The Nation
Thursday, September 11, 2003

We should choose investment, not aid

We should choose investment, not aid


Seven months into the Narc Government, Britain's Secretary for International Development, Baroness Valerie Amos, came calling with a stern message: The Government should not make foreign aid a central component of its economic recovery programmes.

Instead, Baroness Amos advised the Government to develop sound economic policies to make Kenya attractive to investors. Only through more investment would Kenya succeed in combating the widespread poverty and achieve a higher standard of economic and human development.

Baroness Amos is the latest in a long succession of foreign dignitaries who have found it opportune to lecture Kenyans against becoming too dependent on foreign aid. Yet, the Government's appetite for foreign aid shows no sign of diminishing.

Similar advice was issued by the Aga Khan 21 years ago during the 25th anniversary of his accession to the Imamat of the Ismailia community.

Speaking to a distinguished gathering, including then President Moi, the Aga Khan emphasised the need to create a environment to enable business enterprises and people to achieve their full potential.

He described the "enabling environment" as a fusion of five elements:

Confidence in the future;
Legal systems which encourage enterprise and initiative;
Reliance on the rule of law;
Democratic institutions;
Protection of the rights of citizens.

Once in place, the five elements would encourage investment, which would, in turn, spur greater human development. In the process, the existence of an enabling environment would convince competent managers, doctors, engineers, teachers, nurses and other professionals to continue serving Kenya rather than migrating in search of better opportunities in other countries. The Aga Khan was visiting Nairobi scarcely two months after the devastation of the August 1, 1982, coup attempt. Investor confidence was at an all-time low following the unprecedented looting, destruction of property and loss of life.

Yet, it had been clear Kenya was rapidly becoming unattractive to investors even before the abortive coup.

Four years later, during the much-touted "Enabling Environment Conference", the Aga Khan was even more prophetic when he warned of an imminent brain drain.

Unless the Government urgently created such an environment, investors would shift to other countries. Ethical men and women would also despair and leave for better prospects elsewhere.

In their places, crooks, quacks and the corrupt would flourish and poverty would become more deeply entrenched. The massive brain drain that set in, particularly after 1990, and is still continuing, has confirmed the Aga Khan's fears, probably beyond his worst expectations.

Significantly, the brain drain got under way after a decade during which annual foreign aid inflows tripled. Inflows of foreign aid, or official development assistance, grew rapidly from $400 million in 1983 to $1,200 million in 1991 without making Kenyans any better off.

Significantly, as foreign aid was tripling, between 1983 and 1991, foreign direct investment was declining. Investors were actually leaving, contrary to the popular fallacy that foreign aid inflows also attract inward foreign direct investment.

Herein is a lesson for Kenya. Countries that are big on begging and receiving aid tend to be shunned by most investors. Characteristically, aid-receiving countries are perceived as poor, with undeveloped or poorly-developed markets and infrastructures.

In addition, they tend to be viewed as lacking appropriately skilled human resources. Otherwise, they would not be begging in the first place.

A significant aspect of Kenya's complex development challenges is that the thinking on foreign aid has remained static. Forty years ago, a newly-independent Kenya looked up to foreign aid as the way to achieve rapid economic and human development.

Forty years later, poverty continues to trap two thirds of Kenya's population, as illiteracy and disease stalk the land. Clearly, foreign aid has not been the panacea it has been held out to be.

Kenya can continue actively seeking foreign aid or seriously starting to create an attractive investment climate and aggressively marketing itself as the "Ideal Investment Location".

The author, a former Nation Business Editor, is a director of Mashariki Aviation.