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Has the G-8 Got It Right At Last? The Communique on Africa from Heiligendamm

June 15, 2007

This time it is different. The G-8's statement on African development is focused largely on an often-neglected area--the private sector. Previous G-8 statements have focused mostly on aid to Africa and have immediately generated a large volume of commentary on whether or not funding levels from rich countries are adequate, reflect prior commitments, etc. This time around, the statement has a refreshing new tone--one that will hopefully change the course of discussion on the development dialogue between Africa and the rest of the world.

In particular, the G-8 statement focuses on some key issues for private sector development, including the need to develop infrastructure, reduce the regulatory burden, improve the functioning of financial markets, rule of law and enforcement of property rights. Research based on enterprise survey data shows that these are the very areas in need of real reform (see my CGD working paper with Benn Eifert and Alan Gelb on the business environment in Africa (pdf). The statement makes some crucial points--that it will support national and regional efforts, endorse and support the efforts of the Africa Peer Review Mechanism, and facilitate the transfer of appropriate technology from its member countries to Africa. Rather than attempt to drive the African agenda, the focus is on helping local, national and regional efforts in several areas, including the Dar-es-Salaam based Investment Climate Facility, which facilitates dialogue between government and the private sector in many African countries.

The message from the G-8 is clear and not unlike that of the often-heard slogan from Home Depot--"You can do it. We can help."

What is left out of the G-8 statement? It could, for example, urge more caution about how aid is used. A recent paper by Nancy Birdsall points to the difficulties of institutional development in poor countries, including those in Africa (see Do No Harm: Aid, Weak Institutions, and the Missing Middle in Africa). Birdsall argues that high and unpredictable aid flows can in fact make life harder for Africa's small and medium-sized businesses by, for example, inflating wages and making governments less reliant on domestic revenue--and hence less accountable to taxpayers. She urges that donors systematically monitor such impacts in aid-dependent countries in order to ensure that the private sector is not impeded by aid flows. It is worthwhile to think about this message in the context of the emphasis on the private sector.

Overall, we must encourage the new dialogue on African growth and its accompanying focus on the private sector. We must also understand how to engage effectively with the private sector itself--this includes small- and medium-sized firms, large corporations and foreign multinationals that invest in the region. Development in Africa is not just about levels of aid but how that aid can be used most effectively to generate growth that is sustainable in the long term. The G-8 statement is a good start.

Disclaimer

CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.

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