his song for the Ethiopian Famine of 1984 for Christmas 2004, he could not have imagined that on Boxing Day 2004 a tsunami would strike Asia. What is he now to do? Organise another big concert and raise more money? Would he then have to repeat that exercise 20 years on when another earthquake/tsunami/ famine strikes? Is there no end to this treadmill of giving and giving?

Gordon Brown has an answer to such queries. He has a threefold initiative on debt, trade and aid which he takes to Africa on a trip tomorrow. Trade is straightforward as Brown wants the Doha round of World Trade Organisation talks to be completed. This means the rich countries have to deliver on their promise of cutting export subsidies which wreck the rural economies of the poor countries. But debt and aid are more complex.

Debt forgiveness is vital since the money given in debt servicing by the poorest countries is not only a diversion of funds from other uses but is a hopeless gesture since the debt is unlikely to be ever fully paid. In the private sector, cancelling bad debt is a normal practice. The debts that developing countries owed to commercial banks got sorted out in a variety of ways a decade ago. Some were cancelled, others paid back at a fraction of their nominal values, some swapped for various resources.

But governments are meaner and often have no provision in their laws for debt forgiveness. Forgiving debt is a cheap option for us and good for the poor countries. The money we receive for debt service means little to us but is a large burden for them. Not collecting debt charges is a nice way of letting money stay in the poor countries.

This is not to say it will be easy. Some fear that once debt is forgiven, the countries would either borrow irresponsibly again or put lenders off, as they have no record of repayment. I believe both these fears should be dismissed. When a bad debt exists, it is as much the lender's fault as the borrower's. To collect debt charges and then give aid is a daft double act.

But there are other resource flows, which can be reversed. Capital outflows from Africa have never been estimated fully, but they are large. Funds have been stashed abroad by Africa's political leaders and rich professionals often recycling the international aid given to their countries. Some of this money should be encouraged to flow back.

Here Africa has a lot to learn from Asia. India succeeded after the reforms launched by Manmohan Singh in giving incentives for the money abroad held by Indians to be channelled back through legal means. Africa's diaspora should also be encouraged to invest just as the Indian and Chinese diasporas are doing.

But Gordon Brown also wants to launch a massive rise in aid - a new Marshall Plan for Africa. I have to confess to a sense of cynical boredom when anyone mentions the Marshall Plan. It is a grandiose gesture, but it is neither necessary nor desirable. Africa does need help, but it does not need a massive amount of money thrown at it. Both the debt and the capital outflow problems show that Africa has had money in the past but has either not used it properly (hence the problem of debt repayment) or misused it for the private benefit of the few, not the many (hence the capital outflow). I doubt, in any case, that the rich countries, especially those that cannot forgive debt that hardly matters to them, are willing to dole out twice as much as they now give.

What is more important is to attract private foreign capital. In the globalised world we live in, these private flows exceed official aid by a ratio of four to one. Africa has yet to benefit from this.

Here again, Asia's experience will help. Thirty years ago, Africa was better off than Asia. Now the tide has been reversed. But it has been done by following smart policies on education, land reform, health, tax collection and incentives for industries to be export oriented.

Even when aid is useful, it is best channelled via NGOs which know the grassroots and can monitor the use to which the money is put. I have proposed, during a House of Lords debate, that the best way to aid the poor would be to give money directly to them rather than their agents or representatives. The $50bn of foreign aid the world gives barely reaches the 1 billion poor living on less than $1 a day. If a way could be found to give the money directly to them, $1 a week to each poor person will give nearly a 15 per cent boost to their incomes. It was tried in Mozambique and was successful. The poor who received the cheques cashed them and used them carefully.

When faced with the problems of the poor, it is often easy to suggest a massive response. But this is a mark of our impatience. Problems of poverty will be solved by the poor themselves if the rich do not stand in their way. These are both the local rich who siphon off their money or the rich countries who cheat in trade matters. We should be patient and do all we can to stop being a hindrance to the poor. Debt forgiveness is one such step. Trade liberalisation is another. Let us hope Gordon Brown can persuade the rich and mean G8 to take at least these two small steps. Though somehow, I doubt that he will succeed.

The author is director of the Centre for Global Governance at the London School of Economics

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