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

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 morecaution about how aid is used. A recent paper by Nancy Birdsall points tothe difficulties of institutional development in poor countries, includingthose 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 lifeharder for Africa's small and medium-sized businesses by, for example,inflating wages and making governments less reliant on domestic revenue--andhence less accountable to taxpayers. She urges that donors systematicallymonitor such impacts in aid-dependent countries in order to ensure that theprivate sector is not impeded by aid flows. It is worthwhile to think aboutthis message in the context of the emphasis on the private sector.

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