Africa is the contemporary economist’s delight.
Western observers are still studying their own societies to determine how development came about and why economies developed the way they did in one place and not in the other. Africa, much of which is still in the pre-agrarian revolution stage is therefore a useful place not only to experiment but also try out one model or the other of development.
Last week Nobel prize winning economist Joseph Stiglitz was in town to talk about market failures in respect of the current global financial crisis. We also had former US President Bill Clinton in town, on a trip which took him through South Africa and Rwanda.
In his talk Stiglitz warned against unregulated markets. Using events that led up to the global financial crisis, the professor said by making the mistake of allowing the financial markets to regulate themselves the balance between greed and social benefits was lost in favour of the former with society paying the price in lost jobs, watering away of social safety nets and general uncertainty.
Going also by the liberalization of financial markets in the developing world he said the left to their own devices banks would finance consumption and real estate speculation of more long term development projects, like agriculture, which create jobs and have wider reaching societal benefits.
On Thursday former Clinton was in Rwanda to launch the Mt Meru SOYCO – a partnership between Tanzanian based Mt Meru Millers, Rwanda and the Bill Clinton Foundation, a project that will produce and process up to 30,000 tons of seed oil for local consumption and export, provide ready market for 30,000 local farmers and provide employment to 1,400 on the nuclear farm and factory.
Mt Meru Millers already have operations in Lira where in the last four years they have helped increased soya bean production tenfold to 30,000 tons a year currently.
During a trip to Rwanda earlier this year i saw the initial stages of their poverty eradication plan in action. The plan involves helping small farmers pool their land and labour to produce large scale for the market. If executed to even just half of expectations could easily see Rwanda becoming the regional bread basket in under a decade.
The government’s role in the plan is to provide the strategic inputs like infrastructure and legal framework. In the case of Mt Meru’s project the government has provided 30,000 hectares, ferterliser, subsidized seeds, farmer training, roads and made electricity available to the project and the required fiscal incentives.
The initial government input may seem relatively large but viewed over years of the project’s life the benefits in terms of increased production and improvements in the welfare of the participating communities, more than pays for itself.
The reason Uganda and most of Africa is in the pre-agricultural revolution stage is because of its failure to bring improved farming methods enhanced by entrepreneurship to bear on the land. That is why despite more than 80% of the population in Uganda deriving a livelihood from agriculture it accounts for less than 40% of economic output and the sector only manages single digit growth annually. And that is why the rural areas have not been the major beneficiary of the economic growth of the last two decades.
Given our deficiencies in technology and finance makes a good case for public-private partnerships. To ensure the widescale effort we need to transform rural production, government is the only credible partner large scale investors can partner with as Rwanda is demonstrating. Government can make land available, construct roads or other transport infrastructure to target areas and provide tax relief.
Government’s goal is a social one to improve the welfare of its citizens, business driven by the profit motive, the trick is to align these goals in order to ensure sustainability of such projects. Without regulation profit will supersede the social motive resulting in exploitation of labour, super profits and pollution. If the social motive on the other hand takes precedence production will suffer and the enterprise will buried under the weight of its losses or government will spend billions subsidizing it, which monies could have been used in providing social services or building roads.
Stiglitz and Clinton know a thing or two about creating economic growth. Stiglitz served on Clinton’s Council of Economic Advisors for four years from 1993 the last two of which he chaired the council.
The two would therefore take part of the credit for the economic boom in their country that started in the Clinton era before coming to shuddering halt four years ago with the beginning of the current global financial crisis.
Some would say they laid the seeds of the crisis too but that maybe a discussion for another day