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
