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Tony Elumelu

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Getting Paid, Not Aid: A Call to Revamp Aid in Africa

Posted: 09/23/2013 10:53 am

President Clinton has said, "No country can work itself out of poverty with aid alone." Indeed, throughout Africa, we have seen first-hand how the international community's traditional approach to solving the continent's problems through charity and aid has fallen short. While such support has undoubtedly done much good for millions across the continent by delivering food security, health care, emergency relief and education, the results have not been sustainable.

Such "free money" can actually be counterproductive, by crowding out vital private-sector solutions. Private enterprises cannot compete with highly subsidized capital, and the net result is that charity often provides a short-term fix at the expense of a long-term solution.

For example, it has been shown that the greater the level of foreign aid that is spent on health care, the less that recipient countries spend themselves. Diseases such as malaria and polio were not eradicated in the developed world through charity. Such health victories were achieved because the average working person could afford to go to the doctor, and because there were functioning health insurance markets and profitable pharmaceutical industries around to develop and manufacture vaccines.

Countries across the continent need to create the right environment -- political, economic and social -- to build self-sufficiency and move beyond the aid trap. "Charity" and "development" should never be conflated.

How can we increase resilience and reduce reliance across Africa for future generations? Through a development approach that I call "Africapitalism" -- an economic philosophy arguing that the African private sector has the power to transform the continent through long-term investments, creating both economic prosperity and social wealth.

Africapitalism is also a call-to-action for Africans to take responsibility for our own development -- and for the international community to evolve their thinking about how best to channel their efforts and investments in the region. We must keep the following tenets in mind as we work to create a future where increased social good and economic expansion across the continent go hand-in-hand.

Doing Well And Doing Good

Harnessing the power of the private sector to drive economic development is the most effective way to sustainably create wealth and resources in local economies. Philanthropists, nonprofits and non-governmental organizations alike can and should play a role in this by leveraging their resources to create meaningful and long-lasting change through and with the private sector.

Take water, for example - a vital yet scarce resource in much of Africa. A charity might pay to construct a new well, but if no one has a stake in it, or responsibility for maintaining it, it will just as quickly fall into disrepair and disuse. If that donation were structured as a for-profit, micro-utility, it would create incentives and resources to maintain it -- improving its sustainability and long-term impact.

At Heirs Holdings, we believe that investments should not only generate financial returns, but should also generate social wealth - we call it "doing well" and "doing good". Our recent $300 million investment in a power plant in Nigeria to generate 1,200 megawatts of electricity is an example of a long-term investment that can bring development to Africa. Through this investment, we intend to not only create value for our partners but also ensure the benefits of access to electricity are felt by everyone.

Building Strong Local Businesses

Home-grown businesses such as United Bank for Africa, the pan-African banking group, and MTN, Africa's largest mobile operator, fly in the face of the common misconception that developing economies are "aid dependent" and cannot possibly have the resources to support commercial enterprises.

Business heavyweights like Aliko Dangote and Mike Adenuga in Nigeria, Reginald Mengi in Tanzania and Patrice Motsepe in South Africa are reinvesting in domestic industries that support the basic needs of African people. They are creating tens of thousands of jobs, impacting individuals, families and entire communities.

Of course one of the main ingredients of a strong local business is a strong local workforce. While Nigeria has seen encouraging economic growth, its high youth unemployment rate and skills gap may ultimately hinder the nation's ability to compete unless we address this now. Looking to confront this challenge through Africapitalism rather than aid, the Tony Elumelu Foundation made a commitment last year through the Clinton Global Initiative to advance a technical and vocational training curriculum in Lagos, to address this skills gap. This is the kind of solution I'd like to see more of -- one that takes into account both the current market needs and the community's interests.

Use Subsidies To Reduce Risk, Not Self-Sufficiency

Private investors are willing to take on the risks of building these kinds of businesses, but are often wary of bearing the full financial brunt in emerging regions. Philanthropic dollars can help in many ways, from co-investing with the private sector, to partially subsidizing operations until businesses can achieve profitability and sustainability or subsidizing management training to help businesses gain the specific skill sets they need for growth.

This is the approach we advocate for and practice at The Tony Elumelu Foundation and at Heirs Holdings. It's an approach embraced by change agents such as SNV Netherlands Development Corporation, which recognizes the difficulty that small and medium enterprises have with securing capital in the developing world. I'm pleased to see that through CGI, SNV is investing $9 million to connect early-stage enterprises in Africa and beyond with impact investors.

Rethink The Way We Define Results

If the private sector is to accomplish these goals, we must fundamentally re-examine our priorities and objectives. We must do away with short-term thinking. We should be investing over time horizons measured in decades, rather than fiscal quarters. We must stop the practice of extracting wealth without reinvesting for growth. We should be strategically building domestic industries and manufacturing to support healthy, vibrant national economies and grow intra-African trade.

We want to get beyond the current aid paradigm, moving forward into the 21st century with bold initiatives which blur the lines between development and private sector engagement. We believe that this approach will ultimately make a greater, more lasting contribution to Africa's development. Economic prosperity is the most valuable and lasting legacy we can offer Africa - and Africapitalism should be the objective of all development projects.


This post is part of a series produced by The Huffington Post and the Clinton Global Initiative in conjunction with the latter's ninth Annual Meeting (September 23-26 in New York City). This week, President Bill Clinton, former Secretary of State Hillary Rodham Clinton, and Chelsea Clinton convene more than 1,000 global leaders under the Annual Meeting's theme for 2013 - Mobilizing for Impact - to advance solutions to some of the world's most pressing challenges. For more information on the Annual Meeting, click here. To see all of the posts by CGI mobilizers in the series, click here.

 

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