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Business — the best way to help Africa?

I’ve had a heart for Africa for some time.  One of our World Vision sponsor children is from Kenya.  We’ve been writing Dennis for 10 years and I’ve been able to visit with him three times on mission trips there.  My wife and I are planning to go to Kenya on another mission trip in 2010 (this will be her first trip, so we’re excited about that).  We’ve found very effective ministries there and seen firsthand how far money goes in helping the poorest of the poor and how the hospital we support provides excellent care to people who would otherwise have none.

But even though I have no intention of backing off our personal commitments there, I agreed with the findings of The Business of Africa (Forbes.com).  If you aren’t careful with charitable endeavors you can do more harm than good.  Of course you want to help people today, but without good foresight and wisdom you may be hurting countless people tomorrow.  The Law of Unintended Consequences can be brutal.  In many areas these good intentions have just institutionalized poverty. 

I encourage you to read the whole thing, but here are some snippets:

$2 trillion (in today’s dollars) has been transferred from rich countries to poor ones over 50 years, with most of that going to Africa. The U.S. has spent $300 billion on Africa since 1970. The result: GDP per capita in Moyo’s home country of Zambia is under $500, less than it was in 1960. The most heavily aid-dependent countries, she writes, have negative or flat annual growth over the last 30 years. Moyo proposes that Africa be weaned off all aid in five years so that its economies can fend for themselves.

They propose that the U.S. government make direct loans to businesses and then direct the repayments of principal to host governments for use in building roads, electric grids, schools and the like. This was how the Marshall Plan rebuilt Europe after the war.

There are 1.4 billion people living on less than $500 a year–what the World Bank classifies as extreme poverty. It would cost $700 billion to double their incomes, assuming that all of that money would even get to the recipients. At $1,000 a year, the recipients would still be poor, and we’d have spent seven times the world’s current aid budget (and given the state of the global economy, richer nations are more likely to cut back at the moment).

In the original Marshall Plan, which cost just $115 billion in today’s dollars, the U.S. gathered all of the willing European nations and set up country-specific Economic Cooperation Administrations. These councils were granted money by the U.S. and operated as development banks. They loaned money to businesses that met with the board’s approval. Each ECA was made up of appointed business leaders from the U.S. and Europe. As the loans were paid back, the money was turned over to the government, which then used the money to build highways, phone lines and a regulatory apparatus for the business community.

Of course, a lot of African leaders will oppose the plan or refuse to go along. The original Marshall Plan offered assistance to the Soviet Union and Eastern bloc countries, but they declined. In the case of Africa, regimes have been propped up by the abundance of aid flows.

“To some leaders the system isn’t broken,” Duggan says. “They get their cut of the aid dollars, the big house, the Mercedes and the trips to Europe, so what’s the problem?”

Moyo writes about an African manufacturer of mosquito nets being put out of business by a charitable antimalaria campaign that gave away nets for free. Hubbard says that there will always be a need for charity and a human drive to give food and money to those who lack them. He’d like to see charity look more in Africa the way it does in America, where charities give to the poor but aren’t the first or only solution.

I encourage people to give generously and with discernment while at the same time promoting government policies that will have real and lasting differences to countless people.