Despite initial predictions to the contrary, the world's least developed countries, and foremost among them the countries of Africa, have found themselves on the front line of the economic crisis. Sharp decreases in investment flows, remittances, export demand, export credits and commodity prices have reduced opportunities and pushed millions of people back into poverty. And while several countries, including Germany, France and Japan, already seem to be back on the road to recovery, the direct and indirect effects of the crisis are likely to be felt in Africa for quite some time, particularly so because the continent remains structurally ill-prepared to take advantage of any potential global upswing.
While the business climate in Africa has improved substantially over the past decade, particularly when it comes to commercial law, the cost of doing business on the continent is still the highest in the world. Entrepreneurs in Africa continue to face greater regulatory and administrative burdens, and have less protection of property and investor rights than entrepreneurs in any other region. They also continue to struggle with inadequate infrastructure, which in many areas of the continent restricts their entrepreneurial potential to a bare minimum.
The lack of sufficient and reliable transport, energy and communications infrastructure not only reduces business efficiency, it also limits the volume of regional and international trade and hampers regional integration. For most countries in Africa, the negative impact of deficient infrastructure, particularly in densely populated areas, is at least as large as that associated with crime, red tape, corruption and financial market constraints. The potential economic, social and political benefits of infrastructure improvements are therefore enormous. In fact, evidence has shown that such improvements have contributed substantially more to African per capita growth over the past decade than structural policies.
Infrastructure challenge
Unfortunately, the economic crisis has made it more difficult to address the infrastructure challenge. Several large-scale projects have already been cancelled as investors decided to withdraw from the economic periphery to perceived safety in the West. Previous crises have also shown that infrastructure is among the expenditure categories cut most severely by governments under financial stress. Such responses come at great developmental cost as subsequent rehabilitation of facilities is exponentially more costly than regular maintenance, while inadequate infrastructure slows economic recovery and poverty reduction.
When the International Monetary Fund (IMF) and the World Bank meet in Istanbul this month, the global economic downturn and the impact it has had on the world's poorest countries and people will be on top of the agenda. Over the past few months, the true scale of this impact has become increasingly apparent and so has the need for a concerted response by the African governments, their international partners and the business community. Luckily, there is an emerging consensus on what needs to be done.
The prime responsibility to protect their people from the impact of the economic crisis clearly rests with African leaders themselves. They face the challenge of articulating and asserting Africa's needs and agenda on the global stage, creating favourable conditions for entrepreneurship and foreign investment that creates jobs and disseminates skills as well as fostering projects in key sectors such as infrastructure, sustainable agriculture and renewable energy. However, they cannot do it alone.
The international community has both a moral responsibility as well as a vital self-interest in supporting Africa's leaders at this time of crisis. It has a moral responsibility because, even though just as with climate change Africans are the least responsible for the economic upheaval, they are arguably suffering more severely than most. It has a vital self-interest because, once unleashed, Africa's vast economic potential, particularly in the areas of infrastructure, sustainable agriculture and renewable energy, could drive the continent's development and contribute to global recovery by increasing market sizes and opening up new opportunities.
Over the past months, many sensible measures have been proposed and taken by the World Bank and the IMF, including the issuance of Special Drawing Rights to countries such as Ethiopia and South Africa, in order to help Africa's leaders ward off the dangers of economic decoupling and developmental derailment. The efforts to replenish the African Development Fund managed by the African Development Bank are particularly welcome, and should be encouraged as part of a broader effort to increase African ownership of and say in global financial institutions. However welcome though, additional resources and reforms of international governance mechanisms are not all that is needed. They must be complemented by a clear commitment to tackle both the global and structural dimension of Africa's problems.
Facing up to responsibilities
The global dimension is clear enough. Africa is heavily disadvantaged in the current global economy through a variety of biased trade rules, bloated subsidy regimes, and other forms of market distortion that restrain its economic potential. Here the Executive Committees of the IMF and the World Bank need to fulfil their responsibilities to regulate the global economy in a way that benefits all.
The structural dimension is directly related to issues such as the lack of infrastructure and can only be tackled with the help of the private sector, including banks ready to finance vital projects. Both the IMF and the World Bank have an important role to play in increasing investor confidence in Africa. With media coverage sadly often giving the impression that the entire continent is inextricably enmeshed in conflict, these organisations need to do more to encourage a more differentiated view of Africa's 53 countries. At the same time, both organisations should expand their risk alleviation and guarantee programmes in order to increase the incentives for private sector investment in the continent.
However, business has much more to contribute than just urgently needed investments. It can also add social value. At a minimum, this means doing no harm, paying taxes, not partnering in corruption and implementing codes of good practice, including the Extractive Industries Transparency Initiative. But more is possible. Business can partner with authorities and civil society to strengthen access to products, achieve specific development outcomes, and ensure that progressive standards are implemented. After all, healthy, educated and connected people are essential for market growth and political stability, and thus in businesses' very own interest.
We know what needs to be done. What is needed now is not rhetoric but concrete plans to overcome the structural inhibitions to Africa's development and foster investment in its many opportunities.
Kofi Annan is chair of the Africa Progress Panel and former secretary-general of the UN
