What we can learn from Africa.
If you suspect life is unfair, Oxfam just gave you the numbers to back it up. In a recently published report, the anti-poverty charity presented a staggering statistic: the world’s 85 richest individuals now own around $1.7 trillion, which is as much as the poorest half of the world’s population of 7 billion. In fact, the 1 percent richest people in the world own $110 trillion, which is 60 times the wealth of the poorest 3.5 billion people.
The Oxfam report came as a chilling reminder of the depth of economic inequality today, which only serves to undercut democracy in the developed world whilst exacerbating corruption in developing nations. The report argues that this is no accident, as the wealthy elites have co-opted the political process to rig the rules of the economic system in their favor. It’s the super rich who enjoy the privilege of lower tax rates, the best health and education services, and just better life opportunities in general. So with the world’s wealth concentrated in the hands of so few, how can we begin to tackle poverty? Is it possible to invest in order to alleviate this gross inequality and align the opportunities for the rich and poor alike?
Aid to Africa
From a global perspective, wealthy nations provide help to lesser privileged countries through aid. As a continent, Africa receives the lion’s share, close to 39 percent, of the total global aid. World donors have provided the African nation over $470 billion of aid over the last decade, including $51 billion over each of the last three years. Most of this aid was directed towards the social sector (45 percent), followed by the economic infrastructure (15 percent), and the rest split between production sectors, general programs, debt, humanitarian, and other needs. This reflected the commitments made by the world’s major aid donors especially towards Sub-Saharan Africa’s least developed and resource-poor countries. The question remains whether this investment was worthwhile to help address the problem of poverty and spur the nation into sustainable growth.
At a first glance, there are positive signs. Africa’s economy is now worth $380 billion, which is more than double of what it was in 2000, whilst enjoying a burgeoning and fast-growing South-South trade and investment flow (there’s over $170 billion of trade with China alone). The continent expects continued investment inflows with improvements in macroeconomic stability and revenues across multiple sectors—$2.6 trillion is expected by 2020 across the resources, agriculture, consumer, and infrastructure sectors. Currently over half of all Africans are under 20 years, and they will grow to be the world’s largest workforce by 2035. This rapid emergence of a middle class amongst the continent’s 1 billion-population would make consumption a major driver of the economic growth of Africa.
Good fortune, however, isn’t equally distributed. Take the distribution of mobile phones, for example. They’re owned by 71 percent of Nigerians, 62 percent of Botswanians, and more than 50 percent of both Ghanaians and Kenyans. But only 2 percent of Ethiopians have them. In fact the African Development Bank is projecting that one-third of all Africans will still be living in extreme poverty by 2060, as they survive on less than $1.25 a day.
Investing Fast and Slow
The enigma remains on where the $1 trillion of development-related aid given over the past 60 years has permeated, whilst infrastructure remains missing. For instance, the Democratic Republic of Congo has a 3,100 km of paved roads, whereas France—a country which is roughly four times smaller—has a 1 million km network.
The skeptics claim that aid is to blame. Rather than increase development and freedom, aid has in fact created dependence and instability. As such, the budgets of Ghana and Uganda are more than 50 percent aid dependent, while Ethiopia’s budget consists of 90 percent aid. Corruption has also run rampant with widespread embezzlement charges of foreign donations. Aid has inadvertently made the poor poorer, increasing the risk of civil conflict while burdening the African countries with more debt, making them more prone to inflation and the vagaries of the currency markets.
Few will deny there’s a clear moral imperative for a “fast” investment in aid to quickly fix issues caused by natural disasters, such as Typhoon Haiyan that devastated the Philippines late last year. Quick investments were necessary to alleviate the hardships of families of the 6,000 killed by the disaster and provide aid to the 3.6 million displaced.
However, where aid falls short is in “slow” investments that address issues of poverty and income inequality. Thus, African GDP growth remained stagnant at its decade average of 5 percent, which is less than the 7 percent needed to achieve the United Nations Millennium Development Goals of reducing poverty, child mortality, and improving education. It seems that the more aid poured into Africa, the lower its standard of living. For instance GDP per capita of the developing countries in Sub-Saharan Africa decreased by over 75 percent over the last decade.
Thus, in reality, the aid flows given to help the average African had ended up supporting bloated bureaucracies in the form of poor-country governments, and donor-funded non-governmental organizations. It remains dubious how Africa suffers from a poverty trap considering the missing billions of export earnings from oil, gas, diamonds, and other minerals that are not openly accounted for. Even the World Bank estimates that nearly 40 percent of Africa’s aggregate wealth has fled to foreign bank accounts, whilst 50 percent of Sub-Saharan Africans—over 350 million people—remain living on less than a dollar a day.
Mind before Money
Poverty can be defined as a pronounced deprivation in well-being, which includes a lack of education, healthcare, and opportunities to name but a few. It’s obvious we need more than money to address this problem, rather than throw coins in the hands of the poor to relieve our feelings of guilt.
Late last year, Paul C. Godfrey, Professor of Strategy and Associate Academic Director of the Melvin J. Ballard Center for Economic Self-Reliance, published a book called More than Money that addressed this exact issue. In his book, Godfrey states that poverty is not inevitable, and that organizations can develop a framework that creates prosperity for people at the base of the pyramid in the developing and developed world alike. This framework consists of an interconnection of five types of interrelated capital, namely institutional, human, social, organizational, and physical capital in order to enable the development of an ecosystem with sustainable growth. In turn, institutional capital consists of the large social structures; human capital is the knowledge and skills; social capital is the family and friends network; organizational capital is the collective social endeavors that harness cooperation; whereas physical capital is the tangible financial resources.
It just remains to be said that money isn’t the end of the means, but rather the means to an end. Money can be intelligently invested to establish a meaningful framework that can equate the opportunities for the rich and poor alike. It’s this income disparity that the World Economic Forum has placed as the number one global risk in terms of likelihood for 2012, 2013, and now for 2014. Income disparity risks breaking down our own societal fabric that was built 2.5 million years ago because we mistrust the organizations that imparts power and wealth in the hands of a few. So next time you give to charity, ask yourself whether you’re feeding a man a fish for merely a day, or whether you are contributing towards teaching the man how to fish in order to feed himself and his family for years to come.