Trade not aid will meet Africa's challenges

By Alan Patricof

Financial Times

Published: March 3 2005

Reducing Africa's dependence on aid requires building the foundation of a functional private sector.

Travelling in Nigeria or Mozambique, it is striking how much raw entrepreneurial capacity Africans have. In environments that would prove too challenging for most MBAs, Africans, many with poor education, have figured out how to create distribution channels for millions of dollars worth of pharmaceuticals, how to import machines from India to create small-scale manufacturing facilities for local markets and how to build processing plants to add value to agricultural exports.

With help from rich countries in building up the support system for small and medium enterprises - including reforming the business environment, increasing access to financing and enhancing managerial capacity and business knowledge - these enterprises could grow rapidly and provide the employment, the efficient products and services and the tax revenues to support sustainable, non-aid dependent economies in Africa. Furthermore, these enterprises could be critical local partners in producing, distributing and supporting the vast increase in products and services necessary to reach the United Nation's Millennium Development Goals.

Therefore, a priority of the forthcoming discussions on Africa, including the Group of Eight summit sponsored by the UK in July, should be the development of the local framework of a functional private sector, especially one that supports small enterprises and local entrepreneurs. So far, the pronouncements from the Commission for Africa established by Tony Blair, the UK prime minister - including supporting better governments, reducing trade barriers, investing in science and technology capacity, reducing the brain drain by increasing local opportunities, investing in infrastructure and even providing loan financing for small businesses and micro-enterprises - indicate that the discussion is headed in the right direction.

But the Africa Commission and the G8 have an opportunity to go a step further with some proposals recognising the hurdles to be overcome to gain private sector involvement. These initiatives should include creating a pool of semi-permanent capital for investment in African businesses that does not have to be serviced or amortised regularly from the start. Equity capital for growing small businesses is not available today in Africa; only loans are. Donors and governments need to create new instruments, through providing funds or some sort of guarantee, that will be used to mobilise private capital. Technical assistance is also critical and must be available in parallel with capital.

In addition, multinationals must see that it is in their long-term interest to make available knowhow on a pro bono basis. Accelerating the development process will create new markets and more efficient local partners for these large companies. But if necessary, incentives have to be given to companies to make this happen.

There should be an immediate effort to get high school and college students introduced to specific business skills. They need an opportunity to put their skills to work through entrepreneurial endeavours after they graduate. Today, even those who get an education face a lack of job opportunities.

Another proposal that should be considered is the creation of an international business Peace Corps for mature business talent, built on existing programmes such as the long-running International Executive Service Corps. This would encourage exchanges and apprenticeship programmes between managers and entrepreneurs in the developed and developing countries.

Ultimately, African governments must be leading partners in the process, encouraging business development rather than frustrating the efforts of entrepreneurs.

None of this will be easy or cheap to implement but it is time for massive private sector involvement in providing "trade not aid" to meet the challenges of the developing world.

The impetus to take action began with the International Conference on Financing for Development in Monterey, Mexico, in 2002. The Africa Commission should bring the discussion period to a close. The world must then follow through at the G8 meeting with a plan of action designed to put words into effect.

The writer is co-founder of Apax Partners. He was vice-chairman of the commission on capital flows to Africa and a member of the United Nations Development Programme
commission on the private sector and development