Could a “Marshall Plan” spur economic development across Africa?

download.jpgThere is always that one nagging neighbor who never stops begging for anything and everything at any time and all times. Africa appears to be such a neighbor to Europe and with the growing illegal immigrants flowing to the EU, Germany seem to be leading its peers in devising a sustainable strategy to reverse the trend. Their new plan dabbed “Marshall Plan” for Africa seem to espouse the principles advocated by an old Chinese proverb which says; “Give a man a fish and he will eat for a day; teach a man to fish and he will eat for a lifetime.” 

Africa has been dependent on donor funding in the past decades to finance its key development projects in infrastructure, healthcare, education, agriculture among many others. The donation model has however been criticized by many economists and Africa is at the moment researching and experimenting on new sustainable models to finance its economic growth and development. Among the emerging models is the hyped social impact investing frenzy and the sprouting of social enterprise across the continent.

However, not much has been achieved on the social impact investing front across Africa so far. The model is pegged on the triple bottom line principle whereby impact investors invest in ventures that are creating social and environmental impact; while at the same time generating economic returns. With the obvious gap between high growth targets across the region and the impact investors most of whom are foreigners, not much inroad has been made as it would have been expected. Nevertheless, impact investing is picking up at a good pace; though there are still no successful exists yet to proof that the model has succeeded in Africa. This does not in any way discredit the potential social impact investing has in replacing donor funding as a sustainable development funding model.

As the impact investing model is taking root in Africa, Germany is mooting for another model to accelerate economic growth and development across the continent. The so called “Marshall Plan” for Africa, the model borrows from an economic recovery model first advanced in 1947 by George Marshall who was a US Army Chief of Staff in World War II. With the destruction in Europe resulting from the war, George Marshall drew motivation from humanitarian considerations and developed the Marshall Plan to fund economic recovery in Europe and create a bigger market for US goods and services. The first Marshall Plan was implemented between 1948 to 1952 and it fueled economic recovery and reconstruction in the European history.

In total about USD 12 billion was invested in the plan then; equivalent to about USD 120 billion today; and West Germany received a good share of about USD 1.4 billion then. Following the success of the first Marshall Plan, German Development Minister Gerd Müller is now advocating for a similar plan for Africa. The goal is to have Africans develop their economies and prefer to stay back at home in Africa compared to migrating to Europe and other developed economies in search of greener pastures. That the West is getting tired of Africa’s dependency syndrome could not be pronounced more diplomatically any louder than through a plan to keep Africans in their own continent.

Whether this model applied more than 6 decades ago will be applicable today in a different global economic ecosystem is the big question on the table. The motive behind the “Marshall Plan” for Africa could be questionable. Is it that Europe wants to recolonize Africa through the back door by funding and controlling all strategic development projects in the continent? On the other hand, are African political and business leaders ready and capable to receive huge amounts of funds and utilize the funds solely on the intended development projects without looting a huge chunk or all of it? Corruption is still a real challenge in most African states and trusting a few individuals with huge sums of funds might be a course of unrest instead of the intended development and peace.

The pertinent issue to consider is whether the governments in Africa have the capacity to utilize the funds effectively when dispersed.  In the past some countries have failed to utilize small grants from development finance institutions and pumping more money into the same lame system will make the problem worse. In 1997, the World Bank Group gave a grant of about USD 20 million to Kenya to run a voucher system to empower entrepreneurs in the cottage industry for 5 years. By the end of the 5 years, only USD 4 million had been invested in the programme and the government of Kenya wanted to return the balance. World Bank added five more years in order to allow the government of Kenya to reach out to more entrepreneurs who direly needed the financial support. However, after the second batch of five years only USD 3 million only had been invested and the government of Kenya had to return the remaining USD 13 million to the World Bank.

With lack of effective systems to invest grant money in development projects as in the case above, the need for more money from foreign development partners beats logic. However, all is not doom and gloom.

Where government fails, the private sector could do better. With the sole motivation of raking in as much returns as possible, the private sector could be a better allocator of resources to the most productive industries and sectors in the economy and hence drive economic growth and development across Africa. To realize better results from the “Marshall Plan” for Africa, Germany and its peers who might join in the mission should consider working closely with the private sector rather than engaging governments directly. This however runs the risk of creating monster monopolies if the funds are channeled to a few private sector players. It will therefore call for a very elaborate strategy to ensure that the funds trickle down to the grassroots; and they do not just end up with a small click of people in cities and towns who have specialized in writing proposals with no development track record on the ground to show.

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