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Investment in Africa: raising the debate

There was an interesting leader in The Times a few weeks ago (A New Dawn, 20 March 2012) arguing that Africa’s future prosperity depends on investment and therefore the Department for International Development (DfID) must change its mission away from aid.

It’s great to see a shift in the narrative about Africa, with recognition of the burgeoning growth across the continent.

Of course the private sector has an important role to play in improving prospects for the poorest people; creating decent jobs, investing in new technologies and sectors, making and distributing products and services that people value, and contributing to government revenues.

We all agree that inclusive growth has an important role to play in poverty reduction.

Responsible investment

I disagree, however, that encouraging investment – responsible investment – in Africa means a shift in DfID’s mission away from ‘aid’. DFID’s mandate is poverty reduction, as it should be.

First, there are many parts of the British government whose mandate is to support British companies in expanding their business investments overseas – BIS and the Export Credit Guarantees Department, for a start.

Second, there is extensive evidence that private sector investment does not automatically lead to poverty reduction. The World Bank’s own assessment of its private sector investments found that only one-third of the projects were designed to improve the employment situation of and market access for the poor.

It’s not enough to count jobs created and taxes paid by private sector investors in African countries and chalk this up to poverty reduction.

We need to ask questions such as what kinds of jobs were created?  For whom?  Where?  Were they decent jobs?  Did the poorest communities benefit?  Were the taxes paid fair and commensurate?

Supporting enterprise

Third, much of DFID’s work already strengthens and supports enterprise, and helps developing country governments to better harness the power of markets for development.  For example, DFID has supported the Rwandan government to better collect taxes, which has resulted in a nearly 40% increase in tax takings by the Rwandan Revenue Authority.

Finally, the proposal to make London a hub for African business dismisses the significant governance improvements made in so many countries across the African continent and goes against the basic principle of supporting domestic industry and keeping as much capital, investment, and expertise within African countries as possible.

The recent report from the Business Action for Africa group (The New Africa: Emerging Opportunities for Business and Africa) for example, recognises the important role that business plays in “helping to develop domestic industries through the transfer of skills and technology and by generating demand for extended supply chains.”

Check out our recent briefings showing Aid Works and the links between Aid, Growth and Trade.

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