Wednesday, Jul. 08, 2009

Cutting Off a Continent?

As the sun sets over the tiny village of Djeguenina in southeastern Mali, two women stand while pounding corn to cook for dinner near a smoldering fire outside the mud dwellings. Seated nearby, the village chief describes the grueling life of the community's 250 people, who subsist largely by selling firewood by the roadside. "People are sick, we have no school, there is no work," Chegoudou Diakité says. "Life is extremely hard."

No politician has ever visited Diakité's village; probably none has ever heard of it. Yet when world leaders gather in Italy on July 8-10 for a Group of Eight (G-8) summit, the problems of this dot on the map, and countless others in Africa, will likely be the subject of intense debate. At a previous G-8 summit in 2005, member nations vowed to boost aid to Africa by nearly $22 billion over five years in a bid to finally end grinding poverty and chronic disease by tightly coordinating work on problems such as education, water and major epidemics. At the time it seemed like a workable plan. But amid the deepest recession in decades in each G-8 country — the U.S., Britain, France, Italy, Germany, Russia, Canada and Japan (with the European Union as an observer member) — big-ticket promises to Africa have become increasingly difficult to keep. Four years since their commitment, the G-8 nations have spent only $7 billion. While Britain and the U.S. have increased aid to Africa, and Japan and Canada have given more than they promised, two members have virtually abandoned the program: Italy, this year's rotating G-8 head, has given a miniscule 3% of its commitment, and France has given 7%, according to a report by ONE, a London-based organization founded by singer Bono, which tracks G-8 aid to Africa.

The summit has other urgent issues on the table, of course, such as climate change and the global financial crisis, which the G-8 chairman, Italian Prime Minister Silvio Berlusconi, recently said was a priority. But as the club of rich nations struggles to be taken seriously (many argue the G-20 more accurately reflects the distribution of economic power in the world today), unkept promises to Africa will matter — especially since the recession has fueled discussions and doubts about whether big aid programs are really worth their high cost. In the current climate, officials for African aid organizations say they fear programs could be hit even harder next year as wealthy nations try to regain control of budgets bloated by financial-system bailouts and economic-stimulus packages. Oxfam estimates the global recession could cut more than $8 billion from the total five-year, $50 billion commitment by G-8 countries made in 2005.

Further cuts in assistance could be disastrous for Africa, which has just begun to feel the effects of the global crisis after a decade in which much of the continent saw solid economic growth. That growth is being threatened by a plunge in demand for Africa's oil, copper, gold, platinum, diamonds and other natural riches, which has driven prices back to 2005 levels. The International Monetary Fund (IMF) predicted in April that sub-Saharan Africa's overall annual growth rate would drop from about 5.5% last year to about 1.5% this year. That's still much better than the contraction that most rich countries will see. But it is below the 3% rate at which Africa's population expands each year, and so could potentially turn the recession into a major crisis — even a deadly one. The World Bank, whose president Robert Zoellick in April warned of a potential "human catastrophe" in Africa as a result of the recession, estimates that an additional 700,000 African children could die of disease and malnutrition for each year that the downturn lasts. "We think of recessions in the West as temporary, where people lose jobs and perhaps houses," says Shantayanan Devarajan, World Bank chief economist for Africa. "When the economy picks up they will get new jobs and new houses. But in Africa, when there is a slowdown, people can be forced to take children out of school, or infants can die."

Africa's exceptional vulnerability to economic cycles is something activists were hoping could be reduced with a concerted effort by the world's wealthy countries. The continent requires a giant infusion of money — far more than rich governments will fund — in order to build bridges, roads, electricity grids and ports, which Africa desperately needs to increase its exports and expand trade. Some of those needs have been filled not from G-8 aid, but by China, which has cut huge infrastructure deals across Africa in exchange for rights to minerals and oil. There are still gaping holes, however. Overhauling Africa's infrastructure could cost $1 trillion over the next decade, according to Vivien Foster, a World Bank expert. Progress is being made. Investors sunk about $30.6 billion into sub-Saharan Africa last year. And despite the slowdown, foreign investment is still set to increase about 16.8% this year, according to the Organization for Economic Cooperation and Development.

Far more is needed. Africa accounted for a miniscule 1.7% of foreign investment worldwide in 2007, according to U.N. statistics. And as global credit has dried up and investors have run scared, scores of projects have stalled or been canceled across the continent, according to the World Bank's International Finance Corporation. Arcelor Mittal, for example, has frozen a $1.5 billion project in Liberia to build rail and port facilities in exchange for iron ore, because the company has not been able to find financing, according to Steven Radelet, senior fellow at the Center for Global Development in Washington, D.C. Similarly, a $3.3 billion Chinese project to build cement plants in Nigeria has stalled, as has a Chinese project in the Democratic Republic of Congo to build infrastructure in exchange for minerals, due to financing restrictions faced by African governments. "Investors look at Africa and think this isn't the time to do anything even slightly risky," says Radelet.

There is a certain irony to this perception, considering the fact that developing Africa is in many ways a more promising place to do business right now than the recession-wracked developed world. At the World Economic Forum for Africa in Cape Town last month, executives said they earn far higher profits in Africa than elsewhere, in part because the inability of most African countries to raise funds on capital markets has shielded them from the full blast of the global credit crisis. "There is a huge amount of energy and potential for growth in Africa," says Graham Mackay, CEO for multinational brewer SABMiller, adding that of the company's 10 newest plants, the four in Africa are the most profitable. "It is not by any means doom and gloom."

That gulf in views about Africa — whether the continent is a rich business opportunity or a basket case needing handouts — underlies a controversy raging these days among aid officials and politicians: Is aid to Africa money well spent? In contrast to the disaster warnings from officials like Zoellick, some argue that nearly $1 trillion in Western aid to Africa during the past 50 years has left its leaders dependent and unmotivated to make changes necessary for sustainable economic progress. "African governments view aid as a permanent income flow, and rightfully so, since no one has ever said there is an exit date," says Zambian economist Dambisa Moyo, whose book Dead Aid, published earlier this year, argues that if Western assistance focused on emergencies, rather than development, African leaders would be forced to rebuild their shaky economic foundations. Steps that ought to be taken include streamlining cumbersome bureaucracies (it takes months to start a business in many African countries) and cracking down on corruption, which the African Union estimates costs the continent about $150 billion a year. By daring to question Africa's worthiness, Moyo has ignited a firestorm of debate among African and Western officials, some of whom have long blamed shortcomings on Africa's lack of clout in organizations like the IMF and the G-8. African leaders are far from blameless, says Rwanda's President Paul Kagame, whose country has received billions in Western aid. He wrote in the Financial Times in May that aid has made Africans "unstable, distracted and more dependent." Moyo agrees. "If Africa knew there was a time when aid would stop, it would jump-start them into making changes," she says. "Somebody has to pull the trigger."

Don't expect to hear that firing gun at the G-8 summit in Italy, though. Aid activists say they will vigorously protest the group's failure to meet its target for additional aid funds. And G-8 leaders, including U.S. President Barack Obama — who plans to fly to Ghana from the summit — say they intend to maintain aid levels, despite the recession. Indeed, such support remains crucial in many parts of Africa — and will probably remain so for many years. For Diakité, the chief in Mali, funds from industrialized countries can mean the difference between survival or death for some people in his village, who rely upon donations of nutritional supplements and mosquito netting. And that is no small consideration when rich leaders sit down to calculate their responsibility to the world's poorest people.

— with reporting by Alex Perry / Cape Town