Poor diagnoses and wrong prescriptions for Africa

The  G8 concluded their meeting in Heiligendamm, in 2007 in  Germany by pledging $60 billion to combat Aids, TB and malaria.

The G8 also renewed their commitment made two years ago to increase other aid to Africa by $50 billion a year by 2010. This was another lost opportunity by the developed countries to address the problems of Africa.

Borrowing from Jeffrey Sachs in his book The End of Poverty in the chapter, "Clinical economics" he argues that the problem of the Bretton Wood Institutions with Africa is that they make a poor diagnosis and as a result give wrong prescriptions.

The G8 continues to make a wrong diagnosis of the problems of Africa, hence prescribe the wrong medicine by increasing aid. The problem of Africa is not aid.

If aid was a solution to Africa's problem, with the amount of aid the developed nations have pumped into Africa (Africa receives an annual aid flow of $13 billion), African countries would be developed by now.

When Europe was in an economic recess after the World War II, it was not helped by mere aid but by the Marshall Plan which was a comprehensive economic development package meant to ensure Europe's economic stability and strategic security in the postwar era.

Before the plan was passed, the US Congress set up a bipartisan committee led by Christian Herter which made a crucial trip to Europe to study the problem and report back. George Marshall under whom the plan was named was the US Secretary for the Treasury during President Truman's administration. What the US did through the Congressional committee above was to use Jeffrey Sachs words a clinical economic diagnosis of the economic problems of Europe at the time. This is what the G8 leaders are lacking in trying to help Africa.

With aid, unless it is targeted at promoting investment and trade, nothing will come of it. Africa will not develop because of aid. Instead, Africa needs value addition to its raw materials and end the inequitable relationship with the West by selling raw materials.

Africa should stop selling coffee beans but sell roasted or instant coffee, stop selling lint but instead sell finished garments, stop selling tobacco leaves but sell cigarettes, stop selling cocoa but sell chocolate, stop selling crude oil but sell oil products, etc.

For a long time the West took a protectionist approach by denying finished goods from Africa entry into their markets. A finished good from Africa would be charged a high tax compared to a raw material.

The idea was to discourage finished goods from Africa and the Third World at large.

When you add value to raw materials and sell them as finished goods, you gain two advantages. Firstly, a finished good fetches more than a raw material.

For example a  kilo of lint cotton fetches one US dollar while if you turn that same lint into a garment, you earn about $10. For every one kilo of lint exported from Africa, we loose Nine US dollars.

With increased earnings from finished goods, farmers could earn more and would be guaranteed a steady market. When farmers' incomes increase, then they can spend on social services like education, health, sanitation and consumption, leading to industries selling more because of a high purchasing power. Secondly, value addition creates employment in the local economy.

On the other hand selling raw materials creates jobs in the countries that import our raw materials. So, if the world bank, IMF or G8 are  to do anything to help Africa, they  should, among others, encourage companies in the West to invest in Africa and promote trade in finished goods between Africa and the West.