WILL MONEY SOLVE AFRICA’S DEVELOPMENT PROBLEMS?

“Ask a foolish question and you will get a foolish answer”. These words by Nobel Laureate Milton Freidman echoed in my mind as I read a piece in the African Executive (10/22/2007) under the banner “Will Money Solve Africa’s Development Problems?”
Few days later, the same question appeared in The Economist (October 27th) as an advertisement by the John Templeton Foundation. The African Executive’s piece gave snips of the conversations with eight (8) “leading Scientists and scholars” sponsored by the Templeton Foundation. Responses to the query were as follows: Five (NO); One definite (YES); Two are conditional. The full statements appear at the Foundation Web page.
The essays are quite short, and reflect as one might expect the background and or affiliation of the author. Whether the answer to the question can be put in the positive or negative column, the insight one gains from the response tell a great deal about the author’s own experience in the field of development. Without getting bogged down in the nitty-gritty of what is being said, let me focus on few issues highlighted in the essays.

First: The glaring indictment of “aid”. “Donner nations have spent billions of dollars for development schemes in post colonial Africa, yet there is little to show for this beyond dependency and corruption” (Edward Green); “After fifty years of trying and $600 billions worth of aid- giving, with close to zero rise in living standards in Africa, I can make the case for NO pretty decisively” (William Easterly); “Africa does not need aid from governments and international agencies” (James Tooley).

Second: Africa does not lack money or resources. “The problem in Africa has never been lack of money, but rather the inability to exploit the African Mind (HALALUWA) -- If money was key to solving the problems, banks would send agents in the streets to supply money to afflicted individuals” (They actually do, but this is another issue) (James Shikwati).
Third: Money does not create Wealth. “Big money to Africa – empowers bureaucracies, promotes statism, and weakens government incentives to increase tax revenues through economic growth” (Iqbal Z. Quadir).
True enough. If moneys treated as a consumption good — a pay off to corrupt politicians and institutions, it not only have a zero return to providers, but also waste precious resource by diverting them to conspicuous consumption which most often give rise to social and political unrest.
Let me turn briefly to the Friedman quote. Money can take a number of forms. It can be “fiat” money created by the Central Banks and governments This money creation, increasing the supply of domestic money does not add to resources, in effect it heats up an economy and destroys incentives and long term planning .Money In the Templeton Conversations obviously does not refer to a nation’s domestic supply. Think of it as outside money or more accurately a supply of real resources from countries other than the recipient countries. Put differently, the money affects a transfer of real resources from the donor’s country to the recipient country. The transfer of resources is the “wealth added”, it is the attributes of Money as an instrument for wealth creation.
The question then that needed to be posed at the outset is “In What Form Will IT BE GIVEN?” That is in the form of AID, or LOANS? Most of the conversations seem to revolve about money given in the form of aid. Easterly along with few others have questioned the values of foreign aid given by governments or international institutions. Others, notably Sachs, do not agree. Without getting bogged down into the nuances of this debate the appropriate question to ask perhaps should have been: “WHAT CONTRIBUTION AID WILL MAKE TO WARDS ECONOMIC DEVELOPMENT OF THE AFRICAN CONTINENT?” This question would have focused the discussion on the one aspect of development, namely economic growth and secondly gave respondents a way to assess based on their experiences the use to which aid resources were invested or dissipated. Conversations with scholars and practitioners should not leave the uninitiated with the feeling that all is lost that aid giving has no place in the arsenal against poverty and helplessness. Evaluating Aid relative to loans and foreign direct investment would have given the reader something to think in terms of the efficiency of instruments aimed at spurring economic development in the African continent.
If one were to think of economic development as an outcome to a process, then for every outcome or output there are inputs. Students in ECON 101 learned (hopefully) that to produce positive output requires certain levels of inputs — that output requires the combining of factors: labor, physical capital and know-how. Money given to a country in the form of aid simply adds to these factors if took the form of physical capital or know-how. So how the resource is given matter and not by whom it is given or by whom it is received. One need not forget that Aid add to resources without the requirement that a positive rate of return must be secured in the short or immediate run whereas loans and direct foreign investment require expectation of returns sufficiently high to both service the debt and in the case of foreign investment an after risk positive return. It is unquestionably true that augmenting a country’s resources through foreign aid, as long as not all of it was dissipated through remittances made by corrupt governments to their accounts outside the country, will increase the national output and employment. Let us not forget that economic development requires marshalling of resources, especially capital and know how. Irrespective of how corrupt are government and institutions in an African country the mere exposure to “FRESH AIR” called it the global economy improves its chances for economic development.

One needs to remember in conversation like the one initiated by the Templeton Foundation that DEVELOPMENT is multifaceted, not only economics but social , cultural and political also. To address African development problems let us first enumerate these problems and sort out those that our existing repertoire of knowledge can solve and those that require investment to acquire new knowledge. Second, it may be useful to prioritize developments objectives. Some form of ranking will help in assessing the efficiency of allocation in relation to expectations. In some cases investing extra resources has a measured outcome (access to clean water by every household), in other cases such as returns to good governance or ethnic tolerance may not have ones

The Templeton Foundation has embarked on a mission that hopefully will foster an understanding and not only the dialogue between citizens in the NORTH and the SOUTH. Expanding the base of knowledge is a conduit for problem solving. People and their knowledge matter. Through knowledge wealth is created. Access to knowledge is a prerequisite for not only creating wealth but for knowing how best to use it.

A final remark: It is gratifying to see in some of the responses to the Templeton Foundation question that the resource most in need of development in Africa is the “MIND” (see “Africa development needs development of the mind beyond the University’s border” at http://attiatott.blogspot.com/, March 22, 2007). Mr Quadir puts it best: “The time has come for us to stop pouring billions of dollars into bureaucracies. Instead we must cultivate the billion brains in Africa”.

How to develop the African’ mind? To that end The Institute for Economic Policy Studies will host a conference with the collaboration of the University of Botswana (at the University of Botswana in August 2008). The conference theme: “Developing a Continent: Who is in Charge?” Details will be posted at the Institute web site and by contacting Professor Lecha at the University of Botswana.