Aid to Africa in jeopardy?
In late September, just as the Wall Street crash began spreading worldwide, African leaders used a high-level meeting of the United Nations General Assembly to urge donors to live up to their earlier pledges that they would significantly increase their financial assistance to Africa.
Despite many of the rich donor countries promising that they would, Kenyan Prime Minister Raila Odinga voiced the concern of many of his fellow leaders. “We fear,” he said, “that as the economies of our main donor partners are affected, the first victim is going to be aid.”
His concerns were bluntly reinforced by French Foreign Minister Bernard Kouchner.
“Promising to get people more money for development? This is not true. We are lying,” he reportedly said in late September.
A month later, a French NGO, the Comité catholique contre la faim et pour le développement-Terre Solidaire (CCFD), warned that French officials were thinking of cutting aid by more than half in 2009. Later, in a meeting with CCFD and other French charities, Alain Joyandet, Secretary of State for Cooperation, denied there would be such drastic cuts and vowed that most of France’s health and education projects in sub-Saharan Africa would be maintained.
On the eve of an international conference on “financing for development” in Doha, Qatar, from November 29 to December 2, UN Secretary General Ban Ki-moon noted: “The vast sums committed to bailing out banks and private companies dwarf ODA [official development assistance]. Surely we can find the much more modest amounts needed to sustain more than a billion lives.” At the conference, donor countries again promised that they would increase their assistance to the poorest countries.
Nevertheless, African leaders remain fearful, and some parts of the continent are already seeing less money coming in because of the global downturn. In the past five years, migrant remittances—the money sent home by Africans working overseas—have shown a healthy growth of 15% or more a year. Now stories can be heard in a number of African countries, such as Senegal and Kenya, that suggest less money is being sent back home.
In 2007, Kenyans sent about $1,3-billion home from overseas, more than the country normally gets in foreign aid. But in August, these remittances were already 38% lower than during the same month the year before. With between 750 000 and one million Kenyans working in the United States, and another 200 000 in the United Kingdom, rising unemployment in those economies will make it even harder to send money to relatives back home.
In France, many African migrant labourers work in construction. But some industry executives predicted in October that as many as 180 000 building jobs may be lost in that country. This would badly affect the lives of people back home in Algeria, Morocco and Tunisia.
Commercial credit has also become scarcer—and more costly. Across Africa, governments and local companies have been gearing up to build and improve roads, railways, ports and other infrastructure vital for the continent’s development. While some funds have been from public sources, bigger projects have typically needed some commercial borrowing as well.
When the South African government wants to build a new toll road or buy railway engines, notes Tom Boardman, CEO of Nedbank, it usually goes to US or Japanese banks. “Now,” he explains, “these international banks aren’t lending anymore, so I’m not sure South Africa will be able to get all the funding it needs.”
South African officials are determined to continue their ambitious plans to build its infrastructure—in part to help the domestic economy. They say they will look to raise more finance from local banks than before. But the international “credit crunch” means that all borrowing will be more expensive and this will add to the amount of debt that South Africa and other countries will have to take on.
As a percentage of global foreign direct investment (FDI), Africa’s 3% share is the lowest in the world. But in absolute terms, its value is very significant to Africa, and has been rising sharply. According to the UN Conference on Trade and Development (Unctad), Africa’s inflows of FDI jumped from about $18-billion in 2003/04 to $53-billion in 2007, its highest level ever.
Much of this surge was a result of the commodities boom, Unctad notes in its World Investment Report 2008, released in September. Oil producers, which traditionally receive most new foreign investments in Africa, still got the most. But, emphasises Unctad, other countries also attracted investors to their financial services and telecommunications sectors, new mining projects and, to a lesser extent, manufacturing. Africa’s least developed countries accounted for more than $10-billion of FDI inflows in 2007.
A number of African analysts worry that the global crisis could reduce these investments. Work on new mining projects in a number of countries has already been delayed. Mozambique’s Foreign Minister, Oldemiro Baloi, says that a global recession could lead foreign investment to his country to “dry up”.
On the bright side, however, Africa has some advantages. According to Unctad, the rates of return on foreign investments in the continent were the highest of any developing region in 2006 and 2007. By improving their policies and investment climate, a number of governments have also succeeded in countering common investor perceptions that Africa is a poor gamble because of its political insecurity, high rates of disease and limited infrastructure.
With the prospects in many of the world’s more advanced “emerging markets” now increasingly volatile and uncertain, some investors are starting to look at Africa in a new light, analysts report. Africa no longer seems such a risky bet. United Nations Africa Renewal
Ernest Harsch is the managing editor for United Nations Africa Renewal magazine. Please email your comments to [email protected]