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Guest Post on Aid to Enterprise by Herman K. Chinery-Hesse

I was asked to attend an event in London earlier this month to share my perspectives on aid in Africa and its role in poverty alleviation, Aid to Enterprise. As a Ghanaian businessman with real life experience of aid and the affect it has on local enterprise, I readily accepted the invitation. Let explain my reasoning.

Enterprise in Ghana is not encouraged by the government. Why? Because institutional aid is very profitable for select political individuals. They enjoy large kickbacks from ensuring the aid keeps flowing into my country. Unfortunately it comes with prerequisites – these include business deal approvals on public sector contracts. Even if a Ghanaian company produces a quality solution or product at a much, much lower price point than a Western equivalent, it’s unlikely the Ghanaian business will be in the running for the contract. I know this because I’ve been in that very situation.

As a local business you pitch for a public sector contract, receive positive feedback but then hear nothing for six months. You wonder why, but then you read in the newspaper that a foreign company has bid and won the contract at a price point around 50 times higher than what you offered to complete the deal for. Unfortunately, this is commonplace. Our government has to run all public sector procurement decisions past the aid organisations, as they control the flow of money into the country. Once alerted, these organisations approach suppliers in their home countries, who are then awarded the business. In this example a French company tendered for and won the contract, along with similar deals in several other African nations depriving them of the economic benefits as well. Ironically, the kickback the government official received from outsourcing the business to the Western company was around 20 times the price we quoted for the entire project.

The reality is that institutional aid is responsible for a rift between the political and business classes. They see us as an irritant and attempt to stifle enterprise with multiple tax audits or new financial regulations. The politicians don’t want the business class to create a local economy. This makes Ghanaian banks nervous about lending to Ghanaian businesses, as they know it’s unlikely they’ll be winning the bigger public sector contracts. It becomes a vicious circle and makes it very difficult for the local economy to prosper without taking extreme measures like we did with our new business.

We recently set up an e-commerce company allowing the general Ghanaian public to start exporting goods to the rest of the world it’s based on SMS and an online portal. However, we anticipated that the government would want to run all communications through a recently installed exchange. In order to counter this we registered the company in Panama, hosted the servers in Europe and built the SMS platform in Eastern Europe. As soon as we started publicising the new service and doing business we were contacted by the government who threatened to close us down. It soon realised that the company was beyond its jurisdiction and grudgingly retreated. But this isn’t how we want to operate.

Institutional aid has existed and been well publicised for decades, yet poverty still exists. All it does is allow governments to ignore their people. The long term solution for poverty alleviation in Africa is local enterprise: businesses building local economies that can then employ the population and create opportunities for future generations of Africans. It may sound cliched, but we want a business deal and a handshake, not a handout.

Earlier this month, Herman Chinery-Hesse spoke at an event in London entitled, From Aid to Enterprise: Economic Liberty and Solutions to Poverty, hosted by not-for-profit organisation, the Acton Institute. Listen to his presentation here.

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• Ghana: An African Success Story (bigthink.com)