Helping Africa to gain from globalisation

The Africa Commission set up by the Danish government will give a boost to African business life. The drivers are the young, better borrowing facilities and strengthened competitiveness

By Jeppe Villadsen

How can development aid help to stimulate stronger growth and create more jobs in Africa? To answer that question, the Danish government last year set up a commission consisting of 18 African and Danish heads of government, business leaders and development assistance experts.

Over the last 10 years Africa has enjoyed a growth boom, which has yielded double-digit growth rates in several countries. But it has been driven primarily by increases in raw material prices and has not resulted in many additional jobs. Meanwhile the population of the African continent is increasing at dizzying speed. Africa needs to create 10 to 15 million new jobs every year just to keep pace with the population growth, but is achieving only 8.5 million jobs per year.

In May 2009, after 14 months’ work, the commission proposed a set of five initiatives, each one designed to help stimulate growth and increase employment in Africa, especially among the young.

And the driving force for job creation is the business community.

”The private sector is the engine of growth. No country has ever achieved development through investments in the public sector alone,” said UN Deputy Secretary General and Africa Commission member Asha-Rose Migiro, when the commission presented its recommendations.

Or as the chairman of the commission, Danish Prime Minister Lars Løkke Rasmussen, remarked at the same occasion:

”The Commission has been set up to enable Africa to benefit from globalisation.”

He emphasised that growth in the private sector not only creates opportunities for African youth, it also provides the most effective means of combating poverty.

Almost two thirds of the African population today is under 25, a proportion that is expected to increase rapidly in the coming years. So future job prospects for this group could determine whether the young become a source of growth or social unrest.

Focus on the young
In addition to growth and Africa’s youth, the commission sees other focus areas in the role of women, education and climate change.

The commission’s recommendations are: to give small and medium sized companies easier access to loans; to strengthen the competitiveness of African countries through inclusion in a competitiveness index; to help young African entrepreneurs in getting started; to ease access to sustainable energy, especially in rural areas; and to give more young people post-primary education.

President of the African Development Bank and Africa Commission member Donald Kaberuka is extremely satisfied with the work of the commission.

”I believe that we have managed to convince the sceptics. We are not the first to call for development of the private sector, but we are the first to focus on the young in this endeavour, which is necessary when one considers how the African population is developing,” says Donald Kaberuka.

He continues:
”The Africa Commission is not about ’what we can do for Africa’. It is a joint Danish-African initiative on what we can do together – Denmark, African governments, the private sector in Africa, the European private sector etc. This will make it easier to implement the recommendations.”

Focus on the private sector
Mozambique’s president Luísa Dias Diogo also feels sure that the plans will be converted into real action.

”This is not just another report that will sit on a shelf gathering dust. I believe that it will be implemented, because it is very pragmatic. The theoretical basis is there of course, but we have given most emphasis to the solutions – the world is already crawling with analyses.”

Critics of the commission’s work are uneasy about the strong focus on the development of the private sector, which it is feared will happen at the expense of development aid’s traditional targets of poverty and improved cultivation of the land, where the majority of Africans earn their living. But Luísa Dias Diogo thinks that the criticism is built on a misunderstanding.

”I think this stems from the content of the report being insufficiently precise. The report states that the private sector is an engine for growth. But! The private sector doesn’t function in a vacuum,” she says, pointing to a number of examples from agricultural production where the public sector is involved through facilitating research, market analyses, seed supplies and the establishment of infrastructure for roads, water, energy and telecommunication.

”It is a misunderstanding to believe that our focus on the private sector means that the public sector is unimportant. Nothing will be taken from the resources we already use on education, agriculture etc. The public sector will still play the largest role in Africa, but alongside it there is an unoccupied space that needs to be filled,” insists Mozambique’s president.

Concerning the criticism of the commission’s initiatives that they neglect combating poverty, Denmark’s Minister for Development Ulla Tørnæs emphasises that it is not about economic growth at any price. Growth shall create jobs.

”We want to encourage economic growth that creates more and better jobs for both young men and women on equal terms. So the Africa Commission has for example focused on the value chains based on agriculture. Africa needs to export more goods of higher value, not unprocessed raw materials from agriculture, which is all too often the case today.”

”We must also remember that a sufficiently well-paid job is probably the most effective means of combating poverty. It enables the household budget to cover sending girls to school, to buy medicines, to buy a cooker that saves on fuel and so saves time for the women and girls. And that engenders self-esteem. Private sector development that creates employment is, to the best of my belief, the most sustainable way to stimulate development and tackle poverty,” says Ulla Tørnæs.

In May 2009, the Danish-led Africa Commission presented new strategies for improving international development cooperation in Africa. Members of the commission are here seen gathered for the first meeting in April 2008.
Photo: Scanpix.

’The money is coming’
The economic heavyweight of the five initiatives – a DKK 2.7 billion, (approx. EUR 363 million) African Guarantee Fund which will ease access to loans for smaller enterprises – will be established in partnership with the African Development Bank. The bank’s president, Donald Kaberuka, is not worried about the financing:

”A smaller proportion will be development aid, which is then combined with money from international financial institutions like ourselves, IFC (a division of the World Bank which makes loans to privately owned companies, Ed.) and others. We will also invite investors to put cash into the fund, which will be operated on market principles. So I am confident that we can raise the money. We have plenty of experience in financing and operating this type of fund.”

From the Danish side, DKK 200 million has been earmarked in 2009 in accordance with the commission’s recommendations. The support for Africa’s private sector will increase gradually up to 2014, when it will approach DKK 2 billion, (approx. EUR 269 million) – double what it is today.

Whether this money will be taken from other development aid areas was not clear, following the presentation of the recommendations. At the Africa Commission’s press conference Lars Løkke Rasmussen said:

”We are one of only five countries which assigns more than 0.8 per cent of GNP to development aid, and we intend to increase that percentage in the coming years. When I say that we will double our support of the private sector programmes, it is a clear signal on how the overall budget will be prioritised. But I cannot reveal today how big the total budget will be. It constitutes part of the forthcoming budget.”

’Absolutely the right approach’

Only Africa can solve the African continent’s problems – but the Africa Commission’s initiatives are a step in the right direction, according to a Kenyan entrepreneur. The Africa Commission’s recommendations are spot on. At least
if you ask a Kenyan entrepreneur, who knows the difficulties of running a business.

”It is absolutely the right approach, because we need better technical skills, and have to prioritise areas like energy, technology and education,” says Eva Muraya, the 41 year old founder of Color Creation, which has so far navigated the financial crisis without shedding any of its 100 employees.

”The private sector delivers sustainable solutions, not quick solutions. Development partners need to cooperate with
the private sector to create sustainable solutions, and not the kind of programmes we have seen in Africa for the last 50 years, where they are here for three years and when they leave, things fall apart,” says Eva Muraya. Her firm is involved in branding and consultancy for start-up companies.

”Engagement in combating poverty in Africa must be sincere, and development partners must support private sector initiatives that can help reach the 2015 goals. And there must be collaboration, and not what we have most often seen where the government, the development partners and the private sector all act independently.”

What are the biggest obstacles for people like yourself, who run companies in Kenya?

”Access to market information, access to loans and the opportunity to provide security for loans due to outdated, gender-discriminating inheritance rules. Another problem is state bureaucracy, which delays tax refunds and has caused major problems for newly established companies.”

Lack of jobs is one of the biggest problems Africa faces. How can jobs be created?

”I think that successful entrepreneurs will increasingly use their companies as
a means to try and improve conditions in local society. When company owners start asking themselves how they can help improve welfare in local society, I think that Africa will start finding its own solutions to the unemployment problem.”

”I think that the future looks bright for Kenyan entrepreneurs. We are seeing the emergence of a whole new group of business people who will begin to correct the existing imbalances.”

The same applies to corruption, which she sees as a major problem.

”The new generation wants to make things more global and transparent, and they understand that a simpler and more streamlined procedure will benefit everyone in the business community. We cannot cling to the past. Only Africa can solve Africa’s problems.”

Read more: http://www.africacommission.um.dk